The adoption of Vietnam’s New Bidding Law by the National Assembly has significant implications for investor selection in power and infrastructure projects. This law, which will come into effect on 1 January 2024, aims to address various issues in the bidding process. By introducing amendments to the Current Bidding Law, the New Bidding Law seeks to improve transparency, fairness, and efficiency in selecting investors for the implementation of projects in Vietnam. These changes have the potential to greatly impact the investment landscape and drive further development in the power and infrastructure sectors of the country.
In brief
The National Assembly of Vietnam officially adopted the new bidding law (“New Bidding Law”) on 23 June 2023. This law, which consists of 96 articles divided into 10 chapters, will take effect on 1 January 2024. Its purpose is to address various concerns in the selection process of investors for project implementation, including power and infrastructure projects, in Vietnam, by introducing amendments to the Current Bidding Law.
Key takeaways
The new Bidding Law introduces several noteworthy modifications, which can summary as follows:
– The extent to which the New Bidding Law must be adhered to when choosing investors for projects determines the scope of its application.
– Five significant additions to the New Bidding Law will influence the bidding process for investor selection in projects.
+ A fresh perspective on the applicability of international bidding.
+ Revised criteria for evaluating bids and selecting winning investors/
+ Enhanced regulations pertaining to the essential provisions listed in project contracts.
+ Additional requirements concerning contract performance security.
+ Revised conditions governing project transfers.
The applocation of the bidding mechanism to select investors in projects
The New Bidding Law will acknowledge previous investor selection outcomes and exempt the need to conduct a new bidding process for projects where investors were already selected before 1 January 2024. This takes effect on 1 January 2024. However, the New Bidding Law stipulates two scenarios in which bidding is mandatory for selecting investors in investment projects.
(1) Scenario 1: Land law and regulations require bidding for projects that use land.
The New Land Law draft of May 2023 requires bidding for projects involving the use of land, as outlined in scenario 1. Under the Current Land Law, there are no provisions regarding bidding requirements for allocating or leasing land to investors in land-using projects. However, the May 2023 draft of the New Land Law specifies two circumstances in which bidding is mandatory for selecting investors for land-using projects. If multiple investors express interest in implementing a power plant or power transmission grid project using state-owned land through land allocation or lease, bidding will be necessary for investor selection. Moreover, the New Bidding Law states that from 1 January 2024 until the New Land Law becomes effective, the Current Bidding Law and its associated guidelines will govern the investor selection process for land-using investment projects.
The New Bidding Law stipulates that during the period from 1 January 2024 until the effective date of the New Land Law, the selection of investors for land-using investment projects will follow the guidelines and regulations set forth in the Current Bidding Law.
(2) Scenario 2: Under the relevant specialized laws and regulations, projects require bidding for the selection of investors.
The current legal framework for the power sector does not mandate that investors in power projects must choose through a competitive mechanism like bidding. Currently, private power investment projects granted development rights according to the Investment Law and its guiding documents. Specifically, if an investment project requires approval of investment policies and there are multiple valid applications proposing the implementation of the projects in the same location, the current private investment legal framework necessitates bidding for investor selection. For projects that do not fall under the aforementioned requirement to bid for investor selection, the relevant state authorities have the discretion to decide whether to apply the New Bidding Law in order to select investors in power projects.
New contents of the New Bidding Law that will impact bidding to select investors of projects
(i) A new approach to the scope of application of international bidding
There are two types of bidding: domestic bidding and international bidding. Domestic bidding involves only bidders from within the country, while international bidding allows participation from investors outside the country.
The current Bidding Law governs the requirements for organizing international bidding. However, the New Bidding Law specifies a specific list of situations in which international bidding not permitted.
According to the New Bidding Law, international bidding can apply to all situations covered by the law, except for the following:
+ Initiatives in sectors where foreign investors encounter limitations under Vietnamese investment regulations.
+ Undertakings necessitating domestic tendering due to national defense, national security, social order, or safety prerequisites.
+ Foreign investors and Foreign Invested Enterprises (FIEs) must adhere to land and relevant regulations when executing ventures in land or sea areas with constraints on utilization.
+ Ventures with a total investment capital of under VND 800 billion (roughly USD 35 million).
Publicly declared initiatives that do not align with the above scenarios and have solicited expressions of interest.
Power transmission projects, for example, may fall within the scope of the first bullet point. In regards to power transmission, the government has a monopoly on this commercial service, which restricts market access for foreign investors. As a result, international bidding may not currently apply to the selection of investors for power transmission projects under the New Bidding Law. However, a foreign-invested enterprise (FIE) can still participate in domestic bidding for power transmission projects if it meets the investment conditions specified in Vietnamese regulations.
The Marine Spatial Planning (MSP) expected to regulate the limitation mentioned in point (3) among other factors, concerning offshore wind (OSW) power projects. This limitation may be due to national defense reasons. The finalized MSP will outline various sea zones in Vietnam, including areas under special protection, areas requiring prior approval from the Ministry of National Defense for use, and areas prioritized for OSW power development. The Ministry of National Defense can designate the specific sea areas where foreign investors and FIEs have limited use for OSW power development in the MSP or determine them on a case-by-case basis.
(ii) New criteria to assess bids and select winning investors
The evaluation of investors’ bids under the existing Bidding Law is based on three criteria: (1) capacity and experience, (2) technical expertise, and (3) financial capabilities. The selected investor or group of investors (referred to as the “Winning Investor”) must have a valid bid, meet the assessment criteria, and propose the most efficient project implementation plan.
Under the proposed New Bidding Law, there are additional criteria for evaluating bids and selecting the Winning Investor, known as the “Three Assessment Criteria”:
(1) Capacity assessment, which considers financial resources, ability to secure funding, and experience in similar projects.
(2) Project implementation plan assessment, which evaluates technical, social, and environmental factors.
(3) Efficiency assessment, focusing on the utilization of land and investment in specific sectors, industries, and regions.
The New Bidding Law also introduces a concept called “Fixed Criteria” for projects with specific requirements regarding investment, management, and sector development. The sectors to which the “Fixed Criteria” apply and the specific criteria themselves will be further detailed in implementing regulations. As an example, waste-to-power projects were mentioned during the drafting phase of the New Bidding Law. For such projects, the bidding invitation will specify the fixed criteria, and investors do not need to provide redundant information already covered by those fixed criteria.
To become the Winning Investor, the following conditions must be met:
(A) Having a valid bid.
(B) Satisfying the Three Assessment Criteria and the Fixed Criteria, with a score equal to or higher than the required minimum for each criterion.
(C) Achieving the highest total score among the Three Assessment Criteria.
(iii) New detailed regulations on the list of key provisions of project contracts
Once selected, the relevant state authorities require the Winning Investor to sign a project contract (“Project Contract”). The Project Contract must align with the invitation to bid and the bid that was submitted by the Winning Investor. In addition to this obligation, the New Bidding Law outlines six fundamental components that must be included in the Project Contract. It is worth noting that the Current Bidding Law does not govern the specific contents of the Project Contract.
(1) The contracting parties, the effective date, and the contract term provide information.
(2) The project provides information, including purposes, address, implementation schedule, scale and investment capital, conditions for use of land and other resources (if any), plan and requirements for land compensation, support, resettlement and construction of auxiliary works (if any), safety and environmental protection, force majeure events, and plans to deal with force majeure events.
(3) The responsibility lies in conducting procedures on land compensation, support, resettlement, and construction of auxiliary works (if any), as well as land allocation or lease (if any).
(4) The Winning Investor has the responsibility to meet commitments proposed in the bid and establish a project company to manage the project implementation (if any).
(5) Contract performance security, principles, and conditions for contract amendments and termination, as well as the transfer of contracting parties’ rights and obligations, are included.
(6) The governing law and dispute resolution methods are specified.
The above list does not encompass all provisions in a Project Contract. It allows for room for investors to negotiate with the relevant state authorities, provided that the additional provisions align with the invitation to bid and the bid submitted by the Winning Investor, among others.
(iv) New requirements of contract performance security
Before or at the effective date of the Project Contract, the Winning Investor is obligated to furnish contract performance security. Although the Current Bidding Law does not prescribe specific forms of security, the New Bidding Law mandates that the Winning Investor must provide one of the following forms:
(1) The relevant state authority must approve the transfer.
(2) The transferee must fulfill the requirements concerning technical and financial capabilities necessary to carry out the project.
(3) The transferee must undertake the responsibility of assuming all the rights and responsibilities of the Winning Investors as stated in the Project Contract.
Regarding bullet point (2) mentioned earlier, the New Bidding Law does not specify the exact requirements used by state authorities to evaluate the transferee’s technical and financial capacities. These requirements could encompass those previously applied to the transferor during the bidding process or additional conditions considered by the relevant authorities.
The expectation for the upcoming legal framework for investor selection for power projects
Recently, the relevant authorities have drafted a new decree on investor selection for power projects known as the “Draft New Decree.” This draft outlines the procedures for selecting investors to carry out power generation and grid projects. The scope of the Draft New Decree covers various types of power projects, including hydropower, thermal power, solar power, wind power, biomass power, geothermal, and other emerging energy sources for electricity production. It also encompasses power transmission lines, transformers, and auxiliary equipment for power transmission and distribution.
It is important to note that the Draft New Decree does not apply to power projects implemented through public-private partnership (PPP) arrangements or those utilizing public investment capital, official development assistance (ODA) capital, and concessional loans from foreign sponsors. Specifically, the Draft New Decree addresses several key issues, including:
(1) The power projects which require the selection of investors through a bidding procedure.
(2) The procedures for selecting investors in power projects.
(3) The criteria used to evaluate and select investors in power projects.
(4) The process of determining the tariff for a power project.
(5) The requirements that the Winning Investor must meet in order to transfer shares in the project company responsible for operating a power project.
Conclusion
The ongoing discussion surrounding the Draft New Decree involves several unresolved matters, such as determining the authority responsible for issuing the decree. However, the introduction of a new decree to guide the selection of investors for power projects has the potential to establish a comprehensive framework, especially for those projects that multiple investors have proposed simultaneously. This would provide clarity and facilitate a more streamlined process for investor selection, ultimately contributing to the overall development of the power sector.
HMLF is always available to offer assistance in understanding the procedures with authorities.
Harley Miller Law Firm “HMLF”
Head office: 14th floor, HM Town building, 412 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.
Phone number: +84 937215585
Website: hmlf.vn Email: miller@hmlf.vn
