Assessment of the Implementation of Bot Contract Law in Road Transport Projects in Vietnam

Investors with real financial capacity to invest in infrastructure projects, reducing pressure on the State budget. However, after only a short time in life, the PPP Law is being "made difficult" by a number of provisions in Decree 28/2021/ND-CP providing detailed guidance on the financial management mechanism of investment projects under the public-private partnership method.

Up to this point, the joint venture of investors of the two component projects - the Eastern North-South Expressway PPP (Dien Chau - Bai Vot, Nha Trang - Cam Lam), Hoa Hiep Company Limited and Phuc Thanh Hung Investment Joint Stock Company, are still negotiating with BIDV for a loan of more than VND 4,000/5,090 billion of capital to be mobilized to implement the project, despite great efforts... Fearing risks, BIDV requested the project enterprise to include the clause on sharing the increase and decrease in revenue as prescribed in Article 82 of the PPP Law in the project contract as a prerequisite for credit disbursement. However, this request is beyond the authority of the investor and the project enterprise, as well as the terms of the project contract signed with the competent state agency.

It is known that the above project contract was signed on May 13, 2021. According to regulations, if the investor cannot prove the source of capital mobilized within 6 months from the date of signing the BOT contract, the Ministry of Transport will have to collect the guarantee and cancel the contract with the investor. A representative of the Public-Private Partnership Department - PPP (Ministry of Transport) said that if the inappropriate regulations of Decree 28 are not amended and supplemented, all 3 projects are at risk of collapse, and will soon have to submit to the competent authority to adjust the investment form...

In Clause 3, Article 8 of Decree 28/2021/ND-CP dated March 26, 2021, the financial management mechanism of investment projects under the public-private partnership method is stipulated: “Public investment capital to support the construction of construction items and infrastructure systems specified in Point b, Clause 5, Article 70 of the PPP Law (ie public investment capital is only allowed to be allocated to specific items according to the ratio and value, progress and conditions specified in the contract), payment is only allowed for the volume of completed items confirmed by the agency signing the PPP project contract and according to the ratio of capital sources, value, progress and conditions specified in the PPP project contract, in accordance with the medium-term and annual public investment capital plan approved by competent authorities”.

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Under the above provisions, the State's support capital will only be disbursed when the volume of those construction items has been completed and confirmed by the agency signing the project contract. This new provision aims to ensure the principle that the agency signing the contract is the agency that is fully responsible to the State and the project enterprise in implementing the contract; but it also means that the investor must contribute equity and loan capital to implement in advance. Experts say that such a provision is inappropriate, unfair, and unattractive to investors. Because it is a public-private partnership, for every dong the investor disburses, the State must also contribute capital in a corresponding proportion.

Another difficulty is that, while Decree 37/2015 on construction contracts clearly states that construction contractors are entitled to advance payments of: “10% of the contract price for contracts worth over VND 50 billion; 15% of the contract price for contracts worth from VND 10 billion to VND 50 billion; 20% of the contract price for contracts worth less than VND 10 billion” (Article 18); the North-South expressway PPP projects regulated by Decree 28 do not have provisions for enterprises to receive advance payments, which is another difficulty for project enterprises.

In order to attract truly capable investors for PPP projects, Decree 28 has provided specific guidance on accounting for increased and decreased revenue sharing for PPP project enterprises and the state budget; procedures for competent authorities to consider and decide on the use of budget reserves to pay for PPP project enterprises; procedures for paying for decreased revenue sharing from budget reserves. However, the procedures for implementing increased and decreased revenue sharing are guided in Section b, Clause 1, Article 17 of Decree 28, as follows: “Implement adjustments to prices and fees for public products and services, and adjust contract terms according to the provisions of Clause 1 and Clause 2, Article 82 of the PPP Law”.

Under the provisions of Article 82 of the PPP Law, when actual revenue is higher than 125% of the revenue in the financial plan of the PPP project contract, the investor and the PPP project enterprise share with the State 50% of the difference between actual revenue and 125% of the revenue in the financial plan. The sharing of increased revenue is applied after adjusting prices, fees for products and public services, adjusting the term of the PPP project contract according to the provisions of Articles 50, 51 and 65 of the PPP Law and the State Audit performs an audit of the increased revenue. Conversely, when actual revenue is lower than 75% of the revenue in the financial plan of the PPP project contract, the State shares with the investor and the PPP project enterprise 50% of the difference between 75% of the revenue in the financial plan and actual revenue...

Meanwhile, the price and fee of public products and services are one of the criteria for evaluating investors' bidding documents (point a, clause 3, Article 42 of the PPP Law). The price and fee of public products and services and the contract term are specifically regulated and

determined in the PPP project contract. Accordingly, adjusting these factors will affect the calculation of financial parameters, capital mobilization progress, loan interest of investors, etc. Some investors implementing infrastructure projects in the form of public-private partnerships believe that the above provisions in Decree 28 are making it difficult for management agencies, even "puzzling" businesses.

Another shortcoming is the regulations on the procedures for sharing the increase and decrease in revenue of PPP projects. Clause 2, Article 17, Decree 28/2021/ND-CP stipulates: “Based on the audit report of the State Audit and the PPP project contract, the agency signing the PPP project contract shall determine the value of the revenue shared between the State and the PPP project enterprise and report to the competent authority”. It is understood that the determination of the value of the revenue shared will be carried out by the agency signing the project contract, and the investor is not mentioned.

Meanwhile, according to the provisions of Clause 4, Article 82 of the PPP Law, “every year, the parties to the PPP project contract shall determine the actual revenue and send it to the competent financial authority to implement the mechanism for sharing the increase or decrease in revenue. The accounting of state budget revenue and expenditure when sharing the increase or decrease in revenue shall comply with the provisions of the law on the state budget”. This means that the above provisions in Decree 28 are contrary to the PPP Law.

Causes of legal limitations of BOT contracts in road traffic projects in Vietnam:

The first reason that must be mentioned is that Vietnam's legal system is relatively cumbersome and complicated, with many documents and regulations at the legal and sub-legal levels. The most difficult to grasp is the system of guiding documents from Decrees to individual decisions but containing legal regulations. Even the legal documents at the law and decree levels themselves have shown complexity due to overlap, contradictions, and conflicts with each other. The cause of this phenomenon comes from objective and subjective realities. Objectively, BOT road traffic projects in recent times are in the development stage, faster than the initial period, in the context of constantly changing society, problems related to BOT projects continuously arise, fluctuating continuously in a short period of time. That leads to the legal system having to catch up but still not catching up. In the legal system regulating BOT, some circulars and decrees were amended first, some were amended later, leading to a lack of consistency and inconsistency with each other, giving rise to contradictions and overlaps.

Subjectively, the mechanism for building laws on BOT road traffic is not really suitable, there is not a truly unified focal point with full capacity and expertise to take charge. The role of the appraisal agency, the Ministry of Justice, is still very vague and has not been placed in its proper position. The National Assembly is a legislative body, but

Meeting only once a year, the National Assembly deputies are basically not really proficient in specialized law issues.

Another reason for the existence, limitations and inadequacies of the law regulating BOT contracts is that the BOT contract regime is still quite new to our country. On the other hand, BOT contracts in road traffic projects in Vietnam are a very complex type of contract due to the intersection with many fields of law as well as other economic, political, social, cultural, scientific and technological issues. Therefore, the promulgation of legal regulations on BOT contracts requires the high development of social and financial institutions, high level of expertise in drafting project documents, forecasting, stability, strictness in legal regulations, as well as transparency, fairness and responsibility in the application of Vietnamese law in ensuring investment and encouraging BOT contracts in general and BOT contracts in road traffic projects in particular. All these issues have not yet been fully realized in Vietnam;

The system of legal documents regulating the form of investment under BOT contracts in the road transport sector is not complete and not suitable to Vietnam's conditions and international practices. Especially in the period of 2011 - 2016, in the context of the investment policy mechanism not ensuring the harmony of interests of the State, investors and people related to BOT projects, ministries, branches and localities have not really been proactive in developing early to issue circulars guiding the implementation of investment under the PPP form, the implementation of many transport infrastructure investment projects under the BOT form in a short period without a final assessment to complete the legal regulations in this field has caused many limitations in the management and operation of BOT projects. In addition, the experience in project implementation and the quality of human resources of the participating entities are also limited, not keeping up with and meeting the actual requirements of the projects.

3.3.2. Assessment of the implementation of BOT contract law in road traffic projects in Vietnam

3.3.2.1 Results achieved in implementing BOT contract law in road traffic projects in Vietnam

During the process of the State building a legal corridor from issuing decrees on BOT, BT... to developing the Law on Investment in the form of public-private partnership PPP, investors and relevant agencies have applied legal regulations at each time and basically complied with current regulations, road traffic projects are mostly consistent with strategies, planning as well as the needs, orientations of socio-economic development and policies of the Party, National Assembly, and Government.

in each stage. Thanks to that, the implementation of investment transport projects under the form of BOT contracts has brought about the following specific results:

Firstly , the appearance of the transport system in Vietnam, especially the road and bridge system, has changed significantly, creating a highlight for the development of Vietnam's infrastructure. Many investment projects under the form of BOT contracts have been put into operation and have promoted efficiency, saving time and travel costs such as the expansion of National Highway 1, Ho Chi Minh Road through the Central Highlands, Phu My Bridge, Co Chien Bridge, Ha Tri Bridge, Bach Dang Bridge... The upgraded transport infrastructure contributes to attracting domestic and foreign investors. Ports, airports, inland waterways, and industrial parks are connected by a road transport system, contributing to reducing social costs, creating conditions for import and export goods to circulate quickly. It can be said that the implementation of investment projects under the form of BOT contracts has created a driving force for socio-economic development, contributed to ensuring national defense and security, limiting environmental pollution, reducing traffic congestion and accidents, and directly increasing the competitiveness of the economy. Since then, the capacity and quality of Vietnam's transport infrastructure have been significantly improved.

Second, in the context of limited state budget resources and gradually shrinking ODA resources, mobilizing investment capital through the form of BOT contracts is the right direction for developing transportation in particular and developing the economy in general, while reducing the burden of the state budget in implementing the policy of building synchronous infrastructure for the economy... Through investment in the form of BOT contracts, many enterprises, including state-owned enterprises, have the opportunity to participate in implementing large projects, consuming a large amount of domestically produced raw materials and fuels, creating tens of thousands of jobs for workers. In addition, hundreds of thousands of billions of dong in bank credit capital have been put into the economy and the enterprises participating in investment in the form of BOT contracts have the conditions to mature, increase their competitiveness to meet the increasingly high requirements in the conditions of international integration.

For investors, this is a new and quite attractive investment direction. In the investment projects under the form of BOT contracts that have been put into operation, many investors are satisfied with the profits achieved from the project. There are projects with both revenue and profit exceeding expectations due to the high speed of vehicles participating in traffic, especially in the context of a stable macro-economy and a low inflation rate (0.63% in 2015 and 4.74% in 2016).

The majority of people participating in traffic enjoy better and more complete public services and goods at a reasonable cost. In particular, the policy of building bridges under the BOT contract form in the Mekong Delta region is very suitable, bringing about socio-economic efficiency, ensuring safe travel needs.

in all weather conditions and receive support from people, businesses and local authorities.

The results and experiences gained in implementing BOT transport projects have confirmed the correct direction of the investment model in the form of public-private partnership, which needs to continue to be developed and expanded to other economic sectors; this is also the basis for the state to perfect legal policies, improve efficiency and attract more and more investors to participate, especially foreign investors.

3.3.2.2 Limitations on the implementation of BOT contract law in road traffic projects in Vietnam and the causes

Limitations on the implementation of BOT contract law in road traffic projects in Vietnam:

The implementation of BOT law in recent times has brought about remarkable results, but there are still many shortcomings and limitations affecting the effectiveness of BOT projects in road traffic projects as well as attracting investment capital from the private sector in general and foreign investment capital in particular.

As presented above, the law on BOT contracts in road traffic projects still has many shortcomings, not suitable to objective reality. The basic issues of BOT contracts such as objects, subjects, and contract contents are still generally regulated, ignoring many important factors, directly affecting the negotiation and signing of BOT contracts in road traffic projects. Issues on the process of forming BOT contracts and the relationship between investors in BOT contracts and BOT enterprises are still not specifically regulated, not clarifying the legal nature of this type of contract. Regulations on finance, incentives, contract guarantees, investment incentives, and administrative procedures are still cumbersome, unscientific, not meeting and on par with the practical requirements of developing road traffic infrastructure "going first to pave the way".

The current regulations on BOT contracts, although recently amended and supplemented, are still not suitable for the economic development in the new period. The lack of uniformity is reflected in the fact that these regulations are incomplete, unclear, inconsistent, and contradictory to a number of other legal documents. This limits the initiative and positivity of the subjects, does not promote their role and responsibility when investing in the field of transport infrastructure, and in many cases does not properly protect the interests of the parties. The inadequacies in the legal regulations on BOT contracts do not ensure effectiveness, and do not reflect the specificity of BOT contracts in road transport projects throughout the process of formation, negotiation, signing, and implementation of contracts. These

The above limitations, shortcomings and inadequacies are clearly demonstrated through the practice of negotiating, signing and implementing BOT contracts in road traffic projects, leading to the following consequences:

Firstly , the implementation of strategies and plans for infrastructure development lacks principles and investment priorities.

Strategies and plans for infrastructure development have been approved, but the implementation of plans between sectors is not synchronous and inconsistent. There are no criteria, principles and investment priorities as well as the specific characteristics of each investment method and each region, leading to unreasonable selection of investment priorities for projects.

Although the road traffic infrastructure system has been improved, the rationality in investment and exploitation of works is still limited. Recently, many traffic projects invested in the form of BOT contracts are renovation and upgrading projects established on arterial and unique routes (national highways and Ho Chi Minh Road), limiting people's choices, causing public outrage.

Second , Inadequacies in implementing BOT road traffic projects on existing routes:

Some experts say that the BOT investment model in the transport sector should be applied to projects to build completely new roads. However, in the past, most BOT projects were not new routes, but only upgraded and renovated existing routes. Many BOT projects were even established on major and unique routes (national highways and Ho Chi Minh Road), leaving people with no other choice, causing public reaction.

Third, regulations on the preparation, appraisal and approval of BOT road projects are still inadequate.

The establishment of some projects has not been carefully studied, so it is necessary to make changes that affect the completion time or determine the source of state budget support for the project inappropriately. There are projects that have converted the investment form from state budget capital to BOT form, although the scale has been reduced, it still increases the total investment (not including loan interest, inaccurate calculation of some items, inappropriate calculation of some costs...) but it has not been mentioned and compared before submitting to the competent authority for investment approval, nor has it been assessed the necessity of investment in the form of BOT, and has not proposed forms of incentives and support for investors. In addition, some projects have approved the renovation of old roads and the construction of new roads into one project, then placed toll stations on the old roads, which is unreasonable, and some approved projects are not in line with the planning of the transport sector. Regarding the procedures under the Law on Environmental Protection, the decision to approve the environmental impact assessment (EIA) report is the basis for competent authorities to decide on project investment policies, however, many projects are approved without an EIA report.

Fourth , the selection of investors still has many shortcomings, and the capacity of investors is limited.

Calling for investors is still inadequate because investment projects in the form of BOT contracts in road traffic projects often require large investment capital, long payback periods, high risks, while the profit rate is not really attractive. Although BOT contracts are essentially normal business contracts, in reality, when considering investing in projects in the form of BOT contracts, the negotiation process between the parties often focuses on the risks of the State, banks and people, with little discussion of the risks of investors. Meanwhile, when implementing the project, investors also have to bear risks in terms of raw material prices, norms, risks in terms of progress and site clearance costs. In addition, the risk of the State's capital contribution in the project being insufficient and not timely, affecting the overall progress, the risk of toll collection related to changes in toll rates and traffic volume, etc.

Before the PPP Law was enacted, in fact, most of the transport projects invested in the form of BOT contracts in the past were assigned to contractors (data up to 2020, 49 projects were allowed by the Prime Minister to be assigned to contractors, 01 bidding project was later converted to the designated form, 21 bidding projects had only 3 investors registered). project. The application of the designated bidding form has limited competition, reducing the investment efficiency of the project.

After the PPP Law was enacted, many projects were organized to bid for investors, but no investors participated in the bidding. In November 2020, the Ministry of Transport canceled the bidding for two North-South Expressway component projects, National Highway 45 - Nghi Son and Nghi Son - Dien Chau, due to not finding investors. These are 2 of 8 North-South Expressway projects previously decided by the National Assembly to invest in the form of public-private partnership (PPP). Some projects did not have investors despite taking a long time to announce the bidding, and the management agency had to propose switching to public investment capital. With the above situation, it can be seen that although the PPP Law has quite comprehensive content and many positive innovations, it still does not meet practical requirements and does not create attractiveness for investors.

In addition, the capacity of investors in some approved road traffic projects is still limited, specifically: the total capital in the investor's request documents is not enough to meet the project implementation, the credit commitment of commercial banks is not suitable...

Fifth, the investor's bidding work to select contractors, project construction work, and acceptance work still have errors.

For some projects, the process of selecting contractors from the stages of providing bidding information, preparing request documents, and evaluating bids has not yet been ensured in accordance with legal regulations.

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