The Guide to Drafting PPP Proposals and Feasibility Studies in Vietnam
By: Dezan Shira & Associates
Editor: George Llewellyn-Jones
On March 1, 2016, the Vietnamese ministry of Planning and Interior passed Circular 02/2016/TT-BKHDT regarding the preparation and appraisal of PPP project proposals and feasibility studies. Outlining specific requirements and methods of evaluation for both reports, Circular 02 is a welcome supplement to the Law on Bidding originally passed in 2013 as well as Decree No. 15/2015/ND-CP passed in February. For investors considering Vietnamese infrastructure projects as a potential opportunity, a thorough understanding of the requirements outlined in this Circular is strongly advised.
For a general introduction to PPP arrangements in Vietnam, please refer to our previous publications introducing Public Private Partnerships and providing an overview of the tendering process in Vietnam.
Under updated guidance, the following information is required and will be evaluated within project proposals:
Basic Information & Grounds for Establishment
As a general rule, PPP proposals should include all general information pertaining to the project in question. This includes but is not limited to: the location of the project, technical requirements of said project, estimates pertaining to the capital to be invested, information pertaining to any and all state funding to be used in the project, and all government incentives that the project will utilize during construction and operation.
In addition to the specifications listed above, those drafting PPP proposals should also present all Laws, Decrees, Circulars, and Decisions that establish the legal grounds for a Partnership within the sector for which the proposal is being drafted. This legal review can also be used to highlight the project’s cohesion with government development planning.
Contents of the Project Proposal
Based upon the specifics of a given project, project proposals should prepare information relating to the following areas of potential evaluation:
- Necessity of investment project – A general outlook should be provided on the national and local socioeconomic conditions forecast during the project’s development. Effective socioeconomic forecasting will explain the current conditions and works required, and details of other sector developments and related projects. Within this section of the proposal, the objectives of the project should be explained, and the advantages of the PPP over other investment forms articulated.
- Explanation about project techniques – The scale and demand of the project with an indemnity plan are required. These include site clearance for land plots and resettlement procedures. This section of the proposal should also provide details of required techniques for the project and a total investment capital calculation.
- Appraisal of the impact on environment, society, security and national defense
- Forecast of demand, efficiency, and financial growth
- Preliminary analysis of socioeconomic efficiency – This should include socioeconomic costs and benefits in a Benefit-Cost Ratio.
- Project financial analysis – This should include Total Costs (TC) and Total Revenue (TR) as well as projection of loan interest, loan inflation, depreciation, current fluctuations, and other parameters.
- The type of project contract
- A risk analysis
- State assistance – Stating the funding for the project, and the source and methods of dispersing funding as well as any government guarantees.
- Plan for project performance – A written timescale for the project’s objectives.
- Management of project performance – States the contractual arrangement for operation of the project. i.e. BTO, BOT etc.
The Appraisal Process
Following preparation of the Project Proposal in accordance with guidelines outlined above, the proposal must be appraised by the appraisal unit based on the following set of evaluations:
- Appraisal on the necessity of the investment project – This includes the urgency and conformity of the project in the context of the region and sector.
- Appraisal of basic factors – includes objectives, scale, capacity, location, and methods of indemnity.
- Appraisal of project efficiency – Projects with greater socioeconomic efficiency will be prioritized.
- Appraisal of feasibility – Assesses the project’s technical requirements and the preliminary design.
- Appraisal of suitability of project contract – Plan for project performance, project management, and suitability scheme.
If the project is appraised to be feasible, then it will be passed to heads of ministerial agencies for approval. If the project is unaccepted, then it will either be returned for amendments or it will be rejected completely.
Note: Documents submitted will be verified for sufficiency. Project proposals can be rejected at this time if the relevant documents are not submitted.
Feasibility studies contain research on the needs, feasibility and efficiency of a PPP project. Government agencies will use this as grounds to determine whether a particular project, proposal, or investor is warranted. Should they be instructed to do so, investors should prepare the study in accordance with the following requirements:
Basic Information & Grounds for Establishment
Basic information should be prepared pertaining to the PPP project in question as well as the legal grounds under which the project is being established.
Contents of Feasibility Study Report
Feasibility reports must review the following topics in accordance with the guidance outlined:
- Necessity of investment project – Gives an overview of socioeconomic conditions during the project and laws & regulation that may change or impact the project. Outlines current conditions of the region where the project will be located, containing a description of the works or upgrades needing renovation or upgrading. This should also include relevant details of supporting, competitive, and related projects. Whenever possible, those drafting should look for ways to highlight the necessity of a PPP structure.
- Explanation of project techniques – An analysis of the scale and capacity for expected demand. A description of the land plot and location for the project including a plan for indemnity, site clearance, and resettlement in accordance with laws. Technological plans should be compared with sector standards and technological quality, and the risks of these realities evaluated. The fundamental design should be checked with specialized laws. Finally, the total investment to be used should be calculated based on the techniques used within the project.
- Impact on the environment, society, security and national defense – Measures impacts on natural resources and emissions, societal impact on job creation, resettlement etc. National security impact should also be measured, if applicable. All impact assessments should suggest specific methods for the reduction of negative impact.
- Forecast of demand – Analysis used to determine socioeconomic efficiency and financial plans.
- Analysis of socioeconomic efficiency of project – Costs and socioeconomic benefits categorized into financial and qualitative outcomes. These are analyzed for their Economic Net Present Value (ENPV), Benefit Cost Ratio (BCR) and Economic Internal Rate of Return (EIRR)
- Project financial analysis – Must include Total Costs (TR), Total Revenue (TR), and any other relevant inputs. Calculated at the Net Present Value (NPV) and Internal Rate of Return (IRR).
- Type of project contract – The division of roles and responsibilities during the project’s life cycle and operation.
- Risk analysis – Primary risks should be evaluated including: political, legal, societal, environmental, demand risks, risks of construction, design and production, production costs and costs for finishing the works, financial risks, operational risks, and risks of contract termination. Responsibilities should then be specified and divided in the event of risks occurring.
- State assistance – Funding based on financial analysis and contractual type. There will also be details of investment incentives and the government’s guarantee.
- Plan for project performance – Period for preparing the project must be determined. This is a general outline of the construction and operation cycle with expected dates of completion.
- Supervision and management of project performance – Provides which indicators will be used to assess the quality of the project and the range of methods the government will use to supervise operations.
Based on the feasibility study, appraisal will be based on evaluation of the the general information of the project, summation, and suggestions of relevant organizations and units. During the appraisal process, the following should be expected:
- Verification of sufficiency of documents – Check for all necessary documents.
- Appraisal of contents – Appraises necessity and suitability of the investment project and effects on other projects. The project’s scale, capacity, and objectives will be reviewed as will the efficiency of the project during construction and operation. Efficiency evaluations will be based on environmental, social, security, and socioeconomic factors. Technological and fundamental design plans will also be checked for compliance with regulatory standards, exposure to risks, and financial feasibility.
If it is in accordance with the law and deemed to be feasible, the proposal will be submitted to the minister and ministerial-level agencies for approval. If not, it will be returned for amendments or refused.
Optimizing PPP Investments
For more information on how your business can draft project proposals and feasibility studies effectively in Vietnam, please get in contact with our investment specialists at email@example.com or visit us online at www.dezshira.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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