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Legal Update

New Decree on BOT, BTO and BT Contracts

9 December 2009
Mayer Brown JSM Legal Update

Summary

The Government issued Decree No. 108/2009/ND-CP on 27 November 2009 ("Decree 108"), replacing Decree No. 78/2007/ND-CP on infrastructure projects built under build-operate-transfer (BOT), build-transfer-operate (BTO) and build-transfer (BT) contracts (each individually a "Project Contract").

Full Update

A BOT contract means a contract signed between competent State authorities with investor(s) to build and operate an infrastructure facility within a certain period of time. At the expiry of such time the investor(s) will transfer such facility to the State without compensation.

Under a BTO contract, investor(s) will be given the right to operate an infrastructure facility within a certain period of time after transferring the built infrastructure facility to the State.

For a BT contract, on completing the construction of an infrastructure facility, investor(s) will transfer such facility to the State and the State (i) will facilitate implementation of other project(s) by the investor(s) in order to recover the investment capital and earn profit; or (ii) will make payments to the investor(s) under the agreement in the BT contract.

Among other things, Decree 108 regulates investment sectors, conditions, procedures, incentives, as well as rights and responsibilities of the parties to a Project Contract.

The Government encourages the implementation of projects for (i) constructing, operating or managing new infrastructure facilities; or (ii) for renovating, expanding, modernizing, operating or managing existing facilities in the following sectors:

  • Roads, bridges, tunnels and ferry-landings
  • Railways, railway bridges, and railway tunnels
  • Airports, seaports, and river-ports
  • Clean water supply systems, drainage systems and waste or sewage collection and treatment systems
  • Power plants, power transmission lines
  • Other infrastructure facilities as decided by the Prime Minister

Based on the planning and guidelines for socio-economic development from time to time, ministries, branches and provincial People's Committees will formulate and approve a list of projects calling for investment capital on the basis of BOT contracts, BTO contracts and BT contracts in their branches and localities. They will publish such list in January of each year on their websites and at the same time in three consecutive issues of a Government publication called the Tendering Newspaper.

An investor may propose on its own initiative a project other than the above listed projects and must prepare a proposal for such project and send it to the relevant ministry, branch or provincial People's Committee for approval.

Under Decree 108, open domestic or international tendering is required for selecting investors and direct nomination of an investor is allowed only (i) when a single investor is qualified for the project; or (ii) when there is an urgent need for an infrastructure facility.

An "inter-branch working group" consisting of representatives from various agencies and independent legal, technical or financial experts may be set up by the authorized State body to assist it in negotiations and other tasks. It may also take part in solving problems arising during the execution of the project.

BOT and BTO enterprises are entitled to corporate income tax incentives as stipulated by legislation on corporate income tax. Also, the goods imported for implementing their projects are entitled to preferences under legislation on export duties and import duties. Furthermore, BOT and BTO enterprises (i) will be exempt from land use fees with respect to the area of land assigned by the State; or (ii) will be exempt from land rental for the whole duration of implementation of its project.

BT enterprises and contractors are entitled to import duty incentives with respect to goods imported for building BT facilities as stipulated by legislation on export duties and import duties. BT enterprises will be exempt from land use fees with respect to the area of land used to build BT facilities for the duration of construction.

When Decree 108 takes effect on 15 January 2010:

  • for a project with total investment capital up to VND 1,500 billion, the ratio of equity of the project enterprise must not be lower than 15% of such portion; and
  • for a project with total investment capital over VND 1,500 billion, the equity required of the project enterprise shall be fixed on the following progressive ratio of each portion: (i) with respect to that portion of investment capital up to VND 1,500 billion, it must not be lower than 15% of such portion; and (ii) with respect to that portion of investment capital over VND 1,500 billion, it must not be lower than 10% of such portion.

Meanwhile, the total equity of the State participating in the implementation of a project must not exceed 49% of the total investment capital of the project.

Previously, the Ministry of Planning and Investment was solely responsible for issuing investment certificates on all projects. However, under Decree 108, it is now only responsible for important national projects or projects which span more than one province. Provincial People’s Committees will issue investment certificates for the remaining projects.

For inquiries related to this Client Alert, please contact:

Dao Nguyen ( )

Thinh Dan ( )

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