Tariff calculation for a coal-fired IPP power project in Vietnam

The method of pricing an electricity power purchase agreement (PPA) is regulated under Circular 56 of the Ministry of Industry and Trade (MOIT) dated 19 December 2014, as amended (Circular 56/2014). Circular 56/2014 will govern PPA of (i) power plants which are not multi-target strategic hydroelectric plants (nhà máy thủy điện chiến lược đa mục tiêu), independent BOT power plants, power plants using renewable energy, and (ii) power plants without a separate mechanism issued by the MOIT.

The unit price in general is comprised of the following component:

Unit Price = Fixed Capacity Price + Fixed O&M Price + Fuel Price + Main Fuel Transport Price

Of which:

Fixed Capacity Price is a fixed number which is pre-determined throughout the entire economic life of the project. Fixed Capacity Price is calculated so that the internal of return of the power plant project will not exceed a regulatory rate (i.e. 10% or 12% depends on each case).
Fixed O&M Price is the fixed operation and maintenance price, which is the aggregate of (i) fixed price for major repair, equipment and service costs; and (ii) fixed price for employment costs. A change in inflation will be reflected in the calculation of the electricity price. However, the change is capped at 2.5% per year which is lower than the normal annual inflation rate in Vietnam.
Fuel Price is a variable number which is the aggregate of coal price component, DO fuel price component, limestone price component, miscellaneous price component (if any).
Main Fuel Transport Price is a variable number depending on the contract year transport price (if any).

Classifying business lines under VSIC and Provisional CPC

Under the current forms applicable to investment procedures to obtain an Investment Registration Certificate or a registration of an acquisition by a foreign investor, the foreign investor and the target company must specify the business lines of the target company according to both Vietnam Standard Industrial Classification (VSIC) and Provisional Central Product Classification (Provisional CPC). The VSIC is based on the International Standard Industrial Classification, not the Provisional CPC. Therefore, there might be some discrepancies among the scope of services under the VSIC and the Provisional CPC. In other words, when registering business lines, foreign investors might face the issue where the scope of a class under one classification might not be covered by a corresponding one under the other classification.

Decree 40/2019 - New Amendments To Environmental Protection Regulations In Vietnam

Decree 40/2019 amending four separate decrees on environment protection takes effect from 1 July 2019. Below are some of the key amendments introduced by Decree 40/2019:

· The term “Industrial zones” is expanded to include all kinds of zones, such as export processing zones, high-tech zones, or industrial areas.

· “Main works or items of a project” is the main project component specified in the feasibility study of the project.

· List of projects subject to environmental impact assessment (EIA) is adjusted. For example, investment in a golf course is now subject to EIA. Certain projects which do not have wastewater treatment work or waste treatment work are exempted from post-construction examination. Only residential projects with capacity of 2000 (instead of 500) or more inhabitants are subject to EIA. Only hotel projects with capacity of 200 rooms (instead of 50) are subject to EIA.

· Industrial manufacturing is classified in various sectors with different level of risks to the environment. Development of manufacturing projects with very high risks to the environment is subject to consultancy with environmental experts and scientists, and appraisal of EIA reports of these projects must be conducted by an appraisal panel.

Latest proposed amendments to the Investment Law 2014

The latest proposed amendments to the Investment Law 2014 submitted to the National Assembly in June 2019 include the following points, among others:

· The Investment Law will not apply to PPP projects which will be subject to a separate law.

· Investment conditions are not separated into two groups (1) operational conditions which apply to the operation of an investment project and (2) market access conditions which apply to foreign investors who wish to invest in sectors/industry which have market access restrictions.

· The proposed definition of foreign-controlled enterprises is removed (http://tinyurl.com/y2nl4ork). Accordingly, the regime regarding deemed foreign-invested enterprises under the Investment Law2014 remains unchanged. This should be a major relief for transactions which have relied on existing definitions of deemed foreign-invested enterprises.

· A foreign investor which incorporates a “start-up innovative” enterprise will not need to obtain an Investment Registration Certificate.

· Foreign investors investing in public companies or securities companies under the Securities Law are not subject to the investment conditions and investment procedures under the Investment Law 2014.

· Outbound investments by Vietnamese investors are now subject to more restrictions. The draft amendments include sectors where outbound investments are prohibited or subject to conditions (including financial services, securities, real estates and technologies).

Info

Comment

Vietnam Business Law