When partnering with government agencies (G2B), the risks often come from policy changes and the adoption of new legislation, causing obstacles, delays, and payment backlogs in PPP contracts (especially BT contracts). Following the establishment of Steering Committee 751 (Ban Chỉ Đạo 751) to resolve investment projects with pending legal issues, the Government has recently prepared a Resolution Draft (the Draft) to address approximately 160 transitional BT projects still facing legal obstacles (such projects, “Pending BT Project”).

Focusing specifically on Pending BT Projects where land-use rights serve as the State’s payment mechanism, the following analysis highlights critical issues arising from the proposed changes introduced by this Draft:

1. Ambiguity in resolving Pending BT Projects with “BT contracts executed in accordance with the applicable law” – Article 4 of the Draft generally states that “Regarding BT projects with contracts duly executed in accordance with the law at the time of signing, the provincial People's Committees will continue to implement and make payments to investors according to the signed contracts.” This provision may give rise to the following issues:

The Draft does not specify what constitutes a BT contract “duly executed in accordance with the law”. Accordingly, it remains unclear if a BT contract is considered compliant if it omitted detailed land valuation and settlement mechanisms, provided such omissions did not violate the regulations in effect at the time of signing BT contract;
It is unclear whether Article 4 of the Draft refers strictly to the laws in effect when the original BT contract was executed, or if it also encompasses regulations applicable at the time of subsequent BT contract amendments; and
It is unclear how to handle cases where the BT contract does not provide a mechanism to resolve the difference between the project’s investment cost and the value of the land allocated to BT investor as the State’s payment.

2. The mechanism to resolve land-value issues is only available to Pending BT Projects with contracts having content not in accordance with the applicable law and such content could be amended – Article 6 of the Draft introduced a detailed mechanism to resolve the land-value issues in the following cases:

The value of the land fund for payment is lower than the signed contract value: the provincial People’s Committee will pay the remaining balance in cash from the local public investment budget;
The value of the land fund for payment exceeds the signed contract value and the land fund can be separated into an independent project: The provincial People's Committee will pay and hand over to the BT investor the portion of land with a value equivalent to the final settled value of the completed Pending BT Project, and shall not pay or hand over the remaining land portion; and
The value of the land fund for payment exceeds the signed contract value and the land fund cannot be separated into an independent project: The provincial People's Committee will pay and hand over the entire land fund to the BT investor. The BT investor shall pay the difference between the land fund value and the Pending BT Project value into the state budget.

It is unclear why the above mechanism cannot be applied for the Pending BT Projects with “BT contracts executed in accordance with the applicable law” as discussed at Section 1 above.

3. Unclear rules to resolve Pending BT Projects having inspection conclusion – Article 2.2 of the Draft sets out a principle that the resolution of the Pending BT Project must strictly adhere to the effective inspection conclusions. It is not clear whether this principle could be interpreted that in case of conflicts between inspection conclusions and specific provision of the Draft, the content of inspection conclusions will prevail. It would be better if the Draft can provide a “prevailing clause” to address these discrepancies.

4. The principle of ensuring no loss of the State’s assets – Article 2.5 mandates that the resolution of the Pending BT Project must prevent any loss of the State’s assets. In practice, this principle may discourage competent state agencies from signing amendments or supplements to the existing BT Contracts, particularly for the Pending BT Project where the original BT contract’s legal compliance is already in question.

To ensure the successful resolution of all Pending BT Projects, the Draft should be expanded into a comprehensive regulatory framework. Such a framework is essential to ensure consistent implementation and prevent the emergence of secondary legal issues.

This blog is written by Ha Kieu Anh and Nguyen Hoang Duong.

Vietnam Business Law