Breaking the Iceberg of Public-Private Partnership in Vietnam

Abstract

The subject of this study is on Public-Private Partnership (PPP) in Vietnam, which has emerged and recognized recently. Public-Private Partnership (PPP) or Private Participation in Infrastructure (PPI) in Vietnam was recognized by first BOT Decree in 1993 after the Government amended the Law on Foreign Investment to make way for "Build Operate and Transfer" (BOT) projects in 1992. Various revisions were undertaken in 1997, 1998 and 1999. The prevailing legislation governing PPP practices in Vietnam is Decree No. 78/2007/CP enacted by the Government on the 11th of May 2007. This current BOT Decree is a generic law, stipulating the sectors, conditions, procedures and incentives applicable to infrastructure development investment projects through the Build-Operate-Transfer (BOT), Build-Transfer-Operate (BTO) or Build-Transfer (BT) contracts. Therefore, Decree No.78 could be regarded as a key legislation related to PPP in Vietnam. Since PPP has introduced in Vietnam, there have been many problems in real-life practice. However, the Government and practitioners have still been vague about explaining its success and failure. Therefore, the main goal of this research is to clarify the problems with current BOT projects in Vietnam with insufficient assessments and explanations and find out what actors and factors (the iceberg) impede the good PPP practices in Vietnam, as well as come up with definite solutions to break these obstacles in order to live up good PPP performance in the future. The first part of this research is to review international literatures in order to get the insights on PPP topic by mastering its concept, various kinds of PPP, PPP project phases and its motives. Then, the theoretical framework of critical success factors (CSFs) of PPP infrastructure projects (called fishbone) is developed. There are 71 subfactors for the successful PPP project in the fishbone, which are classified in 12 main critical factors. Two main factors with various subfactors in each phase play as a cause for the successful effect in this phase and the successful effect in every above phase will live up the fruitful PPP project’s expectation. From the fishbone framework, we will figure out the most impeding factors to hinder good PPP practice in Vietnam. Also, This framework will be verified by a case study, BOT Phu My 2-2 energy project in Vietnam, so that we can show its potential application, observe its variation in order to improve it in the future. The second part of the study is to analyze the most hindering factors for PPP good practices in Vietnam, namely its financial market and PPP policy, whereby we improve the research of World Bank conducted for Vietnamese Government on these issues. For financial aspect, we investigate various financial resources of Vietnam for infrastructure investments. We found that Vietnam financial market is nascent and cannot be affordable for long-term and huge-capital-consuming PPP projects. As a result, we formulate recommendations for its future development to meet the requirements’ PPP projects. Also, we propose solutions to achieve financial arrangement at operational level. With regard to PPP policy, we assess what is good and what is bad in the Decree 78, and we claim that Decree 78 is not a good law governing PPP practices in Vietnam. Also, we suggest recommendations to improve many specific bad points in the Decree. The third part of this research presents state-of-the-art of PPP practices in Vietnam so as to observe how these weaknesses influence on the PPP opportunities and PPP projects in various sectors of Vietnam infrastructure and how actors deal with these obstacles. We have observed that the private involvement in Vietnam lags behind the comparators such as China, Indonesia, and Philippine due to a number of reasons. As looking closure to a number of real-life projects (2 real BOT cases and 10 domestic cases), the whole picture of actors’ behaviors and the conditions building up these behaviors are depicted. We found that the conditions for PPP practices in Vietnam are not favorable, thus actors cannot act in the right ways to which they are suppose to do in respect of institutional failures, nascent financial market, restrictions in specific sectors. In fourth part of the study, we analyze and explain the success or failure of BOT Phu My 2 phase energy project in Vietnam (PM2.2 or Phu My 2-2) to both verify fishbone framework and withdraw learned lessons for some findings of previous chapters as well as future PPP in Vietnam. Through the assessment on various phases, from exploration to 3-year operation and maintenance phase (1996-2008), based on the propositions of fishbone framework, BOT Phu My 2-2 project was quite successful until recently because it satisfies many CSFs of fishbone. Therefore, we conclude that CSFs fishbone framework is rather fit to apply for evaluating the successful factors of PM2.2 even though there are some adjustments and new factors needed to add. As a result, we add four new factors to update the fishbone for its potential application in the future. In addition, based lessons learned from PM2.2, we improve the finding about financial arrangement at operational level; we correct for the failure cases (2 real BOT cases and 10 domestic cases); and we propose short-term and long-term strategy to facilitate Vietnamese PPP in the future. Finally, we present many problems posed in the course of conducting this research for PPP in Vietnam and PPP in general. From these arisen issues, we generate six research questions for Vietnamese PPP and four research questions for PPP on the whole, which can be conducted in the future.