___________________________________________________________________________

2008/SOM3/IEG/SEM2/011

Viet Nam Infrastructure Development - Greater Mekong River Projects

Submitted by: Viet Nam

Seminar on Recent Trends on Investment Liberalization and Facilitation in Transport and

Telecommunication Infrastructure Lima, Peru

13–14 August 2008

8/12/2008 1

Ministry of Planning and InvestmentMinistry of Planning and InvestmentForeign Investment AgencyForeign Investment Agency

VIET NAM VIET NAM InfrastructureInfrastructure

developmentdevelopmentGreater Mekong river projectsGreater Mekong river projects

FIaVietnam

Dr. Nguyen Thi Bich VanDeputy DirectorForeign Investment AgencyMinistry of Planning and Investment

FIaVietnam

FIaVietnam

8/12/2008 2

Contents

I - FDI Promotion in Viet NamII - Vietnam infrastructure overview:

transportation and energyIII - Cooperation in Greater Mekong

subregion and attracting private sector’s investment in GMS’s infrastructure

IV - Recommendations

FIaVietnam

FIaVietnam

FIaVietnam

8/12/2008 3

I. FDI Promotion in Vietnam FDI inflows to Vietnam 1988 - 2008

05000

100001500020000250003000035000400004500050000

1988-199019911992199319941995199619971998199920002001200220032004200520062007Jul-08

US $

mill

ions

Investment inflows Disbursement

FIaVietnam

8/12/2008 4

I. FDI Promotion in Vietnam:Top ten countries investing in Vietnam(as of end of July 08)

No. Country / Territory

No. of projects Investment capital Legal capital Disbursed capital

1 Chinese Taiwan 1,884 19,260,981,000 7,621,860,000 3,086299,000

2 Japan 1,004 16,939,909,849 4,827,720,599 5,090,290,445

3 Singapore 597 15,178,445,942 5,169,043,943 3,863,742,670

4 Korea 2,022 15,092,019,086 5,624,276,592 2,772,513,882

5 British Virgin Islands

371 10,909,120,646 3,700,808,066 1,354,013,688

6 Malaysia 272 7,924,090,862 3,015,103,484 1,083,158,348

7 Hongkong 492 5,687,519,248 2,328,229,962 832,736,253

8 Thailand 182 2,598,399,000 1,312,510,000 784,685,807

9 Canada 68 4,723,276,124 1,466,201,000 2,241,936,000

10 Brunei 62 4,558,731,421 907,746,421 9,528,862

FIaVietnam

FIaVietnam

8/12/2008 5

Major objectives by 2010

GDP growth rate 2006-2010: 8% p.a.GDP per capita: US$1,050 – 1,100Economic structure:

- Agriculture, forestry & fishery: 15-16% GDP- Industry & construction: 43-44% GDP- Services: 40-41% GDP

Investment capital for development: US$140 bil.- FDI: US$23-24 bil. 5

Investment demand for infrastructure: US$15 bil.

FIaVietnam

6

Schedule of concessions and commitments on goods:

Bound rates for 10,600 tariff lines An average cut from 17.4% to

13.4% phased over 5-7 years since 2007.

Largest reduction applied to garments & textiles, fish & fish products, wood & paper, other manufactured goods, machinery, electrical and electronic items.

Committed to be member (fully or partially) to initiatives for IT products, garments & textiles, medical equipment, aircraft, chemicals, construction equipment… Tariffs cut phased over 3-5 years since 2007.

Schedule of specific commitments on trade in services:

Open the door in 11 out of 12 service sectors (or 110 out of 115 sub-sectors), including: business services, communication, construction and related engineering, distribution, health, insurance, education, tourism, environment, finance, entertainment, transport etc.

Commitments put in force right after WTO accession. In some cases, they are phased over 2-4-6 years since 2007.

Post-WTO Investment Climate Vietnam’s commitments to the WTO

FIaVietnam

7

Regions entitled to Incentives:

- Regions with specially difficult socio-economic conditions;

- Regions with difficult socio-economic conditions; and

- Industrial zones, Export processing zones, High-tech zones and Economic zones.

Preferential sectors:- Manufacture of new material and production of

new energy, manufacture of high-tech products, bio-technology, information technology and mechanical manufacturing;

- Breeding, rearing, growing and processing of agricultural, forestry and aquaculture products, production of salt, creation of new plant and animal varieties;

- Utilization of high technology and advanced techniques, protection of the ecological environment and research, development and creation of high-technology;

- Labor intensive industries;- Construction and development of infrastructure

facilities and important industrial large-scale projects;

- Professional development of education, training, health, sports, physical education and Vietnamese culture;

- Development of traditional crafts and industries; and

- Other manufacturing and service sectors which require encouragement.

Post-WTO Investment Climate Investment Opportunities entitled to Incentives

FIaVietnam

FIaVietnam

8/12/2008 8

Post-WTO Investment Climate Incentives on Corporate Income Tax

Standard rate: 28%Preferential rates of 10%, 15% and 20% for a period of 15 years, 12 years and 10 years are available depending on the scope of activities and location of the investment.Tax holidays: A complete exemption from CIT for a certain period (4 yrs at maximum), followed by a period where tax is charged at half rate (9 yrs at maximum)Losses: Carry forward losses for 5 yearsOther incentives: Exemption or deduction of land use tax, land use fee, land rent, and water surface rent

FIaVietnam

9

Exemption applied to projects in investment encouraged sectors and regions on:- Machinery & equipment, specialized means of transportation and construction materials (which cannot be produced in Vietnam) comprising the fixed assets of certain projects;- Raw materials, spare parts, accessories, other supplies, samples, machinery and equipment imported for the processing of goods for export and finished products imported to stick to the processed goods.

Preferential rates applied to imported goods from countries that enjoy MFN with Vietnam (89 countries). Rates vary by the category of goods.Special preferential ratesapplied to imported goods from countries that signed special agreement with Vietnam (e.g. ASEAN).Ordinary rates are 150% of preferential rates.

Post-WTO Investment Climate Import Duty Exemption and Reduction

FIaVietnam

FIaVietnam

8/12/2008 10

Post-WTO Investment Climate Forms of Investment

100% foreign-owned enterprise- Limited liability company- Joint stock company- Partnership- Holding company

Joint ventureBusiness cooperation contractBOT, BTO, BT, BOOM&A, purchase of shares

FIaVietnam

FIaVietnam

8/12/20088/12/2008 1111

II. VIETNAM Infrastructure overviewII. VIETNAM Infrastructure overviewtransportation and energytransportation and energyFIaFIa

VietnamVietnam

1. Current status of Vietnam infrastructure1. Current status of Vietnam infrastructure-- Transport systems are largely weak, small scale and Transport systems are largely weak, small scale and under technological standards.under technological standards.-- Viet Nam has no depth seaports and highways Viet Nam has no depth seaports and highways according to standardsaccording to standards-- Urban road systems in large cities and developed areas Urban road systems in large cities and developed areas havenhaven’’t been still connected to national transport system.t been still connected to national transport system.-- As planned, the average GDP growth rate of Viet Nam As planned, the average GDP growth rate of Viet Nam in the period of 2005in the period of 2005--2010 will be 7.2% 2010 will be 7.2% -- 8%, the power 8%, the power demand growth is two times to GDP growth rate.demand growth is two times to GDP growth rate.-- From now to 2010, each year, Viet Nam need 2.2 From now to 2010, each year, Viet Nam need 2.2 billions USD for power development.billions USD for power development.

FIaVietnam

FIaVietnam

8/12/2008 12

2. Capital mobilization for infrastructure investment

FIaVietnam

- State budget and ODA are major capital source for infrastructure investment, in which ODA accounting for 37% of the total. The state budget for transport infrastructure increase annually by 15%.- Issuing bonds to mobilize capital : government bonds and construction bonds.- Capital from banks and credit institutions through consortiums who grant loans to high profit-infrastructure projects.- Mobilizing investment capital from domestic and foreign private sector.- Voluntary and compulsory contributions of the people are mainly in rural transportations.

FIaVietnam

FIaVietnam

8/12/2008 13

3. Legal framework for PPP in infrastructure development

FIaVietnam

- Law on Investment, enterprise law, law on construction and others- Government decree on BOT, BTO and BT contracts-- Decree on the bidding

FIaVietnam

FIaVietnam

8/12/20088/12/2008 1414

4. Incentives for investment 4. Incentives for investment in infrastructure in infrastructure

-- Most favorable incentives applied to BOT, BT and Most favorable incentives applied to BOT, BT and BTO projectsBTO projects

-- CIT: 10% for 15 yearsCIT: 10% for 15 years

-- CIT holidays: exemption for 4 years, and half CIT holidays: exemption for 4 years, and half reduction for 7 successive yearsreduction for 7 successive years

-- Land lease up to 70 years; rental fee exemption Land lease up to 70 years; rental fee exemption for 10for 10--15 years (or for the whole life of the 15 years (or for the whole life of the projects invested in regions with difficult projects invested in regions with difficult conditions)conditions)

-- Duty exemption applied to goods imported to form Duty exemption applied to goods imported to form fixed assetsfixed assets

FIaFIaVietnamVietnam

FIaVietnam

FIaVietnam

8/12/2008 15

POWER- Clean energy projects (solar, wind,…) is in the special

incentive sectors: favored of corporate income tax of 15% in 15 years, exemption in 4 years when enterprises gain profits, reduction to 50% in 9 succeeded years.

- Building new power plant will be entitled to CIT 20% in 10 years, exemption in 2 years and reduction to 5% in 3 succeeded years.

FIaVietnam

- Projects in industrial zone, export processing zone and economic zones: CIT of 15% in 12 years, exemption 3 years and reduction to 50% in 7 succeeded years.

FIaVietnam

8/12/2008 16

FIaVietnam

Source Demand for Investment

2006-2010 2010-2020 Total

ODA 9630 53106 62736

State Budget (InclState bond)

2619 150 2769

FDI 653 2125 2778

Domestic private sector

1968 2555 4523

Total 14870 57936 72806

The need for capital for development

FIaVietnam

FIaVietnam

8/12/2008 17

Challenging in attracting private investmentFIa

Vietnam

- Insufficient legal framework

- No clear regime relating to financial arrangement between state budget, financial institutions, banks, domestic and foreign enterprises.

- Unclear role sharing between public and private sector

- In adequate support from government

- Most of infrastructure projects supplying products that prices is under controlled by the State

-Trend to reduce government guarantee.

FIaVietnam

FIaVietnam

8/12/20088/12/2008 1818

III. cooperation in Greater III. cooperation in Greater mekongmekong subregionsubregion and and attracting private sectorattracting private sector’’s investment in s investment in gmsgms’’ssinfrastructureinfrastructure

FIaFIaVietnamVietnam

CONTEXTCONTEXT-- GMS establish by GMS establish by ADBADB’’ss initiative in 1992 with initiative in 1992 with

strategic objective of 3Cs: Connectivity, Competitive, strategic objective of 3Cs: Connectivity, Competitive, Community.Community.

-- Six countries participating in the program Six countries participating in the program composing: composing: CampuchiaCampuchia, China, Laos, Myanmar, Thailand, Vietnam, China, Laos, Myanmar, Thailand, Vietnam

-- 9 incentive sectors as following:9 incentive sectors as following:Transportations, energy, environment, agricultural, Transportations, energy, environment, agricultural, tourism, trade and investment facilitation, human tourism, trade and investment facilitation, human resource development, medical.resource development, medical.

FIaVietnam

FIaVietnam

8/12/2008 19

FIaVietnam

FIaVietnam

FIaVietnam

8/12/2008 20

cooperation in Greater mekong subregion and attracting private sector’s investment in gms’sinfrastructure

FIaVietnam

Mobilizing capital sources:

- ADB: 3.2 billions

- members’ governments: 2.2 billions

- Co-sponsors: 2.7 billions

FIaVietnam

FIaVietnam

8/12/2008 21

Preferential sectors: transportationsFIaVietnam

- Strong developing transport connection to enhance relationships in the region.

- Three economic corridors including: EWEC, NSEC, SEC - Building transport corridors within economic corridors of

the subregion:+ highway project Phnompenh - Hochiminh+ East West corridor project+ Highway project Hanoi - Laocai- Linking soft infrastructure through border transportation

agreement applying to one – stop procedure, one controlled window.

FIaVietnam

FIaVietnam

8/12/2008 22

FIaVietnam

- Building power-generated and transmitted projects, preferentially to build infrastructure action-plans with purpose of linking to power systems.

- Developing power distribution network crossed - GMS border

Preferential sectors: energy

FIaVietnam

FIaVietnam

8/12/2008 23

FIaVietnam

- Pushing ahead cooperation between investment-related agencies in the region.

- Enhancing legal framework moving forward to liberalize and simplify procedures relating to business and investment.

- Supplying clear legal framework for transforming infrastructure corridors into developed economic corridors.

- Mobilizing investment sources from developed partners and potential private sectors both in the region and out-region.

Cooperation to boost and facilitate investment

FIaVietnam

FIaVietnam

8/12/20088/12/2008 2424

FIaFIaVietnamVietnam

-- Up till now, there are 20 infrastructure projects jointed Up till now, there are 20 infrastructure projects jointed by private sectors in energy, expressways, airports, water, by private sectors in energy, expressways, airports, water, urban management with total capital of 1,327 billionsurban management with total capital of 1,327 billions-- Vietnam has 3 projects: Mekong energy limited company, Vietnam has 3 projects: Mekong energy limited company, PhuPhu My 3 power My 3 power LyonnaiseLyonnaise Viet Nam Water CompanyViet Nam Water Company-- Thailand has 3 projects in power and expresswaysThailand has 3 projects in power and expressways-- China has 12 projects in many infrastructureChina has 12 projects in many infrastructure’’s sectors s sectors -- Cambodia has 1 project in power transmissionCambodia has 1 project in power transmission-- Laos has 1 project in hydroelectric powerLaos has 1 project in hydroelectric power-- Myanmar has no projectMyanmar has no project

Private sectors participating inPrivate sectors participating in

GMSGMS--Infrastructure projects Infrastructure projects

FIaVietnam

FIaVietnam

8/12/2008 25

Challenging in Challenging in atractingatracting private investmentprivate investmentFIaVietnam

FIaVietnam

FIaVietnam

8/12/2008 26

FIaVietnam IV. Recommendations

Factors fostering private investment in infrastructure

-The government strong commits to support private sector through issuing policies, regimes facilitating procedures and assisting capital, technology, training, sharing risks.

- Building good modes: BOT, PPP, in which, building mixed financial arrangement between different sources : ODA, state development funds, state-owned enterprises, commercial banks, private capital distribution.

- To guarantee stronger investment (government guarantee).

According to given project, government participating in contracts guaranteeing power purchasing, supplying gas, coal,… (for power plants).

- Building appropriate capital-return regimes.

FIaVietnam

FIaVietnam

8/12/2008 27

FIaVietnam

Public – Private Partnership Model

Petro VN EVN Government

BOT COMPANY MOIT

Private investors

Commercial banks

Insurance company

Gas selling agreements

Power purchase agreements

BOT contracts

Loans

share purchase