On December 31, 2023, the Ministry of Transport issued Circular No. 55/2023/TT-BGTVT ("Circular 55") guiding certain aspects of investment projects using the public-private partnership (PPP) method, specifically focusing on the business-management contract for expressway operation and maintenance projects (referred to as "O&M expressway projects") nationwide. Here are some key points from Circular 55.
1. Contents in the feasibility study report and project feasibility study report
In addition to criteria related to economic and social efficiency, quality evaluation of the project's infrastructure system provided by the project enterprise as regulated in the Construction Law 2014 and Decree 35/2021/NĐ-CP guiding the Investment Law in PPP, Circular 55 introduces specific financial indicators in the O&M project's financial plan. Specifically, the financial plan in the feasibility study report and project feasibility study report must include the following contents:
(i) Total project investment;
(ii) Profit on the investor's equity capital;
(iii) Costs during the project's operation period;
(iv) Capital recovery plan, investor's profit;
(v) Costs throughout the project's life, including total project investment and costs during the project's operation period;
(vi) Minimum payment to the state budget;
(vii) Project implementation period.
Circular 55 provides detailed guidance on determining the principles of profit margin on the investor's equity capital. Investors must propose a profit margin on the equity capital ensuring the following conditions:
+ Minimum profit margin not lower than the average interest rate for 12-month term deposits for at least 03 commercial banks with state-owned capital, determined at the latest time within 03 months before the feasibility study report, project feasibility study report is prepared;
+ Maximum profit margin equals the minimum profit margin mentioned above plus the inflation rate.
According to the General Statistics Office of Vietnam's announcement, the inflation rate is determined based on the Consumer Price Index (CPI) average over the last 10 years, excluding years with significant CPI fluctuations.
2. Template guidance for O&M expressway contracts
a. Application principles
- The O&M expressway contract signed between the contract-signing agency and the investor, implemented by the project enterprise according to the template specified in Appendix IV of Circular 55.
- During negotiations and contract finalization, parties may propose amendments without changing the essential content of the bidding dossier as per regulations and without violating the bidding dossier and relevant legal provisions.
b. Mandatory contents in the O&M expressway contract:
(i) Agreed-upon contract documents, including the legal basis for project contract signing; general information about the contracting parties (contract-signing agency, investor, project enterprise); contract documentation and legal priority order; contract term and effective date.
(ii) General contract conditions: including basic provisions of the contract, adjusting investment, construction, and project operation activities, and the rights and obligations of the contracting parties (competent state agency, investor, project enterprise).
(iii) Specific contract conditions: including details clarifying project-specific issues applicable to the project, investor, or project enterprise. These specific conditions may be intertwined within a provision with general contract conditions.
(iv) Contract appendices: constitute a part of the project contract. If necessary, the contract may have attached appendices to specify details such as insurance, project enterprise information, financial plan, a list of approved authorization documents, contract implementation guarantees, functions of the delegated authority, technical requirements for design, construction technical requirements, operation, maintenance, business of the infrastructure, and system, ...
3. Minimum state budget value payment period
Appendix III of Circular 55 provides guidance on financial and commercial evaluation criteria for selecting an investor for the O&M expressway project, with the highest state benefits (maximum state budget value) being the primary criterion. Therefore, Circular 55 requires that the O&M contract specifies the value and payment period for the investor or project enterprise to pay the state budget value according to the following principles:
(i) In the case of a state budget value below VND 1,000 billion: A maximum of two payments:
+ Payment 01: Minimum payment of 50% of the state budget value within 01 month from the effective date of the contract;
+ Payment 02: Full payment of the remaining state budget value within 03 months from the effective date of the contract.
(ii) In the case of a state budget value exceeding VND 1,000 billion: A maximum of three payments:
+ Payment 01: Minimum payment of 40% of the state budget value within 02 months from the effective date of the contract;
+ Payment 02: Minimum payment of 30% of the state budget value within 04 months from the effective date of the contract;
+ Payment 03: Full payment of the remaining state budget value within 12 months from the effective date of the contract.
In case of late payment of the state budget value, the investor or project enterprise will be fined 0.03% per day on the delayed amount. Simultaneously, the investor or project enterprise will be considered to have seriously violated the obligations specified in the contract and will be reviewed for contract termination before the deadline if the full state budget value is not paid within 03 months from the effective date of the contract in the case of state budget value below VND 1,000 billion, or within 12 months from the effective date of the contract in the case of state budget value above VND 1,000 billion.
Circular 55 takes effect from March 1, 2024.
Comment: