Newly-promulgated Government's Decree 108/2009/ND-CP on investment in form of BOT (Built-Operation-Transfer), BTO (Built-Transfer-Operation) and BT (Built-Transfer) contracts ("Contract") will apply to all investment activities in Vietnam from 15 January 2010. The main provisions of the new regulation, which replaces the existing Government Decree 78/2007/ND-CP and provides transitional provisions to all signed contracts and projects with investors selected before 15 January 2010, are as follows:

Registration and New Proposal by Investors

Investors should register projects with the Vietnamese authority (the authority) within 30 business days from project publication in the Tender Newspaper, or propose new projects to the authority for approval, in order to be deemed the designated implement of the project.

Contract

No significant changes have been made to the definition of "contract". Yet the compulsory requirements on the contractual terms are much simpler than those stipulated in the existing regulation, giving parties more freedom in deciding contractual terms. Contracts shall be first executed between investors and the authority. The enterprise, once established by investors, shall then execute the contract or alternatively sign an instrument with investors and the authority to take-over and implement the contract. Foreign law can be selected as the governing law of the contract but they must comply with Vietnam's law to avoid the risk of unenforceability.

Project lenders are entitled to take-over part or all right and obligations of an enterprise if it or the investors fail to implement contract or loan agreements. Loan agreements, security contracts and taking-over conditions must be approved by the authority.

P-bond

The performance of Contract must be guaranteed with a bank-issued P-bond or other security means which will expire upon project completion. The value of the P-bond will be at least 2 percent of project's capital where the capital is less than 1,500 billion Vietnam dong (approx US$ 81.2m) with an additional 1 percent owned where the project's capital is in excess of this amount.

Capital Requirements

The capital of a project shall be arranged by the investors or enterprise. If the capital is less than 1,500 billion Vietnam dong, an investor must contribute at least 15 percent of the capital. As above, where the capital is greater, the contribution shall be at least 15 percent up to 1,500 billion Vietnam dong, plus 10 percent of any further capital. The State's capital contribution shall be capped at 49 percent.

Setting up an Enterprise for BOT Contract Implementation

For the performance of the contract, a new enterprise must be established or the business scope of an existing Vietnamese enterprise be adjusted in line with the BOT project. The incorporation of the enterprise shall be in accordance with procedures and conditions set forth in the Enterprise and Investment laws. Implementation of the project will start after the enterprise is granted an Investment Certificate, and in accordance with conditions set forth in the contract.

Transfer and Operation

A project will be transferred without payment to Vietnam authority in accordance with terms set forth in Contract. Within six months from the project's completion, investors must create a balance sheet of total capital invested for construction of project, which shall be audited by qualified auditing company selected by investors after consultation with the authority. The authority will evaluate value of the project, determine defects and damages and then request the enterprise to make repairs of such defects and damages for transfer, which will be undertaken in accordance with procedures and terms specified in the Contract.

(Published on Asian Counsel Dec 09 | Jan 10)