Private investors in Vietnam have been advocating more private sector participation in infrastructure for the 1ast 10 years. 
Their underlying concern for the last 10 years that failure to develop infrastructure will be a bottleneck to Vietnam's growth - is now well-accepted.
According to page 3 of the Vietnam Investment Review of 2 November 2009, Prime Minister Dung stated that "In 2009, the country's infrastructure did not improve. This will continue to hurt Vietnam's economic growth ... Vietnam's roads are of low quality, while its electricity system has failed to meet the people's demands. There is still a lack of urban area infrastructure and water drainage and supply systems ... "
The PM's analysis is in line with that of the World Economic Forum, according to which Vietnam ranks last on the competitiveness index for infrastructure quality compared to other neighboring counties.
Logistics costs associated with infrastructure investments made up 9.5% of GDP in the US; 11 % in Japan; 21 % in China and 25% in Vietnam and that the lack of a suitable port infrastructure is costing Vietnam approximately $1.7 billion in logistics costs per year because local companies transship goods via Hong Kong and Singapore.
If you look at the global picture pre-crisis, government infrastructure investments have generally declined compared to private infrastructure investments.
Minister Phuc, Ministry of Planning and Investment, was clear about the tract that the current situation made it vital for the public and private sector to work together to identify and implement responsive measures, not only to solve the macro-economic downturn but also the infrastructure problem.
The infrastructure demand is huge in Vietnam; power demand is continuing to grow at more than 15% per annum and will require some $60 billion by 2025. Investment needs in telecoms, ports, airports, roads, railways and air transport are vast. MPI estimates that $139 billion is needed over the next 5 years.

PPP
The question is what to do about it? Investors have been advocating more PPPs since 2001. There is now general agreement among business groups that a greater emphasis on Public-Private Partnerships (PPPs) is desirable. PPP is a well-established mechanism for delivering cost-efficient investment around the world. Basically, in the PPP model, the government pays over the long term as services are delivered. The private sector provides the funding using a 1arge portion of debt plus shareholder equity. The return on their equity depends on the quality of services (payments based on usage or on availability). The private sector service provider is responsible not just for asset delivery but fur overall project management and implementation and operation for several years.

Current Status of PPP in Vietnam
Where are PPPs in Vietnam and what could be done to make it more effective? In Vietnam, "PPP" currently consists of few unrelated strands:

• There are the BOT regulations, pursuant to which private investors can build infrastructure under certain favorable conditions and charge a tariff agreed with the State for the use of that infrastructure for an agreed period of time. Unfortunately, only two BOT projects have been financed in the international markets since the BOT regulations were put on the books in 1993. BOT regulations are being amended again, but the main changes appear to be administrative not substantive.
• There are the normal foreign investment regulations, pursuant to which foreign investors have occasionally taken the risk of building infrastructure on a merchant basis, but with some 1evei of governmental support. This has been most noticeable in the ports sector, where the big shipping and port companies have built small ports and the land-side infrastructure has been built by the government.
• There are pilot projects that are trying to bridge the gap between a formal PPP regime and the existing 1egai regime.

Power
There have been some successes in the power sector:
The Phu My 2-2 and Phu My 3 projects are the leading examples of what can be done. 1500MW of power were financed entirely by the private sector. These plants become the property of the Government in another 12 years or so at no cost to the State budget.
But the Phu My 2-2 and Phu My 3 projects were isolated. No follow-on project has been licensed, despite the best efforts of numerous developers (though some are rumored to be closed) and despite the collaborative work of IFC and the MOIT to develop the Nghi Son 2 project for bid. 5.3 In addition, Hiep Phuoc, Bourbon Tay Ninh and Formosa are examples of successful 'captive' power production schemes, allowing private companies to generate their own electricity for use in their factories or industrial zones and to sell excess output to EVN.
However, difficulties negotiating a PPA with EVN and gaining an electricity license from MOIT need to be overcome and a standardized approach adopted which encourages and incentives private sector investment in captive power production.
In addition, many small hydropower projects were licensed to developers without the financial and operational capacity to properly develop the projects. As a result, small hydro-power capacity is currently well below its potential.

Ports
There have also recently been some successes in the private sector with ports, for example at Cai Mep and Hiep Phuoc. The public sector has had to provide roads and will have to provide dredging support, but there is little formal public-private cooperation, just ad hoc cooperation that is not sufficient for the future of infrastructure development as a whole.
Most of the issues, that challenge the ability of private businesses in this sector, especially the private sector's inability to plan without access to discussions surrounding the Integrated Transportation Infrastructure Plan, (including milestones, timelines for completion and responsible parties), remain outstanding. The most significant public sector constraints on private sector port development are the following:

• HCMC - Long Thanh, Dau Giay Expressway is a key additional artery.
•  Highway 51 expansion project is critical to accommodate increased container truck volume coupled with weekend travelers.
• Bien Hoa - Vung Tau expressway 68km linking key industrial parks in Dong Nai important to provide link to Cai Map Thi Vai.
• Dredging has been delayed and current operations must be supported as liner operators cannot take advantage to bring the large ships in for more efficient operations and transshipments.
• E-customs should be fast tracked and customs department should be encouraged to collaborate between zones and provinces to cut down on unnecessary processes that lead to higher cost for shippers and importers.
• In the north of Vietnam, the Lach Huyen terminal and landside infrastructure leading to the terminal can easily be a 4 year build. Serious terminal congestion can hopefully come as early as 2010 if full economic recovery takes hold.

Telecoms
There were several BCCS in the 1990s but little infrastructure investment except by SOES.
 
Water
There has been a water supply project - the Thu Duc project - which has had some state support, but again in an unstructured form that is not easily replicable.
In addition, there is one example of a small-scale water supply business which has entered into water supply contracts in a vulnerable remote area. In addition to the income for delivery of treated water, the private company has developed additional income from seli1ng treated water to private customers.
This model may be of interest private industrial zone operators who have the ambition to become water utility companies. Contracted to supply water and water treatment for a province, they can secure additional private income selling these services to their own IZS and neighboring industries and housing.

Roads
There have been some private sector road projects, but the land issues are more and more insurmountable absent clear regulations.

Municipal Solid Waste Treatment
This is clearly a high priority for government, but delays in licensing and confusion about which government body has responsibility have hampered developments by private companies. There is one model of solid waste separation and recycling which does appear to have the potential to be expanded nationally. A People's Committee contract to supply and pay for acceptance of waste guarantees the contractor a basic income; this is supplemented by additional private income from selling recovered materials. This combination of public and private income makes this a more attractive investment for the private sector.

Railways
There do not appear to have been any PPPs in this sector.

Airports
Various BOT efforts are underway, but there are no known successes to date. Recommendations for PPP in Vietnam.

The successes mentioned above are insufficient for the huge growth of infrastructure that is now required to keep businesses functioning well. What can be done to make PPP more effective? The recommendations can be broken down into a few categories.

• Clear policies: There should be clearly stated policies for PPPS in each infrastructure sub-sector and such policies have to be seen to be real - the various master plans are helpful but change too frequently to be viewed as reliable by the private sector. Private investors would strongly suggest involving the private sector in each master plan at an early stage of formulation in order to inject some business realty into the bureaucratic process.
• Pricing: The second 'fundamental - and extremely difficult issue - is price. The private sector cannot develop projects without an adequate return; yet often the population cannot afford the prices that the private sector would charge. The Government therefore does the project directly or through an SOE. But as this may be less efficient, the price to the populace is even higher in the end. The private sector suggests that the best response is to try to develop a highly competitive PPP market. The Nghi Son 2 tenders are a good example, with more than 20 companies pre-qualifying to bid. This will produce the best price.
• Clear regulatory framework: The regulatory framework for PPP needs to be clear. It should not be subject to all the generalities and uncertainties currently contained in the BOT regulations, which force even minor decisions onto the PM or Deputy Prime Minister. There are two main options:

1. Improve the BOT model dramatically to form the basis for State involvement in private sector infrastructure.
2. Alternatively, brand-new regulations should be issued for specific infrastructure sectors, with specific solutions on recurrent issues.

In either event, there are certain important issues which should be covered in the regulations to make infrastructure projects work. These include:

1. Within each sub-sector, responsibility should be assigned clearly to a specific State organization to grant contracts. Wherever possible, contracts and licenses should be delivered by that State organization only.
2. The terms on which the Government may be prepared to offer limited guarantees on the availability and convertibility of foreign exchange and limited guarantees on the performance of Vietnamese counterparties. While the Government does not need to tie its hands, a lack of clarity deters investors and causes delays, which might cost even more in the long run.
3. A foreign governing law for the BOT Contract and PPA and certain other important agreements is essential to international bank ability. But under the BOT regulations, the choice of a foreign law is only valid if agreements between two Vietnamese parties "are guaranteed by the Government, and outside the BOT regulations even this is not possible.
4. The protection available against a change in law needs to be clear. Given the frequency with which the 1aw changes in Vietnam, developers need a watertight definition

Institutional Framework
No PPP framework will be successful without the appropriate institutional backing. While we acknowledge that there are different institutional options for PPP, the some institutions would suggest that:

1. The Government creates a PPP Infrastructure Investment Agency just as the MPI created the Foreign Investment Agency, which has done so well.
2. That the PPP Infrastructure Investment Agency be divided into sub sectors each responsible for one particular sub sector such as power or water.
3. That the PPP Infrastructure Investment Agency be a national body even in respect of local infrastructure as PPP is a complex process to do right.
4. That the PPP Infrastructure Investment Agency be given power to make decisions even in areas that are normally domains of other ministries.
5. That the Government asks relevant donors to train the members of the PPP Infrastructure Investment Agency in implementation of PPP.
6. That while such training is going on, clear policies be issued in respect of each infrastructure sub sector.

Model projects
It will take time to develop a deep institutional capacity. In the meantime, it is suggested that model PPP projects be developed. Pilot projects should be developed for "easier" sectors first (power and water). They should then be replicated in those sectors. Once the model works, similar projects should be developed in other infrastructure sub sectors where private sector participation is possible.
It is important that the models work and that the project is clearly defined with risks and rewards appropriately allocate between the parties involved. Well-structured projects with balance risk profiles attract competition from multiple bidders which will reduce the cost of the project and benefit Vietnam.
Investors would therefore encourage the Government to develop documents for bid with international assistance, but only if it can be done well and without too many delays. If this occurs, then one project can be replicated many times.
In some sectors it may not be possible to develop generally-applicable bid documents. Here, it may be possible for the Movement to do one negotiated project well and then to announce that its terms will be the precedent to be applied to future projects.

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