VIETNAM GUIDE ON RENEWABLE ENERGY 2017
FOREWORD Vietnam s power sector has been developing rapidly over the years with opportunities opening for renewable energy (i.e. Solar Energy and Wind Energy, although not limited to the two mentioned). The country is one of the fastest growing markets in South East Asia in terms of power demand growth, with current projections indicating an increase in demand of up to 7.51% annual growth by 2030. The demand creates the need for a growing supply of power generation. Due to the swift growth in this sector, the Prime Minister of Vietnam, promulgated Decision No. 11/2017/QD-TTg ( Decision 11 ), as a mechanism to encourage the development of solar power projects in Vietnam to investors. This guide aims to provide foreign investors with an overview of the legal framework on investing in the market of Renewable Energy in Vietnam. Additionally, we would like to highlight to investors to look out for the latest developments in the law on Solar Energy projects which is said to come into place on 26 October 2017, by the Ministry of Industry and Trade based on Circular 16/2017/TT-BCT 2017. We trust that the information found in this guide would be beneficial to you. Ho Chi Minh City, September 2017, Dr. Jörg-Michael Scheil
CONTENT Chapter I An overview of the renewable energy sector in Vietnam Chapter II The participation of foreign investors in the market of Renewable Energy Regulators in the Power Industry Overview on fundamental legislations and the different business ventures European Union and Vietnam (Non-Tariff barriers to Trade and Invest) Solar Power Projects Wind Energy Projects Funding from financial institutions The governing law on forms of investment A wholly Foreign-owned Enterprise or Joint Venture with a Vietnamese Counterpart Acquiring shares in an existing enterprise through capital contributions Public-Private Partnership Project Business Corporation Contract Chapter III Other types of Renewable Energy Biomass Energy Solid waste to Energy Hydropower Chapter IV Conclusion
CHAPTER I AN OVERVIEW OF THE RENEWABLE ENERGY SECTOR IN VIETNAM 4
CHAPTER I AN OVERVIEW OF THE RENEWABLE ENERGY SECTOR IN VIETNAM Renewable energy refers to energy that comes from resources such as water, wind, sunlight, geothermal, heat, tides, waves, biological fuels and other resources that can generate renewable energy (Article 43 of the Law on Environmental Protection 2014). The growth potential in Vietnam s renewable energy sector, particularly in wind and solar electricity stems from the government s reforms in making Vietnam s power sector competitive and efficient allowing global investors to explore and invest in this lucrative market. The number of renewable energy projects is constantly increasing with a total investment capital of approximately 1,200-1,400 billion VND (USD $53,000,000-62,000,000), which depicts that investing in Vietnam s renewable energy sector is becoming an attractive trend. Even the country s monopoly-holding utility Electricity Vietnam (EVN), a state-owned enterprise with more than 50 subsidiaries under the Ministry of Industry and Trade (MOIT), has shown intentions to invest in some large-scale photovoltaic (PV) projects. The electricity transmission, distribution and supply in Vietnam are held by EVN. In general, EVN s facilities account for approximately, 74% of generation capacity and the remainder is under the control of local or foreign independent power producers. 5
CHAPTER I AN OVERVIEW OF THE RENEWABLE ENERGY SECTOR IN VIETNAM Binh Thuan and Ninh Thuan are the two leading provinces, which attract many domestic and foreign enterprises in wind energy projects. The province areas are of favorable conditions for its intended purpose due to the ideal weather of the sun with limited rain. Bình Thuan has significant potential for wind power generation, estimated at 3000MW. This is an arid area usually short in rainfall but abundant in wind. Conversely, Ninh Thuan is a site for some of Vietnam's future electricity projects that are part of EVN's diversification away from hydro-power. The Binh Thuan Wind Energy Association, noted that a number of enterprises have registered to carry out wind power projects in Vietnam, registering a total capacity of 5,700MW. According to Vietnam Clean Energy Association (VCEA), the country has approximately 30 investors, both domestic and foreign enterprises that are establishing new solar power projects with the capacity of 20 MW to over 300 MW in some localities. The information mentioned herein evidently proves that the market in renewable energy is indeed thriving, thus encouraging investors to focus on Vietnam s sector in this area. 6
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY 7
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Regulators in the Power Industry The main regulators in Vietnam s power industry are as follows: Electricity Vietnam (EVN), which is responsible for the transmission and distribution of power and most of its generation; Ministry of Industry and Trade (MOIT), which proposes laws, policies and strategies for the Vietnamese power market; Ministry of Finance, which is responsible for all tariffs; and Ministry of Natural Resources and Environment, which develops energy and environmental protection policies. The following are some of the principal consents and licenses required of a foreign renewable investor: Principle Approval; Investment Registration Certificate; Enterprise Registration Certificate; Power Purchase Agreement; Business License (for investors importing, exporting and distributing); Electricity activity license; Approval of Environmental Impact Assessment Report ; Construction permits; Land use right certificate. 8
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Overview on fundamental legislations and the different business ventures The Law on Electricity 2004 (No. 28/2004/QH11), is the fundamental legislation which stipulates the various requirements needed of investors, to abide in considering to invest in the renewable energy sector. The land lease for investors to execute their project are decided upon by competent authorities. The electricity activity licenses, which provide for conditions in relation to granting, amending or supplementing electricity activity licenses, are defined in Chapter V of the said legislation. Vietnam s renewable energy legislation stems from the need to supply enough energy for economic development while ensuring environmental protection. While, there is no single standalone legislation governing renewables in Vietnam, the country adopts from several legislations and accompanying regulations (i.e. Decisions and Decrees), which are relevant to foreign investors who may be interested in the renewable energy sector. There are several ideas an investor may consider when venturing in the business market of renewable energy. One such way is by operations, take for an example operating a solar power plant. The other way is to provide a service (i.e. engineering services), or even to sell and supply equipment in these specialized field (i.e. selling of photovoltaic sheets or turbines). Based on Vietnam s accession to the World Trade Organisation ( WTO ) commitments, under the category, Schedule for Specific Commitments in Services, it specifies some of the services and requirements expected of an enterprise intending to offer business services to consumers. Engineering services are classified under two categories within Professional Services, mainly, (1) Engineering services (CPC 8672) and (2) Integrated engineering services (CPC 8673). This will be further discussed in the different forms of investments which may be available to an investor. 9
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY European Union and Vietnam (Non-Tariff barriers to Trade and Invest) Given the growing market in renewable energy in Vietnam, there are great opportunities and new possibilities available for European Union ( EU ) investors. The EU and Vietnam has agreed on a set of provisions to ensure that the right legal framework will be established. In encouraging trade and investment, the provisions aim to promote the generation of energy from renewable and sustainable non-fossil fuels. The EU has already been supporting Vietnam's energy sector through its development cooperation. The Free Trade Agreement ( FTA ), signed between the EU and Vietnam allows investors in the renewable energy market in Vietnam to enjoy incentives for equipment imports and electricity sales. The FTA covers the development of sustainable energy sources and requires non-discriminatory treatment for companies (in general licensing and authorization procedures), in the sector and gradual tax reductions to 0% for green technology equipment. 10
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Solar Power Projects Over the years, the government of Vietnam has mostly focused its renewable energy plans on wind energy and biomass production, however lately, solar energy is starting to take center stage. The most recent Decision 11 (No.11/2017/DQ-TTg) regulation, governs the development of solar power projects in Vietnam, which addresses rooftop projects and grid-connected projects. Rooftop projects refer to projects with solar panels directly mounted on the rooftop which is directly connected to the power grid of the buyer. While grid-connected projects mean a project that is connected to the national power grid or the power grid of the buyer. Another new regulatory framework aimed at bolstering the growth of Vietnam s Solar Energy Sector is No. 16/2017/TT-BCT, ( Circular 16 ) which comes after Decision 11, detailing the formulation and approval of national and provincial solar power development. The FIT rate which had been mentioned in Decision 11 was affirmed by Circular 16. While some regulations made in Decision 11 are affirmed in Circular 16, other regulations are improved and made better in Circular 16 based on the previous decision in 11. Decision 11, provides that only grid-connected projects must conform to the national development plans or provincial development plans for solar power, while Circular 16, stipulates that gridconnected projects and rooftop projects with a capacity of 1 MW or higher must conform to the national development plans or provincial development plans for solar power. The preparation, approval and publishing of solar power development plans are governed by the MOIT who is in charge of organizing the preparation of the national solar power development plans and submitting to the Prime Minister for approval, while the People s Committee is in charge of the provincial solar power development plans before submitting it to the MOIT. 11
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY The regulation also mandates that EVN and its authorised subsidiaries are required to purchase all the electricity produced by solar power projects. The price of electricity is also dealt with in the Decision, with regards to grid-connected projects (with the efficiency of solar cells greater than 16% or the efficiency of the module greater than 15%), at 2,086VND/kWh (excluding VAT, equivalent to 9.35 US cents/kwh, based on the exchange rate of the State Bank of Vietnam on 10 April 2017. The FIT in respect to rooftop projects is to be implemented in net-metering with two-way electricity meters. If the amount of electricity generated from these rooftop projects, is more than the amount used, the excess will be brought forward to the following trading cycle. The effective period of purchase contracts in solar power projects have a term which should not exceed 20 years from the date of commencement of commercial operation. Although the Agreement has a term of 20 years, parties may extend the contract in accordance with effective law, as seen in Article 9.4. In terms of tax and investment incentives for the development of solar power projects, stipulated in Article 10, domestic and foreign capital should be raised by individuals or organisations, in order to carry out the projects in accordance with the law. The solar projects are eligible for exemption of import duties on goods imported as fixed assets based on the effective regulations on import. Similarly, there are exemptions on export duties for materials, components and semi-finished products, which may not be domestically manufactured and imported to serve domestic production. 12
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Solar power projects are also entitled to the benefits of land incentives. Grid-connected solar power projects, transmission lines and substations shall be entitled to exemptions or reduction in land levy, land rent, water surface rent based on the current regulations on investment incentive programs. Subject to the approval of the relevant authorities, People s Committees of the provinces shall assist the land arrangements for investors to execute solar power projects. Based on Circular 16, investors of solar power are required to maintain an equity ratio of at least 20% of the total investment, and to limit project land-use to 1.2 hectares/1 MWp. Grid-connected and rooftop solar projects with a capacity of 1 MW or higher will be subject to mandatory power sector licensing requirements of MOIT. Circular 16, reiterated the essential incentives for solar project investors, which were mentioned in Decision 11, such as the benefit for tax exceptions on raw materials and supplies which were imported for project purposes, corporate income tax relief, and exemptions from land rental fees within the first years of commencing operations. 13
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Wind Energy Projects Wind Energy projects are governed under Circular No. 32/2012/TT-BCT ( Circular 32 ). Article 6 of the Circular provides that, investors shall set up wind power projects which are only in the list of wind power projects approved by the MOIT. The ratio of the equity of investors in these projects shall not be less than 20% of the total investment capital. Wind energy projects are also encouraged and supported by tax and land related incentives. Previously, in Decision No. 37/2011/QD-TTg ( Decision 37 ), Article 14 provides that FIT for such projects were 7.8 US cents/kwh. It was recently proposed by the MOIT to increase the FIT for onshore wind power projects to 8.77 US cent/kwh and 9.97 US cent/kwh for offshore wind projects. Article 7 of Circular 32, provides for the conditions in commencing a construction of wind power projects. These include having an Investment Certificate granted, having a signed Power Purchase Agreement with the electricity purchase, a signed Connection Agreement with the electricity distributor or Transmission Company and having a Financial Agreement and capital commitment to ensure construction progresses as intended. Another essential Article under Circular 32 to take note of, would be Article 12, which discusses the land occupancy of developing wind power projects. The land used for wind power projects should be appropriate with the capacity scale of project works. The rate of land use for wind power projects, is not allowed to exceed zero-point five (0.5) ha/ MW, while, the land area used for temporary wind power projects is not allowed to exceed zero point seven (0.7 ha/mw). There are also environmental protection requirements to adhere to in the development of such projects, which are stipulated within Article 14 of Circular 32. 14
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Funding from financial institutions While intending to invest in this sector, obtaining a loan from financial institutions may be a possibility. Based on Decision 11, in relation to funding for preparation of solar power development plans, Article 6, stipulates a provision that encourages funding from other lawful sources for preparation of solar power development plans. This means that an investor is allowed to take loans from banks in Vietnam, as well as offshore. The regulation that provides for loans is found in the Decree No. 32/2017/ND-CP ( Decree 32 ). Decision 11, allows investors to raise capital onshore, as well as offshore, when they choose to invest in solar power projects, while enjoying preferences on State investment credit and export credit. Decree 32, Article 7 and 8 depicts loan limits and loan terms. Presently, the maximum loan amount for each project (from the Vietnam Development Bank) is 70% of the total investment and the loan term is maximum 12 years. The preferential loan interest rate will be applicable. The governing law on forms of investments The principal law governing investments for foreign enterprises in Vietnam is the Law on Investment 2014 (No.67/2014/QH13), (hereinafter referred to as the LoI ). The legislation stipulates the various forms of participation available to an investor, these include, establishing a (1) wholly foreign-owned enterprise or a (2) joint venture with a Vietnamese partner, (3) acquiring a stake in an existing enterprise through capital contributions, (4) entering into a Public-Private Partnership Contract (PPP), between the State and an investor, or (5) entering into a Business Cooperation Contract (BCC), between the foreign investor and a Vietnamese partner. 15
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY A Wholly Foreign-owned Enterprise or Joint Venture with a Vietnamese Counterpart An enterprise, whether wholly foreign-owned or a joint venture company will have to be approved by the competent authorities. Be it a wholly foreign owned enterprise or a Joint Venture, the foreign investor is required to obtain an Investment Registration Certificate ( IRC ) and the Enterprise Registration Certificate ( ERC ), when establishing the company. Article 32 of the LoI, provides that there are some projects which will require the authority of provincial people s committees to make the decision on the investment policy, and this include projects with a requirement for conversion on the land use purpose. This means that before obtaining the IRC, the Principal Approval is required from the relevant authority, as provided in Article 32. For investors providing a service, an additional Business License ( BL ) is also required to be obtained to conduct any sale of equipment which involves export, import and distribution of wholesale and retail. Till date, there is no limitation on the foreign capital ratio for a joint venture company or a wholly foreign owned company intending to operate a solar energy plant or to provide a service of import, export and distribution. While the law does not specify the minimum investment capital in this sector, in practice this is usually dependent on the authorities. The authorities will also look at the paid-up capital of the investor to determine if it would be feasible to carry out the investment project. 16
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY According to Vietnamese laws, the electricity sector in Vietnam is a conditional sector. Decree 137/2013/ ND-CP ( Decree 137 ) (detailing the Law of electricity and the Law on amending the Law on electricity), stipulates the general conditions to be met by oranisations and individuals that are granted, amended or supplemented by activity licenses. Apart from the general conditions listed in Article 28 of Decree 137, Articles 29 to 44, provides for conditions of various sub-categories to obtain the grant of a specialized license activity. For example, just to mention some articles in brief to take note of, i.e. Article 29, which states the conditions for the grant of electricity-generating activity licenses, Article 30, provides for conditions relating to the grant of electricity-transmitting activity licenses, Article 31, refer to conditions for the grant of electricity- distributing activity licenses, Article 32, mentions the conditions for the grant of electricity- wholesaling activity licenses, etc. As Vietnam is in need of high capital requirements of approximately USD 8 billion a year until 2020 and about 10.8 billion per year from 2021 to 2030, for grid expansion and development of power sources, the government has permitted 100 percent foreign ownership of Vietnamese companies in the energy sector. However, it is essential to note that there may not be major projects requesting a wholly foreign-owned company to be established, noting that a rather typical form of investment in this sector is a joint venture with State-owned enterprises ( SOEs ). 17
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Acquiring shares in an existing enterprise through capital contributions Shares in a project company may either be sold or pledged to a lender. However, as there are restrictions which may apply, for example, running a solar energy plant is a conditional business activity based on Appendix 4 of the LoI, a foreign investor is therefore required to obtain the approval for the acquisition or subscription of shares from the competent authority. Only after the approval from the Authority, will a foreign investor be able to sign an agreement to acquire or subscribe any shares. Restrictions apply to the disposal of shares in certain types of companies. Public-Private Partnership Project A public-private partnership (hereinafter referred to as PPP ), means any form of investment on the basis of a contract between a regulatory agency and an investor, a project enterprise to carry out, manage and operate an infrastructure and public service project. The types of contracts available include a Build-Operate-Transfer contract ( BOT contract), a Build-Transfer-Operate contract ( BTO contract), a Build Transfer ( BT ) contract, a Build-Own-Operate ( BOO ) contract, a Build-Transfer-Lease ( BTL ) contract, Built-Lease- Transfer ( BLT ) contract and the Operation & Management (O&M) contract. With low FIT and high production costs, PPP is the most effective means of entering the market to minimize any risks. Some of the usual forms of foreign investment in this sector include BOT or a BOO contracts. 18
CHAPTER II THE PARTICIPATION OF FOREIGN INVESTORS IN THE MARKET OF RENEWABLE ENERGY Business Corporation Contract Another way a foreign investor may choose to invest in renewables include entering into a business cooperation contract ( BCC ), with a Vietnamese counterpart to implement the project. Bearing in mind that, there will be no legal entity established. Based on Article 28 of the LoI, a foreign investor is required to obtain an Investment Registration Certificate before joining a project. 19
CHAPTER III OTHER TYPES OF RENEWABLE ENERGY 20
CHAPTER III OTHER TYPES OF RENEWABLE ENERGY Biomass Energy Apart from Solar and Wind, there are other types of renewable energy. Take for example, biomass energy. Decision 24/2014/QD-TTg ( Decision 24 ), supports the development of biomass power projects in Vietnam. The decision removes financial barriers of gridconnected biomass power projects. Investors from biomass combined heat and electricity projects can sell their surplus power to the grid at a FIT of 1,220 VND/kWh (fixed at 5.8 US cents). The Power Purchase Agreement terms, which are applicable to biomass power projects, is 20 years from the date of commercial operations, with the possibility to extend. Furthermore, Article 12 and 13 of Decision 24, provides investment capital, tax incentives and land incentives for investors looking to invest. Solid Waste to Energy Decision 31/2014/QD-TTg ( Decision 31 ), is a regulation supporting the development of power generation projects using solid waste in Vietnam. Article 6 of Decision 31, stipulates conditions for investment in building of power generation projects using solid waste. The investment in power generation projects using solid waste is carried out based on the law of construction, fire prevention and fighting, environmental protection and other relevant regulations. The FIT as provided is 10.05 US cents/kwh for power generation projects using solid wastes that are directly incinerated, and 7.28 US cents/kwh for those using combusted gas collected from solid waste landfills. There are benefits from non-tariff incentives from the Government that investors from waste-to-energy projects can enjoy. 21
CHAPTER III OTHER TYPES OF RENEWABLE ENERGY Hydropower Small hydropower plants are governed under Circular No, 06/2016/TT-BCT. The circular provides some conditions required for various categories of power plants such as one with capacity of at least 10MW and power plants with capacity of 3MW to less than 10MW. 22
CHAPTER IV CONCLUSION 23
CHAPTER IV CONCLUSION The government of Vietnam is keen on growing and expanding investments in the sector of renewable energy. This is evident from the mechanisms of legislations and regulations governing renewable energy, which had been passed over the years. As explained, there are several forms an investor may invest in the renewable sector market, mainly as a 100% foreign owned company, by way of acquiring shares in a company, in a form of a PPP or a BCC. An investor may also look at funding from offshore or onshore banks to obtain a loan. The fact that several legislations, decrees and circulars are being enacted shows that this is definitely an emerging area and lucrative market for investors to consider. While the focus may be only in Solar and Wind presently, other renewable energy (i.e. Biomass Energy, Solid Waste to Energy and Hydropower), are worth to explore as well. 24
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