Finding a way back for the BT contract

Changing the approach and thoroughly refining the implementation mechanism are solutions being discussed to ensure that the build-transfer (BT) contract method is effective in mobilizing resources from the private sector.

BT projects are still considered to have made certain contributions to the improvement of the infrastructure system.

BT investment model makes a comeback.

The return of the BT contract method in the Draft Law amending and supplementing a number of articles of the Planning Law, the Investment Law, the Law on Investment under the Public-Private Partnership (PPP) method, and the Bidding Law does not mean a recurrence of the problems that led to the suspension of this investment form in 2021.

“The PPP law has halted the implementation of BT projects due to shortcomings and the failures of previous projects. However, if we change the approach, thoroughly refine the implementation mechanism, and overcome the shortcomings of the previous phase as much as possible, BT remains a good way to mobilize resources from the private sector,” Ms. Nguyen Thi Linh Giang, Head of the PPP Office, Procurement Management Department ( Ministry of Planning and Investment ), shared the drafting committee's viewpoint at the workshop to gather feedback on the draft law.

It should be reiterated that, according to the PPP Law, since 2021, BT contracts have not been applied to new investment projects. The reasons given at that time were that some projects lacked appropriate and necessary investment objectives; the value of BT projects was inaccurately determined, with most projects having higher investment costs compared to projects using public investment capital; the selection of investors was mainly carried out through direct negotiation without competition; and supervision was neglected, leading to substandard construction quality…

Previously, before 2014, the Build-Transfer (BT) model applied both payment methods: cash and land funds, according to Decree 108/2009/ND-CP. Since 2014, the Government has stopped implementing the cash payment method. From 2018, the land fund payment method, based on an equal value mechanism, has been legalized in the Law on Management and Use of Public Assets.

Looking back at this period, many ministries, sectors, and localities with BT projects believe that these projects still made certain contributions to completing the infrastructure system in localities, mobilizing resources from the private sector, and helping to reduce pressure on public investment capital. In addition, the reciprocal investment projects also contributed significantly to improving infrastructure in housing and services, forming new urban areas and residential zones…

This also served as the basis for the National Assembly to allow three localities, Ho Chi Minh City, Hanoi , and Nghe An, to pilot the BT (Build-Transfer) contract model. However, the application method is still inconsistent, depending on the specific conditions of each locality. Ho Chi Minh City applies a BT mechanism with payment in cash (using the city's budget). Nghe An applies a BT mechanism with payment in cash (using the state budget or revenue from auctioning public assets or land use rights). Hanoi applies a BT mechanism with payment in cash (city budget) or payment in land funds.

The question of whether to settle with money or land remains.

Up to this point, the mechanism of payment in cash or land is still being considered. In the draft law that the Ministry of Planning and Investment is currently seeking feedback on, two options are still being presented.

Option 1 stipulates that the BT contract will be paid to the investor in cash. Option 2 applies a mechanism of both cash and land payment.

Ms. Linh Giang stated that the difference compared to the previous phase is that the implementation conditions are stricter, but the total investment for the project is determined based on the technical design, similar to public investment projects. This will prevent inflated project values. The selection of investors must be through bidding, not through direct negotiation…

Under Option 1, the payment source must be allocated in the medium-term and annual public investment plans to provide a basis for payment, or paid directly to the BT project investor from the proceeds of public asset auctions. However, this model still carries risks; if payments are delayed, the accrued interest will lead to an increase in the project's value. This is a drawback that has occurred in practice in many BT projects in previous periods.

On the other hand, regarding the model of payment using revenue from the auction of public assets, the Drafting Committee believes that it is necessary to review and amend the State Budget Law (to allow the application of a mechanism where revenue from auctions is paid directly to BT project investors, instead of being remitted to the state budget) and amend the Law on Auction of Assets (to allow BT project investors to enjoy preferential treatment when participating in auctions).

Option 2 allows for the application of BT contracts, paying investors with cash (as in Option 1) and land funds. This option creates a legal basis for mobilizing additional resources from land for development investment and partially overcomes the shortcomings in determining the value of BT projects and the value of land funds used for payment at the time of project planning, bidding, and contract signing.

However, this option fails to address the situation where the actual land value at the time of land allocation far exceeds the projected land value in the contract; although it allows for a mechanism to offset the difference, it still lacks the basis to allocate the entire projected land to the investor as committed in the contract.

Regarding this option, during the consultation process, it was proposed that public assets not be used to pay for BT projects, but only land funds managed by the State as stipulated in Article 217 of the 2024 Land Law should be used to pay the investor.

Furthermore, it is proposed to add a type of BT contract that does not require payment, applicable to cases where the investor proposes to invest in the construction of a project and transfer it to the State for management and use without requiring payment of construction investment costs…

Clearly, the choice of which mechanism to adopt will require careful consideration, in order to overcome the shortcomings of this model while simultaneously refining regulations to meet the new demands of practice.

According to the plan, the draft law amending and supplementing a number of articles of the Planning Law, the Investment Law, the Law on Investment under the Public-Private Partnership (PPP) method, and the Bidding Law will be finalized and submitted to the National Assembly in the upcoming October session.

Reviewing over three years of implementing Public-Private Partnership (PPP) investments, the Ministry of Planning and Investment reported that 31 new projects are currently underway and 11 projects are being prepared for investment under the PPP model. These are all key, large-scale national and local projects, with a total investment of approximately 380,000 billion VND and a demand for approximately 190,000 billion VND in state capital.

New PPP projects implemented under the PPP Law are expected to create approximately 1,000 km of expressways, 2 airports of standard 4C, 3 special-grade solid waste treatment facilities, and 3 clean water supply plants, contributing to the expansion and upgrading of transportation infrastructure and socio-economic infrastructure in localities.

However, limitations and shortcomings in the provisions of the Law still exist and are being amended.