Vietnam Legal Update October 1998

Transcription

1 Vietnam Legal Update October 1998 In this issue: Part 1: New Legal Instruments: 1.1 List of Legal Instruments obtained from 16 September to 15 October List of Legal Instruments obtained before 16 September 1998 (not included in our Vietnam Legal Update of September 1998) Part 2: Summary of Selected New Legal Instruments: 2.1 Petroleum: Circular TT-BKH of the Ministry of Planning and Investment dated 16 September 1998 Providing Guidelines on Joint Venture in Petroleum Activities 2.2 Foreign Loans: Official Letter 897-CV-NHNN7 of the State Bank of Vietnam dated 28 September 1998 on Registration of Foreign Loans and Loan Repayments of Enterprises 2.3 Credit Institutions: Decree 82/CP of the Government dated 3 October 1998 Stipulating the Required Legal Capital of Credit Institutions 2.4 Investment License: Official Letter 6840 of Ministry of Planning and Investment dated 5 October 1998 on Adjustment of Investment Licences Upon Adjustment of Land Rent 2.5 Foreign Currency: Circular 08/1998/TT-NHNN7 of the State Bank of Vietnam dated 30 September 1998 Providing Guidelines for Implementation of Decision 173/1998/QD-TTg dated 12 September 1998 on Obligations of Sale and Rights to Purchase Foreign Currency of Residents Being Organisations 2.6 Foreign Currency: Decision 337 of the State Bank of Vietnam dated 10 October 1998 on Carrying of Foreign Currency and Vietnamese Dong in Cash Upon Entry Into or Exit from Vietnam Part 3: Feature: BOT Legal Update Part 4: Did You Know? 4.1 Correct Identification of Vietnam International Arbitration Centre 4.2 Denomination of Price in a Contract or an Invoice for Domestic Sale of Goods or Services 4.3 Draft Tendering Regulations Part 5: Publications

2 2 This publication is copyright. Except as permitted under relevant laws, no part of this publication may be reproduced by any process, electronic or otherwise, without the specific written permission of the copyright owner, The material contained in Vietnam Legal Update is intended to inform you of recent legal developments in Vietnam. It is not intended, and should not be relied upon, as legal advice. Should you wish further information in relation to any legal instrument or matter mentioned in this Update, please do not hesitate to contact any of the offices listed below. Hanoi Bill Magennis 50 Trieu Viet Vuong Street Hanoi, Vietnam Ho Chi Minh City Nigel Russell Suite 607, Saigon Tower 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Mobile: Fax: bill@melb.phillipsfox.com.au Phone: Mobile: Fax: nigel@melb.phillipsfox.com.au Vientiane Todd Dirksen and Mary Flipse DFDL Mekong Commerce Building No. 1 Luang Prabang Road, Vientiane, Laos Phnom Penh David Doran DFDL 45 Preah Suramarit Boulevard Phnom Penh, Cambodia Phone: Fax: to dfdllaos@loxinfo.co.th Phone: Fax: dfdl-pp@bigpond.com.kh We also refer you to the following websites for further information regarding and investment in Vietnam:

3 Part 1: New Legal Instruments 1.1 List of new legal instruments obtained from 16 September to 15 October Decision 337/1998-QD-NHNN7 of the State Bank of Vietnam dated 10 October 1998 on Carrying of Foreign Currency and Vietnamese Dong in Cash Upon Entry into or Exit from Vietnam. (See summary in Part 2.6) 2. Decision 1352/1998-QD-BTC of the Ministry of Finance dated 9 October 1998 on Amendment of Tax Rate of Import Duties with Respect to a Number of Goods Items in Import Tariff. 3. Official Letter 6840-BKH-PLDT of the Ministry of Planning and Investment dated 5 October 1998 on Adjustment of Investment Licence Upon Adjustment of Land Rent. (See summary in Part 2.4) 4. Decision 1334/1998-QD-BTC of the Ministry of Finance dated 5 October 1998 Amending Decision 590A/1998-QD-BTC of the Ministry of Finance dated 29 April 1998 on Minimum Prices for Calculation of Import Duties at Border Gates. 5. Official Letter 02-DMDNTW of the Central Committee for Reform of Management of Enterprises dated 5 October 1998 on Response to Queries in Relation to Equitization. 6. Decree 82/1998-ND-CP of the Government dated 3 October 1998 Stipulating Required Legal Capital of Credit Institutions. (See summary in Part 2.3) 7. Directive 08/1998-CT-NHNN14 of the State Bank of Vietnam dated 3 October 1998 on Improving the Quality of Credit to Contribute to Economic Growth and Ensuring the Safety and Efficiency for Banking System. 8. Decision 01/1998-QD-HDTCTT of the Chairman of the State Monetary and Financial Committee dated 2 October 1998 Promulgating Working Regulations of the State Monetary and Financial Committee. 9. Decision 194/1998-QD-TTg of the Government dated 1 October 1998 on Addition to List of Industrial Zones to be Invested Up to the Year Decree 81/1998-ND-CP of the Government dated 1 October 1998 on Printing, Moulding, Preserving and Destroying Notes, Coins; Preserving, Transporting Precious Assets and Valuable Papers in Banking System. 11. Circular 132/1998-TT-BTC of the Ministry of Finance dated 1 October 1998 on Application

4 of Import Duties with Respect to Complete Equipment of Production Line. 12. Circular 131/1998-TT-BTC of the Ministry of Finance dated 1 October 1998 on Implementation of Decision 143/1998-QD-TTg of the Government dated 8 August 1998 on Amendments of Unofficial Trade Import, Export Duties. 13. Decision 324/1998-QD-NHNN1 of the State Bank of Vietnam dated 30 September 1998 Promulgating Regulations on Provision of Loans by Credit Institutions to Customers (replaces Decision 198-QD-NH1 dated 16 September 1994, Decision 199-QD-NH1 dated 28 June 1997, Decision 367-QD-NH1 dated 21 December 1995, Decision 200-QD-NH1 dated 28 June 1997, Decision 18-QD-NH5 dated 16 February 1994, Decision 77-NH-QD dated 13 June 1991, Decision 270-QD-NH1 dated 25 September 1995, Decision 185-QD-NH5 dated 6 September 1994). 14. Circular 130/1998-TT-BTC of the Ministry of Finance dated 30 September 1998 Providing Guidelines on Hand-over, Take-over and Settlement of Outstanding Issues in Relation to Finance of SOEs Upon Merger and Consolidation. 15. Official Letter 1153-CP-KTTH of the Government dated 30 September 1998 on Management of Rice Export and Fertilizer Import in Circular 08/1998-TT-NHNN7 of the State Bank of Vietnam dated 30 September 1998 Providing Guidelines for Implementation of Decision 173/1998-QD-TTg of the Government dated 12 September 1998 on Obligations of Sale and Rights to Purchase Foreign Currency of Residents Being Organisations. (See summary in Part 2.5) 17. Decree 79/1998-ND-CP of the Government dated 29 September 1998 on Amendments of Criteria for Duty Free Luggage of Persons Entering into and Exiting From Vietnam Through Border Gates in Accordance with Decree 17-CP of the Government dated 6 February Directive 10/1998-CT-BXD of the Ministry of Construction dated 29 September 1998 on Ensuring Safety in Destroying Old Construction Works. 19. Decision 190/1998-QD-TTg of the Government dated 29 September 1998 on Establishment of Management Committee of Vinh Phuc Industrial Zones. 20. Decision 319/1998-QD-NHNN7 of the State Bank of Vietnam dated 29 September 1998 on Daily Reports on Income and Expenditure in Foreign Currency. 21. Circular 07/1998-TT-NHNN1 of the State Bank of Vietnam dated 28 September 1998 Providing Guidelines on Implementation of a Number of Provisions on Banking Upon Conversion of SOEs into Shareholding Companies (replaces Circular 06/1998-TT-NHNN1

5 5 dated 15 August 1998 on Banking Upon Conversion of SOEs into Shareholding Companies). 22. Official Letter 898-CV-NHNN10 of the State Bank of Vietnam dated 28 September 1998 on Implementation of Law on State Bank and Law on Credit Institutions. (See summary in Part 2.3) 23. Official Letter 897-CV-NHNN7 of the State Bank of Vietnam dated 28 September 1998 on Registration of Foreign Loans and Repayment of Loans of Enterprises. (See summary in Part 2.2) 24. Official Letter 895/1998-CV-NHNN3 of the State Bank of Vietnam dated 26 September 1998 on Adjustment of Activities of Loan Provision and Guarantee. 25. Official Letter 3765-TC-DTPT of the Ministry of Finance dated 26 September 1998 on Speeding up Allocation of Investment Capital in the Last Months of Decision 869-QD-TTg of the Government dated 25 September 1998 on Investment in Project for Central Technology Complex in BK-4 Area, South of White Tiger Platform. 27. Decision 868-QD-TTg of the Government dated 24 September 1998 on Approval of Prefeasibility Study of Project for "Launching Vietnam Telecommunication Satellite". 28. Directive 33/1998-CT-TTg of the Government dated 24 September 1998 on Strengthening Responsibility of State Bodies in Creating Conditions for the Effective Operation of All Levels of Vietnam Press Association. 29. Decision 318/1998-QD-NHNN1 of the State Bank of Vietnam dated 24 September 1998 Providing for Preparation and Submission of Reports on Borrowing and Repayment of Foreign Loans. 30. Official Letter 6580-BKH-KTDN of the Ministry of Planning and Investment dated 24 September 1998 on France's notification on Conversion of the Francs into the Euro. 31. Decision 1282/1998-QD-BTC of the Ministry of Finance dated 24 September 1998 on Amendments of and Additions to Tax Rates of Some Items in Import Tariff. 32. Decision 182/1998-QD-TTg of the Government dated 23 September 1998 on Exemption of Registration Fee for Non-refundable ODA Projects. 33. Circular 128/1998-TT-BTC of the Ministry of Finance dated 22 September 1998 Providing Guidelines on Implementation of Decree 22-CP of the Government dated 17 April 1996 on Dealing with Administrative Penalties for Taxation Offences (repeals Circular 45-TC-TCT dated 1 August 1996 Implementing Decree 22).

6 6 34. Decision 955/1998-QD-BLDTBXH of the MOLISA dated 22 September 1998 Promulgating List of Individual Protecting Equipment for Employees Doing Jobs Involving Dangerous and Harmful Factors (replaces Decision 38-LDTBXH-QD dated 19 January 1990 on the same subject). 35. Decision 178/1998-QD-TTg of the Government dated 19 September 1998 on Assistance in Terms of Interest Rate on Banking Loans for Production and Business of a Number of Goods Items for Export. 36. Official Letter 1123-CP-CN of the Government dated 19 September 1998 on Adjustment of Feasibility Study of Project for Improvement of Power Network for 3 Cities of Hanoi, Haiphong and Namdinh. 37. Decision 179/1998-QD-TTg of the Government dated 19 September 1998 on Establishment of Financial-Accounting Department under the State Securities Commission. 38. Decision 01/1998-QD-DMDN of the Deputy Prime Minister dated 19 September 1998 Promulgating Regulations on Organization and Operation of the Central Committee for Reform of Management of Enterprises. 39. Official Telegram 04 of the State Bank of Vietnam dated 18 September 1998 on Implementation of Decision 173 on Foreign Currency. 40. Circular 127/1998-TT-BTC of the Ministry of Finance dated 17 September 1998 Providing Guidelines on Import Duty with Respect to Spare Parts and Extra Components Imported with SKD, CKD, IKD Components to Serve Production. 41. Decision 2434/1998-QD-BYT of the Ministry of Health dated 17 September 1998 on Permitting Foreign Companies to Export, Import Medicines and Meterials for Production of Medicines With Vietnamese Enterprises. 42. Circular 07/1998-TT-BKH of the Ministry of Planning and Investment dated 16 September 1998 Providing Guidelines on Joint Venture in Petroleum Activities. (See summary in Part 2.1) 1.2 List of legal instruments obtained before 16 September 1998 (not included in our Vietnam Legal Update of September 1998) 1. Decision 35/1998-QD-UB of Hanoi People's Committee dated 15 September 1998 Promulgating Regulations on Conversion of Housing Areas Leased by the SOEs under the Municipal Authority From Housing and Land Office for the Purpose of Production and Business into Assets of the SOEs in Order for the Enterprises to be Equitized According to Decree 44.

7 7 2. Decree 72/1998-ND-CP of the Government dated 15 September 1998 on Safety Guarantee for Fishing People and Instruments Operating at Sea. 3. Circular 05/1998-TT-BVHTT of the Ministry of Culture & Information dated 12 September 1998 Providing Guidelines on Implementation of a Number of Provisions of the Agreement on Establishment of Authors' Rights Relationship Between the Government of the SRV and the Government of the US. 4. Decision 173/1998-QD-TTg of the Government dated 12 September 1998 on Obligations to Sell and Rights to Purchase Foreign Currency of Residents Being Organizations. 5. Decision 1195/1998-QD-BTC of the Ministry of Finance dated 12 September 1998 on Amendments of and Additions to Names and Tax Rates of Some Items in Import Tariff. 6. Directive 33/1998-CT-UB-KT of HCMC People's Committee dated 11 September 1998 on Issue of Preferential Investment Certificates in Accordance with Decree 07/1998-ND-CP of the Government dated 15 January Official Letter 3130-TCHQ-GSQL of the GDOC dated 11 September 1998 on Settlement of Problems Arisen in the First Period of Implementation of Decree 57/1998-ND-CP dated 31 July 1998 Implementing Commercial Law. 8. Official Letter 1089-CP-KTTH of the Government dated 11 September 1998 on Limit of Loan Provided to Each Client By a Foreign Bank Branch. 9. Decision 309/1998-QD-NHNN1 of the State Bank of Vietnam dated 10 September 1998 Stipulating Loan Interest Rates in US Dollar Provided by Credit Institutions to Legal Entities and Individuals and Interest Rates for Deposits in US Dollar of Legal Entities at Credit Institutions (repeals in part Decision 197-QD-NH1 dated 28 June 1997 and Decision 39/1998-QD-NHNN1 dated 17 January 1998). 10. Decision 33/1998-QD-UB of Hanoi People's Committee dated 10 September 1998 on Adjustment of Prices for Agricultural and Forestry Land in Hanoi City. 11. Notification 157-TB-VPCP of the Government Office dated 7 September 1998 on Opinions of Deputy Prime Minister Ngo Xuan Loc on Master Plan for Rearrangement of SOEs in Hanoi City. 12. Decision 163/1998-QD-TTg of the Government dated 7 September 1998 Issuing Regulations on Exploitation of Petroleum Natural Resources.

8 8 13. Circular 06/1998-TT-TCHQ of the General Department of Customs dated 3 September 1998 Providing Guidelines on Registration, Management and Use of Codes of Enterprises Conducting Import, Export Activities. 14. Decree 68/1998-ND-CP of the Government dated 3 September 1998 on Implementation of Ordinance on Royalties (Amended). 15. Resolution 11/1998-NQ-CP of the Government dated 1 September 1998 on Regular Meeting of the Government in August Official Letter 3395-VPCP-DMDN of the Government Office dated 29 August 1998 Providing Guidelines on Procedures and Sample Plan for Equitization of SOEs. 17. Official Letter 1020-CP-DP1 of the Government dated 29 August 1998 on Resolution of Recommendations of Hanoi City. 18. Circular 05/1998-TT-TCHQ of the General Department of Customs dated 29 August 1998 on Implementation of Decrees 16-CP dated 20 March 1996 and 54/1998-ND-CP dated 21 July 1998 on Dealing with Administrative Offences in State Management of Customs (replaces Circulars 242/1997-TT-TCHQ dated 14 October 1997 and 01/1998-TT-TCHQ dated 6 May 1998). 19. Circular 120/1998-TT-BTC of the Ministry of Finance dated 27 August 1998 Providing Guidelines for Collection of Fees for Examination of Measurement Instruments. 20. Decision 28/1998-QD-UB of Hanoi People's Committee dated 24 August 1998 Issuing Regulations on Dissolution of Cooperatives. 21. Notice 2906-TCHQ-GSQL of the General Department of Customs dated 21 August 1998 on Inwards Clearance for Imports. 22. Decision 4225-QD-UB-KT of HCMC People's Committee dated 15 August 1998 on Selection of SOEs to be Equitized in Decision 4178-QD-UB-TM of HCMC People's Committee dated 12 August 1998 on Establishment of Steering Committee for Implementation of Law on Value Added Tax and Law on Corporate Income Tax. 24. Official Letter 2930-CV-UB-KT of HCMC People's Committee dated 5 August 1998 on Redetermination of Land Rent Rates for Foreign Invested Enterprises. 25. Official Letter 613-LDTBXH of Hanoi People's Committee dated 3 August 1998 on Activating

9 9 Enterprises to Implement the Labour Code. 26. Official Letter 596-CV of Hanoi People's Committee dated 28 July 1998 on Employment Service. 27. Resolution 76/1998-NQ-HD of Hanoi People's Committee dated 23 July 1998 Stipulating a Number of Issues in Relation to Land Management in the City. 28. Decision 3798/1998-QD-UB-QLDT of HCMC People's Committee dated 21 July 1998 Issuing Regulations on Organization and Operation of Committee for Management of Investment and Construction of New Urban Area South of HCMC. If you would like to receive a copy of any of these legal instruments, please do not hesitate to contact us. Our usual charges are USD1 per page (for Vietnamese versions) and USD2 per page (for English translations), plus transmission charges.

10 10 Part 2: Summary of Selected New Legal Instruments 2.1 Circular TT-BKH of the Ministry of Planning and Investment dated 16 September 1998 Providing Guidelines on Joint Venture in Petroleum Activities ("Circular 7") Circular 7 was issued to "restrict the diverse forms of petroleum contracts, and to improve the effective management of activities of prospecting, exploring and exploiting petroleum." Joint ventures in petroleum activities may now be established under any of the following three forms: * Operating joint venture company; * Joint venture company; or * Other forms of joint venture by and between the Vietnam Oil & Gas Corporation and contractors for the purposes of prospecting, exploring and exploiting petroleum. Circular 7 also stipulates procedures for establishment and operation of the above-mentioned companies. Circular 7 took effect from 16 September Official Letter 897-CV-NHNN7 of the State Bank of Vietnam dated 28 September 1998 on registration of foreign loans and loan repayments of enterprises ("Official Letter 897") In Official Letter 897, the State Bank requires enterprises in all economic sectors, including foreign invested enterprises, borrowing foreign loans, to register such loans with the Department of Foreign Exchange Control of the State Bank for approval before officially entering into any loan agreements with foreign lenders. Official Letter 897 confirms that the State Bank will not allow any enterprise failing to so register to make remittances abroad for the purpose of repaying the principal of, interest and fees on, foreign loans. Official Letter 897 also confirms that the requirement for such registration and approval does not apply to: (i) loans with less than one-year duration in the form of letters of credit with deferred payment; and (ii) loans of foreign parties to business cooperation contracts. 2.3 Decree 82/CP of the Government dated 3 October 1998 Stipulating the Required Legal Capital of Credit Institutions ("Decree 82") Decree 82 contains a list of required legal capital levels for credit institutions. According to Decree 82, credit institutions licensed to operate before 17 October 1998 whose legal capital is less than that stipulated in Decree 82, must increase their legal capital to the required levels within 3 years from the above stated date. The annual increase of legal capital must be at least equivalent to one-third of the deficit. Decree 82 further provides that these credit institutions shall have their licenses withdrawn if they cannot ensure sufficient legal capital as required after 3 years. The Government may consider amending the stipulated level of legal capital in cases where there is any change to the security conditions in business operation of credit institutions, capital demand of the economy, and financial ability of the State and of credit institutions.

11 11 Decree 82 came into effect on 18 October Official Letter 6840 of Ministry of Planning and Investment dated 5 October 1998 on Adjustment of Investment Licences Upon Adjustment of Land Rent ("Official Letter 6840") Official Letter 6840 provides guidelines on how People's Committees should adjust investment licenses following adjustment of land rents. It should be read in the context of Decision 179 of the Ministry of Finance dated 24 February 1998, which gave People's Committees the authority to determine land rent rates for the projects of enterprises with foreign invested capital for which they issue licenses. Official Letter 6840 first sets out some principles of adjustment of land rent rates, including the following: if an enterprise had already paid land rent for the whole duration of the project, and then in or after March 1998 the rate is adjusted (by implication adjusted downwards), then the People's Committee should decide to re-imburse the difference. The rest of Official Letter 6840 deals solely with the case where the Vietnamese party makes its capital contribution by the value of land use rights. It sets out four principles for adjusting the license, and then sets out three methods of adjustment. The principles are: (1) mutual agreement by the Board of Management of the enterprise; (2) that the adjustment should ensure normal production and that the number of the Vietnamese party representatives on the Board remains unchanged; (3) that in general the ratio of capital contribution by the Vietnamese party as agreed in the joint venture contract not be reduced; (but note the exception discussed in (3) of the next paragraph); and (4) that the adjustment of the capital contribution be calculated from the date the investment license is adjusted. The methods of adjustment are then set out: (1) extending the duration of capital contribution by the value of land use rights or extending the term of operation of the enterprise; (2) with respect to projects well under way, reducing the legal capital (but on the basis that the ratio of capital contribution made by the Vietnamese party remains unchanged); note this conflicts with Article 20 of Decree 12 of the Government dated 18 February 1997 providing regulations on the implementation of the Law on Foreign Investment which states "During its operation, a joint venture enterprise must not reduce its legal capital". The Government Decree takes precedence over an Official Letter of the Ministry of Planning and Investment (3) finally, and perhaps most significantly, in cases which cannot be dealt with by the above two methods (presumably because the Board of Management cannot agree), and the Vietnamese party is unable to make additional contributions to the legal capital with a view to making up the shortfall capital due to reduction of land rent, then the ratio of capital contribution made by the Vietnamese party may be considered for reduction. This third "method of adjustment" is therefore an exception to the third "principle" listed above: Official Letter 6840 does not give any indication of how the ratio can be reduced, and it maybe that this will be the subject of further guidelines. 2.5 Circular 08/1998/TT-NHNN7 of the State Bank of Vietnam dated 30 September 1998 Providing Guidelines for Implementation of Decision 173/1998/QD-TTg dated 12 September 1998 on Obligations of Sale and Rights to Purchase Foreign Currency of Residents Being Organisations ("Circular 8")

12 12 According to Circular 8, certain economic entities must sell 80%, and non-profit organisations must sell 100%, of the foreign currency received from "current transactions", within 15 days from the date the revenue is credited to their accounts. Circular 8 further stipulates that banks must immediately transfer the foreign currency so credited into "trust accounts", and report to customers for them to carry out the foreign currency sale procedures. Within 15 days from the date the foreign currency is credited to their accounts, entities which need foreign currency may use the balance to settle due transactions requiring payment in foreign currency. If the amount is not sufficient, they may use other foreign currency in the trust accounts upon presentation of detailed proof. Circular 8 also stipulates that foreign currency not required to be sold to banks includes currency from aid, authorised exports, goods for temporary import and re-export under contracts with foreign partners, deposits and advances from non-residents, collections for non-residents and capital transactions. Circular 8 came into effect from 30 September Decision 337 of the State Bank of Vietnam dated 10 October 1998 on Carrying of Foreign Currency and Vietnamese Dong in Cash Upon Entry Into or Exit from Vietnam ("Decision 337") Under Decision 337, an individual: (1) who brings into Vietnam money exceeding either USD3,000, an equivalent amount in another foreign currency, or VND5 million (the "Limited Amount") must declare such amount to customs; (2) who brings out of Vietnam over the Limited Amount must (a) declare to customs and (b) show a permit issued either by the State Bank or by a bank authorized to trade in foreign currency; and (3) who brings out over the Limited Amount but under the amount he/she declared to customs upon entry (eg he/she brought in USD7,000 and then brings out USD5,000) must show customs the original entry declaration form. The Limited Amount does not apply to individuals who carry payment instruments and other valuable papers such as credit cards, saving books, all kinds of shares, etc. either in a foreign currency or in VND. Previously, under Decision 382 of the State Bank of Vietnam dated 28 Decemb er 1995 (which is now repealed by Decision 337) the limited amount upon entry/exit was USD7,000. There was no restriction on VND under Decision 382.

13 13 Part 3: Feature BOT Legal Update On 15 August 1998 the Government of Vietnam issued its new Decree 62 regulations on Build Operate Transfer ("BOT") contracts. Decree 62 repealed Decree 87 which had been in force since November The BOT form of investment had been added to the Law on Foreign Investment ("LFI") in December Under Decree 87 only approximately four BOT projects were signed and licensed and, to date, no large scale BOT project has been implemented. Most licensed BOT projects seem to be in difficulty completing arrangements for loan finance or to be victims of the Asian financial crisis. The purpose of this article is to identify changes in law between Decree 87 and Decree 62 and to assess, from a lawyer s perspective, the impact or otherwise of Decree 62 on some of the key legal issues which are present in BOT projects. BOT Company The fundamental structure for a BOT project remains unchanged under Decree 62. The structure does not follow the model of the whole project being the subject of a contract between the investor and the host government. Rather, the investor contracts to incorporate a new legal entity in Vietnam. The new entity is called a BOT company. The BOT company, as distinct from the foreign investor(s), actually carries out the BOT project. Nature of BOT Company Under Decree 87 it was unclear whether the BOT comp any was one of the two types of LFI entity, joint venture company ("JV") and 100% foreign owned company ("FOE"), or whether it was a new third type of entity. Decree 62 now clarifies that the BOT company is either a JV or an FOE. Existing BOT companies are now clarified to be FOEs having, in addition to the special rights and obligations provided under Decree 62, the same other rights and obligations as apply under the LFI to all FOEs. BOT Contract The contractual structure for a BOT project remains unchanged by Decree 62: I The investors enter a contract, known as a "BOT contract", with an "authorised state body" ("ASB") appointed by the Prime Minister (previously by the Government). I The BOT contract provides that the BOT company will be established by the investors and sets out the terms on which the BOT company will carry out the project. Parties to a BOT Contract Two issues arise in relation to parties to a BOT contract: (i) From the Vietnam side, Vietnam will be concerned to make sure that the BOT company has contractual obligations to carry out the project. Equally, the investors will require the BOT company to have enforceable rights. Decree 62 is silent as to whether the BOT company itself, once incorporated, becomes a party to the BOT contract. Because the BOT company only becomes incorporated upon the Ministry of Planning and Investment ("MPI") issuing an investment license, it is not possible for the BOT company to be an initial signatory to the BOT contract. In the past, the BOT company has achieved the status of having enforceable rights and obligations by various methods of assignment but in the future it may be simpler and clearer if the BOT company is able to become a direct party to the BOT contract by signing the BOT contract after the investment license is issued. (ii) From the investor side, the investors need to know against whom the BOT contract may be enforced and, in particular, whether enforcement is limited to the ASB itself or whether enforcement may be carried out against the State of Vietnam. Analysis of all the provisions of the LFI leads lawyers to the conclusion that, as the name "authorised state body" suggests, the ASB is entering the contract on behalf of the state. This conclusion is not, however, unequivocally expressed in Decree 62.

14 14 Dispute Resolution Foreign investors and host governments never like to contemplate the possibility that disputes might arise when a project is implemented. It is necessary, however, for the mechanisms for resolution of such disputes to be stated in BOT contracts, and the law so requires. Investors usually require dispute resolution by bodies located in "neutral" countries and operating under one of the internationally accepted sets of procedural rules. From its first enactment in 1987 the LFI recognised these requirements and hundreds (maybe thousands) of projects have been licensed on the basis that disputes will be resolved by international arbitration outside Vietnam and that international rules will apply to such resolution. Unfortunately, because of the special structure and circumstance of BOT projects, Decree 62 presents a hurdle to applying this long accepted practice to BOT projects. The hurdle arises as follows. There is a policy reflected in various Vietnamese laws that international dispute resolution is permitted in contracts where one of the parties is not Vietnamese. This applies in joint venture and business co-operation contracts and in the BOT contract itself. But a main part of the agreement in relation to a BOT project may not necessarily be directly recorded in the BOT contract. For example the water or electricity or other product of a BOT project will necessarily be the subject of an agreement between the BOT company and a third party offtaker such as a water or electricity company. These contracts may be worth billions of dollars and have a life that is decades long. These offtake contracts are however between two Vietnamese entities: the BOT company and the Vietnamese offtaker. Under Decree 87 a dispute under such a contract could be resolved by international arbitration. This has changed under Decree 62 which requires resolution of such disputes by a Vietnamese arbitration organisation or by Vietnamese courts. Such resolution is unlikely to be agreed to by investors due Vietnam not having the kind of dispute resolution regimes and experience customarily required by those (including lenders) responsible for large scale investments. In particular no enforcement mechanism yet exists for enforcement of arbitration entered under Decree 62. For large scale BOT projects to proceed it seems likely that it will be necessary to reintroduce the legal possibility that long term contracts for the supply of products such as electricity and water may include a provision for international arbitration of disputes which cannot be resolved by negotiation. Foreign Currency Investors and lenders of larges amounts of foreign currency required for a BOT project will not provide that currency unless they feel confident that during the project life they will have access to sufficient foreign currency to meet foreign currency obligations and to provide a return on the investment. The original 1987 LFI was silent on this issue. It was, however, dealt with in general foreign investment regulations which were carried forward into Decree 87 which provided: "the Government assures that the revenue received by a BOT company during its period of operation can be converted from Vietnamese currency into foreign currencies in accordance with the contract for the purposes of repaying loan capital and interest, paying all expenditure requiring foreign currency, and paying to foreign investors their share of profits which are remitted abroad." The Vietnamese words which are translated as "assures" are "bao dam". These words may also be translated as "guarantees" but the preferred translation is "assures". The issue arises as to what precisely is meant by "assures" and whether it is, and if so, to what extent, different from the English meaning of "guarantees". This issue is not resolved by Decree 62. Decree 62 also raises other issues in relation to currency: (i) Is the "assurance" limited to a right to convert currency or does it encompass, in addition, an "assurance" that foreign currency will be made available to enable the right of conversion to be exercised? This issue is not dealt with in Decree 62 but the prevailing view seems to be that both convertibility and availability are assured. This needs to be clarified in each case.

15 15 (ii) (iii) (iv) Can the obligation of "assurance" be enforced, and if so, by what mechanism? More particularly, will foreign currency be provided directly to the BOT company or to its bank and by what procedure will this be implemented? If foreign currency is not provided in time, or at all, what remedy is available? Decree 62 does not deal with any of these issues and so they require resolution on a case by case basis. Once these issues are resolved it seems that the resolution may be recorded in the investment license as Decree 62 provides that "provisions on the conversion of Vietnamese currencies into foreign currencies" are a main subject for inclusion in the investment license for the BOT project. Against whom can the "assurance" be enforced? Under Decree 87 the provider of the "assurance" was "the Government". Under Decree 62 the "assurance" is stated to be provided by the State Bank. Decree 62 does not clarify whether this change simply reflects that the State Bank will be acting as agent to implement an obligation which is otherwise enforceable against the Government or whether the obligation is only enforceable against the State Bank. Whilst in practical terms there may be no difference in outcome, the theory of the issue is important from the point of view of risk assessment and the provision of legal opinions required by lenders. What happens if there is not enough foreign currency available to satisfy all demands? Vietnam has recently overhauled its foreign currency regulations. A key provision is a requirement that all Vietnamese organisations and all foreign invested organisations having the benefit of a LFI or Decree 62 "assurance" must convert 80% of all revenue into Vietnamese currency within 15 days of receipt. This legislation is obviously directed to the very desirable result of enabling foreign currency to be available to the Government to reallocate through the State Bank, including for the purpose of satisfying "assurances" under the LFI and Decree 62. Hopefully the outcome will be that sufficient foreign currency will be available to satisfy the requirements of all those enjoying such "assurances". A current source of concern amongst investors and lenders is how priorities will be organised in the event that it turns out that there is not sufficient foreign currency available to satisfy the entitlements of all those who enjoy "assurances". This is not addressed and could not reasonably be expected to be addressed in Decree 62 and remains to be addressed on a case by case basis. Security for loans All BOT projects require loans. For various practical reasons, in particular the large sums involved and the absence of prior trading records, such loans are generally only available to foreign investors from foreign lenders. It is common for investors to require that for repayment of the loans, recourse is limited to the assets of the BOT company and its revenue flows. An historical hurdle to achieving this is that in ordinary LFI projects land use rights, buildings and plant and equipment cannot be mortgaged to foreign lenders. In BOT projects Decree 87 was more accommodating to the provision of security. It provided that, subject to ASB approval a BOT company was permitted to mortgage buildings, plant and equipment, contractual rights and other assets. In addition, the BOT company's right to use land could be mortgaged subject to the mortgage being "in conformity with the law of Vietnam". These provisions, when read in conjunction with implementing Circular on BOT 333 of the SCCI dated 24 February 1994 ("Circular 333"), appeared to provide a complete regime of law without need for any additional laws to be enacted before a mortgage could be signed. The mortgage provisions in Decree 62 have been drafted in a different way. Firstly, the reference to contractual rights has been removed from the list of mortgageable property. Hopefully this is merely a drafting adjustment because "contractual rights" is seen as falling within "other assets". Secondly, four separate provisos "in accordance with the laws of Vietnam" have been added to the words enabling mortgages to be entered. It is doubtful that even one addition is necessary as all activity in Vietnam, including mortgages, must be in compliance with the law. The terminology "in accordance with the laws of Vietnam", however,

16 16 sometimes reflects a position that something cannot be done until there is further specific legislation. Under Decree 62 it is possible that mortgages in BOT projects can no longer be signed until there is further implementing legislation. Another form of security that lenders in LFI projects have taken from the investors is a kind of "share mortgage" of the investor's interest in the FOE or JV. This type of security is not regulated at all but has been possible in several cases on a negotiated basis. It is equally applicable to a BOT company and may provide a way for a project to proceed pending mortgage legislation relating to BOT company assets being enacted. Governing Law Investors are concerned that the governing law of a contract, which will apply in relation to issues such as interpretation of the contract in the event of a dispute which cannot be resolved by negotiation, be a well known and accepted regime used in international contracts. Under both Decree 87 and Decree 62 the net result of several provisions seems to be (although this is not entirely clear) that it is possible, given the current state of development of Vietnamese law, to provide for a foreign governing law in a BOT contract and other related contracts including those to which the BOT company and other Vietnamese entities are parties. MPI approval is, however, required so each case needs to be individually negotiated. Guarantees Where, as is often the case in a BOT project, there is a single offtake agreement, investors require the financial obligations of the offtaker to be secured. This is often provided by the offtaker's parent company which has substantial assets available in the event of default by the offtaker. In Vietnam most offtakers are state owned so investors seek a guarantee from the State. This was recognised in Decree 87 which provided that the Government, where necessary, would appoint a bank or other financial institution to guarantee a State owned offtaker. Under Decree 62 the nature of the guarantee is strengthened. Decree 62 provides that the ASB on behalf of the Government shall act as guarantor. From the point of view of investors this change is a large step forward and it is expected that residual issues such as powers to grant guarantees and the degree of enforceability of the guarantees against the State will be resolved on a case by case basis. Conclusion Decree 62 takes some major steps forward but issues remain that will require further general legal clarification or resolution on a case by case basis. One method of dealing with outstanding issues is to permit a case by case decision by the Government. This seems especially appropriate where the money at stake is in the billions of dollars and the issues are so complex that laws having general application may not be desirable or able to be enacted in time. Decree 87 foreshadowed such a solution by anticipating in its definitions section "Separate legislation" which was defined to mean legislation promulgated by the ASB "for the purposes of regulating specific issues relating to a BOT project". This definition was not, however, applied in the body of the enacted version of Decree 87. Perhaps reinstatement of this concept will lead to the quickest way for Vietnam to ensure that BOT projects are implemented in the shortest possible time.

17 17 Part 4: Did you know? 4.1 Correct Identification of Vietnam International Arbitration Centre If the Vietnam International Arbitration Centre ("VIAC") is not correctly identified in a contract as the forum for resolution of any disputes, then the VIAC may refuse to accept jurisdiction to hear the dispute. In a recent case, the VIAC indicated that a reference in a contract to dispute resolution in "an international arbitration centre in Vietnam" was "incorrect" (the reference should have been to the "Vietnam International Arbitration Centre") and, therefore, the VIAC refused to hear the case. Another problem which sometimes arises, however, is that if any form of arbitration is specified in a contract (even offshore arbitration in cases where this is not permitted under Vietnamese law) then the Economic Courts (effectively the only forum for resolution of commercial disputes in Vietnam other than the VIAC) are not permitted to hear a dispute under the contract. 4.2 Denomination of Price in a Contract or an Invoice for Domestic Sale of Goods or Services While several legal instruments require payment for goods and services provided in Vietnam to be made in Dong (eg Article 295 of the Civil Code; Decision 396 of the Government dated 4 August 1994) there does not appear to be any official requirement for the prices of such goods or services to be denominated in Dong. This omission is, evidently, quite deliberate, and effectively allows prices in domestic contracts to be fixed to USD, thereby undermining efforts to "dedollarise" the Vietnamese economy. Decision 885 of the Ministry of Finance dated 16 July 1998, for instance, prescribes in considerable detail the required contents of sales invoices issued in Vietnam, but makes no reference to the denomination of price! It is interesting to note that while the law is currently silent re the denomination of price, the law expressly requires (for the time being, at least) the denomination of salaries of local staff of foreign invested enterprises to be denominated in USD. 4.3 Draft Tendering Regulations According to an article that appeared in the12 October 1998 issue of "Dau Tu", the following points are worth noting from the third draft of the tendering regulations (which will replace the regulations issued with Decree 43 of the Government dated 16 July 1996, as amended on 23 August 1997): - Mr Pham Manh Dung, Deputy Director of the Investment Legislation Department of the Ministry of Planning and Investment opined that determining whether a foreign invested project should be subject to the tendering regulations based only on the percentage of contribution by a Vietnamese economic organization into the legal capital (over 30%) is "unscientific and incorrect", because "the legal capital does not reflect truthfully the scale of the project"; - The bidding price for construction and installation will be the ceiling price (the maximum price) and there will be no restriction on the minimum bidding price; - The "appointment of tenderers" will apply to (i) tender packages for consultancy services valued less than VND500 million; and (ii) tender packages for procurement of goods, or for construction and installation valued less than VND 1 billion (presently the appointment of tenderers applies to any contracts valued under VND500 million). The minimum number of tenderers to take part in a "limited tender" is 4 tenderers; and - Foreign contractors will, in addition to the required engagement of Vietnamese sub-contractors, be required to procure and utilize materials and equipment which are available in Vietnam.

18 18 Part 5: Publications The following publications on regulations affecting foreign investment and business in Vietnam and Myanmar are available through any of the offices listed below. If you would like to purchase any of these publications please contact us. Foreign Investment Laws of Vietnam Loose-Leaf Subscription Service 7 volume loose-leaf set including subscription service from to US$ Subscription service from to only US$ Subscription service from to only US$ Additional loose-leaf binders (each) US$30.00 Other Publications Circular on Guidelines for Foreign Investment in Vietnam (English) US$20.00 Circular on Guidelines for Foreign Investment in Vietnam (Japanese) US$60.00 Labour Code of Vietnam (English) US$20.00 Labour Code of Vietnam (Japanese) US$50.00 Insurance Legislation of Vietnam (English) US$20.00 Civil Code of Vietnam (English) US$60.00 Foreign Investment Law of Vietnam (English) US$15.00 Compendium of Labour Laws (English) US$ Foreign Investment Laws of Myanmar (loose leaf subscription) US$ CD ROM Foreign Investment Law Database (English and Vietnamese) US$ Hanoi Ho Chi Minh City Bill Magennis Nigel Russell 50 Trieu Viet Vuong Street Suite 607, Saigon Tower Hanoi, Vietnam 29 Le Duan Boulevard Ho Chi Minh City, Vietnam Phone: Phone: Mobile: Mobile: Fax: Fax: bill@melb.phillipsfox.com.au nigel@melb.phillipsfox.com.au Vientiane Todd Dirksen and Mary Flipse DFDL Mekong Commerce Building No. 1 Luang Prabang Road, Vientiane, Laos Phnom Penh David Doran DFDL 45 Preah Suramarit Boulevard PhnomPenh,Cambodia Phone: to 9 Phone: Fax: Fax: dfdllaos@loxinfo.co.th E-mai: dfdl-pp@bigpond.com.kh