Treatment of municipal solid waste (“MSW”) Is difficult for local communities. However, thanks to the development of new technologies, DSMs are becoming a serious source of renewable energy. Vietnam has started to shape its regulations and policies to develop solid waste power plants (“SWPP”) In 2012. Several investment incentives and favorable policies have now been issued to attract the private sector. This article discusses regulations on SWPPs and power purchase agreements (“APP“).
Legislation and AAE. The policies and regulations are mainly set out in the Prime Minister’s Decision 31/2014 / QD-TTg of May 5, 2014 (“Decision 31“), Circular 32/2015 / TT-BCT of the Ministry of Industry and Trade (“MOIT”) Dated October 8, 2015 (“Circular 32”) And Decree 31/2021 / ND-CP of the Government of March 26, 2021 (“Decree 31“). According to Decision 31, the Group of Vietnam Electricity (briefly referred to as EVN) – a state-owned company – is responsible for purchasing all of the electricity produced from SWPPs. This policy assures investors that the production can be sold. Sales, however, must be made according to a statutory PPA model defined in Circular 32. Although Circular 32 allows contracting parties to modify the model to reflect their agreement, the main content should be consistent with the base model. .
Price factors. Price, of course, is a fundamental factor for the investor. The price of electricity can vary considerably, depending on how electricity is generated. For example, the current price of electricity produced from the direct combustion of solid waste is $ 10.05 per kWh. On the other hand, the current price of electricity that power plants using gas from gasification can charge is only $ 7.28 per kWh. These prices are exclusive of VAT. Interestingly, prices can be adjusted based on the VND-US $ exchange rate. The recognition of the variation in exchange rates is a great insurance for foreign investors as it mitigates the losses or risks resulting from the devaluation of the Vietnamese dong during the life of the project. In addition to the price of electricity billable to EVN, a power plant eligible for financial benefits under the Clean Development Mechanism (“MDP”) Under the Kyoto Protocol to which Vietnam is a signatory, has yet another source of income.
Duration of the PPA. The term of the PPA is 20 years from the date of commencement of commercial operation. Strangely enough, it is not certain that the PPA can be renewed after it expires. A large-scale SWPP will often require a substantial amount of capital. Whether the price is sufficient to recoup the invested capital and make a reasonable profit over a 20-year period requires careful consideration and evaluation. The investor should seek the consent of the Ministry of Information to extend the term of the PPA if there are concerns and questions regarding the repayment period. The agreement on the extension of the term should be incorporated into the APP.
Among other events specified in the PPA, the PPA may be terminated under the following two circumstances: (i) The seller (power plant) may decide to participate in the competitive power generation market. In this case, the seller must give EVN 120 days notice, and the PPA will be terminated after the 120 day notice period. If this is the case, then the seller and EVN will have to enter into other contractual agreements under which the price of electricity will be determined on a competitive basis (and not on the basis of a fixed price); (ii) the PPA may also be terminated following a force majeure event if the condition lasts for more than one year. Thus, the notion of “force majeure event” should be well defined.
Dispute settlement. A dispute must first be settled through amicable negotiation. If the contracting parties cannot reach an agreement, the dispute may be submitted to the Electricity Regulatory Authority (“TIME“) Or to a body approved by the contracting parties. The PPA concerns EVN, a Crown corporation under the administration of the MOIT. ERA is also a public body controlled and managed by the MOIT. In the event of a dispute, the independence of the ERA may be compromised. It can be difficult for contracting parties to choose an independent body at the time of a dispute. The choice of independent arbitration at the outset seems more practical.
Applicable right. The PPA is governed by Vietnamese law. Although Vietnamese law offers certain protections and guarantees, these statutory protections may be considered insufficient if the PPA concerns foreign investors. It is common for foreign investors to seek other contractual protections. These contractual protections can be integrated into the PPA in order to guarantee the protection of the interests of foreign investors. Since the PPA involves entities related to the state, a private owner of a SWPP should consider and incorporate the following issues into the PPA: (i) waiver of sovereign immunity; (ii) protection against changes in the law; (iii) investment incentives; (iv) government guarantee; (v) government force majeure events; (vi) subsequent price increases (if possible); (vii) optional renewal of the PPA after its expiration (if desirable); (viii) dispute settlement by an independent body.
Investment incentives. SWPPs are classified as “particularly preferential projects” and are therefore entitled to several important incentives: exemption and reduction of land rents and property taxes, favorable state loans and tax incentives (for example, exemption from import duties for , say, the machines imported to create the fixed assets of the project). Import duty exemptions may also apply to materials, raw materials and semi-finished products which are not available in Vietnam and which must be imported. Preferential corporate tax rates, reduced corporate tax and tax exemptions may also apply. These investment incentives can be obtained and documented during the licensing process.
Licensing process. Municipal or provincial popular committees (“Pc“) are authorized to issue investment registration certificates and other operational licenses to WSPPs. Before issuing licenses, a CP often consults with other ministries (mainly the MOIT, the Ministry of Natural Resources and ‘Environment and the Ministry of Science and Technology). Among other conditions, a solid waste energy project must be included in the national master plan. If a potential project is not included in the national master plan, the investor must seek the agreement of the MOIT The MOIT is authorized to evaluate the electricity projects from solid waste The legal duration of the evaluation of a project by the MOIT is 30 working days The MOIT can engage independent and professional consultants to assess a SWPP. The owner of an approved SWPP can only start construction of their plant after obtaining a building permit. This requirement applies to most electrical projects, and not just SWPPs.
Currently, household, commercial, industrial and hospital waste is collected and transported by non-profit entities owned by the State or by commercial companies. The current treatment of solid waste consists mainly of recycling it or dumping it in open dumps. However, the volume of solid waste has increased in both large cities and industrial areas. As a result, landfills have become overloaded and current practice has become inappropriate. There are serious environmental issues to consider (eg negative impact on ground or surface water, spread of disease, unsustainable land use, etc.). The situation is forcing local communities to find alternative solutions to manage and treat waste. Although the development of SWPPs is more expensive compared to other methods, there are positive factors: waste treatment is faster, it does not require large land, and operating costs are not large. Most importantly, waste can be managed and treated on a sustainable basis and environmental issues can be managed. The government is seeking technical and financial assistance and assistance from governmental and non-governmental organizations. At the same time, the government is also encouraging the private sector to develop SWPPs. Another option is the development of SWPP on a small scale. It seems to be practical and realistic. For the investor, a small-scale factory does not require a large amount of investment capital. For the government, this will help Vietnam to learn important technologies and gain valuable experience.