Firms afraid of red tape handicaps

08:00 | 13/06/2011
The latest draft decree compiled by the Ministry of Planning and Investment to amend Decree 108, which guides the 2005 Law on Investment, has proposed more weighty procedural requirements for large projects.
Under existing laws, port development projects are subject to PM’s in-principle approval

Dang Duong Anh, executive partner and Nguyen Vu Quynh Lam, senior associate of Vilaf law firm, look at how these new rules could irk investors.

Further to the substantial widening of the scope of projects subject to the in-principle approval of the prime minister introduced in the previous draft in late 2010, the latest draft decree amending Decree 108 dated September 22, 2006 guiding the Law on Investment has proposed a number of material requirements applicable to large-scale or important projects. On one hand, these new requirements are expected to create a more comprehensive and systematic regime for the assessment, selection and licencing of effective and efficient projects. On the other hand, the significant increase in procedural requirements will raise concerns from the business community.

Ad-hoc proposal for investment incentives and guarantees allowed

The draft decree entitles interested investors to propose the method for organisation of the project implementation and application of investment incentives and guarantees. This is a positive development which will provide a legal basis for the investors to large projects to propose for special incentives taking into account the particular scales and natures of their projects. However, it remains too general. In the absence of detail and specific provisions guiding this provision, the investors and even the authorities will find many difficulties in making and considering proposals for incentives. More importantly, investment incentives and guarantees are mostly provided in specialised laws, such as tax and land laws. Without necessary amendments to specialised laws first, investors will unlikely be able to propose for investment incentives and guarantees, which go beyond the current legal framework under the specialised laws.

But licencing requirements doubled 

Currently, the process of obtaining the in-principle approval of the prime minister is included as a stage in the investment evaluation process. The investor will submit the application file to the competent licencing authority for the investment certificate. The licencing authority will gather opinions from the relevant ministries and agencies and then submit their proposal to the prime minister for the in-principle approval. Within a week time from issuance of the prime minister’s in-principle approval, the licencing authority will issue the investment certificate to the investor.

The draft decree proposes two separate processes, including (i) the process to obtain the in-principle approval from the prime minister, and (ii) the investment evaluation process to obtain the investment certificate. First, the investor must prepare and submit the application file for the in-principle approval of the prime minister. In their application file, the investor needs to satisfactorily explain to the authorities the following in relation to the project: (i) objective, scale, location, total investment capital, term and schedule, (ii) the conformity with the sector and locality development master plans, (iii) the satisfaction of applicable investment conditions and (iv) the social-economic efficiency. The licencing authority will gather opinions from the relevant ministries and then submit their proposal to the prime minister for his in-principle approval.

However, as opposed to the current procedure, the relevant investor will not be issued with the investment certificate even after the prime minister’s in-principle approval (as under the current laws). Instead, they will have to follow the second round called as the investment evaluation process. In the case where the investor cannot pass this second test, the licencing authority will report to the prime minister for approval.  

One of the most obvious disadvantages under the draft decree is that the investors in large-scale or important projects will have to double their licencing process, which would undoubtedly take time and cost from the investors. Furthermore, it brings in uncertainty for a project which, as opposed to the current laws, has already been issued with in-principle approval of the prime minister.

Under Decree 108, the in-principle approval of the prime minister will be exempted if the relevant projects are covered in the master plans approved by the prime minister. This exemption is removed from the draft decree. Ones may raise question as to why those projects which have been approved by the prime minister in the relevant master plans must apply for another approval from the prime minister (i.e. the in-principle approval).

Although these new requirements under the draft decree are only the draft ones which have not taken effect, it would raise concerns and debates among the concerned parties given its disadvantages to investors.

The business community would expect a more detailed explanation from and discussion with the drafting agency for improvement of the current draft.

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