Vietnam's Decree 115: Bidding Requirements for Land-Use Projects

Decree No. 115/2024/ND-CP (“Decree 115”), effective as of September 16, 2024, expands and clarifies regulations regarding the selection of investors for land-use investment projects, building on previously enacted laws. A central focus of Decree 115 is the introduction of implementation measures designed to enhance competitiveness within Vietnam’s power sector.

New incentives for Vietnam’s power sector growth

Before the enactment of Decree 115, Vietnam lacked legal requirements for competitive bidding in greenfield power generation projects, aside from public-private partnership (PPP) investments, leaving the sector without clear guidelines for investor selection. This regulatory gap hindered competitiveness, limiting optimal project development. By addressing these issues, Decree 115 has been well-received by experts, investors, and other stakeholders in the power sector.

Decree 115 is not a standalone regulation; many experts view it as a foundational support for the anticipated revised Law on Electricity, helping to facilitate project implementation. Additionally, it aligns with Decree No. 23/2024/ND-CP, which provides guidance under the Law on Bidding, to create a cohesive legal framework for investor selection across social infrastructure sectors, particularly energy. Decree 115 also fills gaps left by Decree 25/2020/ND-CP, which lacked a clear procedure for investor selection in projects governed by specific sectoral laws.

Decree 115 calls for careful navigation of the bidding process, with investors needing to monitor regulatory updates and engage proactively with authorities. The implementation of new requirements may take time as stakeholders work to fully understand and operationalize them. As such, actively engaging with relevant authorities will be crucial for successful project implementation and for adapting to the market’s evolving demands. – Dezan Shira & Associates Vietnam

Key provisions of Decree 115

Before examining the decree’s impact on the energy sector, here are the newly implemented provisions of Decree 115.

Projects requiring competitive bidding

Under Article 4, investment projects involving land use that mandate competitive bidding for investor selection include:

• (i) Urban construction and rural residential area projects; and
• (ii) Projects as specified under sector-specific laws. Notably, Clause 2 of Article 4 outlines ten types of projects that must conduct bidding to select investors, with few exceptions. These include:

1. • Solid domestic waste treatment facilities;
   • Utility supply facilities;
   • Traditional markets;
   • Roadside stations;
   • Aviation service facilities at airports and aerodromes;
   • Education, health, culture, sports, and environmental facilities;
   • Social housing, apartment buildings, and housing for armed forces;
   • Horse and dog racing tracks;
   • Energy projects;
   • Other projects as specified in Article 79 and Point b, Clause 1, Article 126 of the 2024 Land Law.

Prerequisites for bidding

The decree establishes two prerequisites for organizing bidding:

• Land funds must be in cases where the State acquires land per the 2024 Land Law; and
• Land funds must be listed for bidding as decided by the Provincial People’s Council.

Streamlined procedures for investor selection

Decree 115 simplifies and refines investor selection procedures through the following key changes:

• Integration and Reduction of Intermediate Steps: The decree consolidates steps related to the preparation, appraisal, and approval of investor selection plans, invitation documents, and lists of investors meeting technical requirements. New provisions allow bidding and invitation document preparation to occur concurrently with investment policy planning and approval procedures.
• Elimination of Pre-Consultation Requirements: Provincial People’s Committees are no longer required to consult with the Ministry of Planning and Investment for document approval of projects under the Prime Minister’s authority. This change aims to increase local responsibility and streamline project implementation.
• Establishment of Minimum Time Limits: The decree sets minimum timeframes for investors to prepare bidding documents, while leaving authorities responsible for project progress with full discretion over the timing for preparation, appraisal, and approval of bidding content.
• Enhancement of the Online Selection Process: The decree promotes the online selection process on the National Bidding Network System and removes fees for investors participating on this platform.

Avoiding “pre-arranged” bids

Clause 2, Article 59 of the Decree addresses the issue of “pre-arranged” bids, specifying that if fewer than three investors submit project implementation registration documents by the closing time, the competent authority has two options:

• Option 1: Extend the bidding period and adjust the invitation for expressions of interest or bidding documents to encourage more investors to participate; or
• Option 2: Open the bids immediately for evaluation.

This regulation aims to prevent enterprises from engaging in questionable pre-agreements or arrangements during the investor selection process. It ensures that all land-based projects are bid on transparently and openly, even if only one investor registers to implement the project.

Updated scoring criteria for different types of land-based projects

Decree 115 introduces updated scoring criteria for evaluating different types of land-based projects. For projects deemed to have a high risk of environmental impact, investors who use advanced, high, or environmentally friendly technologies, or the best available techniques to minimize pollution, will receive a 5-percent incentive during the bid evaluation process.

According to Article 45 of Decree 115, submitted bids are assessed on a scale of 100 or 1,000 points. The evaluation is based on a combination of factors including the bidder’s capacity, experience, investment methods, and land-use efficiency, ensuring the total score adds up to 100 percent.

The bidder who meets all minimum score requirements for each criterion and achieves the highest total score will be ranked first. In the event of a tie, where two or more bidders have the same total score, the winner will be determined by the highest score in the (*) criterion (see below table).

Notes: (*) The prioritized criterion for each category. For example: The prioritized criterion for for urban construction and rural residential area projects is land use efficiency.

(**) The projects under this category do not include power projects and projects for the construction of social housing or housing for the Vietnam People’s Armed Forces. 

Minimum rate for state budget payment

The Decree introduces a minimum rate for state budget payments, calculated as a percentage rather than a fixed amount, as was previously stipulated. This change simplifies the process for localities to determine the budget payment value. The rate is based on the land auction value from the three years prior to the investment decision.

The formula for calculating the rate is based on:

• The winning price of the auction for land use rights (LURs) over the reference land zone, land bank, or land parcel;
• The starting price of the auction for LURs over the reference land zone, land bank, or land parcel; and
• The number of reference land zones, land banks, and land parcels involved.

Addressing complex situations in bidding

The new Decree also outlines procedures for managing complex situations in the bidding process, including:

• Evaluating the capacity of investors when there is a change in the capital contribution ratio; and
• Establishing regulations for selecting investors for large projects with no prior precedent in the national bidding system.

These provisions are designed to improve transparency and address challenges in organizing investor selection for land-use projects.

Project transfer

Decree 115 stipulates that the transfer of shares and capital contributions by the winning investor in a project company before the project becomes operational must meet certain requirements, including:

• Approval from the relevant authority;
• The transferee must have experience and capacity equivalent to that of the transferring investor; and
• The transferee must assume all rights and obligations of the transferring investor related to the project’s implementation, as specified in the bidding documents and project contract. This provision ensures the winning investor meets its commitments outlined in the bidding documents.

Once the project is operational, no further restrictions will apply to the transfer of shares and capital contributions, which will instead be governed by corporate law.

Specified regulations for power projects

The new guidelines for bidding on power projects are among the most significant aspects of Decree 115.

Conditions requiring bidding for investor selection

Decree 115, which supplements Decree 137, mandates that if two or more investors express interest in implementing renewable power or natural gas/LNG-to-power projects (not funded by the state budget and with or without grid connection facilities), these projects must undergo a competitive bidding process.

However, this requirement does not apply to the following cases:

• Projects subject to state monopolies under electricity regulations;
• Projects funded through public-private partnerships (PPPs);
• Projects included in the five-year business production and development plans established by the Prime Minister’s decisions;
• Projects aimed at expanding existing hydropower plants, offshore wind projects, and self-consumption power projects (i.e., self-generated and self-consumed power); and
• Emergency power projects regulated under electricity laws.

Preparation of the invitation to bid (ITB)

The invitation to bid for power projects must be prepared in accordance with:

• Bidding regulations;
• Approval of investment policies;
• Pre-feasibility or feasibility study reports (if available); and
• A draft Power Purchase Agreement (PPA) mutually agreed upon with the electricity purchaser.

Decree 115 specifies that the relevant state authority must designate the entity responsible for serving as the electricity purchaser for the project. This purchaser will coordinate the preparation of the invitation and the draft PPA as required by the state authority.

The draft PPA agreed upon by the electricity purchaser will be included in the ITB. The PPA signed between the selected investor and the electricity purchaser will form the basis for executing the project contract.

Bid assessment criteria for power projects

Bids submitted for power projects will be evaluated based on three key criteria. The score for investment efficiency, relating to the development of relevant business sectors, fields, and localities, will account for 80 to 90 percent of the total score for each bidder. This criterion will be assessed based on:

• The proposed ceiling electricity price, which must be lower than the ceiling price defined by the Ministry of Industry and Trade; and
• Price-related terms agreed upon with the electricity purchaser, in accordance with the electricity regulations specified in the invitation.

Takeaways for investors

In light of Decree 115, various legal experts have observed that over the past three decades, the market practice of attracting foreign and private capital for electricity generation projects in Vietnam has evolved. This suggests that regulators and potential bidders will need to carefully navigate the tender process to ensure the success of these projects, including:

• Closely tracking regulation updates: During the transitional period in Vietnam’s power sector, it may be unrealistic to expect legislation to provide detailed processes for every project. This could lead to delays, as policymakers are expected to carefully consider how to address a wide range of scenarios.
• Adopting a proactive approach to new requirements: A key challenge in implementing prescriptive requirements is that they often require time for stakeholders to fully comprehend before executing actionable steps. Therefore, proactively contacting competent agencies is essential for successful project implementation, responding to the rapidly changing needs of the market, on one hand, while ensuring compliance, on the other.