Key Components of Legal Framework

• 1. Ownership and access to geothermal resources

• 1.1 What are the rules on ownership of geothermal resources? Can private parties hold ownership of geothermal resources?

  Ownership of natural resources, including geothermal, is governed by the following key rules: (i) the Constitution of Vietnam; (ii) the Law on Minerals; and (iii) the Land Law.

  Geothermal resources are mainly governed by the Law on Minerals.  Accordingly, "minerals" are defined as "useful minerals and mineral substances which are naturally accumulated in solid, liquid or gaseous form and exist underground or on the ground, including minerals and mineral substances at tailing sites of mines".  Geothermal resources can include "natural thermal water" and/or "mineral water" as defined and governed by the Law on Minerals.  Specifically, "mineral water" is defined as "underground and/or over-ground natural water containing contents, features and some biological active compounds in conformity with Vietnamese standards or technical regulations or foreign standards which are allowed to apply in Vietnam".  "Natural thermal water" is defined as "underground and/or over-ground natural water which has a temperature in conformity with Vietnamese standards or technical regulations or foreign standards which are allowed to apply in Vietnam".

  Private parties cannot hold ownership of geothermal resources. Under the Constitution of Vietnam, land, water resources, mineral resources and other natural resources are "public property under the ownership of the entire people of Vietnam represented and uniformly managed by the State of Vietnam".  This means that the State cannot transfer ownership of geothermal resources, and these sources cannot be sold, to private entities.

• 1.2 Who can grant access to geothermal resources, only state or also landowner?

  Only the State of Vietnam can grant access to geothermal resources through State-authorized agencies.

  The State authorities shall grant private parties the rights to use land and the rights to explore and exploit geothermal resources (through the Ministry of Natural Resources and Environment (MONRE), provincial People's Committee (PCs) and local Departments of Natural Resources and Environment (DONREs)).  Land used for a geothermal power project is classified as land used for public affairs.  Since a geothermal power project is considered a business project, the land is further classified as public land used for a business purpose.  Accordingly, the land will be leased by the State (through relevant local PCs and local DONREs) to the geothermal power project investor for its development and operation for an annual or lump sum land rental payment.   The maximum land lease term is 70 years, renewable for an identical maximum term subject to the applicable laws at the time of renewal.

  For the power generation from geothermal sources, depending on the scale of the project, the Ministry of Industry and Trade (MOIT), through its Department of Electricity and Renewable Energy, is also involved in giving approvals for adding relevant projects to the power master planning.

  Additionally, investment projects are also subject to the Investment Law and the Enterprise Law, with the Ministry of Planning and Investment (MPI) and the local Departments of Planning and Investment (DPIs) being the authorities in charge.

  If a private entity holds a valid exploration license, a transfer of the exploration right (rights to access to geothermal resources) to another private entity may be subject to a regulatory approval or required amendment to the exploration license by relevant State authorities. 

• 1.3 Is exploration/exploitation open to foreign investment?

  Although there is no express provision on foreign ownership restrictions under the law in exploration/exploitation, the master plans for different types of minerals are among the bases for the authorities’ assessment of the projects. These master plans often contain the policy on investment forms. Normally, foreign investment is sought in large-scale projects that need strong financial capacity or high technology to develop. This gives the authorities certain discretion to decide whether to approve the foreign ownership in a project or not.

• 2. Involvement of administrative bodies

• 2.1 Which administrative bodies (ministry and/or governmental agencies) are involved in the licensing of geothermal resources, including licensing and developing?

  For the exploitation/exploration of geothermal resources, depending on the scale and characteristics of the project, the MONRE or local PCs will be the licensing authorities for the mineral exploration license, mineral exploitation license.

  With respect to the electrical power generation using geothermal resources, the MOIT, its Department of Electricity and Renewable Energy, its Electricity Regulatory Authority of Vietnam ("ERAV") and local PCs are authorized to review the process of including the geothermal power projects into the relevant power development master plan and issue the power generation license for the project.

  In addition to the mineral licenses and power generation license, a geothermal power project will also be subject to other licenses / procedures, among others, procedures to obtain the Investment Registration Certificate for the investment project, the Enterprise Registration Certificate for establishment of the project company with local DPIs; the procedures of land clearance, execution of land lease agreement with local PCs; etc.

• 2.2 Do administrative bodies assign any of their respective roles to a third party, including but not limited to a peer review, during the period of exploration, exploitation and/or production of geothermal resources?

  Vietnamese laws currently do not have specific guidelines on this matter. In practice, it is common for the administrative bodies to assign third parties, normally their member institutes, units / agencies and/or other state authorities having close relationship with them to carry out certain steps of the licensing procedures (e.g., conducting appraisal on the application dossiers, contributing professional opinions on the feasibility of the project, etc.).  However, whether they will do so for a particular project and the scope of works will be determined on a case-by-case basis.

• 2.3 Is there a government policy in place concerning geothermal resources? If so, what is the object and to what end?

  Currently, Vietnam does not have specific government policy in place concerning geothermal resources.  Thus, projects involving geothermal resources will rely on the general laws, as we described above.

• 3. Allowed Exploitation

• 3.1 Is exploitation of resources subject to licensing? Do landowners have the right to exploit recourses without a license? If yes, to what extent?

  Yes, the exploitation of geothermal resources is subject to a mineral exploitation license in accordance with the Law on Minerals.

  A private entity can only be granted the right to use land, not the right to own land, in Vietnam.  To have the right to exploit resources in the ground, a private entity also needs to apply for a land use right certificate under the Land Law.

  If the exploitation and utilization of geothermal energy is for power generation, the project company will need to apply for a "power generation license," except for limited circumstances (e.g., power generation for own use without sale to any other entities; power generation with installed capacity of less than 1MW).

• 4. Role and voice of landowner or “project affected people” in the licensing procedure and land lease agreements

• 4.1 Does the landowner or any “project affected people” have a role in the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  No. The prior land user (occupier) and the "project affected people" only has a role during land clearance procedures, but not in the process of granting a license for: (i) exploration, (ii) exploitation, or (iii) power plant.  Land clearance procedures must be conducted by the relevant local PCs. The land is only handed over to an investor once it is clear. If the land is cleared and handed over in parts (in several phases), then only the free and clear parts are considered handed over.  This means that prior occupiers of land are not given the right to co-exist. Compensation for land in Vietnam has usually been complained about as being unfair (by prior occupiers) and time consuming (by investors). However, the land clearance procedures fall completely under the exclusive jurisdiction of the State authorities, leaving an investor in a passive role awaiting results from any government land clearance action.

• 4.2 Will an opposition of a landowner or any “project affected people” have a bearing on the process of granting a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  As stated above, an opposition of the prior land user (occupier) and the "project affected people" will not have a direct bearing on whether a license is granted to the investor of a geothermal project as the new land user.

• 4.3 Are the terms of land lease agreements regulated and if so, (i) what is a general timeframe of land lease agreements and (ii) what are the obligations for decommissioning at the end of the term?

  Under the Land Law, the land lease term for a foreign invested company to implement an investment project in Vietnam shall not exceed 50 years. If a project is classified as an investment project with a great amount of investment capital and low payback, then the land lease term can be up to 70 years.

  Under the Law on Minerals, the land lease term can expire upon the expiration of the mineral exploration license, mineral exploitation license. Upon expiration of the land lease term and the competent authorities do not approve renewal of such term, the investor / project developer will have to return the leased land to the State.

  Vietnamese laws do not provide for specific guidelines and requirements on decommissioning obligations at the end of the land lease term. However, based on the general laws, there can be certain decommissioning obligations that need to be completed by the project owner (e.g., environmental protection and land related procedures).

• 5. Criteria for granting of a license

• 5.1 Which documents need to be submitted and what is the criteria for obtaining a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  The exploration of geothermal resources is subject to a mineral exploration license (under the Law on Minerals).

  (i) Principles and general requirements for mineral exploration licenses:  

  • A mineral exploration license may be granted only for areas in which no organization or individual is lawfully conducting mineral exploration or exploitation and which are not within the areas banned or temporarily banned from mineral activities, national mineral reserve areas or areas in which geological baseline surveys are being conducted for minerals of the same kind of minerals being applied for;
  • Each organization or individual may be granted no more than 5 mineral exploration licenses (excluding any expired ones); and
  • The to-be-explored total area for a specific mineral under all licenses must not exceed 2 times the size of the exploration area under a single license.  Currently, for mineral water and natural thermal water, the size of an exploration area under a single exploration license must not exceed 2 square kilometres (km2). 

  (ii) Conditions for an applicant for a mineral exploration license:  

  In order to apply for a mineral exploration license, an entity must:

  • either be (i) selected by a competent State authority, or (ii) the winner of an auction for mineral exploitation rights, for the areas not yet explored in accordance with the Law on Minerals;
  • first be registered to carry out mineral exploration activities in accordance with the Enterprise Law, as well as have necessary and relevant facility, equipment and personnel.  If not, an ineligible entity will need to sign a contract with an eligible entity;  
  • have prepared an exploration project in line with the mineral master plans; and
  • have equity owner capital of at least 50% of its total investment capital (i.e., including both loan capital and charter/owner capital), for the implementation of the mineral exploration project.

  (iii) Required documents for a mineral exploration license: 

  • An application for an exploration license, specifying, among others, details about the project company, the relevant investment project, type of minerals, exploration location, total areas and exploration duration, objective of the use of minerals; 
  • A mineral exploration plan/project that is in line with the national and provincial mineral master plans;
  • A map of the mineral exploration area;
  • A competent state authority's decision approving mineral deposits;
  • A copy of the business registration certificate and/or relevant establishment or business licenses;
  • A document certifying the winning of the exploitation right, in case of winning the exploitation right through auction; and
  • A document certifying satisfaction with respect to the applicant's required equity owner capital.

  (b) exploitation:

  The exploitation and utilization of geothermal resources is subject to a mineral exploitation license (under the Law on Minerals).

  (i) Principles and general requirements for mineral exploitation licenses: 

  • A mineral exploitation license is granted only for areas in which no organization or individual is lawfully exploring or exploiting minerals, but not for areas banned or temporarily banned from mineral activities or areas of national mineral deposits; and
  • A mineral area, in which large-scale exploitation can be effective, must not be divided for the grant of mineral exploitation licenses among many organizations or individuals for small-scale exploitation.

  (ii) Conditions for an applicant for a mineral exploitation license

  In order to apply for a mineral exploitation license, an entity must:

  • have an investment project which is located in the explored area with approved mineral deposits in conformity with the master plans. The project must contain a plan on professional employment, advanced and appropriate equipment, and technologies and exploitation methods; for toxic minerals, the Prime Minister's written permission is also required;
  • have an environmental impact assessment report or an environmental protection plan made under the Law on Environment Protection; and
  • have an equity capital of at least 30% of the total investment capital of the exploitation investment project.

  (iii) Required documents for a mineral exploitation license: 

  • An application for a mineral exploitation license, specifying, among others, details about the project company, the relevant investment project, exploration results, exploitation areas, exploitation reserves, exploitation capacity, exploitation's depth, exploration duration, objective of the use of minerals;
  • A map of the exploitation area;
  • A competent state authority's decision approving mineral deposits;
  • An exploitation investment project, enclosed with the project-approving decision and a copy of the investment certificate;
  • An environmental impact assessment report or an environmental protection plan depending on the scale of the projects;
  • A copy of the business registration certificate;
  • A document certifying the winning of the exploitation right, in case of winning the exploitation right through auction; and
  • A document certifying the applicant's equity capital.

  (c) power plant (generation license):

  In order to operate a power plant, the project company is subject to apply for a power generation license.

  (i) Conditions for the application for a power generation license  

  In order to be eligible to apply for a power generation license, the project company must meet all of the following key conditions:

  • have a feasible investment project for construction of a power plant in accordance with the approved power development master plans; have technical equipment, vehicles, warehouses and architectural works which are compliant with the approved technical designs, and which are approved, built, installed and tested in accordance with the laws; 
  • members of its personnel, who directly engage in technical management and operation, must have university or higher degrees in electricity or another relevant/appropriate technical area and have at least five years working experience in power generation.  Its personnel, directly involved in operations, must be trained in relevant professional areas in safety, and trained and granted certificates in the operation of power plants and electricity market; 
  • have entered into a power purchase agreement;
  • have an information technology infrastructure system, and a control, supervision and data collection system, which meet the requirements of the electric system and electricity market; the equipment, which is subject to strict labour safety requirements, must be inspected and meet technical requirements; 
  • have an environmental impact assessment report or an environmental protection plan for its power generation project, which is approved by the competent authorities;  
  • have a fire prevention and fire-fighting system for the power plant which has passed pre-acceptance tests conducted by competent authorities; 
  • have minutes of acceptance for information technology and telecommunication infrastructure system; and have minutes of acceptance for signal connection completion to SCADA/EMS and SCADA/DMS systems at a moderating level with controlling rights for electricity system and market operation; and 
  • have internal regulations or a process for establishing cooperation between the operation of the power plant and the electricity system moderation entity. 

  (ii) Required documents for a power generation license: 

  • A written application for a power generation license;
  • A copy of the Enterprise Registration Certificate of the project developer;
  • A list of direct technical management staffs, a list of chief operators of the power plant under the required form; a copy of graduation diploma, electricity safety cards and operation certificate granted by the dispatching level with control rights to the chief operators of the power plant in accordance with the Dispatch procedures of national electricity systems promulgated by the MOIT;
  • A copy of investment policy decision of competent State authorities approving the investment project of the power plant;
  • A copy of Decision from the competent State authorities approving the environmental impact assessment report or the written certification of environmental protection Plan of the power plant pursuant to Vietnamese regulations on environment;
  • A copy of power purchase agreement;
  • A list of equipment with strict requirements on labour safety and commitment of project investor to fully comply with laws in using equipment with strict requirements on labour safety;
  • A copy of the minutes of design approval for the fire prevention and fighting system pursuant to Vietnamese regulations on fire prevention and fighting;
  • A copy of the coordinated operation procedure of the power plant with the National Load Dispatch Centre of Vietnam and/or its member units;
  • A copy of acceptance minutes of information technology and telecommunications infrastructure system for operation of the electricity market as prescribed by laws; and the acceptance minutes of the SCADA system for operation of electricity system and electricity market as prescribed by laws.

• 6. Duration of Licenses and Renewal

• 6.1 What is the maximum duration of a license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) power plant (generation license)?

  (i)  exploration: The duration of a mineral exploration license is up to 48 months, which may be extended multiple times for a total maximum duration of 48 months. Upon each extension, the licensed applicant must return at least 30% of the exploration area as stated in the granted existing license. 

  (ii)  exploitation: The duration of a mineral exploitation license term is up to 30 years and may be extended multiple times with the total duration of extension not exceeding 20 years. 

  (iii)  power plant (generation license): The duration of a power generation license shall be for up to 20 years for major power plants with significant importance in terms of economy, society, national defence or security under a list of projects as approved by the Prime Minister, or 10 years for other power plants.  The term of the license is renewable.

• 7. Terms of License

• 7.1 What are the general terms of the license for:
     (i) exploration,
     (ii) exploitation, and
     (iii) exploration drilling and other drilling,
     (iv) power plant (generation license)?

  (a) exploration/exploitation of minerals:

  In a license for exploration/exploitation of mineral, the following details are specified:  

  • name of the license holder (being the entity exploring or exploiting minerals);
  • mineral type, location, area and region of mineral exploration or exploitation;
  • method and scale of exploration or exploitation;
  • duration of the license; and
  • financial obligations and other relevant obligations.

  (b) exploration drilling and other drilling

  Currently, Vietnam does not have specific guidelines on licensing procedures in place for exploration drilling and other drilling activities of geothermal resources. Drilling activities of geothermal resources are thus subject to the mineral exploration  license, mineral exploitation license under the Law on Minerals, and general Law on Investment.

  (c) power plant (generation license):

  In a power generation license, the following are specified:

  • information of the license holder;
  • specific field of operations;
  • scale of operations (including specifications on the technical characteristics of the power plant);
  • duration of the license; and
  • the obligations of the license holder.

• 7.2 Are exploration license holders granted pre-emptive rights with regards to exploitation or do exploration licenses automatically convert into exploitation licenses if the resource has been substantiated? If so, are there any conditions?

  Exploration licenses do not automatically convert into exploitation licenses if the resource has been substantiated.

  Holders of exploration licenses have the exclusivity to apply for exploitation licenses for substantiated mineral resources.  However, this right is only effective within a period of 6 months from the expiry date of their exploration licenses. 

  This pre-emptive right applies only to areas that are not subject to an auction for exploitation rights. In order to enjoy such a pre-emptive right, it is the responsibility of the holder of an exploration license to prepare and submit an application dossier.  This must be done within a period of 6 months from the expiry date of the exploration license. 

• 7.3 Is an exploitation license included in a power plant license or are these licenses separate?

  These licenses are separately granted. Exploitation licenses are granted by the MONRE or local DONREs on the basis of the Law on Minerals with the conditions and requirements related thereto.  Power generation licenses are granted separately by the Ministry / Department of Industry and Trade on the basis of the Electricity Law.

• 7.4 Are there any encumbrances in place for the licence holder to keep a license, once granted?

  (a) exploration/exploitation of minerals:

  The license holder may return the mineral exploration license, the mineral exploitation license during the term of operation of the project. The return of mineral exploration license, mineral exploitation licenses must be registered and approved by the competent licensing authorities.

  The license holder may transfer the project development rights under the following conditions:

  • the license holder may transfer the right to explore minerals once the license holder has implemented at least 50% the estimated expenses under the plan on mineral exploration; and
  • the license holder may transfer the right to exploit minerals once the holder has (i) completed basic construction and (ii) put the mine into operation.

  Transfer of the right to explore minerals, right to exploit minerals is also subject to registration and approvals of competent licensing authorities.

  (b) power plant (generation license):

  The power generation license can be returned / revoked when the license holder has a demand for termination of the power generation operation or transfer the operation activities to another entity.

• 8. Termination and revision of licenses

• 8.1 What actions by the license holder would warrant revision of exploration-, exploitation- and power plant (generation) licenses?

  In general, if there is any change to the registered contents in a license, the license holder is required to prepare and submit an application dossier for amended licenses to register updated contents.

  (a) mineral exploration license or exploitation licenses:

  Depending on the change to the registered contents in a license, it is compulsory or encouraged to apply for amendments to the license.  It is compulsory if the license holder wishes to renew the term of the license, increase, decrease or change the area for exploration or exploitation, or transfer the right to another entity. 

  (b) Power plant (generation) licenses:

  If there is any change to the registered contents in a power plant/generation license, the license holder is required to prepare and submit an application dossier for an amended license.

  The licensing authorities can take the initiative to amend a power plant/generation license in certain cases necessary for protection of economic-social benefits and public welfare.  

• 8.2 Does the license granting authority license have the power to revoke or terminate licenses? If yes, what actions of the license holder would warrant the termination of the license?
     (i) exploration license,
     (ii) exploitation license,
     (iii) power plant (generation license)?

  Yes.

  (i) exploration licenses: A mineral exploration license may be revoked and terminated under the Law on Minerals if:  

  (a) the license holder fails to conduct exploration within 6 months from the effective date of the license, except for force majeure events;

  (b) within a period of 90 days from the date on which a relevant State authority issues a warning letter for any failure by the license holder to comply with the legal requirements, including:

  • pay a licensing fee and fulfil other financial obligations prescribed by law; 
  • strictly comply with the mineral exploration license and implement the approved exploration plan; 
  • report to the licensing authorities for approval when there are changes in exploration methods or scales which result in an increase of more than 10% in estimated expenses; 
  • compensate for any damages caused by exploration activities; 
  • notify the exploration plan to the provincial PCs of the relevant locality before conducting the mineral exploration; 
  • collect and keep mineral-related information and report exploration results to the State authorities in charge of minerals; and report other activities to competent authorities under law; and
  • the relevant exploration area is declared to be banned or temporarily banned from any mineral activities.

  (ii) exploitation licenses: A mineral exploitation license may be revoked and terminated under the Law on Minerals if:  

  (a) The license holder fails to build mine infrastructure within 12 months from the effective date of the license, except for force majeure events; 

  (b) the license holder fails to conduct exploitation within 12 months from the proposed date of commencement of exploitation, except for force majeure events; 

  (c) the relevant exploitation area is declared to be banned or temporarily banned from mineral activities;

  (d) within a period of 90 days from the date on which a relevant State authority issues a warning letter for any failure by the license holder to comply with the legal requirements, including:

  • pay the fee for the grant of the exploitation right, a licensing fee, royalties, taxes, and charges, and fulfil other financial obligations under law; 
  • ensure/follow the schedule of mine infrastructure construction and exploitation activities as stated in the exploitation investment project and mine design; 
  • register the date of commencement of mine infrastructure construction and date of commencement of exploitation with the relevant State authorities and notify them of the relevant PCs in the locality in which the mines are located before construction or exploitation; 
  • protect mineral resources; ensure labour safety and sanitation and take measures to protect the environment; 
  • collect and keep information on results of further exploration for mineral reserves and on exploitation results; 
  • report exploitation results to the relevant State authorities under the regulations of the MONRE; and
  • compensate for any damages caused by exploitation activities.

  (iii) power plant (generation) licenses: A power plant/generation license may be revoked if the license holder:

  1. fails to implement the licensed activities within six (6) months from the date of issuance of the license;
  2. fails to ensure compliance with the power operation conditions as required by the Electricity Law;
  3. fails to comply with the contents required under the license;
  4. leases, lends or modifies the license without permission by the authority;
  5. has a demand for cessation of operation or assignment of the licensed activities to another entity;
  6. has the power generation license revoked upon the request of competent State authorities, due to the license holder's violation of relevant Vietnamese regulations;
  7. fails to supplement required documents in the application dossier for power generation license (i.e., the minutes of approval for fire prevention and fighting systems; minutes of approval for information technology infrastructure, telecommunication infrastructure, SCADA systems) within twelve (12) months from the issuance date of the power generation license; and
  8. fails to report to the power generation license issuing authority (i.e., ERAV or DOIT) within thirty (30) days from the date of change to the head office address under the power generation license.

• 8.3 Can the license granting authority set forth conditions into licenses which provide for (i) stricter terms and conditions of licensees or (ii) more lenient terms and conditions for licensees, when such terms and conditions (whether stricter or more lenient) are not otherwise provided for by law?

  The licenses are normally issued following the forms prescribed under the law. Therefore, there is little leeway for the authority to provide for additional terms and conditions to the licenses.

• 8.4 What remedies does the License granting authority have in order to enforce compliance to the terms and conditions of a license, other than by revoking the license?

  Administrative sanctions (such as monetary fines, suspension of the license for a period of time) are the most common remedies that the authorities would apply.

• 9. Regulatory and information obligation

• 9.1 Briefly outline the surveillance carried out by the regulatory authorities during the license period, e.g. with regards to reporting duties and/or on-site visits.

  The monitoring of exploration and exploitation licenses is based on the Law on Minerals.  The General Department of Geology and Minerals of Vietnam under the MONRE, and relevant local DONREs, are responsible for monitoring exploration and exploitation based on granted licenses.

  Under the Law on Minerals, the holders of mineral exploration licenses and mineral exploitation licenses are required to make and submit annual reports on the implementation of the activities as permitted under the license, as well as any extraordinary reports at the request of the relevant State authorities. 

  Monitoring of power plant/generation licenses is based on the Electricity Law. The ERAV under the MOIT and relevant local DOIT are responsible for monitoring power generation activities based on granted power generation licenses.

  In addition to regular and extraordinary reporting requirements, the relevant State authorities can conduct inspections or on-site visits.

• 9.2 Which information is required to be submitted to regulatory authorities during the license period for the holder of a license for:
     (i) exploration,
     (ii) exploitation,
     (iii) power plant (generation license)?

  (i) exploration; Under the Law on Minerals, before the 1st of February, the license holder must, on an annual basis, send a report on the mineral activities results to provincial DONREs and/or the General Department of Geology and Minerals of Vietnam under the MONRE. The report must specify, among other details, the implementation of mineral activities status regarding the explored mineral amount and expenses.  

  (ii) exploitation: Before the 1st of February, the license holder must, on an annual basis, send a report on the mineral activities results to provincial DONREs and/or the General Department of Geology and Minerals of Vietnam under the MONRE.  In terms of exploited mineral activities, the report must include, among others, details about (i) total investment capital, (ii) total deposits for the environment restoration duties, (iii) the actual amount of exploited mineral in accordance with financial statements, (iv) total revenue, (v) payment made to the State's budget, (vi) the remaining un-exploited minerals.   

  (iii) power plant (generation license): Before 1 March, the holder of a power plant/generation license must, on an annual basis, send a report on the status of conditions and maintenance of generation license to competent State agencies and the local DOIT on the implementation of the project.

  For the calculation of power generation prices, the license holder must send their audited financial statement to the ERAV before 1 June every year. 

  Additionally, the license holder must report on the electricity generation readiness, the output capacity, the implementation of mode of operation of power plants at requests of the ERAV under the MOIT and/or any other relevant authorities.

• 10. Power purchase agreements

• 10.1 Are general terms and conditions, such as duration of Power Purchase Agreements regulated? If no, are there any soft law or general recommendations in place in your jurisdiction?

  Yes, general terms and conditions (including duration) of power purchase agreements ("PPA") are generally regulated by Vietnamese law by way of the Vietnam Government's issuance of standardized model of PPAs. The use of standardized model of PPAs is required for power projects in most cases, especially on-grid power projects. Specifically, Vietnamese law requires that the parties to such a PPA may only supplement other contents not yet included in the model PPA in order to further clarify the rights and obligations of both sides, but not in order to change the main content provided in the government-provided standardized PPA model, or requires that any significant changes compared to the standardized PPA model may need to be reported or consulted with the ERAV under the MOIT.

  Currently, unlike other renewable resources (e.g., solar, wind, biomass, solid waste-to-energy) or other conventional power resources, Vietnam has not issued any standardized PPA model for geothermal resources yet.  Thus, in practice, the local power purchaser/off-taker, i.e., Vietnam Electricity (EVN) or the ERAV, can refer to the general terms and conditions under the standardized PPA models for other energy resources to negotiate for or apply for geothermal power projects, together with the general regulations of the Electricity Law of Vietnam.

• 10.2 What is the permitted or general duration of PPA's?

  Duration of PPA is generally regulated by Vietnamese law under a standardized model of PPAs.  Duration of PPA generally ranges from 10 to 20 years from the commercial operation date ("COD") of the power plant, and is renewable.  Currently, for geothermal power, no specific duration of PPA has been provided.  For other renewable power sources (e.g., solar, wind, biomass, solid waste-to-energy), the duration of a PPA (under their relevant standardized PPA model) is 20 years from the COD.  For other conventional power, it is 25 years from the COD.

• 10.3 Are public and/or national regulatory authorities involved in any way in forming the terms of PPA's, either directly or indirectly?

  Yes, the MOIT (through its relevant departments, including the ERAV and the Department of Electricity and Renewable Energy) is involved in forming the terms of PPAs.  Specifically, the MOIT is the authority to formulate and issue standardized PPA models.  Any changes by the parties to a PPA compared to the standardized PPA models may need to be reported or consulted with these authorities.

• 11. Incentives

• 11.1 Is there any governmental support or funding available for exploration activities?

  Under the Law on Investment, investment sectors that are entitled to investment incentives are limited to, among others, high-tech industries, scientific research and technological development, infrastructure development, environmental activities.

  Among other forms of investment incentives, investors in these incentivized investment sectors may enjoy reduction of the amount of the deposit for implementation of the investment project. In particular, the Law on Investment requires the investor to pay a deposit amount of from 1% to 3% of the investment capital of the investment project. This deposit amount can be reduced by 25% or 50% if the investment project belongs to one of the incentivized investment sectors as mentioned above (including renewable energy projects).

• 11.2 Are there any incentives offered by the government or local authorities for utilization of geothermal energy? If yes, in what form (e.g. tax and/or feed-in tariffs) and what are the maximum amounts permitted?

  Yes, renewable power plant operation (including geothermal) is within preferential investment areas in Vietnam. Accordingly, there are certain incentives offered by the Government, including:  mobilization of investment capital, import duty incentives, enterprise income tax incentives, land incentives, etc.

  On 25 November 2015, Vietnam issued a strategy for the development of renewable energy until 2030 with a vision to 2050 (Decision No. 2068/QD-TTg), and also amended the Power Master Plan (Decision No. 428/QD-TTg), with a prioritized increase of the power contribution from renewable energy to meet increased demands for power supply and national socio-economic developments.

  Accordingly, renewable power projects (including geothermal) are entitled to incentives as discussed below. Depending on the specific incentives and other conditions involved, the duration for the incentives may be perpetual or may be limited in time.

  (a) Tax incentives:

  1. Import Duties: Imported goods to create fixed assets of renewable power projects shall be entitled to import duty exemption; imported goods as raw materials, supplies, semi-finished products not yet domestically produced and imported for production of the projects shall be exempted from import duties for a 5-year period since the official production in accordance with current regulations of law on import and export tax.
  2. Enterprise Income Tax: The exemption and reduction of Enterprise Income Tax for renewable power projects shall be the same as those granted to projects in investment preferential sectors in accordance with current tax regulations.

  (b) Land incentives: The development projects using the renewable energy shall be entitled to exemption or reduction of land use fees or land leasing fees in accordance with current regulations of law applied to the projects in the field of investment incentives.

  (c) Mobilization of investment capital: Renewable power projects may enjoy incentives under current regulations on the State's investment credit.  The regulations on the State's investment credit are currently provided under Decree No. 32/2017/NĐ-CP, dated 31 March 2017. Accordingly, investors of projects which are on the list of projects eligible for the Vietnamese State’s investment credit may receive loans from the Vietnam Development Bank. The list of projects eligible for the investment credit, among other projects, includes investment projects under Group A, B in construction of electricity-generating plants using geothermal sources and other renewable energy sources.  The level of debt capital allowed for each project is up to 70% of the total investment capital of the project, but the maximum level of lending capital for each investor should not exceed 15% of the actual charter capital of the Vietnam Development Bank, or 25% for each investor and its related parties. Higher thresholds must be decided by the Prime Minister.    Decree No. 32/2017/ND-CP also sets out certain conditions for a project to ask for a State investment credit.  

  (d) Financial support: Under Vietnam's strategy for the development of renewable energy until 2030 with a vision to 2050, Vietnam will set up a financial source to give financial support to renewable power projects, including geothermal ones (called "Sustainable Energy Development Fund). Renewable projects are prioritized to use this financial source.

  (e) There is a general policy to give priority to research related to the development and use of natural resources of renewable energy in the field of scientific and technological development and high-tech industrial development.

• 11.3 What requirements must the project fulfil in order to be eligible to receive such incentives?

  Generally, geothermal projects should be able to enjoy the incentives mentioned above by virtue of being renewable power projects. There can be certain other specific requirements that are provided under relevant laws (particularly, tax laws for tax incentives, the Land Law for land incentives, and the Electricity Law for electricity tariff incentives, etc.) which may impact the level or the duration of incentives involved.              

      

• 11.4 Are the incentives subject to recovery in any instances?

  Yes, the incentives are subject to whether the project company continues to meet the relevant requirements and conditions.  They are subject to changes in law.  In this case, the State of Vietnam does not guarantee the investment incentives in case of changes in law for the reasons of national defence and security, social order and security, social ethics, public health or environmental protection.  In such a case, the investors may be considered by the government authorities to be supported with (i) taxable income deduction based on the actual damage caused by such changes; (ii) adjustment of the investment project's objective; or (iii) support to recover from damages caused by such changes. 

• 11.5 In the case of production of electricity from geothermal, are there any incentives/rewards for utilizing the geothermal energy for other than producing electricity, such as waste heat?

  There are no other special incentives other than the incentives, we mentioned in the response to Question 11.1 above.

• 12. Participation and authority of indigenous people

• 12.1 Are the rights of indigenous peoples in connection to geothermal resources regulated?

  N/A.  Indigenous people may have a role during land clearance process, but once land is granted or leased to an investor, indigenous people do not have any significant right in connection with the investor's exploration and exploitation of geothermal resources.

• 12.2 To what extent are indigenous municipalities involved in the process of granting licenses?

  N/A.

• 13. Alteration of law and regulation

• 13.1 What are the principles regarding retroactivity of laws and regulations, can changes in such rules affect license holders?

  In general, Vietnamese laws should not be retroactive and should accordingly not affect licenses already issued. Specifically, Vietnamese law requires that a legal document must not have retroactive effect in the case: (i) the document imposes a new legal liability upon an act which does not incur such legal liability when it is committed, and (ii) the document imposes a heavier legal liability.  However, Vietnamese law includes an exception that a legal document may have a retroactive effect if it is necessary for assurance of common interests, rights and interests of the entities regulated by that document.

  In practice, new rules can affect license holders to the extent that in many newly issued legal documents of Vietnam, there is a transitional provision saying that any changes to granted licenses from the effective date of the new rules are subject to the requirements under the new rules.

• 14. Taxation and capital controls

• 14.1 How does taxation in the sector affect license holders?

  As license holders must be a business registered entity, the taxation applied to license holders is similar to that applied to other business entities.

  In principle, license holders may be subject to following taxes:

  • Business Registration Tax (BRT): BRT is applied to any business activities. For an enterprise, the BRT ranges from VND 1 mil to VND 3 mil (approx. USD 48 to USD 144) dependent on the amount of investment capital.  
  • Enterprise Income Tax (EIT): The current EIT rate is 20% of taxable income of an enterprise, which is the enterprise's revenue minus deductible costs and expenses, exempted income, and loss carry forwards.

  However, as this is a renewable energy project, an incentive EIT rate of 10% shall be applied for a period of 15 years since the first year in which the project generates revenue.  Further, the project may be exempt from EIT for a maximum period of 4 years, and also entitled to a 50% reduction of EIT for a subsequent period of up to 9 years since the first year that taxable income is generated. 

  Law on EIT also allows loss in current year to be carried forward to subsequent year. Duration of such loss carry forwards is up to 5 consecutive years since the year subsequent to the year in which loss is generated. 

  Taxable period is calendar year or financial year.

  • Export/Import Duty:  The export/import duty shall apply when license holders import machines and equipment, input materials, spare parts, and accessories for the implementation of the project. Nonetheless, geothermal energy projects are entitled to import duty exemption for the importation of fixed assets.  In order to receive duty exemption for fixed assets, license holders are required to register a list of fixed assets with customs authority before the importation of the first fixed asset. 
  • Value Added Tax (VAT): Electricity is subject to a VAT rate of 10%.  However, exportation of electricity is entitled to 0% VAT. 

  VAT for electricity is calculated on the basis of selling price (environment protection tax and special consumption tax are not applicable).

• 14.2 Please describe and provide information on the applicable tax rate and resource tax.

  For EIT rate, please refer to previous questions.

  Regarding resource tax, which is understood as tax imposed on the use of natural resources, we understand that geothermal energy may use water during the power production. Current tax rate applied to water used for purposes other than drinking water production includes:

  Surface water: 3%;
  Underground water: 8%.

  Currently, taxable price for geothermal power has not been provided. Nonetheless, the taxable price may be the average commercial price of each kwh.

• 14.3 Is the sale of energy subject to VAT?

  Yes, as mentioned above.

• 14.4 Is VAT refundable and what is the procedure for VAT refunding?

  VAT is recoverable if the business activity of the taxpayer is subject to output VAT.

  However, VAT is refundable only in some limited cases.  One of the cases eligible for VAT refund is new investment projects which is in the pre-operating period and has the input VAT not yet recoverable exceeding 300 million VND.

• 14.5 Is the flow of foreign capital restricted with capital controls? If so, briefly describe the nature of such controls.

  Vietnam has a strict regulation on foreign capital for investment projects in Vietnam, especially transactions", which are defined by the Foreign Exchange Ordinance of Vietnam (the "FX Ordinance") as transactions for the purpose of transferring capital between a resident and a non-resident in the following activities:

  • Direct investment;
  • Indirect investment;
  • Borrowing and repayment of offshore loan (from offshore lenders);
  • Lending and collecting debts from outbound loans (to offshore borrowers); and
  • Other forms of investment in accordance with Vietnamese law which, however, are not specified elsewhere.

  (a) Capital transfer for foreign investment under foreign exchange regulations The FX Ordinance classifies capital transfer for foreign investment into for two (02) forms, namely direct foreign investment and indirect foreign investment:

  (i) Direct foreign investment into Vietnam: means that the foreign investor invests capital and participate in the management of  its investment in Vietnam.

  A Vietnamese company which is invested by a foreign investor in the form of foreign direct investment is required to open a direct investment capital account ("DICA"). All direct foreign investment transactions in Vietnam must be conducted via the DICA, among others:

  • Receipt of direct investment capital contributions of foreign investors and Vietnamese investors in foreign invested Vietnamese company;
  • Receipt of loan proceeds from and offshore remittance of payment in relation to offshore loans;
  • Receipt and remittance of payment for the transfer of investment capital and projects;
  • Offshore remittance of legitimate profits and other incomes from direct foreign investment activities of foreign investor in Vietnam; and
  • Offshore remittance of direct investment capital of the foreign investor in case of liquidation, termination of or reduction of foreign investment capital in the foreign invested Vietnamese company.

  (ii) Indirect investment into Vietnam: means that the foreign investor invests into Vietnam via the purchase and sale of securities and other valuable papers, contribution of capital and purchase of shares and via the security investment funds, intermediate credit institutions in accordance with the law but do not participate in the management of  its investment in Vietnam.

  A foreign investor who undertakes indirect foreign investment into Vietnam has to open an indirect investment capital account ("IICA").  All indirect foreign investment transactions in Vietnam must be conducted in Vietnamese Dong and via the IICA which is denominated in Vietnamese Dong, among others:

  • Receipts of proceeds from transfer of contributed capital, shares, sale of securities and other valuable papers, receipt of dividends and interests from bonds and valuable papers in Vietnam Dong from indirect foreign investment activities in Vietnam;
  • Remittance of payments for implementation of indirect foreign investment activities in Vietnam; and
  • Remittance of payments for buying foreign currency monies from licensed credit institutions in order to remit offshore the capitals, profits and other lawful incomes.

  (b) Offshore loan

  Offshore loans are divided into short-term, mid-term and long-term loans as follows:

  • Short-term loan: a loan having a term up to one (01) year; and
  • Mid-term or long term loan: a loan having a term exceeding one (01) year.

  A borrower has to register its mid and long-term offshore loan and in certain circumstances, its short-term loan with the State Bank of Vietnam (SBV) within certain period of time after the execution date of the loan agreements.

  A borrower must open an account for borrowing and repaying offshore loans at a licensed bank to utilize and repay offshore loans and other expenses relating to the offshore loans. A borrower who is a foreign-invested Vietnamese company must use its DICA as the account for borrowing and repaying offshore loans for mid- and long-term offshore loans.

• 15. Environmental Impact Assessment

• 15.1 What demands are there regarding environmental impact assessment prior to exploration, exploitation and or production of geothermal energy?

  Vietnam has been making a concerted effort to improve its environmental legislation. Current environmental law and policy are based primarily on the Law on Environmental Protection (2014) (LEP).

  During the preparatory stage and implementation stage, the developer will be required to conduct several environmental assessment reports/plans, which are to serve as the basis for the relevant authorities to assess the potential impacts of the project on the environment, as well as implement solutions proposed by the developer to limit such impacts. Similar to other business establishments, geothermal power projects must limit noise, vibration, light and heat emissions that negatively affect the surrounding environment and facility employees. Emitting noise or causing vibration exceeding the allowable technical and environmental protection standards are prohibited activities under the LEP.

  As per the Environmental Protection Law 2014, the Investment Law and relevant implementing legislation, a foreign investor investing in a geothermal power project in Vietnam must comply with the following requirements:

  (a) At the preparatory stage: Conducting an Environment Impact Assessment Report or an Environmental Protection Plan

  Vietnamese law provides for certain types of environmental assessment that the investor must conduct prior to implementing the project. Depending on the characteristics of the project, the project may either fall under the group required to have a Strategic Environment Assessment, or the group required to have an Environment Impact Assessment Report (EIAR), or the group required to have an Environmental Protection Plan (EPP).

  A geothermal power project would likely fall under the group required to prepare an EIAR.  Specifically, mineral exploitation projects for extraction of mineral water, natural hot water (underground or on the surface) with 500 m³ of water per day and night or more are subject to the requirement for preparation of an EIA report prior to the grant of mineral exploitation license. 

  (b) At the implementing stage, the project company must comply with waste management obligations, apply for a permit for discharging waste water, and submit periodical Environmental Supervision Reports.

• 16. Other regulatory requirements or permits needed

• 16.1 What other licenses are needed in order to commence exploration, exploitation and/or production with geothermal energy?

  In addition to the licenses for exploration, exploitation of geothermal resources and power generation license, the following key licenses are needed:

  1. an Enterprise Registration Certificate, for the establishment of the project company, in accordance with the Enterprise Law;
  2. an Investment Registration Certificate, for the registration of the geothermal power project, in accordance with the Investment Law (applicable to foreign invested projects in Vietnam);
  3. a Certificate of Land Use Right and Ownership of Assets attached to the Land (LURC), for the leased/granted land used for the project, and a decision of the authority on land lease for mineral exploration and exploitation in accordance with the Land Law; and
  4. a Construction Permit, for project facilities, in accordance with the Construction Law. 

• 16.2 Which other regulatory requirements are in place, including but not limited to the need to provide insurances or guarantees, in connection with the commencing or continuing of exploration, exploitation and/or production of geothermal energy?

  (a) Requirements for the purchase of insurance

  Under the Law on Minerals, entities conducting mineral activities are required to purchase insurance for the facilities, construction works for the mineral activities and other insurances in accordance with Vietnamese regulations.

  In addition, obligations to purchase compulsory insurance for construction works have been provided under the Construction Law that is guided by Decree No. 119/2015/ND-CP on compulsory insurance in construction, investment activities as follows:

  The project owers/investors must purchase insurance products during the construction period for certain works and facilities, including:

  • Facilities or part of facilities having an impact on public/community safety;
  • Investment and construction facilities having a significant impact on the environment and projects which are on the list of projects subject to environmental impact assessment;
  • Facilities with specific technical requirements and complex construction conditions.

  An exception to this requirement is in the case where any such facility is related to national defence, public security or State’s secret.

  In the case where the insurance premium is included in the price of the contract (between the contractor and the investor), the contractor must purchase insurance products for those facilities.

  In addition, consulting contractors must purchase construction consultancy professional liability insurance for construction survey or design works for construction facilities at certain levels (level II or higher levels), as classified by the Ministry of Construction. Construction contractors must also purchase insurance for their employees who work on these construction sites.

  (b) Requirements for guarantees

  There has not been specific requirements for guarantees for geothermal energy projects.  In fact, it has been become harder apply for government guarantees for energy projects, especially private projects, and it is easier to apply for government guarantees if the developer makes investment in the form of public-private partnership (PPP) with a concession agreement with a State authorized agency (i.e., the MOIT in the energy sector, or the provincial People's Committee).  However, the PPP form is not common for renewable power projects in Vietnam, but most private developers are currently developing renewable projects under private/IPP/normal projects.  The PPP (and the BOT as the most common form) is more appropriate for large-scaled thermal power projects.

• 17. Legislation

• 17.1 Have there been any recent amendments to the legislation for licensing, exploration and/or exploitation of geothermal energy in the last 15 years? If so, have these amendments made a noticeable impact on the increase or decrease of production of electricity from geothermal resources?

  Unlike other renewable resources (e.g., solar, wind, biomass, solid waste-to-energy) or other conventional power resources, Vietnam has not issued any special policy or guidelines on geothermal energy projects.  Thus, any geothermal energy projects will need to be developed on an ad-hoc basis based on the general laws, as discussed above.

• 17.2 Have any other factors made a strong impact on the production of electricity from geothermal in the last 15 years? If so, for what reasons.

  No special factor that has been tested in Vietnam yet, given that Vietnam is still studying the feasibilities and legal framework for geothermal energy.

• 17.3 Is there a specific legislation in place regarding geothermal extraction?

  Vietnam is still studying the feasibilities and legal framework for geothermal energy and the legal framework on geothermal energy has not bee developed yet.

• 18. Alternative or cascade use of resources

• 18.1 When applying for a licence, is it possible to apply for one license or authorization, which provides for multiple or cascade use of the resource, e.g. direct and indirect utilization (generation of electricity, district heating and cooling)?

  A single developer can develop multiple projects or a single project that is developed into different phases under its investment registration certificate.  However, the exploration, exploitation of geothermal resources are subject to mineral exploration license, mineral exploitation license under the Law on Minerals; whereas the use of geothermal resources to generate electricity is subject to power generation license under the Law on Electricity, and multiple licenses may be required, given that they may have to be applied at different points of time for different phases of the project.

• 18.2 Could mineral extraction from geothermal fluid be included under such cascade usage clauses?

  N/A.

• 18.3 What possibilities does a license holder have to expand operation in order to seek further revenue based on secondary resources?

  The manufacture and use of secondary resources (e.g., generation of electricity from geothermal power resources) might be subject to licensing / approval procedures under Vietnamese laws. These procedures include, among others, procedures to include the power generation project into relevant power development plans, investment registration procedures, issuance of power generation license, etc. Compliance with relevant licensing procedures is the preliminary requirement for investor / project developer to ensure their revenue based on the secondary resources.  The developer may have to apply for the expansion of the project to seek further revenue based on secondary resources, but in general, this expansion is subject to the regulatory investment review and registration under the Investment Registration Certificate.

• 19. Water rights

• 19.1 Once an exploitation license has been granted for the operation of a power plant, along with access to fresh water for power plant operation, can the licence allow for sales and distribution of fresh water to local communities?

  The exploitation and use of water resources for a geothermal power project is subject to water resources permits issued by the MONRE or local PCs (with certain exemptions, among others, exploitation of surface water to generate power with installed capacity of less than 50 kW). Water resources permits are issued separately from mineral exploitation licenses.

  The water resources permits and/or mineral exploitation license does not automatically allow for sale and distribution of fresh water to the local communities. Under Vietnamese laws, retailer and wholesaler of fresh water must be selected by the local competent state authorities by means of direct appointment or bid selection. Retailer and wholesaler of fresh water are required to enter into an agreement on implementation of water supply services with the local PCs.