Obtaining land for renewable projects in Vietnam

Construction News Vietnam

Obtaining land for renewable projects in Vietnam

Rich renewable resources, generous subsidies and incentives, and a booming economy and manufacturing sector driving electricity demand have been drawing global investors to Vietnam’s renewable energy projects in recent years.

Following an initial period of rampant growth, investment in the country’s renewable energy has slowed since 2020 due to a lack of overall planning and the expiration of electricity price subsidies, among other factors.

But in the long run, the market still holds immense potential, owing to Vietnam’s energy development strategies and goals, making it still highly attractive to global investors, including from China.

Renewable energy projects, represented mainly by wind and solar power plants, are by nature infrastructure projects. As with all infrastructure projects, land plays an undeniably essential part, and the legitimacy and cost of land usage could spell the difference between success and failure.

Therefore, it is critical to gain some insight into Vietnam’s land regulations. In particular, how can foreign investors acquire land for renewable energy projects, and what incentives are available?

Similar to China, Vietnam’s constitution stipulates that land belongs to the people as a whole, and the state manages it as a unified representative. Consequently, Vietnamese law does not recognise private ownership of land, and the user of land must secure land use rights through transfer, lease or capital contribution.

Land can be divided into long-term land and fixed-term land. The former has no fixed period of use, while the latter may have a time limit of from five years to 50, 70 or 99 years, among others. A 50-year time limit is the most common.

Foreign investors cannot directly acquire land use rights in Vietnam, but may obtain land use rights through their local foreign-invested enterprises to invest in the projects. The land use period of foreign-invested enterprises cannot exceed 50 years, although there are exceptions.

According to Vietnamese law, foreign-invested enterprises can obtain land use rights through various means, including:

State allocation;
Signing a lease contract with the state;
Leasing land from industrial or high-tech zones; or
Obtaining land use rights from a Vietnamese local enterprise as capital contribution.

Of these four methods, state allocation is only applicable to residential projects, and leasing land from industrial or high-tech zones is limited to investment projects in those zones. Of the other two, signing a lease contract with the state is more common, making it the go-to method for foreign-invested enterprises to obtain land use rights.

Generally, foreign investors need to obtain land use rights for renewable energy projects by signing a lease contract with the state, as noted. The project company or investor must apply to the relevant authority for leasing the land delineated in the in-principle approval and Investment Registration Certificate (IRC).

The land lease term is dependent on the in-principle approval and duration of the project approved under the IRC, but should not exceed 50 years.

Land leasing is generally carried out in the following steps:

The project land should be on the list of approved projects for land requisition, as approved by the provincial people’s committee, and the area of land requisition should be included in the district-level land use plan;
If the project land has been occupied, the provincial or district-level people’s committee must first issue a land requisition notice, while the department responsible for land compensation prepares a compensation, support and resettlement plan;
The relevant people’s committee issues a decision to support land requisition and approves the land compensation plan;
The land compensation department co-operates with the people’s committee and the investor to implement the land compensation plan as requested by the provincial people’s committee;
After completion of the plan, the provincial people’s committee issues a confirmation, and the compensation department prepares the final accounts of the land compensation plan and obtains approval from the provincial Department of Finance. Subsequently, the competent national authority requisites the land to be handed over to the investor;
The provincial people’s committee issues a land lease decision to the investor; and
The land lease agreement is signed.

On signing, the provincial natural resources and environment department issues a land use right certificate to the investor according to the application it submitted. The investor then pays the land rent according to the land lease decision and agreement.

With regard to land compensation, although the Vietnamese government has a theoretical obligation of payment, in practice, investors often pay for land compensation related to the project in accordance with the approved compensation plan in order to expedite land clearing.

Afterwards, this portion of the cost will be included in the total investment amount of the project, and investors can apply for deductions of the corresponding amount.

Centralised wind power and solar power projects typically occupy large areas, and consequently land rent cannot be neglected. To incentivise foreign investors to invest in renewable energy projects, the government provides varying degrees of land rental concessions, depending on the location.

Specifically, projects can benefit from the preferential policy of exempting land rent for three to 15 years, or throughout the investment period. It should be noted that the land use right of the project land, if exempt from land rent, cannot be used as security for project financing.

Due to the large areas occupied by such projects, the land is generally occupied by multiple parties, which can add to the difficulty of compiling and implementing a land compensation plan. The time it takes to recover land could be lengthy, which may affect progress of the project and delay meeting the conditions to commence construction.

In view of such practical hurdles, it is recommended to plan the requisition of project land with a land acquisition consultant in advance, and also consult legal counsel for advice.

To avoid legal risks as much as possible, investors should strive to optimise the land acquisition plan and prioritise obtaining the most needed portion of the project land use right.

Wang Jihong is a partner and Zhao Huiqi is an associate at Zhong Lun Law Firm

Source: https://law.asia/renewable-energy-vietnam/