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June 6, 2024

Potential Impact of Vietnam’s New Land Law on the Energy Sector

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On January 18, 2024, Vietnam’s National Assembly passed a new Land Law (“Land Law 2024”) that is scheduled to take effect on January 1, 2025, replacing the current Land Law 2013. To mitigate challenges faced by the real estate market, in late May 2024, the government proposed amendments to the Land Law that would move the effective date up five months, to August 1, 2024, pending approval by the National Assembly.

One of the key sectors to be impacted by the Land Law 2024 is the energy sector, which requires large land areas for power plants and infrastructure, especially given Vietnam’s 2050 net zero emissions commitment. Below are highlights of how the new Land Law 2024 will affect Vietnam’s energy sector.

Annual payment of land rental

Under the Land Law 2013, investors implementing energy projects (e.g., solar power projects) are entitled to choose to lease land with either (i) an annual rental payment or (ii) a single upfront payment for the entire term of use. Under the Land Law 2024, these investors are only allowed to use land in the form of an annual rental payment.

As the annual land rental is calculated in five-year cycles, based on the land price table decided by the state, this new restriction means that investors in energy projects will face an additional risk of a sudden increase in land rental, disrupting their financial planning.

Investors using land sites leased with annual rental payments are also not allowed to mortgage their land-use rights, but can only mortgage assets attached to the land, at credit institutions licensed to operate in Vietnam. Accordingly, this may affect the ability of energy projects to obtain financing during the development stage, because they no longer have assets that can be mortgaged.

Obtaining land

Under the Land Law 2024, investors can obtain land through a lease without any auction or bidding process; through an auction process (for selecting the land user of a land site); or through a bidding process (for selecting the investor implementing an investment project with the need to use land).

Investors in energy projects using public investment capital and public-private partnership (PPP) projects can lease a land site from the state without an auction or bidding process. Further details on these conditions are to be provided by the government.

An auction process will apply to energy projects that intend to use land obtained from the land fund managed by the state if the following conditions are satisfied: (i) the land site is clean and does not require compensation or site-clearance work; (ii) the land site is included in the annual land-use plans approved for auction; and (iii) a 1/500 plan and auction plan are approved by the competent authorities.

A bidding process will apply to energy projects that must conduct bidding to select investors according to specialized laws, such as the laws on electricity, if the following conditions are satisfied: (i) the land is on the list of land sites subject to bidding for selection of investors for an investment project as decided by the provincial People’s Council; (ii) a detailed plan or a 1/2000 zoning plan is approved by the competent authorities; and (iii) other conditions under the laws on bidding are met.

Compared to the Land Law 2013, the Land Law 2024 supplements the bidding for projects using land as a new method for investors to gain access to land. This addition aims to increase competition and fairness for investors.

Compensation, support, and resettlement procedure

If the land for implementing an energy project is currently occupied, a compensation, support and resettlement procedure must be carried out. Under the current Land Law 2013, the decision on land recovery and the decision on the plan for compensation, support and resettlement are issued concurrently. Under the new Land Law 2024, the decision on land recovery will only be issued within 10 days after, among other conditions, the plan on compensation, support, and resettlement has been issued, if resettlement is not required; or the person whose land is recovered has had another land site allocated or handed over by a competent authority to build their own resettlement housing.

These new regulations will extend the length of the land clearance procedure considerably when the recovered land requires resettlement, as the decision on land recovery will only be issued after the resettlement is deemed completed.

Commercial arbitration as a dispute resolution mechanism

Another crucial aspect of the new law is that commercial arbitration is clearly recognized as a dispute resolution mechanism for land-related disputes. Previously, there was uncertainty surrounding whether disputes relating to land could be adjudicated by arbitration. Pursuant to the Land Law 2024, Vietnamese commercial arbitration can resolve disputes arising from commercial activities related to land in accordance with the law on commercial arbitration.

Outlook

The new Land Law aims to address overlapping and conflicting issues of related land policies and laws, while tackling practical challenges in land management and land use. It promotes the commercialization of land-use rights, fostering transparent real estate markets, modernizing land management systems, and implementing administrative and digital reforms to improve land accessibility, especially for energy projects.

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