Selecting a Corporate Form: Foreign Direct Investment in Vietnam’s Oil and Gas Industry under the 1995 Land Law

Matarazzi, Magali | January 1, 1999

Foreign investment in Vietnam by U.S. investors has been controversial since the termination of the Vietnam War. Originally, there were political considerations. The idea of conducting business with a socialist government, that was an enemy in the recent past, was antithetical to the U.S. Congress and population. The trade embargo imposed on Vietnam was a reflection of this sentiment. In the meantime other nations were willing to negotiate with the new government because business considerations out-weighed political ideals. Vietnam proved to be a wealth of natural resources, most notably oil and gas reserves. There was also speculation that Vietnam’s economy would grow in the same manner as its regional neighbors. Political pressure not to conduct business with Vietnam soon changed to political pressure to allow business with Vietnam. Now the controversy is whether the Vietnamese legal framework can support a free market economy and whether Vietnam will ride out the financial crisis of the region. The 1995 amendment to the Law repealed the land use right as an incentive to investment. This alters control versus risk factors for choosing an investment vehicle. The Build-Operate-Transfer (“BOT”) is the least risk prone investment vehicle for FDI in the oil and gas industry in Vietnam. The BOT offers the greatest investor control of management and thus a higher success rate and greater profits for the project over the long term.