PPP: promises, problems

導語：政府和社會資本合作（PPPs）已經吸引了有限的私有利益，并引發了跨部門之間的圈地戰爭。李克強在2016年的國務院常務會議中反復強調要推進PPP項目。前財政部長樓繼偉也致力于控制監管，并嘗試推進“強制”PPP項目。

Public Private Partnerships (PPPs) draw limited private interest and spark interagency turf war

state pushing PPPs

PPP was repeatedly promoted by Li Keqiang 李克強 in State Council executive meetings throughout 2016. Lou Jiwei 樓繼偉 former finance minister fought to control supervision and pushed for exploring mandatory PPPs. They are slated to

● invite private investment: it encourages private firms to participate in government-initiated projects, providing an alternative investment option with stable returns. Since data was available in May 2012, private investment saw its first y-o-y decline in June 2016. Recovering in August, it remains low

● finance local government: the 2014 Budget Law made irresponsible borrowing more difficult. To fill gaps, local governments increasingly turn to private capital, especially as they struggle to meet annual fiscal targets, and their debt swells

● drive new growth: the central push to limit asset bubbles makes localities more reliant on other growth channels, including infrastructure investment

● increase efficiency: private sector buy-in brings in expertise and more market-savvy management

private sector unimpressed

Of the 10,471 registered PPP projects with total value of C￥12.46 tn, only 11 percenthave been implemented by end September 2016. Faring better weredemonstration PPP projects under Ministry of Finance (MoF) supervision, with 58.2percent implemented. Private investors complain

● SOEs, allowed to bid for PPPs in China, dominate profitable projects that generate steady revenue streams, such as building highways; State Council has sent inspection teams to provinces, urging fair treatment of private investors, but this has only pushed localities to favour SOEs more subtly

● local governments sometimes exploit private firms, changing the terms after signing contracts; MoF proposed to deduct local government transfer payments if they fail to pay private contractors. This controversial clause was omitted from the final management measures

● returns are unsatisfactory: value for money (VfM), fiscal affordability and PPP suitability tests are intended to ensure returns; for unprofitable projects that offer public services, like aged care, increased subsidies are necessary to offer returns, but this is difficult given fiscal shortfalls

● there is no comprehensive PPP Law; this leaves space for ministries to squabble over controlling projects, creating uncertainty for investors

agency turf war

Standards and budgeting for PPP projects are in theory controlled by MoF, whileNDRC directs project selection and price setting. In practice, both agencies havetried to cover both functions, separately issuing project lists and guidelines forfund use. To end interagency competition, on 7 July 2016, Li Keqiang announcedthat public service PPPs will be under MoF’s jurisdiction, and infrastructure PPPsunder NDRC. The State Council Legislative Affairs Office will lead drafting the PPPLaw.

However, the boundaries between public service and basic infrastructure PPPs arenot well defined, argues Wang Shouqing 王守清 Tsinghua University, as manybasic infrastructure projects, like building hospitals and schools, provide publicservices. When MoF issued ‘Notice for promoting PPP in public serviceindustries’on 11 October, it included the following sectors as public service projects under MoF’s jurisdiction

● energy

● transport

● water resources

● environmental protection

● agriculture

● forestry

● municipal construction

This is at odds with NDRC’s assertion that these sectors are basic infrastructure on both 18 August and 27 October.

The two ministries use different standards to evaluate PPP projects, complicating investors’ decisions. MoF uses value for money analysis (VfM), emphasising investment returns and cost efficiency for the public. NDRC did not include this standard in its ‘Guiding principles for implementing PPP projects in traditional infrastructure industries’; it may instead use feasibility studies to assess commercial viability.

legal fix needed

The PPP Law, currently being drafted, should clarify MoF and NDRC’s jurisdictions and set up contract safeguards to protect private investors. Other suggested and ongoing adjustments include

● increased transparency: the government is pushing for better information disclosure, suggests Wang Shouqing 王守清 Tsinghua University, such as publicising contract details and financial transactions

● more liquidity: Shanghai United Assets and Equity Exchange (SUAEE) is preparing to launch a PPP trading platform; as PPP projects often last more than 20 years, a vibrant secondary market will encourage more private participation

● better funding: more stable and long-term investors, like insurance funds, may enter PPPs

● perks from government: experts have suggested preferential tax policies to improve interest in PPPs

roundtable

Jin Yongxiang 金永祥 | Dayue Consulting CEO and founder

Jin is a PPP pioneer, advising private investors as early as the 1990s. Already a consultant for MoF’s PPP database, he recently became one for NDRC’s too. NDRC and MoF PPP guidelines are at odds with each other, argues Jin. NDRC policy includes neither VfM nor fiscal affordability assessment; MoF uses these to select private investors. NDRC policy stipulates private partners can bypass rebidding for facility procurement only if they were selected through bidding originally; MoF policy allows firms to bypass rebidding on other grounds. Finally, NDRC allows state organs and their entrusted organisations to carry out PPP, whereas MoF permits only government, designated functional departments, and designated service agencies to do so. As both ministries built their own PPP databases, says Jin, the greatest concern is that NDRC will dispute the legitimacy of MoF’s projects, and MoF will refuse to fund NDRC’s projects.

Liu Fei 劉飛 | AllBright Law Offices partner

Liu helped draft the new NDRC PPP work guidelines. Answering market concerns, she denies the new policy contradicts MoF’s guidelines, saying the absence of VfM and fiscal affordability in NDRC guidelines does not diminish their importance; governments and firms are encouraged to follow standards issued by other ministries. In addition, NDRC follows Bidding Law and MoF follows ‘Implementation measures on Bidding Law’, leading to the slight differences in requirements; but the two are not incompatible.

Xue Tao 薛濤 | E20 Environmental Platform senior partner

With 12 years of PPP consulting experience, Xue specialises in municipal construction and environmental projects. Currently a PPP expert for MoF, he argues the industry has grown from nappies to nursery, with more self-discipline and independence. He warns of irresponsible fundraising by local governments, financial institutions hoping for risk-free investments, and firms adding unnecessary leverage. Xue argues that despite friction between the two central agencies, local planning authorities and finance bureaus work together effectively, with local government playing a key moderating role.

context

18 nov 2016: PPP Law will first come out as regulations by State Council, says Jiao Xiaoping 焦小平 MoF

8 nov 2016: PPP is mooted by NDRC to revitalise the Northeast

27 oct 2016: NDRC releases ‘Guiding principles for implementing PPP projects in traditional infrastructure industries’

20 oct 2016: MoF releases ‘Finance management measures for PPP projects’ after its call for comment, removing the controversial clause reducing local government transfer payments for failing to pay private firms promised amounts

13 oct 2016: MoF releases the third batch of demonstration PPP projects, with total investment value of C￥1.17 tn

11 oct 2016: MoF releases ‘Notice on promoting PPP in public services’ , stipulating to explore mandatory PPP for waste and sewage disposal systems

15 sep 2016: NDRC releases list of PPP projects worth C￥2 tn covering energy, transport, water resources, agriculture, forestry and public works

30 aug 2016: NDRC releases focus areas for infrastructure PPPs

18 aug 2016: NDRC releases ‘Notice on conducting basic infrastructure PPP’ clarifying PPP projects under its jurisdiction

17 aug 2016: Qian Jin 錢璡 SUAEE PPP trading platform CEO says Shanghai United Assets and Equity Exchange (SUAEE) is preparing to launch a PPP secondary market by end 2016

11 aug 2016: expert calls for changes to tax policy to support PPPs

9 jul 2016: State Council announces its Legislative Affairs Office will lead merging PPP Law and Concession Law drafting, ending a clash between MoF and NDRC

7 jun 2016: State Council inspection uncovers obstacles for PPP implementation, following an inspection on barriers for private investment

27 may 2016: MoF outlines requirements for PPP projects’ information disclosure

30 sep 2015: MoF and ten financial institutions sets up a C￥180 bn fund toadvance PPP projects

12 sep 2015: MoF stresses PPP needs institutional investors such as insurance firms and pension funds

22 may 2015: State Council releases ‘Guiding Opinions on public service PPP projects’ to address private sector concerns

7 apr 2015: Liu Xiaoping 劉小平 Lianhe Ratings says local government financing platforms have found loopholes to profit from PPP

4 mar 2015: MoF and MoHURD launch PPP in municipal public services including utilities, bridges, roads, and transport infrastructure

8 dec 2014: Wu Yaping 吳亞平 NDRC says PPP can overcome shortcomings of both state and the market

（Source and author：China Policy，8 Dec 2016)

來源：China Policy

編輯： 李姝樂