Building up the PPP model

This article is from the Projects, Energy & Infrastructure chapter of the 2015 Annual Review and is available for download here.


Zejun Lin of Zhong Lun Law Firm describes the legal progress of PPP, the challenges of expanding its use in China and how private investors can best prepare for these projects

1. What have been the most influential developments in the project financing and infrastructure sector during the past year?

Of the most influential developments in the project financing and infrastructure sector during the past year, none has been greater than the vigorous promotion of the public-private partnership (PPP) model at the government level. Since the issuance of the Opinions on Strengthening the Administration of Local Public Debt (Guo Fa [2014] No.43) by the State Council in September last year, PPP has seen a rapid uptake in China's infrastructure construction sector. Pursuant to the Guiding Opinions on Launching Public-private Partnerships issued by the National Development and Reform Commission (NDRC) on December 2 2014, the PPP model refers to a long-term cooperative relationship established between a government, which wishes to enhance its capacity for supplying public products and services and increase supply efficiency, and private capital, through means such as a concession, service purchase or equity cooperation, in which they share the benefits and the risks.

According to the NDRC's website, as at May 25 this year, the first batch of published PPP projects numbered 1,043, with a total investment of Rmb1.97 trillion, covering areas such as water resource facilities, public infrastructure, transport facilities, public services, resources and environment. These do not include the large number of projects included in the provincial-level PPP project libraries. The PPP model has already become the new normal in the project financing and infrastructure construction sector.

2. What regulations, policies and guidelines are there for the PPP model? What is the situation like at the legislative level?

Currently, the regulations, policies and guidelines for the PPP model mainly include the following:

(1) The policy and guiding documents of the State Council on the PPP model, e.g. document No. 43, the Guiding Opinions on Government Purchase of Services from the Private Sector, the Guiding Opinions on the Investment and Financing Mechanisms for Innovative Key Sectors and Encouraging Private Investment and the Guiding Opinions on Promoting the Public-private Partnership Model in the Public Services Sector. The issuance of these documents provides policy guidelines for the PPP model.

(2) The operational level regulation and policy documents on the PPP model issued by the NDRC, Ministry of Finance and other ministerial level authorities. These include the NDRC's Guiding Opinions on Launching Public-private Partnerships, the Measures for the Administration of Infrastructure and Public Utility Concessions issued by the NDRC and five other ministerial level authorities and formally implemented on June 1 this year, the Circular on Issues Relevant to Promoting the Use of the Public-private Model, the Operational Guidelines for Public-private Partnerships (Trial Implementation) and the Measures for the Administration of Government Procurement in Connection with Public-Private Partnership Projects of the Ministry of Finance. These documents provide specific operational guidelines for the PPP model.

(3) Certain documents issued by various ministerial-level departments that specifically promote the use of PPP in infrastructure projects, such as the Circular on Launching a Pilot Project for Central Financial Support for Sponge City Construction and the Circular on Launching a Pilot Project for Central Financial Support for Underground Utility Tunnels issued by the Ministry of Finance and other departments, and the Implementing Opinions on Promoting and Applying the Public-private Partnership Model in the Tolled Road Sector issued by the Ministry of Finance and Ministry of Transport.

(4) Certain guiding documents applicable to the PPP model locally issued by various regions in respect of their own particular features. For example, the guiding and implementing opinions for PPP projects issued by Chongqing, Guizhou, Jilin, Shanxi, Shaanxi, Heilongjiang, etc.

Notwithstanding the fact that regulations and policies for PPP are extremely numerous at present, the PPP model lacks high-level legislation. This is currently the biggest obstacle to spreading the use of the model.

3. Compared with past models such as BOT and BT, what are the particular features of the PPP model?

The greatest difference between the PPP and the past BOT, BT and other models is that the former puts greater emphasis on the sharing of benefits and risks as well as long-term cooperation between the public and private.

Firstly, in terms of sharing benefits, the PPP model ensures to a certain extent that private investors can make a profit. Governments can give private investors the appropriate policy support as compensation, e.g. tax breaks and security for loans.

Secondly, risk-sharing is more emphasised in PPPs. The public authority and private investor jointly participate in project development and operation, with the project company mainly assuming the project financing, construction, procurement, operation and maintenance risks.

Lastly, in terms of cooperation term, the PPP model places greater emphasis on long-term cooperation in “the sharing of benefits and risks” and mutual monitoring and assistance between the public and private organisations, so as to enhance cooperative efficiency.

4. What are the major problems facing the spread of the PPP model in the PRC at the moment? How can they be resolved?

Based on our practical observation, the major problems in the spread of the PPP model in China are as follows:

(1) there still is no regulation of the PPP model at the highest levels of legislation;

(2) the erroneous self-positioning of local governments in PPP projects. In practice, it is not unusual to find a local government positioning itself as the regulator or owner of a PPP project, imposing various onerous demands on the private investor. Certain local governments are also not willing to share the benefits with private investors, using PPPs only for certain projects that offer low return rates, and not willing to offer private investors extra compensation; and

(3) the support of financial institutions currently does not fit the bill of genuine project financing, making it difficult to realise limited recourse. Furthermore, financing costs are high, with the majority of projects still relying on the credit support of their major shareholders, thus constraining the financing capacity of projects.

As for resolving these problems, we believe that: first, the state should accelerate the formulation of legislation for PPPs so as to provide the legal basis for the long-term and sustainable development of PPPs; second, local governments should enhance their knowledge and understanding of PPPs, so as to genuinely “share the benefits and the risks” with private investors; and third, financial institutions should offer PPP projects genuine project financing support.

As for a private investor, we recommend the following:

(1) before getting involved in a PPP project, it should fully evaluate the investment returns of the project, as many infrastructure projects have a long investment cycle and offer low returns. When negotiating with the government, a private investor can request additional supporting conditions, such as granting of land adjacent to the project and rights to returns on commercial development;

(2) a private investor should fully assess the project's investment risks and refuse any unreasonable risk sharing that exceeds its own capacity;

(3) it should fully assess the government's budget space, paying particular attention to whether the project has been included in the government budget and whether it exceeds the 10% budget red line for PPP. Blind investing should be avoided; and

(4) a private investor should attach great importance to the execution of the PPP agreement, as a detailed and reasonable PPP agreement can help, to a certain extent, to safeguard against project risks, for example, providing in detail the operational and management mechanism of the project company in the PPP agreement can play a key role in guarding against the government assigning personnel that can bring inappropriate bureaucratic red tape into the project.


Author biography

Zejun Lin
Senior partner

Zejun Lin was admitted to practise law in China in 1994 and has been practising in China for over 20 years.
Zejun's practice is substantially focused on the areas of infrastructure investment and project financing, foreign investment, finance and assets securitisation. He has made outstanding achievements in infrastructure construction with foreign and private capital and has advised his clients in dozens of large BOT and BT projects.
Along with the rapid development of outbound investment by Chinese enterprises, outbound investment has also become one of his key focus practice areas.
Having advised many large state-owned enterprises and banks in large-scale outbound investments and financing transactions, Zejun has extensive experience and profound knowledge in the area of outbound investment.

中伦律师事务所的林泽军律师谈论PPP模式在法律层面上的进展、在中国推行所遇到的挑战及社会资本处理此类项目的最佳策略

1. 过去一年，在项目融资、基础设施领域中有什么最具影响力的动态？

过去一年，在项目融资、基础设施建设领域方面最具影响力的动态，莫过于政府层面开始大力推行PPP模式。自去年九月份国务院发布《关于加强地方政府性债务管理的意见》（国发〔2014〕43号）开始，PPP在我国基础设施建设领域迎来了快速发展。根据发改委于2014年12月2日发布的《关于开展政府和社会资本合作的指导意见》，政府和社会资本合作（PPP）模式是指政府为增强公共产品和服务供给能力、提高供给效率，通过特许经营、购买服务、股权合作等方式，与社会资本建立的利益共享、风险分担及长期合作关系。

根据国家发改委网站显示，截止今年5月25日，国家发改委首批公布的PPP项目多达1043个，总投资为1.97万亿元，项目范围涵盖水利设施、市政设施、交通设施、公共服务、资源环境等多个领域。这些还不包括为数众多的列入省级PPP项目库的项目数量。PPP模式目前已经成为项目融资、基础设施建设领域的新常态。

2. 关于PPP模式，有哪些法规、政策、指引？目前，在立法层面的态势如何？

目前关于PPP模式的法规、政策、指引，主要包括几个方面：

一是国务院关于PPP模式的政策指导性文件，例如43号文、《关于政府向社会力量购买服务的指导意见》、《关于创新重点领域投融资机制鼓励社会投资的指导意见》《关于在公共服务领域推广政府和社会资本合作模式的指导意见》等。这些文件的出台为PPP模式提供了政策性指引。

二是发改委、财政部等部委出台的一些PPP模式操作层面的法规政策文件。例如发改委的《关于开展政府和社会资本合作的指导意见》、发改委等六部委于今年6月1日发布并正式实施的《基础设施和公用事业特许经营管理办法》、财政部的《关于推广运用政府和社会资本合作模式有关问题的通知》、《政府和社会资本合作模式操作指南（试行）》、《政府和社会资本合作项目政府采购管理办法》等文件。以上文件为PPP模式提供了具体操作指引。

三是各部委出台的一些专门基建项目推广PPP的文件。例如财政部等部门出台的《关于开展中央财政支持海绵城市建设试点工作的通知》、《关于开展中央财政支持地下综合管廊试点工作的通知》；财政部、交通运输部出台的《关于在收费公路领域推广运用政府和社会资本合作模式的实施意见》等文件。

四是各地针对自身特点出台的一些适用于地方的PPP模式指导文件。如重庆、贵州、吉林、山西、陕西、黑龙江等地均出台了PPP项目指导实施意见等。

尽管目前关于PPP的法规政策非常繁多，但PPP模式缺乏高层次的立法，这是目前PPP模式推广的主要法律障碍。

3. 与过去的BOT、BT等模式相比较，PPP模式具有哪些特点？

政府目前大力推行的PPP模式与过去的BOT、BT等模式的最大区别在于其更加强调公私之间的利益共享、风险共担及长期合作。

首先，在利益分享方面，PPP模式在一定程度上保证社会资本“有利可图”。政府可给予社会投资者相应的政策扶持作为补偿，如税收优惠、贷款担保等。

其次，在风险分担方面，更加强调风险共担的理念。公共部门与社会资本共同参与项目开发运营，由项目公司主要承担项目的融资、建设、采购、经营和维护的风险。

最后，合作期限方面，PPP模式更加强调“利益共享、风险共担”的长期合作，公私机构之间互相监督、互相协作，提高合作效率。

4. 目前，PPP模式在中国的推广主要存在哪些问题？如何解决？

根据我们的实践观察，PPP模式在我国的推广中存在的问题主要表现在：

其一是立法层面的缺失。目前尚没有在高层次立法层面对PPP模式做出规范。

其二是地方政府在PPP项目中对自身定位错误。实践中经常遇到地方政府在PPP项目中还将自己定位为项目监管者或者业主，对社会资本提出各种苛刻要求。而且，有些地方政府不愿与社会资本分享利益，只将一些回报率低的项目拿来做PPP，而不愿额外给予社会资本其他利益补偿。

其三是目前金融机构的融资支持做不到真正意义的项目融资，难以实现有限追索，而且融资成本高，大多数项目还是依赖大股东的信用支持，制约了项目的融资能力。

对于上述问题的解决，我们认为：首先，国家应加快PPP立法，为PPP长期、持久发展提供法律依据；其次，地方政府应提高认识，加强对PPP的认识理解，真正做到与社会资本“利益共享、风险共担”；最后，金融机构应对PPP项目给予真正意义上的项目融资支持。

对于社会资本方面，我们建议：首先，在介入PPP项目时，应充分评估项目投资回报，很多基建项目有投资周期长，回报低的特点，社会资本可以在与政府谈判中要求额外支持条件，如授予项目周边土地、商业开发收益权等。其次，社会资本应充分评估项目投资风险，对超出自身能力范围的不合理风险分担应予以拒绝。再次，应充分评估政府的预算空间，重点关注项目是否列入了政府预算以及是否超过了10%的PPP预算红线，不能盲目投资。最后，社会资本应高度重视PPP协议签署，一个详尽合理的PPP协议，可以在一定程度上帮助社会资本有效防范项目风险，如在PPP协议中详细规定项目公司的运营管理机制，对防范政府派出人员将不合适的行政官僚作风带到项目公司当中起到重要作用。


作者简历

林泽军
高级合伙人

林律师于1994年获得中国律师执业资格，有二十余年的执业经验。他长期专注于基础设施投融资、外商在华投资、金融与资产证券化等法律服务领域，尤其在外商以及民营资本以BOT、BT方式投资基础设施方面取得突出的成绩，经办过数十个重大的BOT、BT项目法律服务。近年来随着中国企业走出去的快速发展，林泽军律师将中国企业境外投资作为其重点业务之一，先后经办十多个中央企业、广东省属国有企业在境外大型投资项目的法律服务，为国家开发银行以及大型商业银行十多个境外贷款项目提供法律服务，在中国企业境外投资领域的法律服务方面积累了丰富的经验。