Author:
Zeng Ling is a senior researcher at Rui Cube Research Institute
Wang Yan is a certified public accountant, lawyer, certified consulting engineer, and master of management. Partner of Nanjing Rui Cube Investment Consulting Co., Ltd., vice president of Rui Cube City Research Institute, and founding member of Investment and Financing Branch of China Society of Technology and Economics. He has long been concerned about the field of urbanization, committed to the research of the reform of state-owned assets and state-owned enterprises and the reform of the investment and financing system, and has rich practical experience and research results in the development and transformation of government investment and financing platforms, the reform of state-owned assets and state-owned enterprises, and innovative investment and financing (including PPP).
Summary:
In February 2023, PPP will enter a state of complete suspension, the project library will be suspended, and the project will basically stagnate. In November 2023, the new PPP mechanism was officially released, which is undoubtedly a boost for PPP projects that are already facing many difficulties. Sticking to the original intention and returning to the origin is the core concept of the new mechanism, and in this context, this paper briefly analyzes some problems that may arise in the conversion of the old and new mechanisms.
I. Introduction
On November 3, 2023, the General Office of the State Council forwarded the Notice of the National Development and Reform Commission and the Ministry of Finance on Standardizing the Implementation of the New Mechanism for Public-Private Partnership (Guo Ban Han [2023] No. 115), the "New PPP Mechanism", followed by the Notice on Abolishing Relevant Documents on Public-Private Partnership (PPP) (Cai Jin [2023] No. 98) (hereinafter referred to as "Circular No. 98") on November 16, 2023 Circular No. 98 repealed the relevant documents on the PPP comprehensive information platform, demonstration projects, expert database and consulting agency database. The new mechanism has made the biggest adjustment to the implementation of PPP projects in the past years, and the core content includes focusing on user-paid projects, adopting the franchise model, focusing on projects with operating income, and giving priority to the participation of private enterprises. The transformation of the old and new mechanisms will inevitably produce a series of new problems and phenomena, and the following author will briefly analyze several issues in the implementation of adjustment and change of public-private partnership franchises under the new mechanism.
2. Handling of existing PPP projects
According to the statistics of the Ministry of Finance, by the end of 2022, there were about 14,000 PPP projects (including the reserve list) in the library, with a total investment of 20.9 trillion yuan, and the landing rate marked by the establishment of the project company was about 77%. In the next 20 to 30 years, the construction and operation of existing PPP projects will continue to be the focus of PPP project implementation. The new mechanism clarifies the division between old and new projects, that is, "projects that have not completed the bidding and procurement procedures before the clean-up and verification of PPP projects in February 2023, as well as new PPP projects implemented in the future, will be implemented in accordance with the new mechanism stipulated in the Guiding Opinions". Regarding the treatment of stock projects, in October 2023, the General Office of the State Council forwarded the Notice of the Ministry of Finance and the National Development and Reform Commission <关于政府和社会资本合作存量项目分类处理的意见>(not publicly released) (hereinafter referred to as the "Opinions on the Classification and Treatment of Stock Projects"), which are divided into operating projects according to the stage of the project. Projects under construction and projects that have not yet started, and give suggestions for dealing with the existing projects at each stage: strict performance of the projects in operation, comprehensive standardization of the projects under construction, and strict disposal of the projects that have not started.
In addition, according to the "Opinions on the Classification and Treatment of Stock Projects", the Treasury will simultaneously cancel the project library, and the existing PPP projects will no longer require the disclosure of project information on the PPP comprehensive information platform, and for projects that have not completed the bidding and procurement procedures after February 2023 and the existing projects that have not started construction, if they do not meet the relevant requirements of the new mechanism, they may face the problem of rectification or stop implementation.
3. Adjustment of the competent authorities and implementation procedures of PPP projects under the new mechanism
(1) Competent departments and implementing agencies
The new mechanism clarifies that the competent authority for PPP project concessions is the National Development and Reform Commission, ending the previous model of PPP projects being managed by the Ministry of Finance and the National Development and Reform Commission, after which the Ministry of Finance no longer participates in project management, but focuses on government budget management and debt management. According to the requirements of the new mechanism, the NDRC, as the competent authority for public-private partnership franchise projects, will strictly control the relevant content of the project franchise plan, and perform the duties of project approval, approval or filing in accordance with laws and regulations. The optimization and adjustment of the management system has a positive effect on standardizing the decision-making process, simplifying the approval process and reducing the decision-making cost, which can improve the complex and long cycle of the pre-approval process of PPP projects.
Under the new mechanism, the local people's governments at all levels will still authorize the relevant industry authorities, public institutions, etc. in accordance with laws and regulations. In the practical operation of the franchise project, most of the project implementation agencies are served by the competent departments of the industry, which are specifically responsible for the preparation of the franchise plan, the selection of franchisees, the signing of the franchise agreement, the supervision of project implementation, and the transfer and reception of the expiration of the cooperation period.
(2) Adjustment of the implementation process
Previously, the PPP project implementation process consisted of five steps: project identification, project preparation, project procurement, project execution and project handover. After the introduction of the new mechanism, there have been major adjustments to its work process compared with before the introduction of the new mechanism.
From the perspective of project identification, after the introduction of the new mechanism, the project initiation and project screening at this stage are mainly carried out by the project implementation agency, and there is no need for value-for-money evaluation and financial affordability demonstration, which simplifies the early implementation process of the project. The adjustment of this process is mainly due to the fact that the new mechanism mainly focuses on user-paid projects, and requires that the project operating income can cover the construction investment and operating costs, and has a certain return on investment, and does not add additional local fiscal future expenditure responsibilities, therefore, the public-private partnership projects under the new mechanism will be converted into truly market-oriented operational projects, and at the same time, PPP concession projects will no longer be subject to the 10% of the general public budget expenditure. Combined with the provisions of Cai Jin [2019] No. 10 issued by the Ministry of Finance that "in accordance with the principle of 'substance over form', sewage and garbage treatment shall be managed in accordance with the separation of revenue and expenditure, and shall be manifested in the form of government payment", for concession projects such as sewage and garbage disposal, which are "clearly paid by the government but actually paid by users", shall be recognized as user-paid projects, and the implementation of such projects will not add additional responsibilities for future expenditure of local finance due to the adoption of the PPP model.
From the point of view of project preparation, the new mechanism optimizes the pre-approval process, the main work of this stage will be adjusted to the preparation and review of the franchise program, the new mechanism puts forward new requirements for the franchise program, one is to prepare in accordance with the feasibility study report preparation specifications, followed by more prominent feasibility demonstration, the need for relevant departments, if necessary, joint third-party professional consulting agencies to carefully compare and demonstrate whether the project is suitable for the franchise model. Based on the new mechanism for PPP projects, the National Development and Reform Commission (NDRC) has revised the Administrative Measures for Infrastructure and Public Utilities Concessions (Decree No. 25 of the Six Ministries and Commissions) and issued a draft amendment for comments.
After the project enters the procurement stage, the new mechanism of project procurement, project implementation and project transfer stage has not made substantial major adjustments, but since the PPP project will all adopt the franchise model, firstly, in the process of project implementation, the PPP project contract will be replaced by the franchise agreement, the social capital party will be adjusted to the franchisee or franchise consortium, and the cooperation period will be adjusted to the franchise period, and the operation period shall not exceed 40 years in principle. Second, the new mechanism requires concession projects to carry out regular operation evaluation, but does not require performance evaluation during the construction period, so after the introduction of the new mechanism, public-private partnership projects may only need to evaluate the performance of the service output during the operation period of the project, and no longer require performance evaluation during the construction period.
Figure 1: The implementation process of PPP concession projects under the new mechanism
(3) Information disclosure
Under the new mechanism, the Ministry of Finance issued Document No. 98, repealing a total of 11 documents related to PPP, since then, entering the comprehensive management database of PPP projects will no longer be a requirement to regulate PPP projects, but in the new mechanism, it is still required to establish a normalized information disclosure mechanism for franchise projects, and the specific requirements include: "The project implementation agency shall submit the project construction content, the results of the concession bid, the main content of the franchise agreement, the standards of public goods and public services, Non-confidential information such as operational assessment results is to be disclosed to the public in a timely manner by relying on the national online approval and supervision platform for investment projects. ”
From the perspective of information disclosure requirements, the new mechanism has carried out routine management of franchise information disclosure, and no longer sets up a special project library, so in the long run, public-private partnership projects are expected to no longer be treated specially, and will gradually become a regular franchise investment project.
Fourth, PPP projects under the new mechanism involve review issues
Before 2019, there was a controversial topic about whether PPP projects were enterprise investment projects or government investment projects, until the promulgation of the Government Investment Regulations in 2019, which interpreted government investment as the use of budgetary funds to carry out fixed asset investment and construction activities in China. Since most of the return mechanisms of PPP projects are feasibility gap subsidies and government payments, and their related expenditures are required to be included in the fiscal budget, PPP projects have always been regarded as government investment projects and usually need to go through government approval procedures. After the introduction of the new mechanism, the public-private partnership projects will gradually return to their original intentions, from government investment projects to real enterprise investment projects, such as projects invested by the private party alone, in accordance with the relevant provisions of the "Regulations on the Administration of Approval and Filing of Enterprise Investment Projects" to carry out the approval or filing procedures, but for the government to provide investment support by way of capital injection, the new mechanism clarifies that it still belongs to the scope of government investment, according to the "Government Investment Regulations" The project unit shall prepare the project proposal, feasibility study report and preliminary design, and submit it to the investment department or other relevant departments for examination and approval in accordance with the government's investment management authority and prescribed procedures.
5. Private enterprises will become the main participants in PPP franchise projects under the new mechanism
Since the implementation of PPP projects in the mainland, there have always been situations of "project financing as the purpose" and "heavy construction and light operation", resulting in many problems in the actual operation of PPP projects. Before the introduction of the new mechanism, various ministries and commissions of the state have successively issued a series of documents to support and encourage private enterprises to participate in investment in public-private partnership projects, such as the "Opinions of the Central Committee of the Communist Party of China and the State Council on Promoting the Development and Growth of the Private Economy" and the "Notice of the National Development and Reform Commission on Further Promoting Private Investment and Striving to Mobilize the Enthusiasm of Private Investment" issued in July 2023 (Development and Reform Investment. 2023] No. 1004) and so on.
The new mechanism has formulated the "List of New Franchise (Including Reconstruction and Expansion) Projects Supporting the Participation of Private Enterprises (2023 Edition)" (hereinafter referred to as the "Project List", and implemented dynamic adjustments), clarifying the scope of project areas to support the participation of private enterprises, and encouraging and supporting private enterprises to participate in a total of 9 industries, including environmental protection, municipal, logistics, agriculture, agriculture and forestry, social fields, transportation, water conservancy, new infrastructure construction and energy, with a total of 30 project types that can be participated.
The participation of private capital in infrastructure investment and construction is conducive to giving full play to the regulatory role of the market mechanism, improving the construction and operation level of infrastructure and public utilities projects, and has a positive effect on curbing the hidden debt of new local governments. However, from the practical experience over the years, private enterprises participating in franchise projects are affected by financing, in this regard, the future still needs to be issued by the state to issue relevant policy documents to support private enterprise project financing.
VI. Conclusion
The development of public-private partnership (PPP) in mainland China has been constantly adjusted and optimized, not only because PPP has had a far-reaching impact on the mainland's infrastructure construction, but also because of the new problems that continue to arise in the implementation of PPP. The introduction of the new mechanism is undoubtedly like a booster, bringing new vitality and energy to the public-private partnership, but for market players, it is both an opportunity and a challenge, and the development of the government and social capital in the mainland still needs to be vigilant against various violations. After the introduction of the new mechanism, relevant supporting measures and guidance are expected to be introduced and implemented in the future, so as to promote the fairer, more efficient and healthy development of the implementation of public-private partnership franchising.