China Announces PPP Value for Money Guide in June
18 June 2015
The Administrative Measures for the Granting of Infrastructure and Public Utility Franchises (see full text in Chinese) promulgated by the National Development and Reform Commission (NDRC), the Ministry of Finance and four other ministries took effect on 1 June 2015. The Ministry of Finance will also announce the Public-Private Partnership (PPP) Value for Money Guide in June and is considering setting up a PPP Fund and adopting policies such as establishing project sponsorship and intermediary payment mechanisms.
PPP, as an important source of funds for infrastructure investment, will be of vital significance in achieving steady economic growth. From the policies recently promulgated, China is clearly increasing its investment in transport and water conservancy projects.
The reason the Chinese government exerts great efforts to promote PPP is that growing downward pressure facing the economy needs increased investment in transport, water conservancy and other infrastructure facilities to offset the risks.
Judging from the recent policy changes, after the publication of the PPP Value for Money Guide, local governments will have standards to go by when deciding whether the PPP model should be adopted. Theoretically, only projects that have passed the "value for money assessment" and "financial viability analysis" can use the PPP model.
The PPP Value for Money Guide will, together with the PPP Guidelines and Guide on PPP Contracts announced by the Ministry of Finance earlier on, form the full set of guidance documents for PPP operations. This means that all the basic documents of PPP operational norms will be in place. Industry experts disclosed that the Ministry of Finance is considering setting up a PPP Fund and adopting policies such as establishing project sponsorship and intermediary payment mechanisms.
The public budgetary outlay of local governments amounts to about Rmb14.6 trillion this year. Assuming that 10% of this will go to PPP projects, this means that government subsidies for PPP projects will amount to Rmb1.46 trillion. Considering that the commercial facilities of PPP projects may also generate income, this Rmb1.46 trillion may leverage investment by another Rmb2-3 trillion, thus generating tremendous development prospects. Total investment for PPP projects in 2015 announced by various localities already exceeds Rmb1 trillion.
Transport and municipal projects form the bulk of the PPP projects recently announced by the NDRC. Transport projects involve huge investment and the promotion of these projects is of great significance in maintaining steady growth. Some of these projects are already underway and have the participation of social capital. Anhui province has announced as many as 127 projects, the majority of which are municipal facilities and transport projects.
A large number of PPP water conservancy projects have been launched lately. Pursuant to the Circular on the First Batch of Social Capital Participation Pilots in the Construction of Major Water Conservancy Projects jointly issued by the NDRC, the Ministry of Finance and the Ministry of Water Resources, 12 national-level projects are designated for trial participation of social capital in the construction and operation of water conservancy projects. About two years will be spent to explore replicable and widely applicable experience to promote and improve the relevant policies for fostering cooperation between government and social capital.