On 7 November, the European Chamber (EUCCC) invited Mr. Peng Bo from Beijing Development and Reform Commission, the Department of Fixed-asset Investment and Department of Foreign Investment Utilization and Outbound Investment, responsible for the utilization of foreign investments and managing foreign invested projects. It is part of the Chamber’s series of Exclusive Dialogues. The meeting was held through the Public Procurement Working Group, chaired by Gilbert Van Kerckhove.
Note: I worked in BDRC ten years ago where I promoted PPP, using it for the Olympic projects (Stadiums); I made a detailed study on how to carry out PPP projects. Due to the impact of the China Bidding Law, most of our great PPP ideas got killed. What China today is promoting as BOT, PPP, whatever, is a watered down concept that does not respect the true PPP philosophy. The way projects are currently presented carry too many restrictions to be really considered as PPP. No any other country, as far as I know, has ever implemented “TOT” (transfer Operate Transfer), an oxymoron in terms of PPP. As a result, China does not enjoy the benefits of PPP at its fullest. The only ever PPP project in China: Laibin B Power Plant.
Mr. Peng gave the members a briefing on the “Implementation Plan on the Promotion of Infrastructure Projects Through the Introduction of Private Capital”, released in July this year. He introduced the background of this policy, its exact parameters and details regarding its implementation, as well as BDRC’s next-step-plan concerning private capital. He also answered questions raised by members. Both parties agreed on more future cooperation and exchange.
Follows a briefing on the “Implementation Plan on the Promotion of Infrastructure Projects through the Introduction of Private Capital.” This an abbreviated version of the complete report that was made available to members of the Working Group. Members also received the following documents (all in Chinese): Implementation Plan, Case study brochure, Glossary, Catalogue of pilot infrastructure projects.
China started to stress the importance of private capital in 2005/2006, when a policy titled Several Opinions of the State Council on Encouraging, Supporting and Guiding the Development of Individual and Private Economy and Other Non-public Sectors of the Economy (the so-called Old 36 Clauses) was released. Another key policy was released in 2010, namely the Several Opinions of the State Council on Encouraging and Guiding the Healthy Development of Private Investment (the so-called New 36 Clauses).These were followed by corresponding policies in Beijing issued in 2011 and industry-based measures aiming to encourage private capital issued by relevant ministries in 2012. Such policies laid down principles, but left details as regards their implementation unclear.
The release of the Implementation Plan is due partly to municipal government’s lack of money (over the following three years, the municipal government is to invest 10 billion RMB/year in air quality improvement, sewage treatment, waste management respectively while its investment in underground will remain unchanged, a total amount of 500 billion RMB investment is expected for the transformation of shanty towns but most of which will come from private investors), and partly to BDRC’s willingness to introduce a clearer and more feasible regulation. The Implementation Plan is not a reform plan sensu stricto, but a policy serving to systematize existing successful approaches.
Objective: to industrialize these sectors and make them independent from government subsidies. The internal rate of return (IRR) will approximately be 8%.
Pilot projects: initially 27 projects, 99 others will follow
The Implementation Plan covers three categories of areas:
– Operational sector (where financial return can cover cost): e.g. power sector
– Quasi-operational sector (where financial return cannot cover cost): e.g. rail, sewage treatment and waste management sectors
– Non operational sector (where there is no financial return and thus the sector has to rely on government buy-back): e.g. urban road sector
The Implementation Plan covers six sectors: rail, urban road, comprehensive transport hub, sewage treatment, heating supply and solid waste management. BDRC is currently working on two additional sectors: healthcare services and elderly care services.