2015.01.26 YUAN, Jianan、WEI, Ning、XDING, Xingzhen
Overview
The public-private partnership (W88优德官方网站) is officially termed as “government and social capital cooperation mode” in Chinese in the People’s Republic of China (the PRC) 1, which corresponds to W88优德官方网站 in English more or less 2. The bypast 2014, especially its late second half, ushered in an accelerated development of W88优德官方网站s in administrative legislation and practice thanks to spreading of W88优德官方网站s by the central government in more areas nationally. The Guiding Opinions of the State Council on Innovating in Investment and Financing Mechanism and Encouraging Social Investment in Key Fields (November 16, 2014) (the “State Council Guiding Opinions”) have systematically provided for establishing and improving government-social capital cooperation (W88优德官方网站) mechanism for the first time at such governmental level. The State Council Guiding Opinions have been followed by several ministerial regulatory documents, and will be followed by more in 2015, for introducing and encouraging more social capitals, esp. private capitals, to the areas of public services, resources and environment, ecological protection and infrastructure, etc. The Guiding Opinions of the National Development and Reform Commission on Work relating to Public-Private Partnership (December 2, 2014) (the “NDRC Guiding Opinions”) elaborate on the scope of sectors that W88优德官方网站s are applicable to. The applicable sectors include public utilities such as gas, power supply, water supply, heat supply as well as sewage and garbage disposal, the transport facilities such as road, railway, airport and urban rail transportation, the public service projects such as medical treatment, tourism, education and training and health and elderly services, the water conservancy and resources, environment and ecological protection projects. The new municipal projects and the pilot projects of new urbanization in all places shall be given priority for application of the W88优德官方网站 mode, which reflects one of the major purposes for spreading W88优德官方网站 in China, i.e. to broaden financing channels of urbanization. In practice, dozens of demonstration projects have been developed or prepared under supervision of NDRC or Ministry of Finance (MOF) by the end of 2014. In judicial practice, some judgements and rulings that tackled several important issues in W88优德官方网站 sphere are rather noteworthy.
SUMMERY OR DEVELOPMENT
The main recent developments in the W88优德官方网站 sphere in China include:
(1) Several important administrative circulars, guidelines or rules were published at levels of the State Council and the relevant ministries to popularize W88优德官方网站 nationally, e.g. the State Council Guiding Opinions, the NDRC Guiding Opinions, the Notice of the MOF on Issuing the Guidelines for Mode of Government and Social Capital Cooperation (for Trial Implementation) (the “MOF W88优德官方网站 Guidelines”), etc.. Some local governments or local governmental agencies have also issued relevant circulars or policies respectively to push or regulate the implementation of W88优德官方网站 in provinces or cities locally.
(2) Dozens of W88优德官方网站 projects were announced by NDRC and MOF as W88优德官方网站 demonstration projects or encouraged projects, some of which are greenfield projects, while some are transformed from existing projects. In some provinces or cities, similar W88优德官方网站 projects were also announced for trial implementations to absorb social capitals. The demonstration W88优德官方网站 projects cover not only traditional rail transport, water supply, sewage treatment, garbage treatment, heat supply, but also new energy automobiles, pipeline corridors, medical, sports and comprehensive environmental treatment. A full time institution, the MOF Government and Social Capital Cooperation Centre (the “W88优德官方网站 Centre”), was set up inside the MOF, to be responsible for W88优德官方网站 policy study, consultancy training, information statistic and international exchange, etc 3.
(3) W88优德官方网站 has been defined in some regulatory documents and its certain features have been clarified in some judicial rulings and judgements. According to the NDRC Guiding Opinions, the W88优德官方网站 refers to the relationship of benefit and risk sharing and long-term cooperation established by the government with social capitals by way of concession, service purchase, and equity partnership or otherwise in order to enhance the public product and service supply capacity and improve supply efficiency. Based on the MOF W88优德官方网站 Guidelines, the “social capital” can be understood including not only private investors but also other enterprise legal persons, domestic or overseas, which have set up modern enterprise system, except for those government financing platform companies 4 or other state-owned enterprises belonging to or under control of the same level of government where the relevant W88优德官方网站 project is implemented.
TYPES OF W88优德官方网站
According to the MOF W88优德官方网站 Guidelines, the principal W88优德官方网站 schemes that are available in the PRC include BOT, BOO, BOOT, O&M, MC, and TOT. BOT means build-operate-transfer. BOO means build-own-operate. BOOT means build-own-operate-transfer. O&M means operations and maintenance. MC means management contract. TOT means transfer-operate-transfer.
The scheme of BOT or BOOT is applied through grant of concession right to the operating projects that have specific charging standards with charges from the operation to cover the investment. The scheme of BOT is also applied through grant of concession right, supplemented by the measures such as the government’s partial subsidy or direct investment and equity participation, to the so-called “quasi-operating” projects that cannot fully recover the social capitals’ investment and need the subsidy of partial funds or resources from the government. Such quasi-operating projects rely a lot on the mechanism for the coordination among investment, subsidy and price. BOO is applied to such quasi-operating projects too. The scheme of BOO or O&M may be applied, through purchase of services by the government, to the non-operating projects that lack the “user pays” basis and mainly rely on the “government pays” to recover the social capitals’ investment. 5
The scheme of TOT is applied where the government transfers the title of inventory assets to social capitals or project companies with compensation for the later to assume operation, maintenance and customer services and transfer the assets, together with titles, to the government upon expiry of the contract. The scheme of MC, normally as a transitional method (for three years or less) in TOT, is applied where the government grants the responsibilities for operation, maintenance and customer services regarding inventory public assets to social capitals or project companies. The government holds the ownership of assets, while paying a management fee to social capitals or project companies. 6
GENERAL REQUIREMENTS FOR W88优德官方网站 CONTRACTS
The State Council Guiding Opinions, the NDRC Guiding Opinions, the MOF W88优德官方网站 Guidelines and the Measures for the Administration on the Concession of Municipal Public Utilities (the “MOC Measures”), inter alia, provide for main legal constraints and requirements for W88优德官方网站 so far, in absence of a W88优德官方网站 law in the PRC.
Candidate W88优德官方网站 projects come from the government’s selections or potential social capitals’ proposals. Both NDRC and MOF require establishment of the W88优德官方网站 project library or potential W88优德官方网站 project list by local DRC or financial departments and competent authorities. The candidate W88优德官方网站 projects will be selected from such project library or potential project list or social capital-proposed projects. According to the NDRC Guiding Opinions, the W88优德官方网站 project implementing plan will be prepared and submitted to the joint review mechanism 7 for review, specifying economic and technical indicators, operation and service standards, formation of investment estimate, method of investment return, methods for pricing and price adjustment, fiscal subsidy, financial commitments and other core matters. The MOF W88优德官方网站 Guidelines provide for slightly different approval procedures which start from (i) inclusion of the candidate W88优德官方网站 project in the annual development plan, (ii) submission of output specifications and preliminary implementation plan and FSR (if new construction or renovation or expansion is involved) or historic materials (if inventory public assets are involved) by the W88优德官方网站 project sponsors in accordance with the requirements of the financial departments, and (iii) quantitative and qualitative VFM assessment by the financial department jointly with competent authorities.
The project implementing plan contains: -
project brief, including public products or services, necessity and feasibility of W88优德官方网站, location, area, content of construction or scope of assets, investment scale or assets value, output specification and fund resources, establishment of project company or not and its equity structure,
distribution of risks between the government (to assume risks of law, policy and minimum demand and to share force majeure risk) and the social capitals (to assume commercial risks of project design, construction, financial and O&M and to share force majeure risk),
selection of W88优德官方网站 schemes, i.e. BOT, BOO, BOOT, O&M, MC, or TOT, depending on charging mechanism, investment revenue level, risk distribution, financing demand, renovation or expansion demand and termination disposal, etc.,
transaction structure, including project investment and financing structure, redounding mechanism and ancillary arrangement,
contract system, including the project contract (W88优德官方网站 contract or concession contract), shareholders’ contract, financing contract, EPC contract, operation and services contract, raw material supply contract, product purchase contract and insurance contract, etc., as the case may be, and
supervision structure, regarding authorization and supervision methods) and the selection of procurement methods (i.e. public tendering, competitive negotiation, selective tendering (invited bidding), competitive consultation or single source procurement).
The financial departments shall conduct VFM and finance bear ability verification on the project implementing plan. If passed, the plan will be submitted by the project implementing institution to the government for examination and approval. If failed, the plan can be adjusted for re-verification. If re-verification not passed, no W88优德官方网站 will be adopted any more for the project in question8.
The Guide on General Contracts for Public-Private Partnership Projects (2014) (the “NDRC Guide on W88优德官方网站 Contracts”), as attached to the NDRC Guiding Opinions, is promulgated in accordance with the State Council Guiding Opinions and for regulating W88优德官方网站 contract formulation. It consists of instructions, 15 chapters and 86 articles. The chapter topics include general principles, parties, cooperation relationship, investment plan and financing scheme, preliminary work, construction, transfer of assets by government, operation and services, transfer of project by social capital party, revenue and return, force majeure and change of law, termination of contract, default and remedy, dispute resolution and other agreed items, among which the topics in bold are generally required, while others are selective subject to different schemes of W88优德官方网站. The NDRC Guide on W88优德官方网站 Contracts lays stress on equality between the contracting parties, increasing public services quality and efficiency, reasonable return of social capitals, openness and transparency, legal compliance and effective implementation, combination of international experience with domestic practice.
No minimum or maximum term of W88优德官方网站 contracts is regulated under Chinese laws and regulations, although the MOC Measures, followed by various local concession regulations or rules, cap the concession term at 30 years. No special value thresholds are required for W88优德官方网站 contracts in China.
JUDICIAL PRACTICE in 2014
Although the Administrative Procedure Law of the PRC has been revised to include “the complaint claiming that an administrative agency has failed to perform according to the law or as agreed upon, or illegally modified or rescinded, an agreement, such as a government concession agreement”9 in the scope of accepting administrative cases, the State Council and its ministries and the courts incline to take the view that W88优德官方网站 contract should be civil contract between equal parties.
In a civil ruling dated July 25, 2014, the Supreme People’s Court of the PRC overturned a lower court ruling and supported the appellant’s position that the issue of payment basis for buying back the BOT project should be independent from the administrative action and the appellant should be on an equal footing with the appellee (the municipal communication bureau) under the highway project BOT agreement. With regard to civil or administrative dispute where the parties to the civil legal relationship and the parties to the administrative legal relationship interlap and the performance of the BOT contract and the specific administrative acts are interweaved, the court deemed that, the nature of legal relationship shall be determined by the nature of specific dispute issue (in this case, the payment for buying back the BOT project), rather than be determined as an administrative dispute by the identity of the appellee as the administrative subject. The Supreme Court ruled the dispute as a civil dispute, rather than an administrative dispute subject to administrative litigation.10
Another civil ruling by Chongqing Municipal High People’s Court in 2014 not only confirmed that the contract for cooperative development of gas between the urban construction bureau (on behalf of the city government) and a private company should be a civil contract, but also clarified the status of a functional department of local government and the legality of the private company’s exclusive right in such concession contract. The court ruled that, the contract terms, on signing, parties, rights and obligations, default and remedy and dispute resolution, etc., have characteristic features of civil act. The ruling confirmed that the urban construction bureau, as signatory and functional authority of local government, should have legal capacity and behavioural competence to sign the civil contract independently and should be eligible to be sued. In the ruling, the court also confirmed that it does not violate the law for the private company to enjoy the exclusive right of gas business within the administrative territory of the city.11
Moreover, some local people’s courts in different regions ruled or judged on other aspects of the W88优德官方网站 contract in the past year. For example, in Qinghai province, northwest of China, the Xining Municipal Intermediate People’s Court ruled, in an enforcement case regarding a concession agreement, that the arbitral award of China International Economic and Trade Arbitration Commission (CIETAC) on a municipal water bureau’s payment of sewage treatment fee, damages, case handling fee and arbitration and litigation (enforcement) cost be enforced by deducting all the amount from the bank account of the bureau.12 In Guangxi Zhuang Autonomous Region, south central China, the Hezhou Municipal Intermediate People’s Court judged, in connection with a highway construction project concession contract, that the city communication bureau’s notice on termination of the concession contract due to the concessionaire and its sponsor’s material breach of contract causing impossibility to achieve the purpose of contract should be supported, and the sponsor should follow the joint and several responsibility, as agreed in the concession contract, regarding the concessionaire’s non-performance.13
Those judgements and rulings of the Chinese courts are helpful in clarification of the developing W88优德官方网站 rules in China. The courts sentiment on legal nature of the W88优德官方网站 contracts, status of government or its functional agencies, joint and several responsibility of sponsors under W88优德官方网站 contracts, exclusivity and enforceability of concession and termination of W88优德官方网站 contracts will contribute to the strengthening of the W88优德官方网站 model in China.
OUTLOOK
Overall, China has set up a preliminary legal system of W88优德官方网站s, which includes regulations and rules of the central and local governments, interpretations of judges in certain judgements or rulings and practice in various regions by the end of the past year, though lacking a W88优德官方网站 law or concession law. Considering recent quick development in both administrative legislation and practice, it is reasonably estimated that the legal system of W88优德官方网站s will be more improved and the relevant interested parties, i.e. government (pubic), social capitals (private capitals), banks and other financial institutions will be more experienced and creative in this hotter and hotter sphere in China in the coming year.
Other JunHe Articles for Reference:
Development and Practice of W88优德官方网站 Mode in China (Shijian LIU/Piwei SUN)
Review of New Rules in Different Provinces and Cities regarding W88优德官方网站 Mode (Shijian LIU/Shan HUANG/Kadi CAI)
1. For this article only, the PRC or China does not include the Hong Kong Special Administrative Region, the Macau Special Administrative Region and Taiwan.
2. Resolution of the 2nd session of 12th National People’s Congress on implementation of central and local budgets in 2013 and on central and local budgets for 2014 (June 27, 2014); Guiding Opinions of the State Council on Innovating in Investment and Financing Mechanism and Encouraging Social Investment in Key Fields (November 16, 2014).
3. Beijing Business Today, December 4, 2014.
4. Or local governmental financing platform companies, economic entities with independent legal person status, which are set up by local government or its agencies by contributing assets such as financial allocations, land use rights or equity, etc. in to function financing for government-invested projects. (see Notice of the State Council on Strengthening Management of Local Governmental Financing Platform Companies (June 10, 2010)).
5. NDRC Guiding Opinions.
6. MOF W88优德官方网站 Guidelines.
7. In order to improve work efficiency, joint review mechanism for W88优德官方网站 projects may be established in conjunction with relevant departments to conduct feasibility assessment of the project implementing plans in terms of the necessity and compliance of the project construction, applicability of W88优德官方网站 mode, financial bearing capacity and the rationality of price, etc., and ensure "value for money (VFM)". The results of the review shall serve as the important basis for making decisions on projects. (see the NDRC Guiding Opinions)
8. The MOF W88优德官方网站 Guidelines.
9. Decision of the Standing Committee of the National People's Congress on Amending the Administrative Litigation Law of the People's Republic of China (2014) (to come into force on May 1, 2015)
10. Civil Ruling of Supreme People’s Court, (2014) Min Er Zhong Zi No.40.
11. Civil Ruling of Chongqing High People’s Court, (2014) Yu Gao Fa Min Shen Zi No. 00029.
12. Enforcement Ruling of Xining Intermediate People’s Court, (2014) Ning Zhi Zi No. 274-1.
13.Civil Judgement of Hezhou Intermediate People’s Court, (2014) He Min ER Zhong Zi No. 104
