Ministry Of Finance Launches PPP Mode To Boost Local Financing

< p > recently, according to people close to regulators, a conference on PPP mode was specially set up at the end of last year's national financial work conference.

< /p >

< p > PPP is the letter abbreviation of Public-Private-Partnership, commonly known as the "public private cooperation system", that is, "public-private partnership", including the two categories of broad sense and narrow sense. At present, the narrow sense PPP mode is discussed.

< /p >

< p > official and industry believe that compared with BOT (construction management pfer) mode, PPP mode will emphasize more on the sharing of government and social capital, which will help reduce the risk of early stage.

< /p >

"P >" in the current innovation and urbanization investment and financing system, efforts to resolve the risk of local financing platform debt, and actively promote the enterprise "go out" in the context of the promotion of < /p >

< p > the use of PPP mode is not only a upgrading of the micro level operation mode, but also a macro level institutional and institutional pformation.

Finance minister Lou Jiwei expressed the significance of the PPP model to the current Chinese economy.

< /p >

< p > however, insiders also pointed out that there are still some problems in our country, such as the imperfect laws and regulations, the immature risk sharing mechanism of projects, the low certainty of economic returns, the financial institutions' control of risks, and the difficulty of financing with international standards.

In addition, there is no early working mechanism for risk sharing and benefit sharing.

< /p >

< p > it is learnt that the Ministry of finance will begin to sort out the establishment of PPP project repository, improve the relevant legal system, and study clearly how to support PPP operation and create a good operation environment.

< /p >

In the third Plenary Session of the 18th CPC Central Committee, the end of last year, P proposed that social capital be allowed to participate in urban infrastructure investment and operation through franchising.

< /p >

< p > < strong > changing the way of investment and financing by "government endorsement" < /strong > /p >

< p > the latest local government debt data released by the Audit Commission show that as at the end of June 2013, the scale of debt repayment by local governments amounted to 10 trillion and 890 billion yuan, and the liabilities of 2 trillion and 670 billion yuan with liability for security were liable to 4 trillion and 340 billion yuan.

In addition, as of the end of 2012, 3 provincial, 99 municipal, 195 county-level and 3465 township governments had debts higher than 100%.

< /p >

One of the core functions of < p > PPP is to pform the supply mechanism of public goods.

Through the PPP mode, some government debts can be stripped out and the pressure of government debts reduced. From the past single year budget revenue and expenditure management, the government has gradually shifted to strengthening the medium and long term financial planning and asset liability management.

< /p >

For more than a year, local governments in China have been financing municipal construction through financing platforms. Although they play a positive role in improving people's livelihood and social undertakings, they also bring about the disadvantages of P.

According to the latest audit data released by the Audit Commission, the financing platform company is the main borrowing principal of the government to repay debts and liabilities. The debt balance reaches 4 trillion and 80 billion yuan, or the debt balance reaches 2 trillion and 900 billion yuan.

< /p >

< p > academic circles have always believed that local governments rely too much on traditional investment and financing methods, too much involvement in planning, construction, financing, operation and so on, which brings about vague government boundaries, high debt scale, low efficiency of public goods supply and frequent entry of private capital into "glass door".

For example, when an enterprise participates in its construction and operation, the government does not define the pricing formula first, but private capital is certainly not afraid to enter it. Some state-owned enterprises directly under the government can discuss "pricing" with the government afterwards.

< /p >

< p > "the main body of investment and financing is relatively unitary. It mainly depends on the situation that local governments are vulnerable to the lack of sufficient project demonstration. The financing platform and item company are all funded by local governments. The risks of project construction and operational risks are also concentrated in local governments. Although some governments have used BT, BOT and other new ways, they have made too many commitments to the project, resulting in project implementation still relying on local governments."

The participants said.

< /p >

Local governments are directly involved in investment. The financial constraints are not strong enough. Some governments even repeat construction and "bean curd residue" projects in pursuit of achievements. P

The social capital contracting project is pferred to the so-called BT mode of the government. Because it does not care about follow-up operations, it is prone to "bean curd residue" project.

The BOT mode is an improvement, characterized by the government's planning and design, forecasting revenue and pricing, and bidding by enterprises.

However, this kind of "one price" approach inevitably leads to the inaccurate prediction of both sides.

< /p >

"P >" before the construction of infrastructure is mainly led by the local government, which has played a great role in the development of the city, but so far, the pressure is a bit big.

After the urbanization conference, the demand for urban development will be greater. If we do this in the past, we will face challenges in terms of construction speed, sustainability and the operation and maintenance of existing infrastructure.

The participants said that after the PPP model was launched, the enthusiasm of the local government was very high, and it was also considered that the road in the past was difficult to continue.

< /p >

< p > that is to say, the PPP mode has changed this kind of investment and financing system relying on "government endorsement", pferring part of the expenditure responsibility of the government through the "franchise right" mode to the market main body social enterprise.

< /p >

< p > how to mobilize the enthusiasm of < a href= "http://www.91se91.com/news/index_cj.asp" > private capital > /a > PPP mode sets up a mechanism of "interest sharing" between the government and enterprises market entities. Through long-term holding and operation, it can effectively balance short-term and long-term earnings, make enterprises "profitable and profitable", and the profits are relatively stable, to a certain extent, solve the problem of short term return of infrastructure, thus making it possible for private capital to enter.

< /p >

< p > in addition, infrastructure projects have stable income and low correlation with stocks and bonds. They are the asset allocation choices of institutional investors such as pensions and sovereign wealth funds, which help to attract these funds to enter.

For example, among the six investors at Heathrow Airport in the UK, there are CIC and Canada's pension funds.

< /p >

< p > < strong > budget hard constraints to prevent the government from "market" /strong < /p >

< p > however, PPP mode is not without risk.

Its unique risk sharing also implies the government's risk of overreaching the market because of too many commitments.

< /p >

According to international experience, the PPP project has a long operation cycle and has experienced many governments. Therefore, it is difficult for the private sector to rely on the commitment of a single government. Countries have also established institutional frameworks including laws, regulations, policy documents and guidance documents, etc. P.

< /p >

In addition to P, fiscal constraints should also be clearly defined.

The government of Peru stipulates that the present value of the total financial commitment of the PPP project should not exceed 7% of GDP. At the same time, some national and local governments will also include financial commitments in budgetary management. For example, the government of Brazil requires PPP project subsidies to be included in the budget as debt service funds.

Governments in New Zealand, Australia and Chile regularly count contingent liabilities, including PPP projects, and publish data.

< /p >

< p class= "p15" style= "margin-top: 0pt; margin-bottom: 0pt" > span style= "font-family:" Song body ";" font-size: ";" "" "" > "< < >", "song";

In the investment and financing, investors should be most concerned about the risk sharing mechanism. Risk pfer and risk sharing are the core links of the PPP mode, P --EndFragment--.

Generally speaking, the key to risk sharing is "division of responsibilities". Social capital is good at controlling construction, operation and technology risks, and the government mainly shares political, legal and policy risks.

But in reality, there are still some cases of government's "bottom up" market risk.

< /p >

< p > in 1990s, the government of Columbia provided guarantees for the revenues of several airports and charging projects, and signed long-term electricity purchase agreements with independent power producers. It promised to pay for public utilities. However, because of low paid pricing and lower project revenue, the government of Columbia paid $2 billion to the private sector.

< /p >

< p > if the government departments' support for PPP project financing can not "do their best", it may bring "big trouble".

The cause of Portugal's financial crisis in 2011 was that its government abused the PPP model after the outbreak of the international financial crisis, which caused huge financial risks.

From the international point of view, the government supports the PPP project, and generally makes budgetary constraints by establishing limited liability entities such as guarantee funds or combining financial resources, so as to prevent project risks from turning into fiscal risks finally.

< /p >

< p > < strong > step by step, refuse to "rush to the herd" and < /strong > /p >

< p > in China, a new way is often accompanied by "chaos and death".

How to promote PPP mode to avoid this strange circle? < /p >

< p > "at the present stage of our country, the laws and regulations of the mode of cooperation between the government and social capital are not yet sound, and the accumulation of relevant operational mechanism and management experience will take some time. The promotion of PPP will be a gradual process and can not" rush to the herd ".

We should study targeted measures and use PPP to support domestic infrastructure construction. "

Lou Jiwei pointed out that we should deal with the "three relations", that is, the relationship between the government and the market, the relationship between the current and the long run, and the relationship between tradition and innovation.

< /p >

Those who are close to the regulators say that the PPP mode also poses challenges to the present local governments. P

"If the management is not good or the competitive market can not be formed, the final cost of the government must also be borne."

< /p >

< p > there are also high requirements for projects suitable for PPP mode.

Only those projects with relatively large scale, stable demand and long term contractual relationship, such as water supply, power supply, communication and pportation, are suitable for the cooperation mode of government and social capital.

< /p >

< p > "mainly is infrastructure construction, including building bridges, repairing roads, garbage disposal, water going and launching, and construction of parks. There will be hospitals and old-age care, which do not exclude the introduction of PPP mode."

Jia Kang, director of the Fiscal Science Research Institute of the Ministry of finance, said that in general, private capital attracted by such projects is not so high in preference but with a steady return.

< /p >

< p > however, there are still many difficulties in promoting PPP mode in China.

Hong Bo, assistant general manager of China CITIC Limited by Share Ltd, who has participated in the PPP mode, said that China's laws and regulations are not perfect enough, the risk sharing mechanism of the project is not mature enough, and the economic returns are not high enough. Financial institutions control risks, and the financing conditions are difficult to integrate with the international market, resulting in higher financial cost of the project. Compared with the international market, the financing cost is higher.

In addition, there has not yet been a sponsor, that is, the early stage working mechanism of risk sharing and benefit sharing between the builder, the operator and the financing side, including intermediary organizations such as planning, design and consultation.

< /p >

< p > Lou Jiwei said that for the future development of PPP mode, the Ministry of finance will start to study the specific operational problems in three aspects, including the study of the question of "what to build" as soon as possible, comb out the establishment of PPP project repository as soon as possible, study the question of "how to manage", establish and perfect the legal system of gradual and orderly PPP mode, study clearly how to support the problem, and create a good PPP mode operation environment.

< /p >

< p > at present, some localities are highly motivated and have begun to carry out relevant work in accordance with the requirements of the Ministry of finance.

On January 10th, Li Qiang, governor of Zhejiang Province, said that the pilot PPP mode will be promoted this year in the provincial teleconference on fiscal and local taxes.

The reporter learned from the Zhejiang provincial finance department that Zhejiang is drawing up specific plans.

The PPP mode will undoubtedly accelerate the entry of private capital into public facilities in Zhejiang.

< /p >

P > strong > High Speed Rail project or overseas "sample" < /strong > /p >

< p > PPP mode can also play an important role in promoting the "going out" of Chinese enterprises.

Lou Jiwei believes that we can "test the water" high-speed rail project to a relatively sound legal system of "going out" and integrate domestic operators, equipment suppliers, engineering contractors, fund providers, etc., and use the < a href= "http://www.91se91.com/news/index_cj.asp" > PPP mode < /a > to make this project a "model case" of "going out" pformation and upgrading.

< /p >

< p > similar to the domestic investment and financing mode, the traditional "going out" financing mode is also faced with the problem of pformation.

Among them, in the aspect of "financing difficulty", under the traditional mode, foreign borrowers are generally project sponsors, and domestic banks will require foreign governments to provide sovereign guarantees, but now there are more and more obstacles in this regard.

< /p >

< p > China's enterprises "go out" are at the low end of the value chain. They rely on project construction to earn "hard money". They rarely participate in scientific research, planning and operation, such as < a href= "http://www.91se91.com/news/index_cj.asp" > value chain < /a > high-end, with low added value.

< /p >

< p > data show that in 2012, the net profit margin of international engineering contractors averaged 5.9%, but several construction giants in China were less than 2%.

Because most of the projects are "hammer sale" and "build up and go", it is also hard to produce "brand effect" in host country.

< /p >

< p > PPP mode will become a key to solve the above problems.

Under the PPP mode, the government and enterprises jointly set up SPV (Special Purpose Vehicle), bundled as "interest community" and jointly responsible for project management.

By signing long-term contracts, the host government helps enterprises to resolve risks such as politics and law so as to ensure mutual benefit and reduce the risk of policy change.

< /p >

< p > "participating in foreign projects through PPP mode is also the same as playing the role in China. For the government, the government's financial pressure will be reduced. For the society, the performance and service level of the project will be improved. For enterprises, it can open the space which has not been opened before."

Jia Kang said.

< /p >