What are the four major breakthroughs in the PPP model in the field of public services?

On October 12, 216, the Ministry of Finance issued the Notice on Further Promoting the Cooperation between Government and Social Capital in the Field of Public Services (Cai Jin [216] No.9, hereinafter referred to as the Notice), in which two "compulsory" pilot projects, fair project procurement, standardized project implementation and clear that all PPP projects can be "two strokes". The full text of the Notice and its interpretation are as follows:

Notice on further promoting the cooperation between the government and social capital in the field of public services

Caijin [216] No.9

Finance departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government and cities with separate plans, and Finance Bureau of Xinjiang Production and Construction Corps:

In order to further implement the CPC Central Committee and the CPC Central Committee, Make overall plans to promote the deepening of the reform of government and social capital cooperation (PPP) in the field of public services, improve the quality and efficiency of public services in China, and consolidate and enhance the momentum of sustained economic growth. Relevant matters are hereby notified as follows:

1. Vigorously practice the structural reform of the supply side in the field of public services

Financial departments at all levels should unite with relevant departments and continue to promote the PPP model to promote reform and benefit people's livelihood. Practically implement the latest requirements of supply-side structural reform, and further promote the transformation of public services from government supply to cooperative supply, from single input to diversified input, and from short-term balance to medium-and long-term balance. It is necessary to adjust the supply structure of public services through reform, expand effective supply, and improve the quality and efficiency of public services. It is necessary to stimulate the vitality and creativity of social capital through reform, form an endogenous driving force for economic growth, and promote sustained and healthy economic and social development.

second, further strengthen the promotion and application of PPP model

in the field of public services supported by the central government, two "compulsory" pilots can be explored according to the characteristics and maturity of the industry. In the field of public services such as garbage disposal and sewage treatment, projects generally have cash flow, and the degree of marketization is high. PPP mode is widely used and the operation is relatively mature. New projects in various places should be "forced" to apply PPP mode, and the central government will gradually reduce and cancel the special construction fund subsidies. In other public service areas supported by the central government, for projects with cash flow and operating conditions, it is necessary to "force" the implementation of PPP mode identification and demonstration, encourage the attempt to use PPP mode, pay attention to project operation, and improve the quality of public service.

Interpretation

This is the first time that the Ministry of Finance has promoted the PPP model in a "mandatory" way. According to the requirements of the Notice, the PPP model should be "compulsory" for new projects in the public service areas of garbage disposal and sewage treatment; Other projects in the field of public services supported by the central government should be "forced" to implement PPP model identification and demonstration. At the same time of "compulsory", the central government will gradually reduce and cancel the special construction fund subsidies for PPP projects in the fields of garbage disposal and sewage treatment. This reduction in financial support means that the economic value and income of such projects will directly determine whether social investors can obtain the expected income. On the one hand, local governments should do a good job in project screening; On the other hand, social investors should also carefully conduct research and choose projects with considerable returns and stable cash flow for investment.

iii. actively guide all kinds of social capital to participate

financial departments at all levels should work with relevant departments to create a level playing field and encourage state-controlled enterprises, private enterprises, mixed-ownership enterprises, foreign-invested enterprises and other enterprises to participate in PPP projects according to the same standards and equal treatment. It is necessary to set reasonable procurement standards and conditions in conjunction with relevant industry departments to ensure that the procurement process is fair, just and open. It is not allowed to treat potential partners differently or discriminatively with unreasonable procurement conditions (including setting too high or irrelevant qualifications, too high margin, etc.), and strive to stimulate and promote private investment. Financial departments at all levels will no longer arrange funds and policy support for PPP projects with different and discriminatory terms for private capital.

Interpretation PPP projects have a large investment volume and a long operation cycle. When purchasing social investors, local governments often set qualifications irrelevant to the project or too high for the project, taking into account the investment strength and operation ability of private capital, so as to limit the involvement of private capital. This is obviously contrary to the concept of PPP model-cooperation between government and social capital, but because there is no corresponding punishment mechanism, discrimination against private capital in PPP projects often occurs. According to the requirements of the Notice, if a PPP project is found to have different and discriminatory terms for private capital, it will not receive financial funds. This is undoubtedly fatal for those projects whose income mainly or completely comes from government financial funds. This requirement will change the position of private capital in PPP project investment. However, how to identify whether the qualifications are too high and how to seek relief for social investors who cannot participate in project investment still needs an answer from the Ministry of Finance. Fourth, do a solid job in the preliminary demonstration of the project

On the basis of fully demonstrating the feasibility of the project, the financial departments at all levels should promptly carry out value-for-money evaluation and financial affordability demonstration in conjunction with the competent departments of the industry. Financial departments at all levels should focus on public services, and ensure that public funds, assets and resources are given priority to improving the quality and level of public services according to the Notice of the General Office of the State Council on Forwarding the Guiding Opinions of the Ministry of Finance, the Development and Reform Commission and the People's Bank of China on Promoting the Cooperation Mode of Government and Social Capital in the Public Services (Guo Ban Fa [215] No.42). It is necessary to strictly distinguish between public services and industrial development projects, deepen PPP reform in public services such as energy, transportation, municipal engineering, agriculture, forestry, water conservancy, environmental protection, affordable housing projects, medical and health care, old-age care, education, science and technology, culture, sports, tourism, etc., and establish a PPP project development catalogue in this region based on the PPP comprehensive information platform.

it has always been one of the controversial topics to interpret what kind of projects can use PPP model. Due to the imperfection of relevant laws and policies, the phenomenon of abusing PPP mode occurs from time to time. For example, the purpose of carrying out value-for-money evaluation and financial affordability demonstration is to strictly meet the conditions for project establishment. Only when the local government's financial capacity allows, the PPP mode should be adopted when the project is carried out better than other modes. However, in order to achieve the investment goal, some governments reverse the value-for-money evaluation and financial affordability demonstration according to the policy requirements, resulting in this evaluation system becoming a dead letter. According to the requirements of the Notice, PPP project construction should effectively prevent invalid investment and redundant construction, and strictly distinguish between public service projects and industrial development projects, which should be prevented by value-for-money evaluation and financial affordability demonstration. In addition, the "Notice" proposes to introduce a directory mechanism in the PPP field, and only projects listed in the directory can be developed, which also helps to control the over-development of projects.

V. Focus on standardizing and promoting project implementation

Financial departments at all levels should, in conjunction with relevant departments, make an overall demonstration of the project cooperation cycle, charging and pricing mechanism, investment income level, risk allocation framework and government subsidies, and scientifically design the PPP project implementation plan to ensure that the connotation characteristics of "risk sharing, income sharing and incentive compatibility" are fully reflected, so as to prevent the government from bearing excessive expenditure by means of fixed return commitment, repurchase arrangement and real debt. Avoid replacing the long-term expenditure responsibility of PPP projects with the current government purchase service expenditure, avoid PPP-related evaluation and demonstration procedures, and aggravate the hidden danger of local government financial debt risks. It is necessary to strengthen the contract performance management of the whole life cycle of the project, ensure that the rights and obligations of the government and social capital are equal, and the government expenditure responsibility is linked to the performance of public services.

Interpretation

With the country's strong recommendation of PPP model, local governments are actively promoting its application. However, in some places, there are still unclear understanding of PPP mode, confusing PPP projects with government-purchased service projects, and "pushing" and "forcing" PPP projects to land without in-depth research on PPP mode, resulting in some PPP projects becoming "extended BT" projects; Even due to the inaccurate demonstration in the early stage of the project, it is difficult to land the project and promote it. It deviates from the spirit of PPP model and seriously affects the trust of social investors in PPP model. In view of the fact that local governments attract investors with promises of fixed return, repurchase arrangements, clear shares and real debts, the Notice clearly points out that such promises are not recognized by the Ministry of Finance, which reminds investors that when investing in projects, they need to focus on the project itself, not the government's promises.

the legal compliance of PPP project is the premise of whether the project can be implemented. With the improvement of the country's normative requirements for PPP projects, it is bound to eliminate some projects that do not meet the PPP model. At present, due to financial difficulties, some local governments are eager to solve the financial pressure through PPP mode, and carry out project procurement under the condition of incomplete procedures, which has laid hidden dangers for the smooth implementation of the project and increased the risks of social investors in the project. In a PPP project undertaken by our institute, by examining the legal compliance of the project, it is found that the government has not included the project in the PPP comprehensive information platform of the Ministry of Finance as a prerequisite for payment, which may lead to the project payment not being included in the fiscal budget. Under the coordination of our lawyers and the government, this condition was successfully included in the PPP project contract, avoiding the losses of social investors.

the implementation scheme of PPP project is of great significance to the smooth implementation of the project, so it is necessary to demonstrate the feasibility of the project, so as to achieve the expected goals of the government and social investors. The PPP model covers many stages of investment, construction and operation of the project. Because social investors can't be proficient in all fields and can't grasp the possible risks, the expected benefits in the project can't be realized. In a PPP project undertaken by our firm, due to the eagerness of the government to promote the project and the eagerness of social investors to invest, the procurement of the project was completed under the condition that the charging index and return mechanism of the project were still uncertain, which led to disagreement between the two sides, which encountered great obstacles in the project negotiation stage. After our lawyers repeatedly reminded the project risks and participated in the project negotiation, a solution satisfactory to both sides was finally drawn up.

VI. Give full play to the leading role of demonstration projects

Financial departments at all levels should unite with relevant departments to vigorously promote the standardized implementation of PPP demonstration projects in accordance with the principles of "fast and practical" and "being able to enter and exit". It is necessary to actively create conditions for the implementation of the project, strengthen directional guidance for demonstration projects, guide project units to scientifically formulate implementation plans, rationally choose operation modes, select social capital on the best basis, sign project contracts in detail, strengthen project implementation supervision, ensure the implementation quality of demonstration projects, and give full play to the leading and driving nature of demonstration projects. We should actively do a good job in the supervision of demonstration projects and promote the accelerated implementation of the projects. If the conditions for signing contracts are still not met within a certain period of time, they will no longer be implemented as demonstration projects.

Interpretation On October 13th, 216, the Ministry of Finance announced the third batch of demonstration projects. This has played a guiding role in standardizing PPP projects and establishing a standard and feasible PPP model. These demonstration projects are easier to implement, more economical, and more attractive to financial institutions. At the same time, the Notice also shows that demonstration projects are not an "iron rice bowl", and there must be progress and retreat. For projects that have not yet signed contracts and still do not have the conditions for signing contracts within a certain period of time, they will no longer be implemented as demonstration projects.

VII. Improve the management system and mechanism according to local conditions

Financial departments at all levels should further establish and improve the system and policy system for promoting the implementation of PPP mode in the local area according to the relevant system and policies of the Ministry of Finance and the actual situation in various places, and refine the policy guidance for cities and counties. In combination with the adjustment of internal functions, we should further integrate and strengthen specialized forces, improve institutional construction, study and establish an inter-departmental PPP collaborative management mechanism, further sort out the process links of PPP-related work, clarify management responsibilities, and emphasize management according to systems and procedures. Reference from MBA think tank document