Common areas of confusion in the practical operation of PPPs

The government and private capital co-operation model, or public-private partnership (PPP), has been fervently applied in China for many years. However, the lead author has found that because China’s legal framework for the development of PPP projects is not sufficiently sound, there remain numerous misunderstandings in the course of practical operation.

Confusion about the build-transfer (BT) model and PPP. The issuance of the Notice on Putting a Stop to Illegal Financing Activities by Local Governments (document No. 463) has spooked local governments and investors, and they have started to avoid using the letters BT in their co-operation projects. Local governments and investors are tending to favour using PPP to describe their projects’ financing model – even if they are using the BT model.

In the practice of various countries, the commonly seen BT financing model is in fact one of the numerous means of implementing PPPs. BT complies with the three main features of the PPP model. First, BT normally involves a government handing responsibility for investment in, and financing and construction of, an infrastructure project to an investor that, once the project is completed, transfers it to the government, for which the government pays a repurchase price, thus realising a co-operative partnership between government and enterprise.