Are PPPs the only choice for project investment?

Following years of promotion and application, the public-private partnership (PPP) model may just become the darling of the project investment sector, with local governments inevitably invoking PPPs when discussing the search for investors and investment for projects. Governments in some provinces have even gone as far as incorporating the scale of PPP projects and the rate of their implementation as government work assessment objectives, and using the PPP model for the implementation of all public services and infrastructure projects. But is the PPP model the only option for project investment?

Pursuant to relevant regulations of the National Development and Reform Commission (NDRC) and the Ministry of Finance on PPPs, the PPP model mainly applies to public services and infrastructure projects in which the government bears a responsibility for providing the same, and that are suitable for market-oriented operation. Provinces and cities should give priority consideration to using the PPP model for the construction of new projects. In such public services sectors as waste treatment, sewage treatment, etc., in which the central government provides fiscal support, either the application of the PPP model is mandatory in new projects, or the implementation of PPP model identification and fact finding is “mandatory” for such new projects.

However, the PPP model is usually required to satisfy such mandatory conditions as: “in principle, the term of co-operation may not be less than 10 years (the draft for comment of the PPP law even specifies that, in general, it should not be less than 25 years)”; “expenditures on all PPP projects each year must not account for more than 10% of general budgeted public expenditures”; “PPPs must undergo and pass a value for money assessment and a demonstration of fiscal bearing capacity”, etc. So in practice the model cannot completely match up with the demands of project construction for governments of every province or city.

Wang Jihong is a partner and Han Jiangyu is an associate with Zhong Lun Law Firm