Document No. 463 may have a notable impact on BT projects

On 24 December 2012, the Ministry of Finance, the National Development and Reform Commission (NDRC), the People’s Bank of China and the China Banking Regulatory Commission (CBRC) jointly issued and implemented the Notice on Putting a Stop to Illegal Financing Activities by Local Governments (Document No. 463). The notice sets out provisions in respect of the scope of application of the BT (build-transfer) model, the provision of security in breach of contract by local governments, etc.

Existing issues

Confusion of concepts. The expression “where agent-construction system construction is to be adopted with year-by-year repurchase (BT) with fiscal funds” in Document No 463 treats agent-construction and BT as one. The term “agent-construction” means the government selects a professional project management entity, through an invitation of bids, that is responsible for the investment management of a government-invested public works construction project, and for the construction organisation that carries on the work, and effects delivery to the entity that will be using it once the project is completed.

In general, the construction funds therefor are allocated by the government, with the agent-construction entity solely responsible for management of their use. In contrast, the term ‘BT’ means that the government bestows on the investor the responsibility for investing in, financing and constructing the project, and after completion of the project, the investor transfers it to the government, and the government pays the repurchase price to the investor in accordance with the BT contract. There are marked differences between the two terms in the legal status of investors, the party for project financing, the ownership of the project and repurchase issues – they are in fact two completely different construction models. It seems Document No. 463 gives rises to a confusion of concepts.