Legal issues relating to water industry concessions

With the increasing commercialization of the water industry (particularly urban water supply and sewage treatment) in China, there has been a move from the original investment model, in which an investor negotiated and agreed on an acquisition, to the concession model, in which the government conducts a public tender process to select an investor or operator. The Accelerating the Commercialization of Urban Utilities Opinions, issued by the Ministry of Construction in 2002, and the Urban Utility Concessions Administrative Measures, issued in 2004, provide the legal basis for the system of urban utility concessions, including for the water industry.

Bid invitation and submission

In practice, the tender processes conducted by many local governments do not comply with the PRC Invitation and Submission of Bids Law or the 2004 Measures, perhaps due to haste or inexperience. The major problems are set forth below.

Non-compliant invitations to tender

The contents of invitation documents can be overly simple, full of errors, not legally compliant or impracticable. If a bidder requests clarification, the party inviting the tender may communicate with that bidder unofficially, and may be unwilling to give official written clarification or to revise the bid invitation documents. If the bidder insists on official clarification or revision, the bidder may be viewed as pedantic and difficult by parties that are oblivious to the seriousness and legal nature of the tendering procedure.