PPP regulations need clarification

The Legislative Affairs Office of the State Council on 21 July 2017 issued the Regulations for Public-Private Partnerships in the Infrastructure and Public Services Sectors (Draft for Comment). The authors have mixed emotions regarding the draft: happy because the PPP regulations expressly specify certain provisions that address the fundamental objectives of PPP – oversight, the relationships of the rights and obligations of the participating parties, etc., resolving and improving certain current issues in practice; and concerned that the PPP regulations are too brief on, or avoid, numerous fundamental issues and key contradictions, such as the nature of PPP contracts, conflicts between current systems, etc., greatly limiting their capacity to resolve prominent issues in practice.

Relationship between PPPs and concessions. To date, regulatory documents in China fail to define the relationship between PPPs and concessions. As a second invitation of bids can be avoided for construction of a concession project, “if the investor can itself carry out construction, production or provision in accordance with the law”, the impact on the private investor’s returns is major. However, due to inconsistent understandings of the PPP and concession concepts among different local governments, their application likewise varies tremendously. The authors recommend that the relationship between the two concepts be clearly defined when the regulations are issued in future.

Method of selection of the private investor. The regulations specify that, “the phrase ‘public-private partnership in the infrastructure or public services sector’ means that the public party selects the private party by a competitive method …” From this provision it can be seen that the regulations deny the method of selecting the private investor by way of a direct award.

However, the authors would recommend that the method of direct awarding be retained for procurement. The reasons are as follows: first, a PPP project in essence falls within the category of government procurement, and article 31 of the Government Procurement Law expressly provides for use of the single source method for procurement in certain specific circumstances. The PPP regulations should comply with the Government Procurement Law; Second, not all PPP projects are competitive. Under certain specific circumstances (e.g., national defence, military projects, underdeveloped regions, etc.) the use of a competitive method for procurement may be inappropriate for such reasons as the special or monopoly nature of the project, its lack of attractiveness, etc. Accordingly, the method of procurement by way of a direct award should be retained.