So, what is franchising?How should I do this?Please see the related knowledge sharing in this issue.
1. The Ministry of Finance abolished a number of PPP-related documents
On December 13, the Ministry of Finance issued a notice stating that the "Notice of the General Office, the National Development and Reform Commission and the Ministry of Finance on Standardizing the Implementation of the New Mechanism for Social-Private Partnership" has been issued. According to the relevant work requirements, it is hereby decided to abolish the relevant documents of ** and social capital cooperation (PPP). The "New Mechanism" makes it clear that the private partnership should be implemented in a franchise modelIt is necessary to focus on user-paid projects, clarify the charging channels and methods, and the project operating income can cover the construction investment and operating costs, and have a certain return on investmentPriority will be given to the participation of ** enterprises. Although the "New Mechanism" has been issued and the original document has been gradually abolished, there is no clear explanation on how to dispose of the existing PPP projects. 2. The concession period is extended to 40 yearsThe New Mechanism clarifies that projects that have not completed the bidding and procurement procedures before the clean-up and verification of ** and PPP projects in February 2023, as well as newly implemented ** PPP projects in the future, shall be implemented in accordance with the new mechanism stipulated in the Guiding Opinions. * Wen Laicheng, executive director of the Zhongcai-Anrong Local Finance Investment and Financing Research Institute of the University of Finance and Economics, said in an interview, "For projects that have signed contracts and started operation or construction, they should continue to operate or build to ensure the smooth progress of the project." If there is a problem in the process of advancement, it can be solved through negotiation. How to revitalize the stock of PPP assets?Wen Laicheng said that when it is necessary to revitalize assets under special circumstances, you can use the way of asset enhancement to revitalize. In addition, after consultation between the two parties, under the premise of ** consent, the PPP project can also be transferred in a market-oriented manner. However, judging from the existing cases, the circulation effect of PPP projects is not very good. In addition, the "New Mechanism" makes it clear that ** and social capital cooperation should be adopted in fullFranchisingPattern implementation. Previously, the Measures for the Administration of Infrastructure and Public Utilities Concessions had stipulated that the duration of infrastructure and public utilities concessions should be determined according to comprehensive factors such as industry characteristics, demand for public products or services provided, project life cycle, investment period, etc., and the maximum period was not more than 30 years. A few days ago, the relevant person in charge of the Investment Department of the National Development and Reform Commission said that the new mechanism will extend the franchise period to 40 years, and the project with large investment scale and long return cycle can also be appropriately extended, allowing the project to accept investment support in accordance with laws and regulations during the construction period, and make it clear that the additional income obtained by strengthening management, reducing costs, improving efficiency, and actively innovating is mainly owned by the franchisee, which will help to enhance the enthusiasm of private capital to participate in the user payment project. Third, the focus should be on user-paid projectsThe "New Mechanism" clarifies that ** and social capital cooperation projects should focus on user-paid projects, clarify the channels and methods of charging, and the project operating income can cover the construction investment and operating costs, with a certain return on investment, and will not add additional local fiscal future expenditure responsibilities due to the adoption of the ** and social capital cooperation model. Does the emphasis on user-paid projects mean that there will be a significant reduction in PPP projects in the future?Wen Laicheng said that on the one hand, if compared with the rapid development of PPP projects after 2014, in the future, focus on user-paid projects, and the first payment can only subsidize the operation according to the regulations, and cannot subsidize the construction cost. Financial funds shall not be used to make up for project construction and operating costs through any means, such as feasibility gap subsidies, promised guaranteed yields, availability payments, etc. In this case, the number of projects using the franchise method will be significantly reduced.
On the other hand, the PPP model is not the dominant model in the field of public works and public services. Therefore, there may not be a large-scale contraction of the market in the future, depending on the specific management method. "For example, electricity supply, water supply, gas supply, bridges, roads, such cash flow infrastructure and public utilities, if the management is too strict, it will be very difficult for enterprises to adopt franchising. However, if the state has a certain degree of flexibility in the management of the future and can at least ensure the break-even of the project through the first adjustment, make a slight profit, and let the social capital party also get reasonable profits, then there is still a market for franchising. Wen Laicheng said. 
1. What exactly is a franchise project?What kind of project can implement a franchise?
With regard to franchising, there is currently no relevant legal norm, only Decree No. 25 "Measures for the Administration of Infrastructure and Public Utilities Concessions" which regulates concession activities in the field of infrastructure and public utilities.
Take a closer look at the Measures for the Administration of Infrastructure and Public Utilities Concessions:
Article 2These measures shall apply to concession activities in the fields of energy, transportation, water conservancy, environmental protection, municipal engineering and other infrastructure and public utilities within the territory of the People's Republic of China.
Article 3The term "infrastructure and public utilities franchise" in these measures refers to the use of competitive methods to authorize legal persons or other organizations within and outside the territory of the People's Republic of China in accordance with the law to clarify rights and obligations and risk sharing through agreements, and to agree that they will invest in the construction and operation of infrastructure and public utilities within a certain period of time and obtain benefits and provide public goods or public services.
Article 5Infrastructure and utility concessions can take the following ways:
A) within a certain period of time, ** grant concessionaires to invest in new construction or expansion, operation of infrastructure and public utilities, the expiration of the period of handover;
2) Within a certain period of time, ** grant the concessionaire to invest in new construction or renovation and expansion, own and operate infrastructure and public utilities, and hand over ** at the expiration of the period;
3) After the concessionaire invests in new or renovated and expanded infrastructure and public utilities and hands them over, it shall be granted to operate for a certain period of time
4) Other methods provided for by the state.
According to the above-mentioned provisions of the Measures, the projects applicable to the franchise need to meet:
1. It belongs to infrastructure and public utilities.
This is a project that has a responsibility to make available to the public. If it is a purely commercial project that is not responsible for providing, it is not suitable for franchising.
We understand that infrastructure and utilities generally have a certain natural monopoly or policy monopoly. It is not only the responsibility and obligation to provide, but also has a certain monopoly, if it is not provided, it should be "licensed" by the enterprise to provide.
2. There is operation, and investors mainly rely on operation to make profits.
On the one hand, the franchise project has the responsibility to provide it to the public, and on the other hand, the project suitable for franchising can generally generate a certain amount of operating income. After seeing this, the project can be handed over to the enterprise to fund the construction and operation, and the enterprise will get a return on investment through the operation.
If the project has no operation and operating income, such a project cannot be handed over to the enterprise to fund the construction and operation, and the construction must be arranged by the first financial funds.
3. Authorize franchised enterprises to invest in new construction, reconstruction, expansion and operation.
As we said earlier, the franchise project is the responsibility and obligation to provide, and it has a certain monopoly, if it is not provided, it should be "franchised" by the enterprise to provide.
There are several ways to franchise:
The first is the expiration of the construction and operation period, and the transfer of assets - in this process, the property rights of the project assets belong to the company, and the enterprise obtains the franchise right.
The second way is that the enterprise owns the project assets in stages during the concession period, but the property rights of the project assets still need to be handed over at the end.
The third is that after the project is constructed, the enterprise will first transfer the property rights of the project and then operate.
In these three ways, we see that there is a process of handing over assets to **.
4. The property rights of the assets belong to the first and the investors are licensed to operate.
Franchising is time-limited. In essence, the project with a certain monopoly will be handed over to the enterprise for investment, construction and operation, when the operation reaches a certain period of time, the operating income obtained by the enterprise can be invested and obtain reasonable profits, the franchise period should end, and the enterprise needs to hand over the project to the company.
The duration of the franchise is limited to the investor recovering the investment and making a reasonable profit. The purpose of the concession is to attract investors to provide infrastructure and utility projects to the public in order to reduce the capital investment.
Second, judge oneThere are two core factors to consider whether a precinct development can be used as a concession:
First, is there a responsibility to provide?**Purely commercial items that are not under obligation to provide and are not suitable for franchising.
Second, whether the project is operational and what is the coverage rate of operational returns?
* Have the responsibility to provide and arrange financial funds for the implementation of the project, if ** does not arrange financial funds, it cannot be handed over to the enterprise for implementation. If it is handed over to the enterprise for implementation, the payment will be deferred, and the hidden debt will be formed. If it is implemented by the enterprise, ** will never pay, it is not in line with business logic. Why would a business do such a thing?
A business can only be authorized to invest in and operate a project if the project has operating and operating revenues, and the operating income can cover the majority of the investment, and the enterprise receives a return on investment from operating the project (which can provide a small subsidy), thereby providing infrastructure and utilities to the public at no or less cost.
*The word concession is a foreign product, ** in English concession. By understanding the relevant laws of foreign concessions, the most detailed explanation of the term "concession" is the explanatory communication on concessions issued by the European Union in 2000. As defined in that communication,:A franchise is an act by which a public authority, by contract or unilateral act (with the prior consent of a third party), delegates to a third party the management of a service for which it is normally responsible, in whole or in part, at the risk of such third party.
It can be seen that China's first franchise is consistent with the international in terms of connotation. The core is to authorize enterprises to invest in the construction and operation of infrastructure and public utilities projects with operation and operation benefits, and enterprises mainly rely on operating income to obtain investment returns, so as to provide public goods and services to the public without spending money or spending less money.
Franchising is a reform and innovation of the traditional investment and financing model, which is suitable for projects in the field of infrastructure and public utilities that have operational and operational income, and the operating income can cover most of the return on investment. Purely commercial, perfectly competitive projects and projects with no or too small operating benefits are not suitable for franchising.
Combined with the "Measures for the Administration of Municipal Public Utilities Concessions", "Measures for the Administration of Infrastructure and Public Utilities Concessions" (Order No. 25 of the Six Ministries and Commissions), "Investment Regulations" (Order No. 712) and other national documents, local level documents and relevant project practical experience, the operation process of the franchise project is as follows:
1. Authorized Implementing Agencies
First of all, the first step is to figure out who will lead the way, what to do, how to do it, what you want to achieve in the end, and so on.
Like the old PPP mechanism and the franchise management measures, the document clarifies that local people at all levels may authorize the relevant industry authorities and institutions to act as franchise project implementation agencies in accordance with laws and regulations, and are responsible for the preparation of franchise programs, the selection of franchisees, the signing of franchise agreements, the supervision of project implementation, and the transfer and acceptance of cooperation periods.
The people at or above the county level authorize the relevant departments or units as the implementation agency to be responsible for the implementation of the franchise project, and clarify the specific scope of authorization.
Specifically, the relevant departments or units can apply in writing to the people at the same level to start the franchise project, and the people at the same level can clarify the implementation of the franchise model in the form of approval, meeting minutes or power of attorney, etc., and authorize the department or unit as the project implementation agency and the specific scope of authorization and other related matters, if you need to appoint a representative of the capital contribution to participate in the project company, you can also authorize it in the document.
The project implementation agency shall, with reference to the feasibility study report preparation specifications, take the lead in the preparation of the franchise plan. (At present, the formulation of the outline and key points of the franchise plan is also advancing simultaneously, and you can refer to the "Notice of the National Development and Reform Commission on Printing and Distributing the Outline and Description of the Preparation of the Feasibility Study Report of Investment Projects" Development and Reform Investment Gui No. 2023 No. 304, and can focus on the project output standards, full-cycle costs, charging mechanisms and adjustments, quality and efficiency improvements, risk management and control, and the division of responsibilities of all parties for research and demonstration).
2. Carry out preliminary work
According to the relevant provisions of the Administrative Measures for the Concession of Infrastructure and Public Utilities (Order No. 25 of the Six Ministries and Commissions) and the Notice on Effectively Implementing the Administrative Measures for the Concession of Infrastructure and Public Utilities (NDRC No. 1508 of 2015), the concession project can adopt Build-Operate-Transfer (BOT), Build-Own-Operate-Transfer (BOOT), Build-Transfer-Operate (BTO) and Design-Build-Financing-Operation (DBFO), Alteration-Operation-Transfer (ROT), Build-Own-Operate (BOO), Transfer-Operate-Transfer (TOT), Operation Management (O&M), etc., that is, new projects, reconstruction and expansion projects and existing projects can be implemented in the ** franchise model.
For new projects and reconstruction and expansion projects, if the investment is made in the form of direct investment and capital injection, the approval system shall be implemented in accordance with the provisions of the Investment Regulations (Order No. 712), and the implementation agency or the relevant project unit shall organize and entrust the feasibility study unit to prepare the project proposal, feasibility study report, etc., and submit it to the investment department or other relevant departments for examination and approval in accordance with the investment management authority and the prescribed procedures. If it does not involve ** investment, according to the provisions of the Regulations on the Administration of Approval and Filing of Enterprise Investment Projects (Order No. 673), the approval system or filing system is implemented, and the platform company can complete the approval or filing procedures in the early stage, and then change or re-handle the relevant procedures to the name of the franchisee (project company) after the implementing agency signs an agreement with the franchisee (project company). **The projects in the catalogue of approved investment projects can be submitted by the enterprise to the approval authority and go through the project approval procedures**For projects not included in the catalogue of approved investment projects, it is only necessary to file the relevant information on the project ** supervision platform before the start of construction.
If the ownership or management right of the stock project needs to be transferred, the implementation agency or the relevant project unit usually entrusts the asset appraisal agency to prepare the stock asset (management right) appraisal report, and perform the procedures of state-owned asset appraisal and transfer.
3. Preparation of implementation plans
Next, it is necessary to finalize the content of the plan, clarify who will check the review, and how to carry out the demonstration and evaluation.
The implementation plan of the PPP project under the old PPP mechanism shall be approved by the people at the same level, and the franchise management measures shall clearly review and approve the implementation plan of the franchise project by the people at the same level or their authorized departments. The new mechanism is more clear that the local development and reform departments at all levels will strictly control the relevant content of the project franchise planThe franchise plan shall be approved by the relevant parties in accordance with the approval authority and requirements of the investment project, and the relevant parties shall perform the review procedures. In layman's terms, it is the local development and reform departments at all levels responsible for reviewing the franchise plan. When reviewing the franchise plan, it is necessary to carry out the feasibility study of the franchise model at the same time, which is in line with the "Development and Reform Investment Regulations 2019 No. 1098" in 2019. However, it is no longer required to carry out value-for-money evaluation and financial affordability demonstration under the old mechanism, and the "two evaluations and one case" has become history. (* The two documents before and after, in fact, have already explained that the old and new mechanisms make it clear whose children will be taken away) The implementation agency can put forward the implementation plan of the franchise project according to the needs of economic and social development, as well as the franchise project proposals put forward by relevant legal persons and other organizations.
According to Order No. 25 of the six ministries and commissions, the implementation plan of the franchise project shall include the following:
Project Name;Project Implementing Agency;
Basic economic and technical indicators such as the scale of project construction, total investment, implementation progress, and standards for providing public goods or services;
Return on Investment,** and its Measurement;
Feasibility analysis, i.e., analysis and estimation of reducing life cycle costs and improving the quality and efficiency of public services, etc
Draft framework of the franchise agreement and duration of the franchise;
The conditions and selection methods that the franchisee should have;
* Commitments and guarantees;
Disposal of assets after the expiration of the franchise period;
Other matters that should be clarified.
In practice, the implementing agency usually entrusts a professional third-party consulting agency to prepare the franchise implementation plan.
Fourth, feasibility assessment
The implementing agency may entrust a third-party agency with corresponding capabilities and experience to carry out a franchise feasibility assessment and improve the implementation plan of the franchise project.
According to Order No. 25 of the six ministries and commissions, the feasibility assessment of the franchise shall mainly include the following:
The whole life cycle cost of the franchise project, the rationality of the technical route and engineering plan, the possible financing method, financing scale, capital cost, the quality and efficiency of the public services provided, the construction and operation standards and regulatory requirements, etc.;
The quality and efficiency of the public services provided, the construction and operation standards and regulatory requirements, etc.;
The degree of market development in related fields, the status of market players' construction and operation capabilities and willingness to participate;
Assessment of the public's willingness and ability to pay for user-paid projects.
In practice, the implementing agency usually entrusts a professional third-party consulting agency to complete the feasibility assessment of the project by preparing a feasibility assessment report, and further improves the implementation plan according to the feasibility assessment.
5. Value-for-money assessment and financial affordability demonstration
According to Order No. 25 of the six ministries and commissions, "if it is necessary to provide a feasibility gap subsidy or carry out a value-for-money assessment, the financial department shall be responsible for carrying out relevant work." The specific measures shall be formulated separately by the financial department";"Franchise projects that need to provide a feasibility gap subsidy shall be in strict accordance with the provisions of the budget law, comprehensively consider the financial affordability and debt risk status, reasonably determine the total amount of financial payment and the amount of each year, and connect with the annual budget and medium-term financial planning to ensure the allocation of funds. ”
In practice, the implementing agency or the financial department usually entrusts a third-party consulting agency to complete the project value for money assessment and financial affordability demonstration report by preparing a value-for-money assessment report and a financial affordability demonstration report. The preparation and evaluation method of the value-for-money assessment report usually refer to the Notice on Printing and Distribution (Cai Jin 2015 No. 167) to conduct qualitative and quantitative evaluation of the project. The preparation and demonstration method of the financial affordability demonstration report usually refer to the Notice on Printing and Distributing the Guidelines for the Demonstration of Financial Affordability of ** Social-Private Partnership Projects (Cai Jin 2015 No. 21), which analyzes the total amount of project expenditure responsibilities and the amount of each year, and combines it with the estimated expenditure budget of each year during the project cooperation period.
6. Review of the implementation plan
The implementation agency in conjunction with the development and reform, finance, urban and rural planning, land, environmental protection, water conservancy and other relevant departments of the franchise project implementation plan review. Where the implementation plan is found to be feasible after review, each department shall issue a written review opinion according to its duties.
7. Approval of the implementation plan
The implementation agency synthesizes the written review opinions of each department, and reports to the people at the same level or its authorized departments for approval of the implementation plan of the franchise project.
In practice, the results of the review and approval of the implementation plan are usually clarified by the people at the same level through approvals, meeting minutes, etc.
Eighth, the preparation of franchisee procurement documents
The implementing agency entrusts the bidding ** and consulting agency to prepare procurement documents and franchise agreements according to the approved implementation plan of the franchise project. The procurement documents should indicate whether the establishment of a franchise project company is required.
According to Order No. 25 of the six ministries, the franchise agreement shall mainly include the following:
Project name, content;
Franchise mode, region, scope and duration;
The business scope, registered capital, shareholder capital contribution method, capital contribution ratio, equity transfer, etc. of the project company;
the quantity, quality and standard of the products or services provided;
Ownership of the facility, as well as the corresponding maintenance and renovation;
Monitoring and evaluation;Term and method of investment and financing;
Methods of income acquisition, methods for determining ** and fee rates, and adjustment procedures;
Performance Bond;Risk sharing during the franchise period;
* Commitments and guarantees;
Contingency plan and temporary takeover plan;
After the expiration of the concession period, the project and asset transfer methods, procedures and requirements, etc.;
Changes, Early Termination and Indemnification;
Liability for breach of contract;Dispute Resolution;
Other things that need to be clarified.
9. Procurement franchisees
The implementing agency selects the franchisee through competitive methods such as bidding and competitive negotiation. If the construction and operation standards and regulatory requirements of the franchise project are clear, and the market competition in the relevant fields is relatively sufficient, the franchisee shall be selected through bidding.
Franchisees selected in accordance with the law shall be publicized to the public.
10. Sign a franchise agreement
If a project company is to be established, the project implementation agency shall first sign a preliminary agreement, and then sign a franchise agreement with the project company after the establishment of the project company, which is basically consistent with the requirements of the franchise management measures.
The new mechanism does not put forward specific and clear requirements for the "open competition mode", while the franchise management measures propose that several competition methods such as bidding and competitive negotiation can be adopted, and it is clear that if the construction and operation standards and regulatory requirements of the franchise project are clear, and the market competition in the relevant fields is relatively sufficient, the bidding method should be adopted.
The implementing agency shall sign a franchise agreement with the franchisee selected in accordance with the law.
Where it is necessary to establish a project company, the implementing agency shall sign a preliminary agreement with the lawfully selected investor, stipulating that it shall register and establish the project company within the prescribed time limit and sign a franchise agreement with the project company.