On November 8, 2023, the General Office, the National Development and Reform Commission and the Ministry of Finance issued a notice on the Guiding Opinions on Standardizing the Implementation of the New Mechanism for Social-Private Partnership (hereinafter referred to as the PPP New Mechanism). It marks that after more than half a year of adjustment, the first and social capital cooperation (PPP) has reopened. It is necessary to accurately grasp the requirements of the "PPP New Mechanism" in order to seize the new opportunities for franchise development, take the lead and seize the initiative in the new market environment.
A core summary of the New PPP Mechanism(1) Focus on user-paid projects. **Private-private partnership projects should focus on user-paid projects and clarify the channels and methods of chargingThe operating income of the project can cover the construction investment and operating costs, have a certain return on investment, and will not increase the future expenditure responsibility of the local government due to the adoption of the ** and social capital partnership model. **Under the premise of strictly preventing new local hidden debts, complying with the requirements of laws, regulations and relevant policies, in accordance with the principle of equal treatmentDuring the construction period of the project, the first investment support will be given to the user-paid project**Payment can only subsidize operation according to regulations, not construction costs. In addition, 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 rate of return, availability payment, etc.
(2) All adopt the franchise model. **Private-private cooperation should be implemented in a franchise mode, and specific implementation methods such as Build-Operate-Transfer (BOT), Transfer-Operate-Transfer (TOT), Reconstruction-Operation-Transfer (ROT), Build-Own-Operate-Transfer (BOOT), Design-Construction-Financing-Operation-Transfer (DBFOT) should be reasonably adopted according to the actual situation of the project.
(3) Reasonably grasp the key areas. **Private-world partnerships should be limited to:Projects with operating incomeIt mainly includes transportation projects such as highways, railways, civil aviation infrastructure and transportation hubs, logistics hubs and logistics park projects, municipal projects such as urban water supply, gas supply, heating supply, and parking lots, ecological protection and environmental governance projects such as urban sewage and garbage collection and treatment and resource utilization, water conservancy projects with power generation functions, social projects such as sports and tourism public services, new infrastructure projects such as smart cities, smart transportation, and smart agriculture, urban renewal, Comprehensive transportation hub renovation and other projects that organically combine stock revitalization and reconstruction and expansion.
(4) Priority will be given to the participation of ** enterprises. Projects with a high degree of marketization and weak public attributes should be handled by private enterprisesSole proprietorship or holding;For projects related to the national economy and people's livelihood and strong public attributes, the equity proportion of private enterprises is in principleNot less than 35%;A small number of projects involving strong public attributes and natural monopoly attributes should create conditions and support the participation of private enterprises.
(5) Fair selection of franchisees. The project operation plan, the unit price of the charge, the franchise period, etc. should be taken as an important evaluation criterion for the selection of franchisees, andPay close attention to its project management experience, professional operation ability, comprehensive strength of the enterprise, and credit rating. In principle, the selected franchisee and its investment, financing and construction responsibilities shall not be adjusted, and if it is necessary to adjust, the franchisee selection procedure shall be re-performed. The duration of the franchise is in principleNo more than 40 years,Franchise projects with large investment scale and long return cycle can be appropriately extended according to the actual situation, except as otherwise provided by laws and regulations.
(6) Strictly implement investment management procedures. For the franchise project that adopts the capital injection method to provide investment support, the approval procedures shall be carried out in accordance with the relevant provisions of the ** Investment RegulationsFor projects invested solely by the private party, the approval or filing formalities shall be carried out in accordance with the relevant provisions of the Regulations on the Administration of Approval and Filing of Enterprise Investment Projects. After the franchise project legal person is determined, if it is inconsistent with the project legal person when going through the formalities of approval, land use, planning and other procedures in the early stage, the project legal person shall go through the procedures for changing the project legal person in accordance with the law, and the project implementation agency shall provide support and convenience.
(7) Do a good job in factor guarantee and financing support. Encourage financial institutions to provide financing support for franchise projects in accordance with the principles of risk control and commercial sustainability, and use the pledge of expected returns. Actively support eligible concession projects to issue real estate investment trusts** (REITs) in the infrastructure sector.
Key points of operation of the new PPP projectIn accordance with the requirements of the "PPP New Mechanism", I believe that in the implementation of subsequent PPP projects, the focus on project operation should be adjusted and changed accordingly, which is mainly reflected in the following aspects:
Before the new regulations, the operation of the original PPP project had the following core elements. First of all, according to Cai Jin [2015] No. 166, projects that are not included in the PPP treasury are not allowed to arrange expenditure responsibilities through the budget in principle, and banks will not give loans, so the storage of the original PPP projects is a prerequisite for operationSecondly, the original PPP project has three types of return mechanisms: payment, feasibility gap subsidy and user payment, and from the perspective of social capital, from the perspective of minimizing the impact of market factors on investment returns, the main choice is to pay and feasibility gap subsidy model, so that the primary focus should be on the local financial strength and the choice of return mechanismThirdly, the comprehensive strength of the shareholders is an effective guarantee for the smooth investment, construction and operation of the project, especially the possibility of bank financing with the participation of shareholders of private enterprisesFinally, the reasonable return on investment of the original PPP project is generally between 5% and 8% as the core business condition, which is an important basis for the private party to make investment decisions.
After the new regulations, I believe that the operation of new PPP projects should pay attention to the following points:
(1) Grasp the direction of industrial policy. Different from the three types of return mechanisms of the original PPP project (user payment, ** payment and feasibility gap subsidy), it is clarified that PPP projects "should focus on user payment", and the project operating income can cover the construction investment and operating costs, and have a certain return on investment. Therefore,Industrial investment projects supported by policies, with broad development prospects and high return on investment, should be the first choice for investment, such as: environmental remediation, park development, water supply and heating, smart city, etc.
(2) Pay attention to the selection of investment locations. As a pure equity investment project, the introduction of capital investment, the completion of land acquisition and industrial park construction is only a small step in the whole cooperation, whether it can attract industrial related parties to land, how the local preferential policies, the quality and speed of decentralization, is related to the return on investment in the next one or two decades, or even thirty or forty years, and the choice of investment location is an important influencing factor. The selection of investment sites should be based on the degree of industrial agglomeration, and in principle, only first-tier cities and provincial capitals should be considered.
(3) Accumulation of operational resources. The PPP New Mechanism points out that factors such as the project operation plan, the unit price of the fee, and the franchise period should be taken as important evaluation criteria for the selection of franchisees. Then, from the perspective of project bidding, the qualification and performance of the construction enterprise will be reduced as a judging factor, while the overall operation ability of the operator will be an important influencing factorTherefore, the expansion of the "circle of friends" is particularly important, to increase the accumulation of operational resources, and grasp the initiative in bidding.
(4) Pay attention to the design of equity ratio. In this policy language, the words "encouragement" and "support" are no longer used for private participation in projects, but the clear requirements of "sole proprietorship or control" and "shareholding ratio shall not be less than 35% in principle" are adopted. Thus,It is suggested that the equity of the project company should be designed in the same proportion as the construction central enterprise and the private capital, such as the structure of 40% of the construction central enterprise, 40% of the private capital :* 20% of the party. On the one hand, it meets the policy requirements, and on the other hand, it fully considers the requirements of the bank side for the main structure of the loan legal person. At the same time,It is necessary to have in-depth control over the project company through the provisions of the company's articles of association, shareholders' agreement and the appointment of directors, supervisors and senior executives.
(5) Implement the willingness of banks to lend. PPP project is a standard financial investment project, and the implementation of financing is more critical than investment. As the PPP project of the new mechanism focuses on user-paid projects and is implemented through the franchise model, the PPP fiscal expenditure responsibility has been sharply compressed, and the state has replaced the Ministry of Finance as the PPP competent department, and the PPP library of the Ministry of Finance will also lose its meaning. The lending bank originally used PPP project warehousing as the pre-approval standard for loans, but it is still unknown whether it recognizes the public projects of the national investment project approval and supervision platformThe bank's willingness to lend must be confirmed before the project is tendered.
New PPP Project Operation Structure Diagram:
Mode 1:
Mode 2:
Key points of concern for investment and financing projectsCombined with the policy requirements and market demand under the current new situation, I believe that investment and financing projects should be measured from the following three dimensions.
From the perspective of policy compliance, in an environment where the state attaches great importance to the prevention and resolution of local hidden debt risks, combined with the notice of the Ministry of Finance on November 6, 2023 on typical cases of local hidden debt accountability, "Xi'an City, Shaanxi Province has added new hidden debts through debt financing of state-owned enterprises" and "Pengzhou City, Chengdu City, Sichuan Province, has requested state-owned enterprises to advance funds for construction and new hidden debts with expected land transfer income as project investment returns" The qualitative punishment of the incident has extended the tentacles of management to investment and financing projects. In the subsequent design of investment, financing and construction projects, we should be more prudent and pay attention to compliance.
From the perspective of investment security, as a construction enterprise to participate in investment projects, the core is to drive the development of the main business, the key is to achieve a construction profit margin much higher than that of ordinary public recruitment projects, and the construction profit generated is the largest investment safety cushion. From this point of view, a fully integrated project with a leverage ratio of no more than 1:2 is extremely riskyThe higher the leverage ratio, whether it is a real debt project or a pure equity investment project, the risk resistance is high. Efforts should be made to promote the marketing of pre-financing projects and pay attention to the leverage ratio of investment.
From the perspective of project finance, on the one hand, we should screen projects from the standpoint of banksPriority will be given to projects supported by policies, such as EOD projects, and industrial park projects with operating incomeBy increasing the choice of financing products and broadening financing channels, we can reduce financing costs and improve the operability of projectsOn the other hand,The project assets should be loaded into the SPV, which not only improves the possibility of financing, but also forms a starting point for investment exitAvoid only taking the accounts payable of the first platform company as the starting point, so that the enterprise falls into the risk of marketization.