PPPs seen lifting returns on infrastructure investment

Efforts to promote a new mechanism for public-private partnerships (PPP) nationwide will help curb hidden risks stemming from local debt by enhancing return on investment and performance of infrastructure projects, and stimulate positive sentiment in the private sector, experts said.

The remarks came after the State Council, the nation's Cabinet, approved and forwarded a guideline earlier this month on the new PPP mechanism, which was jointly issued by the National Development and Reform Commission, and the Ministry of Finance.

According to the guideline, PPP projects should focus on user-paid projects and clarify the channels and methods of payment. The operational revenue of PPP projects should cover construction investment and operational costs with some investment returns. All PPP projects should adopt the franchise format with defined asset ownerships in both the construction and operational stages as well as clear rights, responsibilities and interests of all parties by contract.

Projects in transportation, municipal administration, ecological protection and environment improvement, social programs, and "new infrastructure" will be accorded priority, the guideline said.

The new mechanism, which sets stricter limits on government spending in PPP projects, and its focus on user-paid projects are key moves to mitigate the risks associated with the local government debt, Xu Chengbin, vice-director of the Research Center of China International Engineering Consulting Corp, was quoted as saying by People's Daily on Monday.

Such projects are expected to maintain steady liquidity inflow and have better ROI performance, as they are generally in line with actual public demand, and thus curb local hidden debt from expanding further, experts said.

According to the guideline, private enterprises will be given more support to participate in PPPs.

For projects with strong public features, the equity ratio of private enterprises should be no less than 35 percent in principle.

Moves favorable to franchisees, such as extending the franchise period and granting earnings made via innovation, better management or higher efficiency to them, aim to boost sentiment in the private sector, and attract more investment from the sector, the NDRC said in a note earlier this month in response to media queries.

"In recent years, China has promoted the funding for infrastructure and public works through this model, aiming to reduce local government debts and create new opportunities for private capital. With the new guideline highlighting the investment effectiveness and the role of the private sector, infrastructure construction will gain more traction, playing a bigger role in supporting the nation's economy amid headwinds," said Long Chaocan, an investment consultant with China Galaxy Securities Co Ltd.

The nation is ramping up efforts to boost its infrastructure, including major transportation projects on PPP basis.

In Taizhou, Zhejiang province, construction of the Wenling-Yuhuan High-speed Railway accelerated as the first box girder has been successfully installed by China Railway 24th Bureau Group Corp, a unit of China Railway Construction Corp.

A 733-ton box girder was lifted onto pillars of the Wenling West Station Railway Bridge, the State builder said, adding that construction will make faster progress.

Successful installation of the first box girder is a milestone in railway construction as it is a benchmark for following building references.

Construction of bridges and tunnels accounts for 84.8 percent of the total workload, making the railway "a tough and urgent project calling for tough and urgent efforts", said CR24.

With a total investment of some 7.6 billion yuan ($1.1 billion), the railway is Taizhou's first local railway project that links its last batch of counties with the HSR network, with a newly planned length of 37.8 kilometers.

The State contractor has also participated in the construction of the G104 national expressway, which is currently on a steady track as the building of an overpass part above the operating G15 Shenyang-Haikou expressway is progressing steadily.

CR24 said it recently completed building the substructure of the overpass above the Ningbo-Taizhou-Wenzhou part of the G15, which is a major vertical line in the national highway network.

The G104 national expressway will further boost links among counties in Wenzhou, Zhejiang province, and enhance its role as a key commodity trading hub in the coastal province, the builder said.