Several stages of PPP project.

The main function of the project identification stage is to select projects suitable for PPP mode, including four steps: project establishment, project screening, value-for-money evaluation and financial affordability demonstration. The government is mainly responsible for the project identification, and its key issues include the following aspects:

First of all, make clear the subject responsible for project screening.

At present, there are two PPP lead institutions at the national level, namely the Ministry of Finance and the National Development and Reform Commission. In the implementation stage, it is necessary to clarify the main body responsible for project screening, which is the premise of successfully adopting PPP mode.

Secondly, define the project screening criteria.

According to the screening principle of the operation guide, "the investment scale is large and the demand is stable for a long time.

PPP mode is suitable for infrastructure and public service projects with flexible price adjustment mechanism and high degree of marketization. However, this principle is a qualitative description, and the screening criteria are not clear, so it is difficult to implement in practice.

Third, the PPP policy lacks operational rules.

At present, there are many policies from the state to the local governments, but they all lack operating rules. The Ministry of Finance's Detailed Rules for the Demonstration of Financial Sustainability of Government and Social Capital Cooperation Projects (Jin Cai [2015] No.21) has just been issued, but the detailed rules for value-for-money evaluation have not yet been issued. In this case, when doing PPP projects, all localities carry out value-for-money evaluation and financial affordability demonstration according to their own understanding, which will lead to confusion in evaluation and demonstration methods and leave room for human intervention in the demonstration results.

Fourth, how to define social capital?

"Social capital" is defined in the latest Guiding Opinions on Promoting the Cooperation between Government and Social Capital in the Field of Public Services issued by the General Office of the State Council (Guo Ban Fa [2015] No.42), pointing out that "the local government debts of those who establish a modern enterprise system and realize market-oriented operation have been included in the government budget, properly disposed of and clearly announced that they will no longer undertake the financing function of local government debts in the future. However, there is still no clear explanation for other holding state-owned enterprises.

Fifth, how to define the scope of public goods?

Public goods and services emphasize publicity first, and the government should limit the quality, quantity or price of services provided by social capital to a certain extent. However, some local governments apply PPP model to purely competitive projects such as commercial real estate and park development in order to promote projects quickly and increase their political achievements, which is inconsistent with the original intention of PPP model.

Project preparation stage

The project preparation stage is to prepare for the implementation of the project, including the project implementation plan, project implementation institutions, personnel, etc. The most important work is to prepare the project implementation plan. The preparation of the project implementation plan needs to pay attention to the following issues:

First, rationally allocate project risks.

The basic framework of risk allocation is to rationally allocate project risks between the government and social capital according to the principles of risk allocation optimization, risk-return equivalence and risk control, taking into account factors such as risk management ability, project return mechanism and market risk management ability. Commercial risks such as project design, construction, financing, operation and maintenance shall be borne by social capital in principle; Risks such as laws, policies and minimum demand are borne by the government; The risk of force majeure is reasonably borne by the government and social capital.

Second, choose the appropriate project operation mode.

The operation mode of PPP mode is that government and social capital are configured and combined according to all aspects of the project. The function division of project design, construction, financing, operation and maintenance is to investigate whether the government should do all aspects of the project or whether social capital is more appropriate and efficient. Different division methods will get different combinations, resulting in different PPP operation modes.

The operation guide issued by the Ministry of Finance lists six PPP project operation modes, such as entrustment-operation (OMC), management contract (MC), construction-operation-transfer (BOT), construction-ownership-operation (BOO), transfer-operation-transfer (TOT) and transformation-operation-transfer (ROT), but this is definitely based on the different stages of the project.

Choose which operation mode, according to the specific situation of the project, there will be different choices. At present, the main basis for choosing PPP operation mode in China is project financing, but when the economy develops to a certain stage, the main purpose of the government to launch PPP projects will no longer be financing, but the government will be responsible for financing, and social capital will only be responsible for design, construction, operation and maintenance. Because the government's credit is higher than that of enterprises, and correspondingly, the financing cost of the government is lower than that of enterprises, it is more worthwhile to adopt this model.

Therefore, project implementation agencies need to choose a reasonable project operation mode according to the level of economic development and project characteristics.

Third, choose the appropriate procurement method.

According to the requirements of the Ministry of Finance, PPP project procurement should abide by the government procurement law, and adopt public bidding, invitation bidding, competitive negotiation, single-source procurement, competitive negotiation and other procurement methods recognized by the government procurement supervision and management department. From the actual situation, public bidding is the most commonly used procurement method for PPP projects in various places, because it has the least political risk to the government.

However, public bidding is not always the most suitable procurement method for PPP projects. The open bidding procedure is complex and rigid, which not only takes a long time to pre-qualify, but also meets the requirements of "more than three bidders" in the traditional simple government procurement design. Open bidding is applicable to projects with clear and complete core boundary conditions and technical and economic parameters, which will not change during procurement. However, a large number of PPP projects have vague boundary conditions and complex procurement requirements, so simply applying the open bidding procedure will usually lead to project bidding failure and increase the failure rate of project procurement.

At present, competitive negotiation and competitive consultation are more suitable procurement methods for PPP projects. Through the negotiation between the government and potential investors, it can help the government to clarify the boundary conditions of the project, thus setting reasonable procurement conditions and improving the efficiency of project procurement.

Fourth, formulate a reasonable transaction structure.

The transaction structure of PPP projects is mainly determined by four factors, namely, project participants, project investment and financing structure, return mechanism and related supporting arrangements. Project participants refer to all participants in the project, including authorized government level, project implementation agencies, regulatory agencies, investment institutions, etc. ; Project investment and financing structure refers to the source, nature and use of project capital expenditure, the formation and transfer of project assets, etc. The return mechanism mainly includes three ways: user payment, feasibility gap subsidy and government payment; Relevant supporting arrangements refer to supporting facilities such as land, water, electricity and gas provided by relevant institutions outside the project and upstream and downstream services required by the project.

The government or its entrusted consulting institutions need to comprehensively consider these four factors to formulate reasonable trading institutions.

Fifth, design a reasonable return mechanism.

There are three main return mechanisms for PPP projects. The first is that the user pays, and the purchase fee is paid by the purchase service provider. Expressway, water supply companies, parking lots and other business projects are more suitable to adopt the user payment model. The second is the feasibility gap subsidy. Users' fees are not enough to meet the cost recovery and reasonable return of social capital or project company, but the government gives social capital or project company economic subsidies in the form of financial subsidies, equity investment, preferential loans and other preferential policies. For example, the PPP project of rail transit is a typical project that uses feasibility gap subsidies. The third mode is paid directly by the government, which is divided into the following three situations: first, availability payment, for example, social capital provides the government with a road that meets the prevailing standards, and the government pays for the availability of the road; The second is to pay according to the amount of use, such as free parks, and the government can pay according to the amount of admission; The third is performance-based payment. For example, social capital provides primary medical services for the government, and the government sets relevant indicators to pay according to the performance of services.

In addition, the price adjustment mechanism should also be considered when designing the return mechanism, such as the PPP project of rail transit. Usually, the main factors that determine the fare of rail transit are power cost, labor cost and other expenses. By setting the price adjustment mechanism, when these fees change, the fares will be adjusted accordingly.

Project procurement stage

There are three key issues in the project procurement stage, namely, adequate market testing, setting reasonable pre-qualification conditions and core boundary conditions.

First, adequate market testing.

Market testing is a tool used by the government to test whether the project scheme can attract the will of potential investors and financing institutions and other market participants before starting the PPP procurement procedure, so as to obtain feedback from various market participants and adjust and improve the PPP scheme. Market testing is the process of finding the best project implementation plan, not the process of finding the best counterparty, nor the process of substantive negotiation. At present, the enthusiasm of investors to participate in market testing is not particularly high. However, market testing is very critical to the operation of PPP projects, and many projects have failed because of this.

Second, set reasonable pre-qualification conditions.

Pre-qualification is mainly to realize the function of market test and verify whether the project is attractive enough to achieve full competition. Pre-qualification conditions are mainly objective conditions in terms of qualification, project experience and finance. Conditions should not only meet the basic needs of the project and the special requirements of the implementing agencies, but also consider the actual situation of potential investors. Excessive pre-qualification requirements may lead to insufficient social capital that meets the requirements and cannot achieve full competition; The requirements are too low, and it may be difficult to meet the project requirements.

Before setting pre-qualification conditions, it is necessary to fully understand the relevant indicators of social capital in the industry where the project is located, and understand the basic qualifications and experience requirements required by the project.

Third, set reasonable boundary conditions.

The procurement boundary conditions of the project mainly include project operation mode, project cooperation years, return mechanism, transaction structure, risk sharing mechanism and so on. When setting the boundary conditions, the government should fully consider the interests of social capital and leave a reasonable profit space for it, so as to better ensure the smooth landing of the project. In the implementation of the project, there are still some conditions that can be flexibly adjusted.

In practice, some local governments are always worried that social capital will "take advantage" and set harsh conditions for the entry of social capital, such as setting the price limit too low or not setting a price adjustment mechanism. These boundary conditions greatly weaken the attractiveness of the project, and also give social capital an impression that local governments are difficult to cooperate, which is likely to lead to the failure of project bidding.

Project implementation stage

Project execution is the key to the successful operation of PPP projects, because it may take only a few months to complete a PPP project from project identification, project preparation to project procurement, while the implementation stage of PPP projects usually takes 20 to 30 years, which is the key stage of PPP project implementation and efficiency. Project execution mainly focuses on the establishment of the project company, financing management, performance monitoring and payment. In the project implementation stage, it is necessary to formulate a regular evaluation mechanism. According to the operating guidelines, a mid-term evaluation is required every 3 to 5 years. Problems needing attention in the project implementation stage mainly include two aspects:

First, good performance management ability.

Good performance management ability mainly includes two aspects. On the one hand, it means that the government has the awareness and ability to supervise the performance of the project company, because most PPP projects provide public products. In order to protect public interests, the government needs to conduct daily supervision on the quantity, quality and price of the products provided; On the other hand, it refers to the government's own awareness and ability to perform the contract, and its core is the government's ability to pay.

Second, design a reasonable performance appraisal mechanism.

An important way for PPP projects to achieve value for money is to pay for the services of the project company according to performance, but at present, the relationship between payment and performance evaluation of most projects is not good enough. In order to realize the performance payment mechanism, the government needs to establish the performance evaluation index of the project company's operation, and determine the amount paid by the government through the annual evaluation results of the project operation performance.

Project handover stage

The main work in the project handover stage includes handover preparation, performance testing, asset delivery and performance evaluation, among which performance testing is the most critical link.

The project implementation agency or other agencies designated by the government shall set up a project handover working group to confirm the handover situation and compensation method according to the agreement, and make an asset evaluation and performance test plan. The project handover working group shall conduct performance tests on the transferred assets in strict accordance with the performance test scheme and handover standards. If the performance test results are not up to standard, the handover working group shall require social capital or project company to carry out restorative repair, update and reset or cancel the handover maintenance guarantee.

How to ensure that the facilities for social capital transfer are intact and what standards the transferred facilities should meet need to be described in detail and accurately in the contract, but at present, many PPP projects have relatively rough agreements on these issues.