Determining Appropriate Government Guarantees for Concession Contract: Lessons Learned From 10 PPP Projects in China

Abstract

ABSTRACT. Governments worldwide are keen to encourage PPP schemes, however PPP is not a foolproof business. Many local governments and private investors have suffered severe or trying experiences. In this research, 10 case studies were conducted to identify the obstacles and difficulties for successful implementation of PPP projects from the perspective of government guarantees. These PPP projects include two water supply plants, two sewage treatment plants, two power supply plants, two highway projects, and two bridge projects. The findings obtained indicate that the local governments are familiar with "the type of guarantees" to provide to the private investor but they are unsure of the "amount" that should be given. Many PPP projects have therefore been heavily criticized for over benefiting the private investors as the government provides them with too many guarantees. The inappropriate guarantees offered by the government are regarded as one of the root causes of PPP projects' failure. The lessons learned are valuable for determining appropriate government guarantees for future PPP projects and broadening the opportunities for infrastructure development with PPP procurement model.

A Fuzzy Analytic Network Process Method for Risk Prioritization in Freeway PPP Projects: An Iranian Case Study

“…In recent years, an increased interest in developing countries regarding cooperation among public and private sectors to develop and operate infrastructure projects such as transportation, water, electrical power, telecommunications and sports facilities in particular has been observed (Heravi, Hajihosseini 2011;Li, Zou 2011;Tserng et al 2014;Xu et al 2014). Public-private partnership (PPP) projects are normally implemented to secure public projects through private investment (Xu et al 2010); yet, serious shortages of experience, a paucity of relevant studies and complex PPP agreements in developing countries can be noticed (Heravi, Hajihosseini 2011).…”

Identifying Critical Factors Influencing the Rents of Public Rental Housing Delivery by PPPs: The Case of Nanjing

“…Chileshe and Yirenkyi-Fianko [67] and Ke et al [68] also indicated that change of inflation rate could result in cost overrun so as to affect the financial viability of PPP projects. Furthermore, B1 (Governmental policy support) contributes greatly to the profits, which is the same with in other PPP projects [66]. Although B2 (Interest rate) does not receive high score in questionnaire survey, the result of SEM still highlights it as a sensitive factor for long-term operating a PPP project [53].…”

“…Usually, governmental fiscal supports for financing long term infrastructure projects would help reduce the rents of PRH [19,65]. The local governments may play the role of guarantees and provide subsidies in promoting PPP projects in making financing and securing budgets feasible for long term operation, which could bring economic benefits for private sectors to obtain reasonable profits [59,66]. On the other hand, change of inflation rate has been identified as a critical risk factor in PPP projects by many prior studies [67,68].…”

Factors Influencing the Private Involvement in Urban Rail Public-Private Partnership Projects in China

“…The influence could be seen in both allocating risks and defining risk allocation in the contract. Taking Beijiao Sewage Treatment Plant for instance (Xu, Yeung and Jiang, 2014), the government shared the operating revenue risk by guaranteeing a minimum amount of water supply, of 70% of the designed water amount. If the actual amount of water supply is lower than 70%, the government will pay the sewage treatment fee at 70% of the designed amount.…”

“…If the actual amount of water supply is lower than 70%, the government will pay the sewage treatment fee at 70% of the designed amount. However, the government incentives must be carefully evaluated, as inappropriate guarantees offered by the government are regarded as one of the root causes of PPP projects' failure in China (Xu, Yeung and Jiang, 2014).…”