Innovate Model, Strengthen Guarantee

Improve Standardization -Development of Cooperation Between

Government and Social Capital for Guizhou Province Expressway

Guizhou Provincial Transportation Department

Aug.2018

Innovation and Practice of PPP model of Guizhou

Expressway 2

Key Methods to Execute PPP model 3

Key Points to Guizhou Expressway PPP model 4

Inspiration from Practicing PPP model 5

Basic Information about Guizhou Transport 1 Content

1.

Basic Information about

Guizhou Transport

Guizhou covers an area of 176,000 square

kilometers, includes 88 counties (city, district,

and special district. The province had a per

manent population of 35.8 million(37.8%

of minority nationalities).

Basic Information about Guizhou Transport

By the

end of

2017

Railway

Highway

Airline

Water

Transport

3550km railway operated in Guizhou. (1214 km of

high-speed railway)

Total mileage is 194400km and road network

density is 110.45 km per hundred square

kilometer.

Expansion project of Longdongbao International

Airport Phase two is available. “One Hub and 16

Branches” civil transport airport layout is being

formed. The international routes of Guiyang aviation

port and Zunyi temporary port has been increased to

23.

Entire course of Wujiang is navigable with

the total length of 3,664 kilometers inland

waterway.

Basic Information about Guizhou Transport

2.

Innovation and Practice of PPP model of

Guizhou Expressway

Completed and available in 2011

Representative Project-2007 year

BOT+EPC

Invested by China Communication

Construction Company

Guiyang-Duyun Expressway

(80km，7.5 billion RMB)

Innovation and Practice of PPP model

New sample of “Guizhou PPP model” that can be duplicated, referred and

popularized

China Communication Construction Company

China Railway Group Limited

China Railway Construction Corporation Limited

China State Construction Company

China Metallurgical Group Corporation

Sichuan Road & Bridge(group) Co.,ltd

Cooperation model

Cooperation model

BOT+EPC

Equity+EPC+ Subsidy during

operation phase

BOT+EPC+

Gov.Subsidy

TOT

BOT Projec

t

Funded by

investors

Operated by

investors

Self-sustaining

By adopting an integrated public bidding method, design,

construction, procurement and investors will be tendered

together. Clarify the rights and obligations of investors in the

construction, operation and transfer of a certain period of time

by signing concession agreement.

(1)“BOT+EPC”model

Innovation and Practice of PPP model

Advantages

1. Integrated public bidding method is in line with the principle of

streamlining the project's preliminary work;

2. Conducive to the SPV to control project cost through whole process. On

the premise of meeting the safety and function requirement, the SPV

optimizes the design and construction scheme to maximize the economic

and durability of the project, and also saves the social cost;

3. Besides the charge income during the operation period, the investment

profit will also include obtaining the whole industry profits such as design,

construction and equipment, etc., achieving the maximization of the

investment return;

4. Reduce government obligation.

(2) Advantage of “BOT+EPC+Gov. Subsidy”model

Gov. Subsidy

allowance rate is decided by competitive

tender

not used as

project capital

increase investors’ confidence,

make up for the insufficient project

revenue, enhance the ability to

resist risks

1. There are 14 projects (921km in total) that

received government subsidy. The proportion of

the subsidies is about 15% of the total

investment, the total amount is 20.9 billion

RMB. It not only realized the magnifying effect

of government investment in 1:5, and also has

directly reduced the government debt by 83.3

billion RMB, giving full play to the guidance

and leverage of financial funds.

2. Effectively improve the economic benefits of

the project, enhance the ability to resist risks,

make some projects with relatively poor returns

competitive, and attract social capital to

participate in project construction.

Innovation and Practice of PPP model

（3）“Equity+BOT+EPC”model

Responsible for project financing, construction,

operation, transfer and other issues, the two

sides enjoy the corresponding rights and

interests in accordance with the proportions of

their capital contribution.

Based on the project rate of return

determined by bidding, the government

gives a certain subsidy when the project

operating income cannot reach the

expected project return. However, the

abnormal return belongs to the

government.

Innovation and Practice of PPP model

Advantages

1. Change from “supplementary construction” to

“supplementary operation”. In principle, considering the

subsidy period within 10 years after the completion of the

project, it reduces the pressure of centralized financing of

government subsidy funds and smoothes the financial

expenditure, which is beneficial to the implementation of

local government financing, but also reducing the initial

loss of the project.

2. It reflects the partnership between the government and

enterprises in terms of risk sharing and profit sharing. For

the enterprise, “guaranteed, no windfall profit”, the

enterprise can no longer obtain windfall profit, while

guaranteeing to compensate relevant loss in the early days

of expressway operation by the government subsidies,

enhance the confidence of enterprises in investment.

Abnormal return part is returned to the government, which

fully reflects the fairness.

（4）”TOT”model

Transfer franchise right

of the existing projects

within a certain period to

obtain transfer funds to

recover projects

investment or to build

new infrastructure

projects Transfer franchise right of stock project,

government could return funds and reinvest in

new highway projects. This model improves the

funds utilization efficiency, thus relieves

government expenditure and obligation pressure,

as well as eases fund shortage of expressway

project.

Innovation and Practice of PPP model

3.

Key Methods to Execute PPP model

Key Methods

Key Methods to Execute PPP model

Government paid high

attention and assure

funds are in place.

Adhere to planning,

assure scientific

development

Enhancing

collaboration between

departments, assure

project legality.

Complete institutional

systems and

standardize project

process

4.

Key Points to Guizhou Expressway PPP model

Procurement Procedure

Risk Sharing

Risk Category Risk Factor Undertake by Government Undertake by Social Capital

Construction Risk

Design Risk Ö Ö

Project Delay Ö Ö

Construction Quality Risk Ö

Construction Cost Increase

Risk Ö Ö

Financing Risk Ö

Risk Of Land Acquisition

And Demolition Cost Ö Ö

Operational Risk

Project Competitive Risk Ö

Operating Income

(Minimum Demand) Risk Ö Ö

Risk of Operating Cost

Overrun Ö

Other Risks Legal and Policy Risks Ö

Force Majeure Risk Ö Ö

Financing Arrangements

By means of project financing, the SPV, as the main body of financing, raises funds

according to law through various channels, such as pledge loan of project charge right.

Financiers usually are financial institutions such as commercial banks and fund

companies. In the total investment of expressway projects in Guizhou Province, project

capital accounts for 25% of the total investment and project financing accounts for 75%.

For some PPP projects, increase the warranty obligation on social capital. If the SPV

is unable to obtain other construction funds of the project in full within the prescribed

time limit, social capital has the obligation to raise the corresponding construction funds

as a guarantor.

Payment System

BOT+EPC

Government payment

User charges Viability gap funding

BOT+EPC+Gov.subsidy

Equity+BOT+EPC

Guizhou Guizhou Guizhou

Lifecycle Management

Lifecycle Management

Construction and operation are equally

important

Establish performance

assessment system

Set up management objectives and

punishment system

5.

Inspiration from Practicing PPP model

Inspiration from Practicing

1. The application of PPP model is the concrete embodiment of Guizhou spirit.

The spirit of guizhou, summarized by general secretary Xi as "unity and endeavor, innovation

and hard work, and catch-up of late development", has been embodied in the development of

Guizhou transportation. Guizhou insists on putting “ priority on traffic development” and “traffic

leading economy” in the strategic position. Guizhou studies the stage-type characteristics and the

demand for traffic of economic and social development combined with its actual situation, and

puts forward what it is necessary to take the road of “development by means of strength”. We

need to choose a new model which is suitable for our actual situation and beneficial to win-win

development so as to achieve the goal of "government seeks for development and enterprise

seeks for profit". Finally, achieved that surpass other provinces in respect of traffic area.

实践启示

County to

County

Expressway

1 Original plan: completed in 2018

1 Actual：achieved target

in 2015

2 Requires 40.8 billion

RMB

2 By PPP model, funded 22.4

billion RMB

Inspiration from Practicing

2. An effective way to widen investment and financing channel.

Eg: Shorten construction period

Conducive to the

integration of

advantageous

resources

Conducive to

managing all the

steps

Conducive to

control project

cost

（1）Shorten the construction

period by 30%；

（2）PPP model：Yachihe Bridge

of Guiyang-Qianxi Expressway

spent 33 months；

Traditional model：Beipanjiang of

Hangzhou-Ruihai Expressway spent

48 months,

3. An effective way to reduce

expenses and enhance benefits

Inspiration from Practicing

Thanks！