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The views expressed in this paper/presentation are the views of the author and do not necessarily reflect the views or policies of the Asian Development Bank (ADB), or its Board of Governors, or the governments they represent. ADB does not guarantee the accuracy of the data included in this paper and accepts no responsibility for any consequence of their use. Terminology used may not necessarily be consistent with ADB official terms.



PPP Practice and Exploration in Nanjing ,PRC Water

Environment Projects

Wang Xuehai Cai Long Yechen Nanjing, P.R.China

May 08,2009

Nanjing Construction Commission

Nanjing Urban Construction And Investment Holding Group Co.Ltd



Table of Contents

1.

Background2. The main type of Public- private finance partnerships in

China’s urban public project

3. Example analyses: PPP application in Nanjing water

improvement projects

4. Outlook & challenge of PPP in China



• In China the urbanization wave is increasing by 1%,in someeconomy fast developing provinces by 2%.The fast urbanizationleads that in most Chinese large cities there is a suchcontradiction,e.g.urban residents ever-increasing publicinfrastructure products demands & service and respectivelydelayed public finance supply contradiction.

• Municipal government usually use its managed public agenciesto implement public projects in order to supply more publicinfrastructure products & service to meet urban residents ever-increasing demands.

1. Background



• Urban public infrastructure product features:

(a) publicity ( to supply no-difference service to whole city(b) welfare ( no economic profit directly from the service )

• Due to the above two properties, urban public infrastructureproduct usually supplied by the public agencies of the municipalgovernment.



• In the past, China’s urban public infrastructure product

resource mainly depends on all level government finance,the balance was borrowed by corporations undergovernment from banks. Because the currant China laws

does not support local government having debts. For thesustainable development, PPP has been adaptedextensively, esp. large cities.



2.1 PPP classic structure

Public Private AgencyJoint project

investestablish

policy support operation management

2. The main type of Public- private finance partnerships in China’s urbanpublic project



• In China , public-private finance partnerships includes:O&M , protocol management, lease purchase , BOO/BOT,

Franchise, Non-public agency owning ,etc.



• BOT

Build-operation-transfer. Government & public agencyissue a franchise to a private agency, allowing the privateagency as project investor & operator to arrange

finance,bear risk,construct project ,and get commercialprofit from operating the project within a certain time. Atlast,the private agency will transfer the project togovernment according to the protocol.

The extension of BOT : BOO, BT

2.2 Main types



• TOT

TOT, transfer-operation-transfer . Government wouldtransfer the completed urban public infrastructure facility

to private agency with a price. The private agency willhave the special franchise ,and will transfer to governmentwithout charging on maturity.



• Consignment finance

Consignee –entrust company accepts consigner’s

consignment,& use consigner’s deposit or the

particles to offer loan according to the indicated

borrower,time duration,interest,& amount.The

entrust company will be responsible to recover the

capital and interest of the loan on maturity.



• Stock financeBy setting up public project operation company ,it will sell

its part stock to private agency or person to realize the two

objectives of importing capital and transferring operation

mechanism .



• ABSAsset-Backed Securitization is collecting those assets lack

of flowing ,but having future currency flow such as

various income ,to regroup structurally, transfer them into

security which can be sold & flowed in the capital

market,to finance the capital.



• Bond Finance

Government or public agency issue creditor /liabilityvouchers in capital market,and promise to pay the certain

interest in period,& recover the capital on maturity. It is afinance method.



• Personal consignment loan

Persons supply capital to public agency implementing publicinfrastructure facility in the form of loan, and obtain the

investment profit. The bank will fix the payee ,usage, amount,duration and pay, monitor and recoup the loan. For the personalloan ,bank only bear the responsibility of consignment, will not

carry loan risk.



• Personal guarantee loan

Many personal investors using their deposits to providebank loan guarantee for the public agency implementingpublic project.The loan borrower will pay a certain amountof guarantee fees to the personal investors.



3.1 Background of the project

• Since 1980, with rapid economic development in Nanjing,the process of urbanization has been accelerated .However,the urban water environmental deterioration becomes moreand more.

3. Example analyses: PPP application in Nanjing water improvement projects



• In order to improve inhabited environment and guaranteesustainable development of urban economy, Nanjing municipalgovernment decided to carry out overall urban water

environmental improvement from 2003 with total investment8266 million RMB.The main parts are urban river environmentalimprovement and construction of wastewater treatment facilities.




• Each year, 350 million RMB financial capital can be provided byNanjing municipal government on water environmentalimprovement . Fac ing the huge inves tment , f inance

scenario diversity leading by PPP is adopted.




3.2 Finance Strategy

• The urban river environmental improvement project, with totalinvestment of 5650 million RMB,is financed through ADB loan,China National Development Bank loan, personal consignment loan,personal guarantee loan and bond issuing

• The wastewater treatment facilities project, with 2610 millionRMB total investment, is financed by ABS finance, bond finance,BOT/TOT finance and so on.



No project Total 03—05 06—08

1 Government capital 250000 75000 175000(1) Financial Capital 150000 75000 75000(2) Land Benefit 100000 1000002 Financial Organization Loan 193600 10000 80000

(1) ADB 80000 80000(2) CDB 113600 1136003 Private Organization Investment 383000 33000 350000

(1) Personal Consignment Loan 30000 30000(2) Personal Guarantee Loan 3000 3000(3) ABS Finance 80000 80000(4) Bond Finance 200000 200000(5) TOT/BOT Finance 70000 70000Total 826600

3.3 Finance planFinance Plan Table of Urban Water Environmental Improvement Unit:10000 RMB



•ADB Loan and NDB Loan

Leading by “ Water for Asian Cities project” which is initiated byUN-Habitat and ADB, Nanjing applies for 100 million USD publicloan successfully.

At the same time, paying attention to leading function of NDBpolicy, Nanjing gains 1000 million yuan loan from NDB

Finance above has good leading function for the entry of privatecapital into Nanjing urban water environmental improvement.



•Personal Consignment Loan

In December2002,NCIC together with Minsheng Bank issued the firstpersonal entrust loan for Qinhuai River improvement project with

total sum 300 million, 4% annual rate and time limit 5 years.Compared to bank loan, about 30 million RMB financial expense issaved. This case was judged as one of the most important ten financial

events that year.



•Personal Guarantee Loan

In September 2005,in order to solve current capital problem of Qinhuai River improvement project, NCIC together with ChinaMinsheng Bank issued Qinhuai River personal guarantee loan.30

million finance and 4.5% annual benefit rate of private investor,which was much higher than deposit interest rate was gained.Through operation of bank money discount and so on, NCIC

controls finance cost within 4.5%.



•ABS Finance

In November 2005, taking wastewater treatment fee as benefitguarantee, NCIC applied to China Security Regulatory Commissionfor “Nanjing Water ABS Finance Plan”.The total sum is 800 million

RMB and the finance cost is less than 5%.Compared to bank loan,it isestimated that 30 million RMB will be saved.This project has pastassessment of CSRC recently and becomes the first urban water ABS

finance project in China.



•Stock Ownership FinanceNext step, NCIC will consider the share of international well-

known private water corporation into Nanjing water sector to

reduce operation cost of wastewater treatment facilities and

improve management level.



Old stone town

New stone town



East Changgan Lanebefore Innovation

East Changgan Lane afterInnovation



Old stone town Before innovation

New stone town

Stone town park Stone town park after

innovation



Outlet to Yangtse River

Before innovation

Outlet to Yangtse River after innovation



• Urban public infrastructure project can provide broad investmentpassage for private capital and raise investment benefit of nongovernmental capital

• Participation of financial organization in policy has powerfulleading function to attract private capital into public project

4.1 Experience on PPP



• Various comprehensive utilization of finance method, especially

direct investment from private capital, has greatly reduced financialcost of projects.• The entry of private capital is beneficial to raise operation efficiency

of public project.

• Through the entry of private capital, local government can get spacewith time to accelerate the improvement of urban environment andenhance economic development.

• UN Habitat and other international monetary institutions support toenvironment projects,which is a guide for the private capital.

• ADB and other monetary institutions long term loan support canenhance the confidence of commercial banks to invest.

4.1 Experience on PPP



• Basic character of public project is the public benefit. However,according to the market exchange principle “who benefits, whorecoups”, recouping mechanism of the project should be set upto attract investment of private capital;• Necessary policy supporting and project benefit mechanism is theguarantee of the entry of private capital into public projects;

4.2 Outlook & challenge of PPP in China



• “Open, impartial and fair” selection mechanism should be adoptedto guarantee “win-win” between government and private organization.• Legal regulation should be further optimized and service supervisionshould be further strengthened in PPP of China urban public projects.

• In the continuously extensive wave of urbanization, more financemethod of PPP with higher efficiency will emerge and investment of private capital has a bright prospect in China.

4.3 Outlook & challenge of PPP in China

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