Viewpoint... Interpretation of the core revision of the new "Infrastructure and Public Utilities Franchise Management Measures".

The new Administrative Measures and the Administrative Measures for Franchising of Infrastructure and Public Utilities issued in 2015 (National Development and Reform Commission, Ministry of Finance, Ministry of Housing and Urban-Rural Development, Ministry of Transport, Ministry of Water Resources, People's Bank of China No. 25, hereinafter referred to as "Order No. 25"), the "Infrastructure and Public Utilities Franchise Management Measures (Revised Draft for Comment)" issued in 2023 (hereinafter referred to as the "Draft for Comment") are compared, and the six core contents are summarized. The specific interpretation is as follows:

Article 3 of the Administrative Measures stipulates that the term "infrastructure and public utility franchise" as mentioned in these Measures refers to the government's use of open competition to select legal persons or other organizations the People's Republic of China at home and abroad as franchisees in accordance with the law, and to clarify rights, obligations and risks through agreements Share, agree that it will invest in the construction and operation of infrastructure and public utilities within a certain period and scope and obtain benefits, and provide public products or public services. Commercial franchising and public construction private, public private, etc. that do not involve the transfer of property rights do not belong to the infrastructure and public utility franchising referred to in these Measures.

Article 4 of the "Administrative Measures" stipulates: "Infrastructure and public utility franchising is a user-paid government and social capital cooperation (PPP) model. The government cooperates with social capital on project investment, construction and operation, and no new administrative license is established."

Based on the analysis of the above provisions, the new Management Measures clarify the relationship between infrastructure and utility franchising and government and social capital cooperation (PPP), I .e. infrastructure and utility franchising is based onUser-paid PPP model;Further emphasis was placed on infrastructure and utility concession projects.The exclusive rights of the operator, the public welfare nature of the project output, and the non-establishment of a new administrative license, the addition of an administrative license without authorization and the charging of fees to the franchisee.clarify the franchise scope of infrastructure and public utilities, excluding commercial franchising and public construction and private, public-run and private-run which do not involve the transfer of property rights. the so-called public construction and private-run and public-run and private-run are also the ppp mode of cooperation between the government and social private-run enterprises, however, because the government has transferred the operation rights of infrastructure and public utilities newly built or constructed by private enterprises but not put into operation to private enterprises through contracting, entrustment and joint operation, and does not involve the transfer of property rights, this type of project is not included in the scope of franchise in this management method.

According to the "Commercial Franchise Regulations", "Commercial Franchise" refers to "an enterprise (hereinafter referred to as the franchisor) that owns business resources such as registered trademarks, corporate logos, patents, proprietary technologies, etc., which licenses its business resources to other operators (hereinafter referred to as the franchisee) in the form of contracts, and the franchisee operates under a unified business model in accordance with the contract, and to the franchisor to pay franchise fees for business activities." The franchisor in commercial franchising can only be an enterprise, and the government may not engage in commercial franchising activities. The government, as a participant in the activity, mainly relies on infrastructure and public utility construction and operation projects. Its essence is to provide public goods and public services in the form of project financing, which has obvious public welfare attributes.

Item (III) of Article 7 of the "Administrative Measures" clearly stipulates: "Within a certain period of time, the government will transfer the completed infrastructure and public utility projects to the franchisee for operation, and transfer them to the government at the expiration of the period; it is forbidden to directly transfer the project after the completion of the construction project. Hand over to the government or evade operational obligations in disguise by terminating the agreement in advance." From this, it can be seen that the implementation mode of the franchise project, that is, the franchise project can reasonably adopt BOT (construction-operation-transfer), BOOT (construction-ownership-operation-transfer) and other operation modes with "operation expiration transfer" as the core according to the actual situation of the project, and require that the ownership of assets during the construction and operation period be clearly stipulated in the contract, and the relationship between rights, responsibilities and interests of all parties be clearly defined. The above-mentioned implementation makes it clear that franchising should focus on user-paid items, and further clarifies that user-paid includes direct charges from users by franchisees, as well as charges from users on behalf of the government or its legally authorized agencies.

At the same time, it is clearly stipulated that it is forbidden to directly hand over the project to the government after the completion of the construction project, or to evade the operation obligation or advance the construction by means of early termination of the agreement.

Article 9 of the Administrative Measures clearly stipulates that the development and reform department of the State Council shall take the lead in promoting the franchise model of infrastructure and public utilities and strengthen policy guidance; local development and reform departments at all levels shall play a comprehensive and coordinated role, strictly control the field, scope and plan of project implementation, and perform the duties of project approval, approval or filing in accordance with laws and regulations, Promote the implementation of the project;

The relevant industry authorities of the State Council shall, in accordance with the requirements of the State Council on standardizing the implementation of the new mechanism for cooperation between the government and social capital, perform industry management functions in accordance with their respective duties; matters involving infrastructure and public utility franchise policies shall be sent to the development and reform department of the State Council for full consultation and consistency with the macro policy orientation after evaluation and demonstration, and shall not be published and implemented. Local departments of natural resources, ecological environment, housing and urban-rural construction, transportation, water conservancy, energy, finance, safety supervision and other relevant departments at all levels shall, in accordance with the authorization of the government and their respective duties, carry out the work related to franchise projects in accordance with the law.

The revenues and expenditures incurred by the government and its working departments in connection with the franchise project shall comply with the relevant budgetary laws, administrative regulations and relevant state provisions. Financial departments at all levels strictly implement the budget management system, strengthen local government debt management in accordance with the law, increase financial supervision, and strictly enforce financial discipline.

In summary, the new "Management Measures" clarified that the lead department of the new mechanism of cooperation between the government and social capital is the development and reform departments at all levels.

(1) Before the implementation of the franchise project, the implementing agency shall prepare the franchise plan, and in accordance with the approval authority and requirements of the government investment project, report to the investment department or other relevant departments for review, reasonably control the content and scale of the project construction, and clarify the project output plan. The franchise plan shall include the feasibility study of the project and the feasibility study of the franchise, and shall clarify the key contents of the feasibility study of the franchise.

(2) To standardize the question of what kind of fixed asset investment review and preparation procedures should be performed for franchise projects in practice, the new Administrative Measures specify that franchise projects invested by the government by means of capital injection shall be subject to the relevant provisions of the Government Investment Regulations. Franchise projects invested by enterprises shall, in accordance with the relevant provisions of the Regulations on the Administration of Approval and Filing of Enterprise Investment Projects, go through the approval or filing procedures, and the franchise projects invested by enterprises shall go through the relevant filing procedures outside the list of government investment projects.

(3) Clear emergency handling. If the franchisee is unable to continue to perform the obligations stipulated in the agreement due to serious breach of contract or force majeure by one party to the franchise agreement, or the situation of early termination of the agreement as stipulated in the franchise agreement occurs, the agreement may be terminated in advance after consultation with the creditors, and the disposal plan for government default and franchisee default is stipulated respectively. The "Administrative Measures" also stipulates that before the transfer of the project, the franchisee shall cooperate with the government to maintain the continuity and stability of relevant public services and public products. In addition, the franchisee shall not evade its operational obligations in disguise on the grounds of early termination of the agreement.

Article 22 of the new Administrative Measures stipulates: "The franchise agreement, in accordance with relevant laws, administrative regulations and national regulations, stipulates that the franchisee shall obtain income by charging users and obtaining other development and management interests related to the franchise project. The government shall take the initiative to disclose the details of income and expenditure to ensure that the special funds are earmarked and paid regularly in accordance with the franchise agreement. The government can, on the premise of strictly preventing the addition of hidden debts of local governments and complying with the requirements of laws, regulations and relevant policies, and in accordance with the principle of equal treatment, give government investment support to user-paid projects during the project construction period; government payments can only subsidize operations according to regulations, not construction costs. In addition, financial funds may not be used to cover project construction investment and operating costs through any means such as feasibility gap subsidies, promised guaranteed rates of return, and availability payments. The use of special bonds as project capital shall be carried out in accordance with the provisions of the State on the management of capital funds and the relevant provisions on special bonds."

Based on the above provisions, future government expenditures in franchise projects will only be presented in two forms: one is capital injection to compensate for construction costs, such projects need to be implemented in accordance with the relevant provisions of the Government Investment Regulations, and the other is Pay subsidies for operating costs.

In view of the specific method of "subsidized operation" in Article 22, the "Administrative Measures" does not mention it. In the current regulations, for municipal public utilities such as sewage treatment and garbage treatment, if the user's payment is not enough to make up for the operating costs, subsidies can be given, but there is no clear stipulation on how to implement the current legal provisions. Based on the relevant provisions of Document 115 and the "Administrative Measures, the implementation of the franchise model should prevent the new local government hidden debt, so the follow-up has yet to be the relevant departments on how to land operating subsidies to clarify, to avoid new local government hidden debt while protecting the legitimate rights and interests of franchisees, so as to promote the healthy development of the franchise model, really stimulate the vitality of private investment.

The maximum franchise period stipulated in Article 8 of the new "Administrative Measures" shall not exceed 40 years in principle (the maximum franchise period stipulated in Order No. 25 shall not exceed 30 years), and the franchise with large investment scale and long return period The project can be appropriately extended according to the actual situation.

According to the new provisions of Article 21 of the administrative measures, the selected franchisees and their investment, financing and construction responsibilities shall not be adjusted. If it is necessary to adjust, it is necessary to re-perform the franchisee selection process.

According to the analysis of the new provisions, it can be seen that the selected franchisee and its investment, financing and construction responsibilities shall not be adjusted. If it is necessary to adjust, the selection procedure of the franchisee shall be re-performed. For projects that have completed the examination and approval, approval or filing procedures, such as changing the construction site, adjusting the main construction contents, adjusting the construction standards and other major circumstances, the examination and approval, approval and filing procedures shall be re-performed. However, if the franchise project involves substantial changes in the operating entity, equity transfer and other major matters, it shall promptly notify the relevant industry authorities in writing. This means that if the main body of the project operation changes, there is no need to re-perform the franchisee selection procedure, but it should be reported to the higher industry authorities, thus broadening the possibility of the franchisee's withdrawal during the operation period.

Article 51 of the original Decree No. 25 only specifies that if the specific administrative act made by the administrative organ infringes upon the legitimate rights of the franchisee, administrative reconsideration or administrative litigation may be brought.

Article 54 of the new "Administrative Measures" stipulates that franchisees who believe that the administrative agency fails to conclude, perform in accordance with the law, fail to perform in accordance with the agreement, or illegally modify or terminate the franchise agreement shall have the right to state and defend, and may apply in accordance with the law. Administrative reconsideration or administrative litigation; civil and commercial disputes arising from the rights and obligations agreed upon in the franchise project may be applied for arbitration or civil litigation in accordance with the law.