Application of BOOT mode in PPP project

Abstract: BOOT is the project company or social capital party in the cooperation period to own the project property rights of the operating mode, has its own characteristics and advantages, eligible PPP projects can adopt this model, the use of this model needs to deal with the project land acquisition, transfer tax payment, government risk control and other issues.

Keywords: BOOT PPP mode

1. the concept of the BOOT pattern
 

BOOT is the abbreviation of Build-Own-Operate-Transfer, that is, build-own-operate-transfer, refers to the contractor investment and financing construction project, after the completion of the project, within the prescribed period of ownership and management, after the expiration of the project will be handed over to the contractor.

BOOT mode is a variant of BOT(Build-Operate-Transfer), which is different from BOT in that it adds Own (owned). However, there are also views that the BOT model itself has the connotation of "ownership". The private partner provides the funds required for the construction of the project according to the BOT contract, owns the project assets within the period specified in the contract, and recovers the investment by charging the user fees. The UNCITRAL Legislative Guide on Infrastructure PPP describes the BOT as "the operator finances, owns, constructs and commercializes it for a certain period of time, after which it is handed over to the public sector".

China's current implementation of the PPP model, it is generally believed that BOT itself does not have the meaning of "ownership. The "Explanation of Terms" attached to the "Notice of the Ministry of Finance on Promoting the Use of the Government and Social Capital Cooperation Model" (Caijin [2014] No. 113) defines BOT as "the social capital or project company undertakes the design, financing, construction, operation, maintenance and user service responsibilities of the new project, and the project assets and related rights are transferred to the government after the expiration of the contract", the BOO is expressed as "evolved from the BOT approach, the difference between the two is mainly the ownership of the project by social capital or the project company under the BOO approach". As can be seen from the above definitions of BOT and BOO by the Ministry of Finance, BOT does not have the connotation of "owning.

Therefore, we believe that according to our PPP policy, if the ownership of the project assets is owned by social capital or the project company, the specific mode of operation of the project should be BOOT, not BOT.
 

Features and advantages of the 2. BOOT model
 

The most significant feature of the BOOT model is that the project facilities are owned by the social capital or project company after the completion of the project, compared with the BOT model, under the same input conditions, the project operated by the BOOT model, for the social capital or project company, in addition to the operating value, but also increased the value of property rights. Based on the property rights (ownership) of the project facilities, social capital or the project company can mortgage the project facilities, providing more credit enhancement means for project financing.

PPP project pre-operation by the government to carry out the project's feasibility study, project, land approval and other work, after the project landed by the project company as the main body of the project construction, because the pre-construction procedures are in the name of the government, need to go through the change of construction procedures. According to the current project construction system, when the project company handles the project construction procedures, the project project, land use rights and other subjects need to be consistent with the project subject, in the case of the project land use rights are not in the name of the project company, in practice, it is faced with the obstacles of the change of project construction procedures. If the BOOT mode of operation is adopted, the property right of the project assets belongs to the project company or the social capital party, and the right to use the project land is required to be handled under the name of the social capital or the project company, thus maintaining the consistency of all kinds of subjects, and the project company will not face the above obstacles when handling the construction procedures.

Because the BOOT model increases the connotation of "ownership" compared with the BOT model, the project cooperation period using the BOOT model is generally longer than that of the BOT, and the project company can have the right to operate the project for a longer period of time, thus obtaining more operating income. In the case of government subsidies, the increase of the project's own operating income can correspondingly reduce the amount of government subsidies.

In the project funded by the government to the project company, if the BOOT model is adopted, in order to realize the ownership of the project company to the project assets, the project company needs to own the project land use right, which can be completed by the government to fund the land use right and handle the land use right to the project company. This operation, on the one hand, avoids the inconsistency between the land subject and the project construction subject caused by the use of a model that does not contain the characteristics of "ownership", on the other hand, it also increases the way of government funding, which can reduce the expenditure of government monetary funding to a certain extent. responsibility.
 

Application Status of 3. BOOT Mode
 

Different models represent different degrees of project privatization (owned by social capital or project company), and the model with "ownership" nature represents a higher degree of privatization, such as BOO (the abbreviation of Build-Own-Operate, that is, build-own-operate) represents a highest level of privatization, and the project property rights permanently belong to the project company or social capital; under the BOOT model, the property rights of the project facilities also belong to the project company or social capital party, but this property rights are limited, and the project (including property rights) needs to be handed over (transferred) to the government after the expiration of the cooperation period, which is less privatized than the BOO model. The BOT, TOT, MC and other models, the project property rights always belong to the government side, there is no privatization problem. The PPP model is mainly applicable to infrastructure and public services related to people's livelihood. Under the system based on public ownership, these areas are still accustomed to or tend to be non-privatized to ensure effective management and strong control. This factor has caused many projects to basically rule out the operation mode with privatization attributes such as BOO and BOOT in the initial design.

In addition, there is no definition and explanation of the BOOT model in the "Noun Explanation" attached to the "Notice of the Ministry of Finance on Promoting the Application of the Government and Social Capital Cooperation Model" (Caijin [2014] No. 113), and there is no BOOT in the PPP integrated information platform system "Operation Mode" option. In order to facilitate the filling of project-related information when entering the database, as well as consistent with the operation mode required by the financial [2014] No. 113 document, many projects in practice deliberately circumvent the BOOT model.

The above reasons have caused that although the BOOT model has its own characteristics and advantages, in the PPP projects implemented in China in recent years, the number of projects operated by the BOOT model is relatively small.
 

4. the applicability of the BOOT mode
 

BOOT is derived from the BOT deformation, has its own characteristics, practice should not exclude the application of this model. The BOOT model is entirely possible for projects that need to be handed over to the project company or social capital for the duration of the cooperation.

The National Development and Reform Commission's "Guiding Opinions on the Development of Government and Social Capital Cooperation" (Development and Reform Investment [2014] No. 2724) stipulates that "for projects that have a clear fee basis and operating fees can fully cover investment costs, the government can grant franchises The right to use construction-operation-transfer (BOT), construction-ownership-operation-transfer (BOOT) and other modes to promote. It is necessary to liberalize the construction and operation market of related projects in accordance with the law, and actively promote the gradual implementation of franchising in natural monopoly industries." From the document, it appears that the BOOT model is applicable to operational projects with operational content and sufficient project revenue.

5. PPP projects to use the BOOT model to pay attention to the problem.

(I) on the acquisition of land use rights for the project

Under the BOOT model, the acquisition of land use rights for the project includes allocation, transfer, valuation and transfer.

The allocation of land use rights should first comply with the provisions of the "Allocated Land Catalog", and the project land should be within the scope of the "Allocated Land Catalog. The "Regulations on Economical and Intensive Use of Land" (Order No. 61 of the Ministry of Land and Resources) stipulates that "the state expands the scope of paid use of state-owned land and reduces the allocation of non-public welfare land. In addition to military, indemnificatory housing and special land related to national security and public order that can be supplied by way of allocation, state organs' office and transportation, energy, water conservancy and other infrastructure (industries), urban infrastructure and commercial land for all kinds of social undertakings shall be used for a fee." China's land policy as a whole has gradually reduced the scope of allocated land and expanded the scope of paid use of state-owned land. The land use right of the project can be allocated to the project company if it meets the requirements of the relevant allocated land.

The right to use the land may be transferred by means of bidding, auction, listing or agreement. However, the PPP project uses the transfer method to solve the land use right, it is necessary to solve the conflict between the PPP project land user's determination procedure and the PPP project social capital procurement procedure, that is, how to ensure that in two different competitive procedures, the selected social capital party is at the same time the land bidding and listing procedure of the transaction party. Although the "Notice of the Ministry of Finance on Jointly Announcing the Third Batch of Government and Social Capital Cooperation Demonstration Projects to Accelerate the Construction of Demonstration Projects" (Caijin [2016] No. 91), the General Office of the Ministry of Land and Resources "Guidelines for the Implementation of Industrial Land Policy" (Land Resources Department Fa [2016] No. 38), the Ministry of Housing and Urban-Rural Development and other departments "on further encouraging and guiding private capital to enter urban water supply, gas, heating, sewage and garbage documents such as the Opinions on the Treatment of the Industry (No. 208 of the Construction [2016]) provide that the process of determining the project investor and the land user through competition can be combined and implemented, or to determine the project investment subject and land user in a merger and competition way, but in reality, the two procedures will be combined to implement very few projects, the specific operating procedures and methods need to be further explored and clarified. If the two procedures are operated separately, in order to avoid the negative impact of inconsistency between project investors and land users on the subsequent implementation of the project, the project company can be explicitly required to be responsible for obtaining the land use right through compliance. If the project company cannot use the project land as scheduled due to the acquisition of the project land use right by subjects other than the project company, the project company shall bear this risk and be responsible for solving the project land use problem through leasing and other means.

Caijin [2016] No. 91 stipulates that "if it does not conform to the catalogue of allocated land, the rest of the land shall be supplied by way of transfer or lease, except for the public rental housing and the land for the wholesale market of agricultural products, which is not for the purpose of profit and public welfare, which can be supplied by way of capital contribution, collect the income from the paid use of land in full and in time" The Ministry of Land and Resources issued No. 2016 No. 38 stipulates that "at this stage, only the government invests in the construction of agricultural products wholesale markets and public rental housing projects that are not for profit and have the nature of public welfare. New construction land can be used in the form of capital contribution (shareholding). The land shall be funded by the municipal or county people's government as the investor, and a plan for the capital contribution or shareholding shall be formulated and implemented after approval by the municipal or county people's government." The "Several Opinions of the General Office of the State Council on Fully Liberalizing the Elderly Care Service Market and Improving the Quality of Elderly Care Services" (Guo Ban Fa [2016] No. 91) stipulates that "for projects that adopt the government and social capital cooperation (PPP) method in the field of elderly care services, The right to use state-owned construction land can be used as capital contribution or equity construction." From the above documents, it can be seen that PPP projects in the fields of agricultural product wholesale markets, public rental housing, and elderly care services that are not for profit-making purposes, if they operate in the BOOT model, they can be funded through land pricing (equity). Solve the problem of project land.

In the case that the project land use right has been obtained by other subjects (in practice, the government platform company has obtained the land use right through the market), the land use right can also be transferred to the project company by transferring the land use right from the original land subject to the project company.

No matter which method is adopted to transfer the land use right to the project company, it may face the problem that the term of the project land use right is inconsistent with the term of the project cooperation. Especially in the case that the term of the land use right is longer than the term of the project cooperation, it is necessary to make it clear that the project company should hand over the unexpired land use right to the government free of charge along with the above-ground attachments when the project is handed, the project company and the social capital party shall not claim rights and interests from the government party.

Taxes and fees involved in the transfer of (II) projects

Because the project land use right is in the name of the project company, there is a possibility that the land will increase in value at the end of the project cooperation. Although the project company transfers the land use right to the government party for "free transfer", it shall pay land value-added tax, deed tax and other taxes and fees for the land value-added part according to the tax law. Therefore, in the design of the project, it is necessary to consider the treatment of taxes and fees arising from the transfer of the project, and to clarify the subject of payment and the actual subject of responsibility.

(III) government-related risk control

Under the BOOT model, the project company or social capital, as the owner of the project facility, has the right to dispose of the project assets or interests, and can actively dispose of the relevant interests. In order to avoid the risks caused by this situation to the government, it needs to be clearly stipulated in the project contract: except for the purpose of project financing, the project company shall not transfer, lease, mortgage, pledge or set up any security interest on the project facilities and income rights for other purposes; the longest term of mortgage and pledge arising from project financing shall not exceed a certain period before the expiration of the operation period; the establishment of security interests in the project facilities by the project company shall not prejudice the rights and interests of the government; any disposal of the project assets by the project company must obtain the written consent of the government.