I. Legal change risk
Mainly refers to the risk that the adoption, promulgation, revision, re-interpretation of laws or regulations lead to changes in the legality of the project, the market demand, the product/service charges, the validity of the contractual agreement and other elements, which will bring damages to the normal construction and operation of the project, and even directly lead to the suspension and failure of the project. PPP project involves more laws and regulations, coupled with China's PPP project is still in its infancy, the corresponding laws and regulations are not sound enough, it is easy to appear in this risk. For example, a sewage treatment plant in Jiangsu using BOT financing mode, originally planned to start in 2002, but due to the September 2002 "General Office of the State Council on the proper handling of existing guarantees for foreign investment in fixed-return projects related to the promulgation of the Notice", the project company was forced to renegotiate with the government on the rate of return on investment. The same problem was encountered in Shanghai with the Daba Water Plant and the East Yan'an Road Tunnel, both of which were bought back by the government.
The risk of delayed approval
This is mainly due to the fact that the approval process is too complicated, time consuming and costly, and after approval, it is very difficult to make the necessary commercial adjustments to the nature and scale of the project, thus posing a threat to the normal operation of the project. For example, in some industries, there has been the phenomenon of inverted costs and prices, and when foreign or private capital is introduced after marketization, it is necessary to raise prices to achieve the expected returns. According to China's "Price Law" and "Government Price Decision-making Hearing Methods", the price of public utilities and other government-guided prices, government pricing, should establish a hearing system to solicit the views of consumers, operators and relevant parties to demonstrate the necessity and feasibility of this complex process can easily lead to delays in the approval of the problem. Take the city water industry as an example, the water price is lower than the cost of the situation shows that the price of water is bound to rise, but around the water price reform have been different degrees of public resistance and approval delays. For example, in 2003, the Nanjing water price increase program in the hearing was not passed; Shanghai People's Congress also put forward proposals against water price increases, resulting in the Shanghai water price reform measures can not be implemented to implement the delay. As a result, foreign water companies have withdrawn from the Chinese market. Notably, Thames Water sold its stake in the Daba water plant and Anglian withdrew from the Beijing 10th water plant project.
Third, political decision-making mistakes/lengthy risk
It refers to the project decision-making mistakes and lengthy process due to the government's irregular decision-making procedures, bureaucracy, lack of PPP operation experience and capacity, insufficient pre-preparation and information asymmetry. For example, in the case of the Qingdao Veolia wastewater treatment project, due to the local government's limited understanding and awareness of PPP, the frequent changes in the government's attitude towards the project led to a long time of contract negotiation. Moreover, the price of sewage treatment was signed without the government's knowledge of the market price and related structures, which was high, and then the government asked to renegotiate the price down after it understood the project. In this case, the project company took advantage of the government's lack of knowledge and poor decision-making to enter into an unequal agreement, which led to delays in subsequent negotiations and a dilemma of lengthy decision-making by the government. Similar problems existed in the Daba Water Plant, Beijing 10th Water Plant and Lianjiang Sino-French Water Supply Plant projects.
Fourth, the risk of political opposition
Mainly refers to the risk of political or even public opposition to the construction of the project due to the failure to protect the public interest or damage for various reasons. For example, the price of water in Dafang water plant and Beijing 10th water plant, because of the public interest, and was met with resistance from the public, the government in order to maintain social stability and public interest is also opposed to price increases.
Fifth, the government credit risk
The government does not perform or refuses to fulfill the contractual responsibilities and obligations and bring direct or indirect harm to the project. For example, in Changchun Huijin sewage treatment plant project, Huijin and Changchun City Drainage Company signed a "cooperative enterprise contract" in March 2000, the establishment of Changchun Huijin Sewage Treatment Co., Ltd. in the same year, the Changchun Municipal Government formulated the "Changchun Huijin Sewage Treatment Franchise Management Measures". 2000 end of the project was put into operation after the cooperative operation is normal. However, from the middle of 2002, the drainage company began to owe the cooperative company sewage treatment fees, Changchun Municipal Government on February 28, 2003 abolished the "Management Measures", in March 2003, the drainage company began to stop paying any sewage treatment fees to the cooperative enterprise. After nearly two years of legal wrangling, the dispute ended in August 2005 with the Changchun municipal government buying it back.
Another example is the Lianjiang Sino-French Water Supply Plant Project, where the two sides signed the "Contract for Cooperation in the Operation of the Lianjiang Sino-French Water Supply Co Ltd," which was to be carried out over a 30-year period. The contract has several key unreasonable problems: problem one, the water problem. The contract agreed Lianjiang Water Company in the first year of operation of the water plant shall not be less than 60,000 cubic meters of water per day, and increasing. Lianjiang City, the consumption of about 20,000 cubic meters, a huge difference in the amount of contract performance has lost the possibility of reality; problem two, the price of water. The contract stipulates that the starting price of water for 1.25 yuan, the price of water with the price index, the bank exchange rate increases and increases. Lianjiang City, the average price per cubic meter of water for 1.20 yuan, this price since May 1, 1999 has not changed since the implementation. Separated from the actual contract so that the Lianjiang City Government and the water company is not possible to fulfill their contractual obligations, the plant was forced to idle, the outcome of the negotiations have not yet been finalized. In addition, the government credit risk encountered in Jiangsu, a sewage treatment plant, Changchun Huijin sewage treatment and a power plant in Hunan and other projects.
Six, force majeure risk
is a party to the contract is beyond the control of the contract can not be reasonably prevented before signing the contract, the situation occurs, but also can not be avoided or overcome events or circumstances, such as natural disasters or accidents, war, embargoes and so on. For example, a power plant in Hunan in the mid-1990s by the former State Planning Commission approved the project, a multinational energy investment company in the West as the winning bidder, the project location of the provincial government and the company signed a concession agreement, the project has made good progress in the early stages. However, at this time, certain Western powers (including the country of the winning company) bombed my embassy in Yugoslavia, a serious substantive violation of China's sovereignty. The sudden change in the international political situation made it impossible for the bidder to finance itself internationally or in China. The project company was thus ultimately unable to complete the financing within the extended financing period, and the provincial government repossessed the project and confiscated the bid bond of the winning bidder in accordance with the provisions of the concession agreement, and did not re-tender the project thereafter, thus leading to the complete failure of the foreign investor in the project. In the renegotiation of the ROI of a sewage treatment plant project in Jiangsu, the negotiations between the project company and the government were interrupted by SARS.
Seven, financing risk
is due to the financing structure is not reasonable, the financial market is not sound, the accessibility of financing and other factors caused by the risk, the most important form of expression is the difficulty of financing. PPP project is a feature of the bidding stage after the selection of the winning bidder, the government and the winning bidder to initialize a concession agreement, the winning bidder to be based on the initialized concession agreement in the stipulated financing period to complete the financing, and the winning bidder to complete the financing within the stipulated financing period. The concession agreement becomes effective only when the successful bidder completes the financing within the specified financing period. If the developer fails to complete the financing within the given financing period, the developer will be disqualified and the bid deposit will be forfeited. In the case of a power plant project in Hunan, the developer's failure to complete the financing resulted in the forfeiture of the bid bond.
Eight, the risk of insufficient market returns
It refers to the project after the operation of the revenue can not meet the recovery of investment or to achieve the intended return. For example, in the Tianjin Shuanggang waste incineration power plant project, the Tianjin municipal government has provided many incentives, if the project revenue is insufficient due to some of the prescribed reasons, the Tianjin municipal government promised to provide subsidies. However, the amount of subsidy promised by the government was not clearly defined, and the project company assumed the risk of insufficient market returns. In addition, when the Jingtong Expressway was first completed, the adjacent side roads were not tolled, resulting in a long period of insufficient traffic flow on the Jingtong Expressway, and the risk of insufficient project revenue also arose. In the Hangzhou Bay Bridge and Fujian Quanzhou Prickly Bridge project also have similar problems.
Nine, project uniqueness risk
The risk arises when the government or other investors build or remodel other projects, resulting in substantial commercial competition for the project. Project uniqueness risk often brings a series of subsequent risks such as market demand change risk, market revenue risk, credit risk, the impact on the project is very large. Such as the Hangzhou Bay Bridge project started less than two years, only 50 kilometers apart in Shaoxing City, Shangyu Guzhu Shaoxing Hangzhou Bay Bridge has been stepping up preparations for one of the reasons may be due to the local government of the bridge of the high rate of return on capital dissatisfaction, resulting in the project is facing the uniqueness of the risk and the risk of insufficient returns. Xinyuan Minjiang four bridges also have a similar encounter, Fuzhou city government had promised to ensure that within nine years from the south in and out of Fuzhou City, all the vehicles through the toll booths, if due to special circumstances can not guarantee the tolls, the government funded to repay the investment of foreign investors, while ensuring that the annual compensation of 18%. But May 16, 2004, Fuzhou City, the second ring road officially opened to traffic, a large number of vehicles bypassing the Minjiang River Bridge toll station, the company's income fell sharply, the investment recovery is hopeless, and the government does not honor the commitment to buy back the right to operate, only to go to arbitration tribunal. In this project, the investor encountered the risk of uniqueness of the project and the subsequent risk of insufficient market returns and government credit risk. Similarly, the Fujian Quanzhou Shengtong Bridge Project and the Jingtong Expressway both suffered from the risk of project uniqueness, which led to insufficient market returns.
Ten, supporting equipment and services to provide risk
The project-related infrastructure is not in place to trigger the risk. In this regard, the Tangsun Lake sewage treatment plant project is a typical case. 2001 Kaidi company to BOT construction of Tangsun Lake sewage treatment plant project, the construction period of two years, the operating period of 20 years, after the expiration of the operating period gratuitous transfer to Wuhan Gaoke (on behalf of the municipal SASAC holds the property rights of state-owned assets). But after the completion of the first phase of the project, supporting the construction of pipeline networks, sewage charges and other issues. Delayed solution, resulting in the plant has been idle, and ultimately the plant was transferred to the Wuhan Municipal Water Group as a whole.
Eleven, the risk of changes in market demand
It refers to the exclusion of the only risk, due to the macro-economy, the social environment, demographic changes, laws and regulations adjustments and other factors to make changes in market demand, resulting in market forecasts and actual demand for the differences between the risks arising. For example, the Shandong Zhonghua Power Generation Project, the project company was established in 1997 and planned to be completed in 2004. After completion, the operation was relatively successful, however, changes in the Shandong power market and the reform of the domestic power system had a significant impact on the operation of the power purchase agreement. First, the price of electricity. In 1998, under a Memorandum of Understanding (MOU) signed by the former State Planning Commission (SPC), China Light & Power was granted a higher feed-in tariff of RMB 0.41/kWh for the completed Shixiang I and II power plants; whereas, in October 2002, when the new units of the Heze plant were put into operation, the Shandong Provincial Bureau of Prices (SPBP) had approved a price of RMB 0.32/kWh. This tariff can not meet the normal operation of the project; secondly, the "minimum power purchase" stipulated in the contract is also threatened, starting from 2003, the Shandong Provincial Planning Commission will be the previous minimum purchase of 5,500 hours of power between China Power Generation and Shandong Electric Power Group was reduced to 5,100 hours. As a result of contractual constraints, Shandong Power Group must still be "planned tariffs" to buy 5500 hours of electricity, the price difference by the Shandong Power Group to fill their own money, which undoubtedly struck the Shandong Power Group's incentive to purchase electricity. In the Hangzhou Bay Bridge, Minjiang four bridges, Prickly Bridge and Jingtong high-speed projects, there is also this risk.
Twelve, toll change risk
This refers to the PPP product or service charge price is too high, too low, or toll adjustment is not flexible, not free and lead to the project company's operating income is not as expected and the risk. For example, due to the reform of the electric power system and changes in market demand, the tariff charge for the Shandong Zhonghua Power Generation Project was changed from RMB 0.41/kWh at the beginning of the project to RMB 0.32/kWh, which put the project company's income at serious risk.
Thirteen, corruption risk
Mainly refers to the government officials or representatives of the use of unlawful influence to demand or ask for unlawful property, which directly leads to the project company in the relationship between the maintenance of the cost increases, but also increase the government in the future the risk of default. For example, by the Hong Kong Hui Jin company invested in the construction of the Shenyang ninth water plant BOT project, the agreed rate of return on investment: the second four years, 18.50%; the fifth 14 years, 21%; the fifteenth 20 years, 11%. Such a high rate of return so that the Shenyang Water Supply Company to pay the price of water to the ninth water plant is 2.50 yuan / ton, while the average price of water supply in Shenyang city in 1996 was 1.40 yuan / ton. To 2000, Shenyang city water company losses up to more than 200 million yuan. This loss should have been filled by the government's financial, but Shenyang city has not given financial subsidies to the water company for many years. Shenyang City Water Supply Company demanded a change in the contract. After several rounds of tough negotiations, at the end of 2000, the two sides will change the contract as follows: Shenyang City Water Supply Company to buy back 50% of the shareholding of Huijin in the ninth water plant, the return on investment is also reduced to 14%. After this change, Shenyang Waterworks can pay more than two hundred million dollars less in the future. In fact, the high rate of return promised to foreign businessmen to a large extent with the corruption of local officials linked together, in the industry, by foreign investors in Shenyang to invest in the construction of the eight water plant is known as the "Shenyang water blackout".