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Planning method of infrastructure project in China

By Debra Campbell,2014-02-18 10:46
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Planning method of infrastructure project in China

    Planning method of infrastructure project

    in China

    PlanningmethodofinfrastructureprojectinChina

    DuXiangrong,WatanabeTsunemi

    SchoolofEngineeringandTechnology,JimeiUniversity,Xiamen,Fujian361021,China DepartmentofManagement,Ko(,hiUniversityofTechnology,Kochi7828502.Japan)

    Abstract:Differentplanningmethodshavebeenappliedinprivateandpublicinfrastrueturepr0jects,whichresultedin

    dilterentapprov03proceduresandquerryaboutimpartiality.

    However,planningmethodsofinfrastructureproiectsare

    .ld..nlnV.stigateduptonow?Theauthorsproposeaproperprojectplanningmethodwhichisapplieahletoallkindsof

    infrastructureprojectswithvariousfundorigins.Theprojectplanningmethodincludesacomprehensiveplanningframe.

    workandasix'stepplanningprocess.Thefinancialindicator,i.e.,selfreimbursementratioisintroducedforthepr0p

    erdivisionoffinancialobligationbetweengovernmentandprojectcompany. Keywords:China;infrastructure;implementationscheme;planning;project:serf.reimhursementrate

    IIntroduction

    Duringtheprivatizationofinfrastructureprojects,

    thegovernlnentregulationshiftedgraduallyfromdirect

    Investmentandadministrationtoindirectsupervisionof

    theinvestment,construehonandprojectcompaniesop.

    erationthroughfiscal,financial,legalandadministra

    tivemeans.Forthepurposeofaccommodatingthem

    selvestothenewregulationrequirement.aseriesofe.

    galinstrumentswereissuedandenforeedbydifferent governmentdepartments.However,theserulesrequire differentplanningandapprovalprocedures,methods andcontentrequirementsforprojectswithdifferent typesofinvestment.whichcausedinconveniencetore1. evantgovernmentdepartments.

    2Problemsofinfrastructureproject

    planning

    TheGuidetoFeasibilityStudyof[m,estmentPr0

    c(tentativeedition)thatpromulgatedbytheNa

    tionalDevelopmentandReformCommissiongoverns thepreparationoffeasibilitystudyreportoffixedasset projects(includinginfrastructureprojcots)which shouldbemainlyinvestedbygovernmentl.However. theguidedoesnotconsidertheappropriatefinancial obligationdivisionbetweengovernmentandstatecorn. pany?

    Theinappropriateobligationdivisionbetweengov. ernmentandstatecompanycausesexcessivegovern. mentburden.Forexample.theBellingMunicipal Governmenthadtotakeovertheoperationofthe5' RingofBellingHighwayProjectonlythreemonthsafter Received30April2010

    80EngineeringSciences

    itscompletionofconstructionbecauseitundertookthe excessiveobligation.i.e.theguaranteeofdebtrepay

    merit.Inanothercase.duetothe1ackofspecificobli

    gationdivision,theGuangxiProvinceGovernmenthad toraiseapproximateCNY200millioneveryyeartodis

I)urseannualloanintercstofthestatehighwaycompa

    niesaffiliatedtotheGuangxiProvinceGovernment. PursuanttotheDecisionoftheStateCouncif0n Reformingthe]m'~estmen~svslenSS~e.rtbytheState Council,social

    shouldbeusedasmuchas

    i.e.non-governmentfund

    possibleforprofitableinfra-

    structureprojects.Sospecificevaluationcriteriaare necessaryforgovernmenttojudgewhethertheproposed projectschemeisprofitable,partlyprofitable,orHH

    profitable.However.allthesedocumentsdonotstipu

    lateiudgmentcriteriaoffinancialobligationdivision betweengovernmentandtheprivatesector. Mostoftheinfrastructureprojectsfinancedand operatedbyforeigncompaniesencountereddimcuhies. Somedifficultyoriginated

    commitmentsuchasundue

    fromexcessivegovernment

    riskobligation.Inaddi

    tion,domesticprivatecompaniesparticipatingininfra

    structureprojectsdidnotgainthesametreatmentas thoseprovidedforstateownedcompanies,i.e.,inad.

    equategovernmentobligation3.

    Therefore.whethera

    projectcompanylSaprivateeompany,astatecompa- ny,aconsortiumofmereprivatecompanies,aeonsor. tiumofmerestatecompanies,oraconsortiumofboth privateandstatecompanies,theproperdivisionofob. 1igationbetweengovernmentandprojectcompanyin

    thephaseofprojectplanning,particularlytheduedivi. sionoffinancialobligation.becomesthekevissues0f relevantprojectauthoritiesininfrastructureproject planning.

    3Researchbackground,methodologyand

    objective

    3.1Pastresearchonprojectplanning

    Mostresearchesonprivateinvestmentininfra

    structureprojectsmainlyfocusedonvariousmanage mentmodessuchasBuildOperate.Transfer(BOT),

    Build.TransferfBT)andTransferOperateTransfer

    (TOT).Thesecondemphasisofreseaehesonprivate investmentininfrastructureisriskallocationbetween governmentandcompany.Forexample,Liinvestiga

    tedtheallocationofriskinPPP/PFIconstructionpro

    iectsintheUK.Wangidentifiederiticalrisksin

    China'sBOTprojeets.Shenproposedaconcession modelforBOTprojecttodecidetheconcessionperi

    0dl6J.DuandWatanabestatedresponsibilityallocation betweenauthorityandcompanyindifferentprojectsta

    gesforpublicservicedeliveryinChina.However, Dastresearchesdidn'tinvolvefinancialobligationallo. cationbetweengovernmentandcompanyintheplan

    ningstageofinfrastructureproject.

    3.2Researchmethodologyandobjective

    Basedonthoroughanalysisandcarefulcompari- sonofrelevantlegalrulesandgovernmentpolicieson infrastructureprojectplanning,thepaperproposeda planningandcontrolmethodwhichcanbeappliedto variouskindsofinfrastructureprojectsinvolvingnew

    constructionofphysicalfacilitiesinChina.Theplan- ningmethodnotonlyincludesthecontentofformer projectproposalandprojectfeasibilitystudyreport, butalsocontainsobligationdivisionbetweengovern

    mentandprojectcompanysuchastheriskandfinan- cialobligationdivision,basedonthetotalprojectlife

    cycle.Thecostandbenefitofproposedprojectshould beanalyzediflthetotallifecycle.Theplanningmethod includesacomprehensiveplanningframeworkanda sixstepplanningprocess.Inparticular,thefinancial indicator.i.e.seIf-reimbursableratioisintroducedfor correctappraisalofprojectfeasibilitystudyandproper obligationdivisionbetweengovernmentandproject company.

    4Planningframeworkforinfrastructure

    projects

    Theprojectplanningframeworkshouldbepro

    posedbasedonthecontentofpreliminaryfeasibility studyfi.e.projectproposa1)statedintheNotice andfeasibilitystudyreportstatedintheProvisional regulations.Thecontentofprojectproposalfisi.e. preliminaryfeasibilitystudy)andfeasibilitystudyre

    portforforeigner??investedelectricpowerprojeetisstip?- ulatedbvtheformerMinistry0fPowerIndustry[9,10]. andthecontentofprojectproposalandfeasibilitystudy reportforurbaninfrastructureprojectsisinvestedby government_11l.

    Thepaperclarifiestheintrinsiclogicbetweenva

    riouspartsofcontentsintheprojectplanningdocu- meritsandproposesthecomprehensiveplanningflame-

workofinfrastructureprojects,whichincludesservice

    andtechnicalscheme(Table1),businessscheme (Table2)andfinancialscheme(Table3). Table1Serviceandtchnicalscheme CategoryDetail

    Investment

    Financing

    Revenue

    Expenditure

    Capitalstructure(equity/debt) governmentinvestment

    Loansourcesandstructure

    Tariff/tolllevelandadjustmentmechanism;gov

    eminentsubsidy;annualoperationincome Tax,dutyandroyalty;annualdesign,construc

    tion,maintenance,operationandassetreplacing

    outlay;allocationofriskobligation ProjeetdurationDesign,constructionandoperationduration

    Vo1.8No.4,Dec.201081

    Table3Financi~analysismodel

    ParameterDetai1

    Costandincome

    Capitalstructure

    Financialindicators

    Timeparameters

    Economicp~ametem

    Annualconstructioncost

    Annualoperating/maintenancecost Annualassetspurchasingcost

    Annualassetsreplacingcost

Annualoperatingincome

Equity

    Loanandbond

    Debt/equityratio

    Netpresentcost(NPC)

    Netpresentrevenue(NPR) Self-reimbursingratio(SRR) Concessionperiod

    Designandconstructionperiod Operationperiod

    Graceperiod

    Paybackperiod

    Debtpaymentperiod

    Interestrate

    Exchangerateofcurrency lnflationrate

    Insurancefeerate

    Rateofreturnonequity

    AccountingparametersDepreciationrateoffixedasset

    Taxp~ameters

    Currencyparameters

    Marketparameters

    Businessincometaxrate Valne.addedtax

    Roy~ty

    Earningreserve

    Currenciesofloansandequity Currenciesofrevenuesandpayments Priceofmaterial,powerandequipment

    Priceofpr0jeetproductorselwiee

Tar.

    SevicesehelTleisthebaseoftheprojectplanning framework.Technicalschemecontains3partsofcon

    tents:engineeringdesign,constructionscheme,oper- atingandmaintenancescheme.Businessschemeisthe keypartoftheprojectplanningframework.

    5Establishmentofproperprojectplanning

    process

    Theauthorsuggeststhatinfrastructureproject planningshouldinclude6steps:serviceplanning,se- lectionoftechnicalscheme,establishmentofbusiness scheme,financialanalysis,proposalofobligationdivi- sionschemeandproposalofprojectimplementation scheme.Publicserviceandinfrastructureprojectneed tobeprocuredaccordingtotheprinciplesofobjectivi- ty,transparency,impartiality,competitionande-

    ciency.Bothstateandprivatecompaniesshouldbeal

    lowedtobidfortheproposedproject.Privatecompa

    niesshallbetreatedthesameasstateownedcompa

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    nies,sothetaxcostimposedonprivatecompanies shallbeincludedintheproposedfinanciaIscheme. 5.1Serviceplanning

    Forthepurposeofovercomingprematureproject developmentandinaccuratepredictionofdemandon publicservice,demandanalysisshouldbeconducted basedontheaccuratedemandanalysisofpublicserv

    ice.thefive.year(ortenyear)nationaleconomicso

    cialdevelopmentprogram,nationalindustrypolicies andurbaninfrastructuredevelopmentprograms.rrhe

    projectadministrationdepartmentshouldproviderelia. blehistoricaldataofpublicservicetoconsultantstoin

    creasetheaccuratelevelofdemandforecastofpublic serviceincludingservicequantityandqualitystandard. Regardingpublicserviceprice,thepublicopinion shouldbeconsideredthroughquestionnaireinvestiga. tionorpublicheating.Itisadvisableforprojectad. ministrationdepartmenttoreducefisca1subsidyfor serviceandincreaseservicepriceinagradualand smoothwaybasedonthepastservicepriceandanaly

    sisofpublicopinion.Thedemandanalysisisthefocus ofprojectproposalandshouldbeconductedandap

    praisedbyexpeas.

    5.2Identiffcationoftechnicalscheme

    Technicalschememainlyincludesthefollowing contents:confirmationofprojeetcapacity,confirmation ofqualitystandardofpublicservice,selectionoftech

    nicalstandardandlifeofequipmentandcivilworks, projectsitingandlayout,preparationofconstruction andmaintenancescheme,assessmentandprecautionof ecologicalandenvironmentimpact,analysisofre

    sourceconsumption,equipmentutilizationandlabor demand,laborprotectionandsafety.

    5.3Establishmentofbusinessscheme

    Thebusinessschemeofinfrastructureproject shouldbeplannedcarefully,whichmainlyconcerns theidentificationofprojectenvironment,thedesignof capitalstructureofaprojectcompany,andtheobliga- tiondivisionbetweengovernmentandprojectcompany. Theriskallocationandfinancialobligationshouldbe

    proposedduringthestage.Thebusinessschemein' cludesthefollowingcontents:

    1)Calculationofannualprf)jectcostwithouttax burdenandexposuretorisk,includingconstruction, maintenance,operationandreplacingcostbasedonthe technicalschemeproposed.Thissumofannualproject costconstitutesrawprojectcost.Thepresentvalueof rawprojectcostcanbeexpressedasrawNPCin1ater calculationformula.

    2)Establishmentofservicepriceschemeaccepta- bletothepublic.

    3)Identificationofcurrenttaxesandaccounting criteriaofthedepreciationoffixedassetsandtheamor- tizationofintangibleassets.

    4)Establishmentofinterestrate,inflationrate, foreignexchangerate(ifforeigninvestmentisin- volved)andinsurancerate.

    5)Planningofcapitalstructure(e.g.rateofre- turnonequityshouldbemorethan1/3)andfinancing planbasedonprivateinvestmentandoperation. 6)Allriskshouldbeidentifiedandevaluated basedonthelikelihoodandfinancialinfluence0frisk. Riskshouldbecategorizedintotwotypes:retainedrisk fromgovernmentandtransferredrisktotheproject rl3]

    company?

    7)Selectionofconcessiondurationbasedonthe designedlifeofkeyequipmentandcivilworksand subjecttogovernmentlimit(30yearsofoperationperi

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