PPP Mode: a Trend in Environmental industry

 After years of ineffective pollution control, China began to change the governing methods of environmental protection. Following the new “Environmental Protection Law”, China is actively implementing PPP model (Public-Private-Partnership) in the municipal public areas and third-party governance model in the field of industrial pollution at the same time. Environmental tax, resource tax, consumption tax and other related taxes are also facing a major adjustment. With announcing a series of policies gradually, China's environmental industry will be facing an unprecedented market opportunity.

At present, lower operating costs and large market size provide popularization of PPP mode in Environmental industry. According to the US Environmental Protection Department, the operating cost of private sector in environmental infrastructure is 10%~20% lower than public sector. The World Bank once analyzed the market capacity index of urban sewage and garbage disposal according to potential market competitiveness, revenue potential and environmental externalities. According to international experience, once pollution control investment to GDP ratio reached 2% -3 %, the environment quality will be significantly improved. In the past decades, this ratio in China is always less than 2%, sometimes even less than 1.5%. So, based on GDP 56 trillion in 2013, if the ratio need to be close to 2%, we are looking at a market size more than 1 trillion for PPP to realize.

PPP mode is becoming a trend in environmental industry in the future. It occupies a high proportion in all environmental projects announced by Ministry of Finance. It announced the first batch of 30 PPP demonstration projects last year with total amount of 180 billion yuan, where sewage treatment, water supply, environmental control and other projects contribute 15 of the total 30.

In fact, PPP is mainly focused on sewage treatment, water supply, heating and so on. Such projects have relatively high and stable income, and easily to attract social capital.

From the PPP mode of operation, the Ministry of Finance has the established cases of O & M, MC, BOT, BOOT, ROT, TOT, BOO, etc.

In addition to the promotion of new “Environmental Protection Law”, improvement of emissions trading, adjustment of environmental tax, practice of PPP mode and the third-party governance, fundamental changes of industry mechanism are taking place steadily in China.