Public-Private

Partnerships

in

China

's

Urban

Water

Sector

During

the

past

decades

the

traditional

state

monopoly

in

urban

water

management

has

been

debated

heavily

resulting

in

different

forms

and

degrees

of

private

sector

involvement

across

the

globe

Since

the

China

has

also

started

experiments

with

new

modes

of

urban

water

service

management

and

governance

in

which

the

private

sector

is

involved

It

is

premature

to

conclude

whether

the

various

forms

of

private

sector

involvement

will

successfully

overcome

the

major

problems

-LRB-

capital

shortage

inefficient

operation

and

service

quality

-RRB-

in

China

's

water

sector

But

at

the

same

time

private

sector

involvement

in

water

provisioning

and

waste

water

treatments

seems

to

have

become

mainstream

in

transitional

China

Introduction

In

the

wake

of

the

United

Kingdom

's

water

privatization

in

the

the

witnessed

the

spreading

of

privatization

and

a

variety

of

public-private

partnership

-LRB-

PPP

-RRB-

constructions

in

developing

countries

especially

following

the

promotion

and

push

by

international

development

agencies

such

as

the

World

Bank

the

International

Monetary

Fund

-LRB-

IMF

-RRB-

the

Asian

Development

Bank

-LRB-

ADB

-RRB-

and

others

-LRB-

Nickson

Kikeri

and

Kolo

-RRB-

It

was

believed

that

private

sector

participation

in

the

water

sector

would

bring

in

much

needed

investment

and

improve

service

coverage

quality

and

efficiency

by

replacing

conventional

public-sector

systems

suffering

from

under-investment

and

inefficiencies

due

to

excessive

political

interference

and

rent-seeking

behavior

by

vested

state

and

bureaucratic

interests

-LRB-

Hall

and

others

-RRB-

During

the

past

decades

a

wide

literature

in

economics

governance

and

public

management

has

provided

theoretical

and

empirical

arguments

and

evidence

in

favor

of

further

private

sector

involvement

in

what

used

to

be

public

utilities

At

the

same

time

however

debate

continues

on

the

different

partnership

constructions

the

division

of

tasks

and

responsibilities

between

public

and

private

sectors

and

the

social

effects

coming

along

with

these

developments

Topics

such

as

the

relationships

between

ownership

-LRB-

public

or

private

-RRB-

and

efficiency

-LRB-

Vining

and

Boardman

Spiller

and

Savedoff

Birchall

Afonso

and

others

Anwandter

and

Jr.Ozuna

Hart

-RRB-

the

classification

of

various

public-private

constructions

and

their

characteristics

-LRB-

World

Bank

Seppälä

and

others

US

National

Research

Council

-RRB-

the

consequences

of

privatization

for

governmental

regulation

-LRB-

Nickson

and

Vargas

Pongsiri

-RRB-

and

questions

of

equity

and

equality

are

still

heavily

debated

in

particular

with

respect

to

the

water

sector

and

less

so

regarding

other

utilities

Although

private

sector

participation

in

the

water

sector

is

one

of

the

more

controversial

topics

in

public

utility

management

today

this

wave

also

spread

to

China

at

the

turn

of

the

millennium

where

the

government

started

to

reform

public

sectors

-LRB-

water

electricity

roads

etc.

-RRB-

via

introducing

market

functions

The

so-called

marketization

reform

expected

to

address

the

increase

of

several

water

problems

-LRB-

water

shortage

insufficient

infrastructure

water

pollution

etc.

-RRB-

to

meet

the

requirement

posed

by

accelerated

urbanization

and

high

economic

growth

As

a

late

comer

in

this

field

of

private

sector

involvement

in

the

provision

of

water

services

China

is

able

to

learn

from

numerous

experiences

of

other

countries

such

as

the

United

Kingdom

France

United

States

Chile

Philippines

Mexico

Argentina

and

Bolivia

Since

the

earlier

attempts

of

applying

the

Build-Operate-Transfer

-LRB-

BOT

-RRB-

approach

in

the

water

sector

in

the

and

the

full

development

of

marketization

reform

in

public

sectors

in

China

has

applied

different

models

of

private

sector

involvement

in

over

water

supply

and

wastewater

projects

This

marketization

reform

emphasizes

the

importance

of

the

market

investment

and

financial

liberalization

deregulation

decentralization

and

a

reduced

role

of

the

state

in

the

water

sector

-LRB-

also

see

Robison

and

Hewison

Prasad

-RRB-

Tariff

reform

with

full-cost

recovery

competitive

bidding

procedures

changing

ownership

structures

-LRB-

e.g.

public

and

private

Sino

and

foreign

-RRB-

and

restrictive

fiscal

policies

are

part

of

it

This

article

reviews

developments

in

private

sector

involvement

in

China

's

water

management

and

assesses

whether

expected

results

of

marketization

in

the

Chinese

water

sector

have

been

met

raising

investment

for

infrastructure

increasing

service

coverage

and

improved

efficiency

in

China

's

water

supply

and

wastewater

treatment

After

interpreting

further

private

sector

involvement

in

China

's

urban

water

management

in

terms

of

modernizing

water

governance

this

article

provides

a

country-wide

overview

of

current

privatization

developments

in

the

Chinese

water

sector

and

subsequently

makes

an

in-depth

investigation

in

three

distinct

cases

with

respect

to

the

new

roles

and

functions

of

the

governments

and

private

parties

The

final

section

assesses

the

current

status

of

privatization

programs

in

China

's

water

management

and

its

implications

of

future

research

on

water

governance

reform

Private

Sector

Participation

as

Part

of

Modernizing

Urban

Water

Governance

In

the

debate

on

private

sector

participation

in

environmental

governance

in

general

and

urban

water

governance

in

particular

we

can

identify

three

sometimes

interrelated

discourses

First

private

sector

participation

goes

back

to

the

literature

on

state

failure

in

the

early

State

failure

refers

to

the

notion

that

the

nation-state

falls

short

in

the

provisioning

of

collective

goods

in

this

case

environmental

services

and

quality

Some

of

the

key

publications

in

this

regard

come

from

Germany

Martin

Jänicke

's

-LRB-

-RRB-

Staatsversagen

analyzed

the

fundamental

inability

of

the

nation-state

to

protect

the

environment

in

the

and

called

for

an

innovation

or

modernization

of

environmental

politics

later

to

be

labeled

political

modernization

-LRB-

e.g.

Tatenhove

and

others

Mol

-RRB-

a

reorientation

towards

a

more

preventive

pro-active

and

flexible

strategy

using

new

instruments

and

closer

cooperation

with

and

participation

of

non-state

actors

With

a

similar

analysis

of

the

environmental

state

's

fundamental

inabilities

Joseph

Huber

-LRB-

-RRB-

came

to

slightly

different

solutions

with

his

strong

plea

for

involving

the

private

sector

into

environmental

services

and

protection

Finally

around

the

same

time

Ulrich

Beck

-LRB-

-RRB-

formulated

his

Risk

Society

hypothesis

and

identified

subpolitical

arrangements

-LRB-

i.e.

arrangements

for

environmental

protection

and

service

provision

without

and

beyond

the

public

state

-RRB-

as

an

alternative

for

the

conventional

environmental

politics

of

the

nation-state

Inspired

by

these

and

several

other

authors

and

ideas

from

the

mid

onward

environmental

social

science

scholars

started

to

develop

ideas

investigate

practices

and

formulate

theories

on

governing

environmental

problems

in

which

the

environmental

state

was

given

a

less

dominant

and

monopolistic

position

Around

the

same

time

-LRB-

the

second

half

of

the

-RRB-

ideas

of

further

private

participation

and

involvement

in

the

provisioning

of

environmental

services

-LRB-

water

waste

energy

etc.

-RRB-

started

to

develop

especially

in

the

United

States

and

the

United

Kingdom

While

also

here

the

fundamental

idea

is

involving

the

private

sector

in

tasks

traditionally

fulfilled

by

the

public

sector

the

orientation

and

literature

is

slightly

different

The

majority

of

the

literature

comes

from

the

management

and

organization

sciences

and

the

orientation

is

less

focused

on

state

failures

and

governance

but

rather

on

efficiency

the

bringing

in

of

new

capital

and

the

introduction

of

market

logics

The

dominant

form

of

organizing

urban

infrastructure

-LRB-

water

energy

waste

transport

-RRB-

by

state

agencies

has

been

replaced

in

many

places

by

various

PPP

constructions

with

different

reasons

put

forward

to

legitimate

such

new

constructions

-LRB-

cf.

Linder

-RRB-

At

the

same

time

these

partnerships

led

to

considerable

debate

most

significantly

on

issues

of

equity

and

equality

who

is

involved

in

these

partnerships

for

who

are

these

constructions

bringing

more

effective

and

efficient

services

are

local

governments

able

to

balance

the

power

of

private

capital

coming

in

-LRB-

especially

in

situations

of

Transnational

Companies

-LRB-

TNCs

-RRB-

in

developing

countries

-RRB-

-LRB-

e.g.

Oppenheim

and

MacGregor

-RRB-

and

what

does

private

sector

involvement

mean

for

affordability

of

environmental

services

for

the

poor

Thirdly

in

the

following

the

United

Nations

Conference

on

Environment

and

Development

-LRB-

Rio

de

Janeiro

-RRB-

and

even

stronger

after

the

Rio

conference

-LRB-

Johannesburg

-RRB-

ideas

and

practices

of

public

private

partnerships

started

to

emerge

forcefully

on

the

national

and

global

agenda

-LRB-

cf.

Mol

-RRB-

In

this

literature

the

emphasis

is

strongly

on

transnational

partnering

of

public

and

private

entities

with

a

strong

focus

on

the

role

of

civil

society

organizations

The

main

reason

behind

the

recent

attention

to

private

sector

participation

in

environmental

protection

and

service

delivery

is

related

to

tendencies

of

globalization

and

governance

complexities

As

Davies

-LRB-

-RRB-

correctly

summarizes

in

this

interpretation

the

notion

of

partnership

has

a

positive

rhetoric

referring

to

inclusiveness

transparency

participation

and

dialogue

redistribution

of

power

and

equity

And

not

so

much

to

ideas

of

efficiencies

capital

investment

market

logics

and

increased

service

coverage

In

reviewing

the

arguments

and

legitimacy

of

the

push

for

private

sector

involvement

in

China

's

urban

water

governance

there

is

a

strong

relation

to

the

second

discourse

on

efficiency

capital

investments

and

service

coverage

while

ideas

of

state-failure

and

political

modernization

incidentally

emerge

By

the

same

token

the

Chinese

discourse

on

private

sector

participation

in

urban

water

management

hardly

draws

upon

ideas

of

wide

cross-sectoral

partnerships

and

the

positive

logics

of

transparency

democracy

participation

and

dialogue

Discussions

on

China

's

urban

water

governance

reform

argue

for

the

advantages

of

effectiveness

and

efficiency

and

debate

the

best

organizational

modes

division

of

responsibilities

and

coordination

structures

Potential

negative

outcomes

of

private

sector

participation

so

strongly

emerging

in

and

dominating

western

debates

are

much

less

emphasized

loss

of

decision-making

autonomy

of

states

and

governments

unequal

power

relations

and

information

asymmetry

in

public-private

partnerships

problems

around

equity

access

for

the

poor

participation

and

democracy

in

decision-making

-LRB-

e.g.

Hancock

Poncelet

Miraftab

-RRB-

According

to

the

World

Bank

China

Chile

and

Colombia

are

the

only

countries

that

remain

active

in

water

privatization

after

-LRB-

Izaguirre

and

Hunt

-RRB-

How

to

explain

that

while

the

activities

of

water

sector

privatization

intend

to

shrink

in

an

increasing

number

of

countries

and

international

development

agencies

such

as

the

World

Bank

start

to

slow

down

such

privatization

programs

China

is

actively

promoting

private

sector

involvement

in

urban

water

governance?Two

interdependent

arguments

elucidate

this

First

China

's

urban

water

management

comes

from

a

radically

different

starting

position

where

market

principles

and

logics

were

almost

absent

Water

management

was

not

just

completely

publicly

organized

but

also

highly

inefficient

with

large

capital

shortages

poor

coverage

no

economic

incentives

and

demand

side

management

and

highly

centralized

This

is

a

fundamental

rather

than

marginal

difference

with

most

of

the

public

utility

systems

in

OECD

countries

before

the

privatization

discourses

and

practices

of

the

and

Under

such

Chinese

conditions

private

sector

involvement

in

water

management

means

more

that

just

handing

water

business

over

to

for-profit

private

companies

It

most

of

all

means

building

economic

incentives

and

logics

safeguarding

enough

financial

capital

for

infrastructure

investments

and

widening

the

service

area

Second

private

sector

participation

in

China

's

urban

water

management

is

not

just

a

matter

of

privatization

It

is

part

of

a

much

wider

and

complex

modernization

program

in

urban

water

governance

involving

some

of

the

critical

issues

that

emerged

in

the

privatization

debates

in

OECD

countries

The

modernization

of

urban

water

governance

also

includes

-LRB-

see

OECD

-RRB-

water

tariff

reforms

where

costs

of

drinking

water

increasingly

include

full

costs

-LRB-

also

of

wastewater

treatment

-RRB-

but

come

along

with

safeguards

for

low

income

households

to

continue

access

to

drinking

water

transparency

accountability

and

control

of

the

government

public

participation

in

for

instance

water

tariff

setting

complaint

systems

on

water

pollution

and

corruption

public

supervising

committees

on

utility

performance

public

and

media

debates

on

water

governance

disclosure

of

information

to

non-governmental

actors

-LRB-

cf.

Zhong

and

Mol

-RRB-

anddecentralization

of

water

tasks

and

responsibilities

to

the

local

level.In

exploring

the

degree

nature

and

forms

of

private

sector

participation

in

China

's

urban

water

governance

in

the

following

sections

we

have

to

leave

these

wider

related

developments

aside

Privatization

Policy

in

China

's

Water

Sector

In

China

the

term

private

sector

has

been

regarded

as

politically

sensitive

since

when

China

started

to

establish

a

socialist

regime

characterized

by

the

nationalization

of

ownership

The

first

breakthrough

of

the

development

of

private

sector

which

was

officially

defined

as

economic

organizations

that

aim

at

making

profit

in

which

assets

are

privately

owned

and

which

have

eight

or

more

employees

-LRB-

Provisional

Regulations

of

Private

Enterprises

in

PRC

the

State

Council

June

of

-RRB-

took

place

mainly

in

competitive

sectors

in

accordance

with

the

launch

of

China

's

economic

reform

in

the

late

The

government

remained

in

control

of

public

sectors

such

as

water

services

energy

provisioning

waste

management

and

public

transport

In

the

mid

Chinese

Government

attempted

to

introduce

the

BOT

approach

into

the

field

of

urban

infrastructures

-LRB-

thermal

power

hydropower

highway

water

supply

etc.

-RRB-

via

promulgating

the

Circular

on

Attracting

Foreign

Investment

through

BOT

Approach

-LRB-

No.

Policy

Paper

of

the

former

Ministry

of

Foreign

Trade

and

Economic

Cooperation

January

of

-RRB-

and

the

Circular

on

Major

Issues

of

Approval

Administration

of

the

Franchise

Pilot

Projects

with

Foreign

Investment

-LRB-

No.

Policy

Paper

of

Foreign

Investment

the

former

National

Development

and

Planning

Commission

the

Ministry

of

Electric

Power

Industry

and

the

Ministry

of

Communications

-RRB-

These

two

policy

papers

formed

the

first

legal

ground

for

private

sector

involvement

and

foreign

capital

investment

in

Chinese

urban

infrastructure

Subsequently

the

National

Development

and

Reform

Commission

firstly

approved

three

BOT

infrastructure

projects

in

including

Chengdu

No.

Water

Supply

BOT

Plant

-LRB-

B

-RRB-

Guangxi

Laibin

Power

BOT

Plant

and

Changsha

Wangcheng

Power

BOT

Plant

-LRB-

failed

-RRB-

The

earlier

experiences

of

BOT

projects

brought

in

needed

capital

and

investment

to

develop

China

's

urban

water

infrastructure

But

it

illustrated

also

many

problems

The

issue

of

the

fixed

investment

return

to

investors

was

one

of

these

problems

After

intensifying

control

over

foreign

exchanges

and

loans

in

the

late

the

General

Office

of

the

State

Council

promulgated

a

specific

circular

in

to

correct

foreign

investment

projects

with

fixed

investment

returns

by

modifying

the

relevant

contract

terms

buying

back

all

shares

of

foreign

investors

transferring

foreign

investment

into

foreign

loans

or

dismantling

contracts

with

often

severe

losses

The

full-fledged

commitment

of

the

Chinese

government

to

private

involvement

in

the

water

and

other

utility

sectors

dates

from

late

In

the

December

of

the

Opinions

on

Accelerating

the

Marketization

of

Public

Utilities

-LRB-

No.

Policy

Paper

of

the

MOC

-RRB-

started

the

marketization

reform

of

water

and

other

public

sectors

by

opening

public

utilities

to

both

foreign

and

domestic

investors

multi-financing

approaches

concession

right

and

concession

management

pricing

mechanism

reduction

of

governmental

monopolies

and

roles

ended

the

traditional

policies

of

public

utilities

The

subsequent

Measures

on

Public

Utilities

Concession

Management

-LRB-

No.

Policy

Paper

of

the

MOC

in

this

policy

concession

management

refers

to

all

forms

of

private

sector

participation

-RRB-

of

specifies

the

procedure

of

how

to

involve

the

private

sectors

in

public

utilities

through

awarding

concession

right

but

still

relies

heavily

on

BOT

modes

These

steps

proved

more

than

just

giving

the

private

sector

a

permission

to

enter

public

utilities

It

is

a

complex

process

involving

among

others

ownership

reforms

redefinition

of

the

role

of

governments

and

operators

restructuring

the

tariff

mechanism

reforming

governmental

regulation

and

designing

public

participation

In

the

early

years

of

marketization

the

emphasis

was

especially

on

market

opening

and

financing

issues

With

Opinions

on

Strengthening

Regulation

of

Public

Utilities

-LRB-

No.

Policy

Paper

the

MOC

-RRB-

the

neglect

of

governmental

regulation

and

the

public

good

character

of

water

in

the

previous

policy

papers

was

corrected

This

policy

paper

emphasizes

that

the

water

sector

provide

basic

public

and

social

goods

and

that

the

governmental

regulation

remains

essential

-LRB-

Fu

and

Zhong

-RRB-

However

there

is

still

a

lack

of

a

systematic

and

comprehensive

regulatory

framework

for

the

Chinese

urban

water

sectors

in

practice

The

MOC

is

attempting

to

introduce

and

develop

a

competitive

benchmarking

system

that

might

be

helpful

for

further

regulation

but

this

is

not

yet

in

place

During

the

authors

field

surveys

the

local

officials

of

relevant

water

authorities

are

laboring

under

the

lack

of

effective

measurements

for

regulatory

framework

have

too

much

freedom

of

-LRB-

non

-RRB-

regulation

and

have

sometimes

an

incorrect

perception

of

the

government

role

as

a

regulator

Fu

and

colleagues

-LRB-

-RRB-

also

refer

to

the

fact

that

the

government

has

paid

some

attention

to

assets

regulation

while

restructuring

ownership

in

the

water

sector

but

neglected

regulating

water

service

quality

Compared

to

the

exponential

growth

of

water

projects

with

significant

private

sector

involvement

the

legal

basis

under

privatization

developed

quite

slow

and

is

still

underdeveloped

in

China

Different

from

some

water

privatization

forerunner

countries

-LRB-

e.g.

England

and

Wales

Philippines

-RRB-

which

enacted

specific

laws

before

entering

into

privatization

the

marketization

reform

of

and

private

participation

in

the

Chinese

water

sector

is

conducted

under

various

governmental

policy

papers

but

without

specialized

legislation

The

current

legal

codification

of

public-private

partnering

in

water

services

is

largely

a

reactive

process

where

various

policy

papers

address

specific

problems

in

the

reform

process

due

to

the

lack

of

a

well-established

legal

framework

Thus

much

room

for

improvement

remains

in

the

current

legal

basis

for

instance

on

further

economic

regulation

stronger

legislative

sanctions

and

public

participation

-LRB-

cf.

Tong

Zhang

Fu

and

Zhong

Fu

and

others

-RRB-

As

implementation

problems

were

slowly

or

not

adequately

addressed

or

resolved

at

the

national

level

local

governments

started

to

issue

local

policy

papers

on

specific

water

projects

For

instance

the

Interim

Provision

on

Administrating

Concession

Right

of

Chengdu

-LRB-

No.

Policy

Paper

of

Chengdu

Municipality

-RRB-

was

issued

for

implementing

the

BOT

project

of

Chengdu

No.

Water

Supply

Plant

-LRB-

B

-RRB-

which

was

the

first

water

BOT

pilot

project

approved

by

the

NDRC

And

the

Measures

on

Public

Utilities

Concession

Management

of

Shenzhen

-LRB-

No.

Policy

Paper

of

Shenzhen

Municipality

-RRB-

guided

the

reform

of

Shenzhen

Water

Group

the

largest

water

project

with

private

sector

involvement

in

China

to

date

The

Current

Landscape

of

Private

Sector

Involvement

In

China

's

water

supply

and

wastewater

services

four

major

types

of

private

corporations

are

active

-LRB-

Fu

and

others

-RRB-

-LRB-

-RRB-

the

water

transnational

corporations

-LRB-

e.g.

VEOLIA

and

SUEZ

-RRB-

-LRB-

-RRB-

Chinese

investment

developers

-LRB-

e.g.

Beijing

Capital

Group

and

Tianjin

Capital

Environmental

Protection

Co.

Ltd.

-RRB-

-LRB-

-RRB-

liberalized

water

companies

-LRB-

e.g.

Shenzhen

Water

Group

and

Beijing

Sewerage

Group

-RRB-

and

-LRB-

iv

-RRB-

environmental

engineering

corporations

-LRB-

e.g.

Beijing

Sound

Group

and

Tsinghua

Tongfang

Water

Engineering

Corporation

-RRB-

In

December

of

the

Ministry

of

Construction

called

provincial-level

authorities

to

summarize

marketization

of

public

sectors

-LRB-

e.g.

water

and

wastewater

solid

waste

gas

and

public

transportation

-RRB-

In

July

of

a

follow-up

field

survey

was

organized

by

the

MOC

in

which

the

authors

have

participated

All

reported

data

of

this

section

come

from

the

reports

of

provincial-level

authorities

supplemented

by

surveys

of

the

Water

Policy

Research

Center

of

Tsinghua

University

-LRB-

in

which

authors

participated

-RRB-

According

to

the

MOC

surveys

various

forms

of

private

sector

participation

can

be

identified

in

both

water

supply

and

waste

water

treatment

-LRB-

-RRB-

commercialization

of

public

utilities

it

is

the

transformation

of

a

public

agency/utility

into

an

independent

corporation

-LRB-

-RRB-

management

contract

-LRB-

or

namely

operations

and

maintenance

contract

-RRB-

it

refers

to

a

contractual

arrangement

in

which

a

private

operator

manages

and

maintains

the

service

in

a

given

period

but

does

not

have

investment

obligations

-LRB-

-RRB-

lease

contract

it

is

a

short-term

contract

in

which

a

private

operator

pays

an

agreed-upon

fee

to

the

government

for

the

right

to

manage

the

facility

-LRB-

-RRB-

Greenfield

contract

-LRB-

such

as

BOT

TOT

BOOT

etc.

-RRB-

it

means

the

government

commits

new

investment

projects

to

a

private

company

within

the

contract

duration

the

private

operator

manages

the

infrastructure

and

the

government

purchases

the

water

by

a

contracted

price

-LRB-

this

price

is

n't

necessarily

determined

by

the

actual

water

tariff

-RRB-

-LRB-

-RRB-

concession

contract

it

is

a

long-term

contract

in

which

a

private

operator

bears

responsibilities

for

operations

and

maintenance

and

also

assumes

investment

and

service

obligations

-LRB-

-RRB-

Joint

Venture

it

is

not

a

contract

but

rather

an

arrangement

whereby

a

private

company

forms

a

legal

entity

with

the

public

sector

in

which

both

the

private

and

the

public

parts

share

responsibilities

and

-LRB-

investment

-RRB-

obligations

and

-LRB-

-RRB-

full

sale

-LRB-

or

full

divesture

-RRB-

it

is

the

sale

of

public

assets

to

the

private

sector

Table

summarizes

the

various

forms

of

private

sector

participation

and

their

characteristics

Until

July

a

total

of

water

supply

projects

and

wastewater

treatment

projects

involved

private

participation

The

total

water

production

capacity

of

the

water

supply

projects

equaled

about

of

national

water

production

capacity

of

The

treatment

capacity

of

the

wastewater

projects

was

over

million

per

day

equaling

of

the

national

total

wastewater

treatment

capacity

of

Table

forms

of

private

sector

participation

in

China

's

water

sectorForm

of

private

sector

participationAsset

ownershipCapital

investmentOperations

maintenanceContract

periodCommercialization

of

governmental

enterprises/utilitiesPublicPublicPublicIndefiniteManagement

-LRB-

BOT-type

-RRB-

Private

ventureSharedSharedSharedIndefiniteSale

or

full

divesturePrivatePrivatePrivateIndefinite

Figure

shows

the

prevalence

of

different

forms

of

private

sector

participation

in

water

supply

and

in

wastewater

projects

The

joint

venture

approach

-LRB-

including

the

Sino-foreign

joint

ventures

-RRB-

has

the

largest

share

in

the

water

supply

sector

with

of

the

privatized

projects

The

Greenfield

modes

of

private

sector

participation

-LRB-

including

the

BOT

and

TOT

contracts

-RRB-

dominated

in

the

wastewater

sector

with

of

the

projects

The

commercialization

of

governmental

utilities

also

plays

an

important

role

in

both

water

supply

-LRB-

of

projects

-RRB-

and

wastewater

-LRB-

of

projects

-RRB-

The

differences

in

prevalence

of

private

sector

participation

forms

between

water

supply

and

wastewater

have

a

close

relation

with

the

level

of

infrastructure

development

and

with

tariff

levels

Compared

to

urban

water

supply

-LRB-

with

service

coverage

of

-RRB-

urban

wastewater

treatment

lags

behind

with

a

service

coverage

of

in

-LRB-

MOC

-RRB-

Direct

investment

demand

for

urban

wastewater

infrastructure

-LRB-

including

wastewater

treatment

sewers

and

sludge

treatment

-RRB-

in

China

is

expected

to

be

over

billion

US

dollars

between

and

to

meet

the

objective

of

municipal

wastewater

to

be

treated

Accordingly

local

governments

prefer

direct

private

sector

investment

in

and

building

of

new

wastewater

infrastructure

resulting

in

high

levels

of

the

Greenfield

modalities

In

addition

the

current

low

wastewater

treatment

charges

result

in

a

preference

for

Greenfield

modes

In

these

modes

financing

is

based

on

negotiated

prices

between

the

government

and

the

private

sector

and

is

less

dependent

to

the

user

fee

or

charge

drinking

water

supply

costs

are

much

better

represented

in

prices

making

joint

ventures

more

likely

-LRB-

Zhong

and

others

-RRB-

Fig.

sector

participation

in

water

distribution

over

modalities

-LRB-

-RRB-

Figure

categorizes

public

sector

participation

into

five

groups

according

to

project

capacity

The

joint

venture

approach

leads

the

reform

of

water

supply

sector

in

all

size-categories

while

the

Greenfield

approach

dominates

in

wastewater

sector

except

for

projects

over

per

day

This

might

also

be

related

to

the

different

financial

risks

Larger

projects

require

much

more

direct

capital

investment

from

the

private

sector

increasing

the

financial

risk

for

private

investors

and

moving

then

rather

toward

joint

venture

approaches

Furthermore

the

full

sale/divesture

approach

occurred

more

in

the

field

of

water

sector

and

mainly

in

small

projects

in

specific

provinces

-LRB-

see

Fig.

-RRB-

And

commercialization

is

more

often

found

among

larger

projects

This

might

be

related

to

not

only

the

larger

capital

demands

of

bigger

projects

but

also

huge

labor

redundancies

within

such

large

projects

Existing

large

water

projects

are

traditionally

run

by

state-owned

enterprises

with

high

levels

of

superfluous

workers

For

private

investors

it

is

often

difficult

to

improve

efficiency

because

government

contracts

often

do

not

allow

firing

existing

workers

following

a

commercialization

process

Fig.

of

private

sector

participation

in

water

projects

by

capacitiesFig

of

private

sector

participation

in

water

projects

by

provinces

Figure

visualizes

the

provincial

distribution

of

water

projects

with

private

sector

participation

At

least

provinces

have

private

sector

participation

experience

in

water

supply

and

provinces

in

wastewater

treatment

The

form

of

private

sector

participation

is

determined

by

the

level

of

development

of

water/wastewater

infrastructure

as

well

as

the

local

economic

social

and

political

conditions

With

richer

markets

more

open

economic

policies

and

higher

payment

capacity

of

local

residents

the

southern

coastal

-LRB-

e.g.

Guangdong

and

Fujian

-RRB-

and

the

eastern

coastal

-LRB-

e.g.

Jiangsu

-RRB-

provinces

witnessed

high

levels

of

reform

in

their

water

sector

Over

of

foreign

private

sector

investment

in

water

supply

projects

and

about

foreign

private

sector

investment

in

wastewater

projects

were

implemented

in

these

coastal

regions

according

to

the

MOC

survey

In

the

meanwhile

the

first

national

BOT

pilot

project

of

Chengdu

Water

Supply

-LRB-

Sichuan

Province

-RRB-

has

triggered

a

wave

of

private

sector

participation

in

and

around

Sichuan

Province

-LRB-

including

Chongqing

and

Yunnan

-RRB-

Furthermore

the

special

environmental

protection

policies

related

to

The

Three

Gorges

dam

might

have

impelled

private

sector

participation

in

wastewater

sector

of

Sichuan

Province

and

Chongqing

As

shown

in

Fig.

in

water

supply

the

joint

venture

approach

dominates

in

provinces

In

the

wastewater

sector

Greenfield

projects

-LRB-

including

BOT

and

TOT

-RRB-

dominate

in

provinces

The

commercialization

of

traditional

state-owned

water

enterprises

was

adopted

more

widely

in

inland

provinces

-LRB-

such

as

Gansu

Heilongjiang

Jilin

Sichuan

Xinjiang

Yunnan

-RRB-

than

in

coastal

provinces

A

joint

venture

approach

for

private

sector

involvement

in

the

wastewater

sector

was

only

adopted

in

provinces

with

high

wastewater

treatment

charges

such

as

Beijing

Fujian

Jiangsu

Zhejiang

and

Shanghai

Three

Case

Studies

of

Public-Private

Partnerships

The

reported

growing

involvement

of

the

private

sector

has

led

to

radical

changes

in

China

's

water

management

institutions

In

this

section

we

report

on

fieldwork

of

three

case

studies

with

distinct

modes

of

private

sector

involvement

-LRB-

a

joint

venture

a

concession

and

a

Greenfield

contract

-RRB-

to

analyze

in

detail

the

new

institutions

and

relationships

between

actors

in

these

constructions

During

fieldwork

in

Maanshan

and

Shanghai

we

carried

out

face-to-face

semi-structured

interviews

with

relevant

local

officials

-LRB-

from

the

construction

authority

price

authority

planning

and

reform

authority

state-owned

assets

administration

authority

and

environmental

protection

bureau

-RRB-

and

managers

of

water

service

providers

-LRB-

water

treatment

plants/companies

wastewater

treatment

plants/companies

-RRB-

In

the

performance

assessment

project

of

Macau

Water

Company

Ltd.

the

managers

of

relevant

departments

as

well

as

the

representative

of

Macau

Government

were

interviewed

In

total

around

interviews

were

held

While

these

three

cases

represent

different

forms

of

private

sector

involvement

they

can

not

be

held

representative

All

three

cases

have

been

assessed

positively

by

the

Chinese

government

and

independent

researchers

-LRB-

see

Fu

and

others

-RRB-

making

them

rather

best

practices

than

representative

cases

But

together

they

illustrate

the

institutional

transformations

that

come

along

private

sector

involvement

Joint

Venture

Maanshan

Water

Supply

Maanshan

City

is

an

industrial

prefecture-level

city

of

square

kilometers

and

a

population

of

million

-LRB-

-RRB-

of

whom

per

cent

lives

in

urban

areas

According

to

the

MOC

statistics

per

cent

of

the

urban

population

has

access

to

water

supply

Water

resources

are

abundant

in

Maanshan

City

due

to

its

advantageous

location

on

the

south

bank

of

the

Yangtze

River

and

abundant

annual

rainfall

-LRB-

mm

-RRB-

Maanshan

Construction

Commission

-LRB-

MASCC

-RRB-

is

not

only

the

competent

authority

for

water

supply

and

wastewater

treatment

and

as

such

plays

a

leading

role

in

the

water

sector

reform

It

is

also

as

a

so-called

Big

Construction

Commission

the

main

governmental

agency

responsible

for

urban

planning

construction

and

management

-LRB-

cf

Wu

-RRB-

In

following

the

call

of

Central

Government

and

Anhui

Provincial

Government

MASCC

embarked

upon

marketization

reform

in

water

and

other

public

utilities

-LRB-

e.g.

gas

and

public

transport

-RRB-

widely

inviting

business

actors

to

become

active

and

invest

The

director

of

MASCC

Mr.

Xu

argued

that

changing

the

current

water

institutions

and

increasing

service

quality

were

the

most

important

reasons

and

objectives

for

embarking

on

marketization

in

the

water

sector

in

Maanshan

rather

than

bringing

in

nongovernmental

capital

-LRB-

personal

communication

-RRB-

Marketization

was

expected

to

impel

and

accelerate

the

reform

of

converting

the

old

Maanshan

Water

Supply

Company

-LRB-

MASWSC

established

in

as

state-owned

and

state-subsidized

company

with

total

assets

of

million

RMB

in

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

into

a

new

institutional

lay-out

After

negotiating

with

several

private

companies

MASCC

first

started

as

a

kind

of

trial

a

joint

venture

with

Beijing

Capital

Group

-LRB-

BCG

-RRB-

for

one

water

supply

plant

-LRB-

WTP

BCG

owning

of

shares

-RRB-

This

joint

WTP

sold

purified

water

to

MASWSC

and

performed

significantly

better

than

other

WTPs

managed

by

MASWSC

alone

In

MASCC

expanded

the

joint

venture

cooperation

with

BCG

to

all

WTPs

of

Maanshan

City

in

which

BCG

obtained

a

share

by

bringing

in

million

RMB

-LRB-

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

The

new

joint

venture

company

-LRB-

MAS-BCWLC

-RRB-

was

awarded

a

concession

right

Both

BCG

-LRB-

private

sector

-RRB-

and

MASWSC

-LRB-

public

sector

-RRB-

bear

responsibility

of

investment

operation

and

maintenance

of

the

WTPs

-LRB-

excluding

the

pipe

networks

-RRB-

and

service

obligations

-LRB-

see

Fig.

-RRB-

With

respect

to

the

pipe

networks

MAS-BCWLC

manages

and

maintains

the

existing

-LRB-

-RRB-

network

by

signing

a

lease

contract

with

MASWSC

which

remained

owner

of

the

assets

and

bears

the

financial

obligations

-LRB-

debts

-RRB-

In

the

meanwhile

MAS-BCWLC

is

requested

to

invest

in

new

pipe

infrastructure

in

new

development

areas

and

in

nonpiped

neighborhoods

Fig.

structure

of

Maanshan

water

supply

system

Within

the

new

joint

venture

structure

the

board

of

MAS-BCWLC

-LRB-

members

from

BCG

and

from

WASWSC

-RRB-

is

the

current

decision-maker

regarding

planning

-LRB-

within

the

objectives

set

by

the

municipal

master

planning

-RRB-

investment

and

financing

partly

replacing

the

tradition

of

government

decision

structures

According

to

the

contract

the

general

manager

of

the

joint

venture

company

comes

alternately

from

MASWSC

and

BCG

Taking

into

account

the

social

dimensions

of

water

provisioning

the

government

claimed

three

key

conditions

in

the

agreement

with

the

concessionaire

first

the

concessionaire

-LRB-

MAS-BCWLC

-RRB-

must

ensure

sufficient

and

safe

water

provision

and

the

government

can

take

over

all

facilities

without

any

indemnity

if

the

concessionaire

fails

second

the

concessionaire

can

not

change

the

public

and

social

nature

of

water

and

should

include

relevant

social

responsibilities

as

governmental

requirements

-LRB-

e.g.

employing

all

personnel

from

the

old

water

company

providing

free

water

for

firefighting

reducing/subsidizing

water

bills

of

the

poor

-RRB-

third

the

government

controls

the

water

price

In

order

to

ensure

high-quality

water

and

service

MASCC

regulates

the

performance

of

MAS-BCWLC

via

assessing

annually

the

specified

objectives

approved

by

both

the

MAS-BCWLC

board

and

MASCC

For

instance

MAS-BCWLC

was

requested

to

achieve

key

objectives

in

-LRB-

-RRB-

investment

of

million

RMB

-LRB-

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

-LRB-

-RRB-

selling

million

cubic

meter

water

or

more

and

reclaiming

of

water

bills

-LRB-

-RRB-

fulfilling

indicators

of

water

service

quality

-LRB-

for

instance

of

the

control

points

should

reach

the

required

water

quality

standards

control

points

should

reach

standards

for

water

pressure

a

maximum

of

water

loss

burst

pipes

repairs

within

maximum

time

limits

-RRB-

-LRB-

-RRB-

fulfilling

all

MASCC

indicators

for

safe

work

-LRB-

-RRB-

construction

of

the

main

body

of

the

No.

WTP

and

kilometer

new

pipes

-LRB-

-RRB-

fulfilling

client

service

indicators

-LRB-

for

instance

good

client

service

public

satisfaction

-RRB-

-LRB-

-RRB-

fulfilling

the

reconstruction

of

Xiangshan

Town

water

supply

system

-LRB-

-RRB-

elaboration

and

submitting

a

water

supply

plan

-LRB-

-RRB-

achieving

the

relevant

objectives

of

National

Civilized

City

Assessment

System

-LRB-

which

was

proposed

by

Central

Cultural

and

Ideological

Building

Commission

in

it

includes

indicators

-RRB-

-LRB-

-RRB-

submitting

water

supply

plans

to

Municipal

People

's

Congress

and

Municipal

People

's

Political

Consultative

Conference

-LRB-

-RRB-

responding

adequately

to

complaints

and

reporting

this

information

to

the

government

and

-LRB-

-RRB-

take

anti-corruption

measures

After

establishing

the

joint

venture

in

the

total

length

of

pipes

and

the

volume

of

water

provision

have

increased

-LRB-

see

Fig.

-RRB-

and

MAS-BCWLC

has

been

in

compliance

with

all

requirements

of

the

government

according

to

interviews

with

local

officials

From

to

MAS-BCWLC

has

invested

about

million

RMB

-LRB-

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

for

building

new

infrastructure

updating

old

facilities

and

aged

pipes

and

establishing

a

customer

service

system

In

the

meanwhile

the

government

has

stopped

subsidizing

WTPs

after

the

involvement

of

BCG

and

the

joint

venture

even

turned

over

about

million

RMB

-LRB-

ca.

million

US$

at

the

exchange

rate

of

RMB

including

million

RMB

of

the

rent

fee

for

pipe

networks

million

RMB

of

dividends

million

RMB

of

corporate

income

tax

million

RMB

of

value

added

tax

and

million

RMB

of

the

expense

of

other

taxation

the

total

taxation

of

million

RMB

is

about

of

the

total

turnover

of

MAS-BCWLC

in

-RRB-

to

the

local

government

in

The

improved

service

quality

of

water

provision

not

only

satisfied

the

consumers

but

also

resulted

in

government

-LRB-

and

the

price

public

hearing

cf.

Zhong

and

Mol

-RRB-

support

for

the

first

tariff

reform

after

private

sector

involvement

in

Maanshan

Government

increased

the

water

tariff

from

to

-LRB-

ca.

to

US$

at

the

exchange

rate

of

RMB

rate

for

household

consumers

-RRB-

and

indirectly

subsidized

MAS-BCWLC

by

moving

the

additional

tax

of

water

provision

-LRB-

e.g.

for

household

consumers

-RRB-

to

the

income

of

the

joint

venture

water

company

In

the

per

capita

annual

income

of

urban

households

of

Maanshan

was

RMB

-LRB-

ca.

US$

at

the

exchange

rate

of

RMB

-RRB-

of

which

around

was

spent

on

water

services

-LRB-

calculated

based

on

daily

household

water

use

of

liters

per

capita

-RRB-

Fig.

length

of

pipes

and

annual

water

provision

in

Maanshan

-LRB-

-RRB-

Obviously

the

involvement

of

BCG

has

brought

in

additional

capital

to

develop

Maanshan

's

water

supply

sector

But

more

importantly

it

has

changed

the

institutional

structure

improved

the

water

service

quality

and

quantity

as

well

as

reduced

the

governmental

input

in

this

field

-LRB-

see

Fig.

-RRB-

In

this

structure

the

government

benefits

both

from

the

taxations

and

dividends

of

the

joint

venture

company

while

transferring

part

of

the

financial

building

and

operational

risks

to

the

private

sector

Following

this

model

of

Maanshan

City

BCG

has

successfully

expanded

its

activities

to

other

cities

such

as

Huainan

-LRB-

Anhui

Province

-RRB-

Baoji

-LRB-

Shanxi

Province

-RRB-

and

Yuyao

-LRB-

Zhejiang

Province

-RRB-

Fig.

flow

within

Maanshan

water

supply

However

this

private

sector

involvement

practice

of

Maanshan

is

argued

to

have

a

-LRB-

potential

-RRB-

political

risk

due

to

the

lack

of

a

sound

legal

basis

In

transitional

China

in

particular

policies

are

perceived

to

be

instable

and

insufficiently

law-based

Until

now

details

on

measures

and

rules

to

regulate

private

utility

companies

are

still

missing

in

current

national

and

Anhui

provincial

policy

papers

-LRB-

Maanshan

has

no

legislation

right

-RRB-

This

is

a

common

problem

in

Chinese

marketization

practices

in

the

water

sector

as

argued

by

many

lawyers

and

academics

For

instance

Shenyang

water

supply

has

experienced

several

failed

marketization

practices

due

to

the

constantly

changing

policies

and

decisions

of

the

local

government

during

-LRB-

field

survey

-RRB-

Concession

Contract

Macau

Water

Supply

Macau

is

one

of

the

two

Special

Administrative

Regions

of

China

together

with

Hong

Kong

Administrated

by

Portugal

until

it

was

the

oldest

European

colony

in

China

dating

back

to

the

century

As

a

small

territory

of

on

the

southern

coast

of

China

consisting

of

a

peninsula

and

the

islands

of

Taipa

and

Coloane

it

has

a

population

of

-LRB-

-RRB-

Macau

has

a

long

history

in

the

private

provision

of

drinking

water

since

the

earliest

Macau

Water

Company

Ltd.

-LRB-

MWC

-RRB-

was

founded

in

as

a

full

private

capital

company

invested

by

individuals

Three

years

later

MWC

was

taken

over

by

a

British

Electricity

Lighting

Company

for

years

and

since

by

the

president

of

the

Macau

Economic

Department

and

other

individual

shareholders

Due

to

lack

of

capital

and

advanced

technologies

Macau

had

an

inadequate

water

supply

service

with

poor

water

quality

and

discontinuous

water

provision

during

the

In

Macau

Government

learning

from

the

concession

management

practices

in

the

French

water

sector

awarded

a

consortium

of

two

private

companies

NWS

Holding

Limits

-LRB-

Hong

Kong

-RRB-

and

SUEZ

Environment

-LRB-

France

-RRB-

a

concession

contract

Macau

Government

remained

owner

of

the

existing

assets

-LRB-

plants

and

pipe

networks

-RRB-

while

the

private

Macau

Water

Supply

Ltd.

-LRB-

MWSL

the

former

MWC

-RRB-

bears

responsibilities

for

operations

and

maintenance

of

these

assets

as

well

as

for

new

investments

and

service

obligations

-LRB-

see

Fig.

-RRB-

This

concession

contract

is

not

only

the

first

private

sector

participation

construction

in

Chinese

water

sector

but

also

the

first

contract

that

seems

to

end

with

a

positive

result

Fig.

structure

in

Macau

water

supply

Distinct

from

the

previous

private

owners

who

had

little

experience

in

the

field

of

water

provision

SUEZ

-LRB-

France

-RRB-

brought

in

advanced

water

knowledge

and

technology

According

to

the

concession

contract

MWSL

must

provide

high-quality

water

supply

service

as

well

as

bear

several

obligations

such

as

planning

investment

construction

operation

and

maintenance

of

the

infrastructure

under

the

supervision

of

Macao

Government

In

practice

Macau

Government

has

delegated

tasks

responsibilities

and

obligations

to

a

very

large

degree

to

MWSL

Coming

to

the

end

of

the

concession

contract

MWSL

has

fulfilled

almost

all

terms

of

the

initial

contract

It

has

among

others

considerably

improved

water

service

quality

by

increasing

service

access

and

provision

decreased

the

loss

of

water

leakage

-LRB-

see

Fig.

-RRB-

and

kept

water

tariff

-LRB-

corrected

for

inflation

-RRB-

at

a

stable

level

-LRB-

see

Fig.

-RRB-

Fig.

water

demand-provision

and

water

loss

in

Macau

-LRB-

-RRB-

Fig.

tariff

rates

of

Macau

-LRB-

-RRB-

In

the

concession

contract

the

government

did

not

specify

conditions

and

safeguards

for

the

poor

But

in

practice

MWSL

not

only

reduced

the

water

bill

for

low-income

disabled

and

other

vulnerable

groups

For

instance

MWSL

has

launched

the

Elderly-In-Needs

water

subsidy

program

in

which

offers

those

aged

over

free

water

consumption

of

per

month

Since

May

the

Water

for

All

program

offers

free

water

consumption

to

other

categories

of

people

in

needs

such

as

single-parent

families

and

disabled

But

also

in

addition

it

built

two

potable

Wallace

fountains

-LRB-

a

special

public

fountain

with

potable

water

-RRB-

in

Macau

providing

free

potable

water

to

tourists

and

citizens

MWSL

has

also

been

active

in

various

social

welfare

and

charity

activities

providing

total

donations

of

million

MOP

-LRB-

RMB

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

during

During

MSWL

also

charged

discounted

water

tariffs

for

governmental

agencies

and

handed

in

over

million

MOP

-LRB-

RMB

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

of

taxes

and

about

million

MOP

-LRB-

RMB

ca.

million

US$

at

the

exchange

rate

of

RMB

-RRB-

of

concession

fees

to

the

government

In

both

Maanshan

and

Macau

the

water

tariff

is

the

main

financial

source

for

water

companies

while

governmental

subsidies

have

been

abandoned

Accordingly

whether

the

water

tariff

can

cover

the

costs

is

significant

In

the

case

of

Macau

the

Macau

Government

owns

the

pre-concession

infrastructure

assets

which

demands

a

smaller

first

investment

from

the

Consortium

The

water

tariff

could

easily

cover

the

cost

of

operation

and

maintenance

-LRB-

and

not

the

huge

capital

costs

of

existing

assets

-RRB-

Unlike

the

joint

venture

construction

in

the

Maanshan

case

Macau

Government

leaves

all

financial

responsibilities

to

the

private

sector

after

the

concession

and

benefits

from

taxes

concession

fees

and

discounts

on

government

water

bills

-LRB-

see

Fig.

-RRB-

Due

to

the

limited

initial

investments

of

the

private

consortium

sharp

water

tariff

increases

were

avoided

after

privatization

-LRB-

often

one

of

the

major

reasons

for

public

resistance

and

failed

private

sector

participation

in

other

countries

-RRB-

The

local

government

still

owns

part

of

the

infrastructure

assets

in

particular

the

pipes

system

with

huge

sunk-costs

Fig.

flow

within

Macau

water

supply

Macau

is

also

an

interesting

case

because

of

the

unique

regulatory

system

which

includes

the

water

quality

regulator

-LRB-

IACM

-RRB-

and

a

unique

Government

Delegate

IACM

is

in

charge

of

the

water

quality

regulation

and

monitors

and

controls

drinking

water

quality

by

random

sampling

and

analysis

of

over

water

samples

around

Macau

everyday

The

Government

Delegate

is

not

a

government

official

but

an

individual

working

in

another

public

utility

company

and

appointed

by

the

government

Following

Macau

laws

Mr.

Lin

Runzhong

the

Government

Delegate

for

water

supply

was

appointed

for

a

period

of

five

years

by

the

Macau

Government

and

is

not

only

the

regulator

of

MWSL

but

also

an

important

linkage

between

MWSL

and

the

government

He

participates

at

all

MWSL

board

meetings

and

reports

relevant

information

and

documents

to

the

government

The

Government

Delegate

decides

which

information

is

considered

relevant

He

is

also

in

charge

of

assessing

the

performance

of

MWSL

and

comments

on

the

five-year

plans

and

tariff

plans

before

MWSL

sends

these

to

the

government

for

approval

The

Macau

government

generally

follows

the

comments

and

assessments

of

the

Government

Delegate

In

this

sense

the

nongovernmental

Government

Delegate

is

defined

a

specified

role

and

powerful

position

in

governing

the

water

sector

This

institutional

arrangement

relates

to

the

small

size

of

Macau

Government

where

only

a

limited

state

capacity

-LRB-

in

quantitative

and

qualitative

terms

-RRB-

is

available

for

numerous

public

tasks

In

conclusion

it

can

be

argued

that

after

the

Macau

government

has

played

a

meager

role

in

the

drinking

water

management

Greenfield

Contract

Shanghai

Wastewater

The

Greenfield

contract

-LRB-

e.g.

BOT

TOT

-RRB-

is

the

dominant

form

of

private

sector

participation

in

wastewater

sector

reform

throughout

the

country

Shanghai

Zhuyuan

No.

WWTP

project

is

one

of

the

most

famous

Greenfield

projects

in

China

It

is

presently

one

of

the

largest

WWTP

in

China

with

a

treatment

capacity

of

million

per

day

and

an

advanced

primary

treatment

serving

an

area

of

and

about

million

inhabitants

But

it

also

has

become

famous

for

the

lowest

service

price

RMB

-LRB-

ca.

US$

at

the

exchange

rate

of

RMB

-RRB-

per

cubic

meter

treated

wastewater

In

the

Youlian

Consortium

-LRB-

consisting

of

Youlian

Development

Company

with

shares

Huajin

Information

Investment

Ltd.

Company

with

shares

and

Shanghai

Urban

Construction

Group

with

shares

-RRB-

won

the

open

tender

for

Zhuyuan

No.

WWTP

project

by

bidding

the

lowest

treatment

costs

A

Project

Company

-LRB-

Shanghai

Zhuyuan

Youlian

No.

Wastewater

Treatment

Ltd.

CO.

-RRB-

was

established

and

awarded

a

concession

agreement

by

Shanghai

Water

Authority

A

service

management

contract

was

signed

with

Shanghai

Sewerage

Company

-LRB-

a

fully

state-owned

company

administrated

by

the

government

-RRB-

including

details

of

rights

and

obligations

Two

years

later

Youlian

Development

Company

withdrew

from

this

project

by

transferring

the

shares

and

obligations

to

InterChina

Holdings

Group

-LRB-

see

Fig.

-RRB-

Fig.

sector

involvement

in

Shanghai

wastewater

treatment

According

to

the

agreement

between

Shanghai

Water

Authority

and

the

private

company

Shanghai

Water

Authority

should

minimize

its

interventions

in

the

construction

operation

and

maintenance

of

WWTP

and

limit

them

to

safeguarding

public

health

and

safety

All

conditions

and

objectives

with

regard

to

water

service

quality

are

defined

in

the

service

contract

between

Shanghai

Sewerage

Company

and

the

private

company

Among

others

the

private

company

has

to

install

an

on-line

monitoring

system

and

is

requested

to

invite

an

authorized

third

party

for

regular

monitoring

-LRB-

on

indicators

such

as

CODcr

SS

and

phosphate

-RRB-

This

should

be

paid

by

the

private

company

while

reporting

to

the

Shanghai

Sewerage

Company

and

should

take

place

within

five

days

Shanghai

Sewerage

Company

may

conduct

random

water

examination

at

any

time

According

to

the

local

officials

Shanghai

Zhuyuan

WWTP

has

fulfilled

all

responsibilities

and

obligations

required

by

the

contract

up

till

now

including

meeting

the

water

quality

standards

In

the

case

of

Shanghai

Zhuyuan

Greenfield

project

the

government

has

transferred

its

traditional

responsibilities

of

investment

construction

operation

and

maintenance

-LRB-

for

the

contract

period

-RRB-

to

the

private

Project

Company

accompanied

by

paying

a

service

fee

-LRB-

see

Fig.

-RRB-

Different

from

the

joint

venture

construction

in

Maanshan

and

the

concession

construction

in

Macau

in

which

corporate

profits

directly

depend

on

the

water

tariff

the

private

operator

within

a

Greenfield

contract

is

paid

a

service

price

negotiated

between

the

government

and

the

private

sector

This

service

price

depends

on

the

investments

and

agreed

performance

levels

rather

than

on

the

user

fee

level

and

which

provides

the

private

sector

with

the

financial

risks

Accordingly

the

low

service

price

of

Zhuyuan

No.

WWTP

-LRB-

which

was

less

than

the

projected

costs

by

government

-RRB-

presented

in

the

public

bidding

was

argued

to

have

a

close

relation

to

earlier

governmental

input

in

this

project

Shanghai

Water

Assets

Management

Development

CO.

Ltd.

a

fully

public-owned

company

was

in

charge

of

the

pre-phase

design

and

invested

about

million

US

dollars

in

the

fixed

infrastructure

of

this

project

while

the

government

provided

the

land

free

of

charge

to

the

operator

Strictly

speaking

Shanghai

Zhuyuan

No.

WWTP

Greenfield

project

is

a

quasi-BOT

project

due

to

the

fact

that

part

of

the

investment

comes

from

the

government

Fig.

flow

within

Zhuyuan

Greenfield

project

The

experience

of

Shanghai

is

an

example

of

full

governmental

delegation

of

the

daily

management

of

WWTP

to

the

private

sector

while

financial

support

via

subsidies

and

preferential

policies

-LRB-

e.g.

land

use

-RRB-

facilitate

privatization

with

low

service

prices

It

is

however

too

early

to

fully

assess

the

success

of

this

project

Some

BOT

WWTP

projects

in

other

cities

have

met

problems

following

gaps

in

the

current

national

policy

documents

For

instance

projects

in

Foshan

-LRB-

Guangdong

Province

-RRB-

could

not

run

properly

due

to

conflicts

over

current

land

use

right

And

projects

in

Beijing

were

delayed

during

the

financing

process

because

the

domestic

private

actors

met

difficulties

in

obtaining

loans

from

domestic

banks

due

to

the

lack

of

a

sound

loan

policy

The

commercial

banks

could

n't

provide

long-term

loans

as

required

for

BOT-types

projects

as

their

credit

policies

are

restricted

for

the

private

sector

-LRB-

Zhong

and

Fu

-RRB-

while

the

China

Development

Bank

can

provide

long-term

loans

for

BOT-types

projects

only

for

a

limited

number

of

clients

-LRB-

Chang

and

others

-RRB-

Conclusions

With

the

emergence

and

blossoming

of

various

forms

of

private

sector

involvement

in

the

Chinese

water

sector

the

traditional

structure

of

full

governmental

provision

of

water

supply

and

wastewater

treatment

has

changed

dramatically

The

analysis

in

this

article

has

provided

evidence

of

the

contribution

of

these

new

modes

to

increased

capital

investment

and

especially

of

more

efficient

operations

and

improved

service

provision

In

that

sense

the

original

goals

of

the

Chinese

government

to

embark

upon

private

sector

involvement

in

water

provisioning

and

treatment

have

been

met

However

the

early

stage

that

most

contracts

are

in

and

the

not

yet

crystallized

forms

and

modes

of

privatization

prevents

us

from

drawing

any

final

conclusions

on

the

impact

of

private

sector

involvement

in

the

Chinese

water

sector

From

the

three

casestudy

projects

with

private

sector

participation

we

can

draw

some

lessons

for

how

to

successfully

involve

the

private

sector

into

the

provision

of

water

services

Firstly

a

balance

between

the

water

tariff

level

profits

of

investor

and

governmental

subsidies

is

required

As

Hall

and

Lobina

-LRB-

-RRB-

state

most

practices

of

water

privatization

fail

due

to

public

resistance

following

sharp

price

increases

and

job

losses

In

China

this

has

not

-LRB-

yet

-RRB-

been

the

case

due

to

large

increases

in

efficiencies

and

governmental

support

to

fixed

infrastructure

assets

reducing

financial

risk

of

the

private

sector

and

limiting

the

need

for

large

water

tariff

increases

At

the

same

time

the

significant

economic

growth

levels

enables

local

residents

to

cope

with

some

tariff

increases

the

poor

and

disadvantaged

have

been

subsidized

by

the

government

job

losses

have

been

minimized

following

social

policies

and

public

hearings

have

contributed

to

higher

levels

of

legitimacy

This

all

contributed

strongly

to

a

relatively

smooth

transformation

of

China

's

water

sector

Secondly

the

selection

of

the

PPP

form

has

a

close

relation

with

the

level

of

local

water

tariff

As

illustrated

by

this

article

Greenfield

projects

appear

to

be

applied

when

tariffs

are

not

sufficient

especially

in

the

wastewater

sector

-LRB-

see

also

Zhong

and

others

-RRB-

while

Joint

Venture

approaches

are

often

used

in

cities

with

sufficiently

high

water

tariff

in

particularly

in

the

water

supply

sector

Thirdly

it

is

crucial

to

accelerate

the

establishment

of

systematic

and

comprehensive

governmental

regulatory

framework

as

the

current

ad

hoc

fragmented

and

diverse

regulatory

system

endangers

efficiency

in

water

service

development

and

certainty

and

stability

for

foreign

investors

Experiences

in

many

countries

have

proven

that

regulation

is

a

key

aspect

in

successful

privatization

in

the

water

sector

and

a

competitive

benchmarking

system

is

regarded

as

useful

in

an

effective

regulatory

approach

In

late

the

MOC

attempted

to

develop

a

Chinese

water

supply

benchmarking

system

which

is

still

ongoing

However

the

current

private

sector

involvements

in

the

Chinese

water

sector

still

face

many

legal

and

regulatory

uncertainties

Too

often

local

authorities

experiment

with

systems

of

governmental

regulation

and

control

or

as

in

Macau

seem

to

become

marginalized

According

to

interviews

with

local

officials

during

our

fieldwork

the

importance

of

establishing

a

workable

regulatory

and

legal

system

is

essential

Guaranteeing

sufficient

and

safe

water

service

to

the

public

is

jeopardized

by

the

fact

that

governments

can

no

longer

fully

control

the

planning

operation

and

management

of

water

services

as

before

private

sector

participation

This

might

only

be

signs

of

uneasiness

with

the

new

water

institutions

and

division

of

tasks

and

responsibilities

but

can

also

be

the

heralds

of

an

emerging

debate

on

privatization

in

the

Chinese

water

sector

Finally

but

not

least

it

is

important

to

identify

the

differences

in

risk

allocations

in

the

water

-LRB-

service

-RRB-

market

between

the

public

and

private

sectors

within

different

modes

of

PPP

As

Table

and

the

three

case-study

projects

illuminate

with

the

various

forms

of

privatization

the

government

often

transfers

-LRB-

smaller

or

larger

parts

of

-RRB-

financial

risks

building

risks

and

operation

and

maintenance

risks

to

the

private

sector

Meanwhile

in

the

end

the

government

can

always

take

over

all

facilities

without

paying

an

indemnity

to

the

private

sector

if

a

concessionaire

fails

in

obtaining

the

goals

as

formulated

by

governmental

authorities

or

some

conflicts

emerge

in

the

further

policies

-LRB-

e.g.

the

terminated

contracts

that

are

regarded

as

providing

the

private

sector

a

fixed

investment

return

-RRB-

In

that

sense

the

still

unstable

legal

base

in

transitional

China

provides

a

major

political

and

transfer

risk

for

private

investors

O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O B O O O O O O O O B I O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O B I O O O O O O O O O O B I O O O O O O O O O O O O O O O B I O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O B I O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O B I O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O 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O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O B O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O O 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