How to upgrade international PPP mode in overseas project contracting.

With the further promotion and deepening of China's "going out" strategy, China's overseas project contracting business has developed from DBB, EPC (or even EPC + financing) mode under FIDIC red book to EPC + financing + investment, BOT and PPP mode. Over the past decade, the cost of state support for Chinese contractors to "go global" is relatively high, which is basically based on the EPC + financing mode provided by state-owned financial capital. Although this model greatly moves the scale of project contracting and the export of domestic manufacturing industry, the contractor only pays attention to the completion and handover of EPC project, and the project debt risk will be borne by the Chinese government. How to reduce the risk of state-owned financial capital, reduce the risk of sovereign foreign debt of host country, and maintain the sustainable and stable development of overseas project contracting in China, and extend the profit chain of Chinese contractors is a subject to be considered and discussed.
Considering the future strategy of China and its international role, and combining the risks of state-owned financial claims and host foreign debt and the long-term development of large enterprises in the field of international project contracting and investment and financing, the author believes that Chinese engineering contracting enterprises should gradually abandon the traditional thinking mode of project contracting, Combining with China's "going out" strategy and the advantages of project investment and financing, PPP project mode of government and social capital cooperation to supply public goods and services is regarded as the main development direction.
This paper takes how to upgrade overseas project contracting to PPP mode as the starting point, first of all, analyzes the main participants' interest points of participating in PPP mode; Secondly, it analyzes how to reduce the risk of PPP mode from the perspective of legal risk control; Finally, the paper analyzes the operation mode of the PPP mode of export credit in China.
1、 Definition and status of PPP
（1） Traditional definition
PPP (private public partnership) generally refers to the partnership between the government and private organizations in order to cooperate in the construction of urban infrastructure projects, or to provide some public goods and services, and to form a partnership partnership based on the concession agreement. The rights and obligations of both parties are defined by signing the contract to ensure the smooth completion of the cooperation, Finally, the parties to the cooperation will achieve a more favorable result than expected to act alone. Generally, it is applicable to projects with stable demand and clear long-term contract relationship.
（2） Basic model of PPP project
PPP project in narrow sense refers to the public service development and operation mode that the government and private sector form special purpose Organization (SPV), introduce social capital, design and develop, undertake risks together and cooperate in the whole process, and then transfer them to the government after the expiration of the period.
The above two pictures are two international PPP modes, which have similar structure, but there are two differences:
1. different shareholders of PPP project company: in the first picture, the project company (hereinafter referred to as SPV) jointly established with foreign investors (China Contractor) is the company designated by the host government or government; The ownership structure is common and typical when the host government grants the concession. But in the second picture, the SPV established jointly with foreign investors (our contractors) may be a government company or any private company, and the host government grants the concession.
2. different government subsidies: in the first picture, the host government has no financial subsidy for PPP projects. As the host government or the company designated by the government is one of the shareholders of PPP project, it directly participates in the design, construction, procurement, commissioning, management, maintenance and operation of PPP project, so there is no more supervision and supervision. However, in the second picture, because the host government or the company designated by the government is not a shareholder of SPV, and the government gives a certain amount of financial subsidies to SPV, it does not participate in the PPP project affairs, but it will increase the supervision of each link of PPP project, especially the financial supervision, price supervision and even profit supervision after the operation of PPP project company.
There is no good or bad difference between the two types of PPP projects, but the host government needs to determine which model is more suitable for its own needs according to the actual situation of the country.
（3） The difference between PPP and BOT
Although both PPP projects and BOT projects obtain the concession from the government, there are still great differences between PPP projects and BOT projects from the perspective of practice and law.
Firstly, from the perspective of the purpose and orientation of project operation, PPP is located in the direction of "public private joint venture". The government takes public interest as the direction and obtains high-quality services and products as the purpose, and participates in the design, construction, operation and management of the project; BOT focuses on the investor controlling the design, construction, operation and management of the project, guided by the profit of the project, and the government accepts the project ownership after the concession period, so as to continue the operation.
Secondly, from the perspective of the ownership structure of the project company, the government generally has direct shareholders' rights and interests in SPV, and shares the project company with the company designated by the government or the government; Or, the government does not have direct rights and interests in PPP projects, but it exists in the form of subsidy to the project funds, but participates in the design, construction, operation and management of the project in depth, controls the profit of the project to maximize the public interest and strictly supervises and manages it. However, the SPV of BOT usually has no government interest, but is composed of sponsors, namely private company. The differences between the two are as follows:
（4） The status quo of PPP from the perspective of the overseas contracting of contractors in China
The contractor of our country has a long history in the construction of international projects, and the first way to "go out" is to help foreign countries; Before 2006, the contractors in China mostly used the design bidding construction (DBB) model as the main mode, and then they were upgraded to the design procurement construction (EPC) mode rapidly, and gradually popularized. With the support of national financial capital, epc+ assisted financing mode has become the mainstream gradually; Especially after 2009, with the improvement of Chinese engineering enterprise experience and management standards, the investment and financing projects with epc+ assistance financing + contractor share, BOT and PPP as the basic project type gradually increased, and showed the trend of expansion from Southeast Asia to Africa and central and South America.
Although China's engineering enterprises have made many achievements in the past decade, there will be many restrictions in the future in the mode of continuing overseas projects by providing sovereign loans from national financial capital and EPC, including but not limited to: China's export credit institutions bear various unfair accusations in the West and bear the security pressure of state-owned financial capital; The host country sovereign loan brings more and more heavy external debt pressure, which not only forms the bottleneck of expanding sovereign lending, but also harms the security of existing creditor's rights; EPC contractor is difficult to become a real stakeholder of the project, and the focus is on the pressure and power of deep development and real integration into the host market before the project handover.

二、如何结合相关主体利益推广国际PPP模式2、 How to promote international PPP model in combination with the interests of relevant subjects
（1） PPP and the combination of the interests of host government
PPP model will attract certain social capital to participate, promote the rapid development of public goods and services and infrastructure in host countries on the basis of reducing the financial pressure of the government and reducing the external debt risk brought by sovereign loans, and finally achieve the purpose of providing better products and services, reducing the cost of products and services and increasing public welfare. Moreover, because the host government does not provide support in the construction phase, the risks such as cost overrun and delay are all borne by private capital. PPP model is convenient for the host government to carry out overall cost accounting and reduce construction risk.
In PPP project, the Middle East Government not only grants franchise rights, but also participates in it as shareholders of SPV, and the focus on PPP projects is higher than that of other projects. In order to achieve the above-mentioned benefit combination, the host country's main focus on PPP projects includes but is not limited to:
In the aspect of host country investment law, we should pay attention to how to find a reasonable balance in attracting foreign capital and restricting foreign investment access; In the aspect of host country finance tax law, it is concerned about which host country can bear mechanism to encourage private capital to participate in host country construction; In the aspect of project supervision in host country, we should pay attention to how to define clear regulatory boundary and improve the efficiency of supervision; In terms of the contractual relationship with private investors, we should pay attention to how to improve the efficiency and cost performance of project construction and future operation, how to attract the technology, innovation and know how that the host country has not mastered, and how to clarify effective reward and punishment mechanism with private investors. The host country should also pay attention to and do well in the PPP related financial and tax subsidies.
（2） PPP and the combination of government interests in China
The history of PPP in China can be traced back to the pilot approved by the National Planning Commission in 1995. In the environment of government investment impulse and lack of regulation and supervision, in recent years, PPP mode in China has evolved into BT mode, that is, government financing platform is the high leverage financing of grass-roots government to repurchase projects; This model brings huge local debt risk, and it is difficult to be called real public-private joint venture. After the Third Plenary Session of the 18th Central Committee proposed the reform direction of "allowing social capital to participate in urban infrastructure investment and operation through franchising", the Ministry of Finance and the development and Reform Commission have made efforts to guide the construction of domestic infrastructure with real PPP mode. However, compared with the hot situation of domestic PPP, although the Ministry of Commerce and the foreign contractors have publicized and promoted for many years, the overseas PPP projects that China participates in are far below expectations.
In fact, the international PPP model is in line with the development direction of the government's "going out" policy. First, from the perspective of introducing private capital to participate in and effectively reducing the host foreign debt, PPP will increase the debt sustainability of host countries and upgrade the local utility of China's outbound funds. Secondly, the government has developed to a certain scale and stage. Exerting the leverage effect of PPP mode will further expand the political and economic influence of China's output funds, and meanwhile, it will drive domestic commercial capital and private capital to go out to sea through participating in different capital demands of PPP mode, and achieve diversification of foreign investment. Thirdly, PPP mode makes the offshore EPC contractor mode of China turn to long-term operation and development on shore, and introduces local capital participation. This approach will effectively counter the West's false accusations of overseas engineering and resource model in China.
In view of the hot domestic PPP and the reality of "no call for the overseas PPP", the relevant competent departments shall provide special laws and regulations preferential policies, supportive fiscal and tax policies and fund arrangements for overseas PPP mode.
（3） The combination of PPP and the interests of project sponsor
The host government or government designated institutions, project contractors, upstream and downstream affiliated enterprises, and various types of private equity investment capital may become SPV sponsors.
For the sponsors of PPP projects excluding host governments, whether the PPP projects launched by the host government are attractive depends on the following factors, including but not limited to: reasonable sharing arrangement of overall risks of the project, profitability of the project, project performance and production capacity, pricing of products or services in the host country, financing costs The completion time of the project and the stability of the political situation. The Chinese contractors and their affiliated enterprises, the banks of China, which provide financial support through the seller's credit, and the professional equity investment departments together constitute the sponsors of private part under PPP. The private sector sponsors are concerned about how to share risks with the public sector of the host country in a reasonable way of risk distribution, and how to obtain the follow-up return on the performance achieved through PPP projects to recover the investment cost. The private sector sponsor should design the PPP structure reasonably and conduct industry diagnosis according to the above two core problems.
（4） PPP and the combination of financial institutions' interests in China
Firstly, PPP model is in the interest of state-owned banks in reducing the pressure of sovereign debt and reducing the risk of creditors. Meanwhile, the model introduces social capital as the buffer between the loan banks and the host government. Secondly, PPP mode increases the participation mode of state-owned financial capital to support host country projects, which will guide China's financial capital into sovereign loans, corporate financing, equity investment, investment insurance and other forms according to risk preference and financial institution service specialty. For example, different departments of the same financial institution provide different financing tools, and the information obtained through different identities in PPP projects can be shared, and the risk information of the project can be mastered more comprehensively. In case of accidents, internal coordination and processing mechanism can be adopted.
The following are the factors that financial institutions consider when evaluating whether a project is financing: project profitability, project political risk, financing guarantee mode, project contractor and project operator capability.
At present, there are still many factors that affect the participation of state-owned financial institutions in overseas PPP financing. First, it depends on the cost of capital: domestic financial institutions are used to the loan environment with high net interest margin and the domestic projects have a large demand for financing, so there is no incentive to compete with the capital with lower interest rates abroad. Secondly, it is dependent on the traditional sovereign guarantee mode: under the existing financing risk control of state-owned financial institutions, it is difficult to find effective guarantee mode of overseas PPP, while it is not the original intention of PPP mode to demand the host country to provide seamless sovereign security throughout the whole process; Only by means of transfer of local contract interests and mortgage of real estate, it is difficult to realize and cover the whole loan in full. Thirdly, the international legal environment is not adaptable: the legal environment of host country is complex and changeable, which puts forward new requirements for legal due diligence of financial institutions. The fourth is accustomed to dealing with domestic contractors only: lack of communication, cooperation and dispute handling experience with flexible private investors of PPP.
Therefore, the participation of state-owned financial institutions in PPP will be an effective way to force their internationalization.
（5） PPP and the combination of the interests of contractors in China
The way of overseas contracting of Chinese contractors is to use the advantages of sovereign loans provided by Chinese financial institutions to host countries for bidding, bidding or competitive negotiation, and deliver them to the host country after EPC Construction. The repayment risk of host country in the future is borne by the state-owned financial capital of our country. In terms of the long-term interests of contractors, the interest chain of this contract mode is too short and the integration into the local area is not enough.
It can be understood that the power and confidence of China's contractors in investment and operation in the third world countries such as Africa, South America and Central Asia are insufficient. Among them, there are external difficulties such as bad market environment, difficult risk management, large investment, long return period, complex contract mechanism, high local compliance risk, and difficulty in communication with local owners community, and internal factors that are not matched by the current assessment mechanism of state-owned enterprises. To some extent, even the lack of pressure and power of the state-owned financial capital of sovereign loan and EPC is a problem of the contractor.
The government and financial institutions in China should consider how to guide contractors to step in and accept PPP model, that is, to guide contractors or their affiliated enterprises to participate in equity investment of PPP projects and then participate in the long-term operation of the project. The rising sot (subsystem in building, operate and transfer) mode in recent years deserves the promotion of our country to the contractor. The PPP project is divided into public welfare part and profit part: the public welfare part is applied by the host government for preferential loan or export buyer credit fund; The profit-making part is supported by the Bank of China through corporate financing to support the establishment of SOT project company between the contractor (or its affiliated enterprises) and the host government (or designated institution). After the completion of the project, in view of the indivisibility of the public welfare part and the profit-making part, the host government leases the public welfare part to the SOT project company for operation, and grants the project company a certain period of franchise. The host government pays the sovereign loan by collecting rent and franchise fees from the SOT project company, and the private sector recovers the investment through the overall operation project.
Generally speaking, PPP model is more favorable to China's financial capital, host government and our contractors than the current EPC contract mode. The host government and China's financial capital are relatively positive, and at the same time, the contractors in China are pushed to the front stage of pressure; For our contractors, more challenges coexist with the extended interest chain. After all, after many years of preferential state-owned financial capital support, the contractors in China have grown and strengthened gradually, which should have the reaction force to support the strategic transformation of "going out" and help host countries break through the debt bottleneck.

三、PPP的法律风险控制3、 The legal risk control of PPP
If the contractors and their affiliated enterprises invest in PPP projects in the host country, we should pay full attention to the following legal risk control points.
（1） The legal risk control of host country
In all PPP projects, the laws, rules, decrees and rules of the host country central government and local government play a key role in regulating the project. The legal points that need the attention of the private sector and financial institutions include but are not limited to: the legal constraints of domestic procurement in host country, the legal basis for third party questioning, the behavior of the official institutions exceeding power, the host company law, the investment laws on the restrictions on foreign investment and the requirements of local components, laws and policies of license and license, property law and security law Laws and policies on government support and commitment, provisions on sovereign immunity, enforcement of security and bankruptcy laws, monetary and foreign exchange laws, labor law, tax law, environmental protection law, applicable law selection and dispute resolution.
（2） Risk control using relevant bilateral or multilateral legal documents
1. bilateral investment protection agreement
The bilateral investment agreement (bit) not only effectively protects the rights and interests of cross-border investors, but also creates a good investment environment for the host country, and attracts foreign investment in the form of commitment to protect investment. The agreement must abide by the principles of international law which has been accepted by all countries. Therefore, bilateral investment agreements have strong legal binding power to the Contracting States in the international. If one party fails to comply with its treaty obligations, it will result in state responsibility. Therefore, bilateral investment agreements have been widely used by many countries and become the most important international law system to protect investment. China is no exception.
2. risk reduction mechanism of multilateral institutions
In terms of protecting PPP international investment, multilateral institutions such as IBRD, IDA, MIGA and ICSID play an irreplaceable and efficient role.
（3） Contract management
The sponsor shall have a professional contract management team to deal with the management of joint venture, service, management, entrusted operation or leasing, franchise, credit, guarantee and other contracts. Besides the validity of contract and the validity of the guarantee of transfer of contract rights and interests, the sponsor's contract management ability and the ability of contract coordination with the host country institutions should be the contents of due diligence of loan banks.
（4） Financing guarantee method
Common international PPP guarantee methods include: completion guarantee, commitment letter / comfort letter of host country financial and tax preference, transfer of sales interest of products or services, mortgage of real estate, SPV equity pledge, franchise mortgage, etc. The legal application, validity, realization and actual effect of guarantee mode all require the sponsor and loan bank to conduct detailed due diligence.
（5） Supervision of price in operation
The core of PPP project achievement operation is the reasonable price of products and services provided, which is the common concern of host country, private sector and financing institutions. The host country's price authority will decide whether the price can be balanced in the value choice of providing benefits to the host country, obtaining the benefits from the private sector and ensuring the security of loans by the financing institutions. Therefore, the private sector operators need to avoid the relevant legal risks in advance from the contract terms and the host country price supervision legal mechanism.
（6） The coordination between the legal regulation of export credit and PPP bidding mechanism in host country
The host country selects PPP private cooperative institutions through the bidding procedure stipulated by domestic laws. The bidding documents have put forward relevant requirements for the participation mode, action time and capital certainty of Chinese enterprises. PPP mode, if it intends to use the credit of export buyers and two excellent loans, will face the regulation of relevant legal mechanisms in China, such as the inter ministerial coordination mechanism of the State Council for export credit above the amount, and the bidding mechanism under preferential loans. How to coordinate and conform to the legal regulations of two jurisdictions in practice deserves attention.

四、PPP模式与出口买方信贷融资结合方式的探讨4、 Discussion on the combination of PPP mode and export buyer credit financing
There are many cases of state-owned banks providing export seller's credit to Chinese companies and their overseas subsidiaries for overseas PPP projects, and the mode is mature. Therefore, this paper mainly discusses the combination of generalized export buyer's credit (including self operated export buyer's credit and two excellent loans) and overseas PPP financing.
The traditional mode of export buyer's credit has some obstacles to combine with overseas PPP. First of all, if we use SPV loan + host country's sovereign guarantee, it will go against the original intention of the host country's PPP public-private joint venture to share risks and get rid of public financial guarantee. Secondly, if we take the traditional way of two excellent loans to Chinese enterprises directly, and no matter the breakthrough of supporting system is needed, the direct liabilities of Chinese enterprises will further reduce their enthusiasm to participate in overseas PPP.
It seems that the export buyer credit provided by state-owned financial capital can be combined with PPP mode in the following ways.
（1） SOT mode
As mentioned above, PPP projects under sot mode are divided into public welfare part and profit-making part. The host country uses sovereign loans (export buyer's credit or two excellent loans) to complete the construction of public welfare part, that is, the supporting projects with poor economic benefits but large investment. The profit-making part is carried out by the SOT project company established by Chinese contractors (or their affiliated enterprises) and the host government (or the owner organization designated by the government). In the process of establishing a joint venture sot project company, Chinese banks can support Chinese contractors or their affiliated companies through export seller's credit or corporate financing, and support the host government or its designated owner agencies through sovereign loans. The government of the host country hands over the public welfare part to the SOT project company through leasing or franchising, collects rent and franchising fee from the SOT project company to repay the sovereign loan, and the insufficient part is repaid through the financial budget. The private sector recovers its investment by operating the project as a whole.
In essence, the public welfare part is completed by the host country with a small amount of supporting funds and a large number of sovereign loans; After that, the repayment of the public welfare part first depends on the rent or franchise fee paid by the profit-making part (SOT project company). Therefore, how to accurately estimate the total revenue of the profit-making part, how to regulate and subdivide the "cash waterfall" of the profit-making part will become the key to the success of the SOT model. It is particularly important for the private participants and the host government to agree on an emergency allocation mechanism when the total amount of cash flow goes wrong.
（2） EPC + assisted financing + contractor equity model
In this mode, the host government or the owner's organization designated by the government establishes SPV joint venture with Chinese contractors or their affiliated enterprises. After the sovereign loan of the host government or the owner's institution designated by the government borrows the buyer's credit under the sovereign guarantee, the host government or the owner's institution designated by the government injects capital or shareholder's loan into the SPV according to the proportion of its equity in the SPV, namely the "financing" part.
The private sector in which Chinese contractors and their affiliated enterprises participate is solved by the export seller's credit. According to the proportion of the private sector's equity in SPV, it injects capital into SPV or loans to shareholders, that is, the "equity" part.
The contractor takes advantage of its shareholder status in SPV joint venture company and its advantageous position in further financing China's financial support in the future to obtain the EPC contracting qualification of PPP project, namely "EPC" part.
EPC + financing + equity mode, on the one hand, is an investment mode that conforms to China's "going out" policy, can obtain project contracting rights, and can really extend the profit chain of contractors' overseas business; On the other hand, it can also be regarded as a PPP project mode that takes project contracting as the breakthrough point and combines with export credit.
At the initial stage of the promotion of EPC + assisted financing + contractor's equity participation mode, in order to give Chinese contractors time to adapt, it is suggested that Chinese contractors and their affiliated enterprises should choose to become minority shareholders of SPV and drive project contracting with a small proportion of investment. Under the mode of EPC + financing + equity, Chinese contractors are both investors and contractors, so we need to pay attention to two aspects: we should not only pay attention to the conflict of interests under the two roles of one subject, but also pay attention to how to protect their shareholders' rights and interests in the host country's SPV.

五、Conclusion
Generally speaking, the promotion of overseas PPP mode is in line with China's current "going out" strategy, and is conducive to China's state-owned financial capital to use private capital to further support China's political diplomacy. It is helpful for China's financial capital to support the overseas PPP mode according to its own risk preference, and realize the integration of project information sharing and interests of different types of loans under the same financial institution. It is conducive to promote the integration of Chinese overseas contractors into the host country environment, enhance internationalization, extend the interest chain of overseas projects, and realize the upgrading of Chinese overseas project contracting mode.