On May 1, 2024, a meaningful regulatory change in infrastructure and public utilities sectors took effect in China with the promulgation of the “Administrative Measures for the Concession of Infrastructure and Public Utilities” (the Measures) by the National Development and Reform Commission, along with five other departments. The Measures, with key provisions as summarized below, offer enhanced opportunities for investors interested in China’s infrastructure and public utilities sectors.
- Expanded Access for Concessions. The Measures facilitate diverse investment avenues for privately-owned investors through direct investment, sole proprietorship, shareholding or forming consortiums. Under the principles of the Measures, the relevant government agencies may further allow privately-owned investors to engage in projects that are outside the scope of the sectors currently eligible for private participation. Importantly, the Measures ensure that foreign-invested enterprises are accorded equal treatment as domestic companies, guaranteeing equal access to infrastructure and public utilities markets.
- Innovated Project Operation and Management. Enhancements have been made to concession project management procedures. These include detailed processes for conducting feasibility studies and investment management, coupled with an enhanced information disclosure requirement to ensure transparency and accountability among all parties involved.
- Flexible Pricing Mechanism. The Measures reaffirm the flexible pricing approach for concession projects, where fees are linked to performance evaluations, ensuring the efficiency and quality of relevant public services. Furthermore, in instances where concession projects involve government-set fees, the Measures mandate that the pricing must align with the price or pricing standards set by the relevant pricing authority.
- Prohibited Practices. The Measures explicitly prohibit the transfer of concession projects from investors to the government post-construction or the evasion of operational duties through the early termination of agreements, thereby ensuring ongoing accountability. Furthermore, these regulations also prevent obstacles to private participation in concessions by forbidding the imposition of new administrative permits and related fees on the investors.
- Terms and Termination. The Measures establish a 40-year maximum duration for concession projects, with extensions permitted only for larger-scale projects with longer payback periods. Furthermore, these regulations provide for the early termination and compensation of concession agreements in cases of significant environmental shifts, technological changes, or substantial market price fluctuations. Upon the conclusion of the agreed term or in instances of early termination, the relevant government agencies may initiate a selection process for new investors, giving priority to the original investors to whom the concession was granted under equivalent conditions.
- Dispute Resolution. The Measures provide different dispute resolution mechanisms based on the dispute types. On the one hand, the Measures allow for administrative proceedings against governmental agencies for their improper administrative actions in the context of the concession, such as not signing, executing, or arbitrarily modifying or terminating these agreements. On the other hand, the Measures explicitly allow for arbitration or civil litigation to resolve the disputes related to the rights and obligations stipulated in the agreements, clarifying the previous ambiguity on the availability of civil proceedings and arbitration for such disputes.
The Measures are expected to bolster protections for privately-owned investors and establish a clear regulatory framework for entry into China’s infrastructure and public utilities sectors. This framework is designed to facilitate access and provide certainty and clarity for privately-owned investors and foreign-owned investors in these sectors.
