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Status Quo and Problems Related to the Operation and Management of China's Urban Environmental Facilities

2007-10-16

Zhou Hongchun, Guo Baolin & Fu Tao

Along with the gradual improvement of China's socialist market economy, relevant reforms have been made in the fields of the investment, construction and operation of urban environmental facilities. The urban water industry took the lead to undergo a market-oriented reform. In this process, reforming the operation and management of the facilities for sewage and garbage treatment has become a priority for reforming the urban environmental service industry. This paper focuses on the study of the present state and problems related to the operation and management of urban environmental facilities, and can serve as a reference for policy making and implementation.

I. China's Pilot Practice in Reforming Urban Environmental Facilities

Under the guidance of state policies, China has carried out a series of market-oriented reforms on urban environmental facilities. The documents that the government has promulgated included the Decisions on the Reform of the Investment System (State Council, 2004), the Opinions on Accelerating the Marketization of the Municipal Public Utilities (Ministry of Construction, 2002), the Regulations on the Concession operation and Management of Municipal Public Utilities (Ministry of Construction, 2004), and the Opinions on Strengthening the Regulation of Municipal Public Utilities (Ministry of Construction, 2005). These documents have pushed forward the marketization of urban environmental facilities. Many provinces (municipalities and autonomous regions) have also introduced policies on promoting the marketization of their municipal public utilities. Jiangsu and 11 other provinces (municipalities and autonomous regions) promulgated concrete opinions on comprehensively pushing forward the marketization of municipal public utilities, and Fujian and four other provinces published guiding documents on pushing forward the industrialization of sewage and garbage treatment. Beijing, Shenzhen and Xinjiang began implementing their regulations on concession operation. Guizhou and nine other provinces and municipalities promulgated regulations on the concession operation and management of municipal public utilities. Tianjin and six other provinces (municipalities and autonomous regions) worked out relevant policies on concession operation. These policies have quickened the reform of municipal public utilities across the nation. In particular, they have sped up the marketization of the operation of urban environmental facilities and especially the facilities for urban sewage and garbage treatment.

1. Diversified modes of construction and operation of urban sewage treatment plants

Most of the urban sewage treatment projects have employed the build-operate-transfer (BOT) mode and the transfer-operate-transfer (TOT) mode. An investigation on the market-oriented reform of municipal public utilities conducted in June 2005 by the Ministry of Construction indicates that of the 200 projects whose reform plans had been confirmed, 49% adopted the BOT mode and 9% the TOT mode. An analysis of the geographic distribution of the BOT projects indicates that the number of the BOT urban sewage treatment projects in the east coastal region accounted for 61.67% of the national total, which was followed by the central and western regions, with a ratio of 22.91%. The ratio of other regions was relatively small. Based on the scales of the BOT urban sewage treatment projects, those with a capacity of 10,000~30,000 cubic meters per day accounted for 44.49 % of the total treatment capacity, mostly ranging between 20,000~30,000 cubic meters per day. Those with a capacity of 30,000~50,000 cubic meters per day (excluding the capacity of 30,000 cubic meters per day) accounted for 30.84%. While those with a capacity of 50,000~100,000 cubic meters per day (excluding the capacity of 50,000 cubic meters per day) accounted for 18%, few of the projects with a capacity of more than 100,000 cubic meters adopted the BOT mode.

-- Entrusted operation. In November 2001, the Longtian and Shatian Sewage Treatment Plants in Longgang District built with the joint investment of Shenzhen's municipal, district and township governments were leased to the Anhui Guozhen Environmental Protection and Energy Conservation Technologies Co., Ltd. for operation. The company charges RMB0.386 yuan for treating one ton of waste water, and the lease is valid for 15 years. This is the first case in China that the operation of a sewage treatment plant in a small or medium-sized city has been marketized. The lease also represents a win-win result for both the government and the enterprise. Estimate indicates that originally, the two plants required more than RMB500,000 yuan a month for their operation and maintenance. After they were leased, the government only had to pay RMB400,000 yuan a month to the enterprise. The enterprise has also made certain profits by improving technologies and strengthening management.

-- BOT mode. A batch of urban sewage treatment plants in Guangdong Province have been built in the BOT mode. For example, the Xinhui Dongjiao Sewage Treatment Plant in Guangdong built in 2001 was the first sewage treatment plant in China that was built in the BOT mode. The government granted the project company the right of concession operation, and the enterprise built the plant by itself and recovered its investment by charging the sewage treatment fee at a rate of RMB0.8~1.0 yuan per cubic meter. After the agreement expires, the plant will be handed over to the government without compensation.

-- TOT mode. The government transfers the assets and the right of concession operation through open bidding. The investor owns, operates and maintains the facility during the period of agreement. After the agreement expires, the investor hands the well-performing facility over to the government without compensation. For example, the Jida Sewage Treatment Plant in Zhuhai was transferred to the French Vivendi Water Asia Co., Ltd. in the TOT mode for concession operation. The charge is RMB0.9 yuan per cubic meter if 18,000 tons of sewer is treated a day. If more sewers are treated, the charge for the extra amount is RMB0.5~0.6 yuan per cubic meter.

2. Diversified investment pattern in urban environmental facilities has initially been formed

The Notice on the Issues Concerning the Attraction of Foreign Investment in BOT promulgated in 1995 by the then Ministry of Foreign Trade and Economic Cooperation played a guiding and regulatory role in using the BOT mode to attract foreign investment in infrastructure sector. Before 2001, the state's policy priority was to guide and regulate the investment behaviors of foreign investors in municipal public utilities. After 2001, the state decided to diversify the investors in urban water supply, sewage and garbage treatment and other municipal public utilities so that diverse types and categories of Chinese and foreign funds that could be utilized would be attracted in various forms and through different channels.

In 2000, the city of Beijing decided to open urban sewage and garbage treatment, water supply and other environmental facilities for diversified investment. The investors might acquire the right from the government for concession operation and would receive subsidy. This indicates that the infrastructure facilities that had long be invested and operated by the government would be open to private and foreign capital. In 2003, Beijing launched a large-scale tender invitation to transfer the operating right of infrastructure projects. They included the five sewage treatment plants in Beiyuan, Dingfuzhuang, Dongba, Fatou and Wulituo and the garbage treatment plant in Shunyi District. The joint tender invitation for the five sewage treatment plants was the first attempt in China to invite tenders for small projects. This move represented the beginning of Beijing's efforts to diversify the operation of sewage treatment plants.

In conjunction with the reform of the investment and financing systems, the city of Dalian in 2002 transferred the operating and property rights of a batch of completed and proposed municipal infrastructure facilities to the public. They included the six sewage treatment plants at Malanhe, Chunliuhe, Laohutan, Quanshui and Shi'ergou, the recycled use of middle water and 10 garbage treatment projects. According to the Opinions on Reforming the Investment and Financing Systems for Public Infrastructure and Public Utilities, Dalian opened to social capital all areas of investment that did not involve national security and state restrictions.

In 2002, the city of Shenzhen opened eight areas to concession operation. They included water supply, drainage, sewage and garbage treatment, medical wastes treatment, and sanitary service. In these areas, social and foreign capital would be allowed to participate in construction and operation in wholly-owned, joint-venture, cooperative and other forms. Through entrustment or tender invitation, the competent municipal authorities granted a five-year concession operating right for urban domestic garbage treatment. They included the construction of sanitary facilities and garbage collection and transport. The competent authorities were in charge of setting inspection standards. Both BOT and TOT modes were introduced for sewage treatment. In centralized treatment and disposal of medical wastes, the Municipal Bureau of Environmental Protection organized open bidding and granted the successful bidders a 20-year exclusive operating right. At the same time, the government also offered preferential policies to the exclusive operators, including the exemption of the land-use fee.

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