Fundamental Model of Investment, Operation and Regulation of Public Utilities of Qingdao Hi-tech Industrial Development Zone

Unirule Institute of Economics

Entrusted by Qingdao Hi-tech Industrial Development Zone

Abstract

1. The nature of utility tunnel can be summarized as: creating a competitive environment for public utility providers in a way of natural monopoly, which is critical in this project. Utility tunnels offer a competitively physical space for public utility providers technically.

2. The main idea of this program is replacing the distribution pipe networks with one utility tunnel, separating the production phase of a single public utility from its distribution network, and releasing the competitive nature of the production phase.

3. In the context of the competitive physical environment that utility tunnel created, the competition potential of suppliers should be fully explored

4. Based on the above principles, we create the public utility model with utility tunnel as the center. The saying “utility tunnel as the center” is the key.

5. In this program, the properties of utility tunnel with "The Last Mile", and some pipelines like water pipeline, heating pipeline and CPN are owned by government and exercised by government-owned companies.

6. In the model of utility tunnel as the center, the supply of telecommunications and cable, water supply, heating and sewage treatment will introduce more competition.

7. Estimating based on related data, the level of public nature of utility tunnel is about 2/3, or 67%, which corresponds with the compensation ratio of public funds to the cost the utility tunnel, and the extent of government intervention.

8. The level of public nature of utility tunnels is about 67%, the average ratio of direct benefit and direct cost of utility tunnel is also about 67%, so according to the opportunity cost method, the public utility providers can cover 67% of the cost of utility tunnel at most. Therefore, the charging range may be between 33% and 67% of the cost, or between1/3 to 2/3.

9. From time dimension, in preliminary stage, the public utilities as a whole have more public-goods nature, and have more private goods nature in mature period, which means that Qingdao Hi-tech Industrial Development Zone government can involve more in public utility areas in preliminary stage, and reduce direct involvement in public utilities step by step, and allow enterprises to undertake more public utility services.

10. There are two charging ways of utility tunnel. Firstly, free of charge for the first eight years, half charge for the next eight years, and charging the rents based on depreciation. The revenue by this charge is approximately 32.8% (about 1/3) of the investment cost according to present value. This means government undertakes 67.2% (about 2/3) of the cost. Secondly, charging based on the amount of using flow, and pricing based on depreciation, the government will bear 12.7% of all investment cost, which is greatly below 1/3.

11. The investment of utility tunnel will increase land value as much as 124% of investment cost. Government, as the exerciser of state owned land property, may return 124% of its investment cost through land sale, which is higher than the abovementioned 67% of the cost that the government should bear.

12. In the first development period of Qingdao Hi-tech Industrial Development Zone, the revenue of government will reach a peak due to selling land. This characteristic coincides with that the government should bear more obligations and input more public funds.

13. For road maintenance, gardening, and sanitation, Qingdao Hi-tech Industrial Development Zone should choose packaged model in priority. Dividing Qingdao Hi-tech Industrial Development Zone into several independent regions (at least 3), the government should invite public bidding openly for the package of municipal road maintenance, gardening maintenance, streetlight maintenance, sanitation etc. An enterprise can win a bid only in one region. The tender is made once a year.

14. Two ways can be considered about the establishment of public utility regulation organizations. One is to establish Public Utility Regulation Committee, which is composed by relevant organizations of Construction Bureau and Economic and Development Bureau. The leader of Qingdao Hi-tech Industrial Development Zone Administration Committee can be the Director, and other relevant leaders from bureaus can be members. Public Utility Regulation Center is affiliated with the Committee, the functions of which can be converted from the current Public Utility Service Center. Another way is to establish Public Utility Regulation Center based on Construction Bureau, the function of price regulation is converted to Construction Bureau.

15. Establishing a Public Utility Regulation Information Center. The function of Public Utility Regulation Committee (or center) is making decisions on regulation events, while the function about regulatory information is undertaken by Public Utility Regulation Information Center.

16. Public Utility Regulation Committee (or center) and Public Utility Regulation Information Center are supervised directly by Qingdao Hi-tech Industrial Development Zone Administration Committee.

Table of Contents

Chapter 1 Introduction and Background

1. Overview of Qingdao Hi-tech Industrial Development Zone and its public utilities

2. Models and development trend of public utilities

Chapter 2 Objectives and Principles

1. Basic objectives

2. Prior Principles

Chapter 3 The Theoretic Analysis of Public Utilities and Utility Tunnel

1. Basic concepts

2. The nature of public utilities as a whole

3. The finance nature of public utilities as a whole

4. The structure and nature of public utilities

5. The nature of public-private and competitive-monopolistic and its correspondence with institutional arrangements

6. The nature of utility tunnel and its critical significance in this report

7. A rough estimation of the public nature of utility tunnel and the significance

Chapter 4 Model of Public Utilities of Qingdao Hi-tech Industrial Development Zone

1. Public utility model with utility tunnel as the center

2. Non-network public utility models

3. Energy integrated model

4. Regulation of public utilities

5. Pricing and charging models of public utilities

6. Utility tunnels proprietary companies and utility tunnels operation companies

7. Integrated solutions of New Material Park and New Industrial Park

8. Cooperation models and conflict resolutions of different public utilities parties

Appendix 1: Suggestions for Implementation

Appendix 2: Further Research Proposals

Appendix 3: Typical Public Utility Models in Qingdao and China

Table: Data of Estimated Population and Development Area of Qingdao Hi-tech Industrial Development Zone

Sub-report 1: Investment, Operation and Regulation of Utility Tunnel of Qingdao Hi-tech Industrial Development Zone

Sub-report 2: Investment, Operation and Regulation of Water Supply of Qingdao Hi-tech Industrial Development Zone

Sub-report 3: Investment, Operation and Regulation of Waste Water Treatment of Qingdao Hi-tech Industrial Development Zone

Sub-report 4: Investment, Operation and Regulation of Heating of Qingdao Hi-tech Industrial Development Zone

Sub-report 5: Investment, Operation and Regulation of Gardening and Sanitation of Qingdao Hi-tech Industrial Development Zone

Sub-report 6: Investment, Operation and Regulation of Municipal Roads of Qingdao Hi-tech Industrial Development Zone

Draft: Regulations of Public Utilities of Qingdao Hi-tech Industrial Development Zone

Draft: Model Version of Contract for Public Utility Franchise of Qingdao Hi-tech Industrial Development Zone