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Design of Model Contract for Water Supply Concession Project
Time:2009-09-15 14:12:46   Clicks:

 “Opinion to promote marketization of public utilities”, issued by Ministry of Construction in 2002, explicitly addressed the policy that concession system should be established in municipal public utility sectors. However, the policy is too general to be adopted in real situation. In 2003, Ministry of Construction issued “Model Contract for Urban Water Supply Concession Project”, which bases on BOT model (generally including water purification plant only) and put more emphasis on building stage instead of operation stage. It’s not adaptable to the recent mainstream concession model, which bases on asset acquisition and includes whole process of water supply (water purification, distribution, billing, etc). Also it did not solve some key problems concerning concession. Under the background, Unirule Center for PPP was commissioned by Beijing Municipal Bureau of Water Resource to design a set of model contract for water supply concession project.

The final research report includes two sets of model contracts separately designed for BOT and integrated concession model, with focusing on the latter one. Both contracts include two parts, clauses and explanations, to assist users fully understand the real meaning and purpose of every clause.

The basic rules we followed when we designed the model contract are, to strengthen the governments’ responsibilities in public services provision, to prioritize the goal of improvement of public service efficiency, to protect rights and benefits of both investors and consumers, to attach same emphasis to both substantive and procedural clauses, to introduce modern idea of regulation and to establish effective regulation system, along with the introduction of market mechanism.

The core of our research findings contains four mechanisms, 1) Special Fund for Price Adjusting, to solve the problems caused by time difference between change of real cost and price adjustment; 2) Reasonable cost/ profit recognition and cost-cap regulation mechanism, to encourage concessionee to improve its efficiency of water services; 3) integrated and guaranteed regulation system, to assure effective regulation; 4) fair and reasonable compensation mechanism, to prevent concessionee’s short-term behavior. These four mechanisms, including corresponding systems under the present legal framework, will work together with each other to provide an environment for concession in which the rights and obligations are clearly defined, concessionees operate and governments regulate based on laws and the public enjoy high efficient services.(May 2007)

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