As China enters its ninth five-year plan this year, the BOT (build-operate-transfer) method of infrastructure financing has been receiving keen interest. In particular, power plant project financings are moving closer to the international model of BOT investments.
Until recently, debt guarantees issued by the Chinese government or its relevant agencies had been critical to such financings. Also, the government was reluctant to relinquish complete control of this key industry to foreign investors. However, the legal framework for changes in these areas is provided in the Draft BOT Regulations.
Although the Draft BOT Regulations have not been approved by the State Council, they are already being applied to two experimental BOT power plants: the wholly foreign-owned enterprise Laibin B, a 2 x 350 MW coal-fired plant in Guangxi province, and Waigaoqiao B, a 3 x 600 MW coal- fired plant in Shanghai.
Unlike China's traditional BOT structure in the form of equity or cooperative joint ventures, the proposed new BOT structure has the following characteristics:
- the establishment of wholly foreign-owned enterprises is permitted in the development of thermal power plants with a generating capacity of 2 x 300 MW or larger, and hydro-power stations with a generating capacity of less than 250 MW;
- most or all of the finances are generated from overseas;
- government debt guarantees are not offered, and finance contracts are limited or non-recourse against the independent power producers; and
- the availability of foreign exchange is guaranteed for the payment of loans and dividends.
Florence M Li and Brian M H Chan