Research On The Water Project Financing Models

Water, the source of life, is the most critical support for the social economic development. Being the infrastructure and public utilities of great importance, urban water engineering is named the lifeline to a city. During the past ten years, with the accelerating pace of urbanization and economic development, China's water service industry is facing with difficulties, in spite of the opportunity for development: shortage of water in cities, heavy water pollution, urban water supply unpararell to the increasing demand, inefficient enterprises in water service industry, poor functional water utilities, residential and water ecological environment being severe threatened. These more and more serious problems have become the main inhibiting factor in the sustainable development of cities in China.The major reason for that situation is the insufficient investment in urban water service industry and the construction of infrastructure far behind the social and economic development. The development of urban water service industry requires enormous captials, while the investment fund is in strained circumstances. According to the Eleventh Five-Year Plan, urban water service project will have high demands upon 900 billion yuan RMB by the end of 2010.However, the current financing channels do not bridge the gap between funds of investment and supply: China's local governments have limited financing ability, meanwhile central government has inadequate policy investment; the direct financing channels, such as stock financing, municipal bond, do not work well; project financing models which are represented by BOT, TOT and ABS, are hard to spread due to a number of restricting conditions; the intrinsic characters to urban water service projects, such as high capital input, low flowing capability and low return on capital, produce a consequence that urban water service enterprises could not repay the commercial loans with interest, and the traditional loan is not satisfied.Meanwhile, diversified funds appeared in China's economic development, their resources include social insurance, long-term capital from insurance agents, balance from deposit and loan in banks and huge amount of private capital, of which the institutional investors are in an urgent need to make investments. The investment returns on those capitals match the needs of urban water service development in a huge and long-term nature. And consequently, this dissertation concludes that through the water industrial investment funds (WIIF),the platform combined with those two needs (demand and supply), investment in urban water service projects by long-term stock not only bridges the capital shortage in urban water service industry, but also offers the institutional investors steady investment returns.Therefore, the dissertation firstly explores the current project financial models of China's urban water service and their problems, produce the feasibility of establishing WIIF from these aspects, namely, long-term policies, talents, foreign and domestic experiences, and framework in models design. This dissertation probes the operating models from setting up, developing, managing and drawing back, and explores the avenues to financing in advantage of WIIF from the owners of water project. Finally, the dissertation puts forward the challenge factors in the development of WIIF based on current environment.This dissertation concludes that the water service industrial investment funds(WIIF) will be effective for urban water service project in widening financial channels, improving financial efficiency and reducing financial difficulties. WIFF will be a complement to the current financing models, and will become one of the most important financing models in China's water service industry.