Research On Risk Sharing Of Infrastructure PPP Project Financing Model

Since entering the21st century, along with the rapid economic growth and accelerating development of urbanization in China, there are more and more pressing needs in large-scale infrastructure construction in which transportation, electricity, communications, water conservancy, energy are the most prominent.As governments at all levels have taken proactive fiscal policies to increase investment in infrastructure, there is a high-speed growth.However, considering of a large amount of financing, a long period of constructing, a high-risk in large-scale infrastructure construction, central and local governments alone can not satisfy the demands of investment.Generally, our country’s infrastructure construction invest mainly by state budget funds, domestic loans, foreign investment, self-financing and so on.Unfortunately, due to the limited revenue, inadequate bank credit and strict control of local governments, the supply way of our infrastructure investments is very narrow which is a serious impediment to the development of infrastructure investment.It is so urgent to broaden the financing channels and guide the investment of private sector to infrastructure construction that PPP financing model becomes more and more popular in infrastructure projects.PPP financing model in infrastructure projects was first evolved from the UK, then widely used in transportation, energy, electricity, water conservancy and environmental protection, disposal of pollutants and other infrastructure areas.PPP financing model has obvious advantages compared to other infrastructure financing model.Firstly, it can not only alleviate the lack of fund supply, but also make full use of the advanced technology and management experiences of the private sector through introducing the private sector to participate in financing, construction and operation in project, so that the project has made a better achievement than expected.Secondly, by signing a franchise agreement, the public sector and the private sector can make their own rights and obligations relations clear, and establish a long-term cooperative relationship to serve the project.Thirdly, through taking respective advantages of the public and private sectors to organize and arrange work in the PPP model, a project company composed of the public and private sectors and responsible for project construction and operation has formed to make the project more efficient.Although the PPP financing model is currently more advanced and widely used at home and abroad, it faces a greater risk which has large and complex factors because of a large scale of investment, numerous participants, a long period of construction and operation, the complexity of uncertainties and other features.Since PPP model generally contains multiple participants which have different objectives and starting points, it costs a lot of time and transaction costs on contract negotiation and signing between the public and private sectors.The key issues in PPP project is how to allocate the risks faced.Based on this, the financing risk allocation in PPP infrastructure project have been studied in order to make a reference to a reasonable risk allocation in PPP project financing model.There are five parts of the headlines:The first part is an introduction part about the basic theory of PPP project risk allocation, including the public goods theory, item discrimination theory, entrust-agent theory, contestable theory, discussing the necessity and rationality of the cooperation between the public sector and the private sector in infrastructure construction.The second part carries out an analysis on relevance of risks and projects, depend on this, the risks of PPP project are divided into internal risks and external risks.External risks mainly include political risk, policy risk, legal risk, financial risk, credit risk, social risk, market risk, environmental risk, force majeure risks.Internal risks mainly include supply risk, technology risk, completion risk, operation and management risk, quality of managers risk.This part provides the theories basic to research in the hereafter.The third part carries out an analysis on the basic principles of risk allocation from the view of utility theory with the help of the game model of the public and private sectors.The results are two basic principles:the risk-control corresponding principle and the risk-profit corresponding principle. The fourth part analyzes the main participants in PPP projects, namely, the government and the private sector, and describes the basic characteristics of the each participants involved, brings the basis of research on the reasonable risk allocation in the hereafter.The fifth part draws the basic framework of the optimal risk allocation in PPP projects by means of combining the two basic principles in the third part with the causes of risks and the characteristics of each project participants to allocate the risks to the public sector and the private sector.