Financial Evaluation For Wastewater PPP Extension Projects

From the beginning of the 21 st century when Chinese government encouraging various investment and financing modes in waste water sector, some of the waste water treatment PPP projects implemented during that period need to be reviewed and adjusted after decades of development. With enhancement of environmental standard, those PPP projects need to be expanded to meet new scale and/or standard.Because most of the waste water PPP projects' concession period is more than twenty years, the key problem the project participants faced is how to modify original contract clauses to keep projects profitable with the added investments for extension. It is therefore meaningful to study reasonable financial evaluation method.The paper categorizes waste water PPP projects of expansion into three types: entire modification projects, part expansion projects and processing improvement projects. Based on their characteristic, the paper proposes respective improvements to the financial evaluation method. For example, projects with investment added shall calculate new water treatment price while expansion projects shall be treated as new project with existing assets depreciation. The paper then identifies and analyzes the main factors influencing the financial evaluation, including concession period, existing asset and new investment, treatment capacity. The paper applies the financial evaluation theory and suggests designing a new waste water treatment tariff for expansion parts based on existing waste water treatment tariff. The paper further identifies and analyzes the risks of those projects, such as risks during construction and operation respectively, especially financial risk, tax risk and inflation risk etc, and finds out that the most critical risks affecting project profit are the total investment, water treatment amount, labor and reagents fees during operation. The paper also analyzes the scope and basic quantitative capacity of these risk factors, and proposes that, when risk factors fluctuate beyond the basic quantitative range, to make the financial evaluation fair, it should adjust the financial evaluation formula, and modify relevant contract clauses to suit for expansion projects. Finally, the paper verifies the proposed financial evaluation method with real case and proposes further suggestions to improve the financial evaluation method to make it more operational.Due to a waste water treatment expansion project is based on the existing project, the existing investor has advantage and capability to ensure non-stop operation of the project with the premise of rational allocation of resources, and coordinate well expansion construction. This is why the government tends to choose the existing project investor to carry out the expansion. The financial evaluation for such projects must be fair, practical and also conform to requirements of national policies and regulations, optimize resource allocation, and protect rights and interests of the government and investors at the same time.The conclusions of the paper are not only useful for waste water treatment PPP expansion projects, but also for other expansion PPP projects in other sectors.