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Private Investments in Municipal Utilities Encouraged

Four ministries, namely the Ministry of Housing and Urban-Rural Development, National Development and Reform Commission, Ministry of Finance and Ministry of Land and Resources, and the People’s Bank of China have recently jointly issued an opinion document on encouraging and guiding private investments in municipal utilities, including water, gas and heat supply, as well as sewage and garbage disposal. A series of supporting policies have been put forward, covering such areas as private investment channels, financing, land, pricing and tax.

Early in 2002, the then construction ministry published an opinion document on speeding up the marketisation process of the municipal utility sector. Since then, the market of municipal utilities such as water, gas and heat supply, sewage and garbage disposal started to open up, spurring the emergence of a number of key private enterprises. Data from the Ministry of Housing and Urban-Rural Development shows that urban water supply projects with private participation or in which private investors have a controlling stake now account for 20% of the urban water supply market. Privately-run enterprises account for over 40% of the urban gas supply business and more than 60% of the urban heat supply sector. Among the newly-built sewage treatment facilities, 60% involve private investments and operation, as with over 30% of those facilities for the safe disposal of urban garbage. The participation of private capital has been playing an important role in promoting the construction of municipal infrastructure facilities, providing municipal utility services and ensuring their steady supply. Compared with the 2002 opinion document, the recent one has raised new points with regard to the availability of land, electricity consumption and financial services.

For financial services, it is proposed that greater credit support should be given to private investors. Banks would be encouraged to launch innovative products and services at a faster pace on a risk-controlled and commercially sustainable basis.

Regarding electricity consumption, companies engaged in water, gas and heat supply as well as drainage, sewage and garbage treatment would be encouraged to liaise directly with electricity suppliers so as to reduce consumption cost.   

The supporting policies shall be complimented by measures in areas such as pricing, levies and taxes, according to the opinion document. The efficiency of the price formation, adjustment and compensation mechanism for municipal water, gas and heat supply should be enhanced. Should the adjusted price fall short of the target level, the local government may provide reasonable compensations to business operators concerned, taking the actual situation into consideration. Sewage and garbage disposal fees should be incorporated in government budgets for administrative purposes. In northern regions where heating is a necessity, local authorities should continue to adopt preferential taxation policies for privately-run heat suppliers, such as reductions and exemptions for value-added tax, real estate tax and urban land use tax. The importance of giving private investment the same treatment as other types of investment is also highlighted.

Content provided by Picture: HKTDC Research
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