An extract from The Public-Private Partnership Law Review, 6th Edition

Overview

In Taiwan, public-private partnership (PPP) schemes were prescribed under several laws before the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects was enacted in 1994. The Statute for Encouragement of Private Participation in Transportation Infrastructure Projects covers only transportation infrastructure, which is supervised by the Ministry of Transportation. Taiwan High Speed Rail is a representative project of transportation infrastructure subsidised by the Statute for Encouragement of Private Participation in Transportation Infrastructure Projects.

As PPPs became popular in Taiwan, Taiwan strove to create a hospitable environment for PPPs through statutory enactments and amendments. In 2000, the Act for Promotion of Private Participation in Infrastructure Projects (PPIP Act) was enacted, covering various types of infrastructure, for example, transportation facilities and common conduits, environmental pollution prevention, water supply, and sanitation facilities. The PPIP Act not only establishes a set of fair bidding procedures but also offers many incentives, such as favourable rentals or tax exemptions.

Besides the PPIP Act, there are other laws governing private participation in specific infrastructure projects, including the Mass Rapid Transit Act, the National Property Act, the Local Government Public Property Administration Act, the Commercial Port Act, and the Electricity Act. Together, the different objectives and operating guidelines of those laws create a sound legal environment that has fostered many accomplishments through the united efforts of government agencies. However, the PPIP Act governs most PPP projects in Taiwan. Meanwhile, even when the PPIP Act does not apply in some projects, Article 99 of the Government Procurement Act may apply to the procedures by which an entity selects an investor to construct or operate a project approved by the competent authority for private investment, provided that the project is one in transportation, energy, environmental protection, tourism, and planned or approved by the government. But the benefits under the PPIP Act, such as favourable rentals or tax exemptions, will not apply.

There are various ways for private entities to enter into partnerships with the government in Taiwan. From 2002 to 30 November 2019, more than 1,733 contracts were signed, totalling over NT$1.63 trillion in value. To accelerate national development and curb government expenditure, the Taiwanese government works in earnest to promote PPPs. Well-known projects include the build-operate-transfer (BOT) projects for the Electronic Toll Collection, the Taipei Bus Station and the City Hall Bus Station; the operate-transfer (OT) projects for the National Center for Traditional Arts, the Nangan Exhibition Center, the Kaohsiung Exhibition Center and the Kaohsiung Public Library; and the rehabilitate-operate-transfer (ROT) projects for National Center for Traditional Arts and Alishan House.

The year in review

According to the Ministry of Finance (MOF), there were a total of 86 signed PPP project concession agreements as of November 2019, amounting to NT$89.2 billion in value. A landmark project was the record bid price for the superficies rights to a plot of land in Taipei's Xinyi district; the final bidding price was NT$15.98 billion, representing a premium of 60 per cent on the asking price. In addition, several well-known projects which were initiated under the auspices of other laws regulating PPP projects. For example, the Taipei Twin Towers project, for which the final bidding price reached NT$60 billion, was under the auspices of the Mass Rapid Transit Act and the Regulations on Land Development of the Mass Rapid Transit System. Also, most of the governmental urban renewal plans followed PPP models in the Urban Renewal Act. Two examples are the Kaohsiung Multi-Functional Economic and Trade Park Specific Trade Zone (III) Urban Renewal Project and the governmental Urban Renewal Project for the East Section of Ming-Chuan Road of Song-shan District.

There were several important amendments to the PPIP Act in 2015, including:

  1. government office buildings were added in Article 3 of the PPIP Act as a kind of infrastructure project subject to the PPIP Act;
  2. a feasibility assessment before promoting PPP projects was added in Article 61 of the PPIP Act;
  3. Paragraph 2, Article 11 of the PPIP Act was amended to the effect that the concession agreement between the authority in charge and the private entity shall specify the payment of rental for the land. Additionally, 'control and management of operation quality' was added to Paragraph 7 of the same article for elaborating on the concession agreement and the efficiency of operation. 'Adjustment and revision to or termination of the agreement' was added to Paragraph 8, Article 11. The last addition requires the dispute resolution mechanism to be prescribed in the concession agreement;
  4. Paragraph 2, Article 14 of the PPIP Act was added to require that where environmental impact assessment, and soil and water conservation treatment and maintenance for the land needed for a major infrastructure project are compulsory, the assessment, treatment and maintenance be reviewed jointly or concurrently by the authorities concerned in accordance with the laws and regulations governing urban planning and regional planning; and
  5. Paragraph 1, Article 29 of the PPIP Act introduced the key performance indicators into the subsidy mechanism for the PPP projects in which private entities cannot fully self-finance their investment.

In 2017, in response to the 2015 amendments, regulations and guidelines for PPP projects were issued or amended by the MOF, as follows:

  1. The Regulations on Takeover of PPP Government Office Buildings were published. These Regulations cover the procedure and rights and obligation of both parties if the government agency takes over the project in the condition described in Paragraph 1, Article 53 – any failure to take immediate action may jeopardise major public interests or result in imminent danger.
  2. The Evaluation Mechanism for Public Infrastructure was amended. This evaluation mechanism is meant to help government officials consider whether to initiate a PPP project. The evaluation factors include policy and financial aspects.
  3. The Control and Management of Operation Quality Evaluation Guidelines were renewed. The guidelines elaborate on the control and management of operation quality evaluation procedure.
  4. The PPP Operating Performance Subsidy Evaluation Guidelines were published, and these guidelines provide a basis for the government to evaluate the self-financing capability of the project and establish the key performance indicators for different kinds of public infrastructure.
  5. The Guidelines for the Authority in Charge to Execute PPP Projects were reviewed and revised according to the amended PPIP Act.

In 2016, the MOF published the Regulations for Private Institutions Applying to Participate in the Infrastructure Project under its Own Planning, which would be discussed in detail in the privately initiated project.

In 2016, the Guidelines for Mediation Committee in Performance of Concession Agreement in PPP Projects were published by the MOF. Such guidelines clarify the composition, appointment and the mission of the committee in Article 48-1 of the PPIP Act, in hope of enhancing the efficiency of mediation.

In 2019 amendments, regulations and guidelines for PPP projects were issued or amended by the MOF, including but not limited to:

  1. Regulations for Favourable Rentals Regarding Public Land Lease and Superficies in Infrastructure Projects (Regulations for Favorable Rentals); the calculation of rentals was revised. (See Section V);
  2. the amended guidelines defining 'major infrastructure projects' in Paragraph 2, Article 3 of the PPIP Act expanded the application of favourable taxation to social housing projects, to incentivise private participation in constructing social housing;
  3. the public infrastructure in Article 3 of the PPIP Act is detailed in Article 2 to Article 23 of the Enforcement Rules of the PPIP Act. Article 21 of the Enforcement Rules of the PPIP Act, specifying agriculture facilities, was amended. The amendment was to prevent over-commercialisation in fishing ports and minimise any adverse effects on the rights of fishermen due to the shrinking fishery space. The post-amendment Enforcement Rules limits facilities for accommodation, food and beverage, exhibition and marine recreation and educational facilities in areas zoned for leisure-related facilities;
  4. to promote the execution of PPP projects, the MOF published the Subsidy Evaluation Guidelines for Implementing PPP Projects. The amendments in 2019 were as follows. First, changes in urban planning are excluded from the subsidised items listed in Guideline 3. Second, post-amendment Guideline 8 differentiates between the appropriation phases of subsidies based on the progress of the subsidised items and the amount of subsidies; and
  5. several articles of the Regulations Governing the Organisation of the Selection Committee and the Evaluation for Private Participation in Infrastructure Projects were amended. Article 6 was amended to require that the committee members be disclosed on the websites of the competent authorities once the committee is formed. Moreover, general terms on how the committee members should avoid conflicts of interests are added in Subparagraph 4, Article 9. The main purpose behind the amendment is to improve the fairness of the Selection Committee.

Recent decisions

The dispute resolution mechanisms include mediation, arbitration and litigation. But since Article 48-1 of the PPIP Act indicates that the concession agreement of every PPP project shall prescribe the formation of a mediation committee for contract dispute resolution and may require that disputes be submitted to arbitration if mediation fails, more and more disputes that arise from PPP projects can be resolved by mediation before the parties bring the dispute to arbitration or litigation.

In addition, disputes in PPP projects usually revolve around financial conditions, and if one party is not satisfied by the financial conditions, it will propose adjustments. In the past, it was usually the private entities that initiated such adjustment; however, in recent years, the government has initiated such adjustments to adjust the royalties.

Outlook

In recent years, compared with local projects, major national projects have been rare. To boost the number of PPP projects, the government has developed more sophisticated standard operating procedures in different kinds of projects, and the types of projects open for PPPs are broader and more contemporary. Both central and local governments fully support and promote PPP projects, and foreign investment is especially welcome. We believe that in the coming year, the Taiwanese government will establish an even more conducive environment for the PPP scheme.