General frameworki Types of public-private partnership
Pursuant to Article 8 of the PPIP Act, a private entity may participate in an infrastructure project in any of the following ways: BOT, build–transfer–operate (BTO), ROT, OT and build-operate-own (BOO):
- BOT: the private entity invests in the construction and operation of a new infrastructure, and upon expiration of the operation period, transfers the ownership of such infrastructure to the government;
- BTO: either:
- the private entity invests in the construction of the infrastructure and, upon completion of the construction, relinquishes the ownership to the government without compensation. The government then lets the private entity operate the infrastructure. Upon expiration of the operation period, the right to operate reverts to the government; or
- the private entity invests in the construction of the infrastructure. Upon completion of the construction, the government acquires the ownership by paying the construction expenses in a lump sum or in instalments. The government then lets the private entity operate the infrastructure. Upon expiration of the operation period, the right to operate reverts to the government;
- ROT: the private entity invests in the extension, reconstruction or repair of an existing infrastructure, and operates the infrastructure. Upon expiration of the operation period, the right to operate reverts to the government;
- OT: the private entity operates an infrastructure facility built with investment from the government. Upon expiration of the operation period, the right to operate reverts to the government; and
- BOO: the private entity invests in the construction of an infrastructure on private land provided by the private entity itself, has the ownership thereof upon completion of the construction, and then operates the infrastructure itself or commissions a third party to operate it.
In addition, PPP project implementation projects can also be divided into two types:
- government-initiated projects, wherein private entities are recruited by the government to implement a publicly financed project, where the government sees the private entity as having superior capacity and expertise to deal with the project than the government, and expects the private entity to be more efficient than the government; and
- privately initiated projects, wherein a private entity independently discovers a project that is deemed profitable among the public-private partnership projects and proposes its implementation to the government.
According to Paragraph 1, Article 5 of the PPIP Act, the competent authority is the Public Construction Committee of the Executive Yuan, which became the Department of Promotion of Private Participation of the Ministry of Finance (the DPPP) in 2013. In practice, the DPPP is the agency in charge of the PPP scheme. Besides helping the Ministry of Finance (MOF) interpret the PPIP Act, the DPPP also drafts guidelines, frameworks, principles and programmes and announces them in the name of the MOF.
Besides the above, the DPPP engages in a wide range of work to promote PPPs. For example, it publishes investors' manuals, explaining approaches to the PPIP Act and related incentives or benefits to foreign investors. It also schedules training courses for officials participating in PPP. To incentivise execution and consultation, 'Golden Thumb Awards' are given every year to consultants or authorities in charge and private entities for well-executed projects.
In addition, according to Paragraph 2, Article 5 of the PPIP Act, the authority in charge refers to any authority in charge of matters relating to private participation in infrastructure projects, which may be the central authorities in charge of the industries, the municipal governments at the municipal level or the county governments at the county level. An authority in charge may authorise any of its subordinate agencies to execute matters to be handled as authorised by the Act.iii General requirements for PPP contracts
According to Article 3 of the PPIP Act, projects for constructing any of the following facilities for public use and for promotion of public interest could be deemed an infrastructure project under the PPIP Act:
- transportation facilities and common conduits;
- environmental pollution prevention facilities;
- sewerage, water supply and water conservancy facilities;
- sanitation and medical facilities;
- social and labour welfare facilities;
- cultural and educational facilities;
- tourist attractions and lodgings;
- power facilities and public gas and fuel supply facilities;
- sports facilities;
- parks and green spaces;
- industrial, commercial and hi-tech facilities;
- development of new towns;
- agricultural facilities; and
- government office buildings.
As previously stated, there are other laws governing private participation in specific infrastructure projects; therefore, if a project does not fall within the types prescribed in Article 3 of the PPIP Act, it may still proceed under the PPP scheme. However, in such cases, the benefits under the PPIP Act, for example, favourable rentals or tax exemptions, will not apply.
Besides the limitation on types of projects qualifying under the PPIP Act, Article 11 of the PPIP Act also requires the following matters to be specified in concession agreements case by case:
- the planning, building, operation and transfer of the infrastructure;
- the payment of the rental for the land;
- the royalties, the relevant expenses, the fare rate and the adjustment;
- renewal of the agreement upon the expiration of the operation period;
- risk allocation;
- the solution in the case of poor construction or operation;
- the step-in right of the related parties;
- the auditing, construction control and management of operation quality;
- a dispute-resolution mechanism;
- the arbitration clause; and
- amendment to or termination of the agreement, and any other agreed matters.
Bidding and award procedure
Private entities interested in making an application can submit required documents for the government to select the best qualified applicant. Following selection, both parties enter into negotiation and sign an agreement. If, after the selection, the best applicant fails to execute the agreement in accordance with the schedule, then the government may make another public notice to negotiate and sign an agreement with the second-best applicant.i Expressions of interest
As previously stated, PPP project implementation can also be divided into two types: government-initiated projects and privately initiated projects.
To the government-initiated projects, the authority in charge has to first evaluate whether the PPP scheme is suitable for the project. According to the Evaluation Mechanism for Public Infrastructure proposed by the MOF, the evaluation for feasibility covers the current public infrastructure operation, public policy, the type of PPP, finances and land ownership. After such an evaluation, evaluation of feasibility and preliminary plan should be done. According to the Guidelines for Governmental Agencies in Promotion of Private Participation, feasibility in market, engineering technology, finances, law and land securing should be evaluated carefully. Moreover, environmental impact assessment (EIA) has been a significant concern in evaluating feasibility in recent years.
Based on the evaluation of feasibility, the government should commence the preliminary plan for the project. The preliminary plan should include:
- the goal of the project;
- the term and scope of the approval;
- the plan for construction and operation;
- the timetable for EIA;
- finances and risk management;
- approved investment; and
- the plan for implementing the agreement.
The guidelines specifically point out that the plan for construction and operation has to cover EIA and carbon emission reduction initiatives. To the privately initiated projects, a private entity needs to submit:
- a land utilisation plan;
- a building plan;
- an operational plan;
- a financial plan;
- a letter of intent to finance issued by a financial institution; and
- other documents required by applicable laws (the requested documents) to the authority in charge for approval.
If the authority in charge finds the application meets the policy requirements, the application shall be reviewed according to the following procedure:
- where the private entity applicant provides private land needed by the project, the application shall be reviewed by the authority in charge; and
- where the authority in charge provides land and facilities needed by the project, the private entity applicant shall submit a project outline in advance.
After the project outline passes the preliminary review of the authority in charge, the application guide will be made and announced by the authority in charge. Then the original applicant and other applicants may submit the requested documents accordingly. To evaluate the applications, the authority in charge shall organise a selection committee to establish the evaluation criteria based on the purpose of the infrastructure project concerned, examine and evaluate the materials submitted by the applicants on a fair basis, and then select the best applicant within the evaluation period.ii Requests for proposals and unsolicited proposals
After the evaluation of feasibility and the preliminary plan in the government-initiated projects, the government would make a public notice to invite bids from interested entities to the privately initiated projects, where the authority in charge provides land and facilities needed by the project.
The public notice should specify:
- the character, basic requirements, concession period and scope of the infrastructure project;
- the qualification requirements for the applicant;
- the items and standards of application review;
- the items awaiting negotiation;
- the date of announcement, the deadline for application, the application procedure and earnest money;
- the scope for the ancillary enterprises allowed for private investment and the concession period for the land needed; and
- the matters authorised or commissioned by the authority in charge in accordance with Paragraphs 2 and 3, Article 5 of the Act.
Besides the information given in the public notice, the tender documents shall state the following items:
- information in the public notice;
- the main content and format of the investment proposal;
- the method and schedule of the application review;
- the commitment and cooperation matters of the government;
- the items and procedures of negotiation, only when negotiations are allowed;
- the deadline for contract negotiation and execution; and
- the draft of concession agreement.
If a private entity is interested in a project, then it may submit a bid by following the instructions on the public notice and the tender document.iii Evaluation and grant
According to the Regulations Governing the Organisation of the Selection Committee and the Evaluation for Private Participation in Infrastructure Projects, the authority in charge has to organise a selection committee for private participation in infrastructure projects (the Selection Committee) for each project. The Selection Committee has to be established before a public notice inviting private participation is posted, and should be dissolved upon completion of the review process and when there are no outstanding issues.
The duties of the Selection Committee include prescribing or approving evaluation criteria and ways of selection, conducting comprehensive evaluation of the applications, helping the authority in charge to interpret matters related to the evaluation items, evaluation criteria and the selection outcome. When prescribing or approving the evaluation items and evaluation criteria, the Selection Committee has to first consider the purpose of the infrastructure project and public interest. Evaluation criteria should include the financial plan and appropriate allocation standards; innovation and creativity may be included in the evaluation criteria or sub-criteria, subject to the type of the project. The financial plan has to cover the royalties or governmental premiums, subject to the type of the project.
As required by this regulation, the Selection Committee should consist of seven to 17 members appointed or retained by the authority in charge and have expertise or experience in fields related to the infrastructure project. To ensure fairness, at least half of the Selection Committee members have to be external experts or scholars.