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Provisional Regulations on Foreign Investment Build-Operate-Transfer Projects

(Draft by the State Planning Commission)

Table of Contents:

    Chapter I

    General Provisions

    Chapter II

    Examination and Approval and Establishment Formalities

    Chapter III

    Liability and Risks

    Chapter IV

    Applicable Law and the Settlement of Disputes

    Chapter V

    Supplementary Provisions


    Chapter I   General Provisions

    Article 1.


    These Provisional Regulations are formulated to encourage foreign investors to make investment in Chinese infrastructure construction and to standardize the operation of foreign investment Build-Operate-Transfer (BOT) projects.

    Article 2.


    "BOT projects" as used in these Provisional Regulations shall refer to the infrastructure projects built, operated and transferred (BOT) by foreign investors. A government authority may, through a franchise agreement and within a specified period, authorize a BOT project to a project company established by a foreign investor particularly for such BOT project, and have the project company responsible for its financing, construction, operation and maintenance. After the expiration of the franchise period, the project company shall transfer the entire facilities of such BOT project to the government authority in good condition and without any claim.

    Article 3.


    Within the franchise period, the project company shall operate lawfully and independently, and recover and obtain returns on its investment through payments received from the users of the facilities and.

    Article 4.


    The form of the project company shall be a limited liability company. The registered capital shall not be less than 25% of its total investment. The project company shall be entitled to the ownership and management rights of such facilities during the franchise period. In principle, the franchise period shall not exceed 30 years.

    Article 5.


    "BOT projects" as used in these Provisional Regulations shall include: coal-fired power stations and hydro-power stations under 250MW (giving consideration to flood control and water supply), high grade roads, local railways, bridges, tunnels, city water supply sources, water purification plants and sewage treatment plants. BOT project should be included in the State and local five-year plans. The above range of BOT projects may, on the basis of specific conditions, be subject to expansion.

    Chapter II   Examination and Approval and Establishment Formalities

    Article 6.

    The feasibility study report of a BOT project shall be proposed by the planning authority of the province (or autonomous region or municipality) in which the project is located and the competent authority in charge of such BOT projects, and shall, upon initial examination and approval of the industry management authority, be submitted to the State Planning Commission for examination and approval. In the case of very large projects, the approval of the State Council is required after the initial examination and approval of the State Planning Commission.

    Article 7.


    The government authorities empowered to authorize BOT projects include: the industry management authority under the State Council, and the People’s Governments in provinces, autonomous regions, municipalities directly under the central government and cities listed separately in State planning. The BOT agreement shall be entered into by the representative authorized by one of the above government authorities.

    Article 8.


    The foreign investor of a BOT project shall be selected through the method of international competitive bidding. The standing agent for BOT projects established by the State Planning Commission shall be responsible for the organization, coordination and other related matters of the project.

    Article 9.


    Upon obtaining approval for a BOT project, the government authority authorized to issue such BOT project shall start to prepare the preliminary qualification evaluation and bidding documents and submit such documents to the State Planning Commission for examination.

    Article 10.


    A preliminary qualification evaluation shall be conducted of foreign investors intending to submit bids before publishing bidding documents. A party intending to submit a bid shall provide at least the following documents at the qualification evaluation:

      (1)Legal opinions;

      (2) Certification of experience and performance of similar contracts;

      (3) Ability to organize and manage the BOT project;

      (4) Financial and credit status.

    Article 11.

    The government authority shall prepare bidding documents which shall include at least the following information:

      (1)Nnotices to bidder;

      (2) Minimum requirements on the contents of the application for tenders;

      (3) BOT agreement (draft);

      (4) Technical index based on international or state standards;

      (5) Terms to be provided by the government authority.

    Article 12.

    The application for tenders shall include at least the following items:

      (1) Feasibility study report of the BOT project;

      (2) Proposed schedule of the construction of the project;

      (3) Proposed billing standards and adjustment formula;

      (4) Bid bond;

      (5) Other items required by the bidding documents

    The feasibility study report of the project shall include at least the following items:

      (1) Survey of the project and target;

      (2) Assessment of the effects of the project on the environment;

      (3) Market demand for the project, as well as its costs and charges;

      (4) Description of project engineering and technical index, including the technology to be adopted;

      (5) Description of the project company, including engineering, construction and operation plans;

      (6) Financial analysis, including total investment, cost of labor and materials, financing scheme and cost, cash flow, internal rate of return, inflation rate, supposed foreign exchange rate and interest rate, analysis of risks and sensitivity and other items included in the feasibility study report.

    Article 13.

    The letter inviting qualification assessment or bidding announcement shall be published in at least two national newspapers.

    Article 14.


    Upon a bid opening, the tender can not be changed, and should be in conformity with the terms, form and requirements of the tender documents. Any incomplete and unregulated tender or any tender which has material conflict with the tender documents shall be refused.

    Article 15.


    If a bidder wishes to put forth other requirements, conditions and terms, it must submit a separate "alternative bid". Except for the tender submitted by the bidder in conformity with the requirements of Article 14, the Bid Evaluation Committee will not take these alternative bids into consideration.

    Article 16.


    The bidder shall guarantee that the contents of its bid have been independently raised and that it shall not consult with other bidders for bidding collusion in order to gain the priority of unfair competition.

    Article 17.


    All the bids submitted on time shall be publicly opened in accordance with the date and site subscribed by the invitation for bidding, as well as in accordance with standardized procedure. All bidders are allowed to take part in the opening of the bids.

    Article 18.


    The BOT agreement shall be concluded in accordance with the following procedures: government authorities shall submit the outcome of the bid evaluation and the BOT agreement (with the feasibility study report of the bidder’s project attached thereto) to the State Planning Commission for examination and approval.

    The BOT agreement should at least include the following contents:

      (1) the names, places of residence and representatives of the legal persons of the relevant parties of the BOT agreement;

      (2) The content and term of the BOT;

      (3) Project design, construction, operation and maintenance standards;

      (4) The schedule and extension of the project, and the outcome of termination;

      (5) The construction price of the project and the billing plan;

      (6) The criteria and procedure for handing the project over to the Government after the expiration of the term of the BOT;

      (7) The rights and responsibilities of the governmental authorities;

      (8) The rights and responsibilities of the BOT project company;

      (9) The risk-sharing principle; and

      (10) The transfer of the rights and responsibilities of the project company subscribed by the BOT agreement.

    The investor approved to win the bid shall establish the BOT project company in accordance with the relevant laws and regulations of China. The authority empowered by the Government referred to by Article 7 of these Regulations shall execute the BOT agreement with the representative of the BOT project company. The BOT agreement shall become effective as of the date of the execution.

    Article 19.


    The State Planning Commission shall carry out franchise registration for all BOT project agreements concluded pursuant to the provisions herein. The registered BOT agreement shall be protected by the laws and regulations of the State.

    Chapter III   Liability and Risks

    Article 20.

    The State shall guarantee the exchange and transfer to foreign countries of the foreign exchange necessary to repay the principal and interest of loans and to pay the project company’s dividends.

    Article 21.


    Except in cases where the existing BOT project is unable to satisfy market demands, the governmental authorities shall not approve any new competitive projects.

    Article 22.


    Government authorities are entitled to conduct supervision, examination and auditing of the project company’s operational activities.

    Article 23.


    The governmental authorities shall not provide any form of guarantee regarding the rate of return of the project investment. The domestic financial institutions and non-financial institutions shall not provide any form of guarantee for project financing.

    Article 24.


    The project company shall pay taxes in accordance with the provisions of State laws and regulations on the taxation of foreign investment enterprises, and are entitled to relevant preferential treatment tax reductions and exemptions.

    Article 25.


    The project company shall be responsible for the training of the personnel required to assume independent responsibility for the operation and maintenance of the project after the transfer of the project. After the expiration of the term of BOT agreement, the project company shall, without reservation, hand over the technology and data of the operation and maintenance of the project to the government authorities without any compensation.

    Article 26.


    The project company shall share commercial risks such as project financing, construction, operation and maintenance. Through methods such as adjustment of the billing standards and the extension of the BOT term, the government authorities shall also share the risks of the BOT project due to material effects resulting from changes in State policy.

    Chapter IV   Applicable Law and the Settlement of Disputes

    Article 27.

    The BOT agreement’s execution, performance, and interpretation, as well as the settlement of its disputes, shall be in accordance with the laws of the People’s Republic of China. In issues not yet regulated by the laws of the People’s Republic of China, international convention shall prevail.

    Article 28.


    All disputes arising during the performance of the BOT agreement or having connection with the above agreement shall be settled through friendly consultation between the parties to the agreement. If a settlement cannot be reached through consultation, such disputes may be submitted to a Chinese arbitral body or other arbitral bodies for arbitration.

    Chapter V   Supplementary Provisions

    Article 29.

    These Regulations shall be interpreted by the State Planning Commission.

    Article 30.


    These Regulations shall become effective as of the date of the promulgation.