A Look at Concession Rules for the Urban Water Industry

By Yuan Jianan and Qin Yu 
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Local city governments in China monopolized the urban water industry until the mid-1990s. In 1995, three ministries led by the State Planning Commission issued the Several Issues Concerning the Examination, Approval and Administration of Experimental Foreign-invested Concession Projects Circular, which introduced BOT concessions to urban water plants. A more comprehensive foreign-invested BOT regulation that was promised in the 1995 Circular was not issued. However, since that time, concession-based water supply projects, and later wastewater treatment projects, have been gradually carried out across China, and both foreign and Chinese investors have participated. Apart from the grant of concessions to a new project company, an equity transfer in an existing water company is also a popular approach for attracting outside investment. In this method, the domestic water company has already held some form of concession and modifies the concession for the outside investor upon the equity transfer.

In terms of market access, the concessions were initially limited to plants; but recently distribution networks have also been opened to outside investment. Of past water concession projects in China, the Shanghai Dachang Water Plant project and the Chengdu No. 6B Water Plant BOT project represent two major models in granting the concession.