Recently, the Dingxi Municipal Transport Bureau issued an announcement on the annulment/termination of the social capital tender for the PPP project of the second phase (Mawu to Baitu Slope section) of the S10 Fengxian (Shaanxi) to Hezuo Expressway, Mawu to Xizhai section. The screenshot is as follows:

The specific reason for the annulment officially announced is as follows: The project implementation agency, the Dingxi Municipal Transport Bureau, conducted investment agreement and project contract negotiations with the first, second, and third candidate social capital parties in sequence as required. During the negotiations with the first and second candidate social capital parties in sequence, the two parties failed to reach agreement on key terms of the project contract, and the first and second candidate social capital parties voluntarily withdrew and terminated the negotiations. The project implementation agency then promptly notified the third candidate social capital party to conduct negotiations; however, after receiving the notice, the third candidate social capital party failed to appear within the specified time and voluntarily withdrew from the negotiations. Therefore, in accordance with relevant regulations, the project will conduct a second prequalification of social capital and a new tender.

The estimated total investment of this project is 16,927,762,000 yuan. The project capital is 3,385,552,400 yuan (20% of the total project investment), which will be used as the registered capital of the project company. The government investor representative will contribute 10% (for the S10 Fenghe Expressway Phase II: 318,234,900 yuan, of which Min County contributes 254,587,900 yuan, accounting for 80%, and the municipal level contributes 63,647,000 yuan, accounting for 20%; for the S10 expressway connector, Min County contributes 6,820,100 yuan; for the Min County Airport Road, Min County contributes 13,500,200 yuan), and the winning social capital party will contribute 90% (3,046,997,200 yuan). The remaining 80% (13,542,209,600 yuan) of construction funds will be raised by the project company through bank loans and other multiple channels. The government investor representative and the winning social capital party will sign a Shareholders' Agreement and contribute capital according to the agreed shareholding ratio, with the government investor representative holding 10% and the winning social capital party holding 90%. After the project company is established, the shareholders will pay in the capital according to their contribution ratios within the time specified in the PPP Project Contract.

So who were the three winning candidates for this project? See the screenshots below:

First candidate social capital party: Gansu Provincial Highway Aviation Tourism Investment Group Co., Ltd. (lead party), MCC Communications Construction Group Co., Ltd., China Second Metallurgical Construction Group Co., Ltd., China Nineteenth Metallurgical Construction Group Co., Ltd., MCC Road and Bridge Construction Co., Ltd., Anhui Provincial Highway and Bridge Engineering Co., Ltd., Beijing Municipal Road and Bridge Co., Ltd., Gansu Gonghanglv Road Industry Co., Ltd., Gansu Rongcheng Construction Engineering Co., Ltd., Gansu Dongfang Fire Engineering Co., Ltd., Gansu Gonghanglv Ecological Environmental Protection Technology Co., Ltd., Gansu Yuanfeng Traffic Engineering Co., Ltd., Gansu Provincial Transportation Planning, Survey and Design Institute Co., Ltd., and Gansu Highway Aviation Tourism Research Institute Co., Ltd.;

Second candidate social capital party: CCCC Third Highway Engineering Co., Ltd. and MCC Construction Engineering Group Co., Ltd.;

Third candidate social capital party: China First Metallurgical Group Co., Ltd.;

Interpretation

As for the social capital parties in implemented PPP projects, in recent years most social capital parties have been state-owned enterprises and central enterprises. In the two important stages of PPP procurement and implementation, the main terms of the contract agreement have always been a key focus for both the government side and the social capital side.

In the project identification, preparation, and procurement stages, consulting companies, as the government's entrusted parties, mainly formulate the contract agreement from the government's standpoint. To meet bidding needs, social capital parties may not fully elaborate on specific agreement terms even if some bid documents include deviation schedules. Of course, this is not the most critical point. The most critical point is the contract negotiation after winning the bid.

After a project is won and before entering the implementation stage, according to the PPP implementation process, the two parties still need to go through a necessary contract negotiation process, which is very critical. In this process, based on the need for board approval of state-owned/central enterprises under the "Three Major and One Large" decision-making system, the need for contract review by professional departments such as investment or legal affairs departments, and the need for review by internal risk control departments of the banking system for project financing, deeper negotiation and supplementation are often required for some main terms of the contract agreement. From the perspective of the social capital party, the ultimate goal is to ensure legally compliant work, comprehensively carry out risk prevention and control, and at the same time strive to maximize the interests of shareholder entities.

As is well known, PPP projects have a relatively long cooperation period, at least 10 years (the cooperation period of this project even reached 49 years), and they also have a certain scale, with many types of risks and long timeframes. Therefore, contract negotiation is very critical, and this project stopped at this point. Although we cannot know the specific terms of the contract negotiation, through this project we can see that the first and second candidates failed to reach agreement on the negotiation of key terms, and the third candidate simply chose to give up. It can be seen that the risk level of this project should be quite high!

What do you think of this project?