05/03/2023 Case Study - Beijing Line Metro 4

Case study:

Beijing Metro Line 4

Public Private Partnership (P3)

Public Private Partnership (P3) – what is it?

• Definition – “A contractual arrangement between a public agency (‘government’) and a private sector entity. Through this agreement, the skills and assets of each sector (public and private) are shared in delivering a service or facility for the use of the general public.

• In addition to the sharing of resources, each party shares in the risks and rewards potential in the delivery of the service and/or facility.”

(National Council for Public-Private Partnerships)

Finance & Subsidies Investment

Privatesector

Public sectors PPP Project

Regulate & Compensate Design - Build - Finance -Operate

Services to the consumer

Objectives:• Efficient use of public finances on large scale projects,• Private sector investment (build & operate public infrastructure & services) • Use private sector expertise to provide ‘improved’ services.

Beijing Metro Line 4

Background:• Rapid growth of Beijing area & population – Recognised need to provide

mass public transport around city

The Plan: • Beijing Rail Network Programme (2004-15):

• 260 Kms, Total Investment 100bn RMB (£10bn)• Includes Line 4 Project:

• 28 Kms, Total investment 15.3bn RMB (£1.5bn)

Problem: “fiscal restrictions stopped development of Beijing transit network” (Chang, 2013)

Proposed solution for Line 4 Project: • Government to set up Joint Venture Company, to finance & build the metro

line (PPP)• JVC to then operate the metro line on a 30 Year lease & make profit to

repay the initial investment

Beijing Metro Line 4 – The Collaboration

JVC Partners:• MTR Corporation Limited (49%): Private Partner - design, construction & operation of rail

systems• Beijing Capital Group Limited (49%): Public Partner (State owned Enterprise) – infrastructure

investor (urban mass transit systems)• Beijing Infrastructure Investment Co., Ltd. (2% - golden share): Public Partner (SoE) – financing

Why MTR?extensive international railknowledge & experience –

London, Stockholm, Melbourne

Beijing Metro Line 4 – what were the outcomes?

Benefits• Government:

• Reduced public investment • Changed role (service provider to regulator)• Access to skills and knowledge of overseas partner

• MTR Private Partner provided:• Effective project management (command and control)• Efficient development and operation (est. 9.4% savings below budget

over project life cycle)

Risks• MTR only involved after construction had commenced – optimal

configuration?• Government assured ticket fares to the public – “same network, same price”

• Ongoing subsidy paid to MTR to compensate for impact on its anticipated revenues