Investment risk and financial management countermeasures of PPP project
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Abstract: With the PPP model being widely used by local governments in the field of local infrastructure and public services, it is expected to promote economic transformation and upgrading, reduce the budget increase and debt pressure of local governments, and enhance the economic growth momentum of enterprises. The key is that the investment analysis and financial management of PPP projects should be put in place to realize a virtuous circle of fund management. Focusing on the investment analysis and financial management strategy of PPP project, this paper starts with the analysis of PPP project characteristics, discusses the characteristics of PPP project, and expounds the process risk points and financial management strategy of PPP project, so as to improve the quality and operational efficiency of PPP project in practice.
Keywords: PPP project; Investment analysis; Financial management;
Introduction: At present, PPP model has been widely used in infrastructure construction such as water conservancy, transportation, municipal administration, etc., which provides assistance for the government to achieve infrastructure construction goals, resolve local government debt risks, and improve the operation quality of public services.
1. Overview of PPP project mode
(1) Investment analysis of PPP project
1. Concept of PPP project
PPP mode is a mode of investment and cooperation between government and social capital in infrastructure and public services, which has been widely used in recent years. When the government plans to build a public service infrastructure, social capital will be involved to undertake the whole cycle of financing, construction, construction and operation projects. The government can purchase services through user payment+feasibility gap subsidy or installment payment, and social capital can get a reasonable return on investment, thus realizing social public welfare.
2. Investment characteristics of PPP project
PPP project has the characteristics of complex procedures, long cycle and large scale. Compared with traditional project construction, the most significant difference is that the government is no longer responsible for project financing, and its construction funds need to be financed by social capital, and the government pays corresponding fees year by year during the operation period. For the social capitalists of PPP projects with large investment scale, it is necessary to solve a large amount of financing, and the bank's financing audit conditions are also strict, so it is difficult to recover the investment in the short term, which may cause the social capitalists' asset-liability ratio to be high and the financial risks to be intensified, which will have an impact on their long-term development.
(II) Characteristics of PPP project
1. Partners
The PPP model is based on the cooperative relationship established by the government and social capital with the same cooperation goal, which emphasizes the * * * operation, * * * sharing and risk resistance of the government and social capital in the construction of the target project. On the basis of establishing the cooperative partnership, they form an equal and smooth communication working interface.
2. Enjoy the benefits
Social capital pursues its own interests through PPP projects, while the government aims to realize the public welfare and interests. The basis for realizing the interests of both parties is the success of PPP projects. It should be pointed out that PPP projects are mostly service-oriented projects that serve social undertakings, with public welfare and no profit maximization as the goal. When the government and social capital weigh the benefits of the project, they must first ensure that the quality of the project will not be affected, and rationally formulate the benefit distribution mechanism of both parties to ensure the continuous stability and profitability of the project. Benefit * * * enjoyment not only refers to the social achievements of the project, but also includes making social capital obtain a relatively reasonable and long-term stable return on investment and realizing Pareto optimal benefit * * * enjoyment in the project life cycle.
3. Risk sharing
PPP projects usually have large investment and long cycle, accompanied by high risks. In the process of implementation, benefits correspond to risks. Without risk sharing, a healthy and sustainable project partnership is out of the question. Therefore, it is necessary to establish a risk sharing mechanism based on the principles of symmetry, optimality, upper limit and dynamics, so that each party can bear the associated risks with its own advantages as much as possible. When each risk can be borne by the partner who is best at coping with the risk, the overall cost of the project can be minimized. To this end, the government should establish a sound evaluation, management and supervision mechanism, guide social capital to participate in the preliminary research and design of the project, and accurately judge the project expectation through objective and reasonable risk assessment. Social capital should accurately evaluate the project risks, reduce sudden risks in the process and promote the smooth implementation of the project.
second, investment risk analysis of PPP project
(I) project management risk
PPP projects will face management risks from preparation, design, construction, acceptance, operation, handover and other stages. Due to the large amount of funds, long cycle, relatively complex planning and relatively long approval procedures, the low efficiency may lead to the project missing policy opportunities. In the construction stage, it needs to go through many links, such as design, budget estimate, approval of construction scheme, measurement, audit, etc. However, because the main body of implementation is the relevant government functional institutions, communication efficiency may be low due to management authority and other issues in the process, and some functional institutions may have a lag effect on the corresponding professional ability. Therefore, the government and social capital should * * * hire an independent third party with corresponding capacity and scale to carry out the whole process of consultation, audit and evaluation, build a stable triangular working mechanism for the government, social capital and third-party institutions, and carry out project construction on the basis of mutual trust and reciprocity.
(II) Market Environmental Risks
The market environmental risks faced by PPP projects come from the adjustment of macro policies and the transformation of government operation mechanism. PPP projects are directly affected by the adjustment of national macro-policies and the management and operation mechanism of local governments. Due to the adjustment and change of national policies, the progress or functional requirements of the projects will be changed, which increases the timeliness risk of the projects. Reasonable policies will help both parties to reduce the potential risks of the project. However, when some policy adjustments affect the expected benefits of the project, it will directly cause the project capital risk and even cause social problems. The second is the control risk from the financing ability of social capital itself. The government is usually only responsible for the corresponding capital, and does not participate in project financing and guarantee. However, the banking industry's access standards and supervision of PPP project financing are getting higher and higher, and social capitalists themselves need strong financial strength and financing channels to ensure the normal turnover of project funds.
(3) Risk of exceeding the contract cost
At present, some PPP projects have exceeded the contract cost during the construction period. Before the PPP project contract is formally signed, the government usually completes the design bidding in advance, but in the implementation process, the approved budget will exceed the project cost agreed in the contract. If the contract terms do not clearly stipulate this phenomenon, firstly, it will directly cause the financing scheme to fail to meet the construction fund demand, which will lead to the normal implementation of the project, and secondly, it will cause the trust risk and audit risk of both parties to the contract to be further amplified.
(4) Legal risks
With the wide application of PPP model, its deficiencies in laws and regulations, system construction and financial supervision are becoming more and more obvious. The legal structure of PPP project subjects involves administration, civil and commercial affairs, and the lack of relevant legal systems will directly lead to the abuse of administrative power and the limitation of project management authority, which will affect the long-term healthy development of PPP model.
iii. financial management strategy of PPP project
in order to achieve the ultimate goal of PPP project and ensure the expected interests of participants, it is necessary to build a financial management model and risk early warning mechanism with cooperation as the purpose and fund management as the core. The following strategic suggestions are put forward for the financial management of the whole process of PPP project.
(1) Establishing the whole process of financial risk identification and early warning mechanism
PPP projects need to go through a complicated and complicated program system to achieve the ultimate goal, and funds run through this system from beginning to end. In order to ensure the smooth progress of the project in the whole cycle, it is necessary for the government, social capital, construction participants, investors, financial institutions and independent third parties to strengthen risk awareness, establish a financial risk identification and early warning mechanism in the whole process, and make overall consideration of possible risks during the project cycle. Grasp the capital as the core of management and control, establish the relationship between phased objectives and capital ratio, lock the capital pre-control with objectives, and reflect the process implementation with capital movement. Establish a risk identification list led by the project company, and build a corresponding table of tasks, risk items and funds matching at the stage. Design responsibility system and preventive measures, strengthen risk management and control in the project process, and reduce the possibility of risk occurrence. Real-time control of cash flow and supervision of all links. Analyze whether the execution process is consistent with the objective environment through the movement of funds, and evaluate it in time to form a coping strategy. Through the identification and early warning of risks, the financial risks of the project can be prevented.
(II) Strengthening project financing management and improving the level of internal control mechanism with comprehensive budget management as the starting point
PPP project financing is the whole process and all-round financing, which is manifested in capital financing in the project preparation period, debt financing in the construction period and securitization financing in the operation period. The financing risks of different subjects are as follows: the local government with strong financial resources has little risk and the local government with weak financial resources has great risk; The risk of social capital's own strong economic strength is small, and the risk of its own weak strength is great. The financing risks of different projects are different, and the risks of key projects and subsidized projects are relatively small; The risk of bringing the feasibility gap subsidy into the government's payment responsibility is small, while the risk of user's payment is great if there is market uncertainty. Different stages of the project also bring different financing risks. During the construction period, due to factors such as construction period, quality and force majeure, it brings the risk of expected uncertainty, but during the operation period, the project output has been formed, and the income is basically stable, so the risk is small.
to control the risk points, we should take the comprehensive budget as the starting point, strengthen the control of project funds, scientifically and reasonably carry out project financing and control the capital turnover. Scientific project budget is helpful to control the overall investment scale of the project and to judge the bottom line and feasibility of the financing scheme. Social capitalists should pay attention to communication with the government at all stages, especially in the early stage, and guide the later construction, operation, transfer and withdrawal according to the budget results. Resolutely avoid the difficulty of project financing due to factors such as large deviation of financing cost and failure to achieve credit enhancement conditions. Always focus on financial measurement and risk pre-judgment, and construct structured financing schemes at all stages to ensure debt payment obligations at all stages. Establish a rolling budget, do a good job in cost control, and adjust the deviation between the budget and the actual situation in time.
when formulating the budget, we should fully consider the influence of changes in policies, industries and markets on reasonable control, make a good choice of financing proportion and channels according to the estimated scale, strictly control the financing scale and the use of funds, put an end to unreasonable and irregular capital expenditures, and build an objective and executable project budget implementation mechanism. Strengthen the management of internal control process, improve the relevant system of capital income and expenditure, and control the risk of project funds.
(III) Focus of financial management during project operation
(1) Focus on analyzing the influence of performance appraisal on the realization of feasibility gap subsidy, provide decision-making basis for formulating operation and maintenance mode and evaluating implementation through budget execution analysis, and make adaptive adjustments in time.
(2) Pay attention to the changes of market factors, compare the deviation between the expected income and the actual income in time, lock in the influencing factors through analysis, optimize the controllable part of users' payment, and improve the efficiency of funds.
(3) design the financing framework, adapt to the policy orientation, seize the market window period and make full use of effective tools such as REITs to reduce financing costs and maintain sufficient liquidity.
(IV) Promoting the improvement of relevant laws and regulations
The PPP model integrates the interests of many parties and needs to build a win-win platform for mutual benefit. Therefore, all parties and links need to comply with the relevant laws and regulations of the state to protect the rights and interests of the government, the public and the social capital. In the development process of PPP mode, it is necessary to establish objective and perfect normative documents in line with the project development, and reduce unnecessary losses caused by legal deficiencies, contract disputes and other issues.
The formulation of relevant laws and regulations needs to coordinate and clarify the rights and responsibilities of the project participants. First, it is necessary to standardize the whole process of project operation; The second is to clarify the subject of supervision and the content of power and responsibility at each stage; Third, it is necessary to formulate a good exit mechanism and dispute resolution channels; The fourth is to do a good job in the operation right agreement of PPP projects; Fifth, other key issues, such as budget implementation, performance management, supporting policies, fiscal and taxation subsidies, etc.
(5) Training a professional talent echelon
PPP projects involve finance, taxation, law, finance, engineering, operation and other fields. At present, there is a relative lack of compound talents who can adapt to PPP projects, both government and social capital, and relevant theoretical knowledge and practical experience are still in the adaptation period. To this end, all participants should strengthen the training of professional talents, improve their professionalism and theoretical reserves, accumulate management experience in practice, enhance their risk awareness and identification ability, and constantly improve their investment analysis ability and financial management ability.
IV. Conclusion
The PPP model realizes the win of the government, the public and social capital through cooperation, mutual trust and mutual benefit. In order to better promote the application of PPP model in practice and protect the legitimate interests of all parties, it is necessary to constantly improve the relevant investment environment, legal environment and financing environment. Project managers should improve the corresponding financial management system through continuous practice, do a good job in project investment analysis, risk control and financial management, and promote the PPP model to play a greater role in the rapid economic development of China and provide support for the process of socialist modernization.
V. References
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