- the willingness of the Chinese government to apply the BOT concept, as well as its
strong support for the project; - the application of a proven technology;
•a refinancing arrangement; - an early completion bonus; and
•a guaranteed minimum purchase price.
Despite Guangdong Province’s success with this project, the central government became con-
cerned that developers would have opportunities to make excessive profits when BOT pro-
jects were competitively bid, based on the price of power, and the government had no other
financial controls over such projects.
Soon afterwards numerous international independent power producers and other devel-
opers proposed additional power plants, but they were discouraged by the 12 to 15 per cent
limit on a project’s internal rate of return (IRR) imposed by the Ministry of Electric Power
(MOEP). Wu directed his efforts toward Indonesia, the Philippines, India and Pakistan.^6 At
the same time, several Chinese power companies began to raise capital in world markets.
Shandong Huaneng Power Development Company and its parent Huaneng International
Power Development Company are both listed on the New York Stock Exchange.
New regulations
In March 1994 the Ministry of Power Industry (MOP) issued Interim Regulations for the Use
of Foreign Investment for Power Project Construction, which set out guidelines for all types
of foreign investment in Chinese power plants. The document stated that foreign investors
were permitted to invest in the construction and operation of new power plants or in the
expansion, upgrading or equity of existing plants. The foreign equity interest in existing
plants generally was limited to 30 per cent, but foreign investors could apply to the SPC for
approval to establish new, wholly foreign-owned and operated power plants. Although exist-
ing legislation set no limit on the term of joint ventures, the 1994 MOP guidelines limited the
term of cooperation to 20 years for thermal power plants and 30 years for hydroelectric power
plants. The guidelines stated that Chinese parties should retain a controlling stake in power
projects with a total capacity of 600 megawatts or more.^7
Development of BOT law
China had been slow to develop the legal and regulatory infrastructure to support complex
project contracts and related financial documentation. When the Laibin B project contracts
were being negotiated there was no BOT law. In 1996 the Chinese central government select-
ed a group of road, bridge, water supply and power projects to implement the BOT scheme
on a trial basis, in an attempt to attract more foreign capital for infrastructure projects. Laibin
B was the first pilot project; its structure was intended to become the blueprint for future BOT
projects. If the Laibin B project was successful, the Chinese government hoped that financ-
ing power projects would become easier than it had been in the past.^8
Two key innovations of this project were that the concession was awarded in a compet-
itive bidding process and that the project was 100 per cent foreign-owned. By initiating com-
petitive bidding, the government shifted its emphasis to the price per megawatt of power and
LAIBIN B, CHINA