Journal of Cleaner Production 142 (2017) 1065e1074

Contents lists available at ScienceDirect

Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

Application of the publiceprivate partnership model to urban sewage

treatment
Tong Yang, Ruyin Long*, Xiaotong Cui, Dandan Zhu, Hong Chen
School of Management, China University of Mining Technology, Xuzhou, Jiangsu, 221116, China

a r t i c l e i n f o

a b s t r a c t

Article history:
Received 25 December 2015
Received in revised form
28 April 2016
Accepted 29 April 2016
Available online 7 May 2016

Funding shortages can greatly affect the construction and implementation of urban sewage treatment
projects. Applying the publiceprivate partnership model to urban sewage treatment projects will increase the nancing capacity and mitigate the risk of local debt. Based on analyses of current urban
sewage treatment projects and the relationship between the publiceprivate partnership model and
these projects, we demonstrated that the publiceprivate partnership model is applicable to city sewage
treatment projects, thereby enhancing social capital, improving the management and operation of the
projects, and facilitating various management methods for innovation and optimization. We studied the
relationships between responsibility and authority, benet sharing, and risk sharing using the public
eprivate partnership model as well as the main issues that affect urban sewage treatment, and we then
analyzed these issues from the perspectives of government, enterprises, intermediary agencies, and
public groups. We conclude that the implementation of publiceprivate partnership models affects urban
sewage treatment projects by dening the relationship between the government and market. Based on
our comprehensive analysis, we provide policy suggestions regarding the publiceprivate partnership
model for urban sewage treatment with respect to government, social capital, and intermediary organizations, thereby providing a guide to the implementation of the publiceprivate partnership model.
2016 Elsevier Ltd. All rights reserved.

Keywords:
Government
Intermediary
Publiceprivate partnership (PPP)
Urban sewage treatment

1. Introduction
Wastewater and sewage threatens human safety and development, as well as impeding the sustainable development of the
economy and society. Due to the acceleration of industrialization
and urbanization, urban sewage discharge rates are increasing at a
rate of 5% per year. However, the current capacity for sewage
treatment is relatively low. In order to curb the adverse effects of
environmental pollution due to the uncontrolled discharge of
sewage, effective measures must be taken to ensure that the
discharge of sewage meets the required standards. However, a
shortage of funds impedes such progress. It is also necessary to
improve the technology, management, operation, and monitoring
mechanisms of the treatment of sewage to meet such standards.
Currently, environmental problems are attracting increasing
attention. In particular, the development of urban sewage treatment is a widespread concern throughout the world. The Chinese
government has already introduced laws and regulations such as

* Corresponding author.
E-mail address: longruyin@163.com (R. Long).
http://dx.doi.org/10.1016/j.jclepro.2016.04.152
0959-6526/ 2016 Elsevier Ltd. All rights reserved.

the Action Plan for Prevention and Control of Water Pollution,

Implementation Opinions on Promoting Cooperation in Government and Social Capital in the Field of Water Pollution Prevention
and Control, and Measures for the Administration of Special
Funds for the Prevention and Treatment of Water Pollution in
2015. A publiceprivate partnership (PPP) project platform has also
been set up in the National Development and Reform Commission,
Ministry of Finance of the People's Republic of China, and other
government agencies. The application of the PPP model to urban
sewage treatment will allow the government to cultivate social
capital in the eld of water pollution control, as well as improving
the quality of the service supply, and the processing power and
efciency of urban sewage treatment.
The remainder of this paper is organized as follows. First, we
dene and develop the PPP model, before analyzing the relationship between the PPP model and urban sewage treatment projects
according to the present situation. After interpreting the main form
and the signicant risks in terms of the important issues that affect
urban sewage treatment, we propose policy implications to further
promote the urban sewage treatment PPP model from the perspectives of the government, enterprises, intermediary agencies,

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the Internet, and international cooperation. Currently, China is still

in the initial stage of the application of the urban sewage treatment
PPP model. Few practical problems have been encountered, so
follow-up studies will focus on preparing contract templates and
the specic operation of the Internet in this eld.
2. Concept denition and literature review
PPP is a very broad concept, which has been dened by agencies
such as the United Nations Development Program (1998), the
United States PPP National Commission (2002), the European
Commission (2003), and the PPP National Council of Canada (1999)
(Weisheng et al., 2013). Although the meaning of PPP is clear, there
is no clear consensus on its denition. PPP can be dened as follows. Through cooperation among public sectors and private departments, a contract should be signed to provide public goods,
share risk and prot, and to generate all types of social capital to
actively participate in providing public goods and services, thereby
achieving a winewin situation. The capacity for efcient nancing
makes the PPP model advantageous for easing the local debt risk
(Chan et al., 2014), and thus this model is used widely in the construction of infrastructure, quasi-public goods, and services. According to the World Bank standards, PPP is divided into
management and lease contracts, concessions, green-eld projects,
and divestiture. These models can be used to develop new projects
and for expanding projects, as well as improving the operational
efciency of existing projects (Zhang et al., 2015).
The application of the PPP model has become a growing trend
throughout the world. Countries such as the UK, the USA, Australia,
and New Zealand have formulated standardized text and contract
guidelines, and thus they are in a leading position to apply the PPP
model. Moreover, the use of the PPP model is gradually increasing
in the BRICS countries. Previous studies have emphasized the
denition of the PPP, its feasibility, the risk sharing mechanism, and
the evaluation model from the perspectives of sociology, engineering technology, and environmental policy (Kateja, 2012). In
recent years, many studies have focused on the application and
development of the PPP model based on the overall analysis
(Roehrich et al., 2014). Most studies suggest that the PPP model can
be applied to the elds of infrastructure and other quasi-public
goods (Hodge and Greve, 2007; Wang et al., 2015a,b). Some researchers have also analyzed the application of the PPP model to
different types of projects and local cases, especially in the elds of
energy, medicine, transportation (Singh and Kalidindi, 2006;
Valipour et al., 2015), communication, and water treatment
(Mouraviev and Kakabadse, 2014; Vian et al., 2015; Ameyaw and
Chan, 2015a,b), while others have concentrated on the risk
sharing mechanism in PPP projects (Ibrahim et al., 2006; Yunus,
2015; Chou and Pramudawardhani, 2015). Lilley and Giorgio
(2004) described the characteristics of the PPP model, which can
avoid risk by using technology and funds from the private sector, as
well as obtaining the trust of the community to help the government to satisfy the public interest. Ross and Yan (2015) stressed the
importance of the efciency of the PPP model. Van den Hurk et al.
(2015) illustrated the differences between 19 European countries in
terms of their PPP-supporting units. Many studies have discussed
the risk problem and the main model in the application of urban
sewage treatment (e.g., build-operate-transfer, build transfer, or
transfer-operate-transfer) (Ameyaw and Chan, 2015a,b; Braadbaart
et al., 2009). Studies on the application of the PPP model to urban
sewage treatment have focused mainly on aspects of policy introduction, case studies, and experience summary. However, few
studies have been performed from a macro-level analysis
perspective, particularly to determine the relationship between
markets and government in PPP model applications, as well as

practical countermeasures and suggestions. Thus, based on our

analysis of the current situation, we identify the basic mode of the
PPP model in urban sewage treatment, as well as analyzing the
signicant risks and problems that affect project operations. We
propose policy implications based on the perspectives of government, society, intermediary agencies, the Internet, and international cooperation from a macro-level.
3. Application of the PPP model to urban sewage treatment
With the progress of urbanization and industrialization, China's
discharge of urban sewage grew fast, and the growth trend accelerated after 2010. In 2014, the total discharge of urban sewage had
reached 44.5 billion cubic meters (Fig. 1). Therefore, China urgently
needs a large number of sewage treatment projects. Urban sewage
treatment projects have their own economic characteristics, where
their main features are a high degree of regionality, followed by a
strong natural monopoly, and then by public welfare. An urban
sewage treatment service is a quasi-public product, which can be
produced or provided through a mixed optimized model. The
application of the PPP model to urban sewage treatment has been
explored throughout the world, especially in developed countries.
In Germany, one-third of all urban sewage treatment projects are
based on the PPP model. During 2013, the White House Council on
Environmental Quality held a seminar where various representatives suggested that local government should apply the PPP model
to provide nancial resources for sewage disposal. In general,
compared with China, developed countries are in a leading position
in terms of applying the PPP model to urban sewage treatment
projects, including their nancing, risk control, operation, and
management.
3.1. Current status of urban sewage treatment projects
In 2000, the Announcement of Strengthening the Urban Water
Supply and Saving & Water Pollution Prevention by the State
Council set rules for the urban sewage treatment rate and the
construction of sewage treatment plants. Thus, it can be said that
the construction of urban sewage treatment facilities began in
2000. The sewage discharge volume continues to rise, as a result of
the increasing population. Many cities are competing to build their
own sewage treatment plants as well as improving their sewage
treatment capacity, and thus the quality of sewage treatment has
improved in the past years. The number of urban sewage treatment
plants, the daily sewage treatment capacity, and the sewage
treatment rate by the end of 2014 are listed in Table 1. However, the
sewage treatment capacity cannot meet the actual demands of
most cities. Many sewage treatment plants have difculty operating correctly due to a lack of follow-up funding. Moreover, the
sewage treatment rate is lower than the international level and
there are still many problems with the overall service process. From

Fig. 1. Annual urban sewage discharge (unit: billion cubic meters).

T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

Table 1
Current status of urban sewage treatment plants.
Year

Number of
urban sewage
treatment plants

Daily sewage
treatment capacity
(million cubic meters per day)

Sewage
treatment
rate (%)

2009
2010
2011
2012
2013
2014

1214
1444
1588
1670
1736
1808

9052
10,436
11,303
11,733
12,454
13,088

75.25
82.31
83.63
87.30
89.34
90.18

Data source: China Urban Construction Statistical Yearbook 2000e2014 by the

Ministry of Housing and UrbaneRural development.

a technical perspective, there are several shortcomings, such as

high cost, low efciency, high energy consumption, high maintenance, and low automation, while an increasingly stringent efuent
standard still needs to be decided (Wang et al., 2015a,b). From the
perspective of nancial support, investment lags far behind that of
other countries and is far from meeting the necessary
requirements.
The government is in control of initiatives related to the construction of sewage treatment facilities. The construction and
operation of many of the original sewage treatment plants were
funded by the local government or city investment companies,
which lack operational experience and the necessary technology.
The construction of an urban sewage collection network allows
waste water to be delivered continuously to treatment plants. In
this case, the risk on the supply side for each sewage treatment
plant is very low and the prot rate of return is relatively low, and
thus a city experiences a dilemma where the treatment plants are
built well but they cannot afford the maintenance costs, while
there are low prots and no signicant improvements in environmental quality. At present, urban sewage treatment is faced
with various challenges, including the high volume of sewage, the
complex composition of sewage, the late entry into sewage
treatment, and higher requirements. Thus, there are several bottlenecks in projects, such as construction taking 30% and management 70%, no money for building new projects and cannot
afford the original project, low efciency, and inefcient supervision. In addition, urban sewage treatment is not an isolated
project; it has many other related activities. For example, sludge
can cause severe environmental pollution and is a high security
risk (Gianico et al., 2015). Therefore, massive amounts of funds
need to be invested in sludge treatment (Elisabeth et al., 2004).
Sufcient funds and policy support can greatly improve the
status of sewage treatment projects. The PPP model is becoming
popular, so the internationalization and privatization of urban
sewage treatment, which are characterized by complexity, technical development, and the integration of social capital, will increase investment opportunities. Moreover, it can also provide
more funding channels, improve the efciency of management, and
reduce the risks related to construction and management during
the construction of urban sewage treatment projects. The characteristics of the PPP model make it an effective solution to urban
sewage treatment.
In China, the development of the PPP model has experienced
four stages: the rst stage was exploration (1978e1994) when
China's reform and opening up started, the second stage was the
pilot stage (1994e2002) when the socialist market economic
system was established, the third stage was promotion
(2003e2008) when non-public capital market access restrictions
were relaxed, and the fourth stage was repetition (2008e2012)
when the 4 trillion stimulus plan was in operation. The application of the model has progressed since 2013 when China's

1067

economy began to move into the new normal stage. The development of the PPP model depends on the needs of economic and
social development, as well as the needs of national governance
and the complexity of public management. The Third Plenary
Session of the Eighteenth Central Committee emphasized that
nance is the foundation of national governance as well as
noting that the market plays a decisive role in the allocation of
resources, and establishing a market mechanism to attract social
capital investment in ecological environment protection was also
proposed. Thus, the relevant policy system has been improved
since the end of 2013. The initial framework of the PPP system has
been constructed, and documents related to the notication of PPP,
the operational guidelines, the guidelines for the contract, and the
demonstration of nancial capacity have been issued, so the
number and value of PPP projects have increased signicantly. By
February 2016, the number of PPP projects in China was 6997,
whose investments was 81,322 Yuan RMB. These PPP projects
were distributed in many provinces, of which Guizhou's number of
PPP projects is greatest (Fig. 2). In terms of the number of PPP
projects, China ranks rst in the world, where it accounts for
29.75% of the Top-10 projects. Compared with other countries, the
PPP model is being applied widely in the construction of infrastructure in China. As an innovative management model, PPP facilitates the development of concepts, technology, and system
innovation in the economic transition process. The PPP model
emphasizes full cooperation, benet sharing, and risk sharing, as
well as promoting the combination of equity and efciency.
However, due to the short period of time during which the model
has been applied, the relevant parties generally lack experience
and many practical problems still need to be considered.
In 2014, among the rst batch of PPP pilot projects, sewage
treatment was applied widely in Jiangsu, Chongqing, Fujian,
Anhui, and other provinces. For example, two out of the 15 pilot
projects are related to sewage treatment in Jiangsu Province, four
out of 28 in Fujian, and 17 out of 42 in Anhui. According to the
latest PPP project library in 2015, urban sewage treatment is
divided into different management sectors, e.g., sewage treatment,
water conservation, ecological environment, and urban construction. In particular, the number of sewage treatment projects in
Beijing is seven, which account for 41.4% of the total PPP projects;
the number of sewage treatment projects in Guangdong province
is 12, accounting for 75%; the number of sewage treatment projects in Anhui province is 30, accounting for 23.6%; and the
number of sewage treatment projects in Sichuan Province is seven,
accounting for 20%. In September 2015, water treatment projects

Fig. 2. The distribution of PPP projects among main provinces in China.

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T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

accounted for one-quarter of the total projects and they ranked

second in the second batch of 206 PPP pilot projects announced by
the Chinese Ministry of Finance (Fig. 3). By February 2016, the
number of sewage treatment PPP projects is 630, which is greatest
in two-level industries and accounts for 9% of the total PPP projects. The number of these sewage treatment PPP projects in each
province is presented in Fig. 4. The amount of money that these
projects involve and the sewage treatment scale per day (cubic
meters) are shown in Fig. 5. The stages of implementation are
shown in Fig. 6, and the return mechanism is shown in Fig. 7(data
source: the National Development and Reform Commission of the
People's Republic of China, PPP project column). The standardization and innovation of the application of the PPP model in the
eld of urban sewage treatment will be promoted by the release of
the new PPP projects by the government. Previously, the application of PPP in urban sewage treatment projects was mainly
restricted to the nancing process and there have been few analyses from the perspective of innovation management.

sewage treatment plant that has already been built but that cannot
be put into operation, and nally this project is owned by the
government. The introduction of this model requires special
consideration of the supervision procedure by the government
when signing the contract, the charging for expenses related to
sewage treatment plants, and quality tests, while future development directions should be stipulated in advance. The most noteworthy is the design-build-operation (DBO) model, which is an
atypical model for supporting the specialization of sewage treatment services. This model facilitates overall planning by considering the original project design, and the prots from the design
and construction are distributed to private investors, which makes
it easy to formulate the scale and to intensify development. The
prot model is based on income from charging the government for
sewage treatment minus the company's operating costs, equipment
depreciation, and other expenses. Each model has its own
emphasis, and thus the selection of each should depend on the
specic situation.

3.1.1. Operating mechanism and main forms of the PPP model in

urban sewage treatment
Fig. 8 below shows the operating mechanisms employed for the
PPP model in urban sewage treatment. Urban sewage treatment
companies that are compatible with government social benets
and enterprises economic benets are created by government and
social capital.
However, the operating mechanism should be treated differently when it is applied to each sewage treatment project. There are
many types of PPP model, but the following basic models are often
used in the operation of urban sewage treatment: build-operatetransfer (BOT), transfer-operate-transfer (TOT), and the trusteeship model. Take Guizhou Province as an example, whose number
of sewage treatment PPP projects is greatest in all provinces.
Whether in investments (Fig. 9) or numbers (Fig. 10) of projects,
BOT type projects are ranked the rst. Their investments account
for 71% and the numbers account for 78%. TOT type projects are
ranked the second.
These models apply to the marketization of new, reconstructed,
and existing sewage treatment plants, as shown in Table 2. In
addition to the models listed in Table 2, some other PPP models are
used in the eld of urban sewage treatment, such as purchaseupgrade-operate (PUO), which is a model where social capital upgrades facilities and strengthens management after purchasing a

3.1.2. Main risks of the PPP model in urban sewage treatment

The construction and operation of urban sewage treatment
plants takes a long time, so regardless of which model is applied,
the construction and operation of the project are likely to
encounter many types of risk during this period, which may be up
to 10 years or even several decades. During the preliminary planning and feasibility study for a PPP project related to urban sewage
treatment, in addition to the economic and nancial analyses, decision makers need to recognize the existence of all types of risk
and perform real and comprehensive assessments to reduce, avoid,
and relieve risks.
With respect to the participants, the risks for government
mainly comprise: policy risk, legal risk (Ke et al., 2010), default risk,
rent-seeking risk, and force majeure risk. These risks may directly
prevent the plan from being completed as scheduled. Moreover, the
quality and quantity of sewage treatment are also difcult to
guarantee, while government intervention may increase the cost in
some cases.
Investment operators also face many risks: the risk associated
with the sewage treatment capacity, i.e., the possibility that the
sewage treatment capacity is insufcient or too great; the risk
associated with the sewage treatment technique, i.e., the technique
cannot reduce costs or improve the efciency; the risk associated
with the price adjustment for sewage treatment (Choi et al.,
2010),i.e., price level and changes in labor costs may lead to
changes in the costs; and the risk of changes in sewage treatment
charges, i.e., changes in charges to polluting enterprises and individuals, as well as the default risk.
The urban sewage treatment process has various associated
risks, but the PPP model always aims to nd active ways to resolve
these risks. For the government, risks can be avoided by the
introduction of laws and regulations. For investment operators,
technical analyses and feasibility surveys of the sewage treatment
project can be performed in advance to ensure that the risk and
prot sharing ratio of the project are distributed well during the
initial stages. Investment operators can obtain investment returns
by charging a reasonable fee for sewage treatment, thereby
improving the resource utilization efciency and service quality, as
well as improving the motivation to invest.
In conclusion, the key to success and obtaining prots for investors in PPP projects related to urban sewage treatment is the
ability to identify risk and to distribute it among the participants.
The principles of value for money (Marques and Berg, 2011) and
risk is taken by the most suitable participant should be followed
when dealing with risk. Moreover, a match between risks and
prots should be ensured, and there should be a limit on the risk. A

Fig. 3. The number of the second batch pilot projects by sector.

T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

1069

Fig. 4. The distribution of urban sewage treatment PPP projects.

Fig. 6. Classication for the implementation stages of urban sewage treatment PPP
projects.

Fig. 5. The amount of money that the urban sewage treatment PPP projects involve
and the sewage treatment scale per day.

fair and effective risk allocation is the desirable outcome of negotiations among the participants, which requires great effort.
3.2. Challenges for the PPP model in urban sewage treatment
In China, the development of urban sewage treatment is under
high pressure and the demand is urgent. However, it takes time to
convert the investment space into projects and to achieve the
orderly development of a PPP model, as well as requiring a
comprehensive recognition of the t between the project and the
PPP model. Thus, some problems need to be solved during this
process.
The rst issue is dening the relationship between the government and the market. In the context of market-featured reform
for public utilities in China, the top-level design has been
completed and the dominant role of the government in urban
sewage treatment is no longer overemphasized. However, it is

Fig. 7. Classication for the return mechanisms of urban sewage treatment PPP
projects.

necessary to understand the nature and risk of the market mechanism. The function of marketization should not be exaggerated
and the PPP model must not be promoted blindly in order to prevent it from becoming a movement. In addition, due to the requirements for large investments, a long investment period, and
uncertain prot opportunities for city sewage treatment project,
there are concerns about the credibility of the government and the
changeability of public policy with respect to the investment of
social capital. Thus, the government should change its ideas and
improve its governance capacity as well as its credit rating.

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T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

Central government
Local government

Right

Social benefits

Government

responsibility
Financial intermediaries

State-owned economy

cooperate
Legal intermediaries

Collective economy
Private economy

Social
capital

Asset evaluation
intermediary

Urban
sewage
Contract treatment
company

Internet+

Mixed ownership economy

Share economy
Foreign economy

International
cooperation
Economic benefits

Fig. 8. Summary of the operating mechanism for the PPP model in urban sewage
treatment.

Fig. 9. The investments of sewage treatment PPP projects in Guizhou.

reclaimed water and sludge treatment need to pay value-added tax

(VAT) from July 1, 2015. Compared with the previous exemption
from VAT, there is no doubt that the new regulation imposes a
burden on sewage treatment enterprises, as well as reducing prots
and thus increasing the sewage treatment fee. Furthermore,
dishonesty and various behaviors that go against contracts by some
local government members during the construction and operation
of PPP projects may reect a failure to keep to the spirit of the
contract, which will severely hinder the healthy development of
PPPs.
There are still problems related to an unclear understanding of
the positions of local government and the PPP model. Financial
stress is very common, so most local governments only consider the
role of PPPs in the circulation of funds and they do not supervise the
entire process for projects after relieving the nancial pressure.
Thus, they do not introduce sewage treatment technology according to local conditions and there is a lack of attention to the full
range of planning (Sagalyn, 2007). In addition, the standard of
sewage treatment is set without consideration, which results in
high costs and the low economic viability of projects, which means
that projects are difcult to move forward. Moreover, there is no
unied regulation regarding the entrance, licensing, and the allcosts pricing of sewage treatment projects, which leads to inefcient supervision.
From the perspective of microeconomics, the participants in
private capital place greater consideration on investment income
and the rights of investors. The prots from the sewage treatment
project will be relatively stable, but the participation of relevant
enterprises is not very high. In addition, due to the high thresholds
for some projects and the lack of policy support, some small and
medium-sized enterprises cannot nd a suitable way to participate
in projects. For the public, few people are concerned about the
operation of these projects so public participation is not common.
4. Analysis of the implementation of the PPP model in urban
sewage treatment
The implementation of the PPP model in urban sewage treatment must address various problems at the levels of government,
society, intermediary agencies, the Internet, and international
cooperation.
4.1. Government level

Fig. 10. The number of sewage treatment PPP projects in Guizhou.

Second, local government lacks the ability to apply the PPP

model. At present, this problem is related to multiple management
layers during the application of the PPP model in urban sewage
treatment, such as a competent department for construction and a
department for operation management. The ambiguity of the
management process leads to unied policies and poor management responsibility, as well as leading to some regulations that lack
continuity. For example, the Ministry of Finance and the State
Administration of Taxation issued the Catalogue of Preferential
Value-added Tax Policies for Products Made Through and Labor
Services for the Comprehensive Utilization of Resources (nance
and taxation [2015] No.78) on June 12, 2015, which stipulated that
labor services engaged in sewage and garbage treatment as well as

The government should clarify its specic duties based on its

role in urban sewage treatment projects, as shown in Fig. 11. First,
the government function should be transformed from the direct
suppliers of quasi-public goods into cooperators and regulators
based on the transformation of ideas. Second, from the system
level, this also means the division of the boundary between the
rights and responsibilities of government, enterprises, and the
public. Ensuring the safety of the water environment is the duty of
the government. Therefore, central government should establish
policy foundations, speed up legislation related to PPP, establish
clear contractual relationships, and clarify the project boundaries to
guarantee the protection of the public interests by the government.
Furthermore, local government needs to assume responsibility for
promoting the development of urban sewage treatment and for
bringing urban sewage management under the remit of special
government management. Local government should also study and
assess the t between projects and the PPP model, as well as clarifying the main responsibilities in urban sewage treatment projects,
adjusting measures according to local conditions, focusing on the
point, performing a good service job, signing a deal with non-state
bodies as equal civil subjects on the basis of the spirit of the

T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

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Table 2
Forms of the PPP model used in urban sewage treatment.
Model

Connotation

Implementation objective

Cases

Build-OperateTransfer (BOT)

Private capital invests and constructs the

project, as well as acquiring the managerial
rights and income rights in a certain period. The
government recoups property rights and
managerial rights after the stipulated operation
period. This is the most widely used model at
present.
The project unit is the middle man, who
transfers a project facility that has already been
put into operation for a social subject. The social
operator makes a one-off payment to the
project company according to the cash ow of
the project in future years, and charges usage
fees to the users of the facility. Upon expiration
of the contract, the facility should be returned to
the project company. The government is only
responsible for recycling funds and it has
ownership of the project.
The government and the company set up a
sewage treatment limited company according
to company law and contract law. The risks and
benets are determined by their capital
contribution proportions.

BOT model applied to new sewage treatment

plants

WangXiaoying wastewater treatment plant in

Hefei, YangJiaxi wastewater treatment plant in
Zhang Jiajie, etc.

TOT model applied to reconstruction and

expansion of existing sewage treatment plants

SiJiqing wastewater treatment plant in Huai'an,

Yao Zhuang wastewater treatment plant in
Xuzhou, etc.

Other marketization models applied to new

sewage treatment plants

Baxian wastewater treatment plant in Heze,

Shandong

Transfer-OperateTransfer (TOT)

Corporation and
other
marketization
models

contract, establishing a coordination mechanism with a clear division of responsibilities, and giving priority to the promotion of
quality sewage proposal subjects with reasonable and transparent
charges and stable prots.
Public nance is the foundation of a country's governance.
Innovative regulations cannot exist without the transformation of
ideas. In particular, for scal management, in order to fulll the
obligation of government to provide public goods, the denition of
responsibility for scal nance expenses should be made in terms
of investment in capital, operation subsidies, solutions to risk, and
concerning the input of each process to PPP projects in urban
sewage treatment.
The Ministry of Finance published the Fiscal Capacity of PublicPrivate Partnership Projects Guidelines on April 7, 2015, thereby
dening the nancial capacity requirements for PPP projects and
the careful control of the scale of new PPP projects to prevent and
control nancial risks. The nancial capacity of urban sewage
treatment projects also requires holistic and objective arguments,
which help to build a high-quality government procurement platform and to select substantial, qualied investors through public
bidding. With respect to the project signing progress, the government should also perform early planning, such as better forecasting
of the amount of sewage water and other important indicators, as
well as adjustments to the proposed sewage service price according
to general prices and other specic factors, and produce detailed
terms for the price adjustment method, formula, and the proposed
sewage procedures.

Manager
Roles of the

Fiscal
management
Financial
supervision

government
Cooperation

Social
regulation

Fig. 11. Roles of the government in the PPP model in urban sewage treatment.

The purpose of scal subsidies is to provide a high-quality and

adequate sewage service for society, as far as possible. Subsidies can
reduce the risk of social capital commitment, as well as solving
moderate problems such as income instability and insufcient income, thereby increasing enthusiasm for social capital participation
projects. Of course, subsidies cannot be abused, and thus policyrelated losses and operating losses should be distinguished
clearly. Social benets and nancial affordability should be
considered. Subsidies mainly comprise supply side and demand
side subsidies, and the specic measures include nancial payments and feasibility gap subsidies. The implementation of a PPP
project for urban sewage treatment requires the support of various
measures in terms of nancial expenditure, such as investment
subsidies, price subsidies, and transfer payments. This process
should be implemented gradually, where the subsidies transfer
from the source to the key link, which may range from entire
subsidies to selective rewards. We can also introduce reasonable
and exible mechanisms for government subsidies, as well as
selecting government subsidies to match the characteristics of PPP
projects for urban sewage treatment.
To fully exploit the incentives of expenditure policy and to
promote the smooth implementation of the PPP model in urban
sewage treatment, the government should focus on strengthening
functions to guide specic funds, as well as optimizing and
adjusting the process for nancially supporting projects, improving
the methods for nancial funding in a systematic manner, and
innovating feasible gap subsidy methods, thereby making full use
of the leverage of nancial capital.
In terms of scal revenue, in the new normal economy where
growth is slowing and debt risk is emerging for local government,
the use of the PPP model can relieve moderate nancial burdens on
the government and leverage social capital inputs through scal
funds. With respect to tax revenue, relevant policy should be
introduced in a timely manner to support the transfer between
government capital and social capital. Different policies for tax cuts
should apply to the sewage industry in different areas. Enterprises
might also obtain tax cuts via methods such as tax returns. It is
essential to clarify the tax-related aspects of PPP projects as well as
strengthen tax collection and administration, and improve the
operation of policy. The denitions of expenditure responsibility,

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T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

scal revenue, and expenditure related to PPP projects for urban

sewage should consider budget management in a uniform manner,
as well as standardizing budget approval, strengthening law constraints, and applying a rule that annual PPP projects cannot account for over 10% of the ordinary public expenditure budget.
The level of credit should be improved for enterprises that
participate in urban sewage treatment projects and credit lines
should be increased via governmental guidance for nancial
agencies and governmental recommendations. Funds can be raised
gradually to ensure prospective earnings for urban sewage projects
as well as encouraging society to establish funds for urban sewage
treatment. The Interim Measures for Management of Government
Investment Funds was also launched on November 12, 2015.
Combining PPP projects for urban sewage treatment with credit
guarantee institutions can help to set up new trading structures
and to mobilize incentives that will encourage interested parties to
participate in projects and ensure closed-loop risk.
From the perspective of government management, the government needs to take macro-level control of the distribution of
sewage treatment plants, control sewage discharges from their
origin, improve the incentive mechanism to ensure that social
capital ows into market, and try to make the people who pollute
pay for these services. It will be necessary to formulate policy
related to payment for the use of pollution emission rights, to
improve the establishment of a trading market for pollution
emission rights, and supervising the whole process before and
during PPP project contract signing, such as checking the quality of
bidders, credit, technical levels, keeping records of appointments,
and the self-design of contracts (Xu et al., 2014). In addition, bidding for several projects together might have a scaling effect and
encourage competition, which could create sufcient capacity for
enterprises to make prots. The government should also build a
mechanism to promote interconnection. The government can
provide support for making and implementing nance and supervision policies by setting up promotion units for urban sewage
projects, building an information service platform, and effectively
integrating relevant information resources in different enterprises
and different cities.
In conclusion, the government should reformulate its ideas and
focus on the investment return from social capital, as well as
developing project evaluations using an index system that can be
examined, supervised, and operated. In addition, a mechanism
should be implemented to ensure that people who pollute must
compensate those who invest in and benet from these practices.
Furthermore, it is also important to prevent enterprises from
ignoring the public interest in the pursuit of high prot and to
control the scale of PPPs in new urban sewage projects. Efforts
should be made to build a standardized PPP model that integrates
the overall participation of social capital.
4.2. Social capital perspective
From the perspective of enterprises, not every enterprise can
play a major role in the PPP model because of their variable size.
Enterprises that are close to the government with a relatively
optimal superstructure, as well as listed companies, have greater
advantages in terms of PPP nancing. The synergistic development
between the PPP model and the economic reform of mixed
ownership for state-owned enterprises can break the policy limit
and allow state-owned enterprises to enter the PPP model without
any constraints, and integrate other non-public enterprises in the
construction of sewage treatment projects.
Furthermore, some medium or small enterprises that rely only
on their technical advantages could have difculties exploiting the
PPP model. Therefore, these technical companies should be held

together around the big investment and operating companies to

generate a good relationship based on mutual cooperation. Enterprises that participate in projects should take advantage of their
technical skills, management experience, innovative capabilities,
and the market limit to ensure clear self-positioning, as well as
learning about the specic structures of PPP projects, their rights
and responsibilities, the division of labor and tasks, and other elements. For example, there are requirements for reasonable planning, guaranteeing the terms of the minimum volume when
signing the contract according to the daily amount of sewage in the
plant's area, where the low level should be charged according to the
daily proposed amount and the excess level should be calculated as
a reasonable percentage based on original price, and these detailed
rules should be normative. In the area of urban sewage treatment,
the price of sewage treatment is very low in many places and unhealthy competition may arise, so there is little room for
improvement, but relevant enterprises can innovate concepts as
PPP projects based on sludge treatment and industrial sewage
treatment to broaden the prot-making space.
For the middle level of industry, integrated operations can drive
the urban sewage industry in the direction of large-scale, intensive
operations. Obtaining benets of scale relies mainly on expanding
the scale of the management service as much as possible and
improving the level of professionalism among management and
maintenance services. Similarly, environmental service companies
can consider the full-life cycle (Meneses et al., 2015) during the
design, construction, provision, and operation of water treatment
services, including subsequent network maintenance. Professional
maintenance companies and novel techniques such as the Internet
of Things can be used to manage the daily maintenance of equipment, which could reduce the maintenance costs and improve the
level of ne management. Cooperation should exist between government and an enterprise but also among enterprises, where it
may be possible to motivate enterprises by exploring inter-region
enterprise cooperation to promote effective competition in the
market, improve efciency, reduce costs, and obtain benets of
scale.
4.3. Perspective of cooperation among intermediate agencies
Cooperation is at the core of PPP projects, where it aims to
combine functions, benets, and risks, which makes it a signicant
factor that determines the achievement of a winewin situation
among individuals in terms of equality and independence. During
the process of cooperation, professional research institutions may
be involved in the construction of a third-party platform, which
would be an effective method to promote the optimization of the
PPP model. Handling information asymmetries may be the rst
problem that needs to be addressed by cooperation. First, it is
necessary to focus on implementing support for nancial intermediaries, encouraging nancial institutions under the principle
of sustainable business to innovate nancial products and insurance types, ensuring the comprehensive application of a risk
compensation policy, and improving the nancial service system.
Stock rights, project usufruct rights, franchise rights, and other
pledge nancing methods should be popularized, as well as setting
up investment companies for special funds to support PPP urban
sewage treatment projects and to innovate nancial operation
patterns, where the funding company has the basic function of
allocating funds, but it must also follow the project operation in
depth and set up dynamic feedback mechanisms. Moreover, the
implementation of a series of green nancial policies such as green
banks, green securities, green bonds, and green insurance can help
to meet the nancial demands of the PPP model in urban sewage
treatment. It would also be benecial to build a multilevel

T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

guarantee system by actively promoting the establishment of a

nancing guarantee fund and broadening the nancing channels
for enterprises that want to invest in urban sewage treatment.
Second, it is necessary to accelerate improvements to the legal
medium, rules, and regulations concerning PPP, which are in the
process of renement and optimization. The Ministry of Finance
published Guidelines on the PPP Project Contract (Try Out) on
January, 19, 2015 to clarify the details of the PPP contract signing
process. In reality, there is widespread cooperation between government capital and social capital, but achieving a better link based
on the design of the contract (Iossa and Martimort, 2015) is very
important. Thus, a series of contract texts with strong regulations,
wide coverage, and simple operation in the sewage treatment eld
should be formulated gradually for reference, where the bridging
role of model law cannot be ignored. In the draft contract, the responsibilities and rights of both negotiating parties should be clear,
especially the limits of the government's rights. It is essential to
prevent power rent-seeking, to accelerate the pace of law, and to
stress the need for professionalism. For enterprises, responsibilities
should be claried and limits should be specied in the areas of
sewage detection, charging, pricing, and development planning.
When signing the contract for a PPP project related to urban
sewage treatment, great attention should be given to the design of
the water inow, water quality requirements, the sludge management method, limits on the penalty terms, and clarifying the construction of the main body of the outside network. Furthermore,
legal professionals should handle the bidding process. Thus, we can
resort to the law if the project involves disputes, where it would be
necessary to bring in a third party to act as an arbitrator.
Moreover, strengthening the orderly development of asset
evaluation agencies can have a supporting role. Urban sewage
projects that require government investment and related infrastructure can be evaluated using the cost of replacement method,
the current market price method, or the present earning value
method to avoid the loss of state-owned assets and to promote the
retention of value and value appreciation, which can play a positive
role during the process of local debt stock resolution. In addition, it
is necessary to establish a related professional consulting agency,
where relying on its rich industrial experience and ability can
signicantly improve the efcient implementation of the project by
providing professional support in terms of system construction,
project planning, legal person bidding, negotiating programs, and
strengthening the government's ability to cooperate with social
capital.
Finally, to fully mobilize public forces, all sectors of society
should be provided with a comprehensive understanding of urban
sewage projects. Thus, by making the public aware that urban
sewage treatment is closely related to their key interests, we can
strengthen the supervision of public opinion, expose all issues that
are obstacles to the reasonable implementation of sewage proposal
facilities and those that offend consumer rights, thereby providing
a benecial public atmosphere that facilitates the orderly development of urban sewage treatment projects. Public participation
will enhance trust in government, including participating in hearings regarding pollution pricing, the prevention of substandard
urban sewage treatment, and avoiding the occurrence of extreme
environmental pollution events.
4.4. Orientation of the internet and international cooperation
It will be necessary to set up an urban sewage treatment service
board as well as formulating a new Internet proposed urban
sewage plant process, where the appliance of this process can help
government and social capital to learn about the supply and demand related to urban sewage projects, as well as establishing a

1073

dynamic adjustment mechanism. A big data platform can be built

using Internet, which can promote the efcient management of
the PPP model in sewage treatment projects, where the government can fully access information, enhance the service quality, and
reduce the administration costs. Social capital can be enhanced by
the real-time monitoring of sewage pipe network ows to understand the supply and demand of city sewage treatment. The big
data platform based on Internet can also protect the public's
freedom of information and strengthen social supervision to ensure
that public interests are maximized. In addition, crowd funding
based on the Internet may be applied to this new process. The
Internet crowd funding platform Circle Funding Network rst
went online on November 24, 2015 and the establishment of this
new platform may attract social investors more effectively to take
control of project construction and operation, thereby reducing risk
and guaranteeing the interests of each side. Furthermore, during
operational processes and the management of investment in urban
sewage projects, international standard water enterprises will take
a major role and they have many advantages such as advanced
technology, high-quality management, and sufcient funds. The
goal of promoting winewin cooperation should encourage the
participation of different groups in the context of water security to
fully exploit the PPP model.
5. Conclusion
The PPP model is used widely in the area of infrastructure
construction, where urban sewage treatment projects account for a
substantial proportion. In the present study, we analyzed the
existing problems that affect the operation of projects based on the
PPP model, including the macroscopic relationships between the
government and the market, the limitations of local government
when applying the PPP modes, and motivating the participation of
private capital. These problems are also widespread in other types
of PPP projects. We made some policy suggestions from the perspectives of government, the level of social capital, intermediary
cooperation, the Internet, and international cooperation. These
policy suggestions can also be applied to charging pile construction,
abandoned mines, and other infrastructure areas.
The PPP model has widespread application prospects and by
dening the meaning of PPP, we have demonstrated that a
winewin situation can be achieved via cooperation between
government public departments and market-related departments
to provide public products and services. By describing the current
situation with respect to the lack of urban sewage treatment capacity and economic theory, we demonstrated that the development of urban sewage projects can t well with the PPP model.
Previous studies have mainly discussed the general characteristics
of PPP projects and there has been little consideration of sewage
treatment projects. Thus, the implementation of the PPP model in
this eld can improve participation in project management and
operations by involving more social capital, as well as allowing the
optimization and innovation of various management methods. The
main contribution of this study is that we investigated the application of the PPP model to urban sewage treatment from several
perspectives, including government, social capital, and intermediaries, as well as providing detailed descriptions of the relationships between relevant parts of the PPP model.
We must emphasize the decisive role of the market in the
resource allocation process and the role of government in cultivating the market. In this study, we summarized the more applied
roles of PPP in the construction and expansion of current urban
sewage treatment projects, which can be analyzed based on the
BOT and TOT, as well as joint-stock company modes and by
focusing on more market-oriented models such as PUO and DBO

1074

T. Yang et al. / Journal of Cleaner Production 142 (2017) 1065e1074

from the perspective of government, investment operators, and

the other main bodies that can participate in PPP projects. We
analyzed various types of risks and proposed a path for resolving
these risks according to the principle of value for money and
risks should be taken by the party that is best suited to resolve
them, while we also discussed the most reasonable distribution of
project risk.
This study showed that the main problem that affects the
implementation of PPPs in urban sewage treatment projects is
dening the relationship between the government and market,
particularly assigning responsibility and achieving an appropriate
division among different levels of governments, as well as
improving the management capability due to the low degree of
private capital participation in this eld. Finally, according to the
macro-level analysis, we provide the following recommendations
regarding the PPP model in urban sewage treatment projects. The
government should provide legal support and take relevant
nancial, scal, and management measures, especially in the scal
area, where specic advice can be given with regard to the level of
taxes and dues, and budget planning for direct investment in scal
expenditure, government procurement, scal subsidies, and scal
revenue. Sharing and understanding previous project experiences
can create a good environment that facilitates the development of
urban sewage treatment projects. From the level of social capital,
enterprises should experience improved prospects in terms of
raising funding for projects, including their planning, construction,
and operation, thereby take a leading role in sewage treatment. In
addition, related industries should develop gradually to a large
scale, where cooperation should serve as a glue among nancial
intermediary agencies, legal intermediaries, asset evaluation
intermediary agencies, and the Internet to achieve a winewin
situation, which would bring mutual benets and facilitate the
overall sustainable development of the economy, society, and
ecology.
The implementation of the PPP model is still at the initial stage
and each side is highly enthusiastic about participation, but
normalization is lacking and there is little consideration of the
many problems that could emerge in this eld. Thus, a top-level
design and vigilance appear to be essential, and more research is
needed to understand the relationship between government and
the market in depth in this eld, particularly the main bodies and
the rules for pricing and charging, as well as the structure of the
model contract. It is also necessary to clarify the role of the dynamic
mechanism of Internet in urban sewage treatments projects,
and to facilitate the establishment and operation of an Internet
crowd funding platform.

Acknowledgments
We appreciate support from the National Natural Science
Foundation of China (grant Nos. 71273258 and 71473247), the
Program of Innovation Team Supported by China University of
Mining and Technology (No. 2015ZY003), a major project supported by the Cyclic Economy Research Center in Sichuan Province
(XHJJ-1501), and the National Social Science Fund Youth Project of
China (grant No. 14CJY059).

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