Recently, Yunnan Province will establish a provincial-level environmental protection platform. And just half a month ago, Sichuan Eco-Environmental Protection Group Co., Ltd. was officially inaugurated.

A little further forward, Fujian Province and Anhui Province both announced plans to form eco-environmental protection groups in each province and build leading enterprises.

What makes these provinces eager to build their own environmental protection platform? What does such a move mean for the environmental protection industry market? For most companies, is it a crisis or a turning point?

01

Background of the establishment of provincial environmental protection platforms in various places

With the gradual deepening of environmental protection marketization, the environmental service market has moved from a single point of supply and demand to a comprehensive stage, and many environmental protection companies are also moving towards integrated environmental service providers. In particular, some local state-owned enterprises actively promote development and upgrade with this goal.

At the same time, after the 18th National Congress of the Communist Party of China, the construction of ecological civilization was incorporated into the overall layout of the "Five in One" of the cause of socialism with Chinese characteristics. Yan is unprecedented.

The 19th National Congress of the Communist Party of China even proposed that "protecting the ecological environment is protecting the future", "building an ecological civilization is a millennium plan for the sustainable development of the Chinese nation", "green water and green mountains are the golden mountains and silver mountains, and ice and snow are the two mountains of golden mountains and silver mountains." The theory is written into the party constitution. The Thunder Action of the Central Environmental Protection Inspector is known as "the sword to promote the implementation of ecological and environmental protection responsibilities."

At that time, the national economy is still in a downward cycle, financial leverage is further tightened, and the PPP boom is sweeping the country: many construction-oriented central enterprises have entered the field of environmental protection PPP, and market competition has intensified. At the same time, ecological cooperation has been widely recognized by leading companies.

Because the market project becomes more comprehensive and the net amount of funds becomes larger, the environmental industry relationship has gradually transitioned from upstream and downstream, Party A and Party B to a community of interests.

As a result, some provinces and cities have begun to build a win-win industry ecosystem, plan ahead, sort out and integrate relevant local state-owned assets, and form a local-level environmental protection fleet.

According to statistics, from 2007 to 2019, 24 provincial-level environmental protection platforms were established. Of the 24 companies, 13 were established after 2014. Among them, there were more in 2007, 2009, and 2016-2017, all of which were 3 companies.

According to the analysis by Xue Tao, Executive Dean of the E20 Environmental Platform Research Institute, this is the same as the time of the "four trillion" stimulus from 2008 to 2010, and the time when the Ministry of Finance rectified local debt in 2015 and 2016. coincide. In order to strengthen the control of local government debt, the state has issued many rules. Provincial governments found that some matters within the scope of local authority could not be completed under various strict debt control rules, so they set up provincial-level platform companies to solve the problem.

02

Reasons for the establishment of provincial and municipal environmental protection groups

According to the summary of previous reports, the establishment of local platforms in various provinces and cities is mainly based on the following considerations:

The construction of ecological civilization and the theory of the two mountains have received unprecedented attention, and environmental protection supervision has become increasingly stringent. However, market development and competition pressure are increasing: on the one hand, the space for PPP is gradually becoming smaller. Construction companies and other companies involved in water environment governance face more challenges.

On the other hand, according to Fu Tao, the capital market has strong uncertainty, large changes, short cycles, and high risks of short-term loans and long-term investments. The market is facing the challenge of insufficient government payment capabilities.

Many emerging markets seem to be very beautiful runways, but I don't know how deep the water is. After entering, they may "drow". Let policy-oriented central enterprises, provincial-level "environmental protection" groups, and municipal-level state-owned enterprises take industrial missions and political tasks onto the historical stage.

Many places hope to establish provincial and municipal environmental protection platforms, and with the help of various integrations and adjustments, the effects of "1+1>2" can be exerted in terms of capital, technology, and resources.

For example, the environmental protection group was established in March 2016 in Liaoning Province to promote the reform of state-owned capital investment and operating companies to carry out mixed reform and other reform pilots, and to promote the revitalization of Liaoning and even the old industrial base in Northeast China with the goal of listing the group as a whole.

On February 20, 2021, Xuzhou Environmental Protection Group Co., Ltd. officially opened. It is positioned by Xuzhou City as the main body of investment and financing of the city's key environmental infrastructure construction, and the main body of municipal investment in key environmental infrastructure, and it is responsible for the hope of leading the development of Xuzhou's environmental protection industry.

For Zhejiang Environmental Protection Group, the State-owned Assets Supervision and Administration Commission of Zhejiang Province expects to build it into an international comprehensive energy-saving and environmental protection service provider with the largest operating scale, the strongest competitiveness, the best economic benefits, and the highest brand value in Zhejiang Province. A new round of economic development growth points.

In China's solid waste exchange group, some people raised concerns that local governments might not have stated clearly: central enterprises and state-owned enterprises have gone down one after another, and the market competition is becoming increasingly fierce. Enterprises go together. Keep part of the environmental protection cake in this area and stay within the government's controllable range; if there is an environmental protection project that the government wants to do, in the case of lack of funds and PPP cannot go through, it can be operated by a state-owned environmental protection group, the government initiates the project, and the environmental protection group Loan from the bank.

Although the environmental protection group does not have technical equipment, it can find a private enterprise to carry out the second package, so that the environmental protection project that it wants to do has sufficient autonomy.

03

Pros and cons of provincial and municipal environmental protection platforms for the market

Then the question is: Can these provincial and municipal environmental protection platforms achieve their development goals? For the market, will the existence of such a regional giant form a new regional monopoly and market segmentation?

In this regard, some Chinese solid waste exchange group members believe that the environmental protection market is inherently very regional. For example, in the field of soil remediation, 100% of the site remediation market in some areas is done by local companies, and the localization rate in most areas is estimated to exceed 80%.

In this context, environmental protection groups have been established in some places, perhaps more based on political considerations, to build a controllable operating platform for the local government. Judging from the actual effect, it seems that there are no major moves and no major projects, and the impact on the market is not great.

Some people think that provincial and municipal environmental protection groups are government-supported "Big Macs" in their provinces and cities. They have natural resources, capital and other advantages. They are prone to customization and exclusivity issues in project bidding. The contradiction of fair competition has led to regional monopoly, and then brought about the problem of reduced efficiency. In essence, various provinces and cities have established environmental protection groups, each of which is firmly in line with the country's general marketization direction, forming market segmentation.

This problem is not only a problem that provincial and municipal environmental protection groups need to face, but also a problem that some central enterprises and state-owned enterprises need to face when they enter the market to compete. In terms of project bidding, the state has a bidding and bidding law to manage it. Even provincial environmental protection groups must participate in bidding in accordance with the law.

Although the environmental protection groups of various provinces and cities have great advantages in their regions, the current environmental protection market has formed a basic situation: central enterprises active in various regions are the first group army, and local state-owned enterprises and national private enterprises are the second. The group army and the majority of private enterprises are the third group army.

Li Li, executive director and CEO of Beijing Enterprises Water Group Co., Ltd., believes that: from the perspective of demand-side government pain points, whether it is BOT-TOT or PPP, the government's "environmental public service and management" for comprehensive water management has always existed. It is plagued by "discretization" and "fragmentation", that is, only the "subcontractor" is responsible for environmental governance, and there is no "general contractor". He believes that the way out to solve this problem lies in the cooperation between leading enterprises and governments and enterprises. First, enterprises and governments become a community of destiny. The second is that leading enterprises and key enterprises have become a development community.

In such cooperation, private technology and equipment companies generally become suppliers of the Second Army or the First Army. In some projects, the Second Army will also form a cooperation with the First Army. The First Army will be responsible for project investment and performance; the Second Army will be responsible for construction and operation, and benefit from the benefits.

In Xue Tao's view, one of the obvious variables brought to the market by provincial and municipal platform companies is that some high-quality assets that are put into operation may be intercepted by the platform as a means of increasing sustainable cash flow to serve as policy financing tasks. premise.

As a result, these project opportunities are no longer outsourced through the previous franchise or ppp method. For traditional social capital, the expansion space is actually further restricted. Some franchise projects that had expired or had problems were also taken back and given directly to the platform company.

If we talk about competition, there should be no private enterprises anymore in the current competition in project operation. For provincial and municipal environmental protection groups, the real competitors are large central enterprises such as Yangtze River Eco, CECEP, and Everbright International.

It is foreseeable that there will be fewer and fewer private large-scale environmental protection companies in the future, and larger private listed companies will be embraced by state-owned enterprises and central enterprises and become their internal setters. If a small environmental company wants to survive, it must have specialized technology and become a cooperative supplier of a large company.

For provincial and municipal environmental protection groups, the main business must be related to the areas of advantage of their competent departments.

For example, Guangxi Environmental Protection Group and Jiangsu Environmental Protection Group initiated by the environmental protection department, because the business under the jurisdiction of the Environmental Protection Bureau mainly focuses on the treatment of industrial hazardous waste, the treatment of three wastes or environmental monitoring, the asset-heavy business of these platforms is It is difficult to layout.

The environmental protection group based on the Ministry of Water Resources will have advantages in water resources utilization and water pollution control. In specific practice, the development of the provincial "environmental protection group" business must grasp the superior resources of the competent department.