A PPP (government social capital cooperation) project involving a Beijing investor has encountered the dilemma of "new officials ignoring old debts". This project is a construction and medical equipment project for a central hospital building in a northern region, and also a demonstration project for the local finance department.

According to the investors mentioned above, since the change of hospital leaders in 2024, performance evaluations of social capital operators will no longer be conducted, which has also deprived the local government of the nominal procedural basis for disbursing funds.

This PPP project is the first PPP demonstration project to be implemented in this region. According to government audit and final accounts, the total investment of the project is 627 million yuan. Among the social capital parties, the above-mentioned investors hold 52.65% of the shares in the form of limited partnerships, China National Pharmaceutical Group holds 7.35% of the shares, Hunan Construction Engineering Group holds 10% of the shares, and the local government holds 30% of the shares.

However, three years after the completion of the building, the actual controller of the project, the investor from Beijing, is embroiled in a prolonged dispute. He stated that as of August this year, the government has not paid property and other operating expenses for maintaining hospital operations for 33 consecutive months, with a cumulative arrears of nearly 80 million yuan; The total amount of outstanding debts is nearly 200 million yuan. The supply chain of drugs and medical hygiene materials originally used to supplement user payments under the franchise rights has been unilaterally withdrawn by the hospital. The hospital manager now believes that the contract was not signed by me, and whoever signed the contract, you go find them, "the investor told the Economic Observer. The new dean does not recognize any contracts signed by the previous dean, refuses to fulfill any agreements, and even believes that there are problems with the fees already paid.

The above-mentioned investors believe that the PPP model is highly susceptible to policy changes. The adjustment of policy ideas in different departments has caused multiple swings in the direction of the PPP industry; At the local practical level, the replacement of government officials will also bring some impacts, and "new officials ignoring old debts" has become a factor for many existing PPP projects to have outstanding debts. In practice, if the new manager does not attach enough importance to the existing projects implemented by the predecessor, it is easy to delay payment and change contract terms on the grounds of financial constraints and unreasonable plans, resulting in difficulty in recovering the initial investment of social capital on schedule and forcing the contraction of project operation and maintenance investment.

According to the Guiding Opinions on Standardizing the Construction and Operation of Existing Projects in Government and Social Capital Cooperation in 2025, local governments are required to fulfill their contractual obligations for operational projects in accordance with the law, and incorporate government expenditure responsibilities into budget management in accordance with regulations. Timely payment should be made based on performance results, and payment should not be delayed by delaying completion acceptance time, delaying performance evaluation, or other means.

A project that once failed the bidding process

The central hospital in the area was once one of the few "third tier" hospitals in the area.

At that time, the local medical conditions were backward, with insufficient hardware support, patient outflow, and talent outflow, further exacerbating the deterioration of the medical environment.

For this reason, the project has been listed as a key local project. The PPP project entered the Ministry of Finance's project database in 2017 and has undergone two to three rounds of bidding, all of which were unsuccessful due to no bidders.

In November 2017, at the 3rd China PPP Financing Forum PPP Project Promotion Conference in Inner Mongolia Autonomous Region, a friend from the investment circle introduced the project information to this person who has been engaged in equity investment in the Financial Street for a long time.

In June 2018, he was invited to visit the project site for inspection, and was received by the then leader in charge, director of the Health Commission, director of the Finance Bureau, and hospital director. The government is very enthusiastic and the communication is also very harmonious. Afterwards, he traveled back and forth two or three times, repeatedly negotiating the details of the project.

The main points that impressed him were: firstly, compliance with project procedures. Project initiation, storage, environmental impact assessment, financial evaluation, NPC resolution, and inclusion in the budget, with a complete preliminary process; Secondly, both 10% red lines have not been touched. The project expenditure does not exceed 10% of the local annual budget revenue, and the proportion of user fees is higher than 10%; Thirdly, the livelihood attribute is prominent.

The government would never joke about defaulting on medical treatment for ordinary people, "he admitted afterwards, stating that his judgment at the time was too simplistic.

Two years later, he finally learned that the leader in charge had been entrusted by the local leaders to deliver a message: "You must keep this last investor. If you don't keep him, our demonstration project will be abandoned, and the problem of difficult access to medical care for the people will be difficult to solve

Contradictions Arise

In January 2023, the new outpatient comprehensive building was officially delivered for use. Thus, the central hospital bid farewell to the history of having only four to five thousand square meters of old outpatient buildings and patients queuing up for treatment on the road. In August of the same year, the central hospital was successfully promoted to a "tertiary" hospital.

After the delivery of the building, conflicts immediately emerged.

In mid-2024, the leadership team of the hospital was replaced, and after the replacement, the 2023 operational performance evaluation that should have been carried out was not implemented, resulting in the loss of procedural basis for financial allocation.

But the budget expenditure has not been reduced. The local people's congress still approves a project budget of about 70 million yuan annually; In actual implementation, after deducting the bank repayment amount, the remaining 10 million yuan has been retained in the fiscal account and carried over to the next year. Since December 2023, no property operation fees have been paid for a total of 33 months, and the operating expenses and employee salaries have lost their source of funding. The bank's repayment of principal and interest is over 50 million yuan. After the relevant funds are disbursed to the project company's account, the bank will directly deduct the repayment.

Due to the lack of operating expenses, social capital once had disputes with cleaning service providers. The hospital used this opportunity to recover four of the 16 operational services of the property, including cleaning and elevators, from social capital.

Afterwards, the hospital issued another document unilaterally revoking the operational rights of the drug and consumables supply chain of social capital.

The pharmaceutical supply chain is the core source of user payment income for this PPP project. The project company charges a management fee of approximately 7% through supply chain services, which serves as a user payment portion to compensate for the government subsidy gap.

After the supply chain was taken back, the annual user payment income of about 15 million yuan in the project design was subsequently lost.

In March 2019, the Ministry of Finance issued the "Implementation Opinions on Promoting the Standardized Development of Government Social Capital Cooperation", which clearly stated that newly launched government paid projects that are bundled and packaged as a small number of user paid projects, with no substantial correlation in project content and a user payment ratio of less than 10%, will not be included in the database.

In this PPP project, whether government shares participate in profit distribution has also become a focus of the game between the two parties.

According to investors, in 2025, the finance department of the province where the location is located will organize a census of existing PPP projects in accordance with the unified requirements of the Ministry of Finance. At the first meeting of the local census, an expert raised comprehensive questions about the project: the bidding process should be judged as invalid, there are problems with the government's lack of participation in distribution, and the hospital property fees are priced too high.

Afterwards, the expert was jointly hired by the hospital and local finance to participate in negotiations between the hospital and social capital as an expert.

The expert has two main propositions: firstly, the government payment date should not be calculated from January each year, but should be based on the time when the completion acceptance report is issued in August; Secondly, as a shareholder holding 30% of the shares, the government should participate in profit distribution or deduct funds from the first year of the project, rather than recovering capital in a lump sum upon project liquidation as stipulated in the contract.

Based on the opinions of the experts hired by the hospital, by the end of 2025, the hospital will file a counterclaim with the social capital side, claiming that there were overpaid fees in previous years and demanding that the social capital return them; At the same time, the hospital pointed out that the project was tendered in October 2018, and the investment agreement was not signed until March 2019, exceeding the 30 day deadline stipulated in the Tendering and Bidding Law. The bidding process is illegal, and the contract should be invalid.

The investor refuted this by saying, "The bidding is organized and implemented by the hospital. From project organization, agreement signing, approval to warehousing, it is all stamped with the hospital's official seal. Now that the building is put into use, they claim that their operation was illegal and the contract was invalid. Isn't this just 'crossing the river and tearing down the bridge'

Afterwards, the hospital director also reported to the local public security organs on suspicion of embezzlement and misappropriation of funds related to the distribution resolution of the project company's shareholders' meeting. The reason for the report is that the project company distributes government refunds to each shareholder in proportion to their equity each year. This distribution has been approved by the shareholders' meeting, and the hospital, as the shareholder, has also stamped and confirmed it.

According to the investor, after investigation by the Economic Investigation Brigade, it was determined that the case did not constitute a crime and a decision was made not to file a case. When the public security personnel verified the situation with the reporter, the other party replied with 'I don't know, the seal was not stamped by me', and the investigators were also shocked by this

Terminate

Before the Spring Festival in February 2026, the local government officially notified the project to terminate negotiations ahead of schedule. Several local government department heads participated in the negotiations, and the negotiation rules were quite special: no recording, no carrying mobile phones, no taking photos, and security checks were required before each meeting.

After four months and a total of five rounds of negotiations, the core issue is only one: determining the compensation amount for project termination. The social capital party shall quote the price according to the contract terms and draft a termination agreement. But in the first four rounds of negotiations, the government repeatedly stated that they could not make the final decision and had not yet made a counteroffer.

During the negotiation period, the government still refused to pay the relevant fees on the grounds that the project was involved in litigation. After the investor withdrew the lawsuit, the other party has not yet made payment because there is still a counterclaim for termination that has not been withdrawn.

The investor stated, "The government has a budget every year, and the National People's Congress has already approved it. The money is lying in the financial account, but we won't give it to you." The hospital's attitude is tough: on the one hand, it refuses to pay the debt, and on the other hand, it issues a warning that if social capital stops providing services and causes medical accidents, it will be held responsible and the operating rights will be revoked.

At present, this investor is still raising funds everywhere to pay salaries to more than 200 cleaning and security personnel and maintain the basic operation of the project company.

(Author Du Tao)