Newsletter
Amendment to the Regulations Regarding Favorable Rentals for Public Land under the Act for Promotion of Private Participation in Infrastructure Projects
In the past, the land rental during the operation period to be borne by private entities participating in the construction and operation of infrastructure projects pursuant to the Act for Promotion of Private Participation in Infrastructure Projects ("PPP Act") shall be calculated based on Subparagraph 2, Paragraph 1, Article 2 of the Regulations for Favorable Rentals Regarding Public Land Lease and Superficies in Infrastructure Projects under the PPP Act ("Regulations"). According to Subparagraph 2, Paragraph 1, Article 2 of the Regulations, land rental during the operation period shall be equal to 60% of the rate stipulated by the rental standards of public land, i.e., 60% of 5% per annum of the declared land value according to Article 1 of the Public Land Rental Ratio Schedule announced by the Ministry of Finance ("MOF"). That is to say, land rental during the operation period shall be equal to 3% of the total declared land value. In addition, Paragraph 3, Article 2 of the Regulations before the amendment provides that in the event that the actual declared land value of a specific year is higher than the estimated declared land value in the financial projections of a given project by more than 50%, the government agency in charge of the said project ("Government Agency") may reduce the rental at its discretion. However, as no review standard for rental reduction is available, there has not been any case where the Government Agency has made a determination to reduce the rental.
The average declared land value for the year 2016 increased by more than 30% nationwide, which resulted in a material impact on the private entities' financial condition, as the actual land rental payable was significantly higher than their expectation. As a result, the MOF announced an amendment to the Regulations on May 2, 2017, which adds a proviso "provided that the amount of the rental shall not increase by more than 6% of the rental of the previous year" to Subparagraph 2, Paragraph 1, Article 2, and deletes Paragraph 3, Article 2. The cap on land rental increases in the amended provision not only allows Government Agencies and private entities to deliver more accurate financial projections in the preparation phase, but also prevents the operation of the projects and private entities' financial condition from uncertain risks resulting from the fluctuation of the declared land value.
What is worth noticing is that, according to the explanations of the amendment, based on the rule of "non-retroactivity on substantive issue", land rental of projects before the amendment shall still be calculated based on the provisions in the executed investment agreements of the respective projects; provided that, however, if the actual declared value of the land at issue for a specific year is higher than the estimated declared land value in the financial projections by more than 50%, the Government Agency is entitled to reduce the rental pursuant to Paragraph 3, Article 2 of the Regulations before the amendment. In such a case, the Government Agency may refer to the proviso of Subparagraph 2, Paragraph 1, Article 2 of the Regulations as the rental reduction standard, and cap the increase of land rental at 6% of the amount of the land rental in the previous year.