Zhangjiakou has favourable conditions for central heating, as the municipality is relatively concentrated and much of the infrastructure is already in place. However, the management and operations of the services had historically been poor. A lack of maintenance and monitoring of the heating boilers led to increasing levels of sulphur dioxide pollution, and the operations of the service had become increasingly inefficient. Not only had the installation of boilers been poorly planned in the past, but local users had also independently installed their own small boilers. Zhangjiakou Hengfeng Heating Company (ZHH), the state-owned enterprise which had been operating the service for five years, had also accumulated significant debt, mainly due to uncollected pipeline installation fees and user charges.

In 2009, the regional government initiated a central heating improvement initiative, split into two stages. The first stage covered the majority of the construction works, which included the installation of eight new 70MW heating boilers, the supporting hot water pipe network, and the construction or transformation of 79 heat exchange stations. 290 small boilers in the district were also shut down. The second stage covered the operations, maintenance and financing of the outputs of the first stage, and is being delivered under the PPP contract, which is the focus of this case study.

In 2014, the Finance Bureau of Qiaoxi District initiated a competitive bidding process for the project. In 2015, Beijing Yuantong Heat Company Limited (BYHC), a private company specialising in heat supply and management, was selected as the preferred bidder and subsequently set up the Project Company. ZHH, acting as the representative of the government, signed the PPP contract with the Project Company. The arrangements under the PPP contract include the transfer of assets from ZHH to the Project Company, which is then responsible for operations and maintenance for a period of 25 years and, after that, the assets are transferred back with no cost to the government.

The ownership of the Project Company is 90% by BYHC and 10% by the Qiaoxi District government. Under the PPP contract, the Project Company will provide improved heat supply services with an extended coverage to new areas, undertake management and maintenance of the central heating facilities, and install two additional heating boilers during the contract period.