**** 1

Report
Korea PPP Experiences
Young-Sik Kim [email protected]
ICT/e-Government Advisor, NIPA, Korea
June 12, 2012
Chisinau, Moldova
PIMAC
Part-01
Overview of Korea PPP System
Legal Framework for PPP
Since the formal PPP program was first introduced with the
enactment of the PPP Act in 1994, the act has gone through several
revisions.
Enactment
Aug. 1994
Revision
Jan. 1999
Amendment
Jan. 2005
『The Private Capital Inducement Promotion Act』
『The
Act on Private Participation in Infrastructure 』
· Unsolicited proposals, Minimum Revenue Guarantee
『The
Act on Private Participation in Infrastructure 』
· Diversified Facility Types (35 -> 44)
· Introduction of BTL Scheme
 Unsolicited proposals and MRG in 1999
 BTL in 2005 : promoted its use in educational facilities, military residences,
environmental facilities, etc.
 Dispute Resolution committee in 2011
3
Legal Framework for PPP
Legal Framework of the PPP System
Hierarchy of legal and administrative framework of PPP System
 PPP Act
 PPP Act Enforcement Decrees
 Annual PPP Basic Plan
 PPP Implementation Guidelines
The Legal Status of the PPP Act
 The PPP Act and the PPP Act Enforcement Decrees are the principal components
of the legal framework of PPP
 Eligible Infrastructure types, Procurement Types, Procurement Process, the roles of the
Public and Private parties, etc
 The PPP Act is a special Act that precedes other Acts
 Exempts PPP projects from strict regulation in national property management
 Allows a SPC to play a role of competent authority
4
The PPP Basic Plan and PRC
PPP Basic Plan
The PPP Act directs the MOSF and PIMAC to issue the PPP Basic Plan.

The PPP Basic Plan can be updated and adjusted more often reflecting relevant
changes, market conditions and the government needs.
The Basic Plan provides:

PPP policy directions

Details in PPP project implementation procedure

Documentation direction
Project Review Committee
Chaired by the minister of strategy and finance, convenes
whenever needed to make important decisions on PPP policies and
major projects. It consists of members from procuring ministries
and private sector experts.

When deemed necessary, the PRC is able to postpone or block part of the
expenditures for PPP projects
5
Process of Solicited PPP Projects
Competent Authority
Selection of PPP Project
Competent Authority
Review by PIMAC
VFM Test
Competent Authority
Designation as the PPP Project
Announcement of RFPs
Competent Authority
Submission of Project Proposals
Private Sector →
Competent Authority
Evaluation and Selection of
Preferred Bidder
Competent Authority
Negotiation and Contract Award
(Designation of Concessionaire)
Competent Authority →
Preferred Bidder
Application for Approval of
Detailed Implementation Plan
Concessionaire →
Competent Authority
Construction and Operation
Concessionaire
6
Process of Unsolicited PPP Projects
Submission of Project Proposal
Private Sector →
Competent Authority
VFM Test
PIMAC
Notification of Project
Implementation
Competent Authority →
Proponent
Announcement of RFPs
Competent Authority
Submission of Project Proposals
Private Sector →
Competent Authority
Evaluation and Selection of
Preferred Bidder
Competent Authority
Negotiation and Contract Award
(Designation of Concessionaire)
Competent Authority →
Preferred Bidder
Application for Approval of
Detailed Implementation Plan
Concessionaire →
Competent Authority
Construction and Operation
Concessionaire
7
Current Status of PPP Implementation
Total
BTO
Total
Completed
Under
Construction
Under
Preparation
Number
595
393
157
45
Amount
85 B$
47.7 B$
23.9 B$
14.5 B$
Number
199
145
32
22
Amount
61.4 B$ (72.2%)
37.3 B$
13.0 B$
11.1 B$
Number
396
248
125
23
Amount
23.6 B$ (27.8%)
10.4 B$
11.5 B$
1.6 B$
BTL
As of Dec. 2011
8
Government
Support (1): Construction Subsidy
BTL
Projects
•
The government may grant construction subsidy to the concessionaire, if it is
inevitable to maintain the user fee at an appropriate level.
•
Subsidy shall be determined in the individual concession agreement.
(unit: US B$, %)
Type
Central
Government
Managed
Projects
Local
Government
Managed
Projects
Total
Private Investment
Project Cost
(amount)
Financial Subsidy
for construction
(amount)
(ratio, %)
Road
34
24.718
19.761
4.957
20
Railways
11
10.134
6.146
3.988
39
Seaport
17
4.810
3.720
1.090
23
Logistics
5
0.860
0.849
11
1
Airport
7
0.602
0.602
0
0
Environment
9
1.369
0.374
995
73
Subtotal
83
42.492
31.452
11.040
26
Roads
19
2.172
1.783
389
18
Parking lot
24
0.205
0.203
2
1
Environment
50
1.771
0.743
1.028
58
9
0.804
0.752
53
7
102
4.953
3.480
1.472
30
Others
Subtotal
9
Number of
Projects
Total
Project Cost
(amount)
(Source: PIMAC, End of June. 2008)
Government Support (2): Former Risk-Sharing Scheme by MRG
•
Minimum Revenue Guarantee (MRG): A certain fraction of projected annual
revenues may be guaranteed when the actual operating revenue falls
considerably short of the projected revenue prescribed in the contract.
–
–
Applicable only to solicited projects
Not applicable to projects that earn less than 50% of projected revenue
Profile of Minimum Revenue Guarantee
January 2006
Jan 1999
Solicited
Period
Guarantee
Level (Max)
Condition
•
•
Unsolicited
Whole operating period
90%
80%
None
Solicited*
15 Years
10 Years
First 5 Years 90%
Next 5 Years 80%
Last 5 Years 70%
First 5 Years 75%
Next 5 Years 65%
No MRG applied
if Actual Revenue
< 50%
of Forecasted Revenue
Same as Left
Unsolicited
Abolished
Oct.2009
Abolished
36 out of 145 signed contracts include minimum revenue guarantee clauses at
the end of 2008.
Criticisms about MRG
–
–
10
May 2003
Government took most of the risks, but provided unreasonable high returns to private
participants.
Project company may show moral hazard behavior by not trying its best to increase the
revenue.
Government Support (3): New Risk-Sharing Scheme
 In October 2009, a New Risk-Sharing Scheme has been announced for
substituting MRG.
 New Risk-Sharing Scheme applicable for Solicited Projects only

Government takes its portion of investment risk within the limit of government’s costs in
case the project was conducted as a public project.

Government payment is made of the amount of shortfall in the actual operation revenue
compared to the share of investment risks* by the government.
* share of investment risk = the amount of operation revenue that guarantees the internal
rate of return comparable to the government bond’s rate of
return.

11
When the actual operation revenue exceeds the share of investment risks, government
subsides are redeemed within the limit of the amount previously paid.
Government Support (4): Infrastructure Credit Guarantee Fund
Scope of
Guarantee
Guarantee
Limit
Guarantee
Fee & Types
 Loans and borrowings from financial institutions by concessionaires for
private investment project expenses.
 Infrastructure Bond issued pursuant to the Act on PPP.
 For a single company up to U$ 100 M( Exceptions: the director of the
managing organization deems it unavoidable, in which case the limit
shall be U$ 200 M).
 Maximum annual fee rate: 1.5%
Types
12
Contents
Facility fund
guarantee
Guarantees against concessionaire’s debt on construction fund
Government
subsidy
guarantee
A ceiling on the guarantee is established in preparation for concessionaire’s
operation fund shortage resulting from delayed subsidy payment
Refinancing
guarantee
Guarantee support on refinancing where the current high interest loan is
changed to new interest loan or SOC Bond
Operating revenue
guarantee
A ceiling on the guarantee is established in preparation for concessionaire’s
operation fund shortage resulting from reduced operational revenue
guarantee
Infrastructure bond
guarantee
Guarantee for Infrastructure Bond issued to procure funds necessary for
concessionaire in project implementation
* The guarantee rate is applied in the degree of risks involved in the guarantee and the corporate credit rating.
(Source: 2007 Basic Plan for Private Participation in Infrastructure)
Guarantee
rate (%)
0.3~1.3*
0.3
0.3~1.3*
0.5
0.3~1.3*
Part-02
Features of the Korea PPP system
Investment Trends of PPP
Public & Private Infrastructure Investment Trends
Unit: US B$, %
’98
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
Private Investment
(A)
0.5
1.0
0.6
1.2
1.0
1.7
2.9
2.9
3.1
3.8
3.9
2.7
2.2
Gov’t Investment
(B)
12.7
15.2
16.0
16.0
18.4
17.4
18.3
18.4
18.4
20.5
25.4
24.5
24.4
A / B (%)
3.9
6.6
3.4
7.5
5.6
9.8
16.1
15.9
17.0
18.4
15.4
11.0
9.0
A : Public works completed
B : Annual budget in transportation and regional development sector, The Five-year National Fiscal Management Plan
In 2011, PPP investment in the SOC sector amounted to U$ 2.2 Billion,
about 9% of the total public and private investment in SOC; In 1995, it
was merely 0.4 B$ when the PPP program was first introduced.
14
Both BTO and BTL types are Common
Both the concession-type (BTO) and the service purchase-type
(BTL) projects are implemented in Korea

Concession-type (BTO) is popular in developing countries, while service
purchase-type(BTL)are common in developed countries
PPP Projects by Procurement Scheme (As of Sep. 2009)
Unit: number (U$ Billion)
Type
BTO
BTL
Total
81 (3.8)
142 (5.3)
252 (27.5)
32 (22.1)
12 (0.5)
92 (6.5)
136 (29.1)
Preparing to construct
10 (8.9)
9 (0.9)
8 (0.4)
27 (10.2)
Under Negotiation
15 (9.5)
9 (1.3)
79 (3.8)*
103 (14.6)
-
6 (0.7)
45 (3.7)*
54 (4.4)
86 (58.8)
120 (7.3)
366
(19.7)
569
(85.8)
Step
National Projects***
Competent Authority Projects
Under Operation
29 (18.4)
Under Construction
Under Review
Subtotal
Total
203 (66.1)
*:as of Dec.2007
*** Large-scale projects whose total costs are 200M$. or more are monitored by the PPP Review Committee organized by the MOSF
15
Eligible Facilities in the PPP Act
Korea government adopted the positive stipulation for eligible
facilities, implying facilities that aren’t stipulated in the act can’t be
implemented.

Related with the strong government support or incentives for PPP projects.

Reflection of consideration of the PPP Act’s legal status; The PPP Act is a
special act that precedes other acts.
Welfare
(4)
Road
(4)
Railway
(3)
Port
(3)
Public
Housing
(1)
Forestry
(2)
15 categories
(48 facility types)
Communication
(5)
Water
Resources
(3)
Energy
(4)
Environment
(5)
Logistics
(2)
Education
(1)
Military Housing
(1)
Culture & Tourism
(8)
Airport
(1)
16
Unsolicited projects’ Vitalization
Acceptance of the unsolicited proposals was one of key measures
for inducing the private investment.

The proportion of unsolicited projects compared to solicited projects is high,
which is rare for developed countries. (Most developed countries do not
accept the unsolicited proposals)
Number of Solicited and Unsolicited BTO projects
18
16
16
14
15
14
12
12
10
10
10
8
7
6
4
11
10
6
10
9
6
6
10
9
6
4
3
2
12
11
2
2
2
0
94
95
96
97
98
99
00
Solicited Projects
01
02
03
04
05
06
07
08
09.09
Unsolicited Projects
17
Unsolicited projects’ Vitalization
Although solicited projects are more desirable in that the
government can initiate PPP projects based on its overall investment
plans and priorities, unsolicited projects have advantages in that
they encourage private sector creativity and innovation.
 The unsolicited proposals can accelerate the project delivery as well as
indicates market interest in public service delivery. However, transparency
issues exist and they may not be identified within government’ budget or
policies
VFM tests and the competitive bidding process are also applied to
unsolicited projects
Turn-Down Rate of Unsolicited Projects
'05
'06
'07
'08
'09
Total
20
24
23
42
22
131
Deliver value for money
11
21
15
29
15
91
Not deliver value for money
9
3
8
13
7
40
Rate of project turn-down
45%
13%
35%
31%
32%
31%
Number of VFM Tests conducted
BTO
18
Elaborated VFM Test
Phase 1: Feasibility study (Decision to Invest)
 The cost- benefit analysis is conducted to determine feasibility of the project from
a national economy perspective.
Phase 2: Value for Money Assessment (Decision on PFI)
 The government payment of PSC (Public Sector Comparator) is compared against
that of PFI (Private Finance Initiative) to assess whether the PFI achieves VFM.
Phase 3: Formulation of PFI alternatives
 Based on the results of phase 2, an appropriate PFI alternatives are formulated
 The level of project cost, user fee, subsidy scale, etc. are suggested from the
government.
 Bonus points (10% Phase 4: Award bonus points to the initial proponent max.)
awarded to the initial proponent are estimated based on the results of VFM tests
and the quality of the proposal.
19
Objectivity, Consistency and Independence
Implementations in Transparency, Objectivity and Consistency as well
as Professional expertise are key elements

Guidelines for Value for Money (VFM) test

Guidelines for RFP preparation

Guidelines for Standard Output Specification by facility

Guidelines for Tender Evaluation

Guidelines for Standard Concession Agreement

Guidelines for Refinancing
Independent PIMAC has developed PPP Implementation Guidelines
and updated reflecting changes and market conditions
20
Part-03
PIMAC-KDI
History of PIMAC
Dec. 1970
Promulgation of law establishing KDI (Law No. 2247)
Feb. 1971
Promulgation of Presidential Act establishing KDI (Presidential Act No. 5527)
Mar. 1971
Establishment of KDI
Jan. 2000
Establishment of Public Investment Management Center(PIMA) within KDI
Apr. 1999
Establishment of Private Infrastructure Investment Center of
Korea(PICKO) within Korea Research Institute for Human Settlements
Jan. 2005
Establishment of Public and Private Infrastructure Investment
Management Center(PIMAC)
- Integration of PIMA and PICKO
22
Organization of KDI
KDI is a policy-oriented research institute funded by the government
(managed by the National Research Council for Economics, Humanities and Social Sciences
under the PM’s Office)
23
Organization of PIMAC
 Enables comprehensive and systematic management of both
traditional public investment and PPP
- VFM and investment criteria applied to traditional public investment and
PPP can be aligned and unbiased.
Executive Director
Policy and Research Division
Policy
Research
Unit
Public
Institution
Evaluation Unit
Program
Evaluation
Unit
Public Investment Evaluation
Division
PFS Unit 1
PFS Unit 2
RSF Unit
Public-Private Partnerships
Division
PPP Policy
Unit
PPP
Project
Unit
Finance & Int’l
Cooperation
Unit
Areas of Expertise of PIMAC Staff Members
Areas of Expertise
Head-Count
Economics
23
Finance / Business / Accounting
15
Law
5
Transport
14
Engineering
(civil, architecture, environment, etc)
14
International Cooperation
4
Others (eg. Urban planning, real estate, tourism, etc)
12
Total
87
As of April 2012
25
The Role of PIMAC in PPP System
1)
Researcher

Support for formulation of the Basic Plan for PPP
 Theoretical and policy studies on PPP programs
 Development of implementation guidelines
2)
Advisor & facilitator for PPP Procurement





3)
Development of PPP projects
Execution and Review of VFM test
Support for formulation of RFPs
Review of RFP and concession agreement
Assistance in tendering and negotiation
PPP Market Promoter

Training programs and seminars on PPP for public officials
 International cooperation
 Data accumulation and management
26
Implementation Guidelines
 PIMAC develops implementation guidelines in consultation
with MOSF
•
•
•
•
•
•
•
Guidelines for VFM assessment for BTO/BTL projects
Guidelines for RFP formulation
Standard output specifications(sector-specific guidelines)
Guidelines for bid evaluation management
Standard concession agreement
Standard financial models
Guidelines for refinancing
27
International Cooperative Activities of PIMAC
 Bilateral Cooperation
•
Indonesia, Vietnam, Kazakhstan, etc.
 International Conference with WB, IMF, ADB, ASEM, etc
 Training Programs for foreign government officers
•
•
•
•
•
•
Legal framework of PPP System in Korea
Sectorial Project Development
Value for Money Test
Project Financing and Understanding Financial Model
Fiscal and Policy Issues of PPPs
Site tour and case study
 Technical Assistance
•
Regional TA project with ADB, WB
– “Knowledge Sharing on Infrastructure PPPs in Asia”
- Publication of “Public-Private Partnership Infrastructure Projects: Case Studies
from the Republic of Korea”(2011)
28

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