1. Korean Experience of Public Private Partnerships
Jungwook KIM
Public and Private Infrastructure
Investment Management Center
PIMAC
October 2012

2. KDI – PIMAC
Part-01

3. History of KDI and PIMAC
Dec. 1970
Promulgation of law establishing KDI (Law No. 2247)
Promulgation of Presidential Act establishing KDI (Presidential Act No. 5527)
Feb. 1971
Establishment of KDI
Mar. 1971
Establishment of the Economic Information and Education Center within KDI by merging the National Institute of Economic System and Information
Dec. 1991
Establishment of KDI School of Public Policy and Management
Dec. 1997
Establishment of Public Investment Management Center (PIMA) within KDI
Jan. 2000
Establishment of Public and Private Infrastructure Investment Management Center
(PIMAC) within KDI
* PIMA of KDI + PICKO of Korea Research Institute for Human Settlements
Jan. 2005

4. Organization of KDI Organization KDI belongs to the
National Research Council for Economics, Humanities and Social Science (NRCS) under the Office of the Prime Minister

5. Foundation of PIMAC
PIMAC (Public and Private Infrastructure Investment Management Center), is an affiliated body of KDI.
KDI, founded in 1971, has emerged over the past four decades as the leading think-tank in Korea.
PIMAC is an statutory organization established as a merger of PIMA and PICKO by the amendment of ‘The PPP Act’ in January 2005.
The PIMA (Public Investment Management Center) of KDI, founded in Jan 2000, centered on research and management of public investment project
The PICKO (Private Infrastructure Investment Center of Korea) of KRIHS (Korea Research Institute for Human Settlements), founded in April 1999, centered on research and management of PPP projects.

6. Organization Chart of PIMAC
85 staffs in 3 divisions
Policy Research Unit
Public Institution Evaluation Unit
Program Evaluation Unit
Managing Director
PFS Unit 1
RSF Unit
PPP Policy Unit
PPP Project Unit
Finance & Int’l Cooperation Unit
Policy and Research Division
(21)
Public Investment Evaluation Division (32)
Public-Private Partnerships Division (30)
PFS Unit 2
Formulate PPP Annual Plan and develop PPP guidelines
Conduct Evaluation of PPP Projects
-Researches on PPP
-Financing and refinancing PPP
-Capacity building training
- Infrastructure DB management
Researches on Methodology of Project Evaluation
Program Evaluation and Performance Management of Public Investment Projects
Appraisal for SOE Projects
Conduct and manage PFS and RSF and RDF
Policy research on PIM

7. Areas of Expertise of PIMAC Staff
2. PPPs in Korea: KDI - PIMAC
Areas of Expertise of PIMAC Staff
Areas of Expertise
Head-Count
Economics / Business 32
Finance 3
Accounting 7
Law 4
Transport 14
Engineering
(civil, road, architecture, port, environment, etc) 15
Urban Planning 1
Tourism
Water Resources
International Cooperation
Total 81

8. Duties of PIMAC in PPP System
2. PPPs in Korea: KDI - PIMAC
Duties of PIMAC in PPP System
The role of PIMAC as stipulated by the PPP Act
Researcher
Support for formulation of the Basic Plan for PPP
Theoretical and policy studies on PPP programs
Development of implementation guidelines
Advisor and/or Government Agency in Project Management
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
Database management

9. 2. PPPs in Korea: KDI - PIMAC
KDI – PIMAC efforts for International Cooperation
Strengthen international cooperation
KDI/ADB/ADBI/WBI Conference: "Knowledge Sharing on Infrastructure Public- Private Partnership in Asia" ('09.5)
ASEM Conference on Public-Private Partnerships in Infrastructure: "The Impact of the Global Financial Crisis on PPPs" ('09.10)
Providing training and educational program of PPP to several countries
training of the government officials from Thailand, Indonesia, Vietnam, Sri Lanka, Myanmar, Mongolia, and Bangladesh
Sharing and disseminating knowledge
PIMAC-ADB research project on PPPs system
development and sharing information of Korean PPP thru PIMAC website

10. Overview of Korea PPP System
Part-02

11. 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
『The Private Capital Inducement Promotion Act』
『The Act on Private Participation in Infrastructure 』
· Unsolicited proposals, Minimum Revenue Guarantee
Revision
Jan. 1999
『The Act on Private Participation in Infrastructure 』
· Diversified Facility Types (35 -> 44)
· Introduction of BTL Scheme
Amendment
Jan. 2005
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 11

12. Legal Framework of the PPP System
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 12

13. Legal Framework of the PPP System (3)
Legal Framework for PPP
Legal Framework of the PPP System (3)
PPP Basic Plan and Implementation Guidelines
The PPP Act directs the MOSF and PIMAC to issue the PPP Basic Plan.
The Basic Plan provides:
PPP policy directions
Details in PPP project implementation procedure
Financing and re-financing directions
Risk allocation mechanism
Payment scheme of government subsidy
Documentation direction
PIMAC has developed PPP Implementation Guidelines:
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
PPP Basic Plan and Implementation Guidelines are annually updated, reflecting relevant changes and market conditions. 13

14. 47 types of facilities in 15 categories are eligible for PPP
Eligible Infrastructure Types
47 types of facilities in 15 categories are eligible for PPP
Road
(3)
Port
Railway
Welfare
(4)
Forestry
(2)
Energy
Water
Resources
Communication
(5)
Environment
Logistics
15 categories
(facility types)
Education
(1)
Military Housing
Culture & Tourism
(10)
Airport
Public
Housing
Requirements :
1. The project is in accord with mid- to long-term Infrastructure plans and national investment priorities
2. The project has such profitability to attract private sector participation
Revision of the Act in 2009 :
Eligible infrastructure facility types, which have been stipulated by the Act, can also be stipulated by the Enforcement Decree. 14

15. * Newly included in the 2009 revised PPP Act Enforcement Decree
Eligible Infrastructure Types
PPP Facility Types
Sector
Facility Types
Road (3)
Railway, Railway Facilities, Urban Railway
Rail(3)
Port(3)
Port, Fishing Port Facilities, New Port Construction Facilities
Communications(5)
Telecommunication Facilities, Information Communication System,
Information Super-highway, Map Information System, Ubiquitous City Infrastructure
Water Resources(3)
Multi-purpose Dam, River-affiliated Ancillary Structures, Waterworks
Energy(3)
Electric Source Facilities, Gas Supply Facilities, Collective Energy Facilities
Environmental(5)
Waste Treatment Facilities and Public Livestock Wastewater Treatment Facilities,
Waste Disposal Facilities, Wastewater Treatment Facilities, Recycling Facilities,
Public Waste-water Treatment Facilities
Logistics(2)
Distribution Complex, Cargo and Passenger Terminals
Airport(1)
Airport
Culture and Tourism(10)
Tourist Site or Complex, Youth Training Facilities, Public Sports Facilities,
Libraries, Museums and Art Galleries, International Conference Facilities,
Culture Centers, Science Centers, Urban Parks, Professional Training Facilities*
Military Housing (1)
Military Housing
Education(1)
Schools
Forestry(2)
Natural Recreational Resorts, Arboretums
Public Housing(1)
Public Rental Housing
Welfare(4)
Child-care Facilities, Senior Homes, Medical Facilities, Facilities for the Disabled*
* Newly included in the 2009 revised PPP Act Enforcement Decree

16. Government Support (1) Acquisition of land by the concessionaire
Granting of land expropriation rights to the concessionaire
National or public property in designated areas may be sold to the concessionaire
Concessionaires are allowed to use national or public property without charge or at lower price
Financial support
Construction subsidy: The government may grant construction subsidy to the concessionaire, if it is inevitable to maintain the user fee at a reasonable level
Tax incentive
Exemption from acquisition and registration taxes on real estate for BOT projects
0% VAT on construction services
Tax reduction for infrastructure bond 16

17. Government Support (2)
Government Support (2): 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
Jan 1999
May 2003
January 2006
Solicited*
Unsolicited
Solicited
Period
Whole operating period
15 Years
10 Years
Abolished
Guarantee
Level (Max)
90%
80%
First 5 Years 90%
Next 5 Years 80%
Last 5 Years 70%
First 5 Years 75%
Next 5 Years 65%
Condition
None
No MRG applied
if Actual Revenue < 50%
of Forecasted Revenue
Same as Left
* Abolished in October 2009.
36 out of 145 signed contracts include minimum revenue guarantee clauses at the end of 2008.
Criticisms about MRG
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.

18. Government Support (3)
SOC credit guarantee fund provides credit guarantee for PPP project finance to enhance the timely payment of debt service. Its guarantee products include:
Guarantee for facility loans (during construction)
Guarantee for working capital loans (during operation)
Guarantee for bridge loans
Guarantee for refinancing
Guarantee for infrastructure bond
Buyout options
Force majeure (natural disaster or political turmoil)
Other specific events prescribed in the concession agreements 18

19. Compensation for Proposal Cost
Government Support (4)
Incentive for Early Completion
In the event of early completion, the SPC is granted the right to operate the facility to the extent of ½ the reduced completion period.
Compensation for Proposal Cost
Compensation for Proposal Cost
Purpose
Compensate the unsuccessful bidder for a portion its project proposal cost for the purpose of promoting the competition in projects.
Calculation
The maximum amount of compensation as follows.
Only 1 unsuccessful bidder: 25% of basic design cost
2 or more unsuccessful bidder: 30% of basic design cost for 2nd contender and 20% of 3rd contender
(*Basic design cost: applying the basic design rate for the government project as set forth in the budget compilation guideline)
Exclusion
Unsuccessful bidders who earned the engineering score under certain level (eg. average “C” level from A~E 5 level evaluation),
Unsuccessful bidders who submitted the project proposal containing service quality significantly below the required level.
Notice
The competent authority is to provide the details in the RFP.
such as whether the compensation is available, the size of compensation, criteria and procedures of compensation, and due period of compensation. 19

20. Process of Solicited PPP Projects
Competent Authority
Review by PIMAC
Selection of PPP Project
Designation as the PPP Project
Announcement of RFPs
Submission of Project Proposals
Evaluation and Selection of
Preferred Bidder
VFM Test
Negotiation and Contract Award
(Designation of Concessionaire)
Application for Approval of
Detailed Implementation Plan
Construction and Operation
Private Sector →
Competent Authority →
Concessionaire →
Concessionaire 20

21. Process of Unsolicited PPP Projects
Submission of Project Proposal
VFM Test
Notification of Project
Implementation
PIMAC
Private Sector →
Competent Authority
Competent Authority →
Proponent
Announcement of RFPs
Submission of Project Proposals
Evaluation and Selection of
Preferred Bidder
Negotiation and Contract Award
(Designation of Concessionaire)
Application for Approval of
Detailed Implementation Plan
Construction and Operation
Concessionaire →
Concessionaire 21

22. Investment Trends of PPP
Public & Private Infrastructure Investment Trends
Unit: Trill. KRW, %
’98
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
Private Investment (A)
0.5
1.0
0.6
1.2
1.7
2.9
3.1
3.8
3.9
2.7
2.2
Gov’t Investment (B)
12.7
15.2
16.0
18.4
17.4
18.3
20.5
25.4
24.5
24.4
A / B (%)
6.6
3.4
7.5
5.6
9.8
16.1
15.9
17.0
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 W2.2 trillion, about 9% of the total public and private investment in SOC; In 1995, it was merely W0.4 trillion when the PPP program was first introduced. 22

23. PPP Market in Korea
PPP Projects by Procurement Scheme (As of Dec. 2011)
Total
Completed
Under Construction
Under
Preparation
Number
595
393
157 45
Amount
85.0 tril. Won
47.7 tril. Won
23.9 tril. Won
14.5 tril. Won
BTO
199 (33.4%)
145 32 22
61.4 tril. Won (72.2%)
37.3 tril. Won
13.0 tril. Won
11.1 tril. Won
BTL
396 (66.6%)
248
125 23
23.6 tril. Won (27.8%)
10.4 tril. Won
11.5 tril. Won
1.6 tril. Won
*** Large-scale projects whose total costs are 200bill. or more are monitored by the PPP Review Committee organized by the MOSF 23

24. Key Success Factors in PPP
Solid legal framework corresponding to int’l standards
Clear & consistent implementation procedure regulated by PPP Act & implementation guidelines
Fair & equal treatment of domestic & foreign investors
Strong government commitment & support
Construction subsidy, MRG, compensation on termination, etc.
Technical assistance provided by PIMAC
VFM test, Review of RFPs & concession agreements, assistance in project evaluation & negotiation, research for PPP policies & guidelines...
Central role of MOSF as budget authority
Develop national PPP policies, guidelines, & fiscal rules
Coordinates sectoral PPP plans & establish comprehensive investment plans
Review & approve national management projects
MOSF hosts PPP Review Committee when necessary 24

25. Thank you 25