1. Young-Sik Kim yskim4u@gmail.com ICT/e-Government Advisor, NIPA, Korea
Korea PPP Experiences
Young-Sik Kim
ICT/e-Government Advisor, NIPA, Korea
June 12, 2012
Chisinau, Moldova
PIMAC

2. Overview of Korea PPP System
Part-01

3. 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 3

4. 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 4

5. Project Review Committee
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

6. 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 6

7. 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 7

8. Current Status of PPP Implementation
Total
Completed
Under Construction
Under Preparation
Number
595
393
157 45
Amount
85 B$
47.7 B$
23.9 B$
14.5 B$
BTO
199
145 32 22
61.4 B$ (72.2%)
37.3 B$
13.0 B$
11.1 B$
BTL
396
248
125 23
23.6 B$ (27.8%)
10.4 B$
11.5 B$
1.6 B$
As of Dec. 2011

9. 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
Number of Projects
Total
Project Cost
(amount)
Private Investment
Financial Subsidy
for construction
(ratio, %)
Central
Government
Managed
Projects
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 1
Airport 7
0.602
Environment 9
1.369
0.374
995 73
Subtotal 83
42.492
31.452
11.040 26
Local
Roads 19
2.172
1.783
389 18
Parking lot 24
0.205
0.203 2 50
1.771
0.743
1.028 58
Others
0.804
0.752 53
102
4.953
3.480
1.472 30
(Source: PIMAC, End of June. 2008)

10. 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
Jan 1999
May 2003
January 2006
Oct.2009
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
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.

11. 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.
When the actual operation revenue exceeds the share of investment risks, government subsides are redeemed within the limit of the amount previously paid.

12. Government Support (4): Infrastructure Credit Guarantee Fund
Scope of Guarantee
Loans and borrowings from financial institutions by concessionaires for private investment project expenses.
Infrastructure Bond issued pursuant to the Act on PPP.
Guarantee Limit
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).
Guarantee Fee & Types
Maximum annual fee rate: 1.5%
　Types
Contents
Guarantee
rate (%)
Facility fund
guarantee
Guarantees against concessionaire’s debt on construction fund
0.3~1.3*
Government subsidy
A ceiling on the guarantee is established in preparation for concessionaire’s operation fund shortage resulting from delayed subsidy payment
0.3
Refinancing
Guarantee support on refinancing where the current high interest loan is changed to new interest loan or SOC Bond
Operating revenue
A ceiling on the guarantee is established in preparation for concessionaire’s operation fund shortage resulting from reduced operational revenue guarantee
0.5
Infrastructure bond
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)

13. Features of the Korea PPP system
Part-02

14. Investment Trends of PPP
Public & Private Infrastructure Investment Trends
Unit: US B$, %
’98
’00
’01
’02
’03
’04
’05
’06
’07
’08
’09
’10
’11
Private Investment (A)
0.5
1.0
0.6
1.2
1.7
2.9
3.1
3.8
3.9
2.7
2.2
Gov’t Investment (B)
12.7
15.2
16.0
18.4
17.4
18.3
20.5
25.4
24.5
24.4
A / B (%)
6.6
3.4
7.5
5.6
9.8
16.1
15.9
17.0
15.4
11.0
9.0
A : Public works completed
B : Annual budget in transportation and regional development sector, The Five-year National Fiscal Management Plan
In 2011, PPP investment in the SOC sector amounted to U$ 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

15. Competent Authority Projects
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
Step
BTO
BTL
Total
National Projects***
Competent Authority Projects
Under Operation
29 (18.4)
81 (3.8)
142 (5.3)
252 (27.5)
Under Construction
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)
Under Review -
6 (0.7)
45 (3.7)*
54 (4.4)
Subtotal
86 (58.8)
120 (7.3)
366
(19.7)
569
(85.8)
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

16. 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.
Road
(4)
Port
(3)
Railway
Welfare
Forestry
(2)
Energy
Water
Resources
Communication
(5)
Environment
Logistics
15 categories
(48 facility types)
Education
(1)
Military Housing
Culture & Tourism
(8)
Airport
Public
Housing 16

17. Number of Solicited and Unsolicited BTO projects
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 17

18. Turn-Down Rate of Unsolicited Projects
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
BTO
Number of VFM Tests conducted 20 24 23 42 22
131
Deliver value for money 11 21 15 29 91
Not deliver value for money 9 3 8 13 7 40
Rate of project turn-down
45%
13%
35%
31%
32% 18

19. 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 19

20. 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

21. PIMAC-KDI
Part-03

22. 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
Establishment of Public and Private Infrastructure Investment Management Center(PIMAC)
- Integration of PIMA and PICKO
Jan. 2005

23. 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)

24. 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.
Policy Research Unit
Public Institution Evaluation Unit
Program Evaluation Unit
Executive Director
PFS Unit 1
RSF Unit
PPP Policy Unit
PPP Project Unit
Finance & Int’l Cooperation Unit
Policy and Research Division
Public Investment Evaluation Division
Public-Private Partnerships Division
PFS Unit 2

25. Areas of Expertise of PIMAC Staff Members
Head-Count
Economics 23
Finance / Business / Accounting 15
Law 5
Transport 14
Engineering
(civil, architecture, environment, etc)
International Cooperation 4
Others (eg. Urban planning, real estate, tourism, etc) 12
Total 87
As of April 2012

26. The Role of PIMAC in PPP System
Researcher
Support for formulation of the Basic Plan for PPP
Theoretical and policy studies on PPP programs
Development of implementation guidelines
Advisor & facilitator for PPP Procurement
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

27. 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

28. 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)

29. Thank you