korean ppp experience -...

Korean PPP Experience

Junglim Hahm,World Bank Institute

Day 3Session 13.3

PPPsPPPs in Infrastructure in Infrastructure

2

Day3

Greek Experience

Session 11

InstitutionalFramework

Light Rail TransportAir Ports

Toll Roads & Tunnels

Session 15

PPP Projects: Russia

Day 3Institutions & Implementation

Session 12

Selecting anOperator

ChileUSA

KoreaIreland

Session 13

Country Examples:Session 13.2

Country Examples:Korea

Urban Sector Projects

Session 14

Urban Infrastructurein Europe:

Brownfield Projects

3

1 2 3 4 5

1 2 3

1 2 3‘proceed with caution’ ‘Emerging opportunities’ ‘Hot spots’

India **

Russia

Thailand

Plan

ned

infr

astr

uctu

re s

pend

ing

(Pub

lic &

Priv

ate)

200

5-20

10 $

bn

10

100

1000

Brazil

China

Japan

Germany

Italy

FrancePortugal

USA

UK

Australia

South Korea

PPP Readiness

Size of bubble= amt ofplanned pvt investment

US$ 10 bn

US$ 50 bn

Source: McKinsey Quarterly, April 2007

Country Attractiveness: PPP in Transport

4

138872130Under Construction

9520 5817Under Operation

176Total412236

9779Subtotal

312722Under Bidding

91631117Under Negotiation

5739513Preparing to construct

CompetentAuthority Projects

NationalProjects***

TotalBTL**

BTO* Type

Step

* : as of Dec. 2007. ** : as of Aug. 2007.*** : Large-scale projects whose total costs are 200bill. or more are monitored by the PPP Committee organized by the

Ministry of Strategy and Finance.

Number of PPP Projects in Korea in2007

Source: KDI, 2008

5

Number of PPP Projects in Korea in1998

1005545Total

44935NoConcessionaireDesignated

1495Preparing forConstruction

36315UnderConstruction

660Under Operation

TotalCompetentAuthority Projects

National Projects

Source: Lee, 1999

6

What lead the difference?

1. Strong policial commitment2. Stablizied insitutional framework with

strong leadership3. Agile policy change adopting to the

market4. Flow of bankable projects5. Increased capacity in the private sector

7

0

50

100

150

200

250

300

2001

2003

2005

2007

2009

2011

2013

2015

2017

2019

Yea r

Billio

n

19

99

w

on

Forecast revenue Guaranteed revenue Actual revenue

Source: Irwin (2004)

Minimum revenue guarantee

Incheon International Airpot Highway

8

Number of unsolicited bids

Unsolicited

Solicited

Unsolicited

Solicited

176(60.3)3960171050Total

44 (3.1)731--6

53 (2.1)2022--11CompetentAuthorityProjects

38 (26.7)265322

41 (28.4)10112711NationalProjects

TotalOthersEnv’tPortRailRoadPhase

(unit: number (Trill. KRW))

Source: KDI, 2008

9

PPP Institutions in Korea

Ministry of Planning andBudget

PIPC – PrivateInvestment Project

Committee(Chairman – Minister ofplanning and Budget)

Ministry of MaritimeAffairs and Fisheries

Ministry of Commerce,Industry and Energy

Ministry of Constructionand Transportation

Other line ministries

Local Governments

PIMAC –Private

InfrastructureInvestment

ManagementCenter (branch

of KoreaDevelopment

Institute)

Leading Government Ministry PPP Unit Risk Management Unit PPP Nods PPP Board

10









Local Governments

PIMAC –Private



of KoreaDevelopment

Institute)


11









Local Governments

PIMAC –Private



of KoreaDevelopment

Institute)


12









Local Governments

PIMAC –Private



of KoreaDevelopment

Institute)


13









Local Governments

PIMAC –Private



of KoreaDevelopment

Institute)


14

PPP Procedure in Korea

1.Developmentof sectoralplans on theprivate sectorparticipationininfrastructureprojects

2. Inclusion ofPPP projects insectoral plans




5.Developmentand publicannouncement of projectproposals

6. Receiptandcollectionof bidsand offers

8. Formulation ofconditions forthe biddingprocedures(tendered ornegotiatedprojects, etc.)and settingcriteria

4. Approval

9.Designation of theconcessionaire

7.Reviewandassessment ofthebids





Local Governments

PIMAC –Центр поанализупроектовГЧП

3.Recommendations andassistance

PIMAC –Private



of KoreaDevelopment

Institute)

Model: Highspecialization of theline ministries witha leading role of theMinistry of Budgetand Planning

15

Public Private Infrastructure ManagementCenter (PIMAC)Location and structure

PIMAC is established by PPP law

It was first put at the government think-tank in charge of setting thenational development plan

Then, was merged with the other organization in charge of publicinfrastructure

Currently PIMAC is located at KDI, a government funded think-tank

This structure allows competitive salary for the staffs, and alsointegration of public infrastructure planning and PPPinfrastructure planning

16

PIMAC

Function

Role of PIMAC, specified at the decree includs– Pre-feasibility study of public infrastructure– Support for PPP legal framework– Support for PPP regulatory framework– Support for bidding, negotiation for PPP projects– Promotion, research, and capacity building

PIMAC doesn’t have approval power, but for some projects,PIMAC’s review is required by the law including unsolicitedbids, and concession agreements of national projects.

17

PIMAC

StaffingWhen first established, the law put limit in staffing to be 30

and now it’s around 80.

The staffs includes economists, finance specialists,accountants, lawyers, as well as engineers in most of thesectors covered by PPP law

The turn-over of financial specialists and lawyers arerelatively higher than engineers.

18

PIMAC

Funding

Fixed cost is paid by the government

Part of the variables are charged to the clients

Fee chart is decided through discussion with clients andannounced regularly

Fee level is lower than the service by the private sector

19

Legal Framework of PPP in Korea

PPP Act PPP Decree

Annual Plan Guidelines

• This structure allows consistency and transparency• More importantly, it allows agile policy change

reflecting market condition

20

UnsolicitedSolicited

80%

None

90%

Whole operating period

Jan 1999

Same as Left

No MRG applied if Actual Revenue <

50%of Forecasted

Revenue

Condition

First 5 Years75%

Next 5 Years65%

First 5 Years 90% Next 5 Years 80% Last 5 Years 70%

GuaranteeLevel(Max)

Abolished

10 Years15 YearsPeriod

UnsolicitedSolicited

January 2006May 2003

Minimum Revenue Guarantee

Source: KDI, 2008

21

Policy which adopted to and lead the market

• Encouragement of competitive bidding: Mandatoryrebidding in case of single bidder

• Compensation for the second preferred bidder• Introduction of VFM test for unsolicited bids• Incentive for equity investment of pension funds: Equity

requirement 25%->20%• Incentive for operating company’s participation in SPV:

Bonus points of 5% in bid evaluatoin• Improvement of traffic database

22

1

3

2

12

5

10

12

17

14

17

9

11

16 16

0

2

4

6

8

10

12

14

16

18

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

number of concession awarded

Number of concessoin agreementsigned (BTO)

Source: KDI, 2008

23

Annual invesmtnet of PPP in Korea

3.22.61.71.21.20.61.00.5Private Investment(A)

14.2

18.3

'05

17.4

18.4

‘06

9.86.67.53.46.63.9A / B (%)

17.418.416.016.015.212.7Gov’t Investment(B)

'04‘03‘02‘01’00’98

(unit: trillion KRW, %)

A : Public works completedB : Annual budget in transportation and regional development sector, The Five-year National Fiscal Management Plan

Source: KDI, 2008

24

Capacity of the private sector

• Developer, construction, financier (short-term & long-term), operating companies

• From the market lead by a few construction companiesto the balanced market lead by various constructioncompanies and pension funds

• From single financier (KDB) dominant market tocompetitive project finance market with secondary equitymarket

• Role of PPP Forum (private sector associationparticipating in PPP)

25

Challenges ahead

• Performance management: renegotiation andrefinancing

• Public antipathy– relatively low public infrastructure fee– early PPP projects with generous guarantee

• Independent policy audit to evaluate PPPprogram

26

Conclusion from Korean PPPexperience1. Strong political commitment2. Stabilized insitutional framework with

strong leadership3. Agile policy change adopting to the

market4. Flow of bankable projects5. Increased capacity in the private sector

korean ppp experience -...

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