PPP in Korea Director General Hyoung-Kwon, Ko ­ Highlights on its Institutions

PPP in Korea
­ Highlights on its Institutions
November 11. 2012
Director General Hyoung-Kwon, Ko
Ministry of Strategy and Finance
1
Table of Contents
I
Framework of PPPs in Korea
II
Performance Highlights
III PPP Policy Direction in Korea
2
I. Framework of PPPs in Korea
3
1. What and Why PPPs?
PPPs
Public & Private Partnerships
to provide infrastructure
facilities and related public
services
Rationale and Role of PPPs
Provides a new option for
public service delivery under
fiscal constraints
Utilizes private sector’s
efficiency and innovation
Provides stable & long-term
investment opportunities for
the private sector
4
2. Eligible Facility Types
The PPP Act designates 48 types of infrastructure facilities in 15 sectors as eligible for PPPs.
Railroad
Road
(4)
Port
Welfare
(3)
(4)
(3)
Public
Housing
(1)
Airport
Forestry
(1)
(2)
15 Categories
Communication
Education
(5)
(1)
Water
Resources
(3)
* Positive listing
Military Housing
(1)
Culture & Tourism
Energy
(4)
(9)
Environment Logistics
(5)
(2)
5
3. Stakeholders in PPPs
Professional
Professional
Operator
Operator
(Maintenance, (Maintenance, Operation)
Operation)
Equity
Operation Rights
Dividends/Interest Payment
Equity
SPC
SPC
Construction
Construction
Company
Company
(Design, Build)
(Design, Build)
Financial
Financial
Investor
Investor
‐‐Construction Company
Construction Company
‐‐Operating Company
Operating Company
‐‐Financial Institution
Financial Institution
Construction
Equity/Loan
Transfers the
ownership of
the facility
Grants
Operational Rights
The
The Government
Government
(Competent (Competent Authority)
Authority)
6
4. Implementation Methods
z Build - Transfer - Operate
-
① Construction by the private sector
② Ownership transferred to government
③ Operation by the private sector
z IRR is determined through negotiation(8~15%)
BTO
z Build - Transfer - Lease
-
① Construction by the private sector
② Ownership transferred to government
③ Lease and payment by the government
BTL
z IRR = Reference rate (government bond) + α(80~120bp)
Others : BOT, BOO, etc.
Private Participant
Private Participant
(SPC)
(SPC)
Grants
operating rights
delivers Service
Transfers Ownership
Pays usage fee Transfers Ownership
User
Government
BTO
Lease payments
delivers Service
User
Government
Fees(If necessary)
BTL
7
5. How Are Projects Selected?
① Relevance to Higher National Plans (Competent Authority)
– Road projects must be checked whether or not they are included in
the National Land Development Plan or Transportation Plan, etc.
(Ministry of Land, Transportation and Maritime Affairs, and Local
Government-level)
– Priority on the roads to be constructed
② B/C Analysis and VFM Test (KDI PIMAC)
– (1st Stage) B/C analysis : B/C >1
– (2nd Stage) VFM Test : VFM >0
– (3rd Stage) Alternative proposal : To suggest optimal cost, toll level,
amount of fiscal support, etc.
③ PPP Review Committee (MOSF)
– Subject to review: BTO ≥ KRW 200 billion, BTL ≥ KRW 100 billion
– Other projects are reviewed by their own committees.
8
6. Period of Operation
¾ Decided in the contract between the competent authority
and the private sector concessionaire
¾ Within 50 years under the PPP guidelines
< Average Operation Period >
Road : 30 years (20 ~ 40 years)
Railroad : 30 years
Port : 50 years (30 ~ 50 years)
BTL : 20 years
9
7. Government Support
Land Acquisition
Construction
Subsidy
Infrastructure
Credit
Guarantee
Fund
Tax
Benefits
Termination
Payment
Financial
Support
Minimum
Revenue
Guarantee
(1999-2009)
Risk Sharing
Measures,
etc.
10
II. Performance Highlights
11
1. Signed PPP Projects in Korea
(As of Dec. 2011, Signed Projects only)
TOTAL
(# of projects)
Project Cost (USD)
In construction In preparation
% (600)
79.6 bn
(100%)
100%
(417)
46.1 bn
(143)
22.1 bn
(40)
11.3 bn
Central Government
(151)
46.6 bn
(25.2%)
58.4%
(79)
26.2 bn
(52)
10.9 bn
(20)
9.6 bn
Local Government
(449)
33 bn
(75.2%)
41.6%
(338)
19.8 bn
(91)
11.2 bn
(20)
1.8 bn
BTO
(200)
57.9 bn
(33.3%)
72.9%
(144)
34.9 bn
(34)
12.7 bn
(22)
10.2 bn
BTL
(400)
21.7 bn
(66.6%)
27.3%
(273)
11.1 bn
(109)
9.4 bn
(18)
1.1 bn
TOTAL
Competent Authority
Completed
Project Type
12
2. Sectoral Analysis
BTO
Total project costs of signed BTO as of Dec. 2011 amount to $57.9 bn.
BTL
Total project costs of signed BTL as of Dec. 2011 amount to $21.7 bn.
13
3. Major Projects: BTO
¾ Incheon Bridge
ƒ Total Project Cost: USD 1 billion
ƒ IRR = 8.48%(Aftertax real rate of return)
ƒ Length: 12.3 km, 6 lanes (21.4 km including gov’t‐financed access road) ƒ Competent Authority: Ministry of Land, Transport and Maritime Affairs
ƒ Construction Period: 2005‐2009
ƒ Operation Period: 30 years
¾ Busan New Port ƒ Total Project Cost: USD 1.4 billion
ƒ IRR = 9.5%(Aftertax real rate of return)
ƒ Work Scope: 9 berths (50,000t), 3.2km ƒ Competent Authority: Ministry of Land, Transport and Maritime Affairs
ƒ Construction Period: 2001‐2009
ƒ Operation Period: 50 years
14
3. Major Projects: BTO
¾ Metro Subway Line no. 9
ƒ Total Project Cost: USD 900 million
ƒ IRR = 8.9% (Aftertax real rate of return)
ƒ Work Scope: 25.5 km, 25 stations
ƒ Competent Authority: Ministry of Land, Transport and Maritime Affairs
ƒ Construction Period: 2006‐2009 ƒ Operation Period: 30 years
¾ Landfill Gas Power Plant at Sudokwon Landfill Site
ƒ Total Project Cost: USD 77 million
ƒ IRR = 8.44% (Aftertax real rate of return)
ƒ Work Scope: 50MW (supplies electricity to 180,000 households / year) ƒ Competent Authority: Ministry of Environment
ƒ Construction Period: 2004 ‐2006
ƒ Operation Period: 11 years
15
4. Major Projects: BTL
¾ Chungju Apartment Housing ƒ Total Project Cost: USD 16.3 million
ƒ Work Scope: 200 households and convenience facilities ƒ Competent Authority: Ministry of Defense
ƒ Construction Period: 2005‐2007 ƒ Operation Period: 20 years
¾ Ulsan National Institute of Science and Technology ƒ Total Project Cost: USD 219 million
ƒ Work Scope: Site 1,028,200㎡, Total Floor Area 153,691㎡
ƒ Competent Authority: Ministry of Education, Science and Technology
ƒ Construction Period: 2007‐2010 ƒ Operation Period: 20 years
¾ Anhwa High School ƒ Total Project Cost: USD 0.8 million
ƒ Work Scope: Site 13,264.03㎡, 5 stories ƒ Competent Authority: Gyeonggi Province Office of Education
ƒ Construction Period: 2006‐2007 ƒ Operation Period: 20 years
16
5. Key Success Factors
• Solid Legal Framework of International Standards
– Clear & consistent implementation procedures regulated by the PPP Act & Implementation Guidelines – No discrimination between domestic & foreign investors
• Strong Government Commitment to support the PPPs
– Construction subsidy, MRG, risk‐sharing measures, etc.
– Technical assistance provided by PIMAC
• Review of RFPs & PPP contracts, assistance in project evaluation & negotiation, research for PPP policies & guidelines, etc.
• Central Role of MOSF
– Development of national PPP policies, guidelines, & fiscal rules
– Coordination of sectoral PPP plans. – Review & approval of PPP projects under national management
• MOSF convenes the PPP Review Committee when necessary
17
III. PPP Policy Direction in Korea
18
1. Preserving the Role of PPP
• Fiscal resources are limited due to increased spending in welfare and the government’s effort to expand Korea’s future growth engines • Private investment will continue to complement the government’s limited fiscal resources in public infrastructure investment.
BTO
Priority given based on economic viability, PPP feasibility, and the potential to
alleviate infrastructure bottleneck, etc
‐ Roads : In the most congested areas
BTL
End­user benefit is increased by
the timely provision of necessary infrastructure. ­ School Facilities ­ Military housing/leisure facilities ‐ Railroads : Light­rail in congested areas
‐ Ports: Contingent on varying commercial ­ Sewage/Sanitary Systems
­ Cultural/Welfare facilities
traffic
19
2. Fiscal Management Rule
2% Limit Rule
- Limited to 2% of the total estimated annual expenditure
- Allows flexible fiscal management without placing heavy
burden on government expenditure
- Estimate of total expenditure on PPPs is less than
1.6% of the government’s estimated total annual expenditure
* Estimate : 2009 (1.2%) → 2013 (1.6%)
※ Government Expenditure on PPPs : Lease Payment for BTL Projects,
Land Acquisition Cost for BTO Projects, Construction Subsidy, and
Minimum Revenue Guarantee (MRG)
20
3. Korea’s Knowledge-sharing
Initiative
Establishes new strategic partnerships by transferring Korea’s PPP experience to the developing economies.
• Infrastructure development is essential for strong, sustainable, and balanced economic growth
• Fiscal resources in the developing economies may not be sufficient to satisfy their infrastructure
needs.
PPPs are increasingly being recognized as a means to complement budget constrains and leverage the private sector’s technical innovation.
• By leveraging the resources and technology of the private sector, the necessary infrastructure
can be supplied in a timely manner in the highest construction quality with the greatest value for
money.
Korea is committed to sharing its PPP knowledge, experience, and best practices with the developing economies by engaging in:
• Joint-research initiatives
• Mutually-beneficial support programs
• Regional cooperation initiatives
21
4. Bilateral Cooperation
•Obstacles to PPPs in the Developing Economies
• Many developing economies are considering PPPs as a powerful alternative to
traditional procurement of infrastructure such as energy, water supply, ICT facilities,
etc.
• However, it is difficult to attract private investment when the government lacks fully­developed policies and legal framework, and adequate experience in project development and management.
• Customized to Each of our Partner Countries Needs
• To ensure that every one of our partner country successfully launches a set of PPP policies tailored to their market­specific needs, the Korean government provides a
Capacity­Building Program customized to each country’s needs, based on our thoroughly conducted a Needs­Analysis Research.
22
Thank You!
23