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April. 2010
YooYoo, Sung , Sung KullKullDeputy Minister of Strategy and FinanceDeputy Minister of Strategy and Finance
Republic of KoreaRepublic of Korea
KoreaKorea’’s Case of Publics Case of Public--Private Partnerships Private Partnerships for Infrastructure Developmentfor Infrastructure Development
Overview of PPP in KoreaOverview of PPP in Korea
Performance HighlightsPerformance Highlights
Table of ContentsTable of Contents
Financial Crisis & Gov’t ResponsesFinancial Crisis & Gov’t Responses
PPP Prospects in KoreaPPP Prospects in Korea
** PPP Guideline is issued to provide PPP policy direction and implementation guidance
The Private Capital InducementPromotion Act
The Act on Public-Private Partnershipsin Infrastructure
· Risk Sharing, Minimum Revenue Guarantee
EnactmentAug. 1994
The Act on Public-Private Partnerships in Infrastructure· Expansion of Facility Types· Introduction of BTL Scheme· Diversification of Investor Profile (Infra. Fund)
RevisionDec. 1998
AmendmentJan. 2005
History of PPP in LegislationHistory of PPP in Legislation
- BTOBTOBTO
Build - Transfer - OperateConstruction by the private sectorOwnership transferred to governmentOperation by the private sector
IRR is determined through negotiation(8~15%)
-
Build - Transfer - LeaseConstruction by the private sectorOwnership transferred to governmentLease and payment by the government
IRR = Reference rate (government bond) + (80~100bp)
BTLBTLBTL
Implementation SchemeImplementation Scheme
Others : BOT, BOO, etc.
Transfers Ownership
delivers Service
Fees(If necessary)
Lease payments
User Government
Private Participant(SPC)
Transfers Ownership
Grantsoperating rights
delivers Service
Pays usage fee
Government
Private Participant(SPC)
User
BTOBTO BTLBTL
There are 48 types of infrastructure facilities in 15sectors specified by the PPP Act
Available Facility TypesAvailable Facility Types
Road(4)
15 Categories
* Positive listing
Rail(3)
Port(3)
Airport(1)
Communication(5)
WaterResources
(3)Energy
(4) Environment(5)
Logistics(2)
Culture & Tourism(9)
Military Housing(1)
Education(1)
Forestry(2)
PublicHousing
(1)
Welfare(4)
Signed PPP Projects in Korea(As of Dec 2009, Nationally(As of Dec 2009, Nationally--Managed Projects only)Managed Projects only)
TOTAL
(# of projects)Project Cost
(USD) %
Completed In construction In preparation
TOTAL(414)
61.7 bn(100%)100%
(188)23.9 bn
(163)24.9 bn
(63)12.9 bn
Central Government
(116)38.1 bn
(28.0%)61.7%
(40)16.9 bn
(42)10.5 bn
(34)10.7 bn
Competent Authority
LocalGovernment
(298)23.6 bn
(72.0%)38.3%
(148)6.8 bn
(121)14.6 bn
(29)2.2 bn
BTO(75)
44.8 bn(18.1%)72.7%
(33)18.9 bn
(30)17.3 bn
(12)8.6 bn
Project Type
BTL(339)
16.8 bn(81.9%)27.2%
(155)5.0 bn
(133)7.6 bn
(51)4.2 bn
Road (25.8bn)Port (5.4bn)
Rail (10.2bn)
Others (3.4bn us$)7.9%
11.9%
22.7%
57.5%
Sector Analysis :Sector Analysis :
BTOBTOBTOTotal project costs of signedBTO as of Dec 2009 amountto 44.8 billion US$
BTLBTLBTLTotal project costs of signedBTL as of Dec 2009 amountto 16.8 billion US$
Educationalfacilities(6.2bn)
Environmentalfacilities(4.7bn)
Cultural, Welfare, etc.(1.3bn us$)
28.1%
14.3%
37%
7.6%
13%
Military (2.4bn)
Railway (2.2bn)
Major Projects: BTOMajor Projects: BTOIncheon International Airport Expressway
Total Project Cost: USD 1.2 billionIRR = 9.7%(Aftertax real rate of return)Length: 40.2 km, 8 lanesCompetent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 1995 2000Operation Period: 30 years
Incheon BridgeTotal Project Cost: USD 1 billionIRR = 8.48%(Aftertax real rate of return)Length: 12.3 km, 6 lanes (21.4 km including gov’t financed access road)Competent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 2005 2009Operation Period: 30 years
Busan New Port Phase 1Total Project Cost: USD 1.4 billionIRR = 9.5%(Aftertax real rate of return)Work Scope: 9 berths (50,000 t), 3.2 kmCompetent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 2001 2009Operation Period: 50 years
Chungju Military Apartment HousingTotal Project Cost: USD 16.3 millionWork Scope: 200 households and convenience facilitiesCompetent Authority: Ministry of DefenseConstruction Period: 2005 2007Operation Period: 20 years
Ulsan National Institute of Science and TechnologyTotal Project Cost: USD 219 millionWork Scope: Site 1,028,200 , Total Floor Area 153,691Competent Authority: Ministry of Education, Science and TechnologyConstruction Period: 2007 2010Operation Period: 20 years
Anhwa High SchoolTotal Project Cost: USD 0.8 millionWork Scope: Site 13,264.03 , 5 storiesCompetent Authority: Gyeonggi Province Office of EducationConstruction Period: 2006 2007Operation Period: 20 years
Major Projects: BTLMajor Projects: BTL
Impact of Financial Crisis on PPPImpact of Financial Crisis on PPPImpact of Financial Crisis on PPP
- Funding cost : 90 ~ 200 bp up in the second half of 2008 - Reference rate (government bond) : 50 ~ 60 bp up(or down) in the second half of 2008
BTL IRR < Funding cost
Decrease in BTL Internal Rate of Return
- Tend to avoid large scale, long-term investment due to uncertain economic prospects
- Higher premium and/or more risk-sharing by government is required
Increase in BTO Investment Risk
Failure in financial closure of projects in preparation and decline in initiation of new PPP projectsFailure in financial closure of projects in preparation and decline in initiation of new PPP projects
Rate of Return on BTO: 8~15%(No MRG since 2006)
%
Year(quarter)
BTL Rate of Return < funding cost
Trends of Funding Cost and the Rate of Return on PPP ProjectsTrends of Funding Cost and Trends of Funding Cost and the Rate of Return on PPP Projectsthe Rate of Return on PPP Projects
Government Response (1)Government Response (1)Government Response (1)
Mitigate Interest Fluctuation Risk
Change reference rate adjustment mechanismProvide assistance to excessive changes in funding cost
The 1st PPP Revitalization Measures to ease credit crunch (Feb. 09)
Provide Liquidity and Risk Mitigation
Initiate KDB BankSpecial Loan ProgramProvide Credit enhancement through Infrastructure Credit Guarantee FundLower equity ratio
Special PPP Monitoring Task Force reviews the status ofimplementations on a monthly basis
Improveproject structureImproveproject structure
Encouraging supplementary projects
Increasing coverage for Compensation on termination
Development of New Risk-Sharing Structure
Improve conditionsfor financingImprove conditionsfor financing
Improving environment for investmentRevitalizing the issuance of infra bondsStrengthening tax incentives
The 2nd PPP Revitalization Measures for favorableinvestment environment (Aug. 09)
Government Response (2)Government Response (2)Government Response (2)
Maintaining the Role of PPPsMaintaining the Role of PPPsMaintaining the Role of PPPs
Increased end-user benefit throughproviding necessary infrastructurewhen most needed.
- Aging School Facilities - Military housing/leisure facilities - Sewage/Sanitary Systems- Cultural/Welfare facilities
•Limited Fiscal Resources due to increased spending in fosteringwelfare and expanding Korea’s future growth engines
•Private Investment will continue to complement thegovernment’s limited fiscal investment in public infrastructure.
Priority based on economic viability, PPP feasibility, and bottleneck relief effect, etc
- Roads : In the most congested areas- Railway : Light-rail in congested areas- Ports: Contingent on varying commercialtraffic