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This presentation by Kangsoo KIM was made at the 7th Meeting on Public-Private Partnerships held on 17-18 February 2014. Find more information at http://www.oecd.org/gov/budgeting/ppp.htm
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Developing PPP
- Where to begin ? -
7th Annual meeting of senior PPP
officials
OECD Conference center, Paris
February 2014
Kangsoo Kim
Executive Director Public and Private Infrastructure Investment Management
Center (PIMAC)
PPP Track Record of Korea
2
bil USD Number
(*) All the figures are contract basis and thus real investment balance may be different
The infrastructure investment of Korea through PPP dramatically increased from 1999 to 2007, since then the trend has been stabilized
Social consensus on ‘user- pay principle’ and ‘PPP’
3
Since the ‘Toll Road Act’ was legislated in 1963, major backbones(* ) were built under ‘user- pay principle’, which concept became familiar to local drivers And, the ‘Asian Financial Crisis in late 90s initiated a social consensus on the needs for inviting private capital into public infrastructure (PPP)
(* ) ‘The First Han Riverside Road’ was completed in 1967 as the first toll road, and since then, other major turnpikes such as Kyung- In, Kyung- Bu, HoNam Express Ways were constructed
Km
Toll Road by Ownership
4
What happened during the late 90s in Korea?
Enactment (‘94): ‘The Act on Promotion of Private Capital into Social Overhead Capital Investment’
Revision (‘99): ‘The Act on Public-Private Partnerships in Infrastructure’
KDB’s PF commencement (‘95)
Korea Credit Guarantee Fund for PPP was established (‘94)
MRG support
M ost of the PPP prerequisites are equipped in late 90s, since then Korea saw a rapid increase in PPP
PICKO was established (‘99) PIMAC was found in merge of PICKO & PIMA (‘05)
Ri sk Shar i ng
PPP uni t
Legal Foundat i ons
Fi nanc i al mark et
Legal Foundation (1)
5
In troduction of PPP legal fram ew ork
Enactment Aug. 1994
The Act on Promotion of Private Capital into Social
Overhead Capital Investment
Governm ent support m easures Risk sharing m echanism (Minim um Revenue Guarantee) Unsolicited proposals a llow ed
Revision Jan. 1999
The Act on Public-Private Partnerships in Infrastructure
In troduction of BTL m ethod (education facilities, m ilitary residences, environm ental facilities, e tc.) Broaden range of PPP pro ject facility types
Amendment Jan. 2005
The Act on Public-Private Partnerships in Infrastructure
The PPP Act has undergone 2 important revisions since enactment in 1994
In overall, the direction is to facilitate the procurement process, to promote private participation, and to improve transparency and VFM Through revision of the PPP Act in 2005 the focus of PPP implementation which had mainly been on transportation infrastructure shifted to include social infrastructure
Legal Foundation (2)
6
The PPP Act and its Enforcement Decree comprehensively regulate PPP projects, while the Basic Plans for PPP gives direction to government policy
Implementation procedures, rights and obligations, risk sharing mechanism are clearly defined in the Act to effectively reduce potential business risks for private sector participants The ‘PPP Act’ precedes other Acts, exempting PPP projects from other regulations, and thus provided basis for PPP development
1. PPP Act
4. Implementation Guidelines
2. Enforcement Decree on PPP Act
3. Basic Plans for PPP
Hierarchy of PPP legal and administrative framework
Risk Sharing Scheme
7
“Proper risk sharing” and “Government supports” are the integral parts for PPP facilitation
Risk sharing items Construction period Operation period
Financial viability Construction subsidy -
Investment risk - New investment risk
sharing scheme (* )
Tax - Tax exemption
Termination Termination payment
Land Land acquisition work by government agent
Free use of state owned land
Funding Infrastructure credit guarantee fund
(* ) Introduced in substitution for M RG(M inimum Revenue Guarantee), and eligible for only solicited BTO project
Financial M arket(1) – Korea Development Bank
8
Korea Development Bank (KDB) pioneered project financing in PPP at the early stage to unpin financial market as a quasi- government financial agent
KDB made the first PF underwritings in local market : ‘E- Wha- Ryong Tunnel’(Nov. 95) and ‘In-Cheon New Airport highway’ (Dec. 95) Local commercial investment banks and investment funds began to join PPP after observing initial success of KDB, resulting in long- term financial market development
(Source : KDB Annual Report)
Financial M arket(2) - Korea Credit Guarantee Fund
9 (Source : KODIT homepage)
Korea Credit Guarantee Fund played a critical role in financial market to make project financing viable for PPP
Guarantee : PF Loans to concessionaire for project expenses, and Infrastructure Bonds issued pursuant to the Act on PPP
Up to 300 mil USD for single project
M aximum premium : 1.5% per annum (Currently 0.5% in average)
Professional PPP Unit - PIM AC
10
PIM AC is responsible for comprehensive and systematic management of both traditional public investment and PPPs
PICKO (Private Infrastructure Investment Center of Korea) was found in 1999
PIM AC was Established as a merger of PIM A and PICKO in 2005
(87 staff members in 3 divisions)
Areas of Expertise Head
Economics 23
Finance/ Business/ Accounting 15
Law 5
Transport 14
Engineering (civil, architecture, environment, etc.)
14
International cooperation 4
Others (urban planning, real estate, etc) 12
Total 87
Integration of PIM (Public Investment M anagement) and PPP
11
Integrated budgeting process for PIM and PPP was needed to achieve not only consistency in project assessment but also efficiency in human resource management
PIM AC was Established as a merger of PIM A (which covered Public Investment M anagement) and PICKO (which managed PPP), and thus integrated both functions into one institute
The PICKO was under M inistry of Land and Transportation, but PIM AC is currently independent think tank which works closely with budgetary function (M inistry of Strategy and Finance)
Initial PPP projects (under the ‘Act on Promotion of Private Capital into Social Overhead Capital Investment’) were managed sporadically by each line ministries, but currently all PPP projects are managed by M inistry of Finance and Strategy within whole budget management process
PICKO (PPP)
Each line ministries & Municipal governments
The Act on Promotion of Private Capital into Social
Overhead Capital Investment
PIMA (PIM)
Ministry of Finance and Strategy
The Act on Public- Private
Partnerships in Infrastructure
PIMAC (PIM & PPP)
Independent / closely cooperate
Integration of PPP into whole budget management/ planning process
Lessons Learned
12
User- pay principle was familiar and thus acceptable to local drivers in Korea Fiscal deficit during the Asian financial crisis promoted the social consensus for introducing PPP M inimum prerequisites for PPP vitalization are … Legal Foundations, Risk Sharing scheme, Professional PPP unit, and Financial market, which were developed in late 90s in Korea PPP Capability building is not a one- off job! Continuous improvement with strong government will is needed
International cooperation may be efficient for developing countries ‘Learning- by- doing’ approach works Small pilot program can provide success story, providing inertia to whole PPP market development
Integrated budgeting process for PIM and PPP is needed to achieve consistency in project
assessment and efficiency in human resource management