PPP developments in Korea - Youngsob Yoo & Hojun Lee, Korea
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Transcript of PPP developments in Korea - Youngsob Yoo & Hojun Lee, Korea
PPP De ve lopme nts in Kore a
Youngsob YOO Deputy Dir./PPP Policy Div.
Ministry of Strategy & Finance
Hojun LEE Director of PPP Div.
KDI PIMAC
2
Policy Response (under Consideration)
Current Status & Diagnostic
3
Current Status & Diagnostic
Korea’s Current Trilemma in PIM
Fiscal Limits of Traditional Procurement
Certain Infrastructure Demand
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Downturn in PPPs
Fiscal Limit for Traditional Procurement
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Demand in Social Welfare Expenditure Soars
0
5
10
15
20
25
30
2009 2010 2011 2012 2013 2014
Social Welfare Budget/Total Budget (%)
SOC Budget/Total Budget (%)
106.4 115.5
122.6 129.9
137.7
23.7 24.4 22.4 20.7 19.1
0
20
40
60
80
100
120
140
160
2014 2015 2016 2017 2018
Social Welfare (Tril. KRW) SOC (Tril. KRW)
Mid-Term Fiscal Plan (Central Gov’t) Portion of Social Welfare & SOC Budget (Local Gov’t)
Infrastructure Demand
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Renewable Energy Sector
Water Supply
Waste Disposal Facilities
Sewerage
Rehabilitation Projects (Transport, School)
Certain Level of Infrastructure Demand
Current Status & Diagnostic
7
BTL Ceiling BTO Agreement Vol. (Trn. KRW)
2007 2008 2010 2011 2012 2013 2009
No. of New Project
Developing new projects is an important challenge Korea’s PPP faces
8
Current Status & Diagnostic
After the peak in 2007 Korea’s PPP investment has decreased both in terms of volume and number
BTL Expenditure Ceiling(Trillion KRW): (2007) 9.9 → (2013) 0.7
BTO Concession Agreement Vol.(Trillion KRW): (2007) 5.2 → (2013) 1.9
No. of Concession Agreement : (2007) 120 → (2013) 1.9
Reasons behind poor track record
Negative public sentiment towards PPPs fueled by users, National Assembly, and media over excessive MRG payments and high user fee
Increased PPP project risk for investors after abolishing MRG in 2009
Recent recession in construction business unleashed cutthroat competition, further aggravating profitability
Lack of pipeline projects (Possibly, crowded out by major public works such as Sejong Administrative City, 10 Innovation Cities)
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Policy Response(under Consideration)
Policy Drive
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* Source: Yonhap News
* Source: News 1
Minister visits Gangnam beltway construction site. (Mar. 9, 2015)
Meeting with managements of FIs and Construction Companies
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Direction of New PPP Policy Framework (Draft)
Rei nv i gorat i on of Economy thru PPPs
Early land compensation
Corporate Investment Promotion Program
Assisting Project Restructuring
Introduce new procurement models *BTO-rs(risk sharing), BTO-a(adjusted)
Expand project scope *Water pipe network Purification plant etc.
Introduce ‘Competi-tive Dialogue’ Speedy Dispute Settlement by Committee
Etc.
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Introducing Innovative Procurement Models
Introduce new procurement types to reflect changing economic circumstances and capture varying investor preference of risks.
The current procurement types, BTO & BTL, proved ineffective in responding changing economic conditions(ex. Interest rate)
Absence of MRG since 2009, growing uncertainties in financial sector have led to greater project risk → reduced investment in BTO.
Investors’ preference shifted from ‘high risk-high return’ to ‘stable profit’
(Expected effects) With reduced project risk, long-term investments by pension funds, insurance companies will be increased.
Pending Projects due to strict risk evaluation hurdle by financial institutions can start afresh.
Fast Track Procedure
Prolonged investment procedures delays PPP projects by (i) increasing uncertainties, (ii) frequent changes of related development plans.
Unclear project conditions, massive documentation requirements etc. are main reasons of delay especially during the negotiation stage
Shorten the procedure(from RFP~concession agreement) by 1/3 thru (i) introducing ‘competitive dialogue’ process, (ii) simplifying documentation (iii) providing non-stop services
(Expected effects) With reduced costs*, it is expected that more unsolicited project
proposals will be in the pipeline.
preparation lead time: 45 → 30months, documentation burden: halved
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Advance Land Compensation, CIPP
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Introduction of ‘Advance Land Compensation’ for national projects * Total executed amount in FY2014: 227bn KRW for 4 PPP road projects
The scheme will be expanded to local governments from FY2015
(Expected effects) (i)prevents compensation cost overrun due to the delayed payment and (ii) eliminates the risk of construction delay
Corporate Investment Promotion Program (30 trillion KRW) will relieve funding bottleneck
Several Projects experience funding difficulties due to stringent evaluation process of financial institutions
* Initially 5 PPP projects are highly likely to get funding from the Program (Total funding amount 6trillion KRW)
(Expected effects) With more funding possibilities, conditions for commencing project will significantly improve.
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Thanks.