Korea PPP System - ecursos.segeplan.gob.gtecursos.segeplan.gob.gt/recursos/downloads/10.pdf · Hierarchy of legal and administrative framework of PPP System The PPP Act and the PPP

KRIHS

- Ha Jung Yoon

국토연구원

Korea PPP System

2015. 10. 13

1. Korea PPP System

2. Governmental Supports

3. PPI Performance Result during 10 years

4. Status and Prospects on PPI in Korea

5. Case Study

6. Policy Issues

Contens

KRIHS

KRIHS

I. Korea PPP System

PPP (Public Private Partnership) is a concept which induces

private participation to providing infrastructure and public

services.(Also known as PPI.)

By combining such responsibilities of design, building, financing

and operating in a single contract and transferring part of the risks

and responsibilities to the private sector, PPP projects realize

VFM(Value for Money) with less project costs and improved service

quality compared to conventional public procurement.

PPP encourages the private sector to utilize its skills, creativity and

innovation which can be extended to the public sector.

1

l. Korea PPP System

Hierarchy of legal and administrative framework of PPP System

The PPP Act and the PPP Act Enforcement Decree are the

principal components of the legal framework for PPP

They clearly define eligible infrastructure types, procurement

procedures, implementation process, conflict resolution and termination

mechanism, and the roles of the public and private parties.

PPP Act

Enforcement

DecreesPPP

Basic PlanPPP

Implementation

Guideline

PPP Act

2

l. Korea PPP System

Legal Framework of the PPP System

1.2 과업의 범위

PPP Basic Plan and Implementation Guidelines(annually updated)

The PPP Act directs the MOSF and PIMAC to issue the PPP Basic Plan

The Basic Plan provides• PPP policy directions

• Details in PPP project implementation procedure

• Financing and re-financing direction

• Risk allocation mechanism

• Payment scheme of government subsidy

• Documentation direction

PIMAC has developed PPP Implementation Guidelines

• Guidelines for value for money(VFM)test

• Guidelines for value for RFP preparation

• Guidelines for value for standard output specification by facility

• Guidelines for value for tender evaluation

• Guidelines for value for standard concession agreement

• Guidelines for value for refinancing

3

l. Korea PPP System


History of the PP act

PPP was first introduced in Korea with the enactment of the

Promotion of Private Capital into Social Overhead Capital

Investment Act in 1994.

The Act was amended to the Act on Private Participation in

Infrastructure (PPI Act) in 1998, after the onset of Asian financial

Crisis in 1997.

Enactment of ‘The Act on PPP’, Jan. 1999

Centered on unsolicited projects

Risk sharing

Minimum revenue guarantee (MRG)

Incentives for reducing project costs

Feasibility study for selection of private investment project

Establishment of PICKO(KRIHS)

4

l. Korea PPP System

History of the PPP act

Amendment of ‘The Act on PPP’, Jan. 2005

Introduction of BTL Scheme

Expansion of facility type

Diversification of investor profiles

Amendment of ‘PPP Basic Plan’, Oct. 2009

Abolition of MRG Scheme

Introduction of Investment risk sharing

Introduction of VFM revalidation

Expansion of Incentive for Early Completion

5

l. Korea PPP System

History of the PPP act

Land Infrastructure

And Transport(15)

Gender Equality

and Family

(1)

Welfare

(4)Forestry

(2)

Energy

(5)

Oceans and

Fisheries

(3)

Communication

(4)

Environment

(6)

Security and

Public Administration

(1)

Education

(1)

National defense

(1)

Culture & Sport

(6)

2.1 Legal Framework of the PPP System

6

Requirements :

The project is in accord with mid- to long-

term Infrastructure plans and national

investment priorities

The project has such profitability to

attract private sector participation

Amendment of of the Act in 2014 :

Eligible infrastructure facility types, which

have been stipulated by the Act, can

also be stipulated by the Enforcement

Decree.

l. Korea PPP System

49 Types of facility in 12 categories are eligible for PPP


Sector Infrastructure Types

Education (1) Pre-school and school facilities

National defense (1) Military residential facilities

Land Infrastructure

And Transport(15)

Road and ancillary facilities, railway, urban railway, airport facilities, multi-purpose dams, urban park,

river-affiliated ancillary structures, distribution complex and cargo terminals, passenger terminals,

non-

road parking facilities, pre-school and school facilities, ubiquitous city infrastructure, railway facilities

Culture and

Sports, Tourism (6)

Tourist site or complex, youth training facilities, public/professional sports facilities, libraries, museum

and art galleries, international conference facilities, culture centers, science museum

Communications (4)Telecommunication facilities, information communication system, information super-highway, map

information system

Welfare (4)Senior homes and welfare medical facilities and facilities for remarried seniors, public health and

medical facilities, childcare facilities

Forestry (2) Natural recreational resorts, arboretums

Energy (5) Electric source facilities, gas supply facilities, collective energy facilities, new renewable energy

Security and

Public Administration(1) Bicycle Facilities

Gender Equality

and Family(1)Youth training facilities

Oceans and Fisheries(3) Port facilities, fishing port facilities, eligible facilities for new port construction

Environmental (6)Excreta treatment facilities and public livestock waste-water treatment facilities, waste disposal

facilities, waste-water treatment facilities, recycling facilities, sewage and sewage treatment facilities

7

l. Korea PPP System

49 Types of facility in 12 categories are eligible for PPP

Procurement Schemes

BTO(Build-Transfer-Operate) Scheme

Both solicited unsolicited projects are eligible

Roads, seaports, and railway projects, etc

User-fees

Private Sector

(SPC)

End-user Government

Provides

ServicesPays

User Fee

Grants

Operational RightsTransfers

Ownership

8

l. Korea PPP System

Procurement Schemes

BTL (Build-Transfer-Lease) Scheme

Only solicited projects are eligible

School, dormitory, military housing, etc

Government payments (Lease rent +operating costs)

Low risk-low return

Government

End-userPrivate Sector

(SPC)

Pays

User Fee

(If necessary)

Transfers

Ownership

Provides

Services

Grants Operational Rights/

Pays Government Payment

9

l. Korea PPP System

Procurement Schemes

10

BTO-rs (Build-Transfer-Operate-risk sharing) Scheme

Improving business profitability and reduce the fees by sharing the

business risk between the government and the private sector (50:50)

Changing the high profit and risks of the business to medium profit and

risks by sharing the facility investment and operation costs between the

government and the private

the ratio can be adjusted according to nature of the business)

enforcement

Agreement

100%

Case 1. decrease of Operating Income

Private loss 20%

government loss 20%

residual income

60%

Case 2. increase of Operating Income

Private profit 10%

government profit 10%

residual income

120%

l. Korea PPP System

New PPP Model (2015)

11

BTO-a (Build-Transfer-Operate-adjusted) Scheme

The government takes the risk equivalent to the minimum business

operating costs (70% of private investment, interest to 30% of the private

investment, operating costs), and shares any excess earning

Minimum business

operating costs 70%(government guarantee)

Case 2. decrease of

Operating Income

Private loss 30%

government loss 10%

residual income

60%

Case 3. increase of

Operating Income

residual income

80%

Private profit 6%

government profit 14%

residual income

120%

Private loss 20%

Case 1. decrease of

Operating Incomeenforcement

Agreement

Non-guaranteed

invested costs 30%

l. Korea PPP System

New PPP Model (2015)

BTO BTO-rs BTO-a

Private risk High risk ⇒ Middle risk Low risk

profit and loss Private 100% ⇒▪ profit case and Loss case : Private

50%, Government 50%

▪ In the event of loss: the first 30% of

losses private, financial support if in

excess of 30%

▪ In the event of profit: shared

between the government and the

private (about 7:3)

government

guarantee- ⇒

government guarantee of

investment and operating costs

70% of private investment, interest to 30% of

the private investment, operating costs

Rate of return

to investment7~8% ⇒ 5 ~ 6% 4 ~ 5%

Apply

businessRoad, Port ⇒ railway, urban railway Environment

Fee ratesAgreement fee

+ prices ⇒

Agreement fee+

prices Public enterprise fee

12

l. Korea PPP System

Characteristics of BTO, BTO-rs, BTO-a Schemes

Both the government and a private company can initiate a PPP project

Solicited Projects

A solicited project is that the competent authority identifies a project for

private investment and announces a RFP

Competent authorities develop a potential project after considering

related plans and demands for the facility. They weight the procurement

options in order to determine whether the PPP procurement is more

efficient than the conventional procurement

Unsolicited Projects

For an unsolicited project, a private company (project proponent)

submits a project proposal, and then the competent authority examines

and evaluates the contents and value for money of the private proposal,

and designates it as a PPP project

13

l. Korea PPP System

Procurement Procedure

14

l. Korea PPP System

Procurement Procedure – BTO(Solicited Project)

Competent AuthorityReview by PIMAC

Competent Authority

Competent Authority

Selection of PPP Project

Designation as the PPP Project

Announcement of RFPs

Submission of Project Proposals

Evaluation and Selection ofPreferred Bidder

VFM Test

Negotiation and Contract Award(Designation of Concessionaire)

Application for Approval of Detailed Implementation Plan

Construction and Operation

Competent Authority

Private Sector → Competent Authority

Competent Authority

Competent Authority →Preferred Bidder

Concessionaire →Competent Authority

Concessionaire

Submission of Project Proposal

VFM Test

Notification of ProjectImplementation

PIMAC


Competent Authority → Proponent







Competent Authority


Competent Authority

Competent Authority → Preferred Bidder

Concessionaire → Competent Authority

Concessionaire

15

l. Korea PPP System

Procurement Procedure – BTO(Unsolicited Project)

Selection of BTL Project

VFM Test & Application of Investment ceiling

Determination of Aggregate Investment

Ceiling for BTL Project

Competent Authority, Review by PIMAC

Competent Authority

MOSF








Competent Authority

Competent Authority → Preferred Bidder

Concessionaire → Competent Authority

Concessionaire

Submission to National Assembly MOSF→ National Assembly

Competent AuthorityDesignation as the PPP Project

Competent Authority, Review by PIMAC

Sam

e a

s P

roced

ure

for B

TO

So

licite

d P

roje

ct

16

l. Korea PPP System

Procurement Procedure – BTL

MOSF(Ministry of Strategy and Finance)

Major players in the PPP program include MOSF, concerned line

ministries, and the private sector

MOSF is responsible for managing the PPP Act, Enforcement Decree,

and the Basic Plan for PPP

MOSF is also responsible for preparing the draft budget for PPPs.

MOSF plays a central role in budgeting as well as in preparing and

implementing PPP investment plans.

Main budgeting decisions are made in bilateral negotiations between

MOSF and the spending ministry.

17

l. Korea PPP System

Major Players

PRC(PPP Review Committee)

Organized and managed by the MOSF.

Deliberates the matters concerning the establishment of major PPP

policies and key decisions in the process of implementing large scale

PPP projects.

Main responsibilities of PRC are deliberation on:

• Establishment of major PPP policies

• Establishment and modification of the Basic Plan for PPP

• Designation and cancellation of a large (total project cost with KRW 200

billion or above) PPP project

• Formulation and modification of the RFP for a large PPP project

• Designation of a Concessionaire of a large PPP project

• Other matters which MOSF proposes for the active promotion of the PPPs.

18

l. Korea PPP System

Major Players

PIMAC(Public and Private Infrastructure Investment Management Center)

In order to provide comprehensive and professional support for the

implementation of PPP projects, PIMAC was established under the PPP Act

The mission and roles of PIMAC are prescribed in the PPP Enforcement Decree:

• Supporting MOSF in the formulation of the Basic Plan for PPP

• Supporting the competent authorities and ministries in the procurement process

• Assessment of feasibility and value for money for potential PPP projects

– Formulation of the request for proposal

– Designation of the concessionaire

– Evaluation of project proposals by private companies

– Negotiation with potential concessionaire, etc

• Promoting foreign investment in PPP projects through consultation services

• Developing and operating capacity-building programs for public sector

• practitioners

19

l. Korea PPP System

Major Players

SPC(Special Purpose Company)

Private sector participants who intend to implement a PPP project shall

establish a PPP project company, a legal entity which is to be

designated as concessionaire upon PPP contract award.

• In general, construction companies, financial investors, and professional

operators

• form a special purpose company (SPC) for the associated PPP project.

• In many cases, a project proponent is a would-be company when it submits

a project proposal.

• In such case, it shall include a corporate establishment plan in the project

proposal and, when designated as a potential concessionaire, establish the

company which is to conduct the designated PPP project.

The SPC shall not engage in businesses other than those acknowledged

by the competent authority at the time of designation of the concessionaire

except insignificant businesses approved by the competent authority.

20

l. Korea PPP System

Major Players

What is Value for Money?

The best available outcome after taking account of all benefits, costs

and risk over the whole life of the project (HM TREASURY)

Not lowest price

Why it is Used?

Seek the best use of available resources

Efficient and effective public service delivery

“ The competent authority uses VFM reports as basic material to make a

judgment on whether to move forward with the PPP project proposed by

the private proponent” according to the Article 7, Paragraph 3 of the

Enforcement Decree of the PPP Act

21

l. Korea PPP System

VFM(Value for Money)

VFM is often a comparative assessment

Requires a benchmark cost : PSC (Public Sector Comparator)

PSC is a benchmarking and evaluation tool : a Key tool

Benchmarks the cost of government service delivery

Evaluates whether VFM is delivered from bids

A procurement principle

Applied on a project or program basis

Innovation, asset utilization, risk sharing, competition, service

integration are key drivers of VFM

Presence of VFM drivers confirms suitability for PPP

22

l. Korea PPP System


Phase 1: Feasibility study (Decision to Invest)

The cost- benefit analysis is conducted to determine feasibility of the project from a

national economy perspective.

Phase 2: Value for Money Assessment (Decision on PFI)

The government payment of PSC (Public Sector Comparator) is compared against

that of PFI (Private Finance Initiative) to assess whether the PFI achieves VFM.

Phase 3: Formulation of PFI alternatives

Based on the results of phase 2, an appropriate PFI alternatives are formulated

The level of project cost, user fee, subsidy scale, etc. are suggested from the

government.

Phase 4: Award bonus points to the initial proponent

Bonus points (10% max.) awarded to the initial proponent are estimated based on

the results of VFM tests and the quality of the proposal.

23

l. Korea PPP System


II. Government SupportII. Government Support

KRIHS

Acquisition of land by the concessionaire

Granting of land expropriation rights to the concessionaire

National or public property in designated areas may be sold to the

concessionaire

Concessionaire are allowed to use national or public property without

charge or at lower price

Financial support

Construction subsidy : The government may grant construction subsidy to

the concessionaire, if it is inevitable to maintain the user fee at a

reasonable level

Tax incentive

• Exemption from acquisition and registration taxes on real estate for BOT projects

• 0% VAT on construction services

• Tax reduction for infrastructure bond

24

ll. Government Supports

MRG(Minimum Revenue Guarantee)

A certain fraction of projected annual revenues may be guaranteed when the

actual operating revenue falls considerably short of the projected revenue

prescribed in the contract

36 out of 145 signed contracts include minimum revenue guarantee clauses

at the end of 2008.

MRG risk sharing scheme was completely abolished in Oct 2009

Jan 1999May 2003

January 2006

Solicited UnsolicitedSolicited Unsolicited

Period Whole operating period 15 Years 10 Years

Abolished

Guarantee

Level (Max)90% 80%

First 5 Years 90%

Next 5 Years 80%

Last 5 Years 70%

First 5 Years 75%

Next 5 Years 65%

Condition None

No MRG applied

if Actual Revenue < 50%

of Forecasted Revenue

Same as Left

25


Risk-sharing By the Government

Government pays the amount of shortfall when the actual

operation revenue is less than the share of investment risk* by the

government.

• by the government share of investment risk: the sum of private sector’s

invested capital and the interest rate of government bonds, calculated on an

annual basis

If the actual operation revenue exceeds the share of investment

risks, it will be redeemed within the limit of the amount previously

paid.

Subsidies provided only when the actual operation revenue is

greater than 50% of the share of investment risk.

Applied only for solicited projects with significant public benefits.

-Sharing Scheme

26


New Risk – Sharing Scheme

Purpose : Compensate the unsuccessful bidder for a portion its project

proposal cost for the purpose of promoting the competition in projects.

Calculation : The maximum amount of compensation as follows.

Only 1 unsuccessful bidder: 25% of basic design cost

2 or more unsuccessful bidder: 30% of basic design cost for 2nd contender

and 20% of 3rd contender

(*Basic design cost : applying the basic design rate for the government project as set

forth in the budget compilation guideline)

Exclusion : Unsuccessful bidders who earned the engineering score under certain level (eg. average “C” level from A~E 5 level evaluation), Unsuccessful bidders who submitted the project proposal containing service quality significantly below the required level.

Notice : The competent authority is to provide the details in the RFP.

such as whether the compensation is available, the size of compensation, criteria and procedures of compensation, and due period of compensation.

27


Compensation for Proposal Cost

KRIHSKRIHS

III. PPP performance Result during 10years

Expansion and Saving of SOC Budget

Early supply of SOC facilities

Increasing of Social benefit

Risk Sharing

Macro-Economic effect

28

lll. PPP Performance Result during 10 years

Efficiently management of construction risk such as increased cost, expansion working period etc. compared to investment by government

13.3% extended working period of investment by government

10.5% shortened working period of BTL project

0.00% 20.00% 40.00% 60.00% 80.00% 100.00% 120.00%

Government Investment BTL

29

Early supply of SOC facilities


Calculating benefits on expansion of private SOC investment

Estimated reduction effect of financial burden due to PPP is about 2.0

trillion, since 2014

Early and high quality service supplied by BTL scheme

As of 2014, Announced of 440 projects(27.7 trillion won)

Early and high quality service supplied by BTO scheme

As of 2014, Announced of 222 projects(71.7 trillion won)

30


Increasing of Social Benefit

Increasing the reliability of SOC facilities supply

LCC(Life cycle cost) is more profitable then investment by government

Maintenance cost of private project are lower then investment by

government

Minimization of project cost by observance of construction period

• PPP scheme that private sectors get disadvantaged

• If construction period in agreement is exceeded

31


Risk Sharing

Output Effect

PPP project (9.6 trillion won) – Output Effect (19.7 trillion won)

Employment Effect

Transportation Facilities – 13.4 persons/billion won

Seaports Facilities – 9.3 persons/billion won

Railways Facilities – 12.1persons/billion won

Environment Facilities – 13.0 persons/billion won

32


Macro-Economic Effect

KRIHS

IV. Status and Prospects on PPP in Korea

Number & Investment of PPP projects by Procurement Scheme

project type

stepsBTO BTL Total

Under Operation 159 393 552

Under Construction 40 15 55

Preparing to construct 23 32 55

Number of Project 222 440 662

Total Investment 71.7 27.7 99.4

(Unit : Number(trill. KRW))

33

Source : KDI(2014)

lV. Status and prospects on PPP in Korea

Number & Investment of PPP projects by Facility Type

(Unit : Number,% (trill. KRW))

Source : KDI(2014)

34

TypeNumber of

Projects Total Investment Type

Number of

ProjectsTotal Investment

Education 223 (33.7) 9.7 (9.8) Railways 13 (2.0) 17.3 (17.4)

Environment 176 (26.6) 12.8 (13.0) Airport 13 (2.0) 0.7 (0.7)

Roads 84 (12.7) 42.3 (42.6) Welfare 12 (1.8) 0.3 (0.4)

National

defense71 (10.7) 5.6 (5.6) Distribution 6 (0.9) 1.3 (0.3)

Culture 41 (6.2) 1.9 (1.9) Communication 5 (0.8) 0.3 (0.3)

Seaports 18 (2.7) 6.9 (7.0) Total 662 (100.0) 99.4 (100.0)


In 2000~2008, Average return of SOC projects are 7.9%,

Reduction of return

Before 2005, average return of SOC projects are 9.01%

Since 2005 , average return of SOC projects are 6.9%

2000 2001 2002 2003 2004 2005 2006 2007

Road 9.52 9.52 7.86 8.94 8.16 7.21 5.49 5.34

Railways 10.43 10.43 9.10 9.10 8.86 8.45 7.76 7.76

Seaports - 8.76 8.76 8.62 8.63 8.24 6.75 6.35

(Unit : %)

Source : PIMAC(2010)

35


Rate of Return(Real)

Operating period varies from 11 years (airports) up to 50 years (seaports)

Roads and railways 30 years; seaports 50 years

The typical operating period for social PPP project is 30 years

Total investment Period Number of projects

Road 42.39 30 84

Railways 17.31 30 13

Seaports 6.95 17~50 18

Airports 0.71 11~30 13

(Unit : trill. KRW, years, number)

36

Source : KDI(2014)


Operating Period

Pubic & Private Investment Trends

Trends of Private Investment in PPP

(Unit : trill. KRW, %)

Source : KDI(2014)

37

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Total

Investment in

SOC(A)

19.1 21.2 21.3 21.5 24.3 29.3 27.8 26.6 25.8 26.7 26.4

Gov’t

Investment17.4 18.3 18.4 18.4 20.5 25.4 25.1 24.4 23.1 25.0 23.7

Private

Investment(B)1.7 2.9 2.9 3.1 3.8 3.9 2.7 2.2 2.7 1.7 2.7

Ratio of

Private

Investment

(B/A, %)

9.8 16.2 15.9 16.8 18.5 15.4 9.3 9.0 11.7 6.8 11.4


Trends of Private Investment in PPP

Local GovtAdmin

DefenseEducation

Welfare

Economic

0%

20%

40%

60%

80%

100%

2005 2010 2015 2020 2025 2030

Local Govt Admin Defense Education Welfare Economic

2005 2015 2030 OECD AVG

Welfare (%) 26.6 35.6 46.7 51.7

Economic (%) 19.7 13.8 10.6 9.5

38


Long term Government Expenditure

KRIHS

V. Case Study

Groundbreaking Ceremony marking the commencement of

construction of the Incheon Bridge, second connecting bridge to

Incheon International Airport, was held on June 16, 2005.

Opening of Incheon Bridge is connect the 2nd and 3rd Gyeongin

(Seoul-Incheon) Expressway with Seohaean West Coast

Expressway which is expected to cut travel time to the airport

from Seoul metropolitan areas southern districts by more than 40

minutes.

39

Concept

V. Case Study – Incheon Bridge

Type : Cable-Stayed

Total length : 21,400m including the connecting road(12,000m over sea)

Cost : 2,085.8 billion won

Method : BTO

Concession period : 30 years (2009 completion)

Project Company : KODA Development

(AMEC, Incheon Municipal Government, private investors)

40


Project Outline

41

Location of Incheon Bridge


42

The Route Map of Incheon Bridge


43

The Night View of Incheon Bridge


KRIHS

Vl. Policy Issues

Developing a Model for Public Involvement in PPI

By developing public involvement model that induces potential users to

step in the procurement process of BTL projects, we try to improve end-

users’ satisfaction and to contribute to community development

Promoting to Construct Integrated Compound Facilities

To satisfy community’s various needs, more than a single infrastructure

facility can be built on one site and create synergy effect by making them

function properly

For example, community schools may contain senior care facilities and

sports center, which maximize facility usage after school hour and also

provide students with an opportunity to interact with elderly people

44

Vl. Policy Issues

Developing PPP Advisory Market

The public sector needs to hire specialists who help them in the process of

PPP procurement.

By developing PPI advisory market, the public sector’s efficiency in

procurement process is expected to enhance.

Developing the Sector Standard Models for Major Facility Types

By developing the sector standard models from output specifications to

standard contracts, the trial and error may be minimized and the

procurement process would be more effective.

45

Vl. Policy Issues

Thank you

Documents

Korea PPP System - ecursos.segeplan.gob.gtecursos.segeplan.gob.gt/recursos/downloads/10.pdf · Hierarchy of legal and administrative framework of PPP System The PPP Act and the PPP