This presentation was made by Youngsob Yoo & Hojun Lee, Korea, at the 8th meeting of Senior Public-Private Partnerships and Infrastructure Officials held in Paris on 23-24 March 2015.

1. 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. 2
Policy Response (under Consideration)
Current Status & Diagnostic

3. 3
Current Status & Diagnostic

4. Korea’s Current Trilemma in PIM
 Fiscal Limits of Traditional Procurement
 Certain Infrastructure Demand
4
 Downturn in PPPs

5. Fiscal Limit for Traditional Procurement
5
 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)

6. Infrastructure Demand
6
 Renewable Energy Sector
 Water Supply
 Waste Disposal Facilities
 Sewerage
 Rehabilitation Projects (Transport, School)
 Certain Level of Infrastructure Demand

7. Current Status & Diagnostic
7
BTLCeiling
BTOAgreement Vol.
(Trn. KRW)
2007 2008 2010 2011 2012 20132009
No.ofNew
Project
Developing new projects is an important challenge Korea’s PPP faces

8. 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)

9. 9
Policy Response(under Consideration)

10. Policy Drive
10
* Source: Yonhap News
* Source: News 1
Minister visits Gangnam beltway
construction site. (Mar. 9, 2015)
Meeting with managements of FIs
and Construction Companies

11. 11
Direction of New PPP Policy Framework (Draft)
Rei nvi gorati 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.

12. 12
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.

13. 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
13

14. Advance Land Compensation, CIPP
14
 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.

15. 15
Thanks.