A presentation conducted by Dr Kang-Soo Kim, Executive Director, Korean Development Institute (KDI), Republic of Korea. Presented on Wednesday the 2nd of October 2013. Infrastructure development has played an important role in achieving a high rate of economic growth and improving the quality of life for Koreans. Empirical studies show this to be true, and that such developments have produced a high rate of economic return. This presentation chronologically reviews the infrastructure development in Korea and focuses on how the transport infrastructure development plan was linked to the country’s economic development plan. In particular, this presentation will provide insights on measures to tackle the lack of available resources for the infrastructure development. For example, earmarked transport taxes, creation of special accounts and PPPs, which enhance Korean government’s fiscal flexibility will be introduced. This presentation will also provide some experiences and lessons focusing on the infrastructure planning and financing for the infrastructure development.

1. ENDORSING PARTN
ERS
Infrastructure planning and
financing in Korea an insight to
economic development
The following are confirmed contributors to the business and policy dialogue in Sydney:
•
Rick Sawers (National Australia Bank)
•
Nick Greiner (Chairman (Infrastructure NSW)
Monday, 30th September 2013: Business & policy Dialogue
Tuesday 1 October to Thursday,
gue
3rd
October: Academic and Policy Dialo
www.isngi.org
Presented by: Dr Kang Soo Kim, Executive Director, Korean Development
Institute (KDI), Republic of Korea
www.isngi.or

2. INFRASTRCUTIRE PLANNING
AND FINANCING IN KOREA
- Insight to Economic Development DR. Kang-Soo Kim
Executive Director
Public and Private Infrastructure Investment
Management Center (PIMAC),
Korea Development Institute (KDI)
Oct. 2013

3. Part-01
Infrastructure Development and
Economic Growth

4. Infrastructure Development and Economic Growth
 Infrastructure development has played an important role in
achieving high rate of economic growth and improving the life
quality of Koreans


Empirical studies indicate that infrastructure development has been
contributing to the economic growth in Korea
The infrastructure investments in the past represent higher rate of
economic return than the growth rates of Korea’s economy
 This presentation provides some experiences and lessons based
on the planning and financing for the infrastructure development
in Korea.


3
Economic Infrastructures
 Today’s focus: Transport (Roads, Rails, Airports and Seaports)
 Industrial parks, Power plants and dams, Telecommunication
Social Infrastructures
 Schools, museums, hospitals, public housing and social welfare
facilities

5. Infrastructure Development and Economic Growth
 After the Korean war(1950~1953), the Korean economy began
making solid recovery

The recovery was achieved by the assistance of foreign countries, which continued
only for a couple of years (the primary source of funds were during the 1960s)
 In May 1961, General Park Chung Hee gave Korea strong political
leadership that drove to economic development

The economic development was based on the “Five-year Economic Development
Plan”

The infrastructure development was tied to the economic development plan
 The first Five-Year Economic Development Plan (1962-66) period

Focused on developing light industries and the country’s import substitution capacity
 Infrastructure to support these activities included the construction of 275 kilometers of
railways and several highway projects
 Rail was the main priority
4

6. Infrastructure Development and Economic Growth
 The second Five -Year Economic
Development Plan (1967-71)
period

Sought to stimulate exports, which grew
nearly 50 percent per year during this
period
 Investment in railways continued,
and highway construction were
accelerated
 The Seoul- Busan Highway was
constructed (1968~1970)
 Priorities shifted from rail to road
because the government thought
that investment in new rail capacity
was too expensive
5

7. Infrastructure Development and Economic Growth
 The third Five - Year Economic Development Plan (1972-76) period

Increasingly difficult to remain competitive in labor-intensive light industries

Korea shifted its focus to heavy and chemical industries
 Government identified that new infrastructure are needed to support such industries as
petro chemicals, steel, and ship building
 The government decided to develop major industrial estates with new deepwater harbors,
along the Southeastern coast near the ports of Pohang, Ulsan, and Masan. In addition, the
port authorities initiated major projects in Incheon and Pusan
 The government undertook comprehensive programs to develop the country's airports,
seaports, highways, railways to serve these industries
6

8. Infrastructure Development and Economic Growth
 During the first half of the 1980’s Infrastructure investment
remained fairly high


Initiated several measures to stimulate the economy and established a
supplementary budget to increase investment in infrastructure (’86 Asian, ’88
Seoul Olympic)
These measures pushed the economic growth rate to unprecedented double-digit
levels
 In the mid-1990s, major bottlenecks started and negatively
affected Korea's economic performance

Due to the rapid motorization which resulted from income growth, Korea faced a
serious road congestion problem, which caused high logistical costs
1970
1980
1985
1990
1995
2000
2005
2010
1,000 Vehicles
130
190
530
1,110
3,390
8,470
12,060
15,400
17,940
V(t+1)/Vt
7
1975
-
1.5
2.8
2.1
3.1
2.5
1.4
1.3
1.2

9. Infrastructure Development and Economic Growth
- Physical Capacity and Infrastructure Use 1973~1992 Type
Road transport
Paved roads
(thousands of kilometers)
Motor vehicles
(thousands)
Passengers
(billions of kilometers)
Freight
(billions of kilometers)
Rail transport
Track
(thousands of kilometers)
Passengers
(billions of kilometers)
freight
(billions of kilometers)
Subways
Length of system
(kilometers)
passengers
(millions of kilometers)
Port
Port freightb
(millions of kilometers)
Air transport
Passengers
(millions)
Freight
(thousands of tons)
1973
1978
1983
1988
1992
Average
increase,
1973-78
(percent)
7.8
13.5
21.3
34.2
47.6
11.5
9.5
9.9
8.6
165.0
384.0
785.0
2,035.0
5,230.0
18.4
15.3
21.0
26.6
32.0
57.0
74.0
85.0
83.0
12.2
5.3
2.8
-1.0
3.1
6.8
5.9
8.6
11.4
17.0
-2.8
7.8
7.3
5.5
5.8
6.1
6.4
6.5
1.1
1.0
1.0
0.0
10.7
20.1
21.7
26.0
34.8
13.4
1.5
3.7
7.6
8.6
10.9
11.6
13.8
14.3
4.8
1.3
3.5
0.8
n.a.
n.a.
42.3
138.1
155.8
n.a.
n.a.
26.7
3.0
0.14a
0.78
1.6
8.6
13.0
53.6
15.4
40.0
10.9
49.0
95.0
147.0
246.0
371.0
14.1
9.1
10.8
1.8
2.7
4.2
6.1
12.6
25.8
9.2
7.7
15.6
19.6
67.0
153.0
309.0
619.0
1,079.0
18.0
15.1
14.9
14.9
n.a.: Not applicable. a: 1974. b: Includes coastal and ocean shipping.
Source: National Statistical Office (1993).
8
Average
increase,
1978-83
(percent)
Average
increase,
1983-88
(percent)
Average
increase,
1988-92
(percent)

10. Infrastructure Development and Economic Growth
 The 1993~97 Five-Year Economic Development Plan Period


The Transport Tax Act (1993. 12.) and the PPP Act (1994. 8.) were legislated
as solutions to the infrastructure gap
Government developed an ambitious program to improve living standards and
expand social overhead capital (transportation, distribution, and communication)
as an attempt to address infrastructure gap


9
As a result of the continuous
efforts of the government, the
increase rate of investment in
infrastructure has reached
over 20% each year, which
exceeded the growth rate of
the national budget
Notably, for the first time in
1997, the size of budget for
infrastructure exceeded KRW
10 Trillion
Ratio to annual budget
Ratio to GDP

11. Infrastructure Development and Economic Growth
 Korea's infrastructure encountered other problems

Increase of investment in social welfare and others, difficulty in maintaining the
investment expansion as in the past

Rapidly rising of construction costs (particularly for land acquisition and
domestic labor) ; ex) land prices increased the cost of the highway network
from US$4 million a kilometer in 1985 to roughly US$26 million a kilometer by
1990

Financial crisis of 1997 and 1998
 Started to reform investment of infrastructure


10
Planning and cost management on infrastructure
Revitalizing Public-Private Partnership

12. Infrastructure Development and Economic Growth
 From 2004, the increase in transportation budget rate began
to be lower than the rate of increase for general accounting,
and the investment budget for transportation facilities has
turned to the declining trend
Trend of rate of increase for transportation facilities budget
(Unit: %)
Classification
1993~2000
2000~2003
2003~2005
Transportation facilities
investment
19.0
6.5
-3.0
General accounting
12.9
10.0
5.5
Source: Ministry of Planning and Budget, 2005
11

13. Infrastructure Development and Economic Growth
- Physical Capacity and Infrastructure Use 1999~2005  Between 1999~2005, road, airport, and port sectors of Korea
increased respectively 2.6% ~ 4.1%, and 5.9%
Trend of the Expansion of Transport Facilities
Classification
2004
2005
Average rate
of increase
per year
97,252
100,278
102,293
2.63 %
2,778
2,778
2,923
2,968
6.44 %
14,254
14,232
14,234
14,246
14,224
2.29 %
74,230
74,506
79,027
80,240
83,109
85,101
2.57 %
3,119
3,123
3,125
3,129
3,140
3,374
3,392
1.4 %
-
-
-
-
-
239
240
3,119
3,123
3,125
3,129
3,140
3,150
3,168
0.3 %
247
274
284
303
310
314
314
4.09 %
409,205
410,135
422,642
461,652
478,049
501,319
578,145
5.93 %
1999
2000
2001
2002
2003
87,534
88,775
91,396
96,037
2,041
2,131
2,637
National Highway (㎞)
12,418
12,413
Provincial road and others(㎞)
73,076
Total length
Road
Expressway (㎞)
Total length
Railway
Express railway (KTX)
General railway
Airport
Port
12
Frequency (1,000 times)
Loading (1.000 tons)
-

14. Infrastructure Development and Economic Growth
– The Trend (1970~2004) -
Source: Korea Research Institute for Human Settlements, Estimating SOC stocks in construction and transportation sectors, 2007.3
13

15. Infrastructure Development and Economic Growth
– Government Expenditure by Category (Unit: trillion won, %)
Growth
rate
Classification
2005
2006
2007
2008
2009
1. Social welfare & health
49.6
54.7
59.6
64.1
70.5
9.2 
2. Education
27.6
29.1
31.1
33.8
36.3
7.1
3. Transportation and water resource
18.3
17.8
17.8
18.2
19.2
1.3 
4. Agriculture, maritime, and fishery
14.1
14.4
14.7
15.2
15.8
2.8
5. Industry․Small & medium companies
11.9
12.4
12.6
13.0
13.4
3.0
6. Environmental protection
3.6
3.8
4.0
4.4
4.9
7.7
7. Culture․tourism
2.6
2.9
3.0
3.2
3.3
6.0
8. National defense expense
(general accounting)
21.1
22.9
24.9
27.3
30.0
9.1
9. Public order·safety
9.4
10.2
10.6
11.1
11.7
5.7
10. Unification․diplomacy
2.0
2.7
3.0
2.9
2.7
8.0
11. R&D
7.8
9.0
9.6
10.3
11.1
9.2 
12. National balance development
(special balance accounting)
5.5
5.9
6.7
7.1
7.8
9.1
Source: Ministry of Planning and Budget, 2005~2009 National Financial Operation Plan
14

16. Infrastructure Development and Economic Growth
- Investment to GDP  In the recent 10 years, the Korean infrastructure investment ratio to
GDP ranged between 3.3% to 4.5%

The average of infrastructure investment to GDP ratio in the recent 10 years is
3.95%

They were higher in 2009 and 2010; during these two years the government
used fiscal policy to overcome global financial crisis
Infrastructure Investment to GDP Ratio
5.0%
4.54%
4.5%
4.23%
4.08%
4.0%
3.77%
3.97%
3.77%
3.92%
3.92%
3.5%
3.34%
3.0%
2.5%
2004
15
2005
2006
2007
2008
2009
2010
2011
Source: Comprehensive PPP evaluation (2013)
Infrastructure investment and GDP amounts are calculated with constant numbers in 2005 price
2012

17. Infrastructure Development and Economic Growth
- Infrastructure Achievements  Compared to G-20 countries, Korea is in the high tier in terms of
road stock


5th in total road length in proportion to the country area
1st in Highway, 3rd in National road
International Comparison of Road Stock (G-20)
(Unit:: km/1,000km2)
Total
Highway
National Road
Local Road
others
Length
Rank
Length
Rank
Length
Rank
Length
Rank
Length
Rank
Korea
1,045.3
5
34.6
1
139.4
3
182.4
6
688.8
6
Japan
3,167.4
1
19.5
5
143.8
2
342.1
4
2,661.9
1
United States
679.4
7
7.8
7
28.1
8
172.1
7
471.3
7
United Kingdom
1,635.2
3
14.6
6
191.9
1
470.7
3
958.0
4
France
1,725.3
2
19.9
4
13.7
10
694.5
1
997.3
3
Germany
648.3
8
34.6
1
114.8
4
242.4
5
256.5
10
Italy
1,618.4
4
22.2
3
71.3
6
489.1
2
1,035.7
2
Mexico
181.7
15
3.2
9
20.7
9
36.7
11
121.0
13
Australia
105.0
17
-
-
2.4
15
15.8
14
86.8
15
16

18. Infrastructure Development and Economic Growth
- Infrastructure Achievements  Compared to OECD countries, Korea is in the middle tier in terms
rail length.
International Comparison of Railway Stock (OECD)
(Unit:: km/1,000km2)
Total
Length
Korea
Japan
United States
United Kingdom
France
Germany
Italy
Spain
Netherlands
Norway
Sweden
Switzerland
Denmark
Greece
17
33.9
53.0
23.6
67.0
54.2
94.8
56.0
29.8
69.7
12.7
21.8
84.8
49.5
19.3
Rank
16
14
20
10
13
4
12
18
8
25
21
6
15
22
Dual Carriage Length
Length
Rank
14.4
21.8
49.5
31.2
50.7
24.6
9.6
47.7
0.7
4.0
44.5
21.5
3.9
15
12
4
7
3
9
17
5
24
20
6
13
21
Electric Railway Length
Length
Rank
26.8
32.4
22.2
27.9
55.0
39.6
17.4
52.9
7.9
17.2
84.8
14.5
2.0
14
10
15
13
4
7
16
5
21
17
3
19
23

19. Part-02
Infrastructure Planning and
Management

20. Planning Process for Infrastructure Investment
Major Players in Korea’s Infrastructure Budgeting Process
Players
Ministry of Strategy and
Finance (MOSF)
National Assembly
Line ministries
(Ministry of Land and
Transport Affairs)
19
Roles
• Aligns infrastructure investment to economic development goal
• Focal point for inter-ministerial and inter- agency coordination
• Compiles budget bids and prepares the draft budget.
• Allocates funds to spending ministries.
• Performance evaluation
• Regulatory Activities : ex) Infrastructure pricing
• Deliberates and votes on the budget.
• Approves the transfers of funds between programs.
• Reviews and approves audit reports.
• Planning infrastructure
• Execute the budget and manage infrastructure investment

21. Planning Process for Infrastructure Investment
 Strategic level : Comprehensive approaches under the guidance
of a long-term vision

Transportation System Efficiency Act
Twenty-Year National Intermodal Transport Plan (NITP)
Draft plan prepared by Minister of Land, Transportation and Maritime Affairs (MLT)
Reviewed by the Transportation Policy Committee (chaired by the Prime Minister)
Five-Year Transportation Infrastructure Investment Plan
Investment priorities, investment resource funding plan, etc.
Facilities: National and local transportation facilities
20

22. Planning Process for Infrastructure Investment
Implementation of Mid-term Transport Infrastructure Investment Plan
Various implementation plans are established and projects are implemented according to the plans.
Investment requirements are reflected in the allocation of the special account for transport facilities.
Performance Evaluation of Mid-term Transport Infrastructure Investment Plan
The Transportation Policy Committee evaluates the implementation performance of the plan
every year and provides feed-back.
21

23. Planning Process for Infrastructure Investment
Planning: by MLT
Ex-Ante
Project
Approval
Pre-Feasibility Study (PFS) :
MOSF
Feasibility Study (FS) :
MLT
Basic Design : MLT
Intermediate
Re-Assessment Study of
Feasibility (RFS) : MOSF
Re-Assessment Demand
Forecast (RDF) : MOSF
Detailed Design : MLT
Construction
Ex Post
Completion
Ex-Post Evaluation : MLT
Within 5 years after project
completion
MLTM: Ministry of Land, Transport and Maritime Affairs, MOSF: Ministry of Strategy and Finance
22

24. Pre-Feasibility Study (PFS) : Procedure
PFS Procedure
Line Ministry
Submit PFS
Projects Candidate
Ministry of
Strategy & Finance
KDI (PIMAC)
Select PFS
Projects
Request PFS
Make Investment
Decision
Feasibility Study
or Stop
23
Organize Teams/
Conduct PFS
Submit
PFS Report
Announcement

25. Total Project Cost Management System (TPCM)
 TPCM

TPCM is a device used by the budget ministry to monitor expenditure on public
investment and to check for increase in project cost throughout the project cycle
from planning to construction completion
 Principles of TPCM


The construction costs are not arbitrarily inter-changeable between project
phases or between construction units

The minister in charge of the project is to consult with the Minister of Strategy
and Finance about adjusting TPC, if TPC change is inevitable

24
Increase in construction size through design modification is not allowed except
for inevitable events
The line ministry is allowed to set construction contingencies for up to 8% of the
contract price of a project to cope with inevitable design modification and
amendment of the law and so on

26. Project Evaluation at Ex-post : Operation
 Coverage of EX – Post Evaluation Study

Infrastructure projects with total cost ≥ 500 billion won
 Implementation Period

Conducted within three ~ five years of construction completion
 Operation of Ex-Post Evaluation Study



25
Evaluation ownership : MLT
No designated evaluation agency : Government Funded Institute or
qualified Engineering Company
The Construction Technology Management Act provides the legal
framework

27. Process of a PPP Solicited Project
Solicited Project
Competent Authority
Selection of PPP Project
Competent Authority
Review by PIMAC
VFM Test
Competent Authority
Designation as the PPP Project
Announcement of RFPs
Submission of Project Proposals
Private Sector →
Competent Authority
Evaluation and Selection of
Preferred Bidder
Competent Authority
Negotiation and Contract Award
(Designation of Concessionaire)
Competent Authority →
Preferred Bidder
Application for Approval of
Detailed Implementation Plan
Concessionaire →
Competent Authority
Construction and Operation
26
Competent Authority
Concessionaire
26

28. Process of a PPP Unsolicited Project
Unsolicited Project
Submission of Project Proposal
VFM Test
PIMAC
Notification of Project
Implementation
Competent Authority →
Proponent
Announcement of RFPs
Competent Authority
Submission of Project Proposals
Private Sector →
Competent Authority
Evaluation and Selection of
Preferred Bidder
Competent Authority
Negotiation and Contract Award
(Designation of Concessionaire)
Competent Authority →
Preferred Bidder
Application for Approval of
Detailed Implementation Plan
Concessionaire →
Competent Authority
Construction and Operation
27
Private Sector →
Competent Authority
Concessionaire
27

29. Part-03
Infrastructure Development
Funding

30. Sources of Funding (Overview)
 Taxes

Tax revenue in general account

Earmarked Taxes: mainly transport tax for gasoline and diesel and car excise tax
are revenue of transport facility special account
 User Charge

User charge from expressway, rail, metro, port and airport users

Entities who operate transport facilities were encouraged to adopt cost recovery
mechanism that enables them to finance their own capital needs
 SOE (State Owned Enterprise) Bonds

SOEs who are responsible for construction and maintenance of transport facilities
are allowed to issue bonds in domestic and international financial markets
 Private Investment

PPP (Public Private Partnership) system was introduced in 1994
 Foreign Aids in the 1960s and 1970s

29
IBRD, ADB, US and other developed countries provided aids for reconstruction in
the aftermath of the Korean War during 1950-53

31. TFSA(Transport Facility Special Account)
 Transport facility special account was created in 1994 to vitalize
infrastructure investment

Transport Facility Special Account aims to secure financial resources for the
construction and operation of transport facilities and to enhance managerial
efficiencies of facilities by applying user-charge principle

Road Special Account and Urban Metro Account were merged into Transport
Facility Special Account
 Revenue sources of transport facility special account

Transport Tax accounts for over 70% of total revenue of transport facility
special account

Other examples of sources are Passenger Car Excise Tax, and Tariff on Train
Cars and Their Parts
 Tax Base and Rate

Excise tax on Gasoline : $0.43 /ℓ (specific duty, not ad valorem tax)

Excise tax on Diesel : $0.31 /ℓ
※ Tax rates on gasoline and diesel can be adjusted within 30%
30

32. TFSA - Renewal of Transport Tax
 In 2007, Transport Tax was changed into Transport, Energy and
Environment (TEE) Tax

The expenditure of the tax revenue was redefined:


Improvement on public transportation

Support energy and natural resource related business


Construction and operation of transport facilities
Environment conservation
Expanding its spending targets helped to overcome the resistance of extending
transport special account in 2007
 The account has been extended three times in 2004, 2007, and 2009
and was deemed to be expired at the end of 2012

31
Initially, it was created as 10 year sunset account deemed to be expired in
2003

33. TFSA - Sector Allocation in Percentage
 TFSA was allocated in percentage as below

The share of road sector has decreased from 62.6% in 1994 to 50.6% in 2011

The share of port sector occupied substantial 13.1% in 2008

The share of urban metro is continuously decreasing, whereas the share of
train is increasing
(Unit: Trill. KRW, %)
’94
’97
’01
’04
'08
'09
'11
Total (in Trill KRW)
4.5
8.3
12.5
13.6
13.2
17.0
14.5
Road (%)
62.6
62.3
64.6
58.3
52.7
52.8
50.6
Rail (%)
7.3
9.0
14.9
16.8
17.0
19.6
26.3
Urban Metro (%)
14.2
10.0
7.6
6.6
10.3
10.3
7.8
Airport (%)
7.1
7.4
2.7
2.7
1.7
0.5
6.0
Seaport (%)
8.8
11.2
8.1
12.4
13.1
10.5
9.3
Inter-jurisdictional(%)
-
-
2.0
3.3
5.2
6.2
-
Total
100.0
100.0
100.0
100.0
100.0
100.0
100.0
32

34. TFSA – Trend of Sector Allocation in Amount
(Unit: Trill. KRW)
25,000
20,000
Road
15,000
Rail
Metro
Seaport
Airport
10,000
Water
Sum
5,000
1970
33
1975
1980
Note: MTLM expenditure only
1985
1990
1995
2000
2005
2010

35. SOEs(State Owned Enterprises) - SOE Bonds
 SOEs have been playing important role as planning authorities and
service delivery entities

SOEs are strong planning authority and service delivery entities that can
construct, operate and maintain the infrastructure effectively in different sectors
 They are responsible for providing public services at a fair market price
 From 1989, issuing SOE bonds were promoted to fund infrastructure
construction and management plans

For example, the Korea Expressway Corporation (KEC) was founded in 1969
for expressway construction, expansion, repair and maintenance
 Before 1988, the government budget primarily took care of construction
projects and the KEC only provided management service
 After 1989, the KEC received a considerable level of autonomy in managing
its own budget and implementing projects. It also contributed to the process
of making comprehensive national development plans which to helped to
smooth the implementation
34

36. SOEs – Transportation Infra Related SOEs
Foundation
Korea Expressway Co.
Duties
1969
Expressway construction and maintenance
Korea Land and Housing Co.
2009
Land development and public housing supply.
Merger of Korea Land Co (1975) and Korea
Nat’l Housing Co.(1962)
Korea Water Resources Co.
1967
Construction of dams and regional water supply
network
Korea Rail Network Authority
2004
Planning and construction of railroad network
Korea Railroad
2005
Delivery of railroad services including KTX
Port Authorities in Busan,
Incheon, Ulsan and Yeosu
2004, 2005
2007, 1990
Planning, construction and promotion of
respective ports
Incheon Airport
1999
Planning, construction and operation of Incheon
International Airport
Korea Airports Co.
2002
Planning, construction and operation of Gimpo
and local airports
35

37. PPP - Legal Framework
 In 1994, PPP Act was legislated (along with TFSA) because the
‘Infrastructure Gap’ was regarded as a main barrier of economic
growth in the early 1990s
 In 1999, PPP Act was amended to promote PPP market


Local financial sector was not matured enough to provide project financing
Lost momentum in the wake of the Asian Financial Crisis in 1997 ~ 8
 In 2005, PPP Act was re-amended to strengthen fiscal discipline
Enactment
Aug. 1994
『The Private Capital Inducement Promotion Act』
『The Act on Private Participation in Infrastructure 』
Revision
Jan. 1999
Amendment
Jan. 2005
36
· Unsolicited proposals, Minimum Revenue Guarantee
· MRG abolished (unsolicited in 2006/ solicited in 2009)
『The Act on Private Participation in Infrastructure 』
· Diversified PPP-eligible Facility Types (35 -> 44)
· Introduction of BTL Scheme

38. PPP - Legal Framework
 Hierarchy of legal framework of the PPP System
 PPP Act
 PPP Act Enforcement Decrees
 Annual PPP Basic Plan
 PPP Implementation Guidelines
 The Legal Status of the PPP Act
 The PPP Act and its Enforcement Decrees are the principal components of the
legal framework of PPP
 Eligible infrastructure types, Procurement types, Procurement process,
Roles of the public and private parties, etc
 The PPP Act is a special Act that precedes other Acts
 Exempts PPP projects from strict regulations on land acquisition
 Allows an SPC to play the role of competent authorities
37

39. PPP – Track Record
 As of 2012, Korea had 633 PPP Projects either in construction or in
operation status, total value being 85 bil USD
 209 BOT and BOO projects (60.4 bil USD of investment)
 424 BTL projects (24.5 bil USD of investment)
BTO & BOO
BTL
mil USD
60.4 bil USD
mil USD
24.5 bil USD
(*) All the figures are contract basis and thus real investment balance may be different
38

40. PPP – Track Record
 The infrastructure investments through PPP dramatically increased
from 1999 to 2007, since then the trend has been stabilized
 MRG was abolished in 2006, and financial crisis occurred in 2008
 As considerable level of infrastructure are equipped, growth ratio of PPP
investment began to decrease
Number
bil USD
39
(*) All the figures are contract basis and thus real investment balance may be different

41. PPP – Contribution to Government Budget
 PPP has alleviated the government’s burden on infrastructure
investment from 5% to 36% per year ( Average: 21% per year )
 The promotion of PPP has helped ease constraints on the government’s
financial resources, enabling it to secure resources for sectors other than SOC
bil USD
40
% of PPP
(*) All the figures are contract basis and thus real investment balance may be different

42. Part-04
Lessons Learned

43. Lessons Learned – Linkage to Economic Development
 Government identified that infrastructure are needed to support
economic development

Economic planning ministry played an important role in the decision–making
process for infrastructure investment

For infrastructure investment at the early stage of economic development
strong political leadership is critical
 Capability to adjust infrastructure investment along with the
economic development stage

The infrastructure investment has been allocated to meet economic and social
needs, often over short periods of time in Korea
 Infrastructure development was guided by a strategic vision of
economic development

42
Continuous commitment to high quality infrastructure was possible by a longterm vision which was to maintain the competitiveness in export markets, and
to support more balanced social development

44. Lessons – Infrastructure Funding
 Earmarked transport tax and creation of special account for
infrastructure development may be effective

Government-wide consensus is necessary

If not aligned with government (economic) policy goal, the MOSF tends to be
against setting a special account which would out of its control
 SOEs can play an important role as service delivery entities and
funding sources for infrastructure through SOE bonds

SOEs can be strong planning authorities and service delivery entities that can
fund, construct, operate and maintain infrastructure effectively in each sector
 PPP could be one of the solutions, but Capacity building is a
prerequisite for PPP


43
PPP can save lifetime cost by bringing private sector’s efficiency (VFM)
PPP may ease the constraints on the government’s financial resources However,
in many instances, public and private can be in negative sum situation rather
than positive-sum PARTNERSHIP situation

45. Lessons – Infrastructure Funding
 Infrastructure management as well as infrastructure funding is crucial
to enhance fiscal efficiency

Increasing role of MOSF in infrastructure investment could strengthen fiscal
efficiency
 Regionalizing the investment and management function of
infrastructure may be more effective than centralized control

Inefficiency or moral hazard may occur in budgeting and managing infrastructure
development process if central government controls all budget, while local
government just propose and manage projects

It may be efficient to enable municipal government to raise tax and to develop
investment plan
 To sustain infrastructure development in a long term, government
Think-Tank is a practical device
44