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

1. Developing PPP
- Where to begin ? -
Kangsoo Kim
Executive Director
Public and Private Infrastructure Investment M anagement
Center (PIM AC)
7 th Annual meeting of senior PPP
officials
OECD Conference center, Paris
February 2014

2. PPP Track Record of Korea
The infrastructure investment of Korea through PPP dramatically increased from
1999 to 2007, since then the trend has been stabilized
Number
bil USD
(*) All the figures are contract basis and thus real investment balance may be different
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3. Social consensus on ‘user- pay principle’ and ‘PPP’
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)
Toll Road by Ownership
Km
(* ) ‘The First H an Riverside Road’ was completed in 1967 as the first toll road, and since then, other major turnpikes
such as Kyung- In, Kyung- Bu, H oN am Express Ways were constructed
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4. What happened during the late 90s in Korea?
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)
 PPP u n i t
Korea Credit Guarantee Fund for
PPP was established (‘94)
 Fi n an c i al m ar k et
KDB’s PF
commencement (‘95)
MRG support
Enactment (‘94):
‘The Act on Promotion of
Private Capital into Social
Overhead Capital Investment’
 Ri s k Sh ar i n g
Revision (‘99):
‘The Act on Public-Private
Partnerships in Infrastructure’
 L eg al Fo u n d at i o n s
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5. Legal Foundation (1)
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
Enactment
Aug. 1994
The Act on Promotion of
Private Capital into Social
Overhead Capital Investment
In tro d u ctio n
of PPP leg al fram ew o rk
Revision
Amendment
Jan. 1999
The Act on Public-Private
Partnerships in Infrastructure
Jan. 2005
The Act on Public-Private
Partnerships in Infrastructure
Go vern m en t
su p p o rt m easu res
sh arin g m ech an ism (Min im u m
Reven u e Gu aran tee)
Un so licited p ro p o sals allo w ed
Risk
In tro d u ctio n of BTL m eth o d
(ed u cation facilities, m ilitary resid ences,
en viro n m ental facilities, etc.)
Bro ad en ran g e o f PPP p ro ject facility
typ es
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6. Legal Foundation (2)
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
Hierarchy of PPP legal and administrative framew ork
1. PPP Act
2. Enforcement Decree on PPP Act
3. Basic Plans for PPP
4. Implementation Guidelines
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7. Risk Sharing Scheme
“ 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
-
N ew investment risk
sharing scheme (* )
Tax
-
Tax exemption
Termination
Land
Funding
Termination payment
Land acquisition work by
government agent
Free use of
state owned land
Infrastructure credit guarantee fund
(* ) Introduced in substitution for M RG(M inimum Revenue Guarantee), and eligible for only solicited BTO project
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8. Financial M arket(1) – Korea Development Bank
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’(N ov. 95) and ‘InCheon N ew 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)
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9. Financial M arket(2) - Korea Credit Guarantee Fund
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)
(Source : KO DIT homepage)
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10. Professional PPP Unit - PIM AC
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
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
(87 staff members in 3 divisions)
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11. Integration of PIM (Public Investment M anagement) and PPP
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
Integration of PPP into whole budget management/ planning process
Each line ministries &
Municipal governments
Ministry of Finance and
Strategy
The Act on Promotion of
Private Capital into Social
Overhead Capital Investment
The Act on Public- Private
Partnerships in Infrastructure
Independent / closely cooperate
PICKO (PPP)
PIMA (PIM)
PIMAC (PIM & PPP)
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12. Lessons Learned
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
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13. Website: www.pimac.org
Contact: pimac@kdi.re.kr
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