April. 2010

YooYoo, Sung , Sung KullKullDeputy Minister of Strategy and FinanceDeputy Minister of Strategy and Finance

Republic of KoreaRepublic of Korea

KoreaKorea’’s Case of Publics Case of Public--Private Partnerships Private Partnerships for Infrastructure Developmentfor Infrastructure Development

Overview of PPP in KoreaOverview of PPP in Korea

Performance HighlightsPerformance Highlights

Table of ContentsTable of Contents

Financial Crisis & Gov’t ResponsesFinancial Crisis & Gov’t Responses

PPP Prospects in KoreaPPP Prospects in Korea

.. Overview of PPP in KoreaOverview of PPP in Korea

** PPP Guideline is issued to provide PPP policy direction and implementation guidance

The Private Capital InducementPromotion Act

The Act on Public-Private Partnershipsin Infrastructure

· Risk Sharing, Minimum Revenue Guarantee

EnactmentAug. 1994

The Act on Public-Private Partnerships in Infrastructure· Expansion of Facility Types· Introduction of BTL Scheme· Diversification of Investor Profile (Infra. Fund)

RevisionDec. 1998

AmendmentJan. 2005

History of PPP in LegislationHistory of PPP in Legislation

- BTOBTOBTO

Build - Transfer - OperateConstruction by the private sectorOwnership transferred to governmentOperation by the private sector

IRR is determined through negotiation(8~15%)

-

Build - Transfer - LeaseConstruction by the private sectorOwnership transferred to governmentLease and payment by the government

IRR = Reference rate (government bond) + (80~100bp)

BTLBTLBTL

Implementation SchemeImplementation Scheme

Others : BOT, BOO, etc.

Transfers Ownership

delivers Service

Fees(If necessary)

Lease payments

User Government

Private Participant(SPC)

Transfers Ownership

Grantsoperating rights

delivers Service

Pays usage fee

Government

Private Participant(SPC)

User

BTOBTO BTLBTL

There are 48 types of infrastructure facilities in 15sectors specified by the PPP Act

Available Facility TypesAvailable Facility Types

Road(4)

15 Categories

* Positive listing

Rail(3)

Port(3)

Airport(1)

Communication(5)

WaterResources

(3)Energy

(4) Environment(5)

Logistics(2)

Culture & Tourism(9)

Military Housing(1)

Education(1)

Forestry(2)

PublicHousing

(1)

Welfare(4)

Signed PPP Projects in Korea(As of Dec 2009, Nationally(As of Dec 2009, Nationally--Managed Projects only)Managed Projects only)

TOTAL

(# of projects)Project Cost

(USD) %

Completed In construction In preparation

TOTAL(414)

61.7 bn(100%)100%

(188)23.9 bn

(163)24.9 bn

(63)12.9 bn

Central Government

(116)38.1 bn

(28.0%)61.7%

(40)16.9 bn

(42)10.5 bn

(34)10.7 bn

Competent Authority

LocalGovernment

(298)23.6 bn

(72.0%)38.3%

(148)6.8 bn

(121)14.6 bn

(29)2.2 bn

BTO(75)

44.8 bn(18.1%)72.7%

(33)18.9 bn

(30)17.3 bn

(12)8.6 bn

Project Type

BTL(339)

16.8 bn(81.9%)27.2%

(155)5.0 bn

(133)7.6 bn

(51)4.2 bn

Road (25.8bn)Port (5.4bn)

Rail (10.2bn)

Others (3.4bn us$)7.9%

11.9%

22.7%

57.5%

Sector Analysis :Sector Analysis :

BTOBTOBTOTotal project costs of signedBTO as of Dec 2009 amountto 44.8 billion US$

BTLBTLBTLTotal project costs of signedBTL as of Dec 2009 amountto 16.8 billion US$

Educationalfacilities(6.2bn)

Environmentalfacilities(4.7bn)

Cultural, Welfare, etc.(1.3bn us$)

28.1%

14.3%

37%

7.6%

13%

Military (2.4bn)

Railway (2.2bn)

Major Projects: BTOMajor Projects: BTOIncheon International Airport Expressway

Total Project Cost: USD 1.2 billionIRR = 9.7%(Aftertax real rate of return)Length: 40.2 km, 8 lanesCompetent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 1995 2000Operation Period: 30 years

Incheon BridgeTotal Project Cost: USD 1 billionIRR = 8.48%(Aftertax real rate of return)Length: 12.3 km, 6 lanes (21.4 km including gov’t financed access road)Competent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 2005 2009Operation Period: 30 years

Busan New Port Phase 1Total Project Cost: USD 1.4 billionIRR = 9.5%(Aftertax real rate of return)Work Scope: 9 berths (50,000 t), 3.2 kmCompetent Authority: Ministry of Land, Transport and Maritime AffairsConstruction Period: 2001 2009Operation Period: 50 years

Chungju Military Apartment HousingTotal Project Cost: USD 16.3 millionWork Scope: 200 households and convenience facilitiesCompetent Authority: Ministry of DefenseConstruction Period: 2005 2007Operation Period: 20 years

Ulsan National Institute of Science and TechnologyTotal Project Cost: USD 219 millionWork Scope: Site 1,028,200 , Total Floor Area 153,691Competent Authority: Ministry of Education, Science and TechnologyConstruction Period: 2007 2010Operation Period: 20 years

Anhwa High SchoolTotal Project Cost: USD 0.8 millionWork Scope: Site 13,264.03 , 5 storiesCompetent Authority: Gyeonggi Province Office of EducationConstruction Period: 2006 2007Operation Period: 20 years

Major Projects: BTLMajor Projects: BTL

Financial Crisis & Financial Crisis & Government ResponsesGovernment Responses

Impact of Financial Crisis on PPPImpact of Financial Crisis on PPPImpact of Financial Crisis on PPP

- Funding cost : 90 ~ 200 bp up in the second half of 2008 - Reference rate (government bond) : 50 ~ 60 bp up(or down) in the second half of 2008

BTL IRR < Funding cost

Decrease in BTL Internal Rate of Return

- Tend to avoid large scale, long-term investment due to uncertain economic prospects

- Higher premium and/or more risk-sharing by government is required

Increase in BTO Investment Risk

Failure in financial closure of projects in preparation and decline in initiation of new PPP projectsFailure in financial closure of projects in preparation and decline in initiation of new PPP projects

Rate of Return on BTO: 8~15%(No MRG since 2006)

%

Year(quarter)

BTL Rate of Return < funding cost

Trends of Funding Cost and the Rate of Return on PPP ProjectsTrends of Funding Cost and Trends of Funding Cost and the Rate of Return on PPP Projectsthe Rate of Return on PPP Projects

Government Response (1)Government Response (1)Government Response (1)

Mitigate Interest Fluctuation Risk

Change reference rate adjustment mechanismProvide assistance to excessive changes in funding cost

The 1st PPP Revitalization Measures to ease credit crunch (Feb. 09)

Provide Liquidity and Risk Mitigation

Initiate KDB BankSpecial Loan ProgramProvide Credit enhancement through Infrastructure Credit Guarantee FundLower equity ratio

Special PPP Monitoring Task Force reviews the status ofimplementations on a monthly basis

Improveproject structureImproveproject structure

Encouraging supplementary projects

Increasing coverage for Compensation on termination

Development of New Risk-Sharing Structure

Improve conditionsfor financingImprove conditionsfor financing

Improving environment for investmentRevitalizing the issuance of infra bondsStrengthening tax incentives

The 2nd PPP Revitalization Measures for favorableinvestment environment (Aug. 09)

Government Response (2)Government Response (2)Government Response (2)

PPP Prospects in KoreaPPP Prospects in Korea

Maintaining the Role of PPPsMaintaining the Role of PPPsMaintaining the Role of PPPs

Increased end-user benefit throughproviding necessary infrastructurewhen most needed.

- Aging School Facilities - Military housing/leisure facilities - Sewage/Sanitary Systems- Cultural/Welfare facilities

•Limited Fiscal Resources due to increased spending in fosteringwelfare and expanding Korea’s future growth engines

•Private Investment will continue to complement thegovernment’s limited fiscal investment in public infrastructure.

Priority based on economic viability, PPP feasibility, and bottleneck relief effect, etc

- Roads : In the most congested areas- Railway : Light-rail in congested areas- Ports: Contingent on varying commercialtraffic

Advanced EconomyAdvanced EconomyAdvanced KoreaAdvanced Korea

MOSF at the ForefrontMOSF at the Forefront

T h a n k Y o u !