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V. Private Sector Participation
1. The Legal and Regulatory Framework for Private Participation in Infrastructure
As limited budget of the Government poses restraints in meeting the infrastructure demands of society, such demands can be met by inducing investment for infrastructure facilities from the private sector. Through PPI, it is possible to overcome the shortage of government funding, while providing high quality user-oriented services.
Private Participation in Infrastructure(PPI) system was first introduced in August 1994 with the enactment of 「The Promotion of Private Capital into Social Overhead Capital Investment Act.」 Overall revision into 「Act on Private Participation in Infrastructure」(PPI Act) took place in December 1998. Revised Act allowed diverse PPI implementation schemes and introduced risk sharing mechanisms such as Minimum Revenue Guarantee (MRG), Buyout right, etc.
The second amendment of PPI Act was made to expand eligible facilities for PPI to social infrastructure facilities such as education, defense, culture, and welfare facilities. At the same time, PPI Act introduced Build-Transfer-Lease (BTL) scheme to enable private investment in social infrastructure.
The PPI Act and the Enforcement Decree are constantly being revised according to market environment, social needs, and other relevant changes. Additionally, the Basic Plans and implementation guidelines that address government policy direction and procurement steps are also being updated.
2. Implementation Procedure
Basic Plan for PPI regulates procurement steps for solicited project and unsolicited project. In a solicited project, the competent authority identifies a target project for private investment and announces a RFP (Request for Proposal), based on which the project is pursued according to a set of procedures which includes the designation of a concessionaire. Conversely, in an unsolicited project, a private company (project proponent) submits a project proposal, which the competent authority examines and designates as a PPI project. Then, the project is announced for alternate proposals and the concessionaire is designed after evaluation managed by the competent authority.
<Figure V-1> Implementation steps for solicited projects
< Figure V-2> Implementation steps for unsolicited projects
3. Governmental Support
Korean Government offers various financial support and tax incentives to attract and secure private sector participation in financing infrastructure projects. Government can provide construction subsidy when necessary to maintain a certain level of user fee. Additionally, in order to minimize revenue risk of private investors, minimum revenue guarantee (MRG) may be provided up to 65~75% of projected operational revenue for specified period. Tax incentives ranges from easing of corporation tax related to PPI projects, application of 0% value-added tax on PPI facilities, and reduction of acquisition tax, registration tax, and local tax.
Governmental support also includes supporting the acquisition of land, security of buyout right, and compensation upon termination of the contract. Additionally, the Government established Infrastructure Credit Guarantee Fund to mitigate private sector risks and to enhance the timely payment of debt service by providing credit guarantee.
4. Key Government Agencies
The Ministry of Planning and Budget, which is responsible for the development and implementation of national fiscal policies, is a central body which administers PPI Act and national PPI program. The major roles of MPB include developing primary PPI policies and guidelines, coordinating and establishing comprehensive PPI investment plans, and holding PPI
Committee.
Procuring ministries such as Ministry of Construction and Transportation, Ministry of Education and Human Resource Development, Ministry of Maritime Affairs and Fisheries, and Ministry of Environment are responsible for establishing and coordinating sector-specific investment plans as they implement, manage and monitor sectoral PPI projects.
Public and Private Infrastructure Investment Management Center (PIMAC), which was founded in accordance with the PPI Act, conducts researches for formulating PPI policies and guidelines, provides technical support for PPI program implementation, concession negotiations and bid evaluations, and so on.
