PPP Project Identification and Screening 7/11/2018 PPP Project Identification and Screening Republic of Korea Hyeyoung Kim, Principal Policy Advisor 11/7/2018 With thankful acknowledgement of valuable resourecs from KDI PIMAC

Global Infrastructure Hub 7/11/2018 Global Infrastructure Hub A G20 organisation Independent organisation established by the G20 to increase the flow and quality of infrastructure investment opportunities in all countries Staffed by infrastructure specialists from the public and private sectors of various countries Funded by Australia United Kingdom Saudi Arabia Republic of Korea People’s Republic of China New Zealand Singapore Mexico

Our mandate An ambitious program 7/11/2018 Our mandate An ambitious program Launched by the G20, the Global Infrastructure Hub is mandated to grow the global pipeline of quality, bankable infrastructure projects. We have the ambitious goal to increase the flow and the quality of opportunities for private and public infrastructure investment in G20 and non-G20 countries by: facilitating knowledge sharing; highlighting reform opportunities; and connecting the public and private sectors. Our size, independence, unique mix of expertise, and our international scope gives us speed and agility.

Contents Background Overview Project Identification 7/11/2018 Contents Background Overview Project Identification Feasibility Assessment VFM Assessment Conclusion With thankful acknowledgement of valuable resources of Korea Development Institute With thankful acknowledgement of valuable resourecs from KDI PIMAC

Background Legal Inception of PPPs PPP Implementation type 7/11/2018 Background PPPs in Korea Legal Inception of PPPs In 1994, Act for the Promotion of Private Capital Investment in Social Overhead Capital Revised to Act for PPP in Infrastructure in 1999 (1999 PPP Act) PPP Implementation type User-Pay type : mainly Build –Transfer-Operate (‘BTO’), also BOT or BOO Government-Pay type : Build –Transfer-Lease(‘BTL’) Size of PPP delivery 684 Projects (1994~2015) Majority (number, investment size) is in transport sector PPP Policy Statement PPP Basic Plan Annual announcement by Ministry of Strategy and Finance (MOSF) PPP Unit Korea Development Institute Public and Private Infrastructure Investment Management Center (KDI PIMAC) Sources of PIMAC Authority PPP Act creates PIMAC Preliminary Feasibility Study for public financing projects under the National Finance Act With thankful acknowledgement of valuable resources of Korea Development Institute With thankful acknowledgement of valuable resourecs from KDI PIMAC

Overview Project Identification Feasibility Assessment VFM Assessment 7/11/2018 Overview VFM Assessment PIMAC's appraisal & Establishing PFI alternative Feasibility Assessment PIMAC 's screening Analytic Hierarchy Process-based decision-making process (Economic, Policy, Balanced Regional Development Analysis) Project Identification Solicited Projects : line ministry’s infrastructure planning or MOSF’s PFS for budget allocation Unsolicited projects With thankful acknowledgement of valuable resourecs from KDI PIMAC

Infrastructure Plans (Ministry of Land, Infrastructure and Transport) 7/11/2018 Project Identification PPP solicited project (1) by Line Ministry Infrastructure Plans (Ministry of Land, Infrastructure and Transport) PPP Unit (KDI PIMAC) (Transport) National Core Transport Network Plan, Mid-Term Investment Plan, Sector Infrastructure Plan (Road, Railway, etc.) Investment priority Building of project pipelines Seeking for Investment efficiency through PPP alternatives (Methodology) Guidelines for the Evaluation of Investments in Public Transport Facilities Development Projects Feasibility test based on Economic analysis and comprehensive evaluations Financial feasibility for PPP Final analysis for PPP identification Large Scale Above Preliminary Feasibility Study threshold Unified Methodology in Feasibility Assessment as PFS for public financing Economic, Policy, Balanced regional development analysis Suitability for PPP Financial analysis VFM With thankful acknowledgement of valuable resourecs from KDI PIMAC

Budget allocation(Ministry of Strategy and Finance) 7/11/2018 Project Identification PPP solicited project (2) during budget allocation Budget allocation(Ministry of Strategy and Finance) PPP Unit(KDI PIMAC) PFS for large construction works under the National Finance Act. Linkage between budget process and PPP identification (MOSF) Should request for PPP suitability opinion to KDI PIMAC in conjunction with PFS (PIMAC) Mandatory process during PFS to review whether PFI alternative is more efficient PFS & PPP project analysis Same methodology for feasibility assessment Suitability for PPP(previously) (previously) Checklist Level 1 ; Feasibility in law and policy, PPP implementation method, Level 2 ; Ease of management, Creativity and efficiency, Risk distribution, Effects on public sector) (recent arrangement) mandatory VFM assessment during PFS in addition to checklist With thankful acknowledgement of valuable resourecs from KDI PIMAC

Project Identification 7/11/2018 Project Identification Unsolicited Project Private party Considering Infrastructure plan and project pipeline Voluntary search for PPP projects Business judgement Competent Authority May reject the proposals in exceptional case when the proposals are not complying with upper-level of plans or policy Should send proposals to PIMAC for review KDI PIMAC Feasibility decision from national economy perspective ; same as PFS Same analysis methodology as solicited projects Line ministry With thankful acknowledgement of valuable resourecs from KDI PIMAC

Feasibility Assessment 7/11/2018 Feasibility Assessment PIMAC’s screening Both solicited and unsolicited project Large-scale Solicited Project Total project cost with at least 200 billion KRW (approx. 170million USD) for BTO or 100 billion KRW for BTL Solicited Projects above PFS Threshold Total project cost with at least 50 billion KRW, of which at least 30 billion KRW is to be subsidized by the State. d Project All unsolicited projects Gatekeeping, decisive phase whether to invest With thankful acknowledgement of valuable resourecs from KDI PIMAC

Feasibility Assessment 7/11/2018 Feasibility Assessment Analysis of Economic, Policy and Balanced Regional Development Participants : PIMAC members (Project manager and research associate) (2), Outside experts (Cost, Benefit analysis) (2), Independent advisors (1or 2) Structured decision-making tools to collaborate quantitative and qualitative elements Quantitative elements : B/C ratio, Balanced Regional Development Qualitative elements : Policy analysis Analysis and Decision-making based on Analytic Hierarchy Process(AHP) With thankful acknowledgement of valuable resourecs from KDI PIMAC

Feasibility Assessment 7/11/2018 Feasibility Assessment Structuring an Analytic Hierarchy Process Overall Feasibility Economic Analysis Policy Analysis Consistency with higher level of plans Conformity with relevant plans Strong political Will Preparation degree Project Risks Availability of funding Environmental Impact Impact on Employment Balanced Regional Development Analysis Level of regional development Ripple effect on regional economy Level 1 Level 2 Level 3 (*Translated from KDI PIMAC PFS Guideline With thankful acknowledgement of valuable resources of Korea Development Institute With thankful acknowledgement of valuable resourecs from KDI PIMAC

Feasibility Assessment 7/11/2018 Feasibility Assessment How each analysis element is weighted and scored for AHP Economic Analysis Benefit –Cost ratio (IRR, NPV) Policy Analysis Consistency of relevant plans and policy Risks in project implementation Effect on employment Balanced Regional Development Regional development index Ripple effect on regional economy 40-50% 25-35% 20-30% Quantitative analysis Higher score for - higher B/C ratio Qualitative analysis Higher score for high consistency, strong will and well-preparedness less obstacle in funding and environment higher effect on employment Quantitative analysis Higher score for - less developed region - higher added value With thankful acknowledgement of valuable resourecs from KDI PIMAC

Feasibility Assessment 7/11/2018 Feasibility Assessment Overall feasibility decision in AHP Feasibility assessment is based on the consistency between evaluators and AHP scores. If 6 evaluators all agree with the project implementation and AHP score is higher than 0.5 : the project is feasible If only 3 evaluators agree with the project while 3 evaluators don’t agree with the project implementation, the AHP score should be much higher than 0.58 to be feasible. If Project is assessed as feasible in Feasibility Assessment stage, then subject to VFM assessment To avoid arbitrary decisions Organize 6 evaluator’s responses among 8 - evaluators consist of senior-level experts (demand, cost estimation) who participates to an Economic analysis, PIMAC members(project manager and executives) and independent advisers Excluding the highest and the lowest evaluators. With thankful acknowledgement of valuable resourecs from KDI PIMAC

VFM Assessment Quantitative VFM 7/11/2018 VFM Assessment Quantitative VFM In quantitative VFM, if the total government’s cost under PFI incurs less than that under PSC, it is decided that PFI has “Value for Money”. The government base cost under the PSC and PFI are compared and for fair comparison, some risk adjustment is made. For example, - The risks related to the cost overrun which incurs under the traditional procurement are quantified to the PSC. PFI in unsolicited project is adopted from private party’s proposal, however demand is re-estimated and applied to PFI so that PIMAC can analyze how much governmental cost would incur. With thankful acknowledgement of valuable resourecs from KDI PIMAC

VFM Assessment Qualitative VFM analysis Eligibility for PPP 7/11/2018 VFM Assessment Qualitative VFM analysis Eligibility for PPP -Is included in the eligible infrastructure facilities indicated in Article 2 of PPP Act? - Does it comply with the national infrastructure plan or national investment policy? - Line ministry’s will and preparedness to implement (manage or supervise) the project - Objective of the project clearly stated? - Output specification of the performance of the project clearly presented? - Does it have the performance enhanced in comparison with conventional procurement? - Effective management under a PPP contract? Effectiveness and public interest - Does it induce competition? -Independent management or operation of existing infrastructure facilities -Is another option available to users other than using user-fee facilities? With thankful acknowledgement of valuable resourecs from KDI PIMAC

VFM Assessment Qualitative VFM analysis 7/11/2018 VFM Assessment Qualitative VFM analysis Facilitation of PPP implementation - Political, social, environmental aspects of a PPP project - Does the project produce excessive or unfair benefit or burden to any party? Impact of risk allocation - Risk allocation to the private partner? Ripple effect - Does project influence on greater competition? - Private partner’s influence on financial market by introducing more developed financing skills? Unique characteristics - Infringement of the protected intellectual property rights - National security issues related to project With thankful acknowledgement of valuable resourecs from KDI PIMAC

Conclusion Key features Unified framework between Public and Private Financing project in Feasibility Assessment Provide a clear justification to a PPP project Fairly judge both traditional and PPP project Approaches based on social and economic value to the Country Unified framework between Public and Private financing Project in Identification phase Economic analysis and Policy consideration applied to both Linkage between project identification and financial management Mid-term investment plan by line ministry should be consistent with National Finance Management Plan by MOSF Independent PPP unit Continuous research on Quantitative analysis Supplement of Qualitative analysis for overall credibility and justification With thankful acknowledgement of valuable resources of Korea Development Institute

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