1. PICKOI KRIHS Korea’s Infrastructure Market and PPI System

2. PPI Incentives Policy Guideline Policy Guideline Korean Economy & Infrastructure Market Part 1 Contents Part 3 Part 2 Private Investment Project Implementation Status Part 4 PICKOI KRIHS

3. Korean Economy & Infrastructure Market Part 1 PICKOI KRIHS

4. Korean Economy ’97’98’99’00‘01 Growth rate 5.0-6.710.99.33.0 Inflation rate 4.57.50.82.34.1 Interest rate 13.415.18.99.47.0 F/X rate 951.11398.91189.51,130.61291.1 PICKOI KRIHS

5. Estimated Infrastructure Investment Needs (2002~2011) ( unit: USD bil.,%) 11.317.3Ports 1.72.5Logistics 54.984Roads 100152.8Total 3.35Airports 28.844RailwaysRatioAmountSectors PICKOI KRIHS

6. Leading Sectors of Infrastructure   Rail & LRT   Port   Environment   Road

7. Road 200,000 km of principal roads and 10,000 km 200,000 km of principal roads and 10,000 km of high-speed arterial network planned by 2020 of high-speed arterial network planned by 2020 Annual toll of USD 1.3 bil. collected in 2000 Annual toll of USD 1.3 bil. collected in 2000 Increased participation by the private sector Increased participation by the private sector PICKOI KRIHS

8. Port  Growth particularly strong in northeast Asian trade and coastal trade trade and coastal trade  Eased congestion at ocean going container berths due to expansion of facilities in Busan berths due to expansion of facilities in Busan and Gwangyang in 1998 and Gwangyang in 1998  Due to sustained growth in trade, more facilities needed PICKOI KRIHS

9. Rail & LRT  Rail accounts for 30% of transportation mode in the greater Seoul area. in the greater Seoul area.  The first stage of ‘TGV’ style high-speed line is under construction between Seoul and Busan under construction between Seoul and Busan  Gov’t is continuing to invest heavily in Rail & LRT systems as PPI projects PICKOI KRIHS

10. Environment Increased environment budget Increased environment budget Active private participation in wastewater Active private participation in wastewater facilities facilities Trend toward private participation of water Trend toward private participation of water supply, gas generated power plant, etc. supply, gas generated power plant, etc. PICKOI KRIHS

11. Policy Guideline Part 2 PICKOI KRIHS

12. History of PPI Enactment of the Promotion of Private Capital into Social Overhead Capital Investment Act 1994 1999. 4 1999. 1 Establishment of PICKO (Private Infrastructure Investment Center of Korea) Formulation of the Ten-Year Plan for PPI 2001. 12 PICKOI KRIHS Enactment of Act on PPI

13.  Change to a Private-sector-initiated scheme in infrastructure scheme in infrastructure  Promotion of creativity and efficiency from the private sector from the private sector  Conformity to international standards for foreign capital inducement for foreign capital inducement Policy Direction PICKOI KRIHS

14. Eligible Facilities under PPI System  34 types of infrastructure facilities in 10 categories in 10 categories Road3 Railway2 Harbor3 Energy3 Environment6 Distribution3 Culture & Tourism 7 Airport1 WaterResource4 Communi - cation 2 PICKOI KRIHS

15. Concerned Authorities Concerned Authorities / PICKO Concerned /PICKO Authorities /PICKO Concerned Authorities Concerned Authorities Solicited Projects Selection of Private Investment Project Public Notification of Instruction for Proposal Submission of Project Proposal Evaluation of Proposals Plan Approval of DEDPI* Negotiation of Concession Agreement & Designation of Concessionaire  DEDPI: Detailed Engineering and Design plan for Implementation PICKOI KRIHS

16. Unsolicited Projects Project Preparation & Submission of Proposal Review of Proposal Public Notification of Proposal (No Third Party Proposals) Award Contract to Initial Bidder (More Proposals Tendered) Evaluation of all the Proposals Award Contract to Winning Bidder Negotiation of Concession Agreement PICKOI KRIHS PICKO Concerned Authorities Proposer  Concerned Authorities

17. Role of PICKO Review / Evaluate Solicited & Unsolicited Project & Unsolicited ProjectProposals ProvideAssistance in Concession Negotiations Research & Formulate & Formulate PPI Policies ProvideEducationalPrograms Promote Various Activities to Induce Foreign Investment Foreign Investment PICKO PICKOI KRIHS

18. PPI Incentives Part 3 PICKOI KRIHS

19. Project Financing Criteria  FIRR (relative to) Borrowing Rates Borrowing Rates Risk Premium Risk Premium Competitive Rates Competitive Rates  Guideline : 12~16% Type of Project Type of Project Level of Risk Level of Risk PICKOI KRIHS

20. Land Acquisition  Use of Public Land wherever Possible  Government Acquisition of Private Land Prior to Concession Prior to Concession  Use of Eminent Domain where Necessary to Enable Project Concessionaire to to Enable Project Concessionaire to Complete Land Acquisition Complete Land Acquisition PICKOI KRIHS

21. Revenue Guarantees Solicited < 90% < 80% > 110% ProponentRebate > 120%   Negotiated as Part of Project Agreement   Based on Annual Projected Revenues as follows GovernmentSubsidy PICKOI KRIHS Unsolicited

22. Tax Incentives  No acquisition and registration taxes : BOT  Application of 0% for value added tax of the facilities and construction services : BOT, BTO facilities and construction services : BOT, BTO  Tax reduction for infrastructure bonds  Reduction and exemption of various appropriation charges charges PICKOI KRIHS

23. Protection against F/X Risks  Allowable Fluctuation of ± 20%  Mitigation Measures  Adjustment of tariffs  Direct operating subsidies  Contract re-negotiation PICKOI KRIHS

24. Additional Incentives  Buyouts force majeure other specific events  There will be no adjustment in tariffs or concession period when construction cost is saved.  For solicited projects, the government covers the cost of the feasibility study, and preliminary and final design. PICKOI KRIHS

25. Private Investment Project Implementation Status Part 4 PICKOI KRIHS

26. $ 7,331 mil. (12) $ 2,061 mil. (5) $ 194 mil. (2) $ 270 mil. (4)  2000~2002 : 25 Projects Projects with Signed Concession Agreements RoadsEnvironments Ports Others ( Total : USD 12,248 mil. ) Rail & LRTs $ 2,392 mil. (2) PICKOI KRIHS

27. RoadsEnvironments $ 3,412 mil. (8) $ 984 mil. (5) $ 2,485 mil. (4) $ 138 mil. (3) ( Total : USD 8,310 mil. ) Ports Others  2000~2002 : 23 Projects Projects under Negotiation $ 1,291 mil. (3) Rail & LRTs PICKOI KRIHS

28. ( Total : USD 4,305 ml.)  2000~2002 : 10 Projects Unsolicited Projects under Review Roads Environments $ 3,764 ml. (5) $ 541 ml. (5) PICKOI KRIHS

29. The Ten-Year Plan for PPI for PPI 2002 ~ 2011

30. Part 1 PICKOI KRIHS Why the Ten-Year Plan for PPI ?

31.  Increased demand of gov’t expenditure for welfare and future investment for welfare and future investment  Increased needs of private investment in infrastructure in infrastructure  Need for a forseeable gov’t investment policies policies PICKOI KRIHS

32. Part 2 PICKOI KRIHS Infrastructure Investment Status & Prospects

33. 1. Estimated Amount of Investment in Infrastructure  Scale of infrastructure investment demand in the 10-year plan demand in the 10-year plan - USD 153 billion during the plan period - USD 153 billion during the plan period ( Approximately USD 13 to 15.3 billion per year ) ( Approximately USD 13 to 15.3 billion per year )  Estimation of government expenditure in infrastructure during the plan period in infrastructure during the plan period - USD 122.5 ~ 138.8 billion - USD 122.5 ~ 138.8 billion PICKOI KRIHS

34.  Difference of about USD 14.2 ~ 30.5 bil. (USD 1.5 ~ 3.0 billion annually) needed (USD 1.5 ~ 3.0 billion annually) needed as additional investment as additional investment : Active participation by private sector in : Active participation by private sector in infrastructure is urgently needed infrastructure is urgently needed to resolve the problem of fund shortage to resolve the problem of fund shortage 2. Private Infrastructure Investment Needs PICKOI KRIHS

35. Sectors Investment Need Governmen t Investment Private Investment Government Subsidy Roads 84 58.2 ∼ 71.113 ∼ 25.93.9 ∼ 7.8 Rails 44 30 ∼ 38.15.9 ∼ 142.4 ∼ 5.6 Ports 17.3 11.8 ∼ 14.82.5 ∼ 5.51.0 ∼ 2.2 Airports 54.6~5.00.0~0.50.0~0.2 Logistics 2.5 1.9 ∼ 2.30.3 ∼ 0.60.1 ∼ 0.1 Total 152.8 106.5 ∼ 131.321.7 ∼ 46.57.4 ∼ 15.9 3. Appropriate Distribution of Infrastructure Investment PICKOI KRIHS (USD : bil.)

36. Part 3 PICKO I KRIHS Projects to be Promoted as PPI scheme

37.  Individual feasibility studies - IRR, ROE, Toll - The level of government subsidy 1. Road Selection Criteria TypeProjects Cos t Expressway Yangpyeong-Ganam, Seoul-Chuncheon, and 8 others 8.9 National Highway Ansandong-Misandong-Mansu, Dunpo-Oseong, and 4 others 1.2 Local Roads The 3 rd Circulatory Line, West Coast Beltway 4.4 18 Projects14.5 (USD : bil.) 18 Projects : USD 14.5 billion

38.  Passenger demand  Traffic density  B/C Ratio 2. Rail Selection Criteria TypeProjectsCost Main Network Railway Bujeon-Sasang Double Track Railway, Gyeongeui Line, Gyeongwon Line 0.9 MetropolitanRailway New Bundang Line, New Ansan Line 3.1 UrbanRailway Extension of Seoul Subway Line 7, 8, 9 1.0 LRT Yongin LRT, Gangnam PRT, and 13 others 5.2 23 Projects 23 Projects10.2 (USD : bil.) 23 Projects : USD 10. 2 billion

39.  Consideration of undeveloped projects out of current harbor development plan current harbor development plan  Projects with high priority and with favorable private investment conditions private investment conditions 3. Port Selection Criteria TypeProjectsCost Trading Port Incheon North Harbor Sector 3, Gwangyang Port Sector 4-1, and 21 others 4.7 Waterfront Facility Busan Dongsam-dong Ocean Park, Ulsan Port Ocean Park, Masan Port Western Sector 0.6 Fishing Port Facility Daepo Port, Bieungdo Port 0.1 Passenger Facility Jeju Harbor Int`l Passenger Terminal 0.02 29 Projects5.4 (USD : bil.) 29 Projects : USD 5.4 billion 29 Projects : USD 5.4 billion

40.   Facilities included in Basic Plan for Sewage Completion and Rehabilitation   Facilities with high profitability   Facilities for which government subsidy plan has been confirmed or is under consideration   Facilities included in Basic Plan for Sewage Completion and Rehabilitation   Facilities with high profitability   Facilities for which government subsidy plan has been confirmed or is under consideration 4. Environment Selection Criteria

41. Type No. of Projects Cost Sewage Treatment Plant 512.5 Sewage Sludge Treatment Plants 170.2 Waste Treatment Plant 110.2 General Wastes Landfill Gas Plant 80.04 Food-Wastes Recycling Plant and Refuse Derived Fuel 20.07 89 Projects 3.0 89 projects : USD 3.0 billion 89 projects : USD 3.0 billion ( USD : bil. )

42.  Logistics : Government’s Basic Plan in Logistics  Energy : Power plants that are planned for private participation  Tourism - Regions that serve as strategic base for foreign tourism - Balanced regional development considered 5. Others Selection Criteria TypeProjectsCost Logistics Central Region Integrated Freight Terminal, Yeongnam Region Integrated Freight Terminal 0.7 Energy Dangjin(Coal), Ulsan(Orimulsion), and 11 others11.0 Tourism Capital Region Lodging, Lake Andong, and 3 others3.7 20 Projects15.4 ( USD : bil. ) 20 Projects : USD 15.4 billion 20 Projects : USD 15.4 billion

43. 6. Summary  Total Project Cost : USD 48.4 billion Classification Total Project Cost No. of Projects Government Subsidy Private Investment Roads 14.5 184.310.2 Environment Facilities 3.089 1.3 1.7 Ports 5.3292.13.2 Rails 10.2234.06.2 Total 48.4179 12.4 36.0 Other Facilities 15.4200.714.7 ( USD : bil. ) PICKOI KRIHS