2011 JOINT CONSULTING PROJECTS WITH WB Case Studies of Korea’s Public-Private Partnership 1 2011 JOINT CONSULTING PROJECTS WITH World Bank (WB) 1. Overview 1.1. Project Background and Objective 1.1.1. Project background Between 2004 and 2011, the Korean Ministry of Strategy and Finance (MOSF) had provided customized policy consulting services for nearly 300 projects in 34 countries as part of the Knowledge Sharing Program (KSP). In 2011, the MOSF newly launched KSP joint consulting with Multilateral Development Banks (MDBs)1, developing the former bilateral partnership (between Korea and a partner country) to a trilateral partnership (among Korea, international organizations and a partner country). In this process, the MOSF concluded a memorandum of understanding (MOU) with five MDBs and established a foundation for joint consulting. In accordance with the MOU, the MOSF implemented KSP joint consulting through discussion with the MDBs including WB, ADB and IDB. KSP is a development partnership project that facilitates economic and social growth of developing countries by sharing Korea's experiences; offering policy research, consulting service and training programs customized to the recipient countries' demand and conditions; and supporting their institution-building and capacity-building efforts. The trilateral KSP, developed from the bilateral KSP, can benefit from regional expertise of the MDBs as well as Korea's experiences of economic development and provide customized consulting service to countries in need. Therefore, it will create synergy effects and deepen a cooperative partnership with the MDBs and with developing countries. 1.1.2. Project objective As part of KSP-MDB joint consulting project, the MOSF and World Bank Institute (WBI) 2 agreed to conduct case studies of successful Public Private Partnership (PPP) in Korea. 1 Multilateral Development Banks, MDBs: World Bank, Asian Development Bank, Inter-American Development Bank, Africa Development Bank, European Bank for Reconstruction and Development 2 1) Multilateral Development Banks, MDBs: World Bank, Asian Development Bank, Inter-American Development Bank, Africa Development Bank, European Bank for Reconstruction and Development 2) World Bank Institute (WBI) is dedicated to capacity-building, and provides training, policy consulting and technical support for government officials, policy makers and developers of developing countries. 1 2011 JOINT CONSULTING PROJECTS WITH World Bank (WB) The MOSF will mostly work with WB, ADB and IDB to provide policy consultation to developing countries, enhance their understanding of the policy-making process and its outcomes. Also, the MOSF will standardize specific systems and projects that could be a benchmark for the developing countries and utilize the data as references for policy consultation. Leadership for development (L4D) of WBI is an educational training program that suggests concrete solutions and a leadership model on the issue of policy reforms and policy implementation in developing countries in consideration of their needs and social contexts. It adopts a comparative viewpoint at a global level and enhances trickle-down effect of policy consultation. The KSP Joint Consulting Project with International Organizations aims to share Korean development experiences with developing countries and support their PPP implementation through Korea's PPP case studies in conjunction with the L4D program. 1.2. Project Overview 1.2.1. Project outline This KSP project is implemented in two phases, and the project outline is as follows. Project name : KSP Joint Consulting with International Organizations Projects : Case studies in 3 areas out of road, railway and waste water treatment plant where Korea has successful experiences and expertise. Partner countries: Vietnam, The Philippines, Laos, Mongolia, Kazakhstan Project period (phase 1) : Oct. 17, 2011 ~ Feb. 19, 2012 Phase 2: Officials from the recipient countries will be invited to a training and workshop in Korea in May, 2012. 1.2.2. Project scope The project covers the following areas to perform case studies of successful PPP projects in Korea and provide customized consulting service to the partner country. Overall analysis of a project including background, project model and key factors Conflict-resolution factors for successful project implementation Local survey on PPP projects through data search and interviews Customized consulting service based on survey results 2 Case Studies of Korea’s Public-Private Partnership 2. Public Private Partnership in Korea 2.1. Background and Basic Concepts 2.1.1. Background Since the 1960s, Korea has adopted export-oriented growth strategy. Since the 1990s, the Korean economy faced problems of insufficient social overhead capital (SOC) infrastructure such as roads, railway and environmental facilities due to compressed economic growth. This threatened to undermine the national competitiveness, and there was a limitation in increasing government spending as the SOC infrastructure required a great amount of investment. To address this problem, the Korean government sought to attract private capital for SOC infrastructure that can apply user-pay-principle. It subsequently enacted the Promotion of Private Capital into Social Overhead Capital Investment Act in August 1994, giving an impetus to private-public partnership (PPP) projects in Korea. 2.1.2. Basic concepts Public private partnership (PPP) engages private sector participants in building and managing public infrastructure such as roads, railway and environmental facilities to benefit from the creative approaches and efficiency of the private sector. PPP involves a contract between a public sector authority and a private party. A Special Project Company (SPC) constructs a facility with private capital, and donates it to the competent authority, which grants management and operation right to the SPC in return. Typically, a SPC consists of a design company, a construction company, an operating and management company, and a finance company. Cooperation between the public and private sectors are critical for successful implementation of a project. 3 2011 JOINT CONSULTING PROJECTS WITH World Bank (WB) Figure 1 Structure of PPP 2.2. Competent Laws and Government Support 2.2.1. Revision history of competent laws on PPP This section describes the history of laws related to PPP in Korea, which can be largely divided into the periods before and after the Act on Private Participation in Infrastructure ("PPI Act"). (1) Before enactment of Act on Private Participation in Infrastructure (until 1994) Private investment was mostly made in BTO format based on individual acts such as Toll Road Act, Harbor Act. (2) Enactment of the Promotion of Private Capital into Social Overhead Capital Investment Act (Aug. 1994) The purpose was to mitigate government budget constraint and promote private participation in infrastructure. It established a legal foundation to attract private participation. The qualified facilities were divided into Type 1 and Type 2 (discontinued in 1998) (3) Revision to the Act on Private Participation in infrastructure (Jan. 1999) The purpose was to further promote investment following a global financial crisis in 1998. It allowed unsolicited proposals from the private sector. It established a risk-sharing framework by guaranteeing minimum operating revenue (4) Revision to Act on Public-Private Partnerships in Infrastructure ("the PPPI Act") (Jan. 2005) BTL (Build-Transfer-Lease) model was newly adopted. The projects expanded to include schools, military accommodations and other living facilities. The investor base also expanded with publicly raised infrastructure fund. (5) Re-revision of Act on Public-Private Partnerships in Infrastructure (Dec. 2008, Mar. 2009) The eligible projects expanded to be designated by the Presidential Decree. 4 Case Studies of Korea’s Public-Private Partnership Strict supervision of BTL projects by the National Assembly (prior approval): The Act was revised to require submission of a total budget and reserve budget of a BTL project in advance. The eligible projects included professional sports facilities as infrastructure. 2.2.2. Legal framework of PPP The legal and administrative frameworks for PPP in Korea are laid out in the Act on Public-Private Partnerships in Infrastructure; Enforcement Decree of the Act on Public-Private Partnerships in Infrastructure; and the Basic Plan for PPP. The PPPI Act overrides other regulations and forms a legal basis of PPP along with the Enforcement Decree. Based on the PPPI Act, exceptions can be made from the strict stipulations of public asset management, and the Act grants the SPC the roles of the competent authority. (1) Act on Public-Private Partnerships in Infrastructure The Act provides general description of the qualified facilities, implementation methods and processes, support systems, operation and supervision, sanctions related to private sector investment; it also works as a special law that overrides other related regulations on PPP. (2) Basic Plan for PPP This is established by the Minister of Strategy and Finance in consultation with heads of the central administrative organizations and review of the private investment committee, based on Article 7 of the PPPI Act and Article 5 of the Enforcement Decree. Along with the Act and the Decree, the basic planning provides guidelines for private sector investment. 2.2.3. Basic plan for PPP project and guidelines The MOSF establishes