MINISTRY OF STRATEGY AND FINANCE

Transcription

1 Public Notice No BASIC PLAN FOR PUBLIC-PRIVATE PARTNERSHIP PROJECTS March 29, 2011 MINISTRY OF STRATEGY AND FINANCE

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3 CONTENTS PART Ⅰ DIRECTION-SETTING FOR IMPLEMENTATION OF PUBLIC-PRIVATE PARTNERSHIP SYSTEM AND IMPLEMENTATION PLAN FOR 2011 SECTION 1 Direction-Setting for Implementation of Policy on Public-Private Partnership System 1 SECTION 2 Major Investment Plans for PART Ⅱ GENERAL GUIDELINES FOR IMPLEMENTATION OF PUBIC-PRIVATE PARTNERSHIP (PPP) PROJECTS CHAPTER Ⅰ GENERAL PROVISIONS 9 Article 1 (Purpose) 9 Article 2 (Definitions) 9 Article 3 (Types of Arrangement for PPP Projects) 11 Article 4 (General Principles for Designation of PPP Projects) 12 Article 5 (Designation of Solicited Projects) 13 Article 6 (Designation of Unsolicited Projects) 13 Article 7 (Selection of BTL PPP Projects) 13 CHAPTER Ⅱ INVESTMENT MODELS OF PPP PROJECTS 15 SECTION 1 User Fees, Total Project Cost 15 Article 8 (User Fees) 15 Article 9 (Determination of Total Project Cost) 15 Article 10 (Change of Total Project Cost) 16 SECTION 2 Determination of Rate of Return and User Fees for BTO PPP Projects 16 Article 11 (Determination of Rate of Return and User Fees) 16 Article 12 (Determination of Agreed Project Rate of Return) 18 Article 13 (Collection, etc. of User Fees) 18 Article 14 (Adjustment of User Fees) 19 - i -

4 CONTENTS SECTION 3 Determination of Government Payments, etc. for BTL PPP Projects 19 Article 15 (Determination of Government Payments) 19 Article 16 (Determination of Rent for Facilities) 19 Article 17 (Determination of Rate of Return) 20 Article 18 (Determination of Operating Costs) 20 Article 19 (Adjustment of Operating Costs) 21 Article 20 (Term of Lease of Facilities) 21 Article 21 (Disbursement of Government Payments) 21 Article 22 (Subsidization of Rent, etc. for Central Government-Subsidized Projects) 22 Article 23 (Evaluation of Performance of Services) 22 Article 24 (Deductions from Government Payments) 22 CHAPTER Ⅲ FINANCING OF PPP PROJECTS 23 Article 25 (Capital Financing by Concessionaire) 23 Article 26 (Changes of Investors) 24 Article 27 (Scope of Refinancing) 24 Article 28 (Sharing of Refinancing Gains) 25 Article 29 (Determination of Refinancing Gains) 26 Article 30 (Refinancing Procedure) 26 CHAPTER Ⅳ REASONABLE ALLOCATION OF RISKS IN PPP PROJECTS 27 Article 31 (Principles for Mitigation and Allocation of Risks) 27 Article 32 (Investment Risk Sharing System) 28 Article 33 (Procedures for Sharing Investment Risk and Recovery) 29 Article 34 (Sharing Risk of Interest Rate Changes in BTL PPP Projects) 29 Article 35 (Right to Request Buyout) 30 Article 36 (Prevention of Termination of Projects) 30 Article 37 (Determination of Compensation, etc. upon Termination) 30 - ii -

5 CONTENTS CHAPTER Ⅴ ORGANIZATIONS RELATED TO PPP PROJECTS 30 Article 38 (Committees for Review on Public-Private Partnerships) 30 Article 39 (Activities of Public and Private Infrastructure Investment Management Center) 32 Article 40 (Preparation and Publication of Detailed Guidance) 33 Article 41 (Operation, etc. of Public and Private Infrastructure Investment Management Center)34 Article 42 (Establishment, etc. of Infrastructure Credit Guarantee Fund) 34 Article 43 (Guarantee Limit) 34 Article 44 (Guarantee Fees) 34 Article 45 (Guarantee Procedure) 35 Article 46 (Management and Operation of Fund) 35 Article 47 (Assistance by Managing Agency) 35 CHAPTER Ⅵ COMPETENT AUTHORITY AND CONCESSIONAIRE 35 Article 48 (Implementation of Project by Multiple Competent Authorities) 35 Article 49 (Duties of Competent Authority) 35 Article 50 (Concessionaire) 36 CHAPTER Ⅶ MANAGEMENT AND OPERATION OF PPP PROJECTS 37 Article 51 (Management of PPP Projects) 37 Article 52 (Prevention of Defective Performance of Projects) 37 Article 53 (Guarantee of Performance of Projects and Liquidated Damages) 38 Article 54 (Maintenance and Management of Revertible Facilities) 38 Article 55 (Revocation of Designation of Concessionaire, etc.) 39 Article 56 (Revocation of Designation of Eligible Projects) 39 Article 57 (Reassessment of Estimated Demand) 39 Article 58 (Revalidation of VFM Testing of PPPs) 40 Article 59 (Review by Specialized Institutions on Changes in Financial Models of BTL PPP Projects) 40 Article 60 (Amendment of Concession Agreement) 40 CHAPTER Ⅷ SUPPLEMENTARY AND ANCILLARY PROJECTS 41 Article 61 (Development, etc. of Supplementary and Ancillary Projects) 41 Article 62 (Operation of Supplementary and Ancillary Projects, Disposition of Profits therefrom, etc.) 42 - iii -

6 CONTENTS PART Ⅲ PROCEDURE FOR IMPLEMENTATION OF PPP PROJECTS CHAPTER Ⅰ PROCEDURE FOR IMPLEMENTATION OF SOLICITED PROJECTS 43 SECTION 1 Designation of Eligible Projects 43 Article 63 (Preliminary Feasibility Study) 43 Article 64 (Preliminary VFM Testing of PPP for Prospective Government-Financed Projects)43 Article 65 (Feasibility Analysis) 44 Article 66 (Designation of Eligible PPP Projects) 45 SECTION 2 Formulation and Public Notification of Requests for Proposals 46 Article 67 (Formulation of Requests for Proposals) 46 Article 68 (Advice and Review by Public and Private Infrastructure Investment Management Center) 46 Article 69 (Contents of Requests for Proposals) 47 Article 70 (Public Notification of Requests for Proposals) 48 Article 71 (Attachment of Draft Concession Agreement) 48 Article 72 (Modified Proposal by Private Sector in Response to Requests for Proposals)48 SECTION 3 Submission of Project Plans 49 Article 73 (Project Application by Private Sector) 49 Article 74 (Contents of Project Plan) 49 Article 75 (Composition, etc. of Project Applicant) 50 SECTION 4 Review and Evaluation of Project Plans 51 Article 76 (Prequalification Examination) 51 Article 77 (Evaluation of Project Plans) 51 Article 78 (Composition of Evaluation Elements) 51 Article 79 (Allocation of Point of Evaluation and Criteria therefor) 52 Article 80 (Preferential Treatment in Evaluation of Project Plans) 52 Article 81 (Designation of Potential Concessionaire and Notification thereof) 53 - iv -

7 CONTENTS SECTION 5 Execution of Concession Agreement, Designation of Concessionaire, etc. 53 Article 82 (Designation of Concessionaire) 53 Article 83 (Essential Provisions of Concession Agreement) 54 Article 84 (Negotiation) 55 Article 85 (Utilization of Experts, etc.) 55 Article 86 (Advice and Review by Public and Private Infrastructure Investment Management Center) 55 Article 87 (Prior Consultation on Projects Subsidized by Central Government) 56 Article 88 (Validation of Total Project Cost) 56 Article 89 (Execution of Concession Agreement) 56 SECTION 6 Approval of Implementation Plans and Execution and Completion of Projects 57 Article 90 (Approval of Implementation Plans) 57 Article 91 (Confirmation of Completion) 57 CHAPTER Ⅱ PROCEDURE FOR IMPLEMENTATION OF UNSOLICITED PROJECTS 57 SECTION 1 Submission of Proposals 57 Article 92 (Project Proposals from Private Sector) 58 Article 93 (Receipt of Initial Proposal, etc.) 58 SECTION 2 Review on Contents of Proposal and Designation of Project 59 Article 94 (Review on Contents of Proposal) 59 Article 95 (Request for Review on Contents of Proposal, etc.) 59 Article 96 (Value-for-Money Test) 60 Article 97 (Collection of Opinions, Seeking Advice, etc.) 61 Article 98 (Review by Review Committee) 61 SECTION 3 Requests for Alternate Proposals 62 Article 99 (Requests for Alternate Proposals) 62 Article 100 (Contents of Requests for Alternate Proposals) 63 SECTION 4 Preferential Treatment of Initial Proponent and Evaluation of Proposals 63 Article 101 (Preferential Treatment of Initial Proponent) 64 Article 102 (Evaluation of Proposals) 64 - v -

8 CONTENTS SECTION 5 Execution of Concession Agreements, Designation of Concessionaires, etc. 65 Article 103 (Resurvey on Usage) 65 SECTION 6 Application Mutatis Mutandis of Procedure for Solicited Projects 65 Article 104 (Application Mutatis Mutandis of Procedure for Solicited Projects) 65 CHAPTER Ⅲ PROCEDURE FOR IMPLEMENTATION OF BTL PPP PROJECTS 65 SECTION 1 Establishment of Project Plans and Feasibility Analysis 65 Article 105 (Establishment of Project Plans) 65 Article 106 (Preliminary Feasibility Study) 65 Article 107 (Feasibility Analysis) 66 Article 108 (Composition and Design of Bundle Projects) 66 Article 109 (Integration of Related Facilities) 67 Article 110 (Procedure for Implementation of Complex Projects, etc.) 67 Article 111 (Extent of Participation of Private-Sector Entities) 69 SECTION 2 Submission of Project Plans and Request for Investment Ceiling 69 Article 112 (Submission of Medium-Term Project Plans) 69 Article 113 (Notification of Guidelines for Establishment of Investment Ceiling) 70 Article 114 (Request for Investment Ceiling) 70 SECTION 3 Establishment of Investment Ceiling and Deliberation and Resolution by National Assembly 70 Article 115 (Establishment of Investment Ceiling, etc.) 71 Article 116 (Change of Investment Ceiling) 71 Article 117 (Invalidation of Investment Ceiling) 72 SECTION 4 Formulation and Public Notification of Requests for Proposals 72 Article 118 (Formulation of Requests for Proposals) 72 Article 119 (Review by Public and Private Infrastructure Investment Management Center, etc. on Draft Requests for Proposals) 73 Article 120 (Preparation and Provision of Detailed Guidelines for each Type of Facility) 74 Article 121 (Designation of Eligible Projects and Public Notification of Requests for Proposals) 74 Article 122 (Provision of Information) 75 SECTION 5 Evaluation of Project Plans and Designation of Potential Concessionaire 75 Article 123 (Evaluation of Project Plans) 75 Article 124 (Allocation of Points of Evaluation and Criteria therefor) 76 Article 125 (Designation and Notification of Potential Concessionaire) 77 - vi -

9 CONTENTS SECTION 6 Execution of Concession Agreement 77 Article 126 (Direction of Settlement of Essential Terms and Conditions for Implementation of Projects) 77 Article 127 (Curtailment of Period of Negotiation) 78 Article 128 (Intentional Delay by Potential Concessionaire in Negotiation) 78 Article 129 (Review by Public and Private Infrastructure Investment Management Center, etc. on Draft Concession Agreement)78 Article 130 (Designation of Concessionaire) 79 Article 131 (Execution of Concession Agreement, etc.) 79 SECTION 7 Approval of Implementation Plan, Commencement of Works, etc. 79 Article 132 (Establishment of Corporation, etc.) 79 Article 133 (Entrustment Contracts, Subcontracts, etc. on Designing, Construction, Operation, etc.)80 Article 134 (Curtailment of Period for Approval of Implementation Plans) 80 SECTION 8 Application Mutatis Mutandis of Procedure for Solicited Projects 80 Article 135 (Application Mutatis Mutandis of Procedure for Solicited Projects) 80 PART Ⅳ SUPPLEMENTARY PROVISIONS CHAPTER Ⅰ SUPPORT OF PPP PROJECTS 81 Article 136 (Governmental Financial Support) 81 Article 137 (Exemption from Charges and Taxes) 81 Article 138 (Relaxation of Finance-Related Regulation, etc.) 81 Article 139 (Assistance in Securing Land, etc.) 82 Article 140 (Compensation for Proposal Preparation Expense) 82 CHAPTER Ⅱ CONVERSION BETWEEN GOVERNMENT-FINANCED PROJECTS AND PPP PROJECTS 83 Article 141 (Conversion of Government-Financed Projects to PPP Projects) 83 Article 142 (Conversion of PPP Projects to Government-Financed Projects) 83 CHAPTER Ⅲ REQUEST FOR AND SUBMISSION OF DATA 84 Article 143 (Request for and Submission of Data) 84 Article 144 (Designation of Identification Number for each Unit Project) 85 CHAPTER Ⅳ PROVISIONS APPLICABLE FOR LIMITED PERIOD 85 Article 145 (Exclusion from Sharing Refinancing Gains) 85 Article 146 (Special Exception to Sharing Risk of Interest Rate Changes in BTL PPP Projects) 85 Article 147 (Preferential Treatment for Early Completion) 86 Article 148 (Special Exception to Determination of Compensation on Termination) 86 - vii -

10 CONTENTS - A D D E N D A ( P u b lic N o t ic e N o , M in is t r y o f S t r a t e g y a n d F in a n c e, J u n e 2 5, ) - Article 1 (Enforcement Decree) 87 Article 2 (Applicability to Determination of Total Private Investment Cost) 87 Article 3 (Special Exception to Adjustment of Reference Rate) 87 Article 4 (Applicability to Reduction of Minimum Equity Ratio) 87 Article 5 (Applicability to Minimum Revenue Guarantee) 87 Article 6 (Applicability to Review by Specialized Institutions on Change of Financial Model for BTL PPP Projects) 87 Article 7 (Applicability to Preliminary Feasibility Study of BTL PPP Projects) 88 Article 8 (Applicability to Review on Results of Feasibility Study of BTL PPP Projects, Draft Request for Proposals, and Draft Concession Agreement) 88 Article 9 (Applicability to Implementation of Complex Projects) 88 Article 10 (Applicability to Change of Investment Ceiling) 88 Article 11 (Applicability to Submission of Data) 88 Article 12 (Applicability to Designation of Identification Number for each Unit Project) 88 - ADDENDA (Public Notice No , Ministry of Strategy and Finance, December 23, 2010) - Article 1 (Enforcement Decree) 88 Article 2 (Applicability to Relaxation of Equity Financing) 89 Article 3 (Applicability to Determination of Compensation on Termination) 89 Article 4 (Applicability to Refinancing) 89 [Table 1] Procedure for Implementation of PPP Projects 90 [Table 2] Method of Determining Government Payments 94 [Table 3] Method of Sharing Risk of Interest Rate Changes in each Bracket and Settlement of Allocated Risk of Interest Rate Changes 95 [Table 4] Determination of Compensation on Termination 96 [Table 5] Kinds of Infrastructure Credit Guarantee and Guarantee Fee Rates 98 [Table 6] Guidelines for Disposition of Earnings from Supplementary and Ancillary Projects 98 [Table 7] Guidelines for Presenting Maximum Rates of User Fees 99 [Table 8] Method of Granting Central Government Subsidies for Complex Facilities 99 [Table 9] Exemption from Charges and Taxes 100 [Table 10] Relaxation of Finance-Related Regulation, etc viii -

11 Part Ⅰ Direction-Setting for Implementation of Public-Private Partnership System and Implementation Plan for 2011 // 1 PART Ⅰ DIRECTION-SETTING FOR IMPLEMENTATION OF PUBLIC-PRIVATE PARTNERSHIP SYSTEM AND IMPLEMENTATION PLAN FOR 2011 SECTION 1 Direction-Setting for Implementation of Policy on Public-Private Partnership System 1. Direction-setting for main policies (Rearrangement of laws and systems) A systematic ground for revitalizing PPP projects shall be prepared by completing amendments of the Act on Public-Private Partnerships in Infrastructure and the Enforcement Decree of said Act pending in the National Assembly. ㅇ (Revitalization of supplementary projects) It shall be promoted to reduce user fees and relax the competent authority's financial burden by implementing supplementary projects. - The basis for expanding the eligibility for supplementary projects and implementing projects supplementary to projects in operation shall be prepared. ㅇ (Active financing) Financing sources shall be diversified to facilitate financing of new projects. - Institutions eligible for issuing infrastructure bonds shall be expanded and included in entities eligible for the guarantee by the Infrastructure Credit Guarantee Fund. - Infrastructure funds newly established as an investment trust shall be increased, changing the form of such funds from company to investment trust, and it shall be promoted to relax regulation on borrowing money and asset management. ㅇ (Establishment of committee for conciliation of disputes) The transparency in PPP projects shall be enhanced by establishing the committee for the conciliation of disputes in PPP projects. - It shall be promoted to quickly settle disputes relating to PPP projects. (Assistance in timely execution) Assistance shall be rendered for the uninterrupted implementation and timely execution of the execution plans for PPP projects in ㅇ (Execution plans) It shall be promoted to execute private investments of KRW

12 2 // Basic Plan for Public-Private Partnership Projects 6.3 trillion in 2011 (KRW 2.6 trillion for BTO and KRW 3.7 trillion for BTL). ㅇ (Competent authorities) Measures for the settlement of civil petitions, authorization, permission, and other processes for execution shall be thoroughly prepared in advance. ㅇ (Ministry of Strategy and Finance) The Ministry shall periodically monitor the results of implementation by each competent authority, hear difficulties, and promote improvement of systems. (Promotion of various new projects) It shall be encouraged to implement new PPP projects by simplifying procedures and diversifying types of project. ㅇ (Revitalization of solicited projects) Each competent authority shall actively utilize the approach of government solicitation in order to enhance the connectivity with national policies relating to the construction of infrastructure facilities, while the Ministry of Strategy and Finance shall seek for schemes for simplifying procedures and revitalizing solicited projects. ㅇ (Diversification of modes of project) A scheme for revitalizing PPP projects in new types, such as PPP projects in the BTO-BTL hybrid type and the Rehabilitate Type shall be sought for in addition to current BTO and BTL types. (Stable management of projects in operation) Sustainable models for PPP projects shall be secured by alleviating negative public sentiment against MRG, user fees, etc. ㅇ (Active promotion of refinancing) Each competent authority shall actively utilize the system for requesting refinancing and review changes in terms and conditions of refinancing. ㅇ (Active search for supplementary and ancillary projects) Supplementary projects implementable for each type of project in operation shall be actively searched for, while rearranging related systems. ㅇ (Systematic management of results of implementation) The system for reporting the current status of implementation by each competent authority to the competent ministry, the Ministry of Strategy and Finance, etc. shall be rearranged. (Expansion to overseas PPP markets) Active assistance shall be rendered in exporting PPP systems of the Republic of Korea and national construction companies' expanding to overseas PPP markets. ㅇ (Cooperation with international organizations) A scheme for cooperating with international organizations, including WB and ADB, shall be sought for in order

13 Part Ⅰ Direction-Setting for Implementation of Public-Private Partnership System and Implementation Plan for 2011 // 3 to secure the Republic of Korea's initiative in the international construction industry and exporting PPP systems of the Republic of Korea to developing countries. ㅇ (Holding IR events) Joint public-private events for IR (Investor Relations) shall be held in order to assist domestic business entities engaged in PPP projects in participating in overseas PPP projects for the construction of infrastructure facilities. ㅇ (Seeking for schemes for linking with ODA) A scheme for assisting domestic business entities engaged in PPP projects in overseas markets shall be sought for by linking with the Official Development Assistance. 2. Direction of Promotion in each Sector 2-1. Roads It shall be promoted to build new roads according to comprehensive and systematic investment plans. ㅇ Eligible projects shall be selected by considering their consistency with the medium- and long-term plans for the construction of road transportation networks, relevant land development plans, etc., the priority order of investment, ㅇ New projects shall be selected mainly for congested sections in the Seoul Metropolitan Area and other large cities, and efforts shall be made to make toll burden reasonable in comparison with tolls for government-financed projects. Assistance in timely commencement of projects already promoted and intensification of validation ㅇ Each competent authority shall play an active role for a delayed project due to a civil petition or a request from an agency having authority to grant approval or permission. ㅇ If a project has difficulties in financing in spite of its feasibility, active assistance shall be rendered in executing financing agreements by utilizing the "policy on the improvement of the system for assisting in financing agreements (which passed the Committee for the Review on Public-Private Partnerships on December 23, 2010) * and other means. * Relaxing the equity ratio, fixing the straight line method as the permanent method of determining the compensation on termination, and reasonably improving the share of refinancing gain (currently 50:50 the share shall be eased, considering user fees/construction subsidies)

14 4 // Basic Plan for Public-Private Partnership Projects Improvement of substantiality of projects in operation and enhancement of citizens' benefits ㅇ As regards roads covered with a minimum revenue guarantee (MRG), it shall be promoted to relax the burden on government finances and users by expanding connecting road networks, searching for supplementary projects, developing various schemes for increasing revenue, and refinancing. ㅇ Plans for the integrated operation of PPP roads or government-financed roads and PPP roads shall be examined to improve the efficiency of operation and minimize inconvenience to users Railroads New projects shall be implemented carefully in priority order. ㅇ New projects shall be implemented in priority order, considering the economic feasibility of each project, the VFM of PPP, and the level of effects of relieving congestion. ㅇ Projects for the construction of a light rail transit system shall be selected mainly for congested sections in large cities, where the demand for the system has been proven and the effect of benefits is high in comparison with investment. ㅇ The implementation of an ordinary railroad project as a BTL project shall be reviewed carefully, considering the burden on government finances in the medium- and long-term, traffic demand, economic efficiency, the time of completion, etc. Rail road projects under preparation for construction or under construction shall be implemented without interruption. ㅇ Active assistance shall be rendered in executing financing agreements for the projects under preparation for construction, and the progress of the projects under construction shall be thoroughly monitored and managed for timely completion. As regards railroad projects in operation, schemes for improving services and reducing subsidies for revenue of fares shall be implemented. ㅇ Schemes for creating additional revenue sources, including the expansion of KTX to the Incheon Airport Railroad in accordance with the "Measures for the Vitalization of the Airport Railroad," shall be fully implemented.

15 Part Ⅰ Direction-Setting for Implementation of Public-Private Partnership System and Implementation Plan for 2011 // Ports and harbors Flexible adjustment of time to invest according to demands for ports and harbors ㅇ The time to invest in container terminals shall be adjusted, considering the cargo handling capacity of facilities under construction and cargo trends. Preparation of schemes for improving commerciality of port or harbor projects in operation ㅇ It shall be promoted to improve commerciality by intensifying port sales for creating cargo traffic, adjusting functions of terminals, and preparing other schemes for revitalizing ports and harbors Education and science Continuous improvement of educational environment by expanding facilities of elementary and secondary schools ㅇ BTL projects for the construction and remodelling of new school facilities to reduce the ratio of decrepit school facilities, reducing the number of students per class, and improving educational conditions. Decrepit facilities aged over 40 years: 4.14 percent (2009) 3.31 percent (2011) 2.48 percent (2013) Promotion of improvement of evaluation of performance of BTL projects for facilities of elementary and secondary schools ㅇ The procedure and standards for managing information about the evaluation of performance shall be prepared for the efficiency of the operation and management of BTL projects. ㅇ The system of the operation and management of BTL projects shall be improved and a working-level council shall be organized. Expansion of BTL dormitories for national universities ㅇ Universities with a low capacity of dormitories for students and buildings required to be remodelled due to the aging of facilities. - Subsidizing about KRW billion to 13 national universities. - Capacity of dormitories of national universities: To improve it from 21.3 percent (2010) to 22.0 percent (2012) Environment and welfare

16 6 // Basic Plan for Public-Private Partnership Projects Promotion of expansion of sewerage systems ㅇ Sewerage facilities shall be continuously expanded, and the distribution rate * of nationwide sewerage systems shall be improved in order to improve living conditions. Distribution rate of sewerage systems: 83.5% (2005) ( 09) 89.4% (2009) 92% (2015) Implementation of projects for environmental facilities for low carbon, green growth ㅇ New environmental projects shall be implemented mainly for facilities for recycling resources and for new and renewable energy, including the treatment and reuse of sewage and the generation of energy from wastes. Uninterrupted implementation of projects for health and welfare ㅇ Projects for medical centers, dementia hospitals, and youth training facilities shall be implemented without interruption by encouraging to execute concession agreements and commence such projects on time Culture, tourism, sports Improvement of substantiality in promoting to build cultural and sports facilities ㅇ It shall be encouraged to minimize the burden on government finances through the remodelling of existing facilities and the renovation and repairing of unused facilities, rather than the construction of new facilities. ㅇ A complete enumeration survey shall be conducted and a scheme for improvement shall be prepared in order to solve problems arising from facilities in operation, such as the burden on local governments' finances and insufficient contents National defense Improvement of substantiality in the operation of military residential facilities and the evaluation of performance of such facilities ㅇ Imperfections in the operation and the evaluation of performance of such facilities shall be supplemented to improve the substantiality of such facilities as most military residential facilities are at the stage of completion or operation.

17 Part Ⅰ Direction-Setting for Implementation of Public-Private Partnership System and Implementation Plan for 2011 // 7 S EC TIO N 2 M ajor Investm ent P lans for 2011 (Summary) Implementation of 267 PPP projects worth KRW 59 trillion in total (based on total investment cost) ㅇ 158 ongoing projects already commenced (KRW 23.2 trillion), 57 projects newly commenced (KRW 15.8 trillion), 45 projects for which a concession contract is to be executed (KRW 17.5 trillion), seven new projects to be designated (KRW 2.5 trillion). * Projects expected to be completed in 2011 are 56 projects worth KRW 7.3 trillion (6 BTO projects worth KRW 3.6 trillion and 50 BTL projects worth KRW 3.7 trillion). ㅇ BTO * projects implemented are 69 cases worth KRW 39.2 trillion in total, while BTL ** projects implemented are 198 cases worth KRW 19.7 trillion in total. * 27 ongoing projects already commenced (KRW 13.4 trillion), 20 projects newly commenced (KRW 11.8 trillion), 18 projects for which a concession contract is to be executed (KRW 11.8 trillion), four projects to be newly designated as eligible projects (KRW 2.3 trillion). ** 131 ongoing projects already commenced (KRW 9.8 trillion), 37 projects newly commenced (KRW 4.0 trillion), 27 projects for which a concession contract is to be executed (KRW 5.7 trillion), three projects to be newly designated as eligible projects (KRW 0.2 trillion). ㅇ The central government's projects are 107 cases worth KRW 35.1 trillion in total (27 BTO projects worth KRW 22.7 trillion and 80 BTL projects worth KRW 12.4 trillion), which account for approximately 60% of the costs of all projects. Major investment plan for each sector (draft) ㅇ (Roads) 29 projects worth KRW 22.9 trillion in total are to be implemented as BTO projects projects (KRW 15.5 trillion) by the central government and 15 projects (KRW 7.4 trillion) by local governments. - Nine projects, including the Incheon-Gimpo and Sangju-Yeongcheon Expressways, will be newly commenced. - Concession agreements will be executed for 9 projects, including the Seoul-Munsan Expressway, and it will be promoted to designate four new projects, including the Songsan-Bongdam Expressway. ㅇ (Railroads) 15 BTO or BTL projects worth KRW 16.6 trillion in total will be implemented. - Eight projects (KRW 10.3 trillion) by the central government and seven projects

18 8 // Basic Plan for Public-Private Partnership Projects (KRW 6.3 trillion) by local governments. - The Sinbungdang Line (Jeongja-Gangnam) and the Iksan-Iri Section of the Jeolla Line will be completed in 2011; an extension (Jeongja-Gwanggyo) of the Sinbundang Line and the double-track railroad in the Sosa-Wonsi Section will be newly commenced; and it will be promoted to execute concession agreements on six projects, including the Gwangmyeong Light Rail Transit System and the Daegok-Sosa Section. ㅇ (Ports, harbors, and logistics) nine BTO projects worth KRW 2.8 trillion will be implemented. - Four projects, including the New Busan Port Phases 2 and 3 and the Masan Port Phase 1-1 will be completed in 2011, and it will be promoted to execute concession agreements on the New Busan Port Phases 2 through 4. ㅇ (Environment) 88 BTO or BTL projects worth KRW 8.4 trillion will be implemented BTO projects (KRW 3.1 trillion) and 67 BTL projects (KRW 5.3 trillion) by local governments projects, including the Sewerage Pipeline Improvement Project (BTL) in Masan, will be completed. - A sewerage project in Hwaseong will be newly commenced; concession agreements on eight projects, including a project for the reuse of treated sewage in Pohang, will be executed; and it will be promoted to designate two new projects, including a sewerage pipeline project in Busan (2011). ㅇ (Schools) 32 BTL projects worth KRW 1.9 trillion in total will be implemented. - 7 projects by the central government (KRW 0.7 trillion) and 25 projects by local governments (KRW 1.2 trillion). - 3 projects, including the Ulsan National Institute of Science and Technology, will be completed; 12 projects, including projects for the construction of schools in the Multi-functional Administrative City, will be newly commenced; and it will be promoted to designate the project for the construction of dormitories in the Ulsan National Institute of Science and Technology Graduate School. ㅇ (National defense and other sectors) 94 BTL projects worth KRW 6.4 trillion in total will be implemented projects, including the construction of the Ulsan Metropolitan Museum, will be completed; 16 projects, including the projects for the construction of the Busan Hands-on Movie Museum, will be commenced; and it will be promoted to execute concession agreements on 21 projects, including the project for the relocation and construction of the Gongju Medical Center.

19 Part Ⅱ General Guidelines for Implementation of PPP Projects // 9 P A R T Ⅱ G E N E R A L G U ID E L IN E S F O R IM P L E M E N T A T IO N O F P U B IC -P R IV A T E P A R T N E R S H IP (P P P ) P R O J E C T S CHAPTER Ⅰ GENERAL PROVISIONS Article 1 (Purpose) The purpose of this Basic Plan is to provide for detailed procedures, methods, etc. necessary for implementing Public-Private Partnership (PPP) projects pursuant to the provisions of the Act on Public-Private Partnerships in Infrastructure and the Enforcement Decree of said Act. Article 2 (Definitions) Terms used in this Basic Plan shall be defined as follows: 1. "Competent authority" means the head of a central administrative agency responsible for the infrastructure facility project at issue, pursuant to relevant Acts and subordinate statutes, if the project is a national project implemented by the central government, or the head of a local government, if the project is subsidized by the central government and implemented by a the local government or an inherently local project; 2. "Concessionaire" means an entity not in the public sector, who is either a private corporation or a joint public-private corporation that is designated as a concessionaire pursuant to the Act on Public-Private Partnerships in Infrastructure (hereinafter referred to as the "Act") to implement a public-private partnership (PPP) project; 3. "Infrastructure facility project" means a project for the construction, extension, amelioration, or operation of an infrastructure facility under subparagraph 1 of Article 2 of the Act in accordance with the procedures provided for by the Act; 4. "Supplementary projects" mean projects implemented pursuant to Article 21 of the Act for the smooth operation of the PPP project at issue and the enhancement of users' benefits in the area in which the PPP project at issue is implemented and other areas adjacent to the PPP project site; 5. "Ancillary projects" mean projects that a concessionaire implements in addition to the main project by utilizing the infrastructure facilities in the projects for general users in order to raise the efficiency of the use of the facilities and recover part of the investment cost thereof; 6. "Solicited project" means a project that the competent authority discovers and designates as a potential PPP project pursuant to Article 8-2 of the Act and in which private-sector entities are solicited to participate;

20 10 // Basic Plan for Public-Private Partnership Projects 7. "Unsolicited project" means a project that a private entity discovers as a potential PPP project pursuant to Article 9 of the Act and proposes it as a PPP project to the competent authority; 8. "Build-Transfer-Operate (BTO) PPP project" means a project where the investment cost is recovered through user fees paid by users of the facilities of the project; 9. "Build-Transfer-Lease (BTL) project" means a project where the investment cost is recovered through the rent paid by the central government or a local government for the facilities of the project as user fees; 10. "Preliminary Value-for-Money (VFM) test of PPP" means an analysis of a government-financed project that is found implementable as a PPP project at the stage of the preliminary feasibility study to analyze whether the project will deliver a value for money, if it is implemented as a PPP project, rather than as a government-financed project, through a comparative analysis on costs, benefits, etc. of a public sector comparator (PSC) and a private finance initiative (PFI) according to the results of the preliminary feasibility study; 11. "Feasibility analysis" means a process of analyzing the feasibility of implementing a PPP project through the analysis of economic and strategic feasibility in regard to a solicited project and the superiority of the PPP project in the aspects of costs and benefits, compared with a case where it is implemented as a government-financed project, to review the appropriateness of the type of project and seek for the optimal mix of costs and services pursuant to Article 8-2 (2) of the Act; 12. "Value-for-Money (VFM) test of PPP" means an analysis conducted pursuant to Article 7 (5) of the Enforcement Decree of the Act on Public-Private Partnerships in Infrastructure (hereinafter referred to as the "Decree") on an unsolicited project to analyze the appropriateness of the demand estimation for the project and the costs and benefits of the project in comparison with a hypothetical case where the project is implemented as a government project; 13. "Quantitative analysis" means an approach of analyzing the VFM of PPP by comparing life cycle costs (LCC) incurred in a government-financed project and a PPP project; 14. "Qualitative analysis" means an approach of analyzing the VFM of PPP by comparing the quality of services improved by a government-financed project and a PPP project, the prospects of early realization of benefits from the projects, and the effects of allocation of risks in the projects; 15. "Refinancing" means activities conducted by a concessionaire to maximize investors' expected return through changes of the capital structure of the

21 Part Ⅱ General Guidelines for Implementation of PPP Projects // 11 corporation implementing a project, investors' shares, and terms of conditions of procuring borrowed capital in comparison with the expected return as at the time of the execution of the latest financing agreement; 16. "Request for alternate proposals" means a public announcement of outlines of a proposal made to invite third parties, other than the proponent, to make proposals when it is decided to implement a project proposed by a private-sector entity as a PPP project pursuant to Article 6; 17. Except as otherwise defined in this Basic Plan, terms shall be defined in accordance with the Act on Public-Private Partnerships in Infrastructure and subordinate statutes of said Act (hereinafter referred to as the "Act and subordinate statutes"). Article 3 (Types of Arrangement for PPP Projects) (1) A PPP project may be implemented in any of the following forms pursuant to Article 4 of the Act: 1. BTO (Build-Transfer-Operate): A type of arrangement in which the ownership of an infrastructure facility vests in the central government or a local government upon completion of the facility, while the concessionaire is granted the right to manage and operate the facility for a specified period; 2. BTL (Build-Transfer-Lease): A type of arrangement in which the ownership of an infrastructure facility vests in the central government or a local government upon completion of the facility, while the concessionaire is granted the right to manage and operate the facility for a specified period, but the central government or a local government leases the facility for the period stipulated in the concession agreement to use and benefit from the facility; 3. BOT (Build-Operate-Transfer): A type of arrangement in which the ownership of an infrastructure facility belongs to the concessionaire during a specified period after completion of the facility vests in the central government or a local government upon expiration of the period; 4. BOO (Build-Own-Operate): A type of arrangement in which the ownership of an infrastructure facility vests in the concessionaire upon completion of the facility; 5. BLT (Build-Lease-Transfer): A type of arrangement in which a concessionaire leases an infrastructure facility to other persons for a specified period after completion of the facility and then transfers the facility to the central government or a local government after expiration of the term of lease: 6. ROT (Rehabilitate-Operate-Transfer): A type of arrangement in which a concessionaire who rehabilitates an existing facility owned by the central government or a local government is granted the right to operate the facility for

22 12 // Basic Plan for Public-Private Partnership Projects a specified period; 7. ROO (Rehabilitate-Own-Operate): A type of arrangement in which the ownership of an existing facility vests in the concessionaire who rehabilitates the facility; 8. RTL (Rehabilitate-Transfer-Lease): A type of arrangement in which the ownership of an infrastructure facility vests in the central government or a local government upon completion of works for the renovation or repairing of the facility, while the concessionaire is granted the right to manage and operate the facility for a specified period to allow other persons to use and benefit from the facility; 9. Other types of arrangement proposed by a private-sector entity and recognized as acceptable by the competent authority or presented by the competent authority in a request for proposals of PPP (including cases where an Office of Education promotes a facility for a private school in an arrangement similar to the one under subparagraph 2). (2) The competent authority shall clearly state the type of arrangement for a project in the request for proposals or the request for alternate proposals so that the private sector is informed thereof before participating in the project. (3) The procedure for implementing a PPP project is as set out in attached Table 1. Article 4 (General Principles for Designation of PPP Projects) The competent authority shall take the following general principles into account in designating a PPP project: 1. Principle of beneficiaries' capability of taking the burden: A project that can provide higher-quality services in comparison with existing facilities that can be used with the lower burden of expenses so that users are willing to pay higher user fees in return for such high benefits; 2. Principle of profitability: A project that can secure a rate of return that can satisfy private-sector entities' investment within the limits of user fees that the government can permit and users can pay and the construction subsidies that the government can provide; 3. Principle of benefits from project: A project that is expected to be completed by the target year, if it is implemented as a PPP project, to provide benefits earlier, whereas it is difficult to build a facility earlier and provide services earlier due to budgetary limitations, if it is implemented as a government-financed project; 4. Principle of efficiency: A project that is expected to raise the quality of services more through the enhancement of benefits from the project, the reduction of the project cost, and the facilitation of competition with government-financed facilities, when compared with a case where it is implemented as a government-financed project, by utilizing the creativity and efficiency of the private sector.

23 Part Ⅱ General Guidelines for Implementation of PPP Projects // 13 Article 5 (Designation of Solicited Projects) (1) In principle, if the competent authority finds it efficient to implement a project important to a national policy, through PPP, he/she shall formulate a plan in advance and implement the project as a solicited project. (2) A solicited project shall satisfy the general principles under Article 4 and the following requirements: 1. The project shall be for any of the facilities specified in subparagraph 1 of Article 2 of the Act and Article 1-2 of the Decree; 2. The project shall conform to the medium- and long-term plans relating to infrastructure facilities and the priority order of central government-invested projects. (3) If the competent authority finds at the stage of the preliminary feasibility study that it is possible to implement a government-financed project as a PPP project, he/she shall examine whether to implement it as a solicited project through the preliminary VFM testing of PPP, taking into account financial conditions, the level of user fees, the strategic direction, and other relevant factors. Article 6 (Designation of Unsolicited Projects) The competent authority shall decide whether to designate and implement a project proposed by a private-sector entity as a PPP project pursuant to Article 9 of the Act, comprehensively considering the principles for designation under Articles 4 and 5, the review opinion of the head of the Public and Private Infrastructure Investment Management Center (PIMAC), and the following requirements: 1. A cost/benefit analysis, etc. shall be conducted to secure the validity of implementation in the aspect of national economy; 2. The private proposal or a private finance initiative (PFI) alternative shall be able to reduce the government's burden and raise the quality of services above that where it had been implemented as a government-finance project. Article 7 (Selection of BTL PPP Projects) (1) The competent authority shall select BTL PPP projects, comprehensively considering the principles for designation under subparagraphs 3 and 4 of Article 4 and Article 5 and the following requirements: 1. Legal compliance: (a) A project for a national or public facility that shall be built compulsorily to provide basic services to citizens, among the facilities specified in subparagraph 1 of Article 2 of the Act and Article 1-2 of the Decree, in the type of facility in which the central government or a local government has already been investing its finances;

24 14 // Basic Plan for Public-Private Partnership Projects (b) A project reflected in medium- or long-term investment plans established pursuant to a related Act or subordinate statute; 2. Economic and financial suitability: (a) A project that is expected to provide benefits from the project by timely completion, improve the quality and safety of a facility, raise the quality of services, enhance benefits from the project, reduce the total cost incurred during the life cycle of the specific project, including costs of design, construction, and operation, as well as the project cost by utilizing the creativity and efficiency of the private sector, compared with a case where it is implemented as a government-financed project; (b) A project in which the portion of costs of operation and maintenance in the life cycle cost is great and high efficiency is generated by integrated control of design, construction, operation, and maintenance; (c) A project in which it is difficult to charge user fees to users of a facility or it is difficult in its structure to recover the investment cost only by charging user fees: Provided, That a project in which the investment cost can be recovered with the revenue of user fees and partial subsidization of construction subsidies, etc. shall be implemented as a BTO PPP project; (d) A project in which facilities are physically separated and so independent management and accounting of the project are possible; 3. Urgent necessity and other considerations: (a) A project for a facility in which investment has been delayed due to financial situation, although benefits from the project is great and early expansion of the facility is urgently required, and so advance investment is significantly required; (b) A project in which it may be required to donate the ownership of the facility built with private capital to the central government or a local government upon completion; (c) A project in which the required level of services of private-sector entities can be stated objectively and clearly. (2) The competent authority shall select eligible projects, considering the following factors in regard to the state of preparation, so that the projects can be commenced within the year for which an investment ceiling is set: 1. A project in which human resources additionally required for the expansion of a facility can be secured and so works can be carried out smoothly; 2. A project in which the land for architectural facilities has been secured and related authorization, permission, etc. can be finalized promptly; 3. A project in which the basic design for civil engineering works has been

25 Part Ⅱ General Guidelines for Implementation of PPP Projects // 15 completed, related authorization and permission are in smooth progress, and thus it is possible to commence works promptly; 4. A project in which it is possible to prepare measures for the relocation of users of an existing facility and substitute accommodations, there is no big problem in settling civil petitions on environment and other issues, and so there is no problem in executing the project or it is possible to solve problems promptly. CHAPTER Ⅱ INVESTMENT MODELS OF PPP PROJECTS SECTION 1 User Fees, Total Project Cost Article 8 (User Fees) (1) "User Fees" mean monetary charges imposed on users of a facility in any of the following manners pursuant to Article 25 (4) of the Act and Article 23 of the Decree: 1. BTO type of arrangement in which users of a facility pay fees to the concessionaire directly; 2. BTL type of arrangement in which the central government or a local government pays fees to the concessionaire in the form of rent or such. (2) The competent authority may specify the ceiling of user fees in the request for proposals or the request for alternate proposals, taking into account the level of user fees for substitute facilities, the nature of the relevant project, etc. Article 9 (Determination of Total Project Cost) (1) "Total project cost" means expenses to be incurred in the construction, extension, or amelioration of an infrastructure facility and calculated by aggregating the survey cost, design cost, construction cost, compensation cost, incidental cost, operation equipment cost, taxes, public charges, and operating reserve. (2) In principle, the appraised value of the land at issue shall be applied as the price for purchasing the land in determining compensation cost, but if there is no appraised value available, the price shall be determined in accordance with the detailed guidance for the VFM testing of PPP projects, prepared and published by the head of the Public and Private Infrastructure Investment Management Center. (3) Incidental cost shall include the feasibility analysis cost, environmental impact assessment cost, and supervision cost specified in Article 22 (1) 5 of the

26 16 // Basic Plan for Public-Private Partnership Projects Decree, expenses for the management of the construction projects relating to the implementation of the project at issue, expenses for the review on unit construction cost, expenses for the review on economic efficiency of designs, and the cost incidental to financing. Article 10 (Change of Total Project Cost) (1) The total project cost shall not be changed, unless a cause or an event specified in Article 22 (3) of the Decree occurs. (2) "Inevitable causes determined by concession agreement" in Article 22 (3) 2 of the Decree means a change of the project plan or design in compliance with the competent authority's request, an amendment of a relevant Act or subordinate statute, or a force majeure. (3) A change of the total project cost pursuant to paragraph (1) or (2) shall be made in accordance with the following principles: 1. In principle, an ex post facto adjustment of other cost not linked to a change of construction cost as at the time of execution of the concession agreement shall be prohibited; 2. The grounds for not only an increase, also a decrease due to an identical cause or event shall be stipulated when the grounds for an adjustment according to an increase or a decrease in the total project cost are stipulated in the concession agreement. (4) If it is necessary to compensate for a decrease in profits or an increase of losses on the part of the concessionaire as a consequence of a change of the total project cost, the competent authority shall reach an agreement with the concessionaire on the possibility of an adjustment of user fees or the free use period along with government financial support. SECTION 2 Determination of Rate of Return and User Fees for BTO PPP Projects Article 11 (Determination of Rate of Return and User Fees) (1) The rate of return and user fees for a BTO PPP project shall be determined in the following formula: