1. Value for Money Test 1. Process of PPP Project Implementation 2. VFM : The Theory 3. VFM : The Practice in Korea

Transcription

1 Vaue for Money Test in Korea Jungwook KIM Feow of PPP Division Pubic and Private Infrastructure Investment Management Center PIMAC

2 1. Vaue for Money Test 1. Process of PPP Project Impementation 2. VFM : The Theory 3. VFM : The Practice in Korea 2. Case Study : Light Rai Transit of New Boundang Line 1. Project Overview 2. Estimation of Transportation Demand 3. Estimation of Cost 4. Feasibiity Study 5. Quantitative VFM Anaysis 6. Formuation of PFI Aternatives 2

3 Part-01 Vaue for Money Test

4 1. Process of PPP Project Impementation

5 Project Initiation q Both the government and a private company can initiate a PPP project q Soicited Projects A soicited project is that the competent authority identifies a project for private investment and announces a RFP Competent authorities deveop a potentia project after considering reated pans and demands for the faciity. They then weight the procurement options in order to determine whether the PPP procurement is more efficient than the conventiona procurement q Unsoicited Projects For an unsoicited project, a private company (project proponent) submits a project proposa, and then the competent authority examines and evauates the contents and vaue for money of the private proposa, and designates it as a PPP project 5

6 Procurement Steps of a Soicited Project Soicited Project Competent Authority Seection of PPP Project Competent Authority Review by PIMAC Competent Authority VFM Test Designation as the PPP Project Announcement of RFPs Submission of Project Proposas Evauation and Seection of Preferred Bidder Negotiation and Contract Award (Designation of Concessionaire) Appication for Approva of Detaied Impementation Pan Construction and Operation Competent Authority Private Sector Competent Authority Competent Authority Competent Authority Preferred Bidder Concessionaire Competent Authority Concessionaire 6

7 Procurement Steps of an Unsoicited Project Unsoicited Project Submission of Project Proposa VFM Test Notification of Project Impementation Announcement of RFPs Submission of Project Proposas Evauation and Seection of Preferred Bidder Negotiation and Contract Award (Designation of Concessionaire) Appication for Approva of Detaied Impementation Pan Construction and Operation Private Sector Competent Authority PIMAC Competent Authority Proponent Competent Authority Private Sector Competent Authority Competent Authority Competent Authority Preferred Bidder Concessionaire Competent Authority Concessionaire 7

8 2. VFM : The Theory

9 The VFM Concept q What is Vaue for Money? The best avaiabe outcome after taking account of a benefits, costs and risk over the whoe ife of the project (HM TREASURY) Not owest price q Why it is Used? Seek the best use of avaiabe resources Efficient and effective pubic service deivery The competent authority uses VFM reports as basic materia to make a judgment on whether to move forward with the PPP project proposed by the private proponent according to the Artice 7, Paragraph 3 of the Enforcement Decree of the PPP Act 9

10 Key Eements of VFM q VFM is often a comparative assessment Requires a benchmark cost : PSC (Pubic Sector Comparator) q PSC is a benchmarking and evauation too : a Key too Benchmarks the cost of government service deivery Evauates whether VFM is deivered from bids q A Procurement principe, not ony for PPP q Adopted by different countries to meet government s procurement practices Not a universa too q Appied on a project or program basis q Innovation, asset utiization, risk sharing, competition, service integration ate main key drivers of VFM Presence of VFM drivers confirms suitabiity for PPP 10

11 The Roe of PSC q Promote whoe ife costing eary in the project s deveopment q Assist in assessing the project affordabiity q Provide a means for demonstrating VFM Provide a consistent benchmarking and evauation too q Encourage bidding competition q Based on : Reference Project Risk anaysis Cash fow over the ife of the project (infation, cost, revenue, discount rate..) Government procurement costs to asses project affordabiity 11

12 VFM Assesment q Compare to PSC or between bidders q Presence of VFM confirms suitabiity for PPP. PSC NPV of Retained Risk NPV of Transferabe Risk NPV of Competitive Neutraity NPV of Raw PSC PFI NPV of Retained Risk NPV of PPP Contract QUANTITATIVE VFM 12

13 3. VFM : The Practice in Korea

14 Impementation q PIMAC of KDI is in charge of VfM test as stipuated by the PPP Act q VfM test is carried out in accordance with Guideines for impementation of VfM Test/Review of Proposa for unsoicited BTO projects. q Five interim review meetings are hed during the VfM test q The duration of each project research shoud take up to six months q Same methodoogy and procedure are appied both to VfM Test and Review of Proposa q Objectivity, consistency, independence as we as professiona expertise are important eements in conducting VfM tests. 14

15 Organization of a Research Team q A VfM test is carried out by a muti-discipinary research team q KDI (Project Manager) Experts with reevant skis and expertise for the project are seected at the preiminary stage q Externa experts (seected from human resource poo) Demand forecasting : university professors Cost estimation: engineering companies Accounting: accounting firms 15

16 Scope of a VFM Test q Phase 1: Feasibiity study (Decision to Invest) The cost- benefit anaysis is conducted to determine feasibiity of the project from a nationa economy perspective. q Phase 2: Vaue for Money Assessment (Decision on PFI) The government payment of PSC (Pubic Sector Comparator) is compared against that of PFI (Private Finance Initiative) to assess whether the PFI achieves VfM. q Phase 3: Formuation of PFI aternatives Based on the resuts of phase 2, an appropriate PFI aternatives are formuated The eve of project cost, user fee, subsidy scae, etc. are suggested from the government. q Phase 4: Award bonus points to the initia proponent Bonus points (10% max.) awarded to the initia proponent are estimated based on the resuts of VfM tests and the quaity of the proposa. 16

17 Setting Comparators for VFM Test VfM Anaysis Impementation Method Unsoicited Unsoicited With Pubic Pan Soicited Private Finance Initiate PFI p (based on proposa) PFI p (proposa) PFI G (research team) PFI G (research team) Pubic Sector Comparator PSC p (estimated by research team) PSC p (research team) PSC G (research team) PSC G (research team) 17

18 Fowchart of a VFM Test (Unsoicited) Project Proposa(PFI0) Phase 1 Construction of PSC(PSC0) Feasibiity anaysis N Construction of PSC1, PFI1 Phase 2 VFM test of private proposa (VFM1=PSC1-PFI1 0) Y N Construction of PFI2-i, Phases 3 & 4 Y PFI Aternative (PFI2*) VFM test of PFI aternative (VFM2=PSC1-PFI2 * 0) N Cacuation of bonus points Impementation of PPP Project Rejection 18

19 Fowchart of a VFM Test (Unsoicited with Pubic Pan) Phase 1 Project Proposa (PFI p ) Construction of PSC (PSC p ) Feasibiity Test (PSC p PSC G ) PSC by Pubic Pan (PSC G ) N Y PSC p1, PFI s1 PSC G1, PFI G1 Phase 2 N Y Y VFM test (VFM P1 ) VFM test (VFM G1 ) N Y Y Construction of PFI s2 Construction of PFI s2 Phases 3 & 4 VFM test (VFM P2= PFI p1 -PFI p2 0) Cacuation of Bonus Points (VFM p ) VFM test (VFM g2= PFI g1 -PFI g2 0) N Y PFI Aternative (PFI 2* ) With bigger NPV Y N Rejection Impementation of PPP Rejection

20 Fowchart of a VFM Test (Soicited Project) Phase 1 Construction of PSC (PSC G ) Feasibiity Test (PSC G ) N Y Phase 2 Construction of PSC G1, PFI G1 VFM test (VFM G1 ) N Phases 3 & 4 Construction of PFI Aternative Y Impementation of PPP Rejection

21 Phase 1: Feasibiity Study (1) q Assess project feasibiity and necessity in the context of nationa economy and poicy directions q Cost-benefit anaysis method is used to assess the economic feasibiity of a project CBA is conducted in accordance with sectora guideines (e.g. roads, rairoads, ports, seaports, dams, and environment faciities) for PFS (Preiminary Feasibiity Study) B/C ratios cacuated based on Estimation of demand, costs, and benefits Sensitivity anaysis q Poicy anayses, if necessary, are carried out 21

22 Phase 1: Feasibiity Study (2) q Setting a PSC (Pubic Sector Comparator) Setting an appropriate PSC option is very important both to feasibiity and VfM of a project q A basic assumption of VfM test (incuding FS) is that the same eve of service wi be provided by both PSC and PFI options In reaity, a PSC option that is compatibe with PFI proposa is formuated q Tota, (risk adjusted) whoe-of-ife cost of the project is estimated if government is to undertake the project. q User fee and project cost of PSC are not necessariy same as those of PFI The user fee of PFI is usuay arger than that of PSC 22

23 Phase 1: Feasibiity Study (3) q Poicy anayses are carried out if necessary Evauation in quaitative/quantitative terms whether the project is justified in reation to reevant poicy issues Reevant poicy issues: baanced regiona deveopment; consistency with higher eve pan and poicy directions; and environment impact anaysis, etc. q The overa feasibiity of a project is assessed based on economic and poicy anayses q If the FS resuts demonstrate that the project is feasibe, then VfM assessment ensues. If not, the VfM test process as a whoe is suspended, and PIMAC recommends the Competent Authority to reject the project proposa. 23

24 Phase 2: VFM Assessment (1) q Government spending of the PSC is compared against government payment requested by PFI proposa to assess if PPP procurement improves the vaue of tax payer s money q Features of VfM assessment It assists government making decision on appropriate procurement options: conventiona pubic procurement vs. PPP procurement. It provides a quantitative VfM eve and a justification for the decision on procurement option. It provides a reiabe benchmark and specifies project scope. It encourages project appraiser to consider risks eary in the project ifecyce, and address risk transfer options in the bidding process. It reduces negotiation time and increases the efficiency of bidding costs as the scope of private sector bids are more aigned with the pubic sector needs, and risk transfer profies. 24

25 Phase 2: VFM Assessment (2) q Cost items adjusted for competitive neutraity between PSC and PFI options Revenue from user fee is deducted from government payment of PSC Revenue from suppementary project is taken into account in consideration of both options VAT and other tax payments are adjusted Same amount and payment schedue of and acquisition is appied to both options Administrative costs incurred by governments for project management are excuded from both options Insurance fee are estimated in different ways, refecting the difference in market vauation of project risk by project owners Additiona government support if requested by private company is incuded in both options based on estimated spending 25

26 Phase 2: VFM Assessment (3) Capita costs Item PSC PFI Project costs Construction cost Land acquisition cost Suppementary cost (1) Cost of survey (2) Design cost (3) Construction cost (4) Compensation for and and other possessions (5) Cost for feasibiity study (6) Cost for transportation impact assessment (7) Cost for environmenta impact assessment (8) Cost for supervision (9) Insurance costs Construction cost Land acquisition cost Suppementary cost (1) Cost of survey (2) Design cost (3) Construction cost (4) Compensation for and and other possessions (5) Cost for feasibiity study (6) Cost for transportation impact assessment (7) Cost for environmenta impact assessment (8) Cost for supervision (9) Insurance costs (10) Cost for operation equipment (10) Cost for operation equipment (11) Taxes and fees (11) Taxes and fees (12) Business setup costs (12) Business setup costs Financing costs (13) Financing costs (13) Financing costs operating costs 1 Base cost born by the government 2 Risk adjustment costs Tota government payment (14) Operation costs (15) Maintenance costs (16) Management and supervision costs (Capita costs + operating costs) - operating revenue Cost and time overrun (14) Operation costs (15) Maintenance costs (16) Management and supervision costs Construction subsidy + and acquisition cost +additiona government support 26

27 Phase 2: VFM Assessment (4) q Present vaue of government payments for PSC and PFI options are estimated (discount rate = 5.5%) and VfM(%) is cacuated GP( PSC) - GP( PFI) VfM (%) = GP( PSC) q GP(PSC) = Capita costs + operating costs Revenue q GP(PFI) = Construction subsidy + Compensation costs + Additiona government support GP(PFI) is the government subsidy requested by the private party in the project proposa 27

28 Phase 2: VFM Assessment (5) q Quaitative VfM assessment Aocation of risks (construction, operation risks, etc.) Improvement of service quaities And other rippe effects (positive externaities): Promote the financia market through the adoption of an advanced financia technique, etc. Ø Quantification of project risk transfer is not satisfactory and those quaitative effects are not incorporated into overa VfM assessment so far 28

29 Phase 3: Formuation of PFI Aternatives q Financia anaysis and sensitivity anaysis are carried out to assess the profitabiity (bankabiity) of a project q Based on the VfM assessment and financia anayses, PFI aternatives incuding the foowing components, are formuated: Tota project costs User fee IRR (Interna Rate of Return) Tota government payments Other components reated to the impementation of the project q The Competent Authority chooses the most appropriate PFI option and invites third parties to tendering If it is impossibe to formuate a PFI aternative that deivers VfM at a reasonabe eve of IRR, then the PFI option is rejected 29

30 Phase 4: Bonus Points for Initia Proponent (4) q The VfM test team makes decision on bonus points (10% max) to be awarded to the initia proponents based on the VfM(%) and quaity of the proposa q The quaity of a proposa is evauated based on the foowing criteria: 1 Priority of the project in the mid- to ong-term government investment pan (10 points) 2 Composition of equity investors (10 points) 3 Exceency of construction and operation pan (30 points) 4 Accuracy of demand forecast (30 points) 5 Prior consutation with reevant government agencies and pan of addressing of civi compaints (10 points) 6 Adequacy of required documentation (10 points) 30

31 Use of VFM Test Resuts q The VfM test sets the bottom ine to meet the condition of VfM 0 in seecting preferred bidder and foowing phases of a project. q VfM reports are used as an important reference when tender evauation committee conducts their work. q VfM reports provide usefu information to prompt negotiation process. q VfM reports are used as reference when ex-post VfM tests are conducted. 31

32 Part-02 Case Study: Light Rai Transit of New Bundang Line

33 1. Project Overview

34 Project Overview q Site Map Rai Transit of New Bundang Line Jeongja Keymap SB02 SB km SB03 SB04 Kwankyo 34

35 Project Overview q Project Size Tota ength : 12.7km (main ine : 11.1km, entrance-exit exit ines : 1.6km) Number of Stations : 6 (underground: 5, ground: 1) Operation at Commencement : 6 rairoad cars 7 operations/day Operation at Termination : 6 rairoad cars 7 operations/day Minimum Operation Interva : 5.0 min (commencement year, 2014) 3.5 min (target year, 2044) q Project Period Construction Period : 2009~2014 Gratuitous Operation Period : 2014~2044 (30years) 35

36 Project Overview q Tota Investment Cost Tota Project Cost : 1,136.6 biion Won Construction Cost : biion Won Tota Investment Cost : 1,551.1 Biion Won Financia Subsidy during Construction (current) : Biion Won (46.9% of Tota investment cost) Tota Private Sector Investment : Biion Won (53.1% of tota investment cost) Minimum Operation Interva : 5.0 min (commencement year, 2014) q Rate of Return and Usage Fee 3.5 min (target year, 2044) Rea Rate of Return : 7.24%(After Tax 6.52%) Usage Fee : biion Won (June 2006, Credit card usage basis) 36

37 Requests for Gov t Subsidy q Financia Aid 566 biion Won during construction period i.e. 49.8% of tota project cost q Support for Compensation Costs Request the government s responsibiity and cost charges to be competed before the commencement of construction q No Request for Guarantee of Operation Revenue q Support for To Fee Discount Request for financia aid in case of free rides and passenger discounts excuding student discounts q Aid of Other Administrative Costs 37

38 2. Estimation of Transportation Demand

39 Process of Estimation for Transportation Demand q Traditiona 4-Step Mode of Transportation Demand Estimation Trip Generation Trip Distribution Mode Choice Trip Assignment q Additiona adjustment ony in the case of a new deveopment business using OD and network provided by KTDB q Estimation of commuters by station using Emme/2, TransCAD, etc. 39

40 q Demand (Origin Destination Trips) Origin Estimation for Transport Demand O/D Trips : Car, Bus, Truck, Subway Destination 40

41 Estimation for Transport Demand q Suppy (Highway/Transit Network) Network (Zone, Link, Voume Deay Functions) Transit ine summary Zone Transit ine itinerary(ine by ine) 41

42 Estimation for Transport Demand q Future Traffic Demand Traffic Assignment resut Construction Jeongja SB01 SB02 Year : 2015 (Unit : trip/days) Station Upbound Downbound Jeongja 50,075 25,284 13,191 53,626 SB01 6,894 1,721 8,504 3,609 SB02 19,105 4,349 4,100 14,916 SB04 Kwankyo SB03 SB03 22,304 3,034 2,722 20,369 SB04 1,329 3,415 3,566 1,006 Kwankyo 17, ,846 Tota 117,630 37,803 32, ,372 42

43 3. Estimation of Cost

44 Resut of Estimation for Tota Project Cost q Method of Construction Cost Estimation Estimated on the basis of the proposed design and recent actua construction costs Referred to the New Bundang Line: Kangnam ~ JungJa Doube Track Subway construction project, expected to directy connected to this project and is in competion of government agreement q Method of Suppementary Cost Estimation Estimate the cost according to the project compensation standard and standard estimating, and by appying Revised and Compemented Study on Standard Guideines for Preiminary Feasibiity Studies on Rairoad Sector Projects (4 th edition) Basic design cost is generay not refected in PFI, but is incuded in the case of PSC q Cost for Tria run : Estimate the cost for six months incuding both technica tria run and business tria run During PFI construction period, insurance cost incudes construction insurance, preiminary benefit ost insurance, user indemnity responsibiity insurance, movabe asset insurance, etc. PSC excudes user indemnity responsibiity insurance, preiminary benefit ost insurance Financia suppementary cost of PFI consists of interest payment cost which occurs according to the capita financing pan, and excudes PSC. 44

45 Resut of Estimation for Tota Project Cost q Resut of Tota Project Cost Estimation Construction Cost 926,500 1,092,879 Cost of survey 0 6,698 Design Cost 29,400 38,307 PFI(0) PSC(0) Reference (in miions of Korean won) Suppementary cost 53,293 74,479 Cost for design supervision, Cost for supervision, Cost for transportation impact assessment, Cost for construction project management, etc. Tria run cost 4,047 6,150 Construction Insurance Cost 13,943 14,492 Project Impementation Guarantee Insurance Financia Suppementary Cost 8,680 0 Operation Equipment Cost 74,829 40,648 Taxes and fees 0 0 Project Setup Cost 24,997 0 Land Compensation Cost 238, ,189 Tota Project Cost 1,374,657 1,458,842 Vehice Purchase Cost 82,449 78,282 45

46 Resut of Estimation for Operating Cost q Method of Operating Cost Estimation Of the proposed operation cost, we-grounded portion of the cost wi incorporate the initiator s intention to the maximum, but unfounded portion wi be subject to a separate criteria assuming that it is operated by the government. Estimated on the basis of operation pan and operation personne pan, both of which are recacuated according to the re-estimated estimated demand Major costs : Labor cost, Genera management cost, Maintenance cost, Eectricity cost, Additiona purchase cost, aternative investment cost q Operation Personne Pan Maintenance staff: Track maintenance & repair (Engineering, Track, Buiding, Station equipment repair), eectric raiway maintenance & repair (Eectricity, Signa, Teecommunication system and substation faciity repair) Vehice maintenance staff, Operation contro staff, Train crew, Station staff, Administrator 46

47 Resut of Estimation for Operating Cost q Resut of Personne Cost Estimation Based on the average wage of Seou Metro and Seou Metropoitan Rapid Transit Corporation q Resut of Maintenance Cost Estimation Cassified into Station buiding maintenance, carriage maintenance, System maintenance, etc. Estimate the maintenance cost based on the cost cacuated in the New Bundang Line project Estimate carriage site maintenance & repair cost with reference to data provided by project initiator q Resut of Other Operation Cost Estimation Estimate insurance cost, credit card commission cost, etc. with reference to rate of cost presented by proposed by project initiator 47

48 Resut of Estimation for Operating Cost q Resut of Operation Cost estimation (in miions of Korean Won) PFI(0) PSC(0) Reference Labor cost 318, ,577 Genera management cost 165, ,110 Maintenance cost 583, ,456 Insurance cost 82,403 81,950 Mafunction Asset Substitute cost 52,959 95,768 Tota Operation cost 1,201,848 1,421,861 48

49 4. Feasibiity Study

50 Resuts of Economic Anaysis q PV( B ) = 14,611.05, PV( C ) = 12,919.1, B/C = 1.131, IRR = 6.65%, NPV = 1,691.9 Construction Cost Operation Operation Cost Reduction Reduction in Commute Time Benefit (in miions of Korean Won) Reduction in Traffic Accidents Reduction in Environmenta Cost , , , , , , , , , , Sum * 15, , , , , ,787.6 * Sum is the summation from 2008 through

51 5. Quantitative VFM Anaysis

52 Basic Assumptions for Anaysis q Formuation of PFI Aternatives Contents PSC(1) Project finance aternative where the rate of bidding was appied to PSC(0) Pubic transportation integrated payment system appied VFM PFI(1) Reassessed demand appied to project initiator s PFI(0) proposa (e.g. cost, revenue rate, user fee) 52

53 Basic Assumptions for Anaysis q Basic Assumptions for Anaysis (financia conditions) PSC PFI Construction Period Oct. 2009~Sep (60months) Oct. 2009~Sep (60months) Operating Period Oct. 2014~Sep (30 yrs) Oct. 2014~Sep (30 yrs Rate of Interest 5.25% (Oct ~Sep year provincia bonds weighted average interest) 5.25% (Oct ~Sep year provincia bonds weighted average interest) Financia Discount Rate 5.50(constanct) 5.50(constant) Provincia Bond Procurement Cost Conditions for Repayment Tota required fund procured through provincia bonds 5-year due fu repayment Tota financia support fund procured through provincia bonds 5-year due fu repayment Own Capita Other s Capita Consumer Price Index

54 Resut of LCC Cacuations by Category q Resut of Tota Project Cost and Operating Cost Cacuations PSC(1) (in miions of Korean won) PFI(1) Cost of Survey 64 - Design Cost Construction Cost 10,466 9,265 Compensation Cost 1,894 1,894 Suppementary Costs Cost for Operation Equipment Project Setup Cost Financing Cost 3,369 2,025 Tota 17,426 15,172 Labor Cost 3,386 3,180 Genera Management Cost 1,112 1,571 Insurance Cost Eectric/Water Suppy Charges 2,329 1,405 Maintenance Cost 3,239 2,232 Aternative Investment Cost 4,381 2,208 Operation Tota 15,267 11,416 54

55 Cash Payment Summary Sheet Category PSC(1) PFI(1) Faciity Investment Cost Tota Project Costs Construction Cost (1) Cost of Survey (2) Design Cost (3) Construction Cost , ,265 Compensation Cost (4) Compensation for Land and other Possessions 1,894 1,894 Suppementary Cost (5) Construction Supervision Cost (6) Construction Project Managing Cost (7) Tria Run Cost (8) Financing costs (9) Others (10) Cost for Operation Equipment (12) Cost for Operation Preparation Sum of Tota Project Cost 14,057 13,147 Financing Costs (13) Financing Costs 3,369 2,025 Operation Costs 1 Base Cost born by gov t (14) Operation and Management Costs (Labor cost, Overhead expenses) (15) Maintenance Costs (16) Cost for Gov t monitoring and oversee Provincia bonds repayment at face vaue Financia Cost (Provincia Bonds) Operating Cost Operating Revenue Affiiate Project Revenue Financia Subsidy during Operating period ,318 9, ,554 3,369 15,267 (8,843) (3,656) 0 2 Risk Adjustment Costs ,570 5, ,944 2, ,927 Tota Gov t Payment (1+2) 17,690 11,895 Sum of Current Vaue 8,355 5,671 55

56 Resut of Quantitative VFM Anaysis PSC(1) PFI(1) Reference 1. Tota Amount of Provincia Bonds (constant) 14,057 7,870 A. Tota Construction Subsidy 0 5,977 Initia Amount of Construction Subsidy 0 5,383 Additiona (Reduced) Amount of Construction Subsidy B. Compensation for Land 0 1, Tota Gov t Payment (constant) 16,533 11,437 A. Provincia Bonds Repayment at Face Vaue 11,554 6,469 B. Financia Cost (Provincia Bond Interests) 3,369 1,886 C. Management Cost 15,284 0 D. Operation Revenue (10,018) 0 E. Affiiate Project Revenue (3,656) 0 F. Financia Subsidy during Operating Period 0 3, Tota Gov t Payment at Current Price 7,994 5, VfM Amount - 2,594 (PSC(1)-PFI(1)) 5. VFM Rate % (PSC(1)-PFI(1))/PSC(1)*100)% 6. Rea Revenue Rate before Tax % 56

57 6.Formuation of PFI Aternatives

58 Resut of PFI Aternative Formuation q Tota Project Cost Estimate Appy more reasonabe and ower amount (competitive amount) after comparing PFI and PSC costs by category PSC(1) PFI(0) PSC(2-1) (in miions of Korean won) PFI Aternatives Cost of Survey PSC(2-2) Design Cost Construction Cost 10,466 9,265 9,136 9,136 Compensation Cost 1,894 1,894 1,894 1,894 Suppementary Costs Cost for Operation Equipment Project Setup Cost Tota 14,057 13,160 12,906 12,892 Labor Cost 3,386 3,180 3,180 3,180 Genera Management Cost 1,130 1,593 1,331 1,331 Insurance Cost Eectric/Water Suppy Charges 2,329 1,405 1,405 1,405 Maintenance Cost 3,239 2,232 2,232 2,232 Aternative Investment Cost 4,381 2,208 2,460 2,460 Operation Tota 15,284 11,439 11,409 11,406 58

59 Resut of PFI Aternative Formuation q VfM Resut PFI Aternative PSC(2-1) : Estimation of construction subsidy to satisfy 6.00% of rate of return PFI Aternative PSC(2-2) 2) : Appy construction subsidy rate (49.8%) proposed by project initiator PFI(0) PSC(2-1) PFI Aternatives PSC(2-2) Rate of Return 7.24% 6.00% 6.81% Construction Subsidy/Compensation Construction Subsidy (Rate) 5,977(53.05%) 4,813(43.70%) 5,477(49.80%) Amount of Compensation 1,894 1,894 1,894 Provincia Bonds Repayment at Face Vaue 6,469 5,512 6,058 Financing Cost 1,886 1,607 1,766 Current Amount of Gov t Payment Financia Subsidy during Operating Period 3,082 3,082 3,082 Tota Gov t Payment 11,437 10,202 10,907 Current Amount of Gov t Payment 5,400 4,742 5,117 VfM 2,594 3,252 2,876 VFM Rate 32.45% 40.68% 35.98% 59

60 Thank you 60