Table 2. Private infrastructure investment, 1994-1998 (number of projects)

Source: Kyubang Lee, "Introduction to PPI System and PICKO", paper presented at the Seminar in Commemoration of the Establishment of PICKO, (KRIHS, 1999), p. 30.

As indicated in table 2, the ambitious PPI programme did not result in successful completion of the majority of the projects. No concessionaire could be designated for 44 projects out of the total 100 projects. Insufficient incentive measures, lack of transparency, complicated procedures, non-conformity with global standards and unsatisfactory risk-sharing mechanisms were often cited as causes of dismal performance of the programme. The Asian financial crisis of 1997 worsened the situation further. In 1998, the GDP growth rate hit an unprecedented negative rate of 6.7 per cent, inflation rose to 7.5 per cent and the interest rate reached 15.1 per cent.

The limited success of this initial effort led the Government to introduce a new PPI law for the country, which could revive the programme and address the concerns of private investors. Accordingly, the Act on Private Participation in Infrastructure was enacted in December 1998. This measure was also taken in response to the financial crisis. As tax revenues dropped significantly less resources were available. Furthermore, most of the budget was allocated to industrial and financial restructuring and growing demands for infrastructure development were ignored in an effort to revive the economy.

A comparison of the main features of the old and new PPI regimes is provided in table 3. As can be seen from the table, the new regime provides for systematic government support, transparent bidding requirements and more incentives for the private sector. These incentives include bonus evaluation points to the initial proposer of unsolicited bids, minimum revenue guarantees, foreign exchange risk guarantees, etc. The amended PPI law also defines clear and simplified procedures to be followed for both solicited and unsolicited projects. It may be mentioned here that the old PPI law did not have any provision for unsolicited projects.