In 2001, the Government of the Republic of Korea formulated the 10-year plan for PPI with the main objective of inducing greater private sector participation in infrastructure projects through maximization of the leverage effect of government incentives for PPI projects. The plan provides clear guidance to the private sector concerning the infrastructure investment policy of the Government and priority areas of investment. The PPI plan includes a list of 179 selected candidate projects for private investment over the plan period from 2002 to 2011 by considering their investment priority within each of the five sectors of infrastructure namely, roads, railways, ports, the environment and other facilities. By providing preliminary information on candidate projects, the plan is intended to prevent interested parties from duplicating their efforts in initial project development activities. It would also help to ensure conformity of the PPI projects with the overall development plan for each of the sectors.
The following general principles were applied in the selection of candidate projects incorporated in the plan. First, economically feasible projects were selected by considering their social costs and benefits. Second, projects that were found profitable enough if promoted as private investment projects were selected after considering their individual feasibility. The estimated rate of return on investment, level of effective operation and level of subsidy required were the factors used in determining the profitability of candidate projects. Finally, factors such as the likely concentration of regional development in the future and growth of demand were to be considered. Within the framework of these general principles, the selection criteria for each sector were established in accordance with the characteristics of the individual sectors.
In the road sector, a total of 18 projects (total project cost: W 18.87 trillion) were selected, consisting of 10 expressways, 4 bypass roads and 4 local roads. In the railway sector, a total of 15 projects (total project cost: W 13.30 trillion) were selected. These consisted of 3 main line railways, 2 metropolitan railways, 3 urban railways and 15 light rail transit (LRT) projects. In the port sector, 29 projects (project cost: W 7.0018 trillion) consisting of 23 trading ports, 2 fishing ports, 3 waterfront facilities and 1 combined passenger terminal facility were selected. In the environmental sector, a total of 39 projects (project cost: W 3.9425 trillion) consisting of 51 sewage treatment plants, 11 incineration facilities, 17 sewage sludge treatment facilities, 8 landfill gas plants, 1 food waste recycling facility and 1 refuse-derived fuel facility were selected. In the category of other facilities, a total of 20 projects (project cost: W 20.537 trillion) were selected. These projects consisted of 2 logistics projects, 13 energy and 5 tourism sector projects.
The total cost of the 179 selected private investment projects is approximately W 63.2 trillion. The net private investment is estimated at W 46.7 trillion excluding government subsidies. Of these, the total project cost for transport facilities is about W 40 trillion and the net private investment is estimated to be W 26.1 trillion. The total project cost for environmental, tourism and energy projects is estimated at W 23.2 trillion with W 20.6 trillion as net private investment. When the energy projects are excluded, as the energy sector is expected to be privatized, the net private investment in environmental and tourism projects is estimated at W 6.2 trillion.
Additionally, a review of the plan for revisions and improvement is planned to be carried out every three years in order to respond promptly to changes in the environment and conditions of the PPI market. In order to accomplish the long-term goals of the plan, a comprehensive management system is needed to divide the roles of government-financed projects and private investment projects and ensure complementarity between the two types of projects.
By implementing the plan, adequate private investment is expected to flow into the Republic of Korea's infrastructure market. This would enable the Government to allocate more funds from its limited resources to expand infrastructure facilities in underdeveloped areas of the country. Implementation of PPI projects would increase the effectiveness of resource allocation by reinforcing the principle of "he who benefits, pays" as the PPI facility users are directly responsible for paying. Within a 10-year period, the Republic of Korea is expected to take the lead in the market of private investment infrastructure projects.