The Welfare Effect of PPPs

Project evaluations of infrastructure PPPs in the Republic of Korea show they can bring welfare benefits. ADB and KDI (2011) found the welfare benefits of 14 PPP road projects in the Republic of Korea were monetized 2 years earlier than publicly built roads by opening 2 years earlier. These projects produced welfare benefits estimated at W1.46 trillion ($1.33 billion). Had these projects opened 1-year ahead of schedule, the welfare benefits would have been W623 billion ($577.90 million), W2.47 trillion ($2.29 billion) if opened 3 years ahead of schedule, and W3.30 trillion ($3.02 billion) if opened 4 years ahead of schedule. Assuming these projects were all completed in 2008, the early realization of these welfare benefits is estimated at W1.85 trillion ($1.69 billion).

The welfare effects of infrastructure PPP projects can also be seen from the perspective of net benefits. In the Republic of Korea, formal feasibility studies are conducted on candidate PPP projects to assess, among other things, their potential welfare effects, which can be calculated as net benefits. Projects that cannot deliver sufficient welfare benefits are dropped. The net benefit of PPP projects that were underway in 2012, calculated in constant prices for that year, was W2.63 trillion ($2.46 billion) (Table 8.5).

Table 8.5: Net Benefits from PPPs in the Republic of Korea, 2012

PPP = public-private partnership.

Note: Total Benefit is based on the project feasibility study, and is estimated as the cost or time savings once the project is implemented. The benefit users gain from the facility is one of expected benefits.

Source: Korea Development Institute. 2014. Comprehensive Evaluation on Public-Private Partnership Projects in Korea. Sejong.