Project Support, Financing, and Management

NO	ASPECTS	DESCRIPTION
12.	Facilities Available to Facilitate Project Structuring and Transaction Advisory	- There are numerous mechanisms to provide support to a PPP project. These include the followings: • (Governmental Financial Support) The competent authority may provide financial support to a concessionaire in the form of construction subsidies or long-term loans if it is necessary to maintain the user fee at a reasonable level; • (Assistance in securing land) In order to facilitate a PPP project, a concessionaire may use or expropriate land and other property and may entrust the competent authority with purchase of land, compensation for losses, and other affairs. The competent authority may assist a concessionaire by permitting the concessionaire to use and benefit from state-owned and public property within the area prearranged for the project without consideration; • (Exemption from Charges and Taxes) The government may exempt a PPP project fully or partially from charges and taxes such as the farmland conservation charge, the substitute forest development cost, the VAT on an infrastructure facility or construction service, the corporate tax, income tax, acquisition tax, registration tax, and property tax, etc; • (Compensation for proposal preparation expense) The competent authority compensates unsuccessful bidders as a result of the evaluation of project plans or proposals for part of expenses incurred in preparing the project plans or proposals in order to maximize the creativity and efficiency of the private sector by facilitating competitions between project proposals; • (Minimum revenue guarantee) A certain fraction of projected annual revenues may be guaranteed when the actual operating revenue falls considerably short of the projected revenue prescribed in the contract. Although it was abolished in October 2009, it is still applicable to projects with concession agreements already completed; • (Investment risk-sharing system) The government pays the amount of shortfall when the actual operation revenue is less than the level of risk-sharing revenue, and the government subsidies are redeemed on the basis of realized payments. For details refer to #14 below; • (Credit guarantees and buyout options) Through the Infra Credit Guarantee Fund (ICGF), credit guarantees for PPP project financing are provided to enhance the timely payment of debt service. Other buyout options are prepared for force majeure and specific events.
13.	Role of Local Government	- Local government acts as a competent authority when the project is subsidized by the central government and implemented by the local government or an inherently local project. It shall take charge of the concomitant works in relation to the implementation, management, and operation of PPP projects. Refer to #2 for the details of role of a competent authority.
14.	Risk Sharing Policies/ Practices	- (Principles for allocation of risks) Risks related to the implementation of a PPP project shall be classified into risks respectively caused by the government's fault, the concessionaire's fault, and a force majeure according to the kinds of fault. The specific types of risk, the classification and allocation of risks caused by each kind of fault shall be stipulated in the concession agreement. In principle, risks caused by the government's faults shall be taken by the government, while risks caused by a concessionaire's faults shall be taken by the concessionaire in such cases. The costs incurred by a force majeure and uncovered by insurance shall be shared according to mutual agreement. In this case, the competent authority bears 80% of the costs for a non-political case, and 90% for a political case as a rule. - (Investment risk-sharing) With the MRG, a certain fraction of projected annual revenues may be guaranteed when the actual operating revenue falls considerably short of the projected revenue prescribed in the contract. Although it was abolished in October 2009, it is still applicable to projects with concession agreements already completed. Under the newly introduced risk-sharing mechanism to replace the MRG, the government shares the revenue forecast risk with the private sector by compensating, so-called "risk-sharing revenues (base costs)" of the project, i.e., the sum of private investment costs and the interest rate of government bonds. Subsidies are given only when the actual operational revenue is higher than 50% of the risk-sharing revenue, and are redeemed when the actual operational revenue exceeds the risk-sharing revenue. This new mechanism applies only for government-solicited projects with significant public benefits. - (Interest Risk-sharing in BTL projects) The competent authority may share the risk of interest rate changes partially in order to implement BTL PPP projects smoothly if the interest rate changes suddenly due to financial market conditions. - (Right to request buyout) The concessionaire of a revertible infrastructure facility may request the government to purchase the projects if it is impossible to build or manage and operate the facility due to a natural disaster or a force majeure.
15.	Financing Mix Options Allowed	- (Equity ratio requirement) The financing arranged by the concessionaire should consist of equity and debt, and the concessionaire must comply with the minimum equity capital requirement ratio stipulated in the PPP Basic Plan. In principle, the ratio for a BTO PPP project is 20% during construction, and 10% during operational period. As for BTL project, the minimum equity capital ratio of a concessionaire may be agreed flexibly within the range between 5% and 15% of the total private project cost to the extent that investors' responsibility for construction and operation can be guaranteed, taking into consideration the level of risks in each project, other requirements for guarantee and insurance, etc. The ratio of a project with total project cost of less than KRW 100 billion, however, shall be 5% of the total private project cost in principle. - (Refinancing) Concessionaire may change investors' share, capital structure, debt financing condition, and so forth after a concession agreement has been concluded. In this case, the concessionaire is required to notify the competent authority on refinancing plans in advance, and to obtain a approval from the competent authority. The competent authority and the concessionaire share the gain resulting from the refinancing on a 50:50 as a rule. For those projects without MRG or investment risk-sharing clause, however, a 30:70 rule is applied instead. - (Government support) The government may grant a construction subsidy or extend a long-term loan to the concessionaire, if it is required to maintain the user fee at an appropriate level. The amount of construction subsidy is determined in each individual concession agreement.
16.	PPP Promotions/ Marketing Mechanisms	- Where the competent authority formulates or modifies the master plan for facilities project, it shall give public notice of a request for proposals through the Official Gazette and three or more daily newspapers and shall also publish it through the website of the PIMAC in such cases. For a project with a total project cost not less than KRW 200 billion, the competent authority shall first bring the case to the PRC for review and shall state essential contents of the plan in English additionally. - In case there is no project proposal submitted by the private sector within the specified deadline indicated in the RFP (at least 90 days), the competent authority may give public notice thereof again only once within 6 months from the original deadline.
17.	Monitoring and Evaluation	- Ex-post management and monitoring during operation is conducted by the public sector, usually the competent authority. PPP projects in the Republic of Korea are managed by each competent authority, and the management structure is stipulated in each concession agreement. Each competent authority manages projects by controlling guidelines for concession agreements and receiving project progress reports. - The competent authorities must carry out performance evaluations on all BTL PPP projects periodically and submit the results to the MOSF on a semiannual basis. Government payments to the concessionaire will vary depending upon the performance evaluation results.
18.	Dispute Resolution Mechanism	- Through revision of the PPP Act in November 2011, a PPP Dispute Resolution Committee has been established under the MOSF as a means to resolve any dispute involving PPP projects. The Committee conducts fair mediation of disputes that are difficult to be settled by the parties involved because of disagreements over unexpected incidents. The committee is composed of no more than nine members; one chairperson, other members who represent the government, the concessionaire and the public interest. The Committee shall submit a written draft of mediation within 90 days from the date of request for dispute resolution. This may further extend up to 60 days.