KDI - Korea Development Institute - RESEARCH - Research Areas - Public and Private Infrastructure Investment

Summary

KDI Policy Forum Analysis and Implications of the Determinants of CIRR for the Seamless Execution of PPP Projects

■ The contracted internal rate of return (CIRR) of Korea's public-private-partnership (PPP) projects does not properly reflect the risks associated with the different types and characteristics of facilities and government support. Rather, the rates are set at the same level as similar preceding projects.

- The characteristics of a project, e.g. facility type, amount of private investment, and operation period, and the ensuing risks are not sufficiently reflected in the decisions over CIRR. Moreover, the construction subsidy―a government risk-sharing and support policy―inadequately contributes to lowering the rate.

- The project review period and VfM test do not have a meaningful effect on determining the CIRR, implying that project evaluations and analyses need to be improved.

■ For the seamless execution and invigoration of PPP projects and lower user fees, the CIRR must be fixed at an appropriate level through more active negotiations and efforts in addition to taking the CIRR of similar existing PPP projects into account.

- A significantly low CIRR relative to the risks could diminish the incentive to privately invest or could even lead to the bankruptcy of an ongoing project. On the other hand, an excessively high rate could raise the user fee or necessitate larger government subsidies.

- To determine the suitable CIRR, the risks and effects of government support must be analyzed. In particular, policies that encourage competition in the PPP market must be developed to lower user fees through policies, e.g. transparent disclosure of information, simplified implementation procedures, increased provision of guarantees, and the provision of compensation for the cost of failed proposals, etc.

Summary

Other Research Realizing the Potential of Public-Private Partnerships to Advance Asia's Infrastructure Development

This book is an outcome of the collaboration between the Economic Research and Regional Cooperation Department (ERCD) of the Asian Development Bank (ADB) and the Korea Development Institute (KDI) under ADB’s regional technical assistance research project—Asian Development Outlook (ADO) 2016–2018. The project supports the production of the ADO, one of ADB’s flagship knowledge products. This book was born out of the theme chapter—Sustaining Development through Public–Private Partnership—of the Asian Development Outlook 2017 Update. The chapter, coauthored by members of ADB and KDI and Akash Deep, senior lecturer in public policy at the Harvard Kennedy School, examined the state of public–private partnerships (PPP) in developing Asia, and how these partnerships can contribute to economic growth and poverty reduction. It also discussed how PPPs can be used to meet developing Asia’s infrastructure needs and contribute to sustainable development. This book contains the background papers that were used in the preparation of the theme chapter. All the papers have been updated and expanded for this book.

- Despite the rapid economic progress, Asian countries are still troubled by deficits in the infrastructure for electricity, transportation, water supply, sanitation, etc., increasing the demand for PPPs which efficiently utilizes private capital and expertise.

○ Developing infrastructure serves as a key factor not only in a region’s economic development but also in urbanization and building a stronger value chains.

- The report focuses on the prospect of PPP-driven infrastructure development in Asian countries and the risks challenging them. There are also insights into Korea’s advanced PPP system and its experiences and lessons and the importance of efficient financing mechanisms.

○ Chapter 1 evaluates the benefits and risks of PPP projects.

○ Chapter 2 analyzes factors affecting the financing for PPPs and suggests methods for syndicated loans and risk mitigation.

○ Chapter 3 details Korea’s experiences with PPPs and the implications, and compares the current condition and system of Korea, the Philippines and Indonesia as a way to explore the future direction for successful PPPs in Asian countries.

Summary

Research Monograph KOR Enhancing Public-Private Partnerships for Social Innovation

Defined as a new idea that creates a collaborative structure, social innovation is an integrated process that generates substantial and sustainable social impact through new creative approaches and effectively responds to social demands. Until now, the direction of social innovation in Korea has progressed in the form of limited participation under government control and has been limited to specific fields. In other words, despite Korea’s efforts, the pursuit of social innovation does not seem to be as effective as expected.

Given this background, this study presents effective directions for role sharing between the government and private sector in order to promote social innovation. Part 1 discusses ways to promote public-private cooperation to improve regulatory effectiveness by examining ways to institutionally activate Public-Private Partnerships(PPP). In particular, it focuses on regulatory policy by finding areas for more active public-private cooperation. To that end, measures to enhance PPP were reviewed in terms of ① regulatory policy cycles, ② regulatory governance perspective, ③ regulatory methods that are applicable to individual issues and ④ stakeholder consultation. The section concludes by emphasizing the need for measures to actively consider PPP from the regulatory design stage; strengthen the autonomy of the private sector through regulations on output standards and; revitalize private-public cooperation.

Part 2 introduces the new PPP system, Social Impact Bond (SIB), as a new financial model, in order to promote the efficiency of public services. Although PPP is not a common practice in social welfare in Korea, the section discusses practical alternatives to apply to the social welfare field focusing on the concept, characteristics, operating structure and financing model of SIB. Additionally, it analyzes the determinants of SIB participation through survey results. Finally policy implications are presented, centering on the urgent tasks to invigorate SIB at each implementation stage.

Lastly, part 3 discusses ways to improve the public service of SOC public works projects. For the analysis, investment efficiency is examined in order to improve the publicness according to the benefit principle though which a comparative analysis between the government and private alternatives is conducted. Based on the results, the alternatives for maximizing the effect of PPP projects are suggested.

This study focuses on social innovation through PPP among the various social innovation methods to advance our society. In particular, it concentrates on institutional complementation in terms of regulatory policy, introduction of a new public service delivery system and improvement of public awareness centering on SOC. Ultimately, it provides policy implications that can offer practical assistance to our society.

Summary

Policy Study KOR Analysis on the Determinants of the IRR of Korean PPP Projects

The purpose of attracting private investment in the construction and operation of social overhead capital (SOC) is to maximize efficiency in the management of and investment in social overhead facilities by replenishing insufficient funds and injecting creativity and innovation from the private sector.

Korea’s Public-Private Partnership (PPP) system―implemented through the Promotion of Private Capital in Social Overhead Capital Investment Act (1994)―initiated the early expansion of social overhead facilities which contributed to economic growth and improving public benefits. Nevertheless, concerns have been raised over the validity of PPP projects due to an unexpected increase in the government’s financial burden resulting from the minimum revenue guarantee (MRG) and termination payments. In particular, the sustainability of PPP projects has been called into question and has even become a social issue because of the relatively high user fees compared to the budgetary projects, among others.

Accordingly, this study attempts to indirectly examine the accomplishments of PPP policies designed to lessen or divide the risks of PPP projects over the past two decades. It analyzed the determinants of the contracted internal rate of return (IRR) to provide implications for enhancing the effectiveness and publicness of government support so that future PPP projects are conducted in a well coordinated manner.

The analysis results revealed that the contracted IRR of build-transfer-operate (BTO) projects do not have a statistically meaningful relationship with the 5-year government bond yield―which shows the conditions in the financing market. This is because large-scale BTO projects have too many hurdles for SMEs to work through, and for that reason, all of the participants are large construction and financial firms. This means that respective participants’ ability to finance a project is more important than general financial market conditions. Moreover, in most cases, a participating financial firm serves as both shareholder and borrower, meaning that there is no incentive for the firm to make an effort to obtain loans with low rates. On the other hand, a statistically meaningful positive correlation between the financing rate and contracted IRR was found for build-transfer-lease (BTL) projects, which has SMEs as investors and separates shareholders and borrowers. In short, the overall changes in financial market conditions or the level of financing rates could greatly affect the level of the contracted IRR of a BTL project while BTO projects are affected more by individual private investors’ financing ability and the composition of investors and borrowers than by financing market conditions.

Second, the government’s risk sharing policies and specific project features such as facility type, investment amount, construction subsidy and MRG conditions were found to little affect the decisions regarding contracted IRRs.

Given that project risks can systemically vary depending on the type of facility, it was initially thought that the contracted IRR could also significantly vary, but the difference was found to be statistically insignificant. Expert opinions and surveys should be taken into account to better identify and understand the characteristics of PPP projects by type, and the government should have a fully established policy direction and support principle with regards to risk management and allocation.

It was also thought that as the size of the total project cost increases, the degree of risk aversion could rise and the ensuing increase in the required return of rate could raise the contracted IRR. However, no meaningful significance was observed. On the contrary, BTL projects―although the effect is minimal―caused a decrease in the ‘alpha (α)’ additional rate (an indicator of the contracted additional rate) as the size of the PPP project cost rises. This appears to be due to the fact that the risks of BTL projects are very small, unlike BTO projects, and thus, large-scale PPP projects are regarded as stable investments from a long-term perspective.

In addition, operational and investment risks can escalate as the period of operation lengthens and growing uncertainties over future risks could entail a high long-term investment premium which would raise the required return of rate. Nevertheless, the results revealed that the operation period did not significantly impact the decisions on the contracted IRR of BTO projects while having a slight impact on the contracted additional rate of BTL projects. Hence, overall, the characteristics of the operation period have not been properly reflected in the contracted IRR.

Meanwhile, construction subsidies, which are directly paid by the government to private concessionaires during the construction period, were found to contribute to lowering the contracted IRR of PPP projects, but the effect was found to be insignificant. The analysis found that in BTO projects, a 1% increase in construction subsidy relative to total project cost causes a reduction of 0.008% in the contractual IRR.

Above all, this study found no contribution from the MRG system to lowering the contracted IRR, and this casts doubt on the effectiveness of the government’s risk allocation policy. Despite the fact that the MRG system―which is designed to make up for the shortage if the actual yearly operating income falls short of the initially estimated income in the concession agreement―can serve as an effective risk-sharing method to sharply reduce the contracted IRR, projects with MRG conditions were found to have concluded with a 0.59% higher contracted IRR at a 99% confidence level. Furthermore, the contracted IRR of MRG-inclusive projects was found to be higher than those without such conditions in an analysis of only road projects. It is assumed that this is because the contracted IRR was set very high during the intial period of the PPP system and subsequent projects were concluded by simply referring to preceding projects without considering the inclusion of the MRG.

Thirdly, the VfM test was also found to slightly contribute to lowering the contracted IRR. The test decides on a PPP project based on a comparison of the total life cycle cost (LCC) of the public sector comparator (PSC) and private finance initiative (PFI). As such, a project will unlikely pass the test if there is an increase in the rate of return as it will weigh on the government’s financial burden. To put it another way, the contracted IRR of a project which has passed the VfM test is more likely to be lowered compared to a project which has failed the test. However, the difference in the contracted IRR between such projects was found to be statistically insignificant, implying that the contents and methods of the VfM test need to be updated. In conducting the VfM test, it is also necessary to quantify project risks and risk-sharing that derive from facility type and the government’s support policy and to reflect them properly.

What should be particularly noted in this study is the effect of the degree of market competition (competition rate) on the contracted IRR. For BTO projects, one additional competitor reduces the contracted IRR by approximately 0.25%, suggesting that the level of the contracted IRR is closely related to the number of competing participants. Considering that encouraging competition could lead to a decrease in the contracted IRR and eventually a reduction in construction subsidies and user fees, the government should aim to enhance the competition rate to strengthen the publicness of future PPP projects.

Under the current PPP system, only large firms can afford the time and expenses required for project proposal, evaluation and negotiation, which poses an obstacle to new market entrants. Simplified processes are needed to save time and money and active participation in PPP projects should be encouraged by enabling easier financing and lower rates to reduce the contracted IRR.

This study has its own limitations. Future studies need to closely examine the impact from private-sector concessionaires and project characteristics on the contracted IRR. Depending on their financing ability, credit rating, PPP experience, and knowledge and know-how about the construction and operation of specific facilities, project concessionaries may present different attitudes and decisions, which could affect the decisions over the contracted IRR.

Further analyses should include accumulating data on project funding and its equity structure; private investors’ experiences and characteristics; construction investors’ average construction margin; operation investors’ operation margin and; loan interest rates for the actual financial arrangement. Additionally, in-depth analyses of the impact of these variables should follow.

Summary

Policy Study KOR Decision Making in Deep Uncertainty: Focusing on Transport Planning and Feasibility Studies

Despite the progress in the assessment of transport planning and facilities investment, uncertainties in regards to the results are ever mounting. Unreliable traffic volume forecasting, in particular, has become the biggest financial risk in private investment and the fiscal costs incurred by the minimum revenue guarantee (MRG) and project bankruptcy are the biggest obstacles in the implementation of Public-Private Partnership (PPP) projects. Indeed, numerous PPP projects including the Incheon International Airport Expressway and Nonsan-Cheonan Expressway revealed that the actual traffic volume was far below the level agreed upon in the concession agreement, which has driven up fiscal costs and even put some projects such as the Uijeongbu Light Rail Transit into bankruptcy.

This study aims to present an analysis framework and suggest a selection of robust policies for when uncertainty runs deep. Desirable policy directions and agreement conditions are presented to enhance the sustainability of PPP projects. Specifically, a reduction in passenger fares and in MRG conditions is proposed, which would minimize the risks of bankruptcy and fallout from the additional fiscal burden on the government.

The method used in this study is the vulnerability-and-response-option approach which is a bottom-up approach that first considers the uncertainties in traffic volume forecasting or the underlying vulnerabilities and negative outcomes in PPP projects before presenting the optimal responses. It should be noted that the prevailing method is the predict-then-act method which is a top-down approach through which concession agreements are reached and implemented based on the assumption that traffic forecasts are accurate.

Based on the results from the analyzed PPP projects, it was found that the government’s fiscal burden could be minimized and the net present value (NPV) of projects maximized when: passenger fares are reduced to 86% of the current level and the actual revenue exceeds 60% of the expected level (or 50% of the current level) and; when 70% of the expected revenue (or 80% of the current revenue) can be guaranteed for five years after the commencement date and 62% of the expected revenue (or 70% of the current revenue) for 25 years thereafter. Furthermore, these conditions are expected to reduce the MRG payment from an average 448 billion won to 5.5 billion won and the NPV from 412.6 billion won to 71 billion won, implying that they could minimize the risk of bankruptcy and additional costs while also reducing passenger fares.

The policy suggestions are as follows. Efforts are needed to manage the contingent liabilities that can occur from government support or guarantee for PPP projects. As shown through the PPP projects in this study, implementing projects simply based on the assumption that traffic volume forecasts are accurate without an examination into the risks can ramp up the MRG payment and fiscal costs resulting from bankruptcies.

The dissemination and sharing of information on the associated risks is important in the implementation of PPP projects. For instance, empirical data on the inherent uncertainties in traffic volume forecasting is needed in order to preemptively recognize the underlying risks in feasibility evaluations so that more rational decisions can be made. Details on traffic volume forecasting should also be made transparent as openness and discussion on the forecast results will enable a better understanding of the risks.
Besides the aforementioned method, other measures to minimize the uncertainties in the short-term should be considered. PPP projects that involve low-forecasting risks should be actively implemented including those to improve aging and neglected facilities.

The vulnerability-and-response-option is unlike the existing predict-then-act method. This new approach is currently but rarely applied in the field of water management in Korea as a part of its efforts against climate change; there are no other cases of robust decision approaches in PPP projects in other countries. Therefore, applying this approach entails the following issues and limitations.

Above all, traffic volume was used as a variable for deep uncertainty in this study and the Geometrical Brownian Motion (GBM) model was used to assume the probability distribution of the traffic volume variable. And, by using the parameters of the GBM model, i.e. increase rate and volatility in traffic volume, a simulation was conducted of future traffic volumes. However, the accuracy of the actual traffic volume depends on analysts’ assumptions on and probability distribution model for the probability distribution of the traffic volume variable, which could, in turn, change the Pareto optimal solution. It should be noted that caution is needed when establishing the range for the strategy variable. In this study, the range (lower and upper limits) was based on the assumed minimum and maximum of conditions that are applicable to stakeholders. But, this range may also affect the pursuit of Pareto optimality. In this regard, prior consultation between stakeholders is important to establish the range of strategy variables.

Lastly, this study used two objective functions―performance indicators―to explore strategy variables with ‘robust’ Pareto optimal solutions that could minimize the fiscal costs generated by the MRG and maximize the NPV of PPP projects when there are deep uncertainties in traffic volume forecasting. This study, however, does not include discussions and analyses on how much Pareto weight should be given to each performance (objective) indicator. Indeed, despite the fact that performance indicators serve as the basis for final strategy decisions in trade-offs between the interests of the government and private project operators, this study only deals with cases wherein the weighting of the performance indicators (objective functions) is difficult or impossible.

Summary

Policy Study KOR Valuation of the Minimum Revenue Guarantee in the Urban Railway PPP Project

In the revised Act on Public-Private Partnerships in Infrastructure on Dec. 31, 2000, Korea introduced a system that is designed to reduce traffic forecasting risk by guaranteeing the minimum revenue. Accordingly, large-scale PPP projects for road, railway, airport, environment and logistics infrastructure have been initiated including the option of the Minimum Revenue Guarantee (MRG). The MRG system has been indeed a significant contributor to the promotion of the large-scale Build-Transfer-Operate (BTO) projects, but the system has its own structural problem that the private concessionaire might try to intentionally overestimate the traffic flow.

This study is to calculate the economic value of the minimum revenue guarantee in the concession agreement of the ongoing OOO PPP urban railway project. According to the agreement, when the actual revenue exceeds 50% of the agreed revenue in the given year, the government shall guarantee 80% of the agreed revenue from the date of commencement of operation until the end date of the five-year period and 70% from the day following the end date of the five-year period until the end date of the ten-year period. When the actual revenue exceeds more than 120% of the agreed revenue from the date of commencement of operation until the end date of the five-year period and 130% from the day following the end date of the five-year period until the end date of the ten-year period, the government shall collect the overage.

The analysis found that provided the risk-free rate of return is 5.5%, the value of (put) option of the MRG right, the private concessionaire holds on the OOO PPP urban railway, is 209.8 trillion won, which is merely 3.45% of the private concessionaire’s total investment (607.8 billion won as of 2002). Meanwhile, the value of (call) option of the collection right the government holds is 5.2 trillion won, which is merely 0.09% of the government’s construction subsidy (561.1 billion won), implying that it is highly unlikely that the actual traffic flow of the OOO railway will exceed the agreed(forecasted) traffic flow. These low probabilities are due to the fact the MRG option is applied only to a limited period, early ten years (a third) of the total 30-year duration and that, in particular, the actual revenue is unlikely to exceed 50% of the agreed revenue of the given year.

Meanwhile, the yearly changes in the government subsidy for MRG following the year of commencement of operation shows a propensity that the (expected) government subsidy for MRG payment decreases over time, which is due to the declining probability that the actual revenue will exceed 50% of the agreed (forecasted) traffic revenue.
The analysis also found that a rise in traffic flows does not cause a significant increase in the value of the MRG right, which is because the revenue from the increased traffic flows will not most likely to reach the level of feasible exercise condition (when the actual revenue exceeds 50% of the agreed revenue) for the MRG option. On the other hand, when the traffic flow increases, the value of (put) option of the MRG right the private concessionaire holds and that of (call) option of the collection right the government holds tend to increase, though marginally, which is because the increase in the traffic flow will provide the private concessionaire with a better chance to satisfy feasible exercise conditions for the MRG option and also the government the same to collect the excess amount of revenue.

This study re-analyzed the values of the MRG and the collection option, and obtained the result that the two values turned out to be symmetric at a level of around 55% of the MRG rate after maintaining the current ten-year duration for MRG and excess revenue collection but changing the feasible exercise condition for MRG and excess revenue collection.

The feasible exercise condition for the MRG which guarantees the operating revenue only when the actual revenue exceeds 50% of the agreed revenue was adopted for the purpose of preventing the concessionaire intensionally trying to overestimate traffic flows. It was concluded if no feasible exercise conditions are attached (meaning 0%), the value of the MRG option for ten years would be 232.98 billion won, which is larger by 11 times compared to this project with the feasible exercise condition attached (20.98 billion won) and is also estimated to be approximately 38.33% of the total private investment expenses (607.8 billion won as of 2002). To put it another way, the feasible exercise condition for the MRG has acted to greatly reduce the (expected) government subsidy, which as a result has significantly discouraged the private concessionaire’s expectation of a huge profit. It means that the feasible exercise condition for the MRG can be seen as having playing a significant role in improving the eligibility of private investment projects and rectifying the asymmetric option conditions between government and private concessionaire. This result implies the importance of what terms and conditions and in what way they should be included in the concession agreement between government and private operator to deal with systemic propensity or problems of overestimating traffic flows.

Summary

Policy Study KOR Valuing the Risks Created by Road Transport Demand Forecasting in PPP Projects

The participation of private capital in public infrastructure (PPP) investment projects has been sought by Korea governments since 1994 to overcome mainly budgetary constraints and foster economic growth. With more than 20 years' experiences in the PPP, establishing the institutional setting for a mature PPP market has been succeeded. However, there are still facing challenges that need to be resolved to vitalize the PPP. In particular, minimizing the traffic forecasting risk and identification of the value of the risk in PPP road projects are emerged as key factors which can move forward.

This paper suggests a way to identify the traffic demand risk and assess the market value of the risk in PPP road projects. The variation of forecasted traffic is analyzed according to the changes of given origin-destination demand, and the volatility and growth rate of the traffic in PPP road projects are estimated based on the operated PPP and government funded toll road projects. To simulate future traffic, the future traffic's variation is assumed to be followed on the Geometric Brownian Motion(GBM). While, Capital Asset Pricing Model is applied to estimate the traffic demand risk premium using the construction companies' stock market data from July 2001 to December 2011.

It is concluded that the market price of the traffic demand risk ranges 0.42~0.45 implying when the volatility of traffic demand is changed by 1%,, the traffic risk premium is changed by 0.42%~ 0.45%.

It is expected that the mark price of the risk can be used to assess the value of guarantees which are related to the traffic and allows the government to analyze the cost/benefit of each level of support. It also enables to propose alternative to limit exposure of the government while still maintaining the benefits to the private sector.

Summary

Other Research Public-Private Partnership Infrastructure Projects: Case Studies from the Republic of Korea (Volume 1)

Under the Technical Assistance Collaboration Agreement with the Asian Development Bank (ADB), recognizing the need to facilitate Public Private Partnership (PPP) in developing member countries, Korea Development Institute (KDI) produced this publication based on Korean experience of PPP over the last decade. With reflection of the Korean PPP procurement scheme, the current publication tries to present not only case studies on institutional arrangements for PPP in the Republic of Korea but also the policies and evidences of maximizing benefits and value for money of PPP while minimizing downsides and risks.
This book is divided into two volumes of case studies presenting the experience with PPP infrastructure projects in the Republic of Korea, along with appendixes. The first volume examines the institutional framework of the Korean PPP system, its performance, and recent strategies and initiatives for effective PPP implementation and management. The second volume summarizes cases involving BTO port and BTL educational facility projects. In the appendixes, a global country comparison is provided, including country PPP frameworks and case studies.

Summary

Other Research Public-Private Partnership Infrastructure Projects: Case Studies from the Republic of Korea (Volume 2)

Executive Summary
Background

Volume 2: Cases of Build-Transfer-Operate Projects for Ports and Build-Transfer-Lease Projects for Education Facilities
　
Overview of Public-Private Partnerships by Sector in the Republic of Korea

Part 1: Build-Transfer-Operate Projects for Port Facilities

　Background and Scope of Study
　　Background and Purpose of Study
　　Scope of Study
　Management of and Investment in Ports in the Republic of Korea
　　Outline: Port Development
　Actual Investments in Port Development by Investor Groups
　　Fiscal Investment in Port Development
　　Public-Private Partnership Projects According to the PPP Act
　　Investment by Non-Competent Authorities
　　Investment by Public Corporations
　　Summing Up
　Analysis of Public-Private Partnerships for Port Facilities by Implementation Phases
　　Designation of a Potential Project
　　Formulation and Announcement of a Request for Proposal
　　Submission of Project Proposals
　　Evaluation of Project Proposals
　　Negotiations and Designation of a Concessionaire
　　Submission and Approval of a Detailed Engineering and Design Plan for Implementation
　　Construction Completion and Operation 46
　Performance Evaluation of Public-Private Partnership Port Projects
　　Present Status
　　Survey
　　Performance Evaluation
　Major Issues of Public-Private Partnership Port Projects
　　Feasibility Study
　　Restrictions for Project Implementation Schemes
　　Request for Proposals
　　Calculation of Total Project Costs
　　Optimum Rate of Return
　　Cargo Throughput Estimation
　　Free Use Period
　　User Fee and Minimum Revenue Guarantee
　　Refinancing and Profit Sharing
　Conditions for Successful Implementation of Public-Private Partnership Port Projects
　　Conduct of Feasibility Study
　　Application of Trigger Rule in Public-Private Partnership Port Projects
　　Securing and Using Expertise
　　System Improvement and Project Monitoring

Part 2: Build-Transfer-Lease Method for Education Facilities

　Background
　Status of Korean School Facilities and Changes in Policy Environment
　　Conditions of School Facilities and the Investment Situation
　　Changes in the Policy Environment for School Facilities
　Expanded Private Participation in School Facilities
　　Build-Transfer-Lease System for School Facilities
　　Build-Transfer-Lease Projects and Their Types
　　Status of Build-Transfer-Lease Projects for School Facilities and Mid- to Long-Term Investment Plans
　　Mid- to Long-Term Investment Plans for Build-Transfer-Lease School Projects
　Major Implementation Procedures of Build-Transfer-Lease Projects for School Facilities
　　Implementation Procedures of Build-Transfer-Lease Projects and Major Roles among Involved Parties
　　Detailed Guidelines of Build-Transfer-Lease Projects by Major Procedure
　Major Issues and Improvement Measures in the Project Implementation Process
　　Major Issues for Promotion of Build-Transfer-Lease Projects
　　Issues Concerning Efficient Post-Construction Management
　Performance Analysis of Build-Transfer-Lease Projects for School Facilities
　　Performance Evaluation Methodology
　　Evaluation and Analysis of Efficiency
　　Cost Overrun
　　Time Overrun
　　Evaluation and Analysis of Satisfaction with Build-Transfer-Lease School Projects
　　Survey of Competent Authorities and Project Participants

Conclusion

References
Appendixes
　Appendix 1-A: Investment Systems for Port Development in Major Countries
　Appendix 1-B: Build-Transfer-Lease Projects for School Facilities

Summary

Policy Study KOR Welfare Analysis of Public Private Partnership and the Optimal Fiscal Policy

This study uses a dynamic general equilibrium model to compare and analyze the differences of welfare in government project and BTL project. Unlike the government which must maintain a balance between revenue and expenditure, the Public Private Partnership (PPP) which can overcome such budget limitation has proved to be a good alternative to improve the welfare of the national economy. Also, if the government executes effective PPP projects by perceiving future rent as potential cost, it is proved that the high quality public service could be avail-able using the same amount of government revenue.

Given the ongoing discussion on financial burden on the government side, it is necessary to estimate the changes in the national economic welfare incurred by excessive expansion of PPP. Therefore, in this study, assuming that the rent of BTL project was not estimated, potential changes in the national economic welfare caused by the temporary expansion of PPP projects were calculated using a simulation test. The result is that com-pared to conventional government projects, the welfare could be reduced by minimum7% and maximum 15%.

Lastly, this study recommends one of the several alternatives to retrieve the welfare loss of the national economy caused by a temporal expansion of PPP project. The result suggests policy implications as follows: Even when PPP project is expanded and executed without expecting the rent of BTL project to be produced in the future, it is necessary to continue the PPP project. This is because when all the conditions remain the same and the government is not able to overcome the budget limitation, it is possible that PPP project might work as a better alternative to government project.

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