PPP Project Identification and Screening

• Republic of Korea
- Hyeyoung Kim, Principal Policy Advisor

10/28/2021 1
Global Infrastructure Hub
A G20 organisation

• Independent organisation established by the G20 to increase the flow and quality of infrastructure
investment opportunities in all countries

Funded by
Australia United Kingdom

Saudi Arabia Republic of Korea

People’s Republic of China New Zealand

Singapore Mexico

• Staffed by infrastructure specialists from the public and private sectors of various countries

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Our mandate
An ambitious program

• Launched by the G20, the Global Infrastructure Hub is mandated to grow the global pipeline of quality,
bankable infrastructure projects.

• We have the ambitious goal to increase the flow and the quality of opportunities for private and public
infrastructure investment in G20 and non-G20 countries by:
• facilitating knowledge sharing;
• highlighting reform opportunities; and
• connecting the public and private sectors.

• Our size, independence, unique mix of expertise, and our international scope gives us speed and agility.

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 Contents
I. Background
II. Overview
III. Project Identification
IV. Feasibility Assessment
V. VFM Assessment
VI. Conclusion

Global Infrastructure Hub With thankful acknowledgement of valuable resources of Korea Development Institute 4
Background
PPPs in Korea
 Legal Inception of PPPs  PPP Policy Statement
o In 1994, Act for the Promotion of Private Capital o PPP Basic Plan
Investment in Social Overhead Capital o Annual announcement by Ministry of Strategy
o Revised to Act for PPP in Infrastructure in 1999 and Finance (MOSF)
(1999 PPP Act)
 PPP Unit
 PPP Implementation type o Korea Development Institute Public and Private
o User-Pay type : mainly Build –Transfer-Operate
Infrastructure Investment Management Center
(‘BTO’), also BOT or BOO
(KDI PIMAC)
o Government-Pay type : Build –Transfer-
Lease(‘BTL’)
 Sources of PIMAC Authority
o PPP Act creates PIMAC
 Size of PPP delivery o Preliminary Feasibility Study for public financing
o 684 Projects (1994~2015)
projects under the National Finance Act
o Majority (number, investment size) is in transport
sector

Global Infrastructure Hub With thankful acknowledgement of valuable resources of Korea Development Institute 5
Overview

Project Identification
Solicited Projects : line ministry’s infrastructure planning or MOSF’s
Unsolicited projects
PFS for budget allocation

Feasibility Assessment
Analytic Hierarchy Process-based decision-making process
PIMAC 's screening
(Economic, Policy, Balanced Regional Development Analysis)

VFM Assessment
PIMAC's appraisal & Establishing PFI alternative

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 Project Identification
PPP solicited project (1) by Line Ministry

Infrastructure Plans (Ministry of Land, Infrastructure and Transport) PPP Unit (KDI PIMAC)

 (Transport) National Core Transport Network Plan, Mid-Term  Final analysis for PPP identification
Investment Plan, Sector Infrastructure Plan (Road, Railway, etc.) o Large Scale
o Investment priority o Above Preliminary Feasibility Study
o Building of project pipelines threshold
o Seeking for Investment efficiency through PPP alternatives
 Unified Methodology in Feasibility
 (Methodology) Guidelines for the Evaluation of Investments in Assessment as PFS for public financing
Public Transport Facilities Development Projects o Economic, Policy, Balanced regional
o Feasibility test based on Economic analysis and comprehensive development analysis
evaluations  Suitability for PPP
o Financial feasibility for PPP o Financial analysis
o VFM

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 Project Identification
PPP solicited project (2) during budget allocation

Budget allocation(Ministry of Strategy and Finance) PPP Unit(KDI PIMAC)

 PFS for large construction works under the National  PFS & PPP project analysis
Finance Act.
o Same methodology for feasibility assessment
 Linkage between budget process and PPP
identification  Suitability for PPP(previously)
o (previously) Checklist
o (MOSF) Should request for PPP suitability opinion to
 Level 1 ; Feasibility in law and policy, PPP
KDI PIMAC in conjunction with PFS implementation method,
 Level 2 ; Ease of management, Creativity and
o (PIMAC) Mandatory process during PFS to review
efficiency, Risk distribution, Effects on public sector)
whether PFI alternative is more efficient o (recent arrangement) mandatory VFM assessment
during PFS in addition to checklist

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Project Identification
Unsolicited Project

Private party
• Considering Infrastructure plan and project pipeline
• Voluntary search for PPP projects
• Business judgement

Competent Authority
• May reject the proposals in exceptional case when the proposals are not complying with upper-level of
plans or policy
• Should send proposals to PIMAC for review

KDI PIMAC
• Feasibility decision from national economy perspective ; same as PFS
• Same analysis methodology as solicited projectsLine ministry

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Feasibility Assessment
PIMAC’s screening

 Both solicited and unsolicited project

o Large-scale Solicited Project
Total project cost with at least 200 billion KRW (approx.
170million USD) for BTO or 100 billion KRW for BTL
o Solicited Projects above PFS Threshold
Total project cost with at least 50 billion KRW, of which at least
30 billion KRW is to be subsidized by the State. d Project
o All unsolicited projects

 Gatekeeping, decisive phase whether to invest

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Feasibility Assessment
Analysis and Decision-making based on Analytic Hierarchy Process(AHP)

 Analysis of Economic, Policy and Balanced Regional Development

o Participants : PIMAC members (Project manager and research associate) (2), Outside
experts (Cost, Benefit analysis) (2), Independent advisors (1or 2)

 Structured decision-making tools to collaborate quantitative and qualitative

elements

o Quantitative elements : B/C ratio, Balanced Regional Development

o Qualitative elements : Policy analysis

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 Feasibility Assessment
Structuring an Analytic Hierarchy Process

Overall
Feasibility

Economic
Analysis Policy Analysis Balanced Regional Development
Level 1 Analysis

Consistency with higher Impact on Employment

Project Risks
Level 2 level of plans

Level 3
Availability of Environmental Level of regional Ripple effect on
Strong Preparation development regional economy
Conformity with funding Impact
political degree
relevant plans
Will

(*Translated from KDI PIMAC PFS Guideline

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Feasibility Assessment
How each analysis element is weighted and scored for AHP

Balanced
Economic Analysis Policy Analysis
Regional Development
• Benefit –Cost ratio • Consistency of relevant plans • Regional development index
• (IRR, NPV) and policy • Ripple effect on regional
• Risks in project implementation economy
• Effect on employment

 40-50%  25-35%  20-30%

 Quantitative analysis  Qualitative analysis  Quantitative analysis
o Higher score for o Higher score for o Higher score for
- higher B/C ratio - high consistency, strong will - less developed region
and well-preparedness - higher added value
- less obstacle in funding and
environment
- higher effect on employment

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 Feasibility Assessment
Overall feasibility decision in AHP

 To avoid arbitrary decisions  Feasibility assessment is based on the consistency

between evaluators and AHP scores.
o Organize 6 evaluator’s responses among 8
- evaluators consist of senior-level experts (demand, o If 6 evaluators all agree with the project implementation and
cost estimation) who participates to an Economic AHP score is higher than 0.5 : the project is feasible
o If only 3 evaluators agree with the project while 3 evaluators
analysis, PIMAC members(project manager and
don’t agree with the project implementation, the AHP score
executives) and independent advisers should be much higher than 0.58 to be feasible.

o Excluding the highest and the lowest evaluators.

 If Project is assessed as feasible in Feasibility
Assessment stage, then subject to VFM
assessment

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 VFM Assessment
 Quantitative VFM

o In quantitative VFM, if the total government’s cost under PFI incurs less than that under PSC, it is decided that PFI
has “Value for Money”.

o The government base cost under the PSC and PFI are compared and for fair comparison, some risk adjustment is
made.
For example,
- The risks related to the cost overrun which incurs under the traditional procurement are quantified to the PSC.

o PFI in unsolicited project is adopted from private party’s proposal, however demand is re-estimated and applied to
PFI so that PIMAC can analyze how much governmental cost would incur.

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VFM Assessment
 Qualitative VFM analysis

Eligibility for -Is included in the eligible infrastructure facilities indicated in Article 2 of PPP Act?
PPP
- Does it comply with the national infrastructure plan or national investment policy?
- Line ministry’s will and preparedness to implement (manage or supervise) the project
- Objective of the project clearly stated?
- Output specification of the performance of the project clearly presented?
- Does it have the performance enhanced in comparison with conventional procurement?
- Effective management under a PPP contract?

Effectiveness - Does it induce competition?

and public -Independent management or operation of existing infrastructure facilities
interest
-Is another option available to users other than using user-fee facilities?

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VFM Assessment
Qualitative VFM analysis

Facilitation of PPP - Political, social, environmental aspects of a PPP project

implementation
- Does the project produce excessive or unfair benefit or burden to any party?

Impact of risk - Risk allocation to the private partner?

allocation
Ripple effect - Does project influence on greater competition?
- Private partner’s influence on financial market by introducing more developed financing skills?

Unique - Infringement of the protected intellectual property rights

characteristics
- National security issues related to project

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 Conclusion
Key features
 Unified framework between Public and
 Unified framework between Public and Private Private Financing project in Feasibility
financing Project in Identification phase Assessment
o Economic analysis and Policy consideration o Provide a clear justification to a PPP project
applied to both o Fairly judge both traditional and PPP project
o Approaches based on social and economic value
 Linkage between project identification and to the Country
financial management
o Mid-term investment plan by line ministry should
be consistent with National Finance Management  Independent PPP unit
Plan by MOSF o Continuous research on Quantitative
analysis
o Supplement of Qualitative analysis for
overall credibility and justification

Global Infrastructure Hub With thankful acknowledgement of valuable resources of Korea Development Institute 18
Thank you to our partners and funders

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