Korea approves PPP Boosting Measures

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Korea approves PPP Boosting Measures

The government of Korea has announced public private partnership (PPP) boosting measures at the 7th Ministerial Meeting on the Economy.

The goverment aims to provide safe investment opportunities for idle capital in the market and stimulate economic growth by effectively utilizing available capital.

The PPP boosting measures are the following:

1. Introduce improved types of PPP, until now, two major types of PPP were Build-Transfer-Operate (BTO) and Build-Transfer-Lease (BTL).

  • Introduce improved types of PPP, Build-Transfer-Operate-risk sharing (BTO-rs) and Build-Transfer-Operate-adjusted (BTO-a), where risk is more equitably shared between the government and private actors.
  • Develop a total of 7 trillion won worth of BTO-rs or BTO-a PPP projects.

2. Streamline regulations

  • Construction companies to be exempt from a largest shareholder status in special purpose corporations (SPC) for PPP, which will encourage large construction companies to invest in PPP projects by removing the regulatory disadvantages of being the largest shareholder.
  • Streamline processes required to make PPP proposals by the private sector: easing document requirements and the minimum capital ratio requirement.
  • Introduce a fast-track to reduce deliberation time between the government and the private sector, which will save up to 15 months, from 40 months to 25 months, before making contracts for road construction.
  • Revise all existing time-consuming processes, which will save up to around 1 year before the completion of road construction.

3. Prioritize the private sector and revise the PPP Act

  • A total of 1.8 trillion won worth of fiscal projects to be financed by the private sector per year.
  • Pass the PPP law revision in the first half of 2015 to allow the private sector to participate in building government complexes.

4. Promote subsidiary projects and provide tax incentives

  • The private sector is less enthusiastic about subsidiary projects because they are riskier than primary projects and because it is difficult to attain the same returns.
  • Promote subsidiary projects, including roadside shopping malls and parking facilities, by setting a special earnings rate and giving compensation in the event of unavoidable project termination.
  • Apply special low corporate tax and VAT rates to SPCs: a corporate tax exemption for corporate reserves for debt repayment and an extension of a zero VAT rate for SPCs beyond the initial sunset date in December, 2015.

5. Reform the minimum revenue guarantee (MRG) system, MRG will be determined through negotiations between the facilities operator and appropriate government body.

6. Shorten project timelines by 3-18 months compared to the original schedule for PPP projects worth approximately 13 trillion won in total. Twelve unfinished projects are being targeted: 6 roads, 2 railways, 3 metropolitan railways, and 1 tourism complex.

7. Establish a committee for boosting PPP chaired by the 2nd Vice Minister of the Ministry of Strategy and Finance. The committee will have the following responsibilities: monitor the creation and development of new types of PPP, shorten project timelines for existing PPP projects, develop measures to resolve bottleneck issues, and improve the MRG system.

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