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Procurement Process of PPP Projects in Korea

December , 2007

Public and Private Infrastructure Investment Management Center

(PIMAC)Korea Development Institute

1

1. PPP Project Types in Korea

2. Procurement Steps of a Solicited Project

3. Procurement Steps of an Unsolicited Project

4. PIMAC [Public and Private Infrastructure

Investment Management Center] of KDI

2

1. PPP Project Types in Korea

3

Legal Framework of the PPP System

Hierarchy of legal and administrative framework of the PPP SystemPPP Act

PPP Act Enforcement DecreesAnnual PPP Plan

PPP Guidelines

The characteristics of the institutional arrangementsThe PPP Act and the PPP Act Enforcement Decrees are the principal components of the legal framework of PPPThe PPP Act directs the MPB and PIMAC to issue an Annual PPP Planthat provides detailed and practical outline for implementing PPP projectsPIMAC has developed PPP Guidelines to deliver transparency and objectivity in PPP project implementation

4

Procurement Schemes

BTO (Build-Transfer-Operate) SchemeBoth solicited and unsolicited projects are eligibleEconomic infrastructure: roads, ports, environmental facilities and railway projects, etcUser-fees, Minimum Revenue Guarantee (MRG) for solicited projects

BTL (Build-Transfer-Lease) SchemeThe private sector “Builds” a infrastructure facility, “Transfers” ownership to the government/local municipalities and get operational rights in return, and “Leases” the property to the government/local municipalities to get return on investmentOnly solicited projects are eligibleSocial infrastructure: school, dormitory, and military housing, etcGovernment payments (Lease rent +operating costs)Low risk-low return

BOT (Build-Operate-Transfer) and BOO (Build-Own-Operate) schemes are also available

5

Project Initiative

Solicited ProjectsA solicited project is that the competent authority identifies a project for private investment and announces a RFP to select preferred bidders

Unsolicited ProjectsFor an unsolicited project, a private company (initial proposer) submits a project proposal, and then the competent authority examines and designates it as a PPP project

6

2. Procurement Steps of a Solicited Project

7

Step 1

Step 3

Step 4

Step 5

Step 6

Step 7

Designation of PPP Project

Negotiation & Contract Award(Designation of Concessionaire)

Approval of Detailed Engineering and Design Plan for Implementation

Construction and Operation

Request for Proposals (RFP)

Submission of Project Proposals

Tender Evaluation/Selection of Preferred Bidders

Application for Preliminary Feasibility Study of a Project

Designation of Projects for Preliminary Feasibility Study

Review of VfM

Application for PPP Project Designation

Government Financed Project

Conducting Preliminary Feasibility StudyYes

Yes

No

No

Step 2

PIMAC

MPB

Competent Authority (PIMAC) ↔ Potential Concessionaire

Competent Authority(PIMAC)

Competent Authority → MPB

Prior Deliberation by the PPP Committee

Concessionaire → Competent Authority

Concessionaire

Competent Authority

MPB

Private Sector → Competent Authority

Competent Authority

Procurement Steps of a Solicited Project

Stop

The Head of Central Government Agency → The Minister of MPB

MPBPrior Deliberation by the PPP Committee

8

Prior STEP : Pre-feasibility Study (PFS)

PFS is a short and brief evaluation of a project to enhance fiscal efficiency by producing information for budgetary decision as stipulated by the National Finance Act

Introduced in 1999Owned by the MPB and conducted by PIMAC

All new large-scale projects with total costs amounting to 50 billion Won ($50 million USD) or more are subject to PFS

Before the NF Act, PFS was centered on infrastructure projectsPFS has expanded to non-infrastructure (e.g. R&D) projectsLocal government and PPP projects are also subject to PFS if central government subsidy exceeds 30 billion Won

Typical building projects and legally required facilities are exempted from PFS

If a solicited PPP project is subject to PFS, the PFS should be conducted before it is designated as a PPP project

9

Step 1: Designation of PPP Project

Small Project – Designate a PPP project at its own discretion

Large Project – Conduct a feasibility study and report result to PIMAC in addition to VfM testresult and basic design documents

Small Project – Designate a PPP project at its own discretion

Large Project – Conduct a feasibility study and report result to PIMAC in addition to VfM testresult and basic design documents

Competent Authority

Competent Authority

Review feasibility study & VfM test results and draft design documents for large scale projectReview feasibility study & VfM test results and draft design documents for large scale projectPIMACPIMAC

Prior to designating a PPP Project, the competent authority must conduct a feasibility study and VfM test

For projects with total project cost of KRW 200 billion or more, the competent authority shall submit results of the feasibility study and VfM test, and draft design documents, and shall request for review to PIMAC

10

STEP 2: Request for Proposals (RFP)

Negotiate in advance to avoid environmental issue if necessary

Formulate and announce the request for proposal for PPP

Negotiate in advance to avoid environmental issue if necessary

Formulate and announce the request for proposal for PPPCompetentAuthority

CompetentAuthority

In the RFP, the terms of the following components should be outlined as clearly as possible:

The purpose and the detailed scope of the project, and responsibilities of the competent authority and the concessionaire

The conditions and terms of implementation for a concessionaire

The contents and procedure of subsidy provision

Standards for preparing proposals and evaluation

11

STEP 3: Submission of Project Proposals

Prepare proposal and submit it to the competent authorityPrepare proposal and submit it to the competent authorityPrivateSector

PrivateSector

Any party intending to implement a PPP project shall prepare a proposal in accordance with the laws and regulations concerning PPP projects, and submit it to the competent authority

Key elements of the project proposal:Details of the total project cost and financing planGrounds for estimated periods of concession, ownership, and profit-making operation of the completed facilities (limited to revertible facilities)Management and operation plan for the facilitiesExpenditure plans and revenue estimations including user fee, etc Contents of supplementary projects, if anyLevel of government subsidy requested, if anyContents of and grounds for modifying the request for proposal, if anyOther matters deemed necessary by the competent authority

12

STEP 4 : Tender Evaluation

Two-stage tender evaluation

1st Stage: PQ (Pre-Qualification) evaluation2nd Stage: Main evaluation (Technical Excellency + Pricing)

Tendering process

When requested (not mandatory) by the competent authority, PIMAC organizes a evaluation committee randomly chosen from its expert poolEvaluation are carried out in isolated environment for 1~3 daysPIMAC staffs manage the evaluation process and representatives of the competent authority may stay in the place as observersThe committee writes evaluation report and PIMAC reports the tendering results to the competent authority

Set the evaluation criteriaExamine and evaluate the project proposalDesignate preferred bidders

Set the evaluation criteriaExamine and evaluate the project proposalDesignate preferred bidders

CompetentAuthority

CompetentAuthority

13

STEP 5 : Negotiation & Contract Award

The competent authority shall take efforts to complete the negotiation in a timely manner while maintaining consistency and increasing the effectiveness of negotiations

The competent authority shall consult with PIMAC when concluding the concession agreements on projects with a total project cost of KRW 200 billion or more or that require deliberation by the PPP Committee

For concession agreements that include central government support, the competent authority must consult the Minister of Ministry of Planning and Budget in advance

When negotiations fail to be finalized within the scheduled time period, necessary counter-measures shall be taken such as initiating negotiations with the second preferred bidder, re-announcing the request for proposal, nullifying the designation as a PPP project, etc.

Step 5Step 5 Negotiation & Contract Award(Designation of Concessionaire)


MPBPrior Deliberation by the PPP Committee

14

STEP 6 : Approval of Detailed Engineering and Design Plan for Implementation (DEDPI)

Apply for the approval of the DEDPIApply for the approval of the DEDPIConcessionaireConcessionaire

Notify the concessionaire its decision on the approval of the DEDPI

Notify the concessionaire its decision on the approval of the DEDPI

CompetentAuthority

CompetentAuthority

15

STEP 7 : Construction and Operation

Submit a construction completion report and obtain confirmation from competent authority upon completionof constructionUpon confirmation, operation begins

Submit a construction completion report and obtain confirmation from competent authority upon completionof constructionUpon confirmation, operation begins

ConcessionaireConcessionaire

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Roles of Participants in a Solicited ProjectRoles of Participants in a Solicited Project

EndNo

project

PFS VfM

PFSDesignation

PPPCandidate

PSC

Apply

No

YesKRW 50billion or more

RFPPPP

Designation

Yes

VfM(FS)

Yes

No

PSCNo

PlanSubmit

Evaluation

Negotiation

RFP

KRW 50billion or below

Approval

Constructionand

Operation

PPPDesignation

PIMACPIMAC

MPBMPB

Competent Authority

Competent Authority

Private Sector

Private Sector

17

3. Procurement Steps of an Unsolicited Project

18

Procurement Steps of an Unsolicited ProjectProject Preparation & Submission of Proposal

VfM Review of the Project Proposal

Request for alternate proposals




Private Sector → Competent Authority

Competent Authority → PIMAC


Concessionaire

PIMAC


MPB

Step 2

Step 3

Step 4

Step 5

Step 6

Step 1

Consultation for Review of the Contents of Project Proposal

Submission of Opinion regarding the ProposalYes Notification not to

implement the projectNo

Tender Evaluation/Selection of Preferred Bidders

Designation of the Preferred Bidderas Potential Concessionaire

Designation of the Proponentas Potential Concessionaire


Prior Deliberation by the PPP CommitteeMPB

Competent Authority

Step 7

No Third Party ProposalsOther Proposals Tendered

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STEP 1 : Project Preparation & Submission of Proposal

The proposal consists of the following components:Results of feasibility study conducted by the proposer itselfTotal project costs and financing planConcession period and procurement schemeLevel of user fee and expected revenue schedule Operation and maintenance plan and other details for implementation of the project

The competent authority shall not accept similar proposal until request for alternate proposal is notified

The initial proposer cannot modify the original proposal until the request for alternate proposal unless requested by the competent authority

Submit a project proposal to the competent authorityPrivate Private SectorSector

20

STEP 2 : Review of VfM

Step 2Step 2

VfM Review of the Project Proposal

Competent Authority → PIMAC

PIMAC

Consultation for Review of the Project Proposal

Submission of Opinion regarding the Proposal

Yes

Notification not to implement the project

No


To CA & MPB

Make a request to PIMAC for reviewCompetentCompetentAuthorityAuthority

Review the proposalConduct VfM testSubmit an opinion to MPB

PIMACPIMAC

Present a review report to MPB and request prior deliberation by the committee

Competent Competent AuthorityAuthority

21

STEP 2 (2): VfM test for unsolicited projects

VfM test procedure

First phase : Feasibility study- Review of cost and demand estimation of initial proposal- Conduct the cost-benefit analysis

Second phase : Comparison of PSC (Public Sector Comparator) and PFI (Private Finance Initiative) to determine whether the project should be implemented through PPP scheme

Third phase : A PFI implementation alternative is formulated

22

STEP 3 : Request for alternate proposals

Request for alternate proposal with the contents of project proposal and the bonus points awarded to the initial proposer

Request for alternate proposal with the contents of project proposal and the bonus points awarded to the initial proposer


The competent authority shall announce the outlined contents of the project proposal concerned in the official gazette and at least three daily newspapers in addition to posting them on PIMAC homepage bulletin to allow for the third parties to submit alternate proposals

In the event the contents of the project proposal are announced, it shall be recognized as the formulation of a request for proposal as stipulated by the PPP Act

Some bonus points (up to ten percent (10%) of the total scores) may be awarded to the initial proposer by the competent authority upon review of the VfM test on the initial proposal

23

STEP 4 : Tender Evaluation

Step 4Step 4

No Third Party ProposalsOther Proposals Tendered

Evaluation of other Proposals/ Selection of Preferred Bidder

Designation of the Preferred Bidderas Potential Concessionaire

Designation of the Proponentas Potential Concessionaire

Competent Authority

Review and evaluate proposals to determine the potential concessionaire


To promote competition in the situation where some bonus points might be awarded to initial proposer, a fraction of tendering costs (up to 30%) is to be reimbursed to qualified losers in unsolicited project tendering

24

STEP 5 - 7 of an Unsolicited Project





Concessionaire


MPB

Step 5

Step 6


Step 7

In Step 5, Step 6 and Step 7, the same procedure shall apply as for solicited projects

25

Roles of Participants in an Unsolicited ProjectRoles of Participants in an Unsolicited Project

EndNo

PPICandidate

PlanSubmit

Negotiation

VfM(FS)

Prior Deliberationby PPP Committee

Notificationof

alternate proposal

Yes

Other proposals

Evaluation

Request

No other proposals

Designationof

Preferred Bidder

Approval

Constructionand

Operation

Prior Deliberationby PPP Committee

PIMACPIMAC

MPBMPB

Competent Authority

Competent Authority

Private Sector

Private Sector

26

4. PIMAC (Public and Private Infrastructure Investment Management Center] of KDI

27

Organization Chart of PIMAC

< 3 Divisions of PIMAC (70 members) and 4 Teams within PPP Division (36 members)>

Duties :-Pre-feasibility Studies-Feasibility Re-evaluation Studies-Researches on Public Investment Management

Duties :-PPP Annual Plan -PPP Project Evaluation-Support for PPP Project Management-Researches on PPP system

Duties :-Program Evaluation -Performance Management

Advisory Committee

Private Participation in Infrastructure Division

Program Evaluation Division

Director

PPP PolicyUnit

PPP PolicyUnit BTL UnitBTL UnitBTO UnitBTO Unit PPP Promotion

Unit

PPP PromotionUnit

Public Investment Evaluation Division

PFS Unit 1PFS Unit 1 FRS UnitFRS UnitPFS Unit 2PFS Unit 2

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Duties of PIMAC in PPP System

As a statutory organization, PIMAC plays the following roles as stipulated by the PPP Act

1) ResearcherTheoretical and policy studies on PPP systemFormulation of the Annual PPP Plan

2) Advisor and/or Government Agency in Project ManagementDevelopment of PPP projectsReview and execution of feasibility studies of PPP projectsSupport for and execution of VfM testSupport for formulation of RFP’sAssistance in tendering and negotiationDatabase management

3) PPP Market PromoterConsultation for foreign investors and support for inducing foreign capital to Korean PPP marketDevelopment and promotion of education programs on PPP systemInternational cooperation

29

Contact Information

Websitehttp://www.pimac.org

AddressPublic and Private Infrastructure Investment Management CenterKorea Development InstituteP.O. Box 113, Cheongnyang, Seoul, KOREA130-012

Contact [email protected]) +82-958-4700 / Fax) +82-2-958-4688

http://www.pimac.org/

mailto:[email protected]

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