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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
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
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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
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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
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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)
Competent Authority (PIMAC) ↔ Potential 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
16
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
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Procurement Steps of an Unsolicited ProjectProject Preparation & Submission of Proposal
VfM Review of the Project Proposal
Request for alternate proposals
Negotiation & Contract Award(Designation of Concessionaire)
Approval of Detailed Engineering and Design Plan for Implementation
Construction and Operation
Private Sector → Competent Authority
Competent Authority → PIMAC
Concessionaire → Competent Authority
Concessionaire
PIMAC
Competent Authority (PIMAC) ↔ Potential Concessionaire
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 Committee
Prior Deliberation by the PPP CommitteeMPB
Competent Authority
Step 7
No Third Party ProposalsOther Proposals Tendered
19
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
Prior Deliberation by the PPP Committee
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
Competent Competent AuthorityAuthority
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
Competent Competent AuthorityAuthority
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
Negotiation & Contract Award(Designation of Concessionaire)
Approval of Detailed Engineering and Design Plan for Implementation
Construction and Operation
Concessionaire → Competent Authority
Concessionaire
Competent Authority (PIMAC) ↔ Potential Concessionaire
MPB
Step 5
Step 6
Prior Deliberation by the PPP Committee
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
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
28
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 Representativepimac@kdi.re.krPhone) +82-958-4700 / Fax) +82-2-958-4688
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