General Research
RESEARCH
KOTI - Korea Transport institute
Introduction of an Ex-post PPP Evaluation Scheme for Railway PPP Projects
- Date
November 30 2016
- Page(s)
page(s)
#railway PPP projects
#management measure
#evaluation measure
Korean government introduced a PPP scheme in the early 1990s as its budget could not cope with the ever increasing demand for infrastructure investment especially in transport sector. However, there was limited private participation in the PPP scheme due to uncertainty for the return for the investment from private investors’ point of view, which led to the introduction of the minimum revenue guarantee (MRG) scheme by Korean government in the late 1990s to promote active participation from private sector by guaranteeing a certain portion of revenue to the private investors.
Due to the introduction of the MRG scheme, there were quite a few railway PPP projects initiated in the early 2000s and most of them are now in their operational stages. However, there have been some problems with many railway PPP projects, mainly due to lower fare revenue than the expected one, which led to either payment of MRG subsidy by local or central government, or financial difficulty for the private investors. Many railway PPP projects ended up with restructuring PPP contracts or terminating them after long period of dispute between private investors and local or central government. One of main reasons for these problems in railway PPP projects is that there is no monitoring system for railway PPP projects that could be applied from design stage to operation stage for proper management of railway PPP projects by monitoring changing project environments and reflecting them in the existing contracts between private investors and government.
This study suggested a measure for the introduction of an ex-post PPP evaluation scheme for railway PPP projects. The suggested ex-post PPP evaluation scheme shall be applied from design stage to operation stage to monitor the existing PPP contracts. Evaluation period, evaluation measure, management measure and legalization measure were suggested and evaluation measure was applied to two existing railway PPP projects to demonstrate the applicability of the measure.
The suggested ex-post PPP evaluation scheme is expected to enable Korean government and private investors to take appropriate measures when there are substantial changes that could influence the condition of the existing contracts.
Due to the introduction of the MRG scheme, there were quite a few railway PPP projects initiated in the early 2000s and most of them are now in their operational stages. However, there have been some problems with many railway PPP projects, mainly due to lower fare revenue than the expected one, which led to either payment of MRG subsidy by local or central government, or financial difficulty for the private investors. Many railway PPP projects ended up with restructuring PPP contracts or terminating them after long period of dispute between private investors and local or central government. One of main reasons for these problems in railway PPP projects is that there is no monitoring system for railway PPP projects that could be applied from design stage to operation stage for proper management of railway PPP projects by monitoring changing project environments and reflecting them in the existing contracts between private investors and government.
This study suggested a measure for the introduction of an ex-post PPP evaluation scheme for railway PPP projects. The suggested ex-post PPP evaluation scheme shall be applied from design stage to operation stage to monitor the existing PPP contracts. Evaluation period, evaluation measure, management measure and legalization measure were suggested and evaluation measure was applied to two existing railway PPP projects to demonstrate the applicability of the measure.
The suggested ex-post PPP evaluation scheme is expected to enable Korean government and private investors to take appropriate measures when there are substantial changes that could influence the condition of the existing contracts.