Specific Criteria for Private Investment Projects... Growth Engines and Sound Finances Achieved with One Stone Two Birds

Announcement of 'Private Investment Project Activation Strategy' at the End of This Month
Numerous Large-Scale Infrastructure Projects... Urgent Need for Private Investment Activation
Accelerated Infrastructure Securing... Expected to Resolve Fiscal Conversion Risks

The government's initiative to revitalize private investment projects aims to catch two rabbits with one stone: securing growth infrastructure and maintaining a sound fiscal policy. With a mountain of infrastructure to be laid and limited ability to significantly increase the budget, the private investment method is seen as a potential solution. As the shift from fiscal to private investment projects becomes more active, the speed of major infrastructure construction and improvement is also expected to accelerate.

Large-scale infrastructure projects piling up... urgent need to activate private investment

According to a comprehensive report by Asia Economy on the 16th, the government's strategy to promote private investment projects, to be announced at the end of this month, includes plans to expand the scope of private investment projects and reduce review time and costs. The previously vague criteria for selecting private investment projects and the methods for reviewing their appropriateness will also be concretely presented. (Reference article: [Exclusive] Fiscal to Private Investment Projects in Full Swing, Expanding Scope and Reducing Reviews)

A private investment project refers to a system where infrastructure, previously constructed and operated with government budgets, is built through private investment. If the total project cost exceeds 50 billion KRW and more than 30 billion KRW is supported by the national treasury, the competent authority can apply to the Minister of Strategy and Finance to promote the private investment project. After passing the private investment eligibility review and feasibility analysis, the project is designated as a private investment project through a deliberation committee.

This private investment promotion strategy comes at a time when large-scale social overhead capital (SOC) projects that need to be pushed forward are piling up. Currently, the ‘Yangjae-Goyang Expressway’ construction project, with a scale of 2.6 trillion KRW, is underway, and a 32km expressway connecting Uiwang and Gwangju, costing 1.9 trillion KRW, is under review. The Bal-an-Namyang Expressway, Wirye-Sinsa urban railway, and Sasang-Haeundae Expressway also need to be constructed.

There are also many facilities that need to be created to secure future growth engines. In early December last year, the government unveiled the ‘New Growth 4.0 Strategy’ to leap into a top-tier nation and announced plans to promote 15 projects across three major areas (new technology, new daily life, new markets). Detailed tasks include projects requiring massive budgets such as building autonomous driving infrastructure on major expressways, urban air mobility, national data infrastructure, smart logistics facilities, and smart livestock complexes.

The problem is that it is virtually impossible for the government to carry out these projects solely with fiscal funds. Given the current government's emphasis on fiscal soundness, increasing the budget is not easy. The government's view is that to complete these important projects requiring astronomical funds in a short period, a vibrant private investment project market must first be established.

Faster infrastructure acquisition... industry expects resolution of 'fiscal conversion risk'

The government expects that expanding the scope of private investment projects and actively converting fiscal projects to private investment will accelerate infrastructure acquisition compared to before. A related government official said, “In fiscal projects, if conditions are unfavorable, sometimes no budget is allocated at all. Private investment projects, based on the principle of beneficiary pays, can build what would take 10 years under fiscal projects in just 1 to 2 years.”

The industry expects the so-called ‘fiscal conversion’ risk to disappear. The construction industry has long complained that even projects that passed private investment eligibility reviews were often converted into fiscal projects due to reasons from the competent authority. A representative case is the Anseong-Sejong Expressway construction, which was changed from a private investment project to a fiscal project following President Moon Jae-in’s 2017 policy to strengthen expressway publicness. If the government promotes private investment projects, such concerns are expected to vanish, potentially increasing participating companies.

Another advantage is the effective improvement of infrastructure that has aged over decades after construction. A Ministry of Strategy and Finance official hinted, “The private investment system was established in 1994, and infrastructures built with private investment during that period need renovation and major repairs. We judged that private investment could be applied here.” The projects under consideration include aging water supply systems, public office buildings, and old national universities.

However, the government expects some time lag before this measure leads to actual revitalization of private investment projects. Another Ministry of Strategy and Finance official said, “Negotiations with private operators make it cautious, and it is difficult for the competent authorities to immediately increase private investment project applications after the announcement. As the situation changes, more private companies will gradually come in,” he evaluated.

This content was produced with the assistance of AI translation services.