South Korea plans to encourage private companies to invest more in infrastructure projects as part of efforts to kick-start the economy, the government said Wednesday.
The initiative comes as Asia’s fourth-largest economy remains gripped by uncertainties both at home and abroad — flaccid domestic demand and slowing growth in China and other major economies.
The plan, finalized at a meeting of economy-related ministers in Seoul, centers on reducing risk associated with infrastructure investment and aims to keep the current momentum alive while allowing the private sector to pick up the slack left by the cash-strapped government.
Private infrastructure investment peaked in 2007 at 11.2 trillion won (US$10.3 billion) but has dried up in recent years.
According to the finance ministry, the goal is to attract 7 trillion won in fresh investment over the coming years through such projects as building light subway lines for Seoul, upgrading national water pipes and sewers, and moving part of the existing expressway between Seoul and the western port of Incheon underground.
The centerpiece of the plan is to move away from the existing build-transfer-operate (BTO) and build-transfer-lease systems that either force private investors to take on high risks or compel the state to ensure minimum profits for the companies.
Vice Finance Minister Bang Moon-kyu said that the two new measures are variations of the existing BTO scheme, but are designed to defray risks and expenses for businesses and the government alike.
One is designed to split the risk of investment and operating costs and allow both sides to share earnings, while the other calls for the government to guarantee profit coverage for only a set amount of initial investment made by the private sector.
“The goal is to enable companies flush with cash, but few outlets for investment to inject money into infrastructure building endeavors that the government cannot engage in at the moment,” the official said.
By providing a “safe” investment outlet and helping pool all available resources in the country, the plan can contribute to economic recovery, he said.
In addition, the Fair Trade Commission will revise its administrative ordinance to give more leeway in the composition of special purpose companies (SPCs) for large infrastructure projects, while a “fast track” approach for reviewing projects can reduce the time it takes to get them started. The SPC rule change can get more large companies to invest.
“The overall time to get a project under way can be cut by up to a year if all the changes are made,” the official said.
According to the ministry, independent of fresh projects funded by the private sector, a further 1.8 trillion won in investment can occur if investors take over ongoing state-funded projects.
An additional 1.3 trillion won in investments could be made by speeding up the administrative review process, it said.
This can bring the total size of projects funded by the private sector in the next two to three years to little over 10 trillion won, the ministry forecast.