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2005. 5. 24. Korea Development Institute Public and Private Infrastructure Investment Management Center Hyeon Park (hp

Management of Public Investment Projects in Korea. 2005. 5. 24. Korea Development Institute Public and Private Infrastructure Investment Management Center Hyeon Park (hpark@kdi.re.kr]. Contents. 1. Introduction. 2. PFS (Pre-Feasibility Study) Overview. 3. PFS Implementation.

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2005. 5. 24. Korea Development Institute Public and Private Infrastructure Investment Management Center Hyeon Park (hp

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  1. Management of Public Investment Projects in Korea 2005. 5. 24. Korea Development Institute Public and Private Infrastructure Investment Management Center Hyeon Park (hpark@kdi.re.kr]

  2. Contents 1. Introduction 2. PFS (Pre-Feasibility Study) Overview 3. PFS Implementation 4. PFS Methodology 5. Case Study 1: PFS on Dang-jin ~ Cheon-an Freeway Construction Project 6. Case Study 2: PFS on Light Rail Transit Project in Kang-Nam Gu, Seoul 7. Further Issues in PFS

  3. Introduction • Establishment of Integrated Public Investment Management • A Pre-feasibility study (PFS) was introduced in April 1999 as a public sector reform initiative in the wake of the financial crisis of 1997 and 1998. • Since the 1970s, line ministries have implemented Feasibility Studies to get government budget funding. • Criticism of feasibility studies for the Seoul-Busan Express Rail project and other large-scale construction projects. • A Total Project Cost Management (TPCM) System was established in 1994. • During the design and construction phases of a project, the change in construction costs is monitored by the Ministry of Planning and Budget. • If the total costs of a project increase by more than 20%, the feasibility study is re-inspected. In April 2005, re-inspection guidelines were established • Performance evaluations for several road construction projects have been recently conducted.

  4. Ex Post Ex Ante Intermediate Planning Draft Design Operation/ Maintenance PFS (Pre-Feasibility Study) Blueprint Design Feasibility Study Land Acquisition/ Construction Performance Evaluation Total Project Cost Management Re-inspection of Project Feasibility 1. Introduction (2) • Public Investment Management Process

  5. 2. PFS Overview • Purpose of PFS • PFS aims to enhance fiscal productivity by launching large-scale public investment projects based on transparent and objective ex ante project evaluations. • Coverage of PFS • All new infrastructure projects with total costs amounting to 50 billion Korean Won ($50 Million USD) or more are subject to PFS. • Local government and private investment projects are subject to PFS if central government subsidies exceed 30 billion Won. • Exemptions from PFS • Legally necessary facilities • Rehabilitating facilities • Military facilities

  6. 2. PFS Overview(2) PFS Procedure Line Ministry Ministry of Planning & Budget KDI Submit PFS projects candidate Select PFS Projects Request PFSs Organize Teams/ Conduct PFS Make Investment Decision Submit PFS Report Announcement Feasibility Study or Stop

  7. 2. PFS Overview(3) Comparisonof PFS and Feasibility Study

  8. 2. PFS Overview(4) • <Table 1> Number of PFS Conducted • Evaluation Results • About half of the projects were evaluated as being ‘Not-Feasible.’.

  9. 3. PFS Implementation • Pillars of PFS Implementation • Objectivity, consistency, and transparency • Development of Evaluation Guidelines • Detailed description of methodology and procedures of PFS implementation • PFS guidelines by sector: • Roads, rail, seaports, airports, dams, and cultural facilities • Using the same dataset for different projects in the same sector • Continuous revision of guidelines through academic research

  10. 3. PFS Implementation (2) Multi-disciplinary Research Team • Three or more organizations are involved including KDI • e.g. KDI (Project manager), University professors (Transportation demand analysis), and Engineering firms (Cost estimation) • Induce balanced decision-making PFS Committee • Members: Staff from the MPB and line ministries, PIMAC, the PFS team, and field specialists • Open discussion on mid-term and PFS final reports

  11. Project Proposal Background Study Review of statement of purpose Collect Socio-economic, geographic, and technical data Brainstorming Raising issues concerning PFS Economic Analysis Policy Analysis Demand Analysis Cost Estimation Benefit Estimation Cost-Benefit Analysis Financial Analysis Balanced Regional Development Regional Economic Impact Consistency with Higher-level Plan Environmental Impact Assessment Regional Preference Financial Feasibility Multi-Criteria Decision Analysis (AHP) Overall Feasibility 4. PFS Methodology • [Figure 1] PFS Flowchart

  12. 4. PFS Methodology (2) Economic Analysis • Methodology: cost-benefit analysis • Criteria: B/C, NPV (Net Present Value), IRR (Internal Rate of Return) • Social Discount Rate: 6.5% • Duration: Roads, rail and seaports (30 yrs), Dams (50 yrs) • Tax is excluded but salvage value is included • Benefit of road project • Valuation of changes in route, and travel speeds due to the project • Savings in travel time, vehicle operation costs, traffic accidents, and environmental costs (air and noise pollution)

  13. 4. PFS Methodology (3) AHP (Analytic Hierarchy Process) • A multi-criteria decision-making approach • Combines quantitative and qualitative criteria for decisions under a hierarchical structure • A group decision support system • Characteristics • Hierarchical structuring • Pair-wise comparison

  14. 4. PFS Methodology (4) • [Figure 2] AHP Structure of PFS (Prototype) Pre-Feasibility Policy Analysis Economic Analysis Project-specific Criteria Common criteria Balanced Regional Development PSC 1 Regional Economic Impact PSC 2 Environmental Impact Assessment PSC 3 Regional Preference PSC 4 Funding Source Availability Consistency with H-L Plan

  15. 5. Case Study 1 Dang-jin ~ Cheon-an Freeway Construction • Objectives • To relieve traffic congestion • To improve accessibility to Cheong-ju International Airport • Project Scope • Length: 45.0 km (4 lane) • Estimated Total Cost: 900 Billion Won • Construction Period: 2008~2013

  16. 5. Case Study 1 (2) • Site Map

  17. 5. Case Study 1 (3) • Route Map

  18. 5. Case Study 1 (4) • Demand Forecast • 10,000~40,000 vehicles/day (2014)

  19. 5. Case Study 1 (5) • Estimate of Benefits • Estimating changes in choice of route and travel speeds • Savings in travel time, vehicle operating costs, traffic accidents and environmental costs (air and noise pollution) • Estimate of Costs • Estimating Construction Costs, Land Acquisition Costs, Accessory Costs, Contingency Costs, Operating Costs • Economic Analysis

  20. Feasible Economic Analysis Policy Analysis Non-Feasible Average Average 0.614 0.779 0.221 0.386 Person 1 Person 1 0.771 0.600 0.229 0.400 Person 2 Person 2 0.804 0.700 0.300 0.196 Person 3 Person 3 0.799 0.550 0.201 0.450 Person 4 Person 4 0.757 0.600 0.243 0.400 5. Case Study 1 (6) • Policy Analysis • AHP • Weights on economic analysis & policy analysis results • Final results

  21. 6. Case Study 2 Light Rail Transit (LRT) Project in Kang-Nam Gu, Seoul • Construction of a Light Rail Transit (LRT) System in the Kang-Nam Gu Area, a sub-center in southern Seoul. • Objectives • Relieve traffic congestion and mitigate air-pollution emission • Provide public transportation to manage travel demand • Enhance high-tech image of the international business district • Length: 4.9km; No. of Stations: 13 • System: Seat-type monorail / AGT (Automated Guideway Transit) • Cost Estimate: 300 Billion Won / 240 Billion Won

  22. 6. Case Study 2 (2) • Route Map of LRT

  23. 6. Case Study 2 (3) • Seated-Type Monorail

  24. 6. Case Study 2 (4) • AGT (Automated Guideway Transit)

  25. System Benefits Costs B/C NPV Monorail 180.4 256.9 0.70 -76.4 AGT 180.4 192.6 0.94 -12.2 6. Case Study 2 (5) Travel Demand • 80-90 thousand daily passengers Summary of Economic Analysis (Billion Won)

  26. 6. Case Study 2 (6) • Conclusion • This project is not economically feasible (B/C <1). • The major beneficiaries of this project would be local residents in Kang-Nam Gu, which is the wealthiest local government in Korea and already has a well-developed subway system. Hence, central government subsidies for this project would widen regional disparities between Kang-Nam Gu and other areas in Seoul as well as the rest of Korea. • The research team recommends ‘not to provide’ a central government subsidy for this project.

  27. 7. Further Issues in PFS • Expansion of PFS Coverage • Continuous Standard Guidelines Revision • Database Building

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