This is the abstract of seminar presentation, which took place at the Korean Commercial Law Association on February 15, 2005. The Korean full text will be carried on the forthcoming issue of the Commercial Law Review.

The Korean government has embarked on a 'Korean New Deal' plan to boost the nation's economy by allowing state-run pension funds to invest in social overhead capital (SOC) projects and amending the Act on Private Participation in SOC Facilities (the "Private Investment Act").

Sufficient investments in SOC facilities are requisite to the stable economic growth. Owing to budget constraints, governments across the globe take every effort to induce private capital into SOC projects by granting concessions and incentives to the private sector. In Korea, the Private Investment Act was revised several times to promote the private investment in SOC projects, but failed to produce constructive results as expected.

The latest amendment to the Private Investment Act in January 2005 has expanded the scope of social infrastructure to schools, hospitals and health care facilities, and so on. The newly amended act has adopted a BTL (build-transfer-lease) method in implementing SOC projects in addition to the conventional way of doing business, i.e., BTO (build-transfer-operate), BOO(build-own-operate). Also it has deregulated publicly-invested mutual funds specialized in infrastructure financing to a considerable extent.

In this context, it is necessary to make a comparison between the PFI (Private Finance Initiative) scheme initiated by the UK government in the early 1990s and the Korean BTL method in terms of law and practices.

Our experiences tell us that only the law cannot change the world. The mindset and attitude of government officials in charge of SOC projects should be reformed in due course. The new act calls for the strict control of the National Assembly on the matter of BTL projects for fear of extravagant spending, and accordingly civil servants would be reluctant to be engaged in such projects.

So the importation of such concepts as VFM (value for money) and PSC (public sector comparator) from the UK experiences is inevitable to make transparent the current implementation process of privately financed infrastructure projects. It is true that incessant improvement efforts have been made in the United Kingdom for the successful PFI performances. In other words, a new way of doing business or managing infrastructure funds is not sufficient but for appropriate operation of such system.

At first, the government should address the following matters to attract the private sector capital, as suggested by Mr. Jonathan Drew of HSBC at a PICKO seminar in September 2004:
- Clear formulation and communication of policy and transaction programme to stimulate investor interest;
- Government obligations undertaken by appropriate entities;
- Adequate government assurances in respect of complementary and potentially competing developments; and
- Sufficient protection against changes in the underlying project specifications.

Secondly, the government should assure the market participants in the following manners:
- Appropriate allocation of risks and adequate rewards provided to private sector;
- Project structure to facilitate debt financing and optimise overall cost of capital;
- Risks clearly defined and allocated by contractual framework; and
- Establish a better track record than alternative investments.