By Yoon Ja-young
The expressway linking Seoul and Incheon is notorious for traffic congestion. Experts have proposed that building another expressway underground could be a solution, but the lack of government funding has been hindering this.
The government is considering attracting more private capital for social overhead capital (SOC) projects, including the Seoul-Incheon Expressway.
“While the government is short of fiscal capability, the private sector has abundant capital amid low interest rates. We aim to provide stable investment in the market while leading economic recovery by effectively using the funds available,” said Bang Moon-kyu, vice finance minister.
The government wants to take aggressive fiscal policies for economic recovery, but it is short of money. The private sector, meanwhile, has abundant liquidity and is looking for good investment. The short-term floating money in the market is estimated at 800.7 trillion won as of January, the largest ever amount. It could be win-win for both the government and the private sector if the fund is invested in SOC projects.
The government says that other countries are turning their eyes to private funds to boost the economy. The EU, for instance, approved a 315 billion euro SOC investment plan by the private sector, and the United Kingdom plans to increase the ratio of private capital in SOC investment to 79 percent by 2020.
To induce private investment, the government plans to lower their risks.
Previously, private SOC investment was mostly either build-transfer-operate (BTO) or build-transfer-lease (BTL). In BTO, the private investor builds the facility and transfers the ownership to the government, but operates it for a certain period for profit. In BTL, meanwhile, the government leases the facility and pays the private investor. The private investor shoulders most of the risk in BTO, while the government shouldered the risks in BTL.
The government will be introducing a new measure where it and the private investor share the risk as well as any profits or losses.
“In BTO, the investor often raised fees for using the facility to improve their profitability. In the newly adopted measure, the government and the private investors will share both profits and costs. You have lower profitability to expect here, but long-term investors like insurance companies or pension funds may be interested in this measure as the low interest rate is expected to continue,” the vice finance minister said.
He said that the government expects 7 trillion won in investment by the private sector with the adoption of the new measure.
The government will also scrap red tape on special purpose companies set up by the private sector for SOC investment. They are also likely to get corporate and value added tax benefits.