Infrastructures for social overhead capital(SOC) have been generally supplied, maintained and managed by central and local governments. However, a lack of the governmental financial support led to problems in supply for SOC infrastructures. As a response to the problems, the Korean government planned to attract financial investments from the private sector for the construction, and the operation, of infrastructures to promote creativity and efficiency. The "Act on Public-Private Partnerships(PPP) in Infrastructure", introduced in 1994, has facilitated the investment from the private sector to SOC infrastructures. The improvement of the Act expanded the Private Finance Initiative from SOC infrastructures to schools, military facilities, housing and social facilities, alongside the diversification of business models. 600 private finance initiative projects have been proceeded until 2011. Approximately 78.0 trillion Korean won, including 55.6 trillion won in Building-Transfer-Operation(BTO) projects and 22.5 trillion won in Building-Transfer-Lease(BTL) projects, has been spent until 2011. However, private finance initiative projects have a tendancy to decline after a peak in 2007. The causes of the decline of PPP, discussed in other researches, include the lack of profitability, the expectated increase of financial burden in the future, and relatively high rents.
It is clear that the introduction of PPP has been contributed to supplying additional SOC infrastructures, increasing the flexibility of the public spending, and increasing the creativity and efficiency. However, the PPP performance has been declined steadily since 2007. To tackle the decline, there is a need to improve the negotiation system for the PPP. This study aims to explore the re-negotiation process to improve the negotiation system for the PPP.
The re-negotiation process aims to promote the sustainability of private finance initiative projects. The process is based on sharing business risks between the government and the private sector. This study suggests that a right timing for the re-negotiation would be the time around the completion of construction. It also suggests that the re-negotiation process should be repeated in a certain period of time, for example every 5 years, during the whole of a operation period. The renegotiation requires two data sets. One is a data set of performance which is obtained before the re-negotiation. The other is a data set of prediction in the remaining operation period. The proper utilization of both data sets would enable the PPP to minimize the uncertainty in the remaining operation period. The introduction of a re-negotiation process is expected to promote investments from the private sector by ensuring the profitability for the private sector. The introduction of a re-negotion process is also expected to increase the flexibility of the public spendings of the government.