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Legal Analysis on Private Finance Initiative for Social Infrastructure Project

  • Public Land Law Review
  • Abbr : KPLLR
  • 2009, 43(2), pp.183-206
  • Publisher : Korean Public Land Law Association
  • Research Area : Social Science > Law

Daein Kim 1

1이화여자대학교

Accredited

ABSTRACT

Private Finance Initiative (PFI), which is a typical type of PPP (Public Private Partnership), is gaining importance nowadays for social infrastructure project. However, PFI has been criticized for its failure in meeting transparency & efficiency needs in Korea. To address this issue, this article analyzed PFI in comparison with traditional public procurement. The reason for this comparison is as follows. First, historically, PFI was introduced as an alternative to traditional public procurement. Second, in comparative law perspective, PFI related laws were established in the context of applicability of traditional public procurement law. Hence, we can grasp the desirable PFI regime by making clear the common and different features of both regimes. The major difference of both type is that efficiency is relatively more emphasized in PFI. Since PFI is usually associated with long-term & complex project, 'distribution of risk' is crucial point in devising PFI related laws. Considering these features, many commentators emphasizes flexibility and incentive system which are mandatory for the efficiency of PFI. However, there are also common features in both regimes. The most typical similarity is that PFI should also meet the needs of public interest, and efficiency should be pursued on the basis of transparency. Christine Harland's "7 steps of development in public procurement" theory gives the basis for this argument. In this context, a few suggestions can be made. First, the standard for selecting a specific method - whether a certain project should be managed by PFI or traditional public procurement - should be established clearly. In devising this standard, Value for Money will be a crucial concept. However, this concept should not be understood in narrow economic perspectives. Second, adequate competition should be guaranteed in each PFI stage. Not only in pre-selection phase, but also in main-selection phase, due level of competition should be realized for transparency. Third, various government support system should be used. Direct subsidy should be prevented for its lack of transparency & efficiency. Other methods, such as tax benefit, anciliary revenue sources, should be actively used.

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