Taking On Risk
Deputy Prime Minister Choi Kyung-hwan’s New Deal policy has been unveiled. It is characterized by the government sharing the burden and risk of high-risk, high-return build-to-order (BTO) projects with the private sector in order to expedite the projects for the underground Gyeongin Expressway, light rails in Seoul, wastewater treatment facilities, and the like. These projects have been halted due to the failure to procure the required resources amounting to approximately 7 trillion won (US$6.4 billion).
To this end, the government will adopt new business methods such as BTO-rs and BTO-a. The purpose of these methods is to improve the profitability of private-sector investment projects that have been declining since the minimum revenue guarantee (MRG) policy was repealed in 2009.
BTO-risk sharing is for the government and the private sector to share capital expenditures and operating costs on a 50-50 basis. BTO-adjusted is for the government to bear the minimum expenses for facility construction and operation and share excess earnings with the private sector.
Before 2009, private-sector companies had to bear the losses and take the profits at the same time, while the government guaranteed a rate of return of at least 7 percent to 8 percent a year based on the MRG. However, the risk of BTO projects has gone up since 2009, and private-sector companies have refrained from taking part in them.