Gov’t focuses on infrastructure to boost economy

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Gov’t focuses on infrastructure to boost economy

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The government will join private builders to invest in some major infrastructure projects, sharing both costs and risks, as part of its effort to boost the sluggish local economy.

The government is looking for measures to prevent the economy from going into a long-term era of low-growth. Most of its efforts were concentrated on stimulating consumer spending that was heavily dampened by the ferry tragedy a year ago. It loosened regulations on buying real estate and since August last year the central bank has cut the key interest rate on three occasions to a record-low of 1.75 percent.

It now wants to boost private-sector investment in infrastructure construction by sharing the costs.

In February, facilities investment grew 3.6 percent year-on-year, according to Statistics Korea. This is a sharp deceleration from the 14.1 percent increase reported in January or the 15.2 percent in December.

Economy-related ministers held a meeting led by Finance Minister Choi Kyung-hwan on Wednesday to discuss how to attract new investment from the private sector on infrastructure projects, such as building light-rail transit lines in Seoul.

“Through measures to expand private investment, we are offering stable investment opportunities for idle funds in the country .?.?. in order to stimulate the economy,” said Bang Moon-kyu, second vice finance minister, at a briefing.

Bang said four infrastructure construction projects could be available for joint investment in the near future. The government says the risk of losses in the four projects would be relatively low.

The four projects are construction of an underground expressway between Gyeonggi and Incheon; construction of six light-rail transit lines in Seoul; repairing water supply facilities in six regions nationwide; repairing sewage treatment and drainage systems in seven regions including Incheon.

The government says the total amount of investment for the four projects would be about 7 trillion won ($6.4 billion), according to a report released by the Finance Ministry on Wednesday.

Private builders have been shunning such major projects because they demand big investments and come with high risk as well.

Under the current build-operate-and-transfer (BTO) regulations, private investors build infrastructure on their own, transfer ownership to the government but operate it for a set period of time, taking all profits.

The gross profit rate is roughly 7 or 8 percent.

The new regulations, dubbed “BTO-rs (risk-sharing)” and “BTO-a (adjusted),” will offer a lower rate of return, but the costs and risks will be shouldered jointly by the government, the Finance Ministry said.

Under the BTO-rs, the government and private investor will each shoulder half of any losses and profits for projects such as railway construction.

BY KIM HEE-JIN [kim.heejin@joongang.co.kr]

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