Ex-ante versus ex-post value for money in highway public–private partnerships: evidence from Korea

Original study by Hyungtai Kim, Jaekwang You & Heeju Hwang

This paper is premised on the assertion that the central justification for adopting PPPs rests on their ability to deliver public services at lower life-cycle costs relative to traditional public procurement – a principle commonly referred to as Value for Money (VfM).

The paper examines the VfM performance of highway PPP projects in South Korea by conducting a rigorous ex-post VfM assessment of eight Korean highway PPP projects to examine how realized outcomes compare with the ex-ante expectations set in their final concession agreements and to identify the key determinants of fiscal efficiency.

Official VfM assessments are conducted almost exclusively ex-ante, prior to project procurement, and are therefore inherently dependent on forecasts of demand, costs, and risk allocation.  However, because PPP contracts typically span several decades, these forecasts are subject to considerable uncertainty.  Deviations between projected and realized outcomes – particularly in traffic demand – can substantially alter the relative fiscal performance of PPPs and traditional procurement, leading to significant discrepancies between forecast-based VfM assessments and realized fiscal outcomes.

The foregoing provides the rationale for this study which conducts ex-post VfM evaluations based on actual operational data, not only to verify whether initial expectations have been realized but also to inform the design of future PPP procurement frameworks.

The paper provides background detail on the history and extent of PPP usage in South Korea.  Since the enactment of the Act on Private Participation in Infrastructure in 1995, South Korea has implemented PPP projects totalling KRW 141.8 trillion (over USD 100 billion) over nearly three decades, positioning itself as one of the leading countries in Asia in terms of private infrastructure investment.