Describes how major projects are secured and financed. Explains activities of the multilateral development banks in and other aid-funded projects.
Selling to the Government
Korea is an established member of the World Trade Organization’s Government Procurement Agency (GPA) protocols, with non-discriminatory government procurement procedures.
Korea’s GPA commitments include:
- “Threshold” amounts by certain Korean government agencies and provincial authorities;
- Procurement commitments in the services and construction industries;
- A prohibition against offsets as a condition for awarding contracts;
- A provision allowing suppliers to pursue alleged violations through GPA-defined bid challenge procedures;
- Annexes specifying certain thresholds below which GPA rules do not apply (approximately $180,000 and, for construction services, approximately $7 million); and
- Korea is exempted from GPA coverage for items related to national security and defense, procurement of satellites, and purchases of certain types of electrical transmission and distribution equipment by the Korea Electric Power Corporation (KEPCO).
U.S. companies interested in Korean government procurement must work with Korea’s Public Procurement Service (PPS). It is highly recommended that U.S. firms maintain a reputable representative or agent in-country to carefully monitor PPS tender opportunities.
PPS supports domestic/indigenous equipment and supplies. It is also responsible for the purchase of goods and incidental services required by central and sub-central government entities, government construction contracts and the stockpiling of raw materials. There are nine provinces in Korea, seven metropolitan cities, as well as numerous ‘new cities’ (Sejong City, Songdo City, and Hwaseong Dongtan, to name a few).
Bidders must register with PPS at least one business day prior to the date of an opening bid. Foreign bidders can register with PPS (Korean language only) prior to entering a contract. Failure to register constitutes cause for rejection of a bid.
Korea has launched its Korea On-line E-Procurement System (KONEPS) at https://www.g2b.go.kr/index.jsp. In part, this system includes:
- A single window for public procurement, showing the entire process
- Bids which are valid for at least 45 days
- Bids must be published with a summary in English, including the subject matter of the contract, the deadline for submission of tender, and the address and contact point from which full documents relating to the contract may be obtained
- The complete procurement process, with specifications and requirements (Note: Biases against imported products and services are rarely overt; if they occur, these should be brought to the attention of the U.S. Commercial Service in Korea).
The KORUS FTA, in effect since March 15, 2012, has a chapter devoted to government procurement. Consult: https://ustr.gov/.
Many governments finance public works projects through borrowing from Multilateral Development Banks. Please refer to “Project Financing” Section in “Trade and Project Financing” for more information.
Defense procurement is an active part of CS Korea’s portfolio. U.S. companies which sell both to the U.S. government and foreign governments should be cognizant of the importance given to military procurement in the Republic of Korea (ROK).
The Defense Acquisition Program Administration (DAPA) is responsible for the ROK’s defense procurement and was established to ensure transparency in the acquisition process. Defense products and equipment are acquired through a sophisticated procurement system which may involve direct purchases, sales agents, and importer channels. U.S. manufacturers or suppliers of defense equipment should vet and utilize a qualified local Korean agent that is familiar with the ROK’s defense procurement system, well-connected with the key members of each military branch and has ample knowledge about the operations of the country’s Air Force, Navy, Army, as well as the Agency for Defense Development (ADD).
Through a Gold Key Service, CS Korea can help U.S. defense companies identify a well-qualified potential representative. In general, former (or retired) Republic of Korea (ROK) Air Force, ROK Navy, and ROK Army officials have good potential to serve as a commissioned representative in Korea. To supply their defense products and services to the ROK’s military end-users, local representatives must first register and be certified by DAPA.
A well-selected representative should be able to provide their U.S. supplier or manufacturer with information about procurement plans as well as the status of their defense bids. Since the state of ROK’s defense community is highly mature, U.S. defense suppliers should only consider this market if they have a proven track record in the U.S. and/or in other Tier I countries.
Companies seeking to supply their products or systems to the ROK military are required to register with DAPA. For more information on the registration and bidding process, please refer to DAPA’s website.
Financing of Projects
Project financing (PF) is designed to facilitate funding of large-scale projects. The concept was first introduced in Korea to finance a highway construction project between Seoul and the Incheon International Airport. The government’s decision to introduce this financing technique was prompted by the need to boost domestic demand by stimulating investments in large-scale projects, including housing construction and social infrastructure facilities.
Most of Korea’s social overhead capital (SOC) projects are funded through PF. PF is also used for the financing of private sector projects, to include real estate development and buy-outs of financially troubled companies. Several Korean and foreign banks provide PF and offer venture capital investment programs for social infrastructure projects, private projects and SMEs in Korea. These banks support companies through direct equity investments, although domestic companies generally have access to local funding, as well as to informal and secondary financial markets charging higher interest rates. Debentures are also used as a financing alternate, although slightly more expensive than bank financing. Finally, financing in the form of long-term debt is available from the Korea Development Bank (KDB), but generally for high priority industries.
The state-run Export-Import Bank of Korea (KEXIM) finances overseas projects where Korean companies participate in a consortium and typically undertake the entire process from construction to operation of the project. In 2018, KEXIM provided $1.15 billion for an LNG import terminal project in Kuwait, $600 million for a mega-scale investment development project in Turkey, $367 million for a refinery modernization project in Bahrain, EUR 243 million for Korean subway trains in Egypt, $200 million for a Peruvian copper mine project, $173 million for a new Cebu international port project, and $88.5 million to build a national oncology center in Senegal.