The government will put less weight on economic feasibility in preliminary feasibility studies for projects in which the private sector covered funding such as the metropolitan transportation improvement charge. It changed the guidelines to cut the weight of economic feasibility in the overall evaluation by 10 percentage points (p) and expand the weight of policy relevance by the same amount.
It also expanded preferential points based on how much of the funding the private sector bears. In particular, when the burden ratio is 20% or less, the score was raised by about two times, which is expected to positively affect evaluations of projects now undergoing preliminary feasibility studies, such as the Wirye–Sinsa Line opening and the extension of Seoul Subway Line 5 to Gimpo. Unless economic feasibility is markedly low, there is now room for the policy evaluation to make up to some extent for weak economic feasibility.
According to the government on 29th, the Ministry of Economy and Finance recently revised the Operational Guidelines for Preliminary Feasibility Studies. Specifically, for projects to which a "separate evaluation item" applies because some funding has already been secured, the economic feasibility weight will be increased and the policy relevance weight reduced in preliminary reviews. The adjustment range is 10 percentage points for projects in the greater Seoul area and 5 percentage points for those outside the metro area.
A preliminary feasibility study is a procedure that determines whether to proceed with a large-scale public investment project by assessing its technical viability and its economic and financial aspects. For construction projects in the greater Seoul area, economic feasibility and policy relevance are analyzed in that order and scored at 60%–70% and 30%–40%, respectively.
Here, economic feasibility is a quantitative indicator calculated as the benefit-to-cost (B/C) of the project. Policy relevance is a qualitative indicator scored by considering policy consistency and the will to implement, the possibility of securing funds, environmental assessment, job creation effects, and more. With this revision, the scoring weights for construction projects with private funding were adjusted to 50%–60% for economic feasibility and 40%–50% for policy relevance.
In addition, the range of preferential points granted in proportion to the share of private funding has been widened. In the separate evaluation within the policy assessment, up to 9 points can be awarded according to the burden ratio relative to total project cost, and those criteria were adjusted.
Previously, 1 point was given for every 10%. Under the revised guidelines, points are granted by burden ratio as follows: ▲5%–less than 10%: 2 points ▲10%–20%: 3 points ▲20%–30%: 4 points ▲30%–40%: 5 points ▲40%–50%: 6 points ▲50%–60%: 7 points ▲60%–70%: 8 points ▲70% or more: 9 points. When the burden ratio is 20% or less, the obtainable points more than double.
There are two cases expected to benefit immediately from this. One is the light rail project "Wirye–Sinsa Line construction," connecting Wirye New Town with Sinsa Station in Seoul's Gangnam District. The other is the "Seoul Subway Line 5 extension project," linking Gimpo Hangang New Town and the Banghwa rail yard in Seoul with a metropolitan railroad.
For both lines, momentum has weakened due to insufficient economic feasibility despite the presence of the metropolitan transportation improvement charge paid by new town residents. Initially promoted as private-investment projects, they lost corporate interest after profitability reviews, and the government is now conducting preliminary feasibility studies to convert them into fiscally funded projects.
A feasibility study passes only if the composite score exceeds 50 out of 100. So how many additional points can be gained under this overhaul?
Based on the Wirye New Town project, where the contribution ratio is known to be 17.6%—contributions (310 billion won) relative to project expense (1.7605 trillion won, estimated by the Seoul Metropolitan Government)—it appears an additional 4 to 5 points can be obtained. With the guideline revision, 3 points can be earned in the separate item of the policy assessment, and the share at which this score is reflected in the composite evaluation also increased. Under this revision, the preferential points that can be earned in the composite evaluation have effectively about doubled to 8.4–11 points from the previous 4.4–6 points.
A government official said the revision "made the incentive system a bit more realistic to recognize as project conditions the funds directly borne by residents in addition to taxes," adding, "As preferential points increase, projects with secured contributions have become more advantageous for designation as fiscal projects." In short, the effectiveness of the preferential system for contributions—long criticized as "formal"—has been strengthened.
Still, within the 100-point scale, the share of preferential points from the separate evaluation under policy relevance remains markedly smaller than the economic feasibility score. If the B/C in the economic analysis falls far short of the baseline of 1.0 (when costs and benefits are equal), it will likely be difficult to pass the preliminary feasibility study even after this guideline revision.
Recently, for the Line 5 extension project, the first check reportedly found a B/C of about 0.4. Under the government's separate calculation formula, the economic feasibility score in this case is 16.2, which translates to only 8.1–9.72 points in the composite evaluation. Only by receiving full marks in policy relevance—resulting in 40–50 points in the composite evaluation—could the project barely pass the preliminary feasibility study.
A government official said, "If economic feasibility is very low, it is true that passing the preliminary feasibility study is difficult even with preferential conditions," but added, "The recently reported B/C result for the Line 5 extension is not accurate. The value is continuing to change during the analysis process."