[Exclusive] Feasibility Assessment for Projects Under 50 Billion Won... Government Considering Implementation

Government to Pilot 'Pre-Feasibility Assessment for National Facilities' on Construction Projects Under 50 Billion Won

Measures to require separate adequacy reviews for fiscal projects under 50 billion won are being actively considered. The aim is to prevent government ministries and local governments from deliberately lowering project costs to evade preliminary feasibility studies (PFS).

According to related ministries on the 24th, the Ministry of Economy and Finance has been piloting a “Preliminary Feasibility Evaluation for National Facilities” since last year, requiring adequacy reviews by the Korea Development Institute (KDI) for construction facility projects under 50 billion won. The ministry plans to evaluate the outcomes and side effects before deciding whether to formally adopt the system. Until this year, adequacy reviews will be conducted for projects costing between 10 billion and 50 billion won, and next year, the threshold for review will be raised to projects costing 20 billion won or more.

Under the current National Finance Act, projects with a total cost of 50 billion won or more, or with national funding of 30 billion won or more, must undergo a PFS. This is because the appropriateness of projects requiring large budgets can be assessed more objectively through judgments by third-party institutions such as KDI. The problem is that ministries and local governments often resort to tricks by deliberately lowering project costs to avoid the PFS threshold. There have been many cases where projects that failed the PFS were resubmitted with intentionally reduced costs. The Ministry of Land, Infrastructure and Transport and Chungcheongnam-do are known to be resubmitting the Seosan Airport project by lowering its costs after it failed the PFS.

As demands for indiscriminate fiscal input projects increase, the need for thorough verification of project adequacy has also grown. A government official explained, “There are frequent cases where project costs are deliberately set to avoid the 50 billion won threshold, making it difficult for the government to objectively assess feasibility. Therefore, it is necessary to consult with research institutions to determine whether the benefits from construction are significant and urgent enough to be included in the budget.” He added, “However, since this is not a PFS, it cannot be conducted with the same strictness as a PFS.”

However, there are obstacles before formal adoption as an official system. Ahead of the general elections, the National Assembly unanimously passed a bill in the Planning and Finance Committee’s Economic and Fiscal Subcommittee last April to significantly relax the exemption criteria for PFS. Although the plenary session was postponed due to criticism that it was a “populist law for the elections,” political opposition to formalizing additional verification for projects under 50 billion won is expected to be considerable. Resistance from local governments pushing regional projects is also anticipated. The amendment to the National Finance Act mainly aims to raise the PFS threshold for social overhead capital (SOC) and national research and development (R&D) projects from the current “total project cost of 50 billion won and national funding of 30 billion won or more” to “total project cost of 100 billion won and national funding of 50 billion won or more.”

Among experts, voices calling for stronger budget verification are emerging. Like the PFS, the Preliminary Feasibility Evaluation for National Facilities does not have legal binding power to approve projects or allocate budgets. However, from the budget authorities’ perspective, having verification and analysis by a third party beforehand allows for more efficient allocation of limited finances. Jung Chang-soo, director of the Nara Salrim Research Institute, said, “Although it lacks legal binding power, it is important because accurate records of the project are preserved. We must consider that clear evaluations can be made in the future based on these records.”