Kim Bok-hwan, president of the Korea Overseas Infrastructure and Urban Development Corporation (KIND), identified 'developer' capabilities as an essential goal for KIND, which will celebrate its 7th anniversary on June 8.
In an interview with ChosunBiz conducted on May 29 at KIND's headquarters in Yeouido, Yeongdeungpo District, Seoul, Kim noted, "Domestic construction companies must expand beyond bidding for design, procurement, and construction (EPC) contracts in overseas markets to businesses based on financing."
Recalling his time as the Minister of Land, Infrastructure, and Transport at the embassy in the United Arab Emirates (UAE) from 2010 to 2014, Kim explained that domestic construction companies maintained a top-tier status in the turnkey EPC market in the Middle East. Since 2015, however, domestic firms have fallen to the second tier, overtaken by countries like Turkey and China, which compete on lower labor costs.
He emphasized that domestic construction companies should not limit themselves to EPC contracts with low competitiveness and profitability overseas but must expand into the more challenging financing phase.
He stated that they should continue securing procurement contracts for design and procurement, which can ensure revenue, while leveraging subcontractors for construction where labor competitiveness is relatively lacking compared to China, and focus their capabilities on participating in financing projects. Kim emphasized, "It is particularly important for domestic corporations to build their capabilities in overseas investment development projects (PPP), supported by KIND's participation as a shareholder and assistance from institutions like the Export-Import Bank of Korea and the Korea Trade Insurance Corporation."
Born in 1968, Kim graduated from Sungkyunkwan University with a degree in economics and obtained a master's and doctoral degree in geographic information systems (GIS) from the University of Leeds in the UK. He entered public service after passing the administrative examination (38th) in 1994 and has held roles such as Director of Railway Safety Policy and Urban Policy within the Ministry of Land, Infrastructure, and Transport.
After serving as the Minister of Land, Infrastructure, and Transport at the UAE Embassy for four years from 2010, he has been leading KIND as president since November of last year.
Kim is also interested in communication with internal staff in KIND, which consists of about 100 employees. Since taking office, he has kept the office door open, allowing employees to enter at any time. He said, "Since anyone can see inside from outside, it raises awareness, and there may be parts that even a president may not know, so it means that anyone, including assistants and directors, can come in and ask for guidance."
The following is a Q&A with President Kim.
-What specific role does KIND play in facilitating overseas construction expansion for domestic corporations?
"KIND serves as the only PPP specialized institution in the country, performing various roles as a comprehensive support platform for domestic corporations' overseas investment development projects. Specifically, we assist domestic corporations in their abroad ventures through direct and indirect investments using policy funds, project discovery, and developmental support."
Over the past seven years, KIND has approved direct investments totaling approximately $790 million in 31 projects across 19 countries, generating about 13 trillion won in overseas contracts.
Additionally, through the utilization of policy funds such as the Plant, Construction, and Smart City (PIS) fund and the Global Infrastructure Fund (GIF), and a matching fund approach that pairs public policy funds with private financing, it is supporting domestic corporations' overseas expansions. To date, about 1.8 trillion won has been invested in 44 projects through policy funds, supporting approximately 4.6 trillion won in overseas contracts. Currently, it operates Infrastructure Cooperation Centers and offices in six key overseas locations to establish networks with clients, uncover project information, and share insights.
-The domestic construction market is generally in a downturn, but what are the conditions for domestic construction companies in the overseas market?
"Currently, the domestic construction market is facing overall difficulties due to the slump in the real estate market and persistent high interest rates. In particular, the decrease in private contracts and deterioration of financing conditions impose significant restrictions on domestic corporations' project pursuits. However, the scenario is different when looking to the overseas market. Although factors such as geopolitical risks, high oil prices, and uncertainties in certain regions do exist, considering the status of the currently struggling domestic construction market, the overseas construction market still offers challenging and attractive opportunities for domestic corporations."
Countries worldwide are making large-scale investments in green projects such as renewable energy, smart cities, and electric vehicle charging infrastructure to achieve carbon neutrality. This field presents a competitive advantage for domestic construction firms, as they already possess extensive experience and technical expertise in construction and operation.
Infrastructure demand is also increasing in developing countries and emerging markets. Southeast Asia, the Middle East, Central America, and Central Asia are witnessing rapid growth in demand for social infrastructure such as roads, railways, ports, airports, hospitals, schools, and dwellings, in line with economic growth and urbanization.
The expansion of digital transformation and the adoption of smart technologies are also becoming pivotal in the overseas market. As smart technologies such as Building Information Modeling (BIM), digital twins, modular construction methods, and automated construction are being systematically introduced on sites, new market opportunities are opening up for domestic corporations equipped with technological innovation capabilities.
However, it is crucial to conduct thorough analyses and strategic approaches concerning institutional, financial, and business structures based on specific countries or projects. KIND actively supports domestic corporations in various ways, including providing information, financial support, risk management, and networking. Now is the time to seek solutions overseas to transcend the challenging domestic conditions.
-What are the total order targets and major business sites with high order probabilities this year?
"KIND sets order targets focusing on the number of direct investment approvals and their amounts to substantially expand the overseas investment development projects of our corporations. KIND's investment approvals increase our corporations' chances of winning contracts by participating in businesses (investments) jointly with them, thus compensating for their insufficient financial competitiveness and enhancing project credibility."
Until last year, KIND supported various investment development projects through a total of eight direct investment approvals worth approximately $140 million. This year, the goal for direct investment approvals is to expand to a total of 10 cases worth about $210 million, which is an increase of more than 1.5 times compared to the previous year.
Currently, a prominent project with a high probability of winning contracts is the 'Urgent Airport Modernization' project in Uzbekistan, which KIND is pushing for financial support. This project has recently been selected as the preferred bidder, putting it in a strong position for final contract approval.
In the Middle East, large-scale PPP projects centered around energy and plants are underway. KIND is leading the structuring of projects based on the Team Korea system, involving public, private, and financial institutions. This year, it is also striving to secure at least one large investment development project, such as the Qatar Facility E project.
-It is reported that you recently visited Uzbekistan and discussed expanding infrastructure investment development projects with President Shavkat Mirziyoyev. What projects were mentioned?
"This visit to Uzbekistan was an opportunity to confirm the willingness for long-term cooperation in infrastructure development between the two countries, beyond a single project. In addition to the modernization project of Urgench Airport, projects such as the Tashkent Smart Bio-Cluster Development Project and the Tashkent-Samarkand High-Speed Railway Construction Project were also mentioned.
The Tashkent Smart Bio-Cluster Development Project in Uzbekistan aims to establish a master plan for creating a Korean-style smart bio-cluster on the expansion site of the Tashkent Pharma-park, which is led by the Uzbek government. KIND is supporting this project through the Ministry of Land, Infrastructure, and Transport's K-City Network program, setting a goal to establish a bio-cluster incorporating smart technology.
The project site is located in the Zangiata region on the outskirts of Tashkent, and a master plan is being developed to create a smart bio-cluster organically linked to production, education, and research and development functions. In April of this year, a memorandum of understanding (MOU) was signed among the Uzbek Innovation Development Agency, the Pharmaceutical Industry Development Agency, and KIND.
The Tashkent-Samarkand high-speed railway construction project aims to establish a high-speed passenger railway line connecting Uzbekistan's capital Tashkent and its historical and cultural center, Samarkand, over a stretch of about 300km. Currently, a feasibility study is being conducted under the support of the Economic Development Cooperation Fund (EDCF) of the Export-Import Bank of Korea by the K-Rail One Team (National Railway Corporation, Korail, Saman Engineering, Dongmyung Technical Works).
This project is considered a representative example that can substantially expand cooperation between the two countries in the railway sector. During the meeting with the president during a visit to Uzbekistan earlier this month, the project was discussed as one of the key agenda items, reflecting the Uzbek government's commitment to expanding strategic cooperation with Korea across the railway and infrastructure sectors.
-Although domestic construction companies have a long history in securing EPC contracts overseas, they have been lacking in investment development projects. Can you explain the reason?
"Domestic construction companies have achieved remarkable success in the overseas EPC market based on their excellent technical capabilities and construction skills. However, PPP requires comprehensive capabilities encompassing project planning, financial procurement, and operation management, thus lacking a sufficient accumulated foundation for market entry.
While EPC allows for relatively stable revenue through receiving construction payments from clients, investment development projects require active participation throughout the entire process of conducting viability assessments, legal and financial reviews, establishing local partnerships, and managing operations. Since revenue and risk vary depending on project outcomes, companies may perceive higher barriers to entry. The long duration required for revenue recovery compared to EPC also makes it difficult for corporate participation.
A lack of financial procurement capabilities is also one of the barriers to entering the PPP market. PPP projects require substantial initial funding and the ability to successfully lead project financing (PF) through collaborations with various domestic and international financial institutions.
To overcome this, a shift in recognition of PPPs and the fostering of specialized personnel are needed. It is essential to approach projects not just as simple contractors but as proactive promoters. There is a need to cultivate professionals in various fields such as planning, finance, and law, and actively leverage collaboration with external experts.
KIND plans to continuously expand training programs for specialized personnel in this field. To effectively support domestic corporations by compensating for their weaknesses and facilitating overseas expansion, KIND will enhance developer functions and broaden collaboration with global developers. Additionally, it supports our corporations' indirect access to financial markets through its platforms.
It is also important not to neglect establishing strategic partnerships. There is a need for strategies that complement weaknesses and leverage mutual strengths through consortiums with global leading companies that have extensive experience in overseas investment and development projects, as well as local small and medium enterprises.
-If there are any regulations or systems that need improvement for KIND to expand into the overseas PPP market, what would they be?
"Overseas PPP involves a complex project structure that requires significant coordination between relevant institutions and private enterprises. Due to this complexity, it is not easy for private companies to enter overseas markets alone; thus, the role of KIND as a public institution to 'open pathways' is very important. To this end, KIND is continuously improving its internal regulations and systems.
Firstly, more resources for direct investment are needed. KIND assists domestic corporations' overseas expansion by directly investing in projects alongside them. For this, sufficient investment resources are necessary, but currently, there are issues with reliance on bond issuance, leading to interest burdens and increased liabilities. To support our corporations more actively, securing a stable financial base, including additional government contributions, is necessary. Discussions about this are ongoing with related authorities.
Furthermore, easing investment conditions centered around construction contracts should follow. Until now, KIND has only invested in projects where 'our corporations directly participate in construction.' However, in actual overseas PPP situations, local construction firms often lead the construction, while our corporations participate in specific areas such as design and supervision, or act as PM, CM, or investors. If domestic corporations are contributing meaningfully even without direct participation, they should not be excluded from KIND's investment criteria. The system should be improved to recognize diverse forms of participation flexibly, rather than judging investment eligibility solely based on construction contracts.
Recently, some system improvements have been made. In the past, KIND investments could only occur if the overseas construction contract amount was more than twice the investment amount. However, now equipment or vehicle export performance is also recognized as a related industry's overseas expansion effect, allowing the total of both to meet the investment criteria. In the future, KIND plans to expand the scope of recognition to allow practical participation through areas such as PM, CM, or business consulting, or through fund investments.
-Do you have any goals you want to achieve during your remaining term after taking office as president in November of last year?
"KIND must evolve beyond a simple support organization and become a 'leading institution' that actively plans and leads projects. Therefore, my goals during this term are to intensify the discovery of KIND-led projects, enhance leading functions, strengthen contract competitiveness through expanding direct investments, increase capital, and empower organizational capabilities, and establish the foundation for our corporations to succeed in overseas construction contracts totaling $2 trillion.
Until now, KIND has mainly supported domestic corporations' overseas expansions as a financial investor (FI), but in the future, it plans to strengthen its developer functions as well. KIND will increase the number of projects it leads directly by identifying and structuring them in collaboration with global partners. To this end, there are plans to further enhance the roles of overseas centers and actively consider establishing overseas corporations or branches, if necessary.
The annual investment approval amount, which was $140 million last year, is planned to be expanded to $210 million this year, and is expected to reach $280 million by 2027.
There will also be a focus on increasing capital and strengthening organizational capabilities. The current statutory capital has been raised to 2 trillion won, but the paid-in capital is still lacking. To attract additional investments, efforts are underway in cooperation with the government and the National Assembly to ensure a stable financial basis.
To expand overseas market entry for small and medium-sized enterprises, KIND plans to provide custom total solutions that include planning, structuring, and financing in high-value-added sectors where our corporations can relatively easily enter, such as PM, CM, and small-scale urban development.
KIND ranked 9th in overseas construction contract achievements of domestic corporations last year. Strengthening its fundamentals, the goal is to enter the top five in the medium term. In particular, it aims to position itself as one of the top two specialized institutions in the PPP field. It is striving to create a structure where domestic corporations can participate proactively in planning through to operation overseas, not just as an institutional vision.