2014/15 Knowledge Sharing Program with the Kingdom of ...

2014/15 Knowledge Sharing Program

with the Kingdom

of Saudi Arabia

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Ministry of Strategy and Finance Government Complex-Sejong, 477, Galmae-ro, Sejong Special Self-Governing City 30109, Korea

Tel. 82-44-215-7762 www.mosf.go.kr

Korea Development Institute263 Namsejong-ro, Sejong Special Self-Governing City 30149, Korea

Tel. 82-44-550-4114 www.kdi.re.kr

Knowledge Sharing Program ● www.ksp.go.krCenter for International Development, KDI● cid.kdi.re.kr

2014/15 Knowledge Sharing Programwith the Kingdom of Saudi Arabia:

Policy Consultation for Enhancing the Efficiency of Economic Development

MINISTRY OF STRATEGYAND FINANCE

KSP_사우디(영문)_목차 2016.3.14 4:40 PM 페이지1 g43

2014/15 Knowledge Sharing Programwith the Kingdom of Saudi Arabia


Korea Development Institute (KDI)

Ministry of Strategy and Finance (MOSF), Republic of Korea

The Government of the Kingdom of Saudi Arabia

Ministry of Economy and Planning (MOEP)

Central Department of Statistics and Information (CDSI)

Ministry of Commerce and Industry (MOCI)

Saudi Energy Efficiency Center (SEEC)

Si Wook Lee, Executive Director, Center for International Development (CID), KDI

Hong Tack Chun, Dean of KDI School of Public Policy and Management, Former Executive Director,

CID, KDI

Song Chang Hong, Director, Division of Policy Consultation & Planning, CID, KDI

Minhyub Kang, Research Associate, Division of Policy Consultation & Planning, CID, KDI

Woo Yong Jung, Research Associate, Division of Policy Consultation & Planning, CID, KDI

Hyung Koo Lee, Former Minister of Labor

Seunghee Han, Professor, KDI School of Public Policy and Management (KDIS)

Chapter 1. Seunghee Han, Professor, KDIS

Chapter 2. TongMo Suh, Research Fellow, Research Institute for Gangwon

Chapter 3. Jung Jin Lee, Professor, Soongsil University

Chapter 4. Moonyearn Hwang, Audit, Korea Financial Telecommunications & Clearings Institute

Chapter 5. Pil-Bae Song, Professor, KDIS

Green Service Co., Ltd.

Project Title

Prepared by

Supported by

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In cooperation with

Program Directors

Program Officers

Senior Advisor

Project Manager

Authors

English Editor

2014/15 Knowledge Sharing Program with the Kingdom of Saudi Arabia

Government Publications Registration Number 11-1051000-000608-01

ISBN 978-89-8063-942-7 94320

978-89-8063-827-7 (set)

Copyright 2015 by Ministry of Strategy and Finance, Republic of Korea


2014/15 Knowledge Sharing Program with the Kingdom of Saudi Arabia:


Government Publications Registration Number

11-1051000-000608-01

MINISTRY OF STRATEGY AND FINANCE

In the 21st century, knowledge is one of the key determinants of a country’s level of socio-economic development. Based on this recognition, Korea’s Knowledge Sharing Program (KSP)was launched in 2004 by the Ministry of Strategy and Finance (MOSF) and the KoreaDevelopment Institute (KDI).

KSP aims to share Korea’s experience and knowledge with its partner countries to achievemutual prosperity and cooperative partnership. Former high-ranking government officials aredirectly involved in the policy consultation to share their intimate knowledge of developmentchallenges, and to complement the analytical work of policy experts and specialists who haveextensive experience in their fields. Government officials and practitioners of partner countrieseffectively pair up with their counterparts to work jointly on pressing policy challenges andshare development knowledge in the process. The program includes policy research,consultation and capacity-building activities, all in all to provide comprehensive and tailor-made assistance to the development partner countries in building a stable foundation andfostering capabilities to pursue self-sustainable growth.

In 2014, policy consultation and capacity building workshop were carried out with 29partner countries covering over 100 research agendas. As a new partner country, KyrgyzRepublic, El Salvador, Guatemala, Cuba were selected in consideration of the country’s policydemand, growth potential, and strategic economic partnership.

The 2014/15 Knowledge Sharing Program with the Kingdom of Saudi Arabia was carriedout with the aim of exchanging socio-economic development experience between the twocountries as well as supporting the policy making capacity and socio-economic development ofthe Kingdom. Joint research and seminars were conducted in order to support theenhancement of the efficiency of economic development of the Kingdom of Saudi Arabia.

I would like to take this opportunity to express my sincere gratitude to Senior Advisor Dr.Hyung Koo Lee, Project Manager Prof. Seunghee Han, as well as the project consultantsincluding Mr. Tong Mo Suh, Prof. Jung Jin Lee, Mr. Moonyearn Hwang, Prof. Pil-Bae Song fortheir immense efforts in successfully completing the 2014/15 KSP with the Kingdom of SaudiArabia. I am also grateful to Executive Director Dr. Siwook Lee, Former Executive Director Dr.Hong Tack Chun, Program Director Dr. Song Chang Hong, and Program Officer Mr. MinhyubKang and Mr .Woo Yong Jung, and all members of the Center for International Development,

Preface


KDI for their hard work and dedication to this program. Lastly, I extend my warmest thanks tothe the Saudi counterparts including the Ministry of Economy and Planning, the CentralDepartment of Statistics and Information, the Ministry of Commerce and Industry, the SaudiEnergy Efficiency Center and other related agencies, program coordinators, and participantsfor showing active cooperation and great support.

In your hands is the publication of the results of the 2014/15 KSP with the Kingdom of SaudiArabia. I believe that KSP will serve as a valuable opportunity to further elevate the mutualeconomic cooperation between the Kingdom of Saudi Arabia and Korea to a new level. Isincerely hope the final research results on the selected areas could be fully utilized to supportSaudi Arabia in achieving its economic development goals in the near future.

Joon-Kyung KimPresident

Korea Development Institute


Contents2014/15 KSP with the Kingdom of Saudi Arabia 016

Executive Summary 018

Chapter 1

An Effective Use of the Rolling Plan System

Summary 026

1. Introduction 028

2. Economic Development Planning Process in Saudi Arabia: An Overview 030

2.1. Evolution of Economic Development Planning Agency in Saudi Arabia 030

2.2. Planning System in the Kingdom of Saudi Arabia 031

2.3. Roles and Objectvies of the Planning in the Kingdom of Saudi Arabia 033

2.4. Directions of Saudi Five-year Development Plan 033

2.5. Ninth Five-year Development Plan: Objectives and Implementation Mechanism 035

2.6. Features of the Saudi Budgeting System 038

2.7. Evaluation on the Planning System of Saudi Arabia 040

3. Korea’s Experience in Operating the Rolling Plan System 044

3.1. Motivation and Contents for the Management of the Five-year Economic

Development Plan 044

3.2. Introduction and Operation of the Rolling Plan System 047

3.3. Coordination Meetings on Current Economic Issues Presided by the Top Decision-maker 049

3.4. Institutional Strategy for Coordination between the Planning and the Budget 053

3.5. Establishment of Policy Think-tanks 056

4. Policy Recommendations 058

4.1. Operation of the Annual Economic Management Plan (Rolling Plan) System 058

4.2. Operation of Economic Policy Coordination Meeting Chaired by the Top Decision-maker 059

4.3. Introduction of the Mid-term Fiscal Management Planning System 060

4.4. Improvement in the Structure of the Plan Document 061


4.5. Development of the Tax Administration System and Its Gradual Introduction 062

4.6. Establishment and Operation of Policy Think-tank 063

References 064

Appendix 066

Chapter 2

Improvement of Public Investment Management System in KSA

Summary 072

1. Introduction 074

2. Why Does a Good Public Investment Management Matter and What Is It? 077

3. Overview of Public Investment Management in the Kingdom of Saudi Arabia 080

3.1. Features of the Saudi Arabian Fiscal Operation 080

3.2. Budget Formulation Frameworks 082

3.3. The 2015 Budget and the Evolution of Expenditure Structure 084

3.4. The Situation of Delays in Implementation of Public Projects 086

3.5. Public Investment Management System 086

4. Korea’s Experiences in Public Project Management Reforms 089

4.1. Overview of the Reforms History 089

4.2. Current Institutional Frameworks for Pulic Investment Management :

Legal Frameworks; Administrative Arrangements 095

4.3. Key Success Factors 108


5.1. Policy Measures 110

5.2. Administrative Arrangements 113

References 115


Contents

Chapter 3

Strategies for Successful National Statistical Data Bank of the KSA

Summary 118

1. Introduction 120

1.1. Background and Research Objective 120

1.2. Limitation and Scope of Research 121

2. Governmental Statistics in the Kingdom of Saudi Arabia 122

2.1. General Statistics System of the KSA 122

2.2. Central Department of Statistics and Informatio 126

2.3. National Statistical Data Bank 127

2.4. Dissemination System of Governmental Statistics 130

3. Expereience of Governmental Statistics in Korea 132

3.1. Statistics System in Korea 132

3.2. Strengthen the Role of Statistics Korea by Law and Committee 136

3.3. Quality Control of Governmental Statistics 138

3.4. Establishment of Statistics Research Institute 139

3.5. National Statistical Data Bank 141

3.6. Dissemination System of Government Statistics 144

3.7 Establishment of Statistics Training Institute 152

4. Strateiges for Succesful National Statistical Data Bank 156

4.1. Successful National Statistical Data Bank 156

4.2. Suggestion for Law and General Statistical System 156

4.3. Suggestion for Statistical Information System 158

4.4. Suggestion for Utilizing the NSDB 163

4.5. Suggestion for Quality Control of NSDB 163

4.6. Collaboration with Academic Society 164

5. Conclusion 164

References 166


Chapter 4

Developing Innovation in Manufacturing and Industry

in the Kingdom of Saudi Arabia

Summary 168

1. Introduction 170

2. International Competitiveness and Innovation Strategy of Saudi Industry 170

2.1. Saudi Industry from International Comparative Perspective 170

2.2. Industrial Innovation Strategy of Saudi Arabia 173

3. Korean Expereience of Industrial Innovation 177

3.1. Evolution of Korean Industrial Technology Policy 177

3.2. R&D Activities in Korea 184

3.3. Governance of Science and Technology Policy and the Role of Korean Ministry

of Trade and Industry 186

3.4. Institutions for Korean Industrial Innovation 188


4.1. Strengthening MCI’s Role for Industrial Technology Development 192

4.2 Establishing Innovation and Competitiveness Department at MCI 193

4.3. Establishing Institutes for Industrial Technology Development and Commercialization 194

4.4. Others 195

References 196

Chapter 5

Introduction of Energy Conservation Law in Saudi Arabia

Summary 200

1. Introduction 203

1.1. Background 203


1.2. Scope of Study 204

1.3. Energy Efficiency Approaches 205

1.4. Benefits of Energy Efficiency 206

1.5. Global Energy Efficiency Policy Trend 207

2. Overview of the Kingdom of Saudi Arabia 209

2.1. Energy Portfolio 209

2.2. Energy Efficiency Initiatives 221

2.3. Energy Pricing 234

3. Energy Efficiency in Korea 236

3.1. Background and History 236

3.2. Energy Consumption Trend 237

3.3. Energy Consumption Mix 238

3.4. Energy Efficiency Governing Laws and Plans 238

3.5. Implementation of Energy Efficiency Policies and Plans 245

3.6. Korea Energy Management Corporation 246

3.7. Financial and Tax Incentives 247

3.8. Energy Service Company Program 248

3.9. Energy Efficiency Programs by Sector 248

3.10. Key Findings and Lessons Learned 261

4. Recommendations and Conclusions 262

4.1. Energy Efficiency Law, Policies, and Roadmaps 263

4.2. Energy Efficiency Programs and Projects 265

4.3. Institutional Capacity Building 266

4.4. Creation of Energy Efficiency Funds 266

4.5. Public Awareness Campaigns 267

4.6. Energy Pricing Reforms 267

References 269

Appendix 273

Contents


Contents | List of Tables

Chapter 1

<Table 1-1> Processes of Formulating Economic Development Plan

(Focused on Participating Groups and Participants) 046

<Table 1-2> Formulation Process of the National Public Finance Management Plan (2012-2016) 055

Chapter 2

<Table 2-1> Trends of Oil Prices and Government Budget 081

<Table 2-2> Structure of Government Expenditure (1970 - 2014) 085

<Table 2-3> Results of Feasibility Assessment Conducted during 1994 - 1998 091

<Table 2-4> Proportion of Feasible Projects (1999-2013) 099

<Table 2-5> Number of Projects with Substantial Change in TPC 100

<Table 2-6> Trend of TPC Increase Rate Requested and Adjusted 101

<Table 2-7> Linkage between the Self-assessment Results and Budget Allocation 103

Chapter 3

<Table 3-1> List of Governmental Statistics in the KSA As of January 2015 125

<Table 3-2> Population Data Downloaded from the CDSI Web Site 131

<Table 3-3> Governmental Statistics by Agencies (as of Feb 1, 2015) 133

<Table 3-4> Governmental Statistics by Sections (as of Feb 1, 2015) 133

<Table 3-5> Governmental Statistics by Statistics Korea (as of Feb 1, 2015) 134

<Table 3-6> Agencies Using Nara Statistical System (as of Feb 1, 2015) 143

<Table 3-7> Saudi and Non-Saud Population of the KSA 158

<Table 3-8> Population by Gender and Age Group of the KSA 160

<Table 3-9> Population by Administrative Area of the KSA 162

Chapter 4

<Table 4-1> Share of R&D Expenditure 185

<Table 4-2> Government R&D Budget Share by Ministries (2010) 187


Chapter 5

<Table 5- 1> Comparison of Supply-Side and Demand-Side Energy Efficiency 206

<Table 5- 2> Recommended Policy Actions by Sector 208

<Table 5- 3> Breakdown of GDP and Final Energy Consumption Rate 210

<Table 5- 4> Total Primary Energy Demand by Year 213

<Table 5- 5> Consumption by Fuel Type for Power Generation and Fuel Efficiency 214

<Table 5- 6> Final Energy Supply by Year 215

<Table 5- 7> Final Energy Consumption Mix in 2012 216

<Table 5- 8> Yearly Electricity Consumption by Sector 217

<Table 5- 9> Electricity Sold by Consumer Category in 2013 218

<Table 5- 10> Comparison of Per Capita Energy Consumption and GDP Growth 220

<Table 5- 11> Energy Intensity Trend of Selected Countries 220

<Table 5- 12> Saudi Energy Efficiency Program Development Principles 226

<Table 5- 13> Saudi Energy Efficiency Program Steps and Activities 228

<Table 5- 14> Recommended Energy Saving Measures for Building Sector 229

<Table 5- 15> Recommended Energy Saving Measures for Transport Sector 231

<Table 5- 16> Gasoline and Diesel Price Comparison by Country 234

<Table 5- 17> Electricity Tariff in Saudi Arabia 235

<Table 5- 18> Energy Master Plans and Energy Use Rationalization Plans 240

<Table 5- 19> Amount of Energy Consumption Reduction 243

<Table 5- 20> Core Activities of Korea Energy Management Corporation 246

<Table 5- 21> Energy Management System Structure 249

<Table 5- 22> Penalty Clauses 251

<Table 5- 23> Examples of Eligible Projects for Soft Loan Energy Audit 252

<Table 5- 24> Products under Energy Efficiency Label and Standard Program 259

<Table 5- 25> Products under High-efficiency Appliance Certification Program 260

<Table 5- 26> Products under e-Standby Program 261

Contents | List of Tables


Chapter 1

[Figure 1-1] Flow Chart of Coordination between Planning and Budget 039

[Figure 1-2] Formulation Process of the Five-year Plan 048

[Figure 1-3] Formulation Process of the Annual Economic Management Plan 049

Chapter 2

[Figure 2-1] The Key Features of a Public Investment Management System 079

[Figure 2-2] Stages of Budget Formulation 083

[Figure 2-3] Data Flow of Project Monitoring and Evaluation System 088

[Figure 2-4] The Process of Implementation for Public Project 095

[Figure 2-5] PFS Procedure 097

[Figure 2-6] Contents of PFS 098

[Figure 2-7] The Gist of Performance Management System 102

[Figure 2-8] Organization Chart of the Ministry of Stratagy and Finance 105

[Figure 2-9] Organization of PIMAC 107

Chapter 3

[Figure 3-1] Process of National Statistical Data Bank Project 128

[Figure 3-2] Process of National Statistical Data Bank Project 129

[Figure 3-3] Target Business Architecture of the National Statistical Data Bank 129

[Figure 3-4] Logical Architecture of the National Statistical Data Bank 130

[Figure 3-5] The CDSI Web Site 131

[Figure 3-6] Korean Statistical System to Produce Governmental Statistics 132

[Figure 3-7] Standard Process Model for National Statistical Management 139

[Figure 3-8] Organizational Structure of the Statistics Research Institute 140

[Figure 3-9] Korea National Statistical Data Bank System 141

[Figure 3-10] Related System for Korea National Statistical Data Bank 142

[Figure 3-11] Build System for Each Survey and Process of Survey 142

[Figure 3-12] Generic Nara Statistics System 143

[Figure 3-13] KOSIS Main Screen 145

[Figure 3-14] KOSIS Data Category and Visualization Contents 145

[Figure 3-15] KOSIS Visualization Content for Life Expectancy 146

[Figure 3-16] e-Nation System for Total Economic Indicator 146

Contents | List of Figures


[Figure 3-17] e-Nation System for Population(bar) and Birth Rate 147

[Figure 3-18] Statistics Geographical Information System 147

[Figure 3-19] SGIS for a Small Area Example 148

[Figure 3-20] SGIS - Age 65 Over by Small Region 148

[Figure 3-21] Population by Administrative Region Over Time 149

[Figure 3-22] Population Pyramid of Male and Female Population Over Time 150

[Figure 3-23] Korean Standard Statistical Classification 151

[Figure 3-24] Micro Data Service System 151

[Figure 3-25] KOSIS Statistics for Children 152

[Figure 3-26] Organization of the Statistics Training Institute 153

[Figure 3-27] e-Learning System of the STI 153

[Figure 3-28] Mobile Learning System 154

[Figure 3-29] Time Series Graph of Population 159

[Figure 3-30] Population Pyramid of Male and Female Total Population 160

[Figure 3-31] Population Pyramid of Male and Female Saudi Population 161

[Figure 3-32] Population Pyramid of Male and Female Non-Saudi Population 161

[Figure 3-33] Population Density Graph by Administrative Area 162

Chapter 4

[Figure 4-1] Global Innovation Index of Saudi Arabia 2014 172

[Figure 4-2] Support Measures to Promote Technology Innovation 181

[Figure 4-3] Industrial Policy Directions in Korea 183

[Figure 4-4] R&D Expenditure in Korea 184

[Figure 4-5] History of Korean Ministry of Trade and Industry 187

Chapter 5

[Figure 5-1] Multiple Benefits of Energy Efficiency 207

[Figure 5-2] Energy Intensity by Region 208

[Figure 5-3] GDP and Final Energy Consumption 210

[Figure 5-4] Crude Oil Production 211

[Figure 5-5] Natural Gas Production 212

[Figure 5-6] Total Primary Energy Demand Trend 213

[Figure 5-7] Trend of Primary Energy Consumption for Power Generation 214

Contents | List of Figures


[Figure 5-8] Trend of Final Energy Supply Mix 215

[Figure 5-9] Trend of Electricity Consumption by Sector 217

[Figure 5-10] Per Capita Total Energy Consumption by Country 219

[Figure 5-11] Management Committee of Saudi Energy Efficiency Center 225

[Figure 5-12] Saudi Energy Efficiency Program Framework 227

[Figure 5-13] Energy Consumption and GDP Trend 237

[Figure 5-14] Energy Consumption Mix 238

[Figure 5-15] Energy Demand and Reduction Target 241

[Figure 5-16] Implementation Hierarchy of Energy Efficiency Policies and Plans 245

[Figure 5-17] A Sample Vehicle Energy Efficiency Label 256

[Figure 5-18] A Sample Tire Energy Efficiency Label 257

[Figure 5-19] Appliances Energy Efficiency Labeling Program 258


016 2014/15 Knowledge Sharing Program with the Kingdom of Saudi Arabia

2014/15 KSP with the Kingdom of Saudi Arabia

Minhyub Kang (Program Officer, Korea Development Institute)

The Ministry of Strategy and Finance (MOSF) of the Republic of Korea, incollaboration with the Korea Development Institute (KDI), has been implementingthe Knowledge Sharing Program (KSP) with selected development partnershipcountries since 2004 with the overarching goal to assist in enhancing nationalcompetitiveness and the institutional restructuring efforts of partnership countries bysharing Korea’s development experience.

The KSP with the Kingdom of Saudi Arabia was first launched in 2010, and it hasprovided policy consultation on 18 research topics based on the policy priority of thegovernment of Saudi Arabia. Especially, Korea has strengthened its relationship withthe Kingdom by providing comprehensive policy consultation since 2012 when theKingdom has been designated as a Strategic Development Partnership Country(SDPC). Each year’s titles are as follows

Policy Recommendations for Economic Development in Priority Areas of theKingdom of Saudi Arabia (2010, with four sub-topics)Toward Knowledge-Based Economy of the Kingdom of Saudi Arabia (2011, withfour sub-topics) Policy Recommendations for Economic Development in Priority Areas of theKingdom of Saudi Arabia (II) (2012, with four sub-topics)Policy Recommendations for Economic Development in Priority Areas of theKingdom of Saudi Arabia (III) (2013, with six sub-topics)

With successful execution of the previous KSP since 2010 with Saudi Arabia, the


Saudi Government applied proposal for the KSP 2014 with priority list of requestedproject titles for consideration. This project is the fifth of its kind undertaken since2010 for Saudi Arabia and the main topics have been selected after taking intoaccount the Saudi authorities’ areas of request, as identified in a written DemandSurvey Form, and close consultation between the KDI and the Saudi Government.These five agendas and the Korean researchers for each topic are as below:

The KSP with the Kingdom in 2014 started through Demand Survey and PilotStudy from October 17-24, 2014. The Korean delegates headed by Senior Advisor Dr.Hyung Koo Lee, the former Minister of Labor, visited Riyadh to coordinate the detailsof the research themes by meeting with high-level government officials and todiscuss the needs and background of research.

Next, seven Saudi delegates, headed by Deputy Minister Bandar Al-Waily visitedSeoul from April 19-24 to participate in the Interim Reporting and Policy Practitioners’Workshop. At the Interim Reporting Workshop held on January 20, the Koreanresearchers together with their Saudi counterparts presented their interim researchfindings and not only discussed but received feedback from Saudi experts in the field.Furthermore, as a part of the Policy Practitioners’ Workshop, the Saudi delegationwas able to gain first-hand experiences by visiting relevant organizations includingKorea Energy Management Cooperation, the Statistics Korea, Statistical TrainingInstitute, Statistical Research Center and attending lectures provided by experts inrelevant fields, including KDI and Korea Institute of Public Finance.

Though both parties had planned to hold the Final Reporting Workshop in Riyadheither in the early June or early September as a final stage of 2014 KSP with the KSA,there was an agreement that the workshop will be postponed for the extension ofMERS at that time. Instead, Dr. Song Chang Hong, the program director, and Mr.Minhyub Kang visited Riyadh to hold a policy dialogue for the completion of theproject before the end of its duration.

Consultation Topics Korean Researcher

An Effective Use of the Rolling Plan System Dr. Seunghee Han

Improvement of Public Investment Management System Mr. Tong Mo Suh

Strategies for Successful National Data Bank Dr. Jung Jin Lee

Developing Innovation in Manufacturing and Industry Mr. Moon Yearn Hwang

Energy Conservative Law Prof. Pil-bae Song

2014/15 KSP with the Kingdom of Saudi Arabia 017



1. An Effective Use of the Rolling Plan System

This consultation on KSA’s economic development plan focused on enhancementof operating authority of the plan. About the mid-term planning, it is mostimportant to maintain consistency. It is also significant to respond to severalconditional changes with flexibility in the planning process. To be specific, withregards to the Korean experience of planning and implementing economicdevelopment plans, this consultation intends to make a few points to enhance theeffectiveness of the plans.

First, the rolling plan system needs to be operated more effectively. To do so,rolling plan itself would need to be more systematically established under theMinistry of Economy and Planning on an annual basis. It is necessary to maintainconsistency and uniformity among various strategies and policies promoted andimplemented by ministries at a pan-governmental level, especially controlled under aspecific ministry or agency with arbitrary power to review and revised the policies.

Second, to improve the capacity to plan and coordinate policies of the agencywholly responsible for the planning, an economic policy coordination (e.g., theCouncil of Economic and Development Affairs) would need to be designed to bechaired by the top decision-maker and run by the planning agency (in this case, theMinistry of Economy and Planning), selecting the agenda.

Third, to improve the linkage between the planning and the budget, an

Executive Summary

Seunghee Han (KDI School of Public Policy and Management)



institutional measure would need to take place. For instance, a conference systemmay be organized by the planning board or a mid-term fiscal planning system may beintroduced.

Fourth, whether it is a five-year plan document or a one-year plan document, itwould need to propose major macroeconomic and social indicators of the planperiod. Moreover, the basic objectives of the plan and the implementationmechanism would be better understood once clearly distinguished.

Fifth, oil dependency would need to be gradually reduced while graduallydeveloping a tax administration system to grant a more stable collection of publicrevenue. It is notable how some scholars assert that the more the nation isdependent on taxes; it is more likely for the government to enhance itsaccountability.

Sixth, establishing an economic research institute like the Korea DevelopmentInstitute (KDI) would be helpful in building capacity to forecast the macroeconomicconditions and to suggest policy recommendations for the planning and reviewingdevelopment plans.

2. Improvement of Public InvestmentManagement System in the Kingdom ofSaudi Arabia

In order for KSA to boost efficiency and productivity of public expenditures,overall public investment management system needs to be strengthened. Such astrengthening needs to be made in two dimensions. One dimension is policymeasures at each stage of project cycle, and another one is administrativearrangements.

With regard to policy measures, first, a function of pre-feasibility appraisal needsto be introduced at the ex ante stage of project cycle. Despite a critical importance ofproject selection for a good public investment management, it is highly likely thatdue to the unique political structure combined with the heavy reliance on oil sectorfor government revenues, KSA may be lacking in incentives to introduce a rigorousprocedure for project selection. An introduction of pre-feasibility appraisal systemwould be greatly effective in stricter selection of projects as seen from Korea’sexperiences.

Secondly, more comprehensive and radical overhauls of project implementationwould be required to resolve the chronic delay problems apart from a successful



operation of “The Budget Project Monitoring and Evaluation System” already inplace. Required measures should especially include conducting a comprehensive fieldstudy to find and identify major factors repeatedly causing the delay and otherinefficiency and drawing up preemptive institutional solutions for preventing delaysfrom being repeated for the same reasons based on the study results.

Thirdly, it is also recommended that the Saudi government should make sure thatdocumentation and filing of the experiences of implementing projects is undertaken.Particularly, for every large-scale project detailed records of the major delayingfactors and how the problems were resolved should be kept so that they can be usedas a reference in planning the future projects.

As for administrative arrangements, first, we recommend that the Saudigovernment should create a dedicated unit to assume the role of control tower foroverall PIM. Korea’s the Fiscal Management Bureau within Ministry of Strategy andFinance could serve as a role model to be taken after. Such an integration andcentralization of various PIM functions would enhance synergy effect among thepolicy measures considering that respective measure is very closely related to eachother. Ministry of Economy and Planning, as its capacity as the planning agency, isthe most appropriate agency where such a control tower unit can be placed.

Next, we recommend the Saudi government to establish a dedicated researchagency which can support the government with respect to overall public investmentmanagement. Enhancing the efficiency and productivity in PIM involves a variety ofanalysis and research related jobs which it may be difficult for government officials tocarry out by themselves due to the lack of expertise. Korea’s PIMAC can serve as agood model for benchmarking. In KSA, such a research institute could be establishedas an affiliated agency of the Saudi Arabian Development Research Center, which isin the pipeline. At the beginning stage it may start with the mission of conductingpreliminary feasibility study for all the new large-scale projects and researchesnecessary to address the problems of delays in project implementation. Over time itmay gradually expand its coverage of missions.

3. Strategies for Successful NationalStatistical Data Bank of the Kingdom ofSaudi Arabia

Building an accurate and timely National Statistical Data Bank (NSDB) is relatedwith a good Governmental Statistics System. Since there is only limited informationon the design and architecture of the NSDB under construction, this article proposessome general design idea of the NSDB and several strategies for good systematic



environment of the KSA Statistics System based on Korean experience.

First, in order to increase utilization of the NSDB and its statistical informationsystem, various knowledge information modules for general public as well as topdecision makers and officials

Second, in order to cooperate among governmental agencies which producegovernmental statistics, establish National Statistics Committee by law

Third, in order to improve the quality of governmental statistics, build a qualitycontrol system of all governmental statistics to match with an international standardsuch as ISO.

Fourth, establish Statistics Research Institute to design new governmental statisticsand to develop sampling survey methodologies for the KSA.

Fifth, establish Statistics Training Institute to teach how to utilize governmentalstatistics. It will increase utilization of the NSDB and its information system forgovernmental officials and general public.

Sixth, CSDI should build a system to invite good statisticians from universities andbuild a collaboration system with Statistics Society of the KSA to consult aboutGovernmental Statistics.

4. Developing Innovation in Manufacturingand Industry in the Kingdom of SaudiArabia

For the past decades, Saudi Arabia achieved rapid economic growth largely due toan abundance of natural resources. Now the Saudi government understands that theeconomy needs industrial innovation in order to pursue a shift from strictly oil-basedto a diversified portfolio. Through the KSP, the government expects lessons fromKorea that has strengthened its industrial competitiveness through innovation underever changing situations. Based on the needs of the Saudi government, thisconsultation intends to present Korean notable experiences and make a fewsuggestions.

First, the Saudi Ministry of Commerce and Industry needs to put more emphasison industrial development with diversified policy efforts. The MCI, known asregulator, need to play a leading role in making policies for the development of non-oil manufacturing industry. They also need to make efforts for policy making and



implementing industrial technology development and running major projects.Technology support measures for SMEs, start-ups and entrepreneurs need to beelaborated by reflecting demands of industrial fields.

Second, the creation of governing department, already planned by the Saudi MCI,is a vital part of the National Industrial Innovation Strategy. However, in order tomake the planned department paly as a leader and a coordinator in implementingthe innovative plan, the role of the MCI has to be strengthened as mentioned above.Moreover, as industrial technology becomes complex and more pervasive, thegovernment administrative system needs to change in order to effectively meet theneeds of the industry sector. Therefore, the governance structure among innovationrelated agencies may need to be expanded for a longer-term perspective.

Third, to provide SMEs industrial technology, the Saudi government isrecommended to refer to the KITECH of Korea, which, unlike most of othergovernment research institutes in Korea, focuses on developing productiontechnology rather than inventing new product technology. To connect technologywith the market, the Saudi government also needs to note the Korean TechnologyFinance Corporation which intends to support technologically competent SMEs withcredit guarantee services.

Fourth, for efficient implementation, the government may need short- or mid-term goals and give shape to the long-term vision of the NIS and the NIIS withpractical policy measures. Since almost half of the planned period has passed, it maybe required to check the performance status and revise the plans if necessary. Nowthat the plans already have many ideas on innovation policy, the Saudi government isrecommended to focus on methods and measures for better implementation of theexisting plans rather than seek to collect new ideas.

5. Introduction of Energy Conservation Law inSaudi Arabia

Building on various ongoing initiatives, the government of the Kingdom of Saudi

Arabia (KSA) intends to introduce the energy conservation law to further improve

energy efficiency, and thereby sustain economic and social development. Reflecting

over 30 years of experience in Korea in energy efficiency and conservation, and

considering the prevailing issues in Saudi Arabia that may be characterized by: (1)

absence of adequate legislation and regulation; (2) lack of enforcing mechanisms and

motivation for energy efficiency; (3) limited proven energy efficiency business models

and absence of long-term and concessionary financing tools; (4) inadequate human

resource pool to scale up energy efficiency projects and programs; (5) low awareness



level of the public on energy efficiency; and (6) low energy prices that undermine

energy efficiency efforts, the following policy actions are recommended.

First, the government of KSA needs to pass the energy conservation law at the

earliest by setting forth clear policy directions on matters related to, among others,

legal and regulatory framework, institutional arrangements, market development,

public awareness as well as how national energy efficiency plans are developed,

implemented, monitored, evaluated, and updated. Pursuant to this law, the

government should prepare a long-term energy efficiency master plan with clear

road maps, preferably focusing on large energy consuming sectors in the country, i.e.

building, transport, and industry sectors that collectively account for more than 90%

of national energy consumption.

Second, to achieve the energy efficiency targets and goals stipulated in the master

plan, the government will be required to formulate and implement energy efficiency

programs and projects with proper enforcing tools such as penalties and incentives.

Since implementation of such programs and projects will require a significant amount

of financial and human resources, prioritization would be needed following the

national development priorities and available resources. In parallel, proper energy

efficiency business models will have to be developed, and promotion of energy

service companies (ESCOs) could be an effective business model.

Third, institutional capacity building is equally important. The Saudi Energy

Efficiency Center (SEEC) has started its operations, and a number of qualified

engineers and experts are already on board. However, the government should

conduct accelerated training programs and knowledge sharing activities both

onshore and offshore to further build institutional capacity of not only SEEC but also

the energy efficiency industry as a whole.

Fourth, government interventions in the form of providing concessionary loans,

subsidies or loan guarantees would be essential for companies, building owners, and

individuals to introduce new and high energy-efficient products by lowering their

financial burden. To this end, the government may consider Korea’s example of

raising a dedicated energy efficiency fund by levying on energy usages.

Fifth, it is essential to convince energy consumers of all levels to commit to energy-

saving lifestyle and have better awareness on energy efficiency. Since awareness

building cannot be done in a short period of time, it is recommended to conduct

regular public awareness campaigns in schools, offices, and other establishments

using various media platforms.



Sixth, the current energy pricing structure in KSA encompasses a massive amountof subsidies, which undermines energy efficiency efforts and discourages consumersin introducing innovative energy efficiency related technologies and in using moreenergy efficient equipment and appliances. A review of energy price subsidies andrationalization of the domestic energy prices are urgently needed.


2014/15 Knowledge Sharing Program with the Kingdom of

Saudi Arabia: Policy Consultation for Enhancing

the Efficiency of Economic Development


Chapter1

KSP_사우디(영문)_1장 2016.2.24 3:30 AM 페이지26 SJ_01


Seunghee Han (KDI School of Public Policy and Management)

■ Chapter 01

Summary

This consultation on KSA’s economic development plan focused on enhancementof operating authority of the plan. About the mid-term planning, it is mostimportant to maintain consistency. It is also significant to respond to severalconditional changes with flexibility in the planning process. Above all things, therolling plan seems to be the system that must be operated efficiently which requires asystematic pan-governmental approach that encompasses all ministries andgovernment agencies. It is necessary to maintain consistency and uniformity amongvarious strategies and policies promoted and implemented by ministries at a pan-governmental level, especially controlled under a specific ministry (in this case theMinistry of Economy and Planning) or agency with arbitrary power to review andrevised the policies. Establishing an economic research institute like the KoreaDevelopment Institute (KDI) would be helpful in building capacity to forecast themacroeconomic conditions and to make policy recommendations for planning andreviewing development plans. Besides, it is important to provide an institutionalstrategy to reflect the development plans into budgetary process. To improve thelinkage between planning and budget, for instance, a more effective conferencesystem may be organized by the planning board or a mid-term fiscal planning systemmay be introduced. To improve the capacity to plan and coordinate policies of therelated public agencies wholly responsible for planning, an economic policycoordination body (e.g., the Council of Economic and Development Affairs) shall beoperated to be not only chaired by the top decision-maker of the KSA government,but also run by the planning agency (in this case, MoEP), selecting the agenda.



Moreover, oil dependency would need to be gradually reduced while developing atax administration system step by step to grant a more stable collection of publicrevenue.

To be specific, with regards to the Korean experience of planning andimplementing economic development plans, this consultation intends to make a fewpoints to enhance the effectiveness of the plans.

First, the rolling plan system needs to be operated more effectively. To do so,rolling plan itself would need to be more systematically established under theMinistry of Economy and Planning on an annual basis. It is necessary to maintainconsistency and uniformity among various strategies and policies promoted andimplemented by ministries at a pan-governmental level, especially controlled under aspecific ministry or agency with arbitrary power to review and revised the policies.

Second, to improve the capacity to plan and coordinate policies of the agencywholly responsible for the planning, an economic policy coordination (e.g., theCouncil of Economic and Development Affairs) would need to be designed to bechaired by the top decision-maker and run by the planning agency (in this case, theMinistry of Economy and Planning), selecting the agenda.

Third, to improve the linkage between the planning and the budget, aninstitutional measure would need to take place. For instance, a conference systemmay be organized by the planning board or a mid-term fiscal planning system may beintroduced.

Fourth, whether it is a five-year plan document or a one-year plan document, itwould need to propose major macroeconomic and social indicators of the planperiod. Moreover, the basic objectives of the plan and the implementationmechanism would be better understood once clearly distinguished.

Fifth, oil dependency would need to be gradually reduced while graduallydeveloping a tax administration system to grant a more stable collection of publicrevenue. It is notable how some scholars assert that the more the nation isdependent on taxes; it is more likely for the government to enhance itsaccountability.

Sixth, establishing an economic research institute like the Korea DevelopmentInstitute (KDI) would be helpful in building capacity to forecast the macroeconomicconditions and to suggest policy recommendations for the planning and reviewingdevelopment plans.

Chapter 1 _ An Effective Use of the Rolling Plan System 027


1. Introduction

The Kingdom of Saudi Arabia (KSA) has been formulating and implementing atotal of nine cycles of ‘Five-year Development Plan’ since 1970. Currently, it ispreparing for the Tenth Five-year Development Plan. The Central PlanningOrganization was responsible for the First Five-year Development Plan (1970-1975)while the Ministry of Planning was in charge from the Second through the SeventhFive-year Development Plan. The Eighth (2005-2009) and the Ninth Five-yearDevelopment Plan (2010-2014) were implemented by the Ministry of Economy andPlanning. However, KSA currently is not operating the rolling plan system and theKSP consultation paper for KSA in 2013 recommended it as “an option for grantingexecutive force of the plan1).” Based on this recommendation, KSA requested theKorean government to further consult on the implementation of the rolling plansystem.

As indicated in the KSP consultation paper for KSA in 2013, KSA’s Five-yearDevelopment Plan continuously developed its planning methodology and structuringprocedures. Yet, it is expected to bring greater effectiveness once complementarymeasures are taken in the following situations: First, specific goals on macroeconomicindicators like economic growth rate, inflation rate, the balance of payments, and soon do not seem to appear clear at the planning style. Nonetheless, suchmacroeconomic indicators have large utility in the sense that they are constraints tobe considered in the process of policy making or supply and distribution of resources.Second, the Ministry of Economy and Planning is not playing a practical role in theprocess of policy-making of individual ministries and government agencies’ draftingor evaluation after the policy implementation. Of course, the related ministriesshould be given the decision-making authority when deciding which policies to


1) Lee and Kim (2013, p. 240) stated “It cannot guarantee that the rolling plan system will be pushed ahead after

it is implemented. Rather, the outcome may be less satisfactory than the efforts. Nonetheless, the Korean

economic development plan …… implemented rolling plan system, granting the executive force of the plan to a

certain level.”However, rolling plan signifies that five-year plans be renewed every year, based on the base

year. Yet, establishing the five-year plan every year is not an easy task. In the Korean case, it implemented

the rolling plan system by planning and implementing economic plans based on one-year time horizon in the

process of planning the five-year plans. The fundamental purpose was to modify and supplement the priorities

of policies to unexpected changes in the conditions and environment during the planning stage of the five-

year plans, promoting executive forces. In the meantime, this research is considering mid-term fiscal

management system, along with the rolling plan system, to enhance executive power of the five-year plans,

promoting connectivity between planning and budget or running a conference system chaired by the Top

Decision Maker. Say, the President. Considering such conditions, this research may be encouraged to expand

the scope to promoting the executive forces of the five-year plans, not merely on introducing the rolling plan

system. However, the consultation topic of this research has been determined based on the discussion

between the Korean government and the partner government, taking the designated topic as it was initiated.

Moreover, six policy recommendations not only considers effective management of the rolling plan system but

the intention to eventually supplement the rolling plan system and enhance the executive force of the five-year

plans.


implement in the government. Yet, it is crucial to set priorities among these ministriesat a pan-government level and distribute resources accordingly to enhanceeffectiveness of economic development plans. Within the government budget,priorities on education or health are applied to the Five-year Development Plansimplemented by the Ministry of Economy and Planning while the budget on theother sectors is allocated based on the requests from individual ministries.2) Thebudgeting system of KSA tends to rely on the bottom-up approach, the so-calledincremental budgeting system, where individual government agencies request basedon the actual spending of the previous year rather than the top-down approachwhich sets up macroeconomic constraints and fiscal soundness, maintainingobjectives prior to the budgetary process. Thus, it is necessary that the planning andthe budgetary process be more closely related and be reformed into a morereasonable system. Third, amendment or adjustment of plans is not strictly donewhen facing any unexpected changes in the economic conditions at the planningstage. Fourth, it is difficult to understand the policy vision on the major economicpolicy direction of the government due to simple listing of the objectives3) andspecific projects supporting these objectives within the implementation period ofFive-year Development Plans.

Accordingly, this consultation has been done with a focus on strengtheningexecution power in the planning process. Regarding mid-term plans, it is critical tomaintain consistency. At the same time, it is also significant to respond promptly toany abruptly arising changes of circumstances with flexibility. To be specific, lessonslearned from the Korean experience of economic development planning andimplementation have been considered as the key inspiration to enhancement ofeffectiveness of policy implementation in this process of consultation.

Above all things, the rolling plan seems to be the system that must be operatedefficiently which requires a systematic pan-governmental approach that encompassesall ministries and government agencies. It is necessary to maintain consistency anduniformity among various strategies and policies promoted and implemented byministries at a pan-governmental level, especially controlled under a specific ministry(in this case the Ministry of Economy and Planning) or agency with arbitrary power toreview and revised the policies. Establishing an economic research institute like theKorea Development Institute (KDI) would be helpful in building capacity to forecastthe macroeconomic conditions and to make policy recommendations for planningand reviewing development plans. Besides, it is important to provide an institutional


2) Joharji, Ghazi, and John Willoughby, “The Saudi Arabian Budgeting System: An Institutional Assessment,”Public

Administration and Development, Vol. 34, 2014, p. 63.

3) Thirteen objectives are listed on the Ninth Five-year Development Plan (2010-2014), while 24 objectives are

listed on the Tenth Five-year Development Plan (2015-2019). If these objectives were categorized into five to

seven groups (e.g., common sector) and take measures to promote focal policies by group, it would be easier

to understand the features of the Five-year Development Plans and the major economic policy direction.



strategy to reflect the development plans into budgetary process. To improve thelinkage between planning and budget, for instance, a more effective conferencesystem may be organized by the planning board or a mid-term fiscal planning systemmay be introduced. To improve the capacity to plan and coordinate policies of therelated public agencies wholly responsible for planning, an economic policycoordination body (e.g., the Council of Economic and Development Affairs) shall beoperated to be not only chaired by the top decision-maker of the KSA government,but also run by the planning agency (in this case, MoEP), selecting the agenda.Moreover, oil dependency would need to be gradually reduced while developing atax administration system step by step to grant a more stable collection of publicrevenue.

2. Economic Development Planning Processin Saudi Arabia: An Overview4)

2.1. Evolution of Economic Development PlanningAgency in Saudi Arabia

As previously mentioned, KSA has developed the Five-year Development Plansince 1970 while discussion on the necessity and the concept of economicdevelopment plan began in the late 1950s. Figures like Anwar Ali, the first head ofthe Saudi Arabian Monetary Agency, who favored economic planning, arose andtheir ideas grew stronger. In 1959, the Economic Development Committee was set upwith the Ministers of Agriculture, Education, Health, Oil and Communications beingits members, although this did not function very effectively.

In 1960 a World Bank Mission to Saudi Arabia recommended the establishment ofa Planning Board which was duly set up in 1961. However, it was given responsibilityfor drawing up an economic development policy, the ministers refused to take theadvice seriously or adapt the spending plans in the light of the priorities which theBoard agreed. In reality, the ministries were politically more powerful than the Boardand were not prepared to give up any of their power. The new system’s failure toprove effectiveness was blamed on the Board; rather than the ministries, and it wasabolished in 1965.

According to the policy recommendation of the following reports by the FordFoundation and the United Nations Team for Social and Economic Planning,5) a new

4) This section refers entirely to various documents provided by the KSA government, unless specifically

mentioned.

5) Wilson, Rodney, Economic Development in Saudi Arabia, London: Routledge, 2004, pp. 22-23.


Central Planning Organization (CPO) was established in 1965 and the head of whichhad direct contract with the King.6) Although the planners’ powers were increased inOctober 1975 when the CPO became the Ministry of Planning, those of theindividuals within the Ministry of Commerce and Industry with responsibility forindustrial development were increased even further as a new Ministry of Industry andElectricity was established, while the remit of the planning ministry was restricted tocommerce.

By the late 1990s it was apparent that the Ministry of Planning was becomingincreasingly ineffective and that reform of economic management was needed toensure at least a degree of coordination between spending ministries, if not theirpolitical control. It was against this background that the Supreme Economic Council7)

was set up; largely because of the oil price falls of 1998 and their economic impactbrought developmental issues higher up the political agenda.8) The Ministry ofPlanning was reformed into the Ministry of Economy and Planning, being in chargeof the Eighth Five-year Development Plan (2005-2009). As of January 29, 2015, theCouncil of Economic and Development Affairs was newly established in place of theexisting Supreme Economic Council.9) Based on the decision from the Council ofMinisters on February 9, 2015, this newly established Council is in charge of“identify[ing] trends, visions and goals related to economic affairs and development,and review[ing] the economic and developmental strategies and plans necessary todo so, and follow-up on their implementation and coordination.”10)

2.2. Planning System in the Kingdom of Saudi Arabia

The distinctive feature of the Saudi planning system is its philosophy of achievingeconomic and social development within the framework of a free market economybased on Islamic values and concepts. The planning system serves four basic functions:(i) to provide a long term conceptual vision to guide development; (ii) to provide anorganizational framework for coordinating the development efforts of the privatesector and the government to guide and initiate structural change; (iii) to direct


6) Looney, Robert E., Saudi Arabia’s Development Potential: Application of an Islamic Growth Model, Toronto: D.C.

Heath and Company, 1982, p. 98.

7) The King is the chair of the Supreme Economic Council, and the Crown Prince is the deputy chair. The

Council members are seven ministers with economic portfolios, two State Ministers, and the Chairman of the

Council of Ministers’General Committee. (See Joharji and Willoughby, 2014, p. 73, footnote no. 8.)

8) Wilson, Rodney, Op. cit., 2004, pp. 24-26.

9) The Meeting is presided by the Minister of the National Guard and the participants are the Ministers of Ministry

of Justice, Ministry of Petroleum and Mineral Resources, Ministry of Finance, Ministry of Water and Electricity,

Ministry of Labor, Ministry of Housing, Ministry of Economy and Planning, Ministry of Commerce and Industry,

Ministry of Transport, Ministry of Communication and Information Technology, Ministry of Social Affairs, Ministry

of Municipal and Rural Affairs, Ministry of Health, Ministry of Civil Service, Ministry of Culture and Information,

Ministry of Agriculture, Ministry of Education, etc. and three other State Ministers.

10) This information was provided by the Ministry of Economy and Planning of the KSA.


government resources towards achieving the long term development objectives forthe economy and towards ensuring the availability of essential public services; and(iv) to strengthen the on-going management of the economy through periodicreviews and by preparing for emerging conditions which could seriously affect thedevelopment process.

In the formulating process of the Five-year Development Plans, all governmentagencies11) are involved and play an important role assigned for them. Yet, the keyrole is assigned to the Ministry of Economy and Planning, which is responsible forpreparing, coordinating, and evaluating the development plans. The individualgovernment agencies are responsible for preparing and submitting to the Ministry ofEconomy and Planning their five-year Operation Plans and for ensuring theimplementation of their plans according to the planned schedule.

Planning is the primary instrument of development in the Kingdom. The five-yeardevelopment plans provide a strong structural base for smooth functioning of allkinds of economic activities. Planning, in fact, is a complex process in which all thegovernment agencies of a particular country are being involved. The Ministry ofEconomy and Planning as in most of the other countries around the world, isresponsible for devising various economic policies, and formulating and executingFive-year Economic Plans. In Saudi Arabia, Five-year Development Plan is preparedaccording to the guidelines of the national development strategy as approved by theCouncil of Ministers. Specifically, it includes both the Plan Document, which outlinesthe medium - term economic policies and development strategy, and the detailedOperational Plans for each ministry and public agency, which set all governmentexpenditure and development programs. Hence, the plans (both national plandocument and the agency’s operational plans) integrate the main elements ofdevelopment; the structural priorities and directions of the economy, and thedevelopment and expenditure programs of government. Before the Council ofMinisters approves it, the Council of Economic and Development Affairs and theShoura Council12) go through a review process. Moreover, the UndersecretaryCommittee, where the Deputy Ministers of the Ministry of Economy and Planningand the Ministry of Finance are the co-chairs, makes decisions on the five-year budgetthat is reflected on each government agency’s operational plans. Nonetheless, somescholars like Joharji and Willoughby (2014) criticize the fact that the Ministry of


11) The list of the government ministries and agencies is provided in Appendix 2.

12) According to the Ministry of Economy and Planning, Shoura Council was first established in 1924 by the

Consultative Council. Since then, it has evolved into the current status through functional reforms in 1924,

1925, 1926, 1927, 1928, and 1992. It is composed of the Chairman, assigned by the King, and 150 Council

members. It is supposed to draft new orders and amend the already-existing orders through discussion.

Then, it makes suggestions to the King. It also provides opinions and recommendations to the public policies,

especially on (i) economic development plans, (ii) law, regulation, treaties and privileges, (iii) regulatory

restrictions, and (iv) other issues on the annual reports published by the Ministries and public agencies.


Economy and Planning’s participation is limited in the process of the coordinationbetween the plan and the budget, compared to that of the Ministry of Finance.

2.3. Roles and Objectives of the Planning in theKingdom of Saudi Arabia

Planning has played an essential role in guiding the economic and socialdevelopment of the Kingdom during the past four decades or so, and will grow evenmore important from now on. Planning in Saudi Arabia therefore, represents aspecial combination of long term indicative guidance, policy directions andinstruments, and the allocation of government expenditures, all of which lead tostructural changes in the economy and more effective control over the developmentprocess.

Starting with the Fifth Development Plan, indicative planning for the privatesector was adopted to complement directive planning for the public sector. Calls onindicative planning have grown, largely due to the increasing importance of the roleof the private sector over recent years.

The objectives of the plans are being determined by the Ministry of Economy andPlanning according to their own requirement of the economic growth anddevelopment of the country. In Saudi Arabia some of the objectives are the samewith all plans whereas various new objectives have been incorporated in the newplans or upcoming plans in accordance with the need and requirement of thecountry itself. The main objectives of economic and social development policy forSaudi Arabia are to maintain its religious and moral values, and to raise the livingstandards and welfare of its people, while providing for material security andmaintaining economic and social stability. These objectives were to be achieved by: (i)increasing the rate of growth of gross domestic product (GDP); (ii) developing humanresources so that the several elements of society will be able to contribute moreeffectively to production and participate fully in the process of development; and (iii)diversifying sources of national income and reducing dependence on oil throughincreasing the share of other productive sectors in gross domestic product.

2.4. Directions of Saudi Five-year Development Plan

Over the past four decades or so, the strategic goals have been reemphasized ormodified, but their thrust has remained and will continue to guide the developmentprocess. Two basic principles of guiding national development and providing anessential continuity and stability to the individual plans have been the sustainedpreservation of religious values and the provision of national security. Beyond theseprinciples, the following fundamental principles have guided the previous plans and



will continue to provide the framework for future plans.

First, diversifying the economy and reducing dependence on oil: while oilrevenues have provided Saudi Arabia with the financial base to achieve rapideconomic and social progress, they have also exposed the Kingdom to the highlyvolatile conditions of world oil markets. The need to establish other strong economicsectors and income sources to meet the need of a rapidly growing population hasbeen recognized throughout the development plans.

Second, raising living standards and improving the quality of life: a continuinggoal has been to distribute the benefits of the Kingdom’s increasing wealththroughout the population and to provide opportunities for all members of theSaudi society to participate in the development process, while preventing the adverseside-effects of rapid development.

Third, maintaining economic and social stability: rapid economic development andmodernization have led to social and economic instability in many countries,particularly when the benefits of development have been unevenly distributed andtraditional values have been abandoned. Cognizant of this, the development planshave all emphasized fidelity to Islamic values, the spread of public services andemployment opportunities throughout the Kingdom.

Fourth, regional development: balanced and integrated regional developmenthas been a goal of all five-year plans, to be achieved through regional planning thatis based on a fair distribution of government services, proper utilization of naturalresources, the full utilization of each region’s potential and discouragement ofmigration to cities, unless such migration enhances the development process.

Fifth, strengthening the role of the private sector in the economy: the privateenterprise has traditionally been the focus of economic activity in the Kingdom. Ofnecessity, in the early stage of implementing development plans the governmentplayed the leading role in stimulating economic development, particularly throughmajor infrastructure projects. However, engaging the private sector in thedevelopment process has been a consistent objective. With the end of theinfrastructure development and the growing need to accelerate the diversification ofthe economy, the fostering of a vibrant private sector has taken on even greaterurgency. Therefore, strengthening the private sector was emphasized in the FourthPlan and is a major thrust of the Fifth Plan, too.

Sixth, broadening the linkages between the Kingdom and other nations: inrecognition of its expanding role in the world politically, economically, socially and inreligion, an important goal is to broaden and deepen the Kingdom’s relationships




with international organizations and other countries, especially the Gulf CooperationCouncil (GCC).

Seventh, developing and completing the physical infrastructure: with greatforesight, oil revenues during the first three plan periods were invested primarily inestablishing the physical and social infrastructure systems essential to a stable,productive and just society. The majority of this infrastructure has now beencompleted and provides an outstanding base for future economic and socialdevelopment. The emphasis is now changing to the maintenance of existing facilities,thereby ensuring their long-term economic value to the Kingdom.

Eighth, developing human resources: the wealth of the Kingdom ultimatelyresides in the productive skills of its labor force. Accordingly, the development planshave placed great importance on human resource development, through advances inprimary, secondary, and higher education, as well as vocational and technicaleducation and training. The result has been a huge increase in productiveemployment of the Saudi citizens and a steady upgrading of the skill levels, as well asoccupational achievements of its labor force.

2.5. Ninth Five-year Development Plan: Objectivesand Implementation Mechanism13)

The Ninth Five-year Development Plan (2010-2014) emanates from the basic termsof reference embodied in the Basic Law established by the State; namely, tocontribute to human civilization within the context of Islamic values and high moralstandards; consolidate the foundations of the State, its identity and its Arab, Islamic,and international heritage; safeguard national security; promote national unity;guarantee human rights; maintain social stability; reinforce the mission of family insociety; and achieve comprehensive sustainable development. In formulating itsdirections, the Plan bases itself upon the long-term future vision of the Kingdom, asexpressed in the long-term strategy of the national economy up to 2024, as well ason the achievements of the Eighth Development Plan.

The Ninth Plan adopts thirteen objectives as follows: (i) first, to safeguard Islamicteachings and values, enhance national unity and security, guarantee human rights,maintain social stability, and consolidate the Arab and Islamic identity of theKingdom; (ii) second, to continue to develop the holy places, and improve the services

13) This section refers to KSA’s “Main Directions of the Ninth Development Plan.”Since the KSP consultation

paper for KSA in 2013 provides the objectives of the eight Five-year Development Plans (from the First to the

Eighth) this paper, in extension, is introducing the objectives of the Ninth Five-year Development Plan. (The

objectives and strategies of the First through Ninth Five-year Development Plans are summarized in Appendix

1 of this paper.)



provided to Hajj and Umrah performers to ensure performance of religious riteseasily and conveniently; (iii) third, to achieve sustainable economic and socialdevelopment by accelerating the rate of economic growth and social welfare; (iv)fourth, to achieve balanced development among religions of the Kingdom andenhance their role in social and economic development; (v) fifth, to enhance humandevelopment, expand the range of options open to individuals to enable them toacquire and use knowledge, skills, and expertise, and provide appropriate healthcareservices; (vi) sixth, to raise the standard of living and improve the quality of life of allcitizens; (vii) seventh, to diversify the economic base horizontally and vertically,expand the absorptive and productive capacities of the national economy andenhance its competitiveness, and maximize the return on competitive advantages;(viii) eighth, to move towards a knowledge-based economy and consolidate the basisof an information society; (ix) ninth, to enhance the role of the private sector insocioeconomic and environmental development and expand domains of privateinvestments (domestic and foreign) and public-private partnerships; (x) tenth, todevelop, conserve, and ensure rational utilization of natural resources, particularlywater, protect the environment and develop environmental systems within thecontext of sustainable development; (xi) eleventh, to continue socioeconomic andinstitutional reform, develop regulations aimed at raising efficiency and improvingperformance, work towards entrenching transparency and accountability, andsupport civil-society institutions in advancing their developmental activities; (xii)twelfth, to strengthen economic integration with Gulf Cooperation Council (GCC)and Arab states and develop relations with Islamic and friendly countries; and (xiii)thirteenth, to develop the sector of Small and Medium Enterprises to increase itscontribution to GDP, and create frameworks for nurturing and organizing it.

The Saudi government has identified the following twenty-three majormechanisms through which the objectives mentioned above will be achieved:

(1) Accelerating the pace of economic growth and the distribution of its dividendsamong the regions of the Kingdom and the various social strata;

(2) Enhancing the developmental effectiveness of foreign direct investment; (3) Reducing development gaps among the various administrative regions; (4) Intensifying efforts aimed at diversifying the economic base; (5) Maintaining an enabling environment for sustainable development; (6) Intensifying efforts aimed at raising living standards and improving the quality

of life and continuing to reduce poverty rates; (7) Creating an enabling environment for moving towards a knowledge-based

economy and a gradual shift towards an information society; (8) Deepening the partnership between the public and the private sectors and

accelerating the privatization process; (9) Achieving financial stability and continuing to pursue fiscal and monetary


policies that contribute to higher rates of economic growth and reduceinflationary pressures;

(10) Increasing the contribution of the Saudi workforce in various developmentsectors;

(11) Providing educational opportunities and improving enrolment rates at alleducational levels, and developing the educational system to ensurequalitative and quantitative response to development and social needs, aswell as to emergent knowledge;

(12) Expanding, developing, and disseminating vocational and technical trainingprograms in all administrative regions;

(13) Providing comprehensive and integrated healthcare to all society members; (14) Adopting a population policy that takes into consideration quantitative and

qualitative population and geographical distribution variables, andstrengthening correlation between population characteristics and sustainabledevelopment;

(15) Developing and promoting active participation of Saudi women in theKingdom’s development;

(16) Supporting and developing participation of youth in development, andenabling them to contribute actively to social development;

(17) Providing adequate housing on the widest scale to meet the needs of society; (18) Protecting integrity and combating corruption and reducing its repercussions

on the investment climate and the economic and social dimensions of thedevelopment plan;

(19) Promoting and developing national culture, and increasing cultural andscientific production;

(20) Deepening economic integration among the GCC countries andstrengthening Arab, Islamic, and international relations of the Kingdom;

(21) Improving implementation mechanisms of development programs andprojects, and evaluating the implementation policies adopted by the plan;

(22) Providing all forms of support and assistance to small and medium enterprises(SMEs) and removing obstacles confronting their development; and

(23) Emphasizing the social dimension of development by promoting communityparticipation in development processes and social care and supportingdisadvantaged groups and people with special needs, and paying specialattention to youth, women, and children.

As indicated in the above, the objectives of the Ninth Development Plan are notnecessarily different from those of the previous Plans. In other words, putting thefundamental objectives of preserving Islamic values and national security aside, it isquestionable whether new objectives are introduced with changes of socioeconomicconditions and forecasts on macroeconomic indicators under consideration.Moreover, the 23 implementation mechanisms identified to achieve the objectives



mainly has two possible problems. One is that some of the implementationmechanisms are not differentiated from the upper concept of objectives. The other isthat there is a high possibility of limitations in realizing more effective outcomeslargely due to abstract contents and terminologies contained in the implementationmechanisms.

2.6. Features of the Saudi Budgeting System

It is indeed crucial to plan well but a fairly reasonable budgeting system isrequired to successfully implement such plan. In this sense, it is necessary to overviewthe budgeting system of Saudi Arabia. Saudi Arabia has an incremental annual line-item budgeting system. As previously mentioned, although capital expenditures inthe education and health sectors are guided by five-year plans developed by theMinistry of Economy and Planning, the rest of the budget preparation procedure ismainly driven by requests from government agencies to increase spending (i.e., abottom-up approach), instead of being based on an early determination of themacroeconomic constraints and the acceptable level of deficit (i.e., a top-downapproach).14) If, as in some countries, the budget is prepared with little reference tothe underlying macroeconomic environment, then there is not much likelihood thatthe appropriate balance between revenues and expenditures will be attained. On themicroeconomic level, a failure to develop procedures that allow the evaluation ofdifferent spending projects can lead to a systematic misallocation of resources. Morepositively, successful budgetary policies can provide society with productive publicinvestments while ensuring macroeconomic growth and stability.15)

The Saudi budgeting practices are similar to those of other developing countries.Past spending patterns largely determine future expenditures, and this incrementalistlogic makes it difficult for the Ministry of Finance (MOF) officials to evaluategovernment programs.16) In addition, however, the erratic swings in governmentrevenue - which is largely determined by variations in global oil prices - introducescertain unique features to the Saudi fiscal practices.17) It has been challenging tocontrol spending in good times, and limit cuts in bad times.18) Revenue instabilitymakes it difficult to use the budgetary process to reallocate resources towards themost effective government programs.19) Policymakers might not wish to upsetrelations amongst the branches of the government by subjecting governmentprograms to rigorous cost - benefit analysis. However, government spending patternscannot be easily adjusted downward. For instance, items such as wage bills, transfers


14) Joharji and Willoughby, op. cit., 2014, p. 63.

15) Ibid., p. 63.

16) Ibid., p. 63.

17) Ibid., p. 63.

18) Ibid., p. 63.

19) Ibid., p. 63.


and subsidies are rigid and cannot be cut or prioritized easily.20)

The central government of Saudi Arabia includes the Royal Court, all ministries,and certain independent government agencies such as universities and specializedtraining and research organizations. There are 23 ministries, 24 universities and 20public organizations including training and research institutions such as the Instituteof Public Administration, the General Organization for Technical and VocationalTraining, and King Abdulaziz City for Science and Technology.21) The Saudi budgetdivides public expenditure (i) by administrative responsibility (line ministries anddepartments), (ii) by function (manpower development, economic resources, defense,municipal services, etc.) and (iii) by economic activities (wages, supplies, opesration,maintenance and capital).22)

As previously mentioned, incremental budgeting system of Saudi Arabia eitherincreases or decreases the budget of the three dimensions by item. In an incrementalline-item budgeting system, decision-making about the bulk of spending is thusreduced to concentrating on changes in various input items - personnel, equipment,


20) Ibid., p. 74.

21) Ibid., p. 68.

22) Ibid., p. 68.

[Figure 1-1] Flow Chart of Coordination between Planning and Budget

Note: CEDA stands for the Council of Economic and Development Affairs.Source: Ministry of Economy and Planning of KSA (2015).


maintenance, utilities or transportation - that make up programs rather than tolooking at programs as wholes.23) Also, Figure 1 provided by the Ministry of Economyand Planning of Saudi Arabia represents the flow of coordination between theplanning and the budgetary processes among the related governmental agenciesincluding the Ministry of Economy and Planning and the Ministry of Finance.However, this flow does not necessarily explain whether planning operates at theupper level to budget. According to Joharji and Willoughby (2014), coordinationbetween planning and budget in KSA is not sufficient enough.

2.7. Evaluation on the Planning System of SaudiArabia

As pointed out earlier, Saudi Arabia has formulated and implemented nine cyclesof Five-year Development Plans, whose major objectives were to raise the livingstandards and welfare of its people, to achieve comprehensive sustainabledevelopment, to enhance its competitiveness, to strengthen economic integrationwith Gulf Cooperation Council and Arab states, and so on. Especially in the case ofthe Eighth Five-year Development Plan, the Saudi government included the long-term strategy of the national economy in the Plan. In other words, it is containingframeworks for four cycles of Five-year Development Plans in order tocomprehensively achieve socioeconomic development up to 2024.

It is unfortunate to have insufficient literature and information on the outcomesand limitations of each Five-year Development Plan of Saudi Arabia. Nonetheless,according to the existing literatures, evaluation on the Five-year Plans based onstructural perspective, or on what kind of patterns the Plan has been drafted, on howthe plan has been applied in the budgetary processes, and so on is possible.Moreover, it is possible to suggest opinions on what kinds of efforts have been put into enhance the efficiency of the planning process of the Five-year Plans. Thefollowing four different approaches are applicable to the current planning system ofSaudi Arabia.

2.7.1. Matters on Adoption of the Rolling Plan System

Structural operation of amendment or revision based on the evaluation on theoutputs and changes of socioeconomic conditions is necessary in the implementationprocess of the Five-year Development Plans. Flexibility for unexpected situations is assignificant as consistency in the Plans. In the case of Korea, it reviewed theoperational outputs every year during the First Five-year Economic Development Planlaunched in 1962, amending the Plan itself. Since 1967, it implemented annual


23) Ibid., p. 74.



economic plans which enabled prompt reaction and change of plans to unexpectedsituations or when the initial macroeconomic goals could not have been met. Suchformation and implementation of annual plans as a part of rolling plan is anoteworthy factor from the Korean experience. This was done to have flexibility inimplementation of mid-term plans which incorporated the priorities of nationalpolicies. The Kingdom of Saudi Arabia seems to be in need of establishment andimplementation of similar economic plans in one-year time horizon.

2.7.2. Coordination Issue between Planning and Budget

A system would need to be established, in which coordination between planningand budget can be better pursued. Of course, the normative stance which promotescoordination between planning and budget is in fact considered unrealistic due toeach feature at variance.24) This stance is asserting that the main objective of theplanning process lies in developing long-term visions for the future and the relevant

24) Korea Institute of Public Finance (2006) is explaining the theories with positive and negative views on

coordination between planning and budget as follows. First, a positive view on coordination between planning

and budget states:

The theory which emphasizes the linkage between budget and planning regards them as components of a

decision making process chain. In principle, if the planning is a part of decision making process, which links

the purpose and the method, the budget has to be consistent with the planning as a subordinate to the plan.

As we consider the budget as an institutional tool to carry out the plan, we take it for granted that the budget

and planning should be linked. If we deem planning as a purpose/actual-orientated designing activity,

budget is a monetarily expressed financial activity which assists execution of it. Hence it is the budget which

assures the practicability of planning. While planning has its focus on establishing purposes and general

description of the policy, the budget has its focuses on executive efficiency with distribution as one of its key

considerations. The effectiveness of the policy cannot be guaranteed without a suited support of the budget,

even if how well the policy has been planned. Inappropriately designed budget can easily lead to drain on

the resources. Conclusively, resources can be distributed rationally and efficiently only if the relationship

between planning and budget is appropriately established. While pursuing economic development,

developing countries came to understand planning and budget should be linked closely; planning is an

inclusive concept which involves policy formulation, implementation, evaluation and feedback. Budget plays a

role in the chain of decision making process as a sub-system of planning. J.K. Galbraith, A. Waterston, and

J. Tinbergen are representative scholars who take a positive view on the linkage between the budget and

planning.

Second, a negative view on coordination between planning and budget states:

gative viewpoint of the linkage between planning and the budget has its ground on practical conditions and

customs of budget and planning. First, power between the planning organization and the budget organization

is not equal with each other in securing finances. In most cases budget organization is dominant, and the

plans fail to get appropriate support from the budget department. Budgeting and planning are carried out by

two different departments and due to the difference between the underlying natures of two parties- it is likely

that managers of two departments would hardly share common background, training, and experiences. The

conflict between the two parties is inevitable. The budget organization tends to convert systematic decision of

the planning organization into incremental, political decision, with its power in resource distribution. Secondly,

the plan tends to be formulated in situations where the information and availability of usable resources is

uncertain. It is hard to guarantee the practicality of the plans without enough considerations on such restrictive

conditions. Consequently, the conflict between budget and planning is again inevitable; during the budget

allocation process. In most cases, budget organization dominates such situations with its power in resource

distribution, but planning organization also has a responsibility. It has been frequently asserted that plans tend


policies, while budget is focused on setting priorities and providing details for short-term distribution of resources. However, this paper lies with the approach stressingthe significance of consistency based on close relationship between planning andbudget. This derives from a viewpoint that sees planning and budget are consideredto be mutually complementary. While the planning provides various policies that canachieve national policy objectives, the budget actually is drawn up based upon theplans.

The current Saudi Arabian system has a communication channel between theMinistry of Finance and the Ministry of Economy and Planning in the budgetaryprocess, having a certain level of coordination between planning and budget.According to Joharji and Willoughby (2014), however, planning and budget do notseem to be linked adequately except for education and health sectors. This may be afactor that makes it difficult for the budget to function properly in distributingresources. In addition, the current budgetary system is single-year-based which doesnot necessarily incorporate long-term perspectives on public revenue andexpenditure. Without a long-term approach, it is inevitable that the budget sticks tothe previous year’s spending or grown incremental which eventually leads tofinancial inelasticity. Budget based on a single-year hinders an effective distributionof resources by growing inconsistent with the long-term objectives of planning.

In order to effectively achieve the long-term goals, systematic reforms shall takeplaces to strengthen the linkage between planning and budget. The EconomicPlanning Board (EPB) of Korea, when it was first established in 1961, has had boththe planning role and the budgetary role. The budgetary functions initially belongedto the Ministry of Finance, and yet the Park Chung-hee Administration which tookoffice in 1961 transferred the budget to the newly established EPB as an effort toimprove policy effectiveness. At the time, planning without budget was perceived asa mere ‘paper plan’ and there was a mutual consensus on how plans should beapplied to the budget. In the case of Saudi Arabia, strengthening the role of theconsultative group of related ministries, such as the Ministry of Economy andPlanning and the Ministry of Finance, is likely to reflect the objectives andimplementation mechanisms of planning on budgeting process. Lengthening thebudgetary period from a single-year to the mid-term (e.g., five years) is alsonecessary. Moreover, public revenue of Saudi Arabia is largely reliant on oil exportwhich makes its long-term public revenue be directly influenced by global oil prices.Furthermore, according to an opinion that revenue largely dependent on natural


to be drawn up without enough scrutinization on priorities and validity of the projects. A number of

incrementalists have been revealing their negative viewpoints and criticisms on the linkage between budget

and planning, with the leading critics A. Wildavsky, N. Caiden, and I. Sharkansky.

Korea Institute of Public Finance, Promotion of Coordination between Medium-term Plans and Public Finance

Management in Each Ministry, the Ministry of Planning and Budget Research and Service Report, 2006, pp.

12-14.


resources (not on tax collection) negatively affects improvement of the quality ofgovernance25) into consideration, it is important to reduce oil reliance on publicrevenue over the long-run.

2.7.3. Structure and Formality of the Plan Document

Regarding the system of plan document, two opinions may arise. First, the plandocument seems to be missing a few important things like the forecast onconditional changes both domestic and international26), implication drawn from theevaluation on the outputs of the previous Five-year Plans27), expected effects fromplanning like forecasting some major macroeconomic and social indicators at theending point of the Plan28), and so on. Second, objectives as well as the implementationmechanisms in each Five-year Plan document are not necessarily distinguishable fromthose of previous Plans.29) As previously discussed, 13 objectives and 23 implementationmechanisms are provided in the Ninth Development Plan. These are rather listed inparallel which makes it difficult to clearly understand and match whichimplementation mechanism is applicable to which objective.

2.7.4. Establishment Issue of Think-tank on Government Policies

Establishment and operation of think-tanks is necessary in the sense that theycould enable development of both long-term and short-term development strategiesand forecast of various socioeconomic indicators. In the case of Korea, the KoreaDevelopment Institute (KDI) was established in 1971, making long-term and short-term economic development plans of the government as well as supporting thegovernment when developing policies regarding various current economic issues.


25) Moore, Mick, “How Does Taxation Affect the Quality of Governance?,”Institute of Developing Studies Working

Paper No. 280, 2007.

26) One of the implementation mechanisms of the Ninth Development Plan (2009-2014) that mentions “providing

adequate housing”does not appear to have sufficient analysis on the housing circumstances in comparison

to its population, forecasts on provision of housing, and necessities to increase provision of housing at the

time of planning.

27) For example, parts of the Second Plan (1975-1980) mentioned “reduce dependence on oil”as one of the

objects or implementation mechanisms. At this point of drafting a new plan, it is difficult to find outcomes or

supplementary conditions in accordance to the objectives or strategies.

28) When the planning is indicative, instead of imperative, the private sector’s role as much as that of the public

becomes crucial in the planning and operating processes. Thus, problems may arise when forecasting major

socioeconomic indicators of the ending point in fact becomes a goal in the market. Nonetheless, the Korean

experience indicates that the government included either its strong will or objectives in the medium-term

plans, which also operate as a kind of signal.

29) As indicated in Appendix A: Main Objectives and Strategies of the Development Plans, the main principles

and objectives of the previous Five-year Plans are not quite distinguishable. “Reduce dependence on oil”

mentioned as one of the strategies of the First Plan (1970-1975) and the Sixth Plan (1995-2000) is also one of

the main objectives of the Second (1975-1980), the Third (1980-1985), and the Fourth (1985-1990) Plans. In

the meantime, “developing human resources”mentioned as one of the main strategies of the Seventh Plan

(2000-2005) constituted an objective of the Seventh Plan as well.


Necessity of such think-tank that focused on Korea’s economic development firstarose in 1966 when the Second Five-year Economic Development Plan (1967-1971)was drafted.30) When the First Five-year Economic Development Plan (1962-1966) wasbeing established, Korea had to rely on the United States who provided aid andforeign consultation on economic development plans and short-term policies. As timepassed by, however, a mutual consensus was formed within the government that in-depth empirical research was needed with a national interest point of view whendeveloping development plans and policies, including long-term and short-termforecasts of the major economic indicators. Nonetheless, domestic universities andprivate economic institutes lacked capacity as well as willingness even until the late1960s. Korea had to invite several foreign consultants with the foreign aid from theUnited States for the Second Five-year Development Plan. Through such processes,the Korean government ended up with establishing KDI, inviting 10 doctors ineconomics who studied abroad. These professional figures of KDI dealt witheconomic plans and major policies instead of foreign consultants. After five years, KDInot only helped draft annual economic plans of the government but contributed tomaking policies and introducing systems on income distribution, social safety net,economic structural reform programs, and so on. It would be meaningful for theSaudi Arabian government to establish a similar think-tank with its own professionalhuman resources.

3. Korea’s Experience in Operating the RollingPlan System

3.1. Motivation and Contents for the Management ofthe Five-year Economic Development Plan31)

Since the Korean government was founded in 1948, there have been severalattempts to promote economic development plans. Yet, it was not until the timewhen the First Five-year Economic Development Plan (1962-1966) was introducedthat the executive ability has been more pronounced in terms of policyimplementation. In the 1950s, public desire for economic modernization was strong,though it never led to systematic economic development due to the political andsocial turmoil. However, the Park Chung-hee Administration that came into power inMay 1961, established the EPB32) on July 22 of the year as the agency fully responsible


30) Kim, Kwang-suk, “KDI’s Expansion of Function and Output in the Past 40 Years”, KDI, the Cradle of Korea’s

Policy Research: KDI Policy Research Cases in Celebration of the 40th Anniversary, Korea Development

Institute, 2011, p. 18.

31) For detailed information on this part, refer to: Seunghee Han, 2013 Modularization of Korea’s Development

Experience: Operation of the Economic Planning Board in the Era of High Economic Growth in Korea, Ministry

of Strategy and Finance of the Republic of Korea, 2014.


for implementing economic development strategies, publicizing the First Five-yearEconomic Development Plan in January, 1962. Adopting economic developmentadministrative system and long-term economic development planning system,economic development was prioritized to effectively support the public aspiration.Nonetheless, the First Five-year Economic Development Plan had problems withrelatively short period of time for preparation, confusion arising from currencyreform, bad harvest, and so on, leading to not being able to meet the initial goals.With such unexpected conditional changes, EPB responded by promptly introducingamendments in November, 1962 and announcing the amended First Five-yearEconomic Development Plan in February, 1964. The First Plan is evaluated as asuccessful plan whose major indicators like growth rate exceeded the goals set. TheFifth and the Sixth Five-year Economic Development Plans both amended the Plans inthe middle due to the substantial changes of political and economic conditions.

Since the Second Economic Development Plan, it was able to prepare a morecomplete plan document based on its experience with the First EconomicDevelopment Plan. Five-year Plans have no longer been written since the SeventhFive-year Economic Development Plan (1992-1996).33) Korean Five-year DevelopmentPlans are different from one another, though there is a common feature offormulating at both macroeconomic and sectoral levels. Regarding overall planning,it conventionally provides the aggregate goals and fundamental developmentstrategies based on the macroeconomic indicators, added by detailed economicpolicy programs in the sectoral plans to achieve the goals.

In its formation process, Five-year Economic Development Plan of Korea wascomposed of three phases of (i) preparation phase, (ii) drafting phase based onmacroeconomic planning and sectoral planning, and (iii) confirmation of the finalplan document with an overall review on each plan. During the preparation phase,EPB provided a guideline for planning to the related ministries and governmentagencies with both internal and external conditions expected during the plan period,goals and objectives, and the current major economic issues. In this process, EPB tookthe lead in formulating the guideline, inviting government officials from related


32) Economic Planning Board, established on July 22, 1961, was given the mission to “develop comprehensive

plans to prosper and develop public economy and to manage and adjust the plans whenever is necessary.”

Economic Planning Board, Economic Policy of the Development Era, Miraesa, 1982.

33) The implementation of this plan was suspended when the Kim Young-sam administration took office in 1993,

and a new plan was implemented under a different title of Five-Year Plan for the New Economy. After the

Economic Planning Board (EPB) was abolished in 1994, the five-year economic plan was not formulated for

some time. Though the current Park Geun-hye Administration has adopted “Three-year Plan for Economic

Innovation,”it is not in extension to the Five-year Plans in the past. In the meantime, Annual Economic

Management Plans has changed its name to Annual Economic Policy Direction since EPB and the Ministry of

Finance integrated into the Ministry of Finance and Economy in 1994. The Annual Policy Direction is being

established today by the Ministry of Strategy and Finance into which the former Ministry of Finance and

Economy and the former Planning and Budget Committee were merged in 2007.


ministries and agencies, academic professionals, and economic figures by sectors andthrowing panel discussions. Especially since KDI was established in 1971, economicforecasts and policy recommendations have been provided by KDI. Such procedureinvolving panel discussions and policy advisory played a role of collecting andreflecting public opinion.

During the drafting phase, EPB formed task force teams led by the relatedMinisters or Vice Ministers, having economic planning bureaus of EPB work asassistant administrators and hold seminars at the team level. Of course, governmentofficials of related ministries were invited to participate in the drafting process of theplan document, as well as the preparation phase, to enhance sectoralprofessionalism. Nonetheless, understanding the fact that it is the line-ministries andgovernment agencies at the field who implement and execute plans was one of thekey motivations to improve executive ability. Cooperation and support from therelated agencies and the public increased as proactive participation of variousstakeholders reflected public opinions on planning.


Table 1-1 Processes of Formulating Economic Development Plan(Focused on Participating Groups and Participants)

First Plan

(1962-1966)

Second Plan

(1967-1971)

Third Plan

(1972-1976)

Fourth Plan

(1977-1981)

Supreme Council forNational Reconstruction

Cabinet Council Cabinet Council Cabinet Council

Joint Committee Deliberation Council Deliberation Council

Economic PlanningBoard

(Overall Planning Bureau)Advisory Committee Coordination Committee

Working-LevelCommittee (20 Pers.)

Sector PreparationMeetings

(12)

Sector Meetings(14)

Working-LevelPlanning Groups

(22)

Source: Seunghee Han, 2013 Modularization of Korea’s Development Experience: Operation of the Economic Planning Board in the Eraof High Economic Growth in Korea, Ministry of Strategy and Finance of the Republic of Korea, 2014, p. 38.

OfficialProcess

AdvisoryGroups

Others

Based onFive-Year Plan of

DemocraticParty Gov’t

Active participationof foreign experts

Plans formulated by eachministry and sector (Partial participationof foreign experts

and increasedparticipation of domestic

experts)

Less participationof foreign experts

and more involvementof domestic experts

USAID, German advisorygroups

Policy ConsultationMeeting (KDI)


During the last phase, EPB combined the macroeconomic plans and sectoral plansinto a five-year plan, brought the drafted plan to the Cabinet Council, and wentthrough the final confirmation process. In the combining process, the Vice Minister ofEPB led the Policy Coordination Team with the Vice Ministers of other relatedagencies, reviewing whether the overall and sectoral plans balance well and whethersectoral plans are consistent with each other. When there were different views orincomplete coordination at the working level, the related agencies could have in-depth discussion in the Policy Coordination Team. <Table 1-1> summarizes theparticipating groups and participants of the First, Second, Third, and Fourth EconomicDevelopment Plan of Korea.

3.2. Introduction and Operation of the Rolling PlanSystem

Without the budget, no perfect plan can be effective. At the same time, it mightbe hardly expected that the budget can support the plan when the latter lacks realityand flexibility. It is especially necessary to incorporate changes in socioeconomicconditions of every time when formulating the plan every five years. Thus, planningmust be able to lead the budget based on such conditional changes, evaluating theobjectives and policy directions and implementing more realistic policies andstrategies. One way to periodically amend and revise the initial plan is the rollingplan. The rolling plan does not have a standing period. It is designed to continue overone year and is subject to regular review and updating. To be specific, there is thebase year and the target year for Five-year Plan and continuing to push these yearsforward and formulating the Five-year Plans every year is what the rolling plan is. Inother words, the implementation period of five years is maintained.

Though the rolling plan has benefits derived from realistic and flexiblemanagement reflecting conditional changes, actual application has difficulties andlimitations. It is because Five-year Plans need to be reestablished every year whichrequires cumbersome tasks and brings public confusion along. Thus, it is unrealistic tocompletely transform the current Five-year Plan of KSA to the rolling plan. In the caseof Korea, once the Five-year Plan was formulated, EPB drew up annual economicmanagement plan usually in January of the year, reviewing the process and updatingon the conditional changes. During the five-year plan period, it revised themacroeconomic forecasts and economic policy programs. When formulating theannual plan, the related government officials and KDI researchers as well as privateprofessionals were involved. Since EPB held budgetary function and applied thepolicies of annual plans to budget, the related ministries and government agencieswere highly interested in the process of the annual plans. Private corporations andhouseholds had a strong tendency to take the economic forecasts and major policiesin the business direction or household management.



Annual planning was initially implemented as Overall Resources Budget (ORB) in1967, the first year of the Second Five-year Economic Development Plan. It wasmainly to improve the output of the Five-year Plans by promptly responding torapidly changing economic circumstances. At the same time, ORB included theinvestment plans of both the public and the private sectors, providing a totalavailable resources allocation plan. Maintaining the general framework of the Five-year Plan, ORB proposed specific goals on macroeconomic indicators (e.g., economicgrowth rate, inflation rate, and the balance of payments), major policy trends, andsectoral investment scopes. ORB at the time functioned as the basic foundation of thebudget, annual work plans of individual ministries, and business activities of theprivate sector. Nonetheless, ORB changed its name to Annual Economic ManagementPlan since 1978, the first year of the Third Five-year Economic Development Plan.Since the Third Plan, the main focus of the Plan has been on presenting policies, noton resources allocation. Annual Plans no longer included investment butconcentrated on suggesting goals on macroeconomic indicators and major policytrends. For instance, EPB functioned as the leading agency, setting the priority goalsand the basic policy directions.


[Figure 1-2] Formulation Process of the Five-year Plan

Source: Jin (1984)34), p. 28.

34) Jin, Nyum, “The Economic Development Plan and Economic Management System in Korea,”presented at

Korea Development Institute, International Forum on Industrialization and Trade Promotion, Seoul, Korea, May

15-24, 1984.


3.3. Coordination Meetings on Current EconomicIssues Presided by the Top Decision-maker

As previously discussed, the Park Chung-hee Administration that came into powerin 1961 established the EPB. Especially since January 1965, Monthly Economic TrendReport Meetings (METRM) have been held in a more full-fledged manner by thisplanning agency. Until October 1979 when President Park Chung-hee passed away,he himself chaired the Monthly Economic Trend Report Meetings almost everymonth in a conference room at EPB.35)


[Figure 1-3] Formulation Process of the Annual Economic Management Plan

Source: Jin (1984), p. 27.

35) Monthly Economic Trend Report Meetings (METRM) was held a total of 146 times from January 1965 to

September 1979. The table shows the date and frequency of METRM by year (1965-1979). According

to Seunghee Han and Tai-hyuk Kang, “It was held every month except for May in 1965 and January and

February in 1966. In the period from 1968 to 1974, the meeting was consistently held every month except for

January when the New Year on-sight briefing to the President was conducted. It indicates how METRM was

made part of an official meeting system for understanding international and domestic economic trends and

effectively implementing and monitoring economic policies. Later from 1975, the frequency began to decrease.

The meeting was held nine times in 1975, eight times in 1976, eight times in 1977, seven times in 1978 and

just four times in 1979.”Seunghee Han and Tai-hyuk Kang, 2014 Modularization of Korea’s Development

Experience: Policy Implementation and Governance during the Era of the High Economic Growth in Korea:

with an Emphasis on Korea's Monthly Economic Trend Report Meeting and Export Promotion Meeting,

Ministry of Strategy and Finance of the Republic of Korea, 2015, p. 47.



The participants of METRM were the power elites like economic ministers,Governor of the Bank of Korea, the Republican Party Officials (Chief Policymaker),and so on, driving economic development at the center of politics and economy. Inplanning, being well-implemented with outputs produced is as important as beingwell-drafted. President Park Chung-hee, at the time, utilized METRM as the keymeans to increase effectiveness in the planning as well as policy implementation. Heused to say “It is about 5% of the order and 95% of the monitoring and supervision”based on his military experience, also saying “It is about 5% of the policy formulationand 95% of its implementation,” emphasizing the significance of monitoring andsupervision on sight than planning or policy-making itself.

When the government formulated plans based on either one-year or five-yeartime horizon, proposing the basic objectives and policy implementation strategies,METRM enhanced the executive power of the plans while fine-tuning the policiesbased on economic environmental changes on a short-term basis. Coordinationabout major policy issues among ministries was not a problem since the participantswere composed of the key figures of the politics or major government agencies andthe Meeting was held under the chairmanship of the President. When the keystakeholders of economic development planning gathered and shared accurateinformation in a timely manner, they formed a sense of bonding. This system playeda pivotal role in effectively promoting the economic development plans and thepolicies. Heated agenda from the Meeting were given a lot of weight, drawingattention from the media and the public.

What is notable is that the status of EPB, the planning agency, was higher than

Monthly Economic Trend Report Meetings (1965-1979)

Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov DecTotal

(times)

Note: The number indicates the days when there were reports.Source: Kang, Gwang-ha et al. (2008), p.107.

1965 12 5 - 3 5 8 13 5 6 7 5 8 11

1966 - - 7 11 5 7 4 4 5 7 14 8 10

1968 - 5 6 8 6 5 8 3 5 5 5 6 11

1969 - 11 5 7 12 12 14 5 16 22 5 5 11

1970 - 5 5 6 5 11 6 7 7 7 5 7 11

1971 - 5 6 7 5 7 5 5 7 5 5 6 11

1972 - 9 6 10 12 5 5 7 7 5 7 6 11

1973 - 5 5 11 7 11 5 6 5 8 5 6 11

1974 - 5 5 12 6 5 5 13 5 10 5 6 11

1975 - - 7 8 8 5 12 - 5 6 5 8 9

1976 - - 5 - 10 8 12 - 7 6 9 8 8

1977 - - 8 - 10 9 7 - 9 13 8 13 8

1978 - - 17 12 - 9 - - 7 11 10 15 7

1979 - - - 13 9 8 - - 11 - - - 4

KSP_사우디(영문)_1장 2016.3.14 4:43 PM 페이지50 g43

that of other ministries. EPB, as discussed previously, held authority in both theplanning and the budget. The Minister of EPB also held a post as the Deputy PrimeMinister. Moreover, EPB was receiving special support from the President. PresidentPark Chung-hee who had a very strong will on economic development establishedEPB in about two months since his inauguration, giving the authority to actuallyrealize economic development. Coming to the EPB office building every month andchairing the Meeting on top of such a supreme status, EPB was given the propellingforces to plan and implement policies.

Han and Kang (2015) is introducing how President Park was taking care of thecurrent economic issues of the time at METRM, referencing the transcripts.36) At theMETRM of April 12, 1974, for example, the President was reported on the currentstatus of inducement of foreign capital and future usage plan. During this report,President Park asked questions and made instructions. Following is the conversationbetween the President and Choi Chang Rak, EPB Assistant Minister, who wasreporting on inducement of foreign capital and operation report by EPB. Presidentshowed great interest and indicated specific operational orders, as follows:37)

Choi Chang Rak, EPB Assistant Minister: The 7th IECOK General Assemblywas held in Paris, France, for two days on March 26 and 27. ( ) I would liketo report on the President’s special order on inducement of foreign capital for1974 and how it has been implemented, by industry. ( ) Railroad loan waspushed for 4.4 million USD but ( ) made a deal with 100 million USD bynext year. ( ) Building agricultural warehouse is yet discussed with theMinistry of Agriculture and Forestry, checking demand. ( ) We are planningto get German loans within the range of 0.5 million USD for the first round. President Park Chung-hee: ( ) Deputy Minister of Transportation,Minister of Transportation, what kind of projects do you have in mind? Kim Shin, Minister of Transportation: We are thinking of a long-termintroduction of railroad, trains, rail ( )Choi Chang Rak, EPB Assistant Minister: To add on ( )Kim Shin, Minister of Transportation: We will report on it later. Choi Chang Rak, EPB Assistant Minister: We were thinking of train, diesellocomotives, equipment, rail, and other components. President Park Chung-hee: You know the Choongbuk Line, that deliveredcoal and cement from Gangwondo province? Another option is using the raildown in Samchuk and Pohang from Japanese colonization. Then we can getcoal and cement from Gangwon more quickly, right? I think it is moresignificant ( )Kim Shin, Minister of Transportation: Coal consumption is expected to


36) Ibid.

37) Transcript of the Meetings is recited from Han and Kang (2015) pp. 154-155.


increase in the future. We will make a plan considering increased anthraciteand large-scale transporting resources. President Park Chung-hee: Minister of Agriculture and Forestry, 0.5 millionUSD from West Germany ( )Choung So Young, Minister of Agriculture and Forestry: Yes. President Park Chung-hee: We can’t rely on that only. We should buildagricultural warehouse, even if we use it for other purposes. AID conditions aremore beneficial, no? Choung So Young, Minister of Agriculture and Forestry: That is correct. Choi Chang Rak, EPB Assistant Minister: Yes, that is correct. Its interest rateis 2 percent and long-term. President Park Chung-hee: But we don’t have warehouses. I am concernedabout the food problems and oil problems approaching and want to havewarehouses to store food during good harvest in the U.S. and be prepared.( ) We can’t just buy something out of nowhere and can’t even store themanywhere ( ) Choung So Young, Minister of Agriculture and Forestry: We are workingon it and will report as things work out. President Park Chung-hee: We need to have a certain amount ofwarehouses and get prepared for bad years or cases of global food crisis. Weneed to be prepared and store some, and warehouses to do so. Make plans ondetailed budget. Choung So Young, Minister of Agriculture and Forestry: Yes, Mr.President. I will report within the week.

Transcript of the Monthly Economic Trend Report Meetings (April 12, 1974)

conversation implies how President Park Chung-hee was taking care of the currenteconomic issues of the time. President Park himself chaired the Meeting, encouragingthe related government officers to enhance effectiveness of major national policyagenda such as Food Production Increase Policy, Forestation Policy, Energy SavingPolicy, Industrialization Policy, and so on, coordinating the workload amongministries. METRM, along with similar meeting system promoting economicdevelopment plans chaired by the President, became one of the propelling forces forthe Korean economy to develop both in quantity and quality. Gathering the mainstakeholders of economic development planning and sharing accurate information ina timely manner formed a social consensus. This is how economic policies werecoordinated without any serious hitch.


38) Han and Kang (2015) explains how the late President Park Chung-hee promoted major economic development

with detailed cases of Monthly Economic Trend Report Meetings based on the transcripts of conversations

and discussions.


The case above is a brief part extracted from METRM.38) Nonetheless, this short

Specifically, several developing countries had established economic developmentplanning agency and promoted development after the Second World War but fewobtained the desired results.39) In this sense, it is notable that simple establishment ofeconomic development planning agency does not guarantee a satisfying outcome.Looking at the Korean case, it is the function that the planning agency holds afterestablishment. Like METRM, the President’s large support toward the planningagency with personal tracking on the major policy process and encouragement of thestakeholders can be seen as an influence factor.40)

3.4. Institutional Strategy for Coordination between thePlanning and the Budget41)

As previously discussed, it is unique how EPB of Korea functioned as not only theplanning agency but the budget office. This planning agency had the basic conditionto maintain comprehensive consistency between the planning and the budget.Before the Park Chung-hee Administration took office in 1961, the Ministry ofFinance had assumed the budget function, while the Ministry of Reconstruction hadundertaken the planning function. Consequently, close cooperation between thetwo ministries remained relatively poor. Once EPB was established, however,planning was considered as something to be reflected in the budget. For instance,when the Planning Bureau of EPB mentions a certain project in the process of makingannual economic plans, the Budget Bureau was accustomed to putting effort toapply the plans to the budget. When it was difficult to apply, the Budget Bureaueven appealed to the Planning Bureau to either reduce the scale or eliminate theproject.

The Korean government began to draw up mid-term financial plans since 1982


39) Han and Kang,2015 p. 114, footnote no. 116.

40) Han and Kang (2015, p. 114) is mentioning a few special features of EPB, apart from strong support and

passion of the President.

In the case of Korea under the Park Chung-hee administration, EPB was at the center of all short- to

long-term economic planning or key economic policy enactment. The Minister of EPB was double-hatted

as the Deputy Prime Minister, making it a � uper ministry’that handles functions such as planning,

budget planning, foreign procurement, and statistics management. It was responsible for not only devising

economic plans, but also monitored the plans’implementation, managed the economic research and

statistics activities, coordinated foreign funds and technology cooperation programs, and set the basic

strategy for science technology development. EPB owned almost all the means necessary to establish

and perform economic plans, from plans establishment, budget planning, foreign fund introduction,

technology, to research and statistics. Waterston (1965) argued that out of many planning agencies of

developing countries, it is hardly easy to find an agency that had the power to match Korea’s EPB.

[Waterston, Albert, Development Planning: Lessons of Experience, Baltimore: The Johns Hopkins Press,

1965.]

41) Unless mentioned otherwise, this section has been written based on the Korea Institute of Public Finance’s

publication: Promotion of Coordination between Medium-term Plans and Public Finance Management in Each

Ministry, the Ministry of Planning and Budget Research and Service Report, 2006, pp. 9-12.


with the fundamental objective on proposing rough financial investment directionsand utilizing it as internal reference in the budgeting process. The mid-term fiscalplan sets the time horizon to three to five years, aiming to supplement the limitationsof the single-year budget system.

Since 2004, five-year mid-term fiscal plan has been worked out under the name ofNational Fiscal Management Plan, newly setting the mid-term fiscal plan42) every fiveyear as the rolling plan, reflecting the conditional changes of economic situations andfiscal management. The multiple-year budget is more of a management measure toimprove the effectiveness and efficiency of fiscal management, rather than a legally-binding distributary process that ultimately allocates resources.43) Thus, the mid-termfiscal plan can be viewed as a multiple-year budget system. The mid-term fiscal planplays a substantive planning role in coordinating the planning and the budget. Thesubstantive planning mobilizes resources including natural resources, humanresources, and financial resources to achieve social goals. The fiscal plan is under asmaller scope and is a substantive planning measure that includes the idea of futurebudget planning and supply of resources and funds to allocate in accordance withthe overall national goals.44) Thus, the fiscal plan operates as a mediator connectingthe substantive planning and the budget. It is unique how the mid-term fiscal planadopts mid-term time horizon to increase rationality and effectiveness of resourceallocation and functions as a mediating measure. Looking at the mid-term fiscal plansof developed countries, it is used to promote fiscal soundness, strategic resourceallocation, and collaboration between the planning and the budget.

In 2007, Korea enacted the National Fiscal Act, obliging establishment of theNational Fiscal Management Plan and its submission to the National Assembly. Itproposed 12 fiscal investment plans by sector45) with consideration of gross totalmanagement goals on financial earnings and expenses, government debt, and so onbased on economic and fiscal forecast. Afterwards, the Korean governmentexpanded the scope of the National Fiscal Management Plan, enhancing


42) The Korean government initiated four fiscal reform policies including 1) Mid-term Fiscal Management Plan, 2)

Top-down Budgeting System, 3) Performance Budgeting System, and 4) Digital Budget and Accounting

System in the mid-2000s. Details on these fiscal policies are elaborated in Park, Nowook, "Establishment of

Mid-term Fiscal Management Plan and Performance Budgeting System", 2009 Knowledge Sharing Program:

Uzbekistan & Indonesia & Cambodia & Ukraine, Korea Development Institute, 2010, pp. 272-301 and Kim,

Hong-Kyun, “Korean Experience on Mid-term Fiscal Management System”, 2010 Knowledge Sharing

Program: Uzbekistan, Korea Development Institute, 2012, pp. 335-361.

43) Kim, Jong-myun, “Multi-year Budget System,”Financial Forum, 2006Vol. 1, Korea Institute of Public Finance,

2006, p. 8.

44) Premchand, A., Government Budgeting and Expenditure Controls: Theory and Practice, Washington, D.C.:

International Monetary Fund, 1984, p. 176.

45) The 12 sectors are (1) health, welfare, employment, (2) education, (3) culture, physical health, tourism, (4)

environment, (5) R&D, (6) industry, SMEs and energy, (7) SOC, (8) agriculture, fishery, food industry, (9)

national security, (10) diplomacy and unification, (11) public order, security, and (12) general public

administration.


effectiveness. In the budgeting stage, including general accounts, traditionallyproposed on the total expenditure that covered budget and funds, while in theplanning stage involved stakeholders from the related ministries, local governments,and professionals who promoted professionalism and transparency of the plans.Analysis on requirement of public finance and the priorities on resources allocationprovided by the National Fiscal Management Plan composed the framework forsingle-year budgetary process. Since 2012, discretionary spending by the nature ofspending has been obligated in financial expenditure providing forecasts andmanagement plans. Mid-term and long-term fiscal management plans of the publicenterprises and semi-public agencies were obligated to be submitted to the NationalAssembly, helping with strengthening fiscal soundness.

Indeed, the mid-term fiscal plans do have benefits of enhanced rationality ofresource allocation through increased coordination between planning and budget.However, as can be seen in the cases of many developed countries, it has thefollowing limitations.

First, once any project has been reflected in the mid-term fiscal plans, it is oftentaken for granted that such project will be automatically financed over the planperiod. This would reduce financial elasticity and if any new financial requirementarises, budget expansion might become inevitable. Thus, it may be better to considerit to be fiscal forecasts, rather than fiscal plans. Second, the rationales of the mid-term fiscal plans might fade due to the financial demand raised by individualgovernment ministries and agencies, who tend to neglect the long-term policy issues.The Ministry of Finance, the budget agency, would need to try to finance the projectsin the plans. In fact, the mid-term fiscal plan system has usually been introduced insupport of the “advocates” who claim that the linkage between the plan and thebudget should be strengthened.


46) Ministry of Finance and Strategy, National Fiscal Management Plan 2012-2016, September 2012.

Table 1-2 Formulation Process of the National Public Finance Management Plan (2012-2016)46)

The Ministry of Strategy and Finance notified the formulation guidelines of Public Finance Management Plan(2012-2016) to individual ministries (end of 2011)Individual ministries submit ministerial mid-term project plans to the Ministry of Strategy and Finance (January,2012)

The Task Force Team that consists of both public and private professionals by field such as welfare, education,and so on was formed to formulate the National Public Finance Management Plan (December, 2012)Open discussion forums were held, where both public and private professionals by major fields like health,welfare, education, etc. participated (a total of eight fields, June, 2012) Consensus building efforts were made with respect to private sector experts, local governments, individualministries through a financial policy consultation meeting (September, 2012)The government submitted the budget proposal to the National Assembly (by October 2, 2012)


In short, the mid-term fiscal plans have as much limitation as its utility, and thussuccessful settlement of the system would be possible when the people managingthe system set their perceptions and behavioral patterns right.

3.5. Establishment of Policy Think-tanks

In the case of Korea, the planning agency EPB played the key role in promotingeconomic development strategies, while KDI supported with drafting governmentalpolicies in several important socioeconomic areas and contributed to policy professionals to draw blueprints of Korean economic development strategies,encouraging the government to positively accept such policy recommendations. Inthe beginning, KDI researchers’ treatment was better than any other public universityprofessors’, providing residence and other special treatment.48) It tried to recruitqualified outstanding individuals and function as the cradle of the economicdevelopment policies. President Park Chung-hee, who had a particular support onthe establishment of KDI, often stopped by at KDI to encourage the researchers.

In the case of EPB, since it was composed of outstanding individuals with a liberalorganization culture, it drew rational policies through logical discussions. Tocoordinate opinions of various ministries, logical discussions were a must. It hadsynergy effect when the individual researchers, mostly earning their economics Ph.D.degrees in developed countries like the United States, joined EPB with liberalorganizational culture. Since KDI researchers often pulled all-nighters, discussingabout policy development processes with the EPB officers by issues, KDI’s policies


47) On 3rd of November 2011, the following article has been reported on a Korean newspaper, Herald Economy.

‘Think-tank and Civil society program’of the University of Pennsylvania has selected KDI(Korea

Development Institute) as one of 75 world-leading think-tanks (R&D institutes) last month. In economic

research, it has been awarded the first place among 1200 other Asian institutes while competing with

representing institutes from Japan and China. KDI will have its 40th anniversary on 11th. With the wish of

the former President Park Chung-hee; “There needs to be an institute that represents Korea and

contributes to its economic development,”KDI has been established in Hong-leung, Dongdaemoon-ku,

Seoul in 1971. There has been 1.3 billion KRW from United States Agency for International

Development(USAID) and a personal support from the wishful President Park. There has been a keen

relationship between KDI’s research activities and economic development of Korea. Soon after its

establishment, it constructed the cornerstones of the studies on the Korean economy, publishing ‘The

study on modernization of the Korean economy and society,’which is a study on the Korean economy

and social development between Korea’s independence and the mid-70s. KDI contributed to the five-

year plans of economic development, played parts in economic operation plans, and inter-locked

schemes that had been managed by the economic planning ministry(i.e., EPB) of the era. KDI

outstretched its performance level in the 1980s, by building institutional foundation of fair trade policies in

1986 and the basis of the national pension system. Its studies on North Korea played a significant role in

economic compromise between North and South Korea. KDI once again outstretched in the 21st century

by collaborating with international organizations such as IBRD (International Bank for Reconstruction and

Development) and OECD. Recently, KDI is engaging in aiding activities for economic development of over

30 developing countries.


evaluation.47) As discussed previously, KDI recruited outstanding Korean economic

were not merely theoretical but reflected a sense of realism. Han (2014) hasorganized various evaluations on the role of KDI on distinguished internationaljournals.49)


48) According to the article, “In the beginning, the first KDI President Man-je Kim used to go around the major

universities in the United States to persuade Korean students to join KDI due to the severe lack of a

professional working force. The offered salary was staggering three times of the salary of full-time teaching

professors in Seoul National University.”

49) Evaluation from international journal is recited from Seunghee Han, 2013 Modularization of Korea’s

Development Experience: Operation of the Economic Planning Board in the Era of High Economic Growth in

Korea, Ministry of Strategy and Finance (MOSF) of the Republic of Korea, 2014, p. 38.

National Economic Management (Ch. 7), World Development Report, 1983.

- The Korea Development Institute, which works in close collaboration with EPB, was also a channel through whichoutsiders contributed advice; it became the research arm of the government for economic policies (p.68).

- Development research institutes (such as the Korea Development Institute) can provide forums for governmentand outsiders to exchange ideas (p.70).

Henderson, Jeffrey, David Hulme, Richard Phillips, and Eun Mee Kim, Economic Governance and Poverty Reductionin South Korea, 2002.

- The institutional position and power of the KDI relative to the other think tanks directly mirrored that of the EPBand its near absolute power over all the line ministries engaged in policy implementation (p.13).

Leipziger, Danny M., and Vinod Thomas, The Lessons of East Asia, 1993.

- Fellows of the prestigious Korea Development Institute were more highly paid than ministers (p.19).

The Economist (The good think-tank guide. (1992, Dec). The Economist, 321, 49. Retrieved from,http://search.proquest.com/docview/224188553?accountid=40940)

- Until recently, the prize for the most influential think-tank would probably have gone to the Korea DevelopmentInstitute, the intellectual powerhouse of South Korea’s rapid industrialization. From its campus-like buildings on ahill 30 minutes from the center of Seoul, KDI has shaped Korea’s financial and macroeconomic policies. (Clever-4; Connected-5; Canny-4; Cushy-2; Kooky-3).

Shinohara, Miyohei, Toru Yanagihara, and Kwang Suk Kim, The Japanese and Korean Experiences in ManagingDevelopment, 1983.

- During the formulation of the Fifth Plan and before the plan guidelines were completed, the EPB and theKorea Development Institute (KDI) jointly held a series of public conferences to present and discuss the likely issuesand alternative targets and policy directions of the plan (p.49).

- With the Fourth Plan, the Korea Development Institute began issuing a discussion paper to facilitate the EPB’sreview and examination of alternative goals, targets, and policy directions for the plan before it prepares theguidelines (p.78).


4. Policy Recommendations

This paper suggests policy recommendations in six aspects based on the Koreanexperience, in accordance with the evaluations on the current planning system ofSaudi Arabia.

4.1. Operation of the Annual Economic ManagementPlan (Rolling Plan) System

As previously mentioned, this paper highlights the importance of establishingeconomic management plan at least once a year. This annual economic managementplan will be an operational plan based on the Five-year Plan. Main purpose lies inmonitoring and supervising the initially set plans, analyzing and evaluating outputs,amending and revising accurate economic forecasts and major policy directions basedon any new conditional changes.50)

When setting the annual plan, it is important for the planning agency, theMinistry of Economy and Planning, to cooperate closely with the related governmentministries and agencies and draw basic objectives and guidelines. When drafting theplan document, it needs to have a social consensus with the society at all levels withvarious interests regarding major policy directions. The Korean government learnedits lesson from past experience that major policies cannot be successfullyimplemented without public understanding and participation.

In Korea, opportunities for open discussions on the major economic policydirections of the government were rather prevalent. In these discussions, officersfrom the related government ministries and agencies, professionals from nationalresearch institutes like KDI, professors from the academia, business figures, etc. wereinvited for in-depth review of the policies. The Ministry of Economy and Planning ofSaudi Arabia is also encouraged to have such discussions in the planning process.With reference to the Korean experience, holding an open forum whereprofessionals, stake-holding groups, and the general public can join may be anoption, especially when the policy is expected to bring a great impact on the nationaleconomy. Through such reflection of public opinion, the Ministry of Economy andPlanning, the government’s planning agency, shall begin to coordinate the majoreconomic policies with the related government ministries and agencies.

What is most important is that such annual plans needs to be within the boundaryof the Five-year Plan. Amending and revising the Five-year Plan is necessary especially


50) Recommendation on such annual planning is mainly on amending and revising the initial plans accordingly

with any changes in economic conditions. When facing greater changes in political and economic conditions,

it is necessary that the Five-year Plans be revised.


when unexpectedly huge political, economic, and social changes arise. When the finalplan document is reported to the Top Decision-maker (e.g., the President), thisbecomes the guideline for the related governmental ministries and agencies toimplement policies and set budgets.

4.2. Operation of Economic Policy CoordinationMeeting Chaired by the Top Decision-maker

Like how Korea held METRM, Saudi Arabia also needs to consider adopting aneconomic policy coordinating meeting on a regular basis, chaired by the Topdecision-maker of the government, quickly coping with the related ministries andagencies on the major issues. In Korea, METRM played a significant role as the vehicleto promoting economic outcome with monthly tracking. When the governmentmade plans based on five years or one year of time horizon, the Top Decision-makerwho chaired such conference system regularly reviewed the process and encouragedprompt amendment and revision of short-term economic policies applicable torapidly changing socioeconomic conditions. In the case of Saudi Arabia, though theCouncil of Economic and Development Affairs is operating, it would be better tocreate a mechanism that utilizes the Ministry of Economy and Planning to set theagenda and coordinate to enhance effectiveness of economic development planning.It is important that the Ministry of Economy and Planning, as the planning agency, begiven high support from the Top Decision-maker and make both long-term andshort-term policies.

In the case of Korea, as mentioned earlier, EPB was in a rather superior positionwith the authority on both the planning and the budget, given the system where thebudget could apply the planning more flexibly. In addition, the Minister of EPB heldan additional post as the Deputy Prime Minister, at least formally given a higherstatus compared to other ministries. Though closer to the Top Decision-maker thanany other ministers, such higher status often made it more difficult to work. SinceEPB was given higher status in the hierarchy with great support and trust from thePresident, such institutional environment contributed to effective implementation ofvarious plans and policies.

In the early 2000s, Tony Blair, the former Prime Minister of the United Kingdom,personally reviewed and sought for reformative measures, enhanced the policyeffectiveness. In other words, the Blair Administration was aware of the fact that theeffective execution is as important as policy planning, establishing an exclusiveagency under the Prime Minister, and giving it the authority to chair and hold theStocktake Meeting regularly. These meetings are not superficial reports or approvalsbut an interactive discussion among the key figures of the policy. The participantsseek for solutions to problems at a pan-government level which, though unplanned,



encourage the involved agencies to compete for better outcome by openly reviewingand supervising by major issues.

METRM of Korea or the Stocktake Meeting of the United Kingdom are different

in the operating mechanism but are similar in the sense that the Top Decision-maker

(e.g., President or Prime Minister) put weight on the agency of planning or the

ministries in charge; and continuously increased effectiveness of the plans and

policies.51) If Saudi Arabian Council of Economic and Development Affairs holds

similar meetings organized by the Ministry of Economy and Planning, the planning

and coordination power of the planning agency would rise vis-a-vis the related

government ministries and agencies.

4.3. Introduction of the Mid-term Fiscal ManagementPlanning System

Saudi Arabia is preparing to introduce a mid-term fiscal management planning

system based on five-year time horizon.52) It is because a single-year budget and its

resource allocation can be justified only when the mid-term fiscal management policy

direction is set. As previously discussed, mid-term and long-term fiscal plans

traditionally were written to supplement the restrictions of single-year budget system

and boost rationality. It would form the mid-term (e.g., five years) fiscal management


51) During Prime Minster Blair’s era, enhancement of policy implementation effectiveness was considered

important, applying the idea of the so-called “Science of Delivery.”In this perspective, though Stocktake

Meeting and the METRM during the Era of the High Economic Growth in Korea have no causal relationship,

these two have similarities and differences in their operational mechanism. The table below is almost exactly

extracted from Jin, Nyum and Seunghee Han, Successful Case Study of Monthly Economic Trend Report

Meetings of Korea: in the Perspective of Science of Execution, 2015, p. 119.

52) It is allegedly known that KSA is currently preparing for this process.

Stocktake Meeting of the United

Kingdom

Monthly Economic Trend Report

Meetings of Korea

Period The early 2000s - present 1960s - 1970s

Scope

Organizing Agency

Chairmanship andparticipants of the

Meeting

Chaired by the Prime Minister, four times a yearRelated ministers, high-rank government officials, linegovernment officers

Limited number of measurable issues (e.g.,14 issuesincludingmortality rate of cancer, hospital waiting time,unauthorized absence, road congestion) of the UnitedKingdom

Major national policy agenda across all the economic fieldsof Korea

Prime Minister’s Delivery UnitA few private consultant (2-3 years of contract) objectivelyimplement policies unlike related ministries

EPB (President’s support, with its Minister holding anadditional post of Deputy Prime Minister)Objectively implemented policies unlike other relatedministries; had lots of tal ented professional bureaucratsand the policy think-tank, KDI

Chaired by the President, once a monthPrime Minister, Deputy Prime Minister, Cabinet ministers,members of the Economic-Science Council (economy),Governor of the Bank of Korea, Saemaeul communityleaders, mayors


policies first and then, mobilize and allocate resources which ultimately enhances

rationality of the single-year budget.

National budget cannot consider just one year. For instance, there are countlesslarge-scale projects that involve several years to finish. Revenue forecast should alsobe done over a few years, consistently adhering to soundness of fiscal balance. This iswhy the budget needs be considered with a time horizon of several years. Moreover,the mid-term fiscal plan is linked every year which makes it easier to accommodateeconomic changes or public needs. In return, the rolling plan is expected tocontribute to reducing any gap between the Five-year Development Plan and thereality.

Nonetheless, as discussed previously, it is important to notice that the mid-termfiscal plan is based on the ideas that have positive views. In other words, the mid-term fiscal plan needs to focus largely on supporting the Five-year Development Plansand enhancing the effectiveness of fiscal distribution. It is also necessary to avoid anincremental budget system that used to take requests from individual ministries, likeit used to. Moreover, though included in the mid-term fiscal plan, the funding shouldnot be taken as a single-year budget but be considered comprehensively with thebroad framework of fiscal soundness and the national economic policy direction.

4.4. Improvement in the Structure of the PlanDocument

Whether it is a five-year plan document or a one-year plan document, it needs topropose major macroeconomic and social indicators of the plan period. That way, itcan be referenced by the economic players like corporations and households tounderstand the national economy and society. Moreover, the basic objectives of theplan and the implementation mechanism would be better understood once clearlydistinguished. Objectives have to include abstract and grand concepts. The number ofobjectives needs to be minimized for the citizens or stakeholders to easily understandthe ‘directions’ of the plan. On top of this, implementation mechanisms need to bemore specific and classified under the objectives. Looking at the Development Plansof the past, as previously discussed, some of the ‘implementation mechanisms’ wereunder ‘objectives’ which needs to be fixed. In addition, adding the governmentministries or agencies in charge of the implementation mechanisms would give asense of responsibility and eventually enhance effectiveness of the Plans.



4.5. Development of the Tax Administration Systemand Its Gradual Introduction

The Kingdom of Saudi Arabia’s principal source of revenue, undoubtedly, derivesfrom oil export duties. If the Kingdom prioritizes oil preservation than oildevelopment, though it may not occur in the imminent future, it is necessary thatpublic revenue reliant on oil be gradually reduced and taxation be considered forintroduction. Even nowadays, it is assumed that the Saudi government’s income isvolatile due to fluctuating international oil prices. As previously mentioned, thisinstability makes it impossible to effectively allocate resources for various governmentprograms. If Saudi Arabia were to adopt a medium-term fiscal planning system, theunit of expenditure needs to be standardized accordingly, namely, applying mediumterm units (e.g., five years). At the same time, it needs to forecast tax revenues butthe prospect is likely to be uncertain because of the fluctuation of international oilprices.

If we take a look at the case of Korea in the early 1960s, when it launched theeconomic development plans, the government revenue was heavily dependent onforeign aid. However, in 1966, it established the ‘National Tax Service’, an institutionexclusively operating for taxation. Since then, the Korean government has addressedtaxation issues, promoting increase in tax revenues, along with continuous efforts toeradicate tax corruption. The result was a success: Korea’s rate of fiscal dependencereached 0% in 1974(compared to 34.2% in 1965), which indicated that Korea’s goalof gaining fiscal independence had eventually been achieved. This record in history ishighly marked for the successful promotion of tax policies during the economicdevelopment period of Korea in the past.53)

Many scholars have addressed the issue of gaining national revenue throughtaxation. According to Brautigam (2008), a nation can better ensure the basicdemands of its citizens and promote economic developments only when thegovernment has the ability to effectively collect taxes from its citizens. He stressesthat if a government collects taxes from more people, the government is likely tofocus on providing better public services in all areas citizens expect, such as education,medical services, social overhead capital, and so on. He emphasizes that the more acountry is dependent on taxes; it is more likely for the government to enhance its


53) Seunghee Han, Tax Administration Reform Case and Implication during the Era of the High Economic Growth

in Korea, Korea Development Institute, 2015, p. 19. Han (2015, pp. 14-15) states:

To grant stable public revenue, establishment of tax items or adjustment of tax rates are important tasks

for tax reform. Tax administration reform is considered in reviewing tax reform because the administrative

organization functions as a significant factor for granting public revenue, apart from the tax system itself.

While the process of taxation, including tax types, is about ‘That to do’, tax administrative system is about

‘How to do it.’Casanegra (1987) stated that “tax administration is tax policy.”In fact, several developing

countries’tax system and its actual implementation has considerable gap between the two.


accountability. He also adds that it will also provide a capacity-building opportunityfor the government officials in charge of taxation. In this sense, the Saudi Arabiangovernment might need to consider a gradual introduction of the tax administrationsystem as a policy option.

4.6. Establishment and Operation of Policy Think-tank

As discussed above, Korea established a think-tank called the Korea DevelopmentInstitute (KDI) in 1971. KDI has notably contributed to providing long-term and short-term forecasts of major socioeconomic indicators, as well as drafting various kinds ofgovernment policies. By providing consultation and assistance, KDI played a crucialrole not only in drawing up government policy plans, but in helping the governmentto more effectively conduct fiscal policies.

It is recommendable that the Kingdom of Saudi Arabia refers to Korea’sexperience of operating KDI as an example. Especially, for the rolling plan system andmid-term fiscal plan system, effective management is more critical than theformulation of the plan itself. In that sense, the successful case of KDI can be animportant point in the management process for the future. Though Korea waslargely dependent on foreign economic experts in the earlier stages of economicdevelopment plans, proportion of domestic experts’ policy recommendationincreased with the launch of KDI.

As Korea has been consulting its major partner countries to establish and operatea policy think-tank like KDI, the Saudi Arabian government would also need considerlaunching a policy think-tank by referring to experts’ know-hows in the area.




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Appendix

1. Main Objectives and Strategies of KSA’s Development Plans

Term Principle & Objective Main Strategies Note

2

3

4

1970-1975

1975-1980

- Maintain religious and moral valuesand improve the quality of life andwelfare

- Maintain the national security andeconomic social stability

- Maintain religious and moral values- Establish the national security- Make economic development fast- Reduce levels of reliance on petroleum- Develop human resources andimprove the quality of life

- Increase levels of social welfare andmaintain social stability

- Expand social infrastructures

- Fast economic development- Develop human resources- Improve social welfare- Expand social infrastructures- Enhance economic freedom

1980-1985

- Maintain religious and culturalvalues

- Guarantee social welfare and self-realization - Establish free marketeconomy

1985-1990

- Secure Islamic values by spreadingand establishing Islamic laws

- Protect faith and nation andmaintain social stability

- Foster the productive citizens by givingeducational and medical services

- Develop human resources- Increase the standard of culture- Reduce levels of reliance on petroleum- Diversify the base of economy bymodifying the structure

- Develop mineral resources- Make a high-quality development ofpublic interest facilities by upgradingthe performance of the existing one

- Complete the plan of constructionof social infrastructures

- Make an economic social unificationamong countries of Gulf ooperationCouncil

- Maintain Islamic religious values- Defend the religion and nation andestablish social stability

- Improve national welfare bymaintaining balanced economicdevelopment

- Reduce levels of reliance on nationalincome to petroleum

- Develop human resource andincrease levels of health

- Expand social infrastructures neededto achieve the above-stated objectives

- Stimulate economic development- Develop human resources- Diversify the source of nationalincome

- Reduce levels of reliance onpetroleum



1




7

8

1990-19955

1995-20006

- Increase the information offering- Strengthen the role of private sectoron the social economic development

- Achieve the balanced regionaldevelopment

- Similar to the above - Develop economy, improveemployment, stabilize prices andmaintain social stability

- Reduce levels of reliance onpetroleum and diversify the base ofeconomy

- Develop human resources- Develop and sustain socialinfrastructures

- Increase the quality of life- Expand the role of private sector

2000-2005

2005-2009

- Upgrade the existing developmentplan for enhancement of the abilityin national defense

- Improve the sense of loyalty andbelonging of people

- Strengthen the efficiency ofgovernmental expenditure and therole of private sector

- Develop human resources andrelease factors which make nationalemployment weak

- Set the priority on demand of socialinfrastructures according to thegrowing population

- Promote the economicdevelopment

- Increase the employment- Strengthen the role of private sector- Diversify the base of economy- Improve international balance ofpayment

- Pursue the balance of economy andstability of price

Emphasis on theimportance of theindustry ofmanufacture, tourism,information anddevelopment of waterresources

- Develop human resources andincrease its availability to use

- Improve economic efficiency- Strengthen the role of private sector

Institutional improvement- Emphasis on harmonybetween 5years planand governmentalbudget

- Predict the long-termgrowth of economy

- Emphasis on harmonybetween 5 years planand long-termperspective, evaluationof performance,importance ofdatabase andinformation system

- Emphasis on thecooperation of thegovernment andprivate sector in termsof the implement ofdevelopment plan



2009-20149

- Protect the Islamic lecture andvalues, strengthen the unity andsecurity of the country, protect thehuman right, maintain the stabilityof society and strengthen theidentity as Arab-Islamic country

- Sustain the development of Islamicshrine and provide better services forpilgrims to perform the religiousceremony easier

- Increase the rate of economicgrowth and social welfare so thatSaudi can achieve the sustainableeconomic and social development

- Establish the balanced developmentin Kingdom

- Strengthen the human resourcedevelopment and provide diverseopportunities which is available interms of learning and using theknowledge and skills of individuals

- Improve the quality of life and thestandard of living of citizens

- Diversify the range of economy bothvertically and horizontally, Expandthe production possibility of nationaleconomy and absorptiveness,enhance national competiveness,and improve the earnings rate bypredominance in competition

- lead the economic change toknowledge-based economic systemand strengthen the base ofinformation society

- Enhance the role of private sectoron social economic andenvironmental development andalso expand the government-privatecollaboration and private investment(domestic and foreign)

- Guarantee and protect the rationaluse of national resources (especiallywater), protect the environment anddevelop the policy of environment inthe frame of the sustainabledevelopment

- Strengthen the economic unityamong GCC and other Arabcountries and improve therelationship with pro-Islamiccountries

- Accelerate the speed of economicgrowth and distribute incomeequally to the Kingdom’s territoryand each class in society

- Strengthen the effect ofdevelopment of the foreign directinvestment

- Reduce the gap of levels ofdevelopment among regions inKingdom

- Diversify the base of economy- Maintain the environment forsustainable development

- Effort for the improvement of thequality of life and the standard ofliving / anti-poverty

- Make the environment for theknowledge-based economy andpursue the gradual transition to theinformation-oriented society

- Expand privatization and Strengthenthe cooperation betweengovernments and private sector

- Achieve the safe finance / assist thenational economic growth byfinancial and currency policies andalso restrain inflation

- Increase the participation of laborpopulation to diverse developingsectors

- Increase the school entrance rate bygiving the opportunity of educationand improve the quality andquantity of education system tomeet the demand from society

- Expand vocational schools andtechnology institutions in regionsand establish the comprehensivehealthcare system

- Make a policy of population forsustainable development

- Promote the social participation ofwomen population

- Promote youth population at thelevel of social and economicdevelopment

- Supply enough houses- Fight with the corruption andprotect the society from it / minimizethe impact, which is caused by corru-ption, in the investment environmentand social economic sector


2. Institutions Involved in Planning KSA’s Development Plan



- Make a framework of thepromotion, management, andmonitoring system about smallbusiness to increase gross domesticproduct

- Foster and promote Saudi culture- Strengthen the economic unityamong GCC nations / ImproveArab, Islamic and internationalrelationship

- Improve the way of execute thedevelopment plan and evaluate theexecution of policy for plan

- Expand the support to smallbusiness and release relatedproblems

- Emphasis on the developmentabout the social sector bypromoting the participation of thelocal community / Pay moreattention to social disadvantagedclass like the disabled, youth,children and women

Line Ministries Government Agencies

- Ministry of Economy andPlanning

- Ministry of Finance- Ministry of Agriculture- Ministry of Culture andInformation

- Ministry of Education- Ministry of Higher Education- Ministry of Water and Electricity,Electricity Affairs

- Ministry of Petroleum andMineral Resource

- Ministry of Health- Ministry of Civil Service- Ministry of Trade and Industry- Ministry of Municipal and RuralAffairs

- Ministry of Housing- Ministry of Hajj- Ministry of Communicationsand Information Technology

- Ministry of Justice- Ministry of Labor- Ministry of Islamic Affairs,Endowments, Call andGuidance

- Saudi Company for Agricultural Investment and Animal Production- Al-Hassa Irrigation and Drainage Authority- General Organization for Technical and Vocational Training- King Abdulaziz University- King Saud University- King Faisal University- King Khalid University- King Fahd University of Petroleum and Minerals- Salman bin Abdulaziz University- University of Imam Muhammad bin Saud Islamic University- Princess Nourabint Abdul Rahman- Islamic University- Umm Al-Qura University- Jazan University- Qassim University- University of the northern border- University of Dammam- Taif University- Baha University- Jouf University- Hail University- Taibah University- Najran University- University of blonde- University collected- University of Tabuk


Line Ministries Government Agencies

- Ministry of Social Affairs- Ministry of Transportation

- King Abdulaziz City for Science- Saudi Company for Agricultural Investment and Animal Production- Al-Hassa Irrigation and Drainage Authority- General Organization for Technical and Vocational Training- King Abdulaziz University- King Saud University- King Faisal University- King Khalid University- Saline Water Conversion Company- King Fahd University of Petroleum and- Minearlas- Salman bin Abdulaziz University- University of Imam Muhammad bin Saud Islamic University- Princess Nourabint Abdul Rahman- Islamic University- Umm Al-Qura University- Jazan University- Qassim University- University of the northern border- University of Dammam- Taif University- Baha University- Jouf University- Hail University- Taibah University- Najran University- University of blonde- University collected- University of Tabuk- King Abdulaziz City for Science and Technology- King Abdulaziz Foundation- Institute of Public Administration- King Abdullah City for Atomic and Renewable Energy- Saudi Geological Survey- Presidency of Meteorology and Environment- National Commission for Wildlife Conservation and Development- Saudi Red Crescent Authority- General Organization for King Faisal Specialist Hospital and Research Center- General Authority for Food and Drug Administration- General Organization for Grain Silos and Flour Mills- Saudi Standards, Metrology and Quality- General Authority for Investment- High Commission for the Development of Riyadh- General Authority for Civil Aviation- Royal Commission for Jubail and Yanbu- Saudi Postal Corporation- Authority for Investigation and Prosecution- General Presidency for Youth Welfare- General Organization for Social Insurance- General Authority for Tourism and Antiquities- General Organization for Railways- National Water Company






Improvement of Public InvestmentManagement System in KSA

Chapter2


Improvement of Public InvestmentManagement System in KSA

TongMo Suh (Research Institute for Gangwon)

■ Chapter 02

Summary

Since 1970, the Kingdom of Saudi Arabia has implemented successive five-yeardevelopment plans in a bid to transform its economic structure into a sustainable oneand raise the living standards of citizens by making use of a windfall of financialresources accrued from oil exports. In this course, KSA has placed emphasis oninvesting massive amount of money for public projects. However, it seems thatrelatively less consideration has been given to the aspects of efficiency andproductivity involved with such investments. In recent years, as the issue of raisingproductivity in the overall economic activities has emerged as one of the majorchallenges facing the nation, a great attention is also being paid to the issue ofboosting efficiency and productivity of public projects. Another problem involvingpublic projects that has persistently buffeted the Saudi authorities is the chronic andfrequent delays in the process of implementation.

Against this background, this chapter attempts to address KSA’s current publicinvestment management (PIM) system with focus on identification of specificweaknesses, and working out policy recommendations based on Korea’s experiencesand the World Bank’s guidelines for a good PIM.

A good PIM can be defined as the system which ensures that the “right” projectwith a highest national priority is selected and the selected project is finished withinthe original budget and time frame, being completed with a quality end-project.“The Power of Public Investment Management”, a volume published by the World



Bank, identifies the eight “must-have” features of a good PIM system. In this chapter,these key features will be employed as a standard yardstick for evaluating the statusof KSA and devising policy proposals.

KSA’s Eighth and Ninth Plan fully recognize the necessity for a better quality ofPIM all over the entire project life cycle and require a revision of adopted proceduresand mechanisms in their three main stages (ex post, intermediate, and ex ante):ensuring the quality of feasibility studies; taking due care in overseeingimplementation of projects to correct errors before they escalate; evaluating theproject implementation process after it is completed and documenting experiences tobenefit future projects. However, regretfully, we have not been able to confirm whatfollow-up measures have been taken in compliance with such stipulations except forthe “Budget Project Monitoring and Evaluation System”, which is intended tooversee implementation of around 15,000 budget projects with an aim of resolvingthe delay problems. As a substitute, we need to take note of the general features ofPIM systems in natural resource-dependent states identified by the World Bank -limited capacity to conduct sound project appraisal, weakened incentives to prioritizeand carefully appraise projects, lack of checks and balances on executive powerresulting in a lack of demand for project appraisal, weak implementation capacityand so forth.

In Korea, the 1997 Foreign Currency Crisis provided a crucial impetus for fiscalreforms. Since then reform measures for an efficient, performance-oriented andtransparent management of the public finance have been steadily introduced.

Currently The National Finance Act incorporates a comprehensive legalframework for management of public projects, directing every large-scale project toundergo the process shown in [Figure 4-1]. Among them, Preliminary Feasibility Study,Total Project Cost Management, and Performance Management are key measureswhich enable the fiscal authority to secure information necessary for budget decision-making, and thereby contribute to enhancing the efficiency and productivity ofpublic expenditures. In addition, the Act on Private Participation in Infrastructureprovides a legal framework for PPPs, which is aimed at inducing private capital intoinvestment in infrastructure facilities for improving an overall efficiency of the publicsector.

As for administrative arrangements for executing such policy measures, Korea isequipped with dedicated units. In the government the Fiscal Management Bureau atthe Ministry of Strategy and Finance assumes the role of control tower for PIM,taking care of the core policy measures from the stage of project selection thru the expost performance evaluation for both of government-funded and PPP projects. ThePublic and Private Investment Infrastructure Management Center (PIMAC), an

Chapter 2 _ Improvement of Public Investment Management System in KSA 073


affiliated research agency of the Korea Development Institute, is another dedicatedunit. The mandated mission of PIMAC largely includes evaluation of publicly financedinfrastructure projects, and administrating and supporting of PPP projects. These twodedicated units work in a very close cooperation with each other.

We propose policy recommendations to the Saudi government as follow with thereservation that these are the recommendations in broad generalities just based onKorea’s experiences and the World Bank’s guidelines, worked out in the absence ofsufficient knowledge of the KSA’s exact status with regard to overall PIM systems.

In order to boost efficiency and productivity of public expenditures, overall PIMsystem needs to be strengthened in KSA. Such a strengthening needs to be made intwo dimensions. One dimension is policy measures at each stage of project cycle, andanother one is administrative arrangements.

As for policy measures, first, the Saudi government is recommended to be moreselective in the future public investment by introducing a function of pre-feasibilityappraisal at the ex ante stage of project cycle. Secondly, it is strongly recommendedthat the Saudi government conduct a comprehensive field study to find and identifymajor factors repeatedly causing the delay and other inefficiency in implementingpublic projects. Then, based on the study results preemptive institutional solutions(measures) for preventing delays from being repeated for the same reasons shouldbe drawn up. At the same time project plans need to be drawn up in a moreelaborate, delicate, and detailed manner. Thirdly, as for the ex post stage, it isrecommended that documentation and filing of the experiences of implementingprojects be undertaken.

Together with such policy measures, we recommend that the Saudi governmentshould create a dedicated unit within the central government to assume the role ofcontrol tower for overall PIM and a dedicated research agency outside thegovernment which can support the government with respect to overall publicinvestment management taking after Korea’s PIMAC.

1. Introduction

When the modern Kingdom of Saudi Arabia was founded in 1932, it was asubsistence economy highly dependent on farming and small-scale commerce.Discovery of oil in commercial quantities in 1938 provided the country with themomentum that enabled it to drastically change its appearance. Immediately afterWorld War the Kingdom began to export oil in earnest, and could secure financialresources to be utilized on constructing basic social infrastructure such as roads,



airports, seaports, schools, and hospitals, etc.

In 1970, the Kingdom launched five-year national development plan in a bid totransform its economic structure into a sustainable one and raise the living standardsof citizens by making use of a windfall of financial resources accrued from oil exports.Up to the year of 2014 successive nine development plans have been formulated andimplemented, continually adapting to the changing domestic, regional and globalenvironments. Thus, the development of the country has been guided by thecomprehensive medium-term plans that embodied national goals and aspirations asthey evolved over years. The Ninth Development Plan ended with 2014, and theTenth Plan just began with the start of 2015.

In this process, a turning point was made in 2005, when the Long-Term Strategy2025 was adopted with the start of the Eighth Plan spanning the period of 2005-2009. The Strategy sought to guide the following successive plans by providing along-term, comprehensive, and explicitly quantified vision to be achieved by the year2025. The two overriding goals stated in the Strategy are

doubling per capita GNP in real terms by 2025, anda commensurate increase in the quality of life for Saudi citizens.

Up to now Saudi Arabia, through ambitiously implementing a series of successivedevelopment plans, has made steady efforts to shift away from an excessive relianceon oil sector, diversify the economic base, and expand economic and socialinfrastructure facilities with a view to laying a foundation for sustainable economicgrowth. Although having had hard times during the period from 1983 to 1999 due tothe sustained low oil prices, the country weathered the storm successfully, and hasachieved a remarkable success to the extent that it is now playing a pivotal role at theglobal economic and political stage. Currently Saudi Arabia is one of the fastestgrowing economies1) in the world, and at the same time has a membership of G-20, aconsultative summit forum among the most economically influential countries in theworld.

In the course of implementing successive development plans, the Saudigovernment has uninterruptedly allocated a massive portion of its public financialresources for capital expenditures to be spent on building or constructing a variety ofeconomic and social infrastructure facilities to help improve citizens’ welfare andfacilitate economic growth as well. To exemplify, the Ninth Development Planallocated U$385 billion for capital projects, a 67 per cent increase over the EighthPlan which had already allocated quite significant amount. To illustrate in a different


1) However, in 2013 and 2014 there was only a modest growth in GDP of 2.7 percent and 3.6 percent respectively

due to the drop in oil revenues, after sustained double-digit growth rates in the previous years.



way, during the years of 2006-2013, reportedly the Kingdom launched thousands ofprojects while in 2013 alone the Ministry of Finance reviewed 2,330 projects valued atU$48 billion.2)

Although the Saudi government has placed emphasis on investing massiveamount of money for public projects, it seems that relatively less consideration hasbeen given to the aspects of efficiency and productivity involved with suchinvestments. In recent years, however, as the issue of raising productivity in theoverall economic activities has emerged as one of the major challenges facing thenation, a great attention is also being paid to the issue of boosting efficiency andproductivity of public projects. This is clearly expressed in the remark Dr. MuhammadAl-Jasser, the former Minister of Economy and Planning, made in an interview withthe Arab News.3) He said “Now we have a critical mass of infrastructure and theefficiency of using that is what is important. Efficiency and productivity are thethemes that I want to have a higher role in our Tenth Development Plan.” Such aremark of his implies that the strategy for further development and diversification ofthe Saudi economy should be to focus more on boosting efficiency and productivity,rather than driving growth through government spending.

His view is echoed in the Tenth Development Plan which spans the period of 2015-2019. In the nineteenth and twentieth objective of the Plan, raising the efficiency andproductivity of the public sector is set out as one of the major objectives. The Planstipulates each objective as follows;

Nineteenth Objective:Enhancing the process of institutional reform, supporting the civil society

institutions, and raising the efficiency and productivity of the government bodiesand employees

Twentieth Objective:Improving the efficiency of implementing the development programs and

projects and developing the mechanisms of follow up of their implementationand maintenance

Another problem involving public projects that has persistently buffeted the Saudiauthorities is the chronic and frequent delays in the process of implementation. Thelatest statistics show that approximately 70 percent of the public projects in thecountry have been delayed in the past decade, resulting in a huge financial loss, acompromise in quality, and long waiting times to operate the project for publicservices. Contractors’ committees have steadily requested the government to step in

2) Aluwaisheg, Abdel Aziz. Saudi budget 2014 and economic performance, The Arab News Dec 29, 2013.

3) The article was posted on September 1, 2014.


and take immediate measures to resolve or alleviate the problems.

Even the late King Abdulla reportedly said4) in his 2014 budget statement,reflecting the frustration many people feel about the slow pace of implementationof development programs and projects, “We realize that what matters is not budgetfigures, but what they represent in reality as projects and services of quality thatpeople can feel and enjoy. Therefore, all ministers and heads of government agencieshave to implement the projects and programs for which they are responsible, andperform their duties, with precision and dedication, and without delay or derelictionof their duties toward the nation and the people. Supervisory authorities have toreport to us regularly about the pace and quality of performance, and anyimpediments on the way” to make sure that he is made aware of any difficulties onthe way. In response to this request, the Saudi government has been making a greateffort to search for solutions for this problem, but it seems that such an effort has notdelivered satisfactory results yet.

Against this background, this chapter is devoted to addressing the current Saudigovernment’s public investment management system with focus on identification ofspecific weaknesses, and working out policy recommendations based on Korea’sexperiences in this field which would contribute to enhancing the efficiency andproductivity of capital expenditures, if adopted. Policy recommendations will becomprised of appropriate institutional remedies that could correct such failures.

The next section discusses the importance and a conceptual framework of a goodpublic investment management, and requirements for achieving it. Section 3 gives anoverview of the current state of KSA’s public investment management systemtogether with the features of its overall fiscal operation. Section 4 introduces Korea’sexperiences in reforms of public investment management and its current institutionalframeworks. In Section 5 we derive policy recommendations applicable to KSA, basedon the lessons accrued from Korea’s experiences and the World Bank’s guidelines.

2. Why Does a Good Public InvestmentManagement Matter and What Is It?

In a contemporary market economy, providing public goods is generally regarded

as one of the government’s basic responsibilities. It is because a market failure arises

for those goods due to their inherent characteristics in consumption such as external

effect, non-excludability, and non-rivalry. Even though such goods are essential to

the economy, they are not supplied in appropriate quantities by private


4) Aluwaisheg, Abdel Aziz. Saudi budget 2014 and economic performance, The Arab News Dec 29, 2013.


entrepreneurs in the market. Accordingly, most countries are allocating a significant

portion of their public financial resources in investing in a variety of public projects -

such as roads, railways, seaports, airports, hospitals, parks, sewage plants, etc. - to

construct economic and social infrastructure facilities which can serve to enhance

citizens’ welfare and facilitate economic growth or development as well.

As Rajaram et al. (2014) indicates, such resources allocated to investment translate

into an equivalent value of public capital stock, which, by lowering the cost of

production or distribution, benefits the private sector and affects the overall growth

process. This effect is typically measured by the rate of economic or social return from

public investment. In reality, however, it is the case that a variety of inefficiencies on

public projects are wide-spread all over the globe, resulting in lowering the realized

rate of such a return. The level of the realized rate of return will definitely vary

depending on the quality of public investment management (PIM) system a country is

being equipped with. In case that it is deficient or flawed and so resources are not be

rightly directed, it is highly probable that the realized rate of return will be low.

As such, good PIM is the basic essentials for all countries in maximizing the rate of

return, and in getting the highest value for money spent on public projects - in turn,

in maximizing the efficiency and productivity of public investments.

Then, what is a good PIM? First, it can be defined in the simplest way with a help

of academic achievements of Peter F. Drucker, who was an American management

consultant and has been described as “the founder of modern management”. He

invented a very insightful concept in business management theory: effectiveness is

doing the right things; efficiency is doing things right. So, a good PIM can be defined

as a system which ensures doing the right things and doing them right with regard to

public investment so that effectiveness and efficiency is guaranteed. To paraphrase

this in the context of public project, a good PIM is the system which ensures that the

“right” project with a highest national priority is selected and the selected project is

finished within the original budget and time frame being completed with a quality

end-project.

“The Power of Public Investment Management”, a volume published in 2014 by

the World Bank, has answered to this question in a more professional, detailed, and

refined manner. This book is intended to provide guidance to government

practitioners of all countries, regardless of developing or developed, for a pragmatic

and objective assessment and improvement of the quality of PIM system of their

government. The authors identify the eight"must-have"features of a PIM system



which are indispensable for achieving PIM efficiency and so every country regardless

of its capacity should make efforts to follow to establish basic disciplines for project

selection and management (Rajaram et al., 2014)

The eight key features are shown in [Figure 2-1].

Indeed, capacity building for a better PIM is the way for the Kingdom of SaudiArabia to enhance the efficiency and productivity of public investment. The cross-country evidence clearly shows that the best performing countries including Koreahave been able to ensure both effectiveness and efficiency through good projectselection and good implementation (Rajaram et al., 2014). In this chapter, these keyfeatures will be employed as a standard yardstick for evaluating the status of KSAand devising policy proposals with an aim of improving PIM. However, due to theconstraints of information and time focus will be placed on the stages of projectselection and implementation in the Kingdom.


[Figure 2-1] The Key Features of a Public Investment Management System

Source: Rajaram et al. (2014).


3. Overview of Public Investment Managementin the Kingdom of Saudi Arabia

3.1. Features of the Saudi Arabian Fiscal Operation

The Kingdom of Saudi Arabia has quite salient characteristics that can hardly beseen in any other major nations in the contemporary world: an absolute monarchybased on Islam; and an economy heavily reliant on oil. It is natural that thesecharacteristics inevitably exert an influence on the country’s fiscal management andpractices.

The Quran and the Sunnah are declared to be the country’s constitution; there isno other legally binding written constitution. The king combines the legislative,executive, and judicial functions and issues royal decrees that form the basis of theKingdom’s legislation. Even though the Consultative Council (Majlis Al-Shoura), akind of proxy legislative body the members of which are appointed by the king for afour-year term, has been in operation since 1993, there doesn’t exist a genuinerepresentative body at the national level composed of members elected by itscitizens. In regard to the budget, this Council’s authority is limited to simply reviewingthe annual budget draft without any power for approval or passage unlike in otherdemocracies. The budget is finalized within the executive branch by the approval ofthe king. This implies that the government can formulate fiscal policies includingannual budget without any interference from outside and implement them in aconsistent manner. On the other hand, it also means that policy-decision may well beself-righteous in the absence of procedures of collecting extensive opinions from allwalks of life.

On the economic side, oil still defines and dominates the Saudi Arabian economy,even though the extent of reliance on oil has steadily declined thanks to thesuccessful implementation of successive development plans for over four decades. Toillustrate this feature, in 2012, oil and natural gas represented 20 per cent of realGDP, and 92 per cent of government revenues, and 87 per cent of export earnings,respectively. As the government maintains control over all oil revenues, it does nothave to tax its population. Since the Kingdom presumably sits on over 25 per cent ofthe world’s proven oil reserves, it is likely to be able to sustain production for another65-100 years depending on the pace of extraction. Indeed, dependence on oil is theobverse of the advantages derived from abundance of oil for the Kingdom.

As an unavoidable result, the government revenue is heavily susceptible to the

changes in global oil prices which are characterized by their high volatility.

“Unpredictability”, “instability”, and “volatility” are the epithetic words frequently




employed when describing the feature of the Saudi government’s income. <Table 2-1>

presents how oil prices have affected the actual government revenues and

expenditures, and resulting fiscal balances for the past eight years.5)

For much of the past decade, oil prices were high - bouncing around U$100 per

barrel since 2010 - because of soaring oil consumption in countries like China and

conflicts in key oil producing nations like Iraq. But very recently the situation has

changed drastically. Full-fledged drilling for new, hard-to-extract crude in the US and

Canada spurred by continued high prices, coupled with tapering off in global

demand, has contributed to pushing the oil price down in half, which was up around

U$115 per barrel as for Brent crude back in June 2014.

A bitter historical experience of suffering from the volatility and unpredictabilityof oil prices led to the government’s practice of formulating its budget on a base ofconservative assumption of oil prices.6) Over the last decade the actual oil price hasbeen on average over 70 per cent higher than the one used for the budget. As aresult, it has been the consistent practice that the government overruns its budgetedspending by an average of 24 per cent during the same period.7)

5) Historically during the last three decades in the 1900s, the erratic swings in oil prices brought about far more

drastic impact to the Saudi fiscal operations. In 1974, the surplus was almost 50 percent of GDP, but 3 years later,

the budget was in deficit. After a significant move into the black in the early 1980s, oil prices dropped sharply and

remained low for a long period of time with reaching a bottom of U$11 per barrel in 1998. This pushed Saudi

Arabia into budget deficits between 1983 and 1999, and a resulting debt to GDP ratio at over 100 per cent.

6) In fact, it is the norm that the oil price and production projections used to derive the revenue figure are not

disclosed.

7) The extent of overspending eased in 2013, when it was 12.7 per cent, the lowest level since 1999.

Table 2-1 Trends of Oil Prices and Government Budget

2007 2008 2009 2010 2011 2012 2013 2014

Source: Ministry of Economy and Planning, The Kingdom of Saudi Arabia - Economic Indicators (2007-2013) and Jadwa Investment(December 28, 2014).

(unit: SAR billion)

84.85 95.00 59.47 78.96 95.18 106.48 102.41 95.8

176.6 580.9 -86.6 87.7 291.1 374.1 180.3 -54

Oil Price(U$/barrel)

GovernmentBudget Balance

Expenditures

Revenues

Balance as %Share of GDP

642.8 1,101.0 509.8 746.1 1,117.8 1,247.4 1,156.4 1,046

466.3 520.1 596.4 653.9 826.7 873.3 976.0 1,100

11.3 29.8 -5.4 4.4 11.6 13.6 6.4



As such, the volatility of oil prices and resulting instability in government income isvery likely to make it difficult for the Saudi government to implement multi-yearbudget planning, and to use the budgetary process to reallocate resources towardsthe most effective government programs or projects as well. What is more, such atendency of underestimating government revenue leading to repeated higher actualspending than the budgeted one has been triggered. Such a feature might haveaffected the project selection process, possibly resulting in a loose, lax one.

3.2. Budget Formulation Frameworks

3.2.1. Development Plan as a Guideline for Annual Budgeting

As discussed earlier, KSA has been implementing successive five-year developmentplans since 1970. These plans serve as guidelines for formulating annual budget,particularly for capital expenditures. Each development plan stipulates objectives,policies and programs, and a selection of projects together with financialrequirements for the plan period.

All ministries and independent agencies are required to comply with the contentsof the plans in preparing their annual budgets to achieve the targets set therein.Each year the Ministry of Finance (MoF) is also required to allocate the required fundsfor the projects and programs included in the plans.

3.2.2. Annual Budgetary Procedure

KSA is adopting budgetary procedures generally categorized as a bottom-upapproach or incrementalism in the sense that the structure of any annual budget islargely determined by appropriations of the previous year’s budget (Johari andWilloughby, 2014). Public expenditure is divided by three criteria: administrativeresponsibility (line ministries and departments) , function , and economic activities. Allthe outlays are also divided into four "chapters". Chapter 1 consists of six items thatcover wages and salaries. Chapter 2 includes administrative and operational expensesand is composed of 39 items. Chapter 3 includes operation and maintenanceprograms, and Chapter 4 is devoted to the funding of projects or what we might callcapital expenditures.

The following chart shows the main steps for budgetary formulation process.


The budget preparation begins with the MoF’s budgetary circular. Each budgetrequest from line ministries and departments (hereinafter in this section referred toas ‘line ministries’) must be organized in accordance with the four chapters discussedabove. Capital expenditure requests are required to differentiate betweencontinuing projects and new ones. It is noteworthy that as for new project proposals,the results of pre-feasibility and feasibility studies are supposed to be included in therequests.

Line ministries’ budget preparation gets started during March or April. The budget

preparation internal committee of each ministry follows instructions of the MoF and

the development plan to prepare the budget proposal.The budget proposals are

submitted to the MoF by the deadline set in the budget circular.

After receiving budget proposal, the MoF starts the review and negotiation

process with each line ministry. In this process the notable feature is that the Cost

Analysis Unit of the MoF undertakes technical review of new projects prior to the

discussion by the project committee, which is comprised of representatives from the

concerned line ministry, the GBD (General Budget Department) of the MoF and the


[Figure 2-2] Stages of Budget Formulation

Source: Ghazi Johari and John Willoughby (2014).

Distribution of budget documents and guidelines by the MoF (January)

Preparation of estimates by government agencies (March or April)

Submission of budget proposals to the MoF (June and July)

First sectoral negotiations of budget estimates (August and September)

First draft of budget reviewed by the Deputy Minister of Finance (September)

Second sectoral negotiations of budget estimates (October)

Second draft of budget reviewed by the Minister of Finance (November)

Final draft sent to the Council of Ministers for approval (December)

Royal approval of the budget (December)


Ministry of Economy and Planning (MoEP). In principle, new projects are not

approved unless they correspond to the priorities specified by the development plan

in effect. Normally, the negotiation process takes place during August and

September.

Upon agreements between representatives of the line ministries and the GBD, a

joint minute of the agreement is signed. After incorporating the views of the

Minister and the Deputy Minister and holding another round of negotiations as

necessary with the concerned line ministries, a final draft is prepared for submission

to the Council of Ministers. In recent years, this draft includes five different scenarios

for estimated annual revenue and expenditure for the next fiscal year (Johari and

Willoughby, 2014). Then the Supreme Economic Council examines the draft in light

of current macroeconomic conditions, makes some revision as necessary, and

endorses the proposal for final approval by the king.

3.3. The 2015 Budget and the Evolution ofExpenditure Structure

For the 2015 fiscal year, total revenue was projected at SAR715 billion whilegovernment expenditures budgeted at record high SAR860 billion, showing a hugedeficit of SAR145 billion. This is the first fiscal deficit budgeted since 2011. Withuncertainty still prevailing in the global oil market, the budget foresees a decrease inrevenues by 16.4 per cent and a growth, although marginal (by 0.6 per cent), inexpenditures compared to the last year’s budget.8) The budget sends an importantmessage to the private sector that the fall in oil prices will not prevent thegovernment from implementing and expanding on its investment plans. That is, thebudget underscores the Saudi government’s determination and ability to supporteconomic activity despite the prevailing subdued oil pricing environment. It furtherhighlights the strong focus on economic diversification as spending on physical andsocial infrastructure has been kept elevated. In his address to the nation on theoccasion, the late king was quoted as saying that the expansionary budget wasaimed at enhancing the citizen’s progress and prosperity and creating more jobopportunities for them.

The priorities of the budgeted expenditures for 2015 are consistent with those inthe recent years.9) Education is allocated the biggest share of the departmentsdisclosed in the budget, at 25 per cent of total spending, followed by the health andsocial affairs with 19 per cent. Healthcare and social development received the largest


8) When compared with the actual fiscal performance of the last year, both figures show a significant drop with

revenue by 31.6 per cent and expenditures by 21.8 per cent respectively.

9) As for revenues , an official breakdown is not published.


increase in its allocations, at 48 per cent increase year-on-year. Transportation andinfrastructure received the third largest allocation of SAR63 billion. Spending in thiscategory is budgeted to decline by 5 per cent over the 2014 budget. Around 53 percent, or SAR30 billion will go towards building new roads, upgrading andmodernizing existing ports, infrastructure projects in the industrial cities of Jubail,Yanbu and Ras Al-Kahir, as well as upgrading regional and international airports, andrailroads projects. The sector of water, agriculture, and related infrastructure wasallocated SAR60 billion, while municipality services was awarded SAR40 billion.Although not disclosed in the budget announcement, it is presumed that defenseand security takes up approximately a third of the total spending, the largestcomponent of government spending.

The structure of expenditures has undergone a significant change during the ninedevelopment plans period. <Table 2-2> presents the structure of actual expenditurefor each development plan. For the periods of the first three plans Infrastructure wasgiven the lion’s share, but from the Fourth Plan period Human Resources began toreceive the largest portion with exceeding 50 per cent of the total spending for overthe recent four plan periods.

If we look at the expenditure structure in terms of economic activities, there alsohas been a drastic change since the 1980s. During the period of 1970-1982 capitalexpenditure accounted for 48 per cent of the total expenditure, while wage billrepresenting 16 per cent. But, this pattern began to be reversed dramatically fromthe year 1983, when oil prices fell sharply. During the period of 2000-2005, wage bill


Table 2-2 Structure of Government Expenditure (1970 - 2014)

Development Plans InfrastructureEconomic

Resources

Human

Resources

Social

& Health

Services

Source: Ministry of Economy and Planning, Kingdom of Saudi Arabia.

(unit: Percent)

First Plan 1970-1974 41.3 27.9 20.5 10.3

Second Plan 1975-1979 49.3 28.0 14.7 8.0

Third Plan 1980-1984 41.1 30.7 18.4 9.8

Fourth Plan 1985-1989 28.9 20.4 33.0 17.7

Fifth Plan 1990-1994 21.8 10.0 48.3 19.9

Sixth Plan 1995-1999 16.2 11.5 51.5 20.8

Seventh Plan 2000-2004 12.6 11.2 57.1 19.1

Eighth Plan 2005-2009 14.1 12.2 55.6 18.1

Ninth Plan 2010-2014 14.6 15.8 50.6 19.0


soared to an average of 39 per cent of the share in total expenditure with capitalexpenditure reduced to 17 per cent. However, the share of capital expenditureincreased steadily again from 2007 reaching to 33.4 per cent in 2012.

3.4. The Situation of Delays in Implementation ofPublic Projects

There are no publication on precise figures on the number of delayed projects andmajor factors causing delays as well. Therefore we need to rely on the results of fieldresearches conducted by some civilian researchers for the information on them.

According to the field study by Turki Al-Turki, an expert in development andmanagement of projects and member of Saudi Project Management Chapter, onlythree percent of government projects are implemented on time while 80 percentcannot be completed with the allocated fund.

Regarding the major factors, there can be found several results of surveys aimedat identifying major factors causing delays in implementation of public projects.Among them, Albogamy et al. (2012) outlined top ten factors in public buildingprojects in KSA without classifying them in any category. They are “low performanceof the lowest bidder contractor in the government tendering system; delays in sub-contractors work; poor qualification, skills, and experience of the contractor’stechnical staff; poor planning and scheduling of the project by the contractor; delayin progress payments by the owner; shortage of qualified engineers; delay inpreparation of shop drawings; cash flow problems faced by the contractors;inadequate early planning of the project; and non-utilization of professionalconstruction contractual management.” (Albogamy et al., 2012).

In order to find out delay factors on the part of the client, i.e. government, wehad an interview in person with a managing director of the contractor companywhich is currently taking part in some mega construction works in Saudi Arabia. Hisviews largely showed conformity with the survey results of Albogamy et al. (2012)

3.5. Public Investment Management System

With regard to the improvement of PIM system, the Ninth Plan (Institutional andAdministrative Development, 7.3.3) stipulates as follows:

Raising economic efficiency of government projects requires revision of adoptedprocedures and mechanisms in their three main stages: pre-contract, implementation,and post-implementation pilot operation. Ensuring effectiveness of the projectimplementation cycle requires:




Ensuring the quality of feasibility studies and their inclusion of all generallyaccepted components.Adopting prior technical and financial qualification of contractors, limiting it tocategories compatible with the requirements and nature of the project.Ensuring quality and clarity of technical standards, and introducing theperformance standards expected of the project when operational as the finalhandover requirement.Taking due care in overseeing implementation of projects to correct errorsbefore they escalate.Evaluating the project implementation process after it is completed anddocumenting experiences to benefit future projects.

And, the Eighth Plan also stipulates as follows;

It is essential to develop the monitoring process, using modern communicationand information technology tools.Field monitoring of projects, particularly major ones, should also bestrengthened. The Ministry (Ministry of Economy and Planning), in collaboration with thevarious agencies, will study the best possible means for achieving these aims,making use of international best practices.

Judging from those stipulations, it appears that the Saudi government fullyrecognizes the necessity for a better quality of management all over the entireproject life cycle. However, regretfully, we have not been able to confirm what kindof follow-up measures have been taken in compliance with such stipulations exceptfor the “Budget Project Monitoring and Evaluation System”.

3.5.1. The Budget Project Monitoring and Evaluation System

This system is intended to oversee implementation of budget projects to correcterrors before they escalate, and thereby alleviate the serious problems in projectimplementation. The system is taken care of by the Ministry of Economy andPlanning (MoEP) and has been in operation for three years.

Around 15,000 development projects are subject to monitoring and evaluatingexecution of the system. MoEP collects financial and progress data on a quarterlybasis, and produces diagnostic reports for deliberation by the cabinet of ministers.This system allows the Saudi authorities to identify the projects that need animmediate attention - project becomes “delayed” if its physical progress is 20%behind the schedule. Data flow of the system is presented in [Figure 2-3].


Other than the Budget Project Monitoring and Evaluation System that controlsthe intermediate (implementation) stage of the project life cycle, it has not beenconfirmed whether some reform measures for the ex ante stage-e.g. improvement ofthe quality of feasibility studies- and for the ex post stage-e.g. completion review-have been also introduced or not. Therefore, as a substitute for the unconfirmed realstatus of KSA’s PIM, we just present the general features of PIM systems in naturalresource-dependent states, which are identified by Rajaram et al. (2014).10)

“Countries rich in oil, gas, and mining resources face the fundamental challenges

of translating prospective wealth beneath the ground into productive assets above

the ground. However, owing to capacity and political constraints, together with

volatile revenues and “boom and bust” cycle, many of these countries consistently

fall short in terms of the quantity and quality of their capital spending. Investment

guidance is limited given that government strategy documents may not apply to all

public investment because of the important role that semiautonomous, state-owned

national resource companies play in financing investment. There is typically limited

capacity to conduct sound project appraisal, particularly when resource revenues and

public investment spending are increasing rapidly. Abundant revenues weaken

incentives to prioritize and carefully appraise projects. The lack of checks and

balances on executive power typical in these countries results in a lack of demand for

project appraisal and politicization of public investment decision-making. Dual

budgeting, weak implementation capacity, and non-standard modes of investment

such as resources-for-infrastructure arrangements, are also features in these states”

(Rajaram et al., 2014).


[Figure 2-3] Data Flow of Project Monitoring and Evaluation System

Source: Kingdom's Project Monitoring and Evaluation (2015).

10) This group is represented by Angola, Republic of Congo, Equatorial Guinea, Nigeria, Mongolia, and Timor-Leste

in the volume.


Even though not all of these features may be applicable to KSA,11) a considerable

portion of them - in particular, such as limited capacity to conduct sound project

appraisal- must be valid fatalistically since it is also one of resource-dependent

countries.

4. Korea’s Experiences in Public ProjectManagement Reforms

4.1. Overview of the Reforms History

4.1.1. From the Early 1960s until the 1997 IMF Crisis

It was in 1962, when the first five-year economic development plan was launched,that a full-fledged investment in public projects got started in Korea. At that time,Korea was one of the countries in the world suffering from extreme poverty with percapita GNP at a meager U$ 82 and natural resources scarcely endowed as well, letalone the shortage in basic industrial infrastructure. Through the government-ledaggressive implementation of a series of successive economic development planscombined with outward-looking strategy, Korea was able to transform itself from anagricultural society to a modernized industrial nation within one generation. Duringthe development process, public finance had played a key role through managing tomobilize then scarce financial resources, from both domestic and foreign sources, andconcentrating them on investment in strategic areas.

In the earlier years of development, the five-year plans placed an emphasis onconstructing basic industrial facilities and social overhead capital with a view tobuilding up the foundation for self-supporting economy. At this stage, even therudimentary concept of public investment management doesn’t seem to have beenimbedded in the mind of policy practitioners. Only one thing done in this regard wasfeasibility evaluation of projects, most of which had been conducted by foreignagencies or experts including the World Bank (formerly IBRD; International Bank forReconstruction and Development). In some cases, investment targets were identifiedand selected by the political judgments or intuitions of the top decision-makerswithout serious scientific and rational verification. It might have been the case that atthat time in Korea the stock of infrastructure facilities was so minimal that prioritiesamong candidate projects were almost self-evident to the decision-makers and,hence, they did not feel any necessity for employing sophisticated methodologies forsetting priorities.


11) Actually KSA is never short in terms of quantity of their capital spending, and has decades-long established

tradition of government strategy documents that apply to public investment.


However, in the late 1960s, the Korean government began to desperately realize

the necessity for getting equipped with in-house capacity of evaluating the feasibility

of projects based on scientific and sophisticated methodologies. This was due to the

fact that as the economy grew rapidly thanks to the aggressive development

initiative, the size of public investment projects had become much larger with their

impact on the national economy getting greater. Setting priorities among proposed

projects now became a quite complicated task frequently involving controversies.

Consequently, the efforts to adopt an investment project review system began to

take shape. The government dispatched several planning staff members to the

Economic Development Institute of the World Bank for training, and upon their

completion of training the Investment Project Review Manual, which specified

general rules and guidelines for appraisal and analysis, was drawn up in 1968.

Furthermore, in 1970, the Regulation on the Investment Project Deliberative

Committee was enacted, which largely stipulated on the composition and operation

of the Committee. After undergoing a number of trials and errors since then, the

government wound up establishing an investment project review system in 1977, and

the system was steadily maintained until the mid-1990s.

The gist of the system is that the Regulation on Investment Project was enacted in

the form of Directive of the Economic Planning Board (EPB), which was then the

powerful planning agency and the earlier predecessor to the current Ministry of

Strategy and Finance which existed until 199412), and the Investment Appraisal Bureau

was newly created within the EPB. The Bureau conducted review for the feasibility of

projects with cost levels above a certain threshold in accordance with the manual

which specified general rules and guidelines for appraisal and analysis. Not only

government-financed projects but also public loan, commercial loan, and foreign

investment projects were subject to the review. Quite plausibly the results of the

reviews were tied to the budget formulation.

Such investment project review headed by the EPB was severely undermined in1994, when the Review and Evaluation Bureau (successor to the former InvestmentAppraisal Bureau) within the EPB was disbanded with the consolidation of the EPBand the Ministry of Finance into the new Ministry of Finance and Economy as a partof sweeping reshuffling in administrative organizations. The fiscal authority, then theMinistry of Finance and Economy was divested of the function of professional project


12) In Korea, the ministries handling affairs for planning, economy, finance and budgeting have undergone several

times of restructuring during the last two decades. The Economic Planning Board was merged with the Ministry

of Finance into the Ministry of Finance and Economy in 1994, which was again split into three ministries in 1998:

the Ministry of Finance and Economy, the Planning & Budget Commission, and the Budget Administration. The

Planning & Budget Commission and the Budget Administration were consolidated into the Ministry of Planning

and Budget in 1999. Again the Ministry of Planning and Budget was consolidated with the Ministry of Finance

and Economy into the current Ministry of Strategy and Finance in 2008.


review, and, as a result, each line ministry or government agency (hereinafter in thissection, referred to as line ministry) assumed the responsibility for conductingfeasibility assessment for new investment projects on its own. Personnel of theBudget Office within the Ministry of Finance and Economy were not able tosufficiently review the results of feasibility assessment on major projects submitted byline ministries, due to a lack of expertise and time. Consequently, the Budget Officebecame to face the situation where it had no other way in budget decision-makingsbut to rely on the results of feasibility assessment submitted by line ministries.

From that time the tendency began to spring up that line ministries were temptedto make bad use of feasibility assessment as a means to secure budget funds. In theabsence of government-wide uniform guidelines for feasibility assessment, some lineministries pushed the feasibility study team into, by all means, making the projectlook feasible. In many cases, such a push originated from either their excessiveenthusiasm for the project or outside political pressures particularly by the politicianswho had a big political stake in the project in question. Then, the study teams, mostlyconsisting of experts from academia, were apt to yield to such a push or pressure.Consequently, they showed a tendency of arbitrarily underestimating costs and/or


Table 2-3 Results of Feasibility Assessment Conducted during 1994 - 1998

Competent ministryNumber of

Projects

Budget

(KRW bn)

Result Under

studyFeasible Infeasible

Source: Kim, Jay-Hyung (2012).

15 12,829 9 1 5Ministry of Construction& Transportation

6 730 6 0 0Korean National

Railroad

1 102 1 0 0Ministry of Agriculture &Forestry

16 12,770 14 0 2Ministry of Maritime Affairs& Fisheries

5 930 1 0 3Ministry of Culture& Tourism

1 405 1 0 0Ministry ofEnvironment

1 600 0 0 1Ministry of Science& Technology

44 28,366 32 1 11Total


overestimating benefits, which, combined together, led to a higher B/C ratio results.One of the most notable examples is Seoul-Busan High-speed Railway Project, thelargest ever single construction project in the Korean history. The baseline cost hadincreased more than three folds, from U$5.5 billion to 18.5 billion, from which we caninfer how much the initial cost had been underestimated at the planning stagepossibly in order for the project to look feasible, and how unfaithful the feasibilitystudy team in charge was in doing its job. <Table 2-3> shows that out of 33 projectsfor which feasibility assessments were conducted under the supervision of lineministries during the period of 1994 -1998, only one project was ruled infeasible.

At that time, another mal-practice of line ministries was prevalent and deeplydistressed the Budget Office. It was the frequent requests of change in total projectcost. Apart from an increase for acceptable reasons like inflation, line ministriestended to also request an increase arising from arbitrary alterations in plan or design,etc. Furthermore, the practice of deliberate underestimation of total project costintended for the project to look feasible, discussed above, intensified such atendency. Such a mal-practice made it very difficult for the fiscal authority to managethe national finance in a stable and predictable manner. In response to this problem,the Budget Office drew up a guideline for Total Project Cost Management (TPCM)and set in motion in 1994. However, the practice of poor investment project reviewcontinued until 1999, when reform measures were introduced.

4.1.2. Reform Measures Triggered by the 1997 IMF Crisis

In the meantime, there occurred a catastrophic incident in Korea in the late 1997,the IMF Foreign Currency Crisis, which provided a crucial impetus for the Koreangovernment to undertake a sweeping reform in the public sector, in parallel withthose in the other three major sectors; the corporate, financial, and labor-relations.

Just immediately before the outbreak of the Crisis, the original national budgetfor the fiscal year 1998 was passed by the National Assembly in the mid November.However, as the economic growth rate was expected to abruptly plummet due to thesubsequent currency and financial turmoil, a prompt restructuring for the originalbudget which had been based on the estimated economic growth rate of 10.8percent was required. The Korean government undertook the task of identifying andreviewing the defects prevailing in the system of public investment managementwhich needed a radical overhaul, while preparing an overall restructuring ofexpenditures for the 1998 fiscal year with a focus on expeditious overcoming of thecrisis.

Among others, the poor system of investment project assessment had emerged asthe top priority target for overhaul. Then the newly created Planning and Budget



Commission asserted that feasibility assessments for new large projects could not beleft up to each ministry any longer, pointing out that they, as conducted under thesupervision of line ministries, were lacking in objectivity and reliability, and thatuniform guidelines were not applied for assessments of different ministries' projects.The Commission eventually succeeded in the introduction of the PreliminaryFeasibility Study (PFS), by overcoming the strong backlash from line ministries. PFS isthe quite unique method of feasibility assessment in the sense that it is performedunder the supervision of the fiscal authority to serve as a major reference for budgetdecision-making, ahead of a full-fledged feasibility study to be set out by thecompetent line ministry in case that the concerned project passes the preliminaryfeasibility assessment test.

In order to ensure an effective working of this new system, the Commission alsocreated the Public Infrastructure Investment Management Center (PIMA) — whichlater in 2005 was restructured as PIMAC — at KDI, a dedicated agency to exclusivelyundertake this study, and provided necessary funds for the Center. And soon afterthat, a new unit titled as the Fiscal Management Bureau was also established withinthe Ministry of Planning and Budget with the dedicated mission of conductingoverall tasks related to public investment management inclusive of PFS related jobs.

Together with this measure, TPCM, under which the fiscal authority had checkedunreasonable or excessive cost increases from the baseline throughout the entireproject life, was also strengthened.

The introduction of PFS, combined with the on-going TPCM, made it possible tocreate the two new systems; Re-assessment Study of Feasibility (RSF) in 1999 and Re-assessment of Demand Forecast (RDF) in 2006, respectively. These two systems wereaimed at recasting viabilities of the projects already in the process of implementationto determine whether they may keep going.

4.1.3. MTEF, Top-down Approach, and Performance ManagementSystem

Even after having successfully overcome the crisis, the Korean government’sreform efforts did not stop regardless of a periodic regime change as the result offive-year term presidential election. The focus of reforms moved on towards furtherenhancing overall productivity and efficiency of the fiscal management throughbenchmarking the best practices of leading OECD countries.

In 2004, the government introduced the Medium Term Expenditure Framework(MTEF) together with the top-down budgeting approach. MTEF is materialized in theform of the National Fiscal Management Plan (NFMP) in Korea. It is a five-year plan



reviewed on a rolling basis. The NFMP is intended to conduct three major functions:strategic resource allocation according to national priorities, predictable provision offinancial resources to line ministries, and macroeconomic stabilization over themedium-term.

Prior to the introduction of these two measures, budgeting was centered just onthe following fiscal year in the absence of a medium-term perspective, with abottom-up budgeting approach in place, which focused on control of inputs whilelittle attention being paid to outputs or outcomes. Hence, the fiscal authority was notable to identify or cope with the changing trends in public expenditures, leading to asimple incrementalism approach for line ministries’ spending. On the part of lineministries, since very little information on the quantity of financial resources availablein the subsequent years was given to them, it was not easy to prepare their ownmedium-term investment plans. Under such a circumstance, line ministries tended tomake their budget requests way above the amounts which were actually needed,being in wary preparation for sure deep cut by the budget authority during budgetreviews. It was often the case that the sum of the requests made by individualministries was several times larger than the budget authority could afford. Therefore,it was natural that the budget authority inevitably made massive cuts to meet theavailable total amount of financial resources. The repetition of this pattern produceda phenomenon of “vicious circle of excessive requests and deep cuts”. Thanks to theintroduction of these reform measures, the fiscal authority was enabled to formulatea yearly budget and hence manage fiscal policies with a long-term perspective, andsimultaneously accountability and autonomy of each line ministry in preparing andmanaging its budget was considerably enhanced.

In parallel with these measures, the efforts were also made to strengthen theperformance-oriented fiscal management by shifting the emphasis from thetraditional input-led approach to the performance-based one. In effect performancemanagement is the other side of the top-down budgeting coin. In return forallowing greater autonomy to line ministries in budget-decision, the fiscal authoritydemands greater responsibility for the performance. A three-tier performancemanagement system comprised of the Performance Goal Management System, theSelf-Assessment System, and the In-Depth Evaluation System was introduced. Underthis system, on the part of line ministries, in exchange for the increased autonomy intheir own budget formulation, they were required to devote more efforts toevaluate performances of major projects so that the evaluation results could beutilized as a valuable reference in the subsequent budget decision.

In 2006, the National Finance Act was legislated as a comprehensive legal groundfor the policy measures discussed above, incorporating several pre-existing fiscal-related acts, each of which had served as the legal ground for the individual measure.



To summarize the discussions in this subsection, the Korean government’s reformefforts during the last two decades were a series of efforts to address the problemsarising from the Korea-specific strong political influences over public investmentmanagement, and further enhance overall productivity in order to better utilize thenation’s limited fiscal resources as well.

4.2. Current Institutional Frameworks for PublicInvestment Management: Legal Frameworks;Administrative Arrangements

4.2.1. Legal Frameworks

The National Finance Act

The National Finance Act, aimed at an efficient, performance-oriented andtransparent management of the public finance, now serves as the basic regulationgoverning the whole procedures of fiscal operation, getting equipped with diversemeasures for public investment management (MoSF, 2014). The Act provides acomprehensive legal framework for management of public projects, directing everylarge-scale project to undergo the process shown in [Figure 2-4].


[Figure 2-4] The Process of Implementation for Public Project




Throughout the process, the fiscal authority, i.e. the Ministry of Strategy andFinance, is enabled to secure information necessary for budget decision-makingthrough Preliminary Feasibility Studies, Re-assessment Study of Feasibility (RSF), Re-assessment of Demand Forecast (RDF), and In-depth Program Evaluations. Hence itscapability of managing public investment in an effective way has been greatlyheightened.

Hereinafter, core policy measures aimed at enhancing efficiency and productivityof public projects will be discussed in detail. They are PFS at the ex ante stage, TPCMat the intermediate stage, and Performance Evaluation System at the ex post stage.

Preliminary Feasibility Study (PFS) Initiative

Article 38 of the National Finance Act provides the legal framework for thePreliminary Feasibility Study. PFS is a simplified version of feasibility study conductedprior to a full-fledged feasibility study with low cost on new large-scale projectswhich screens out unsound project proposals. It is carried out under the supervisionof the fiscal authority, i.e. the Ministry of Strategy and Finance, so that its result canbe taken account of in budget decision-making. The purpose of introducing PFS is toprevent budgetary waste and thereby contribute to enhancing efficiency of publicinvestment management through ensuring that new projects are selected in atransparent and fair manner based on an objective and neutral study and accordingto the established priorities. In a word, PFS is an independent, centralized and ex-anteevaluation with the aim of producing information for budgetary decision. Themeaning of “preliminary study” is two-fold: first, it means “provisional” or “brief”evaluation; and second, it means “preceding” evaluation ahead of a detailedfeasibility evaluation.

As discussed earlier, PIMAC at KDI was designated as an agency to assume anoperational management role in implementing PFS. The delegation of the PFSresponsibilities to such an independent agency was intended to bring about anobjective, fair and reliable results free of interference of interest groups or politicalpressure. PIMAC organizes a multi-disciplinary research team to actually undertake aspecific study. Such team is typically comprised of specialists from differentbackgrounds and organizations. This mixture helps to provide diverse opinions andideas for the appraisal, and serves as a foundation for improving transparency andobjectivity of the decision-making process. MoSF, for its part, manages and supervisesthe study through organizing regular meetings with the participation of staffmembers from the Budget Office and competent line ministries, PIMAC, and fieldspecialists.


The present coverage of PFS is quite extensive. All new large-scale projects with atotal cost of KRW50 billion (approximately U$50 million) or more are subject to PFS.With the National Finance Act enacted, PFS has expanded its scope for target to non-infrastructure (e.g. R&D, information, social welfare, the environment) projects, whileit had been mainly conducted for infrastructure projects prior to the enactment.Projects financed by local governments or PPI (Private Participation in Infrastructure)mode are subject to PFS as well, if amount of subsidy from the central governmentexceeds KRW30 billion.

PFS procedure is seen in [Figure 2-5]. In every budget cycle for public projects, thePFS procedure is as follows. In the first stage, a competent line ministry submits a listof candidate projects to the MoSF, and the MoSF selects the projects and requestsPIMAC to conduct PFS for those selected projects. Then PIMAC organizes a researchteam, conducts PFS, and submits the final PFS reports to MoSF.


[Figure 2-5] PFS Procedure

Source: Kim Jay-Hyung (2012).


PFS is carried out following the three phases of background study, main analyses,and synthesis. In the background study, the statement of purpose is reviewed andbackground data on socio-economic, geographic, and technical aspects of the projectis collected. The main analyses consist of economic analysis, policy analysis, andbalanced regional development analysis. In the economic analysis, Cost-BenefitAnalysis is employed as the backbone where the social benefits expected fromoperation of the project are calculated and compared with aggregated total costs tobe incurred for the implementation and operation of the project. In the policyanalysis, the effects of the projects are examined in qualitative and quantitative termssuch as policy consistency, project risk, implementation will and other project-specificconsiderations. Balanced regional development analysis, which aims at boostinginter-regional equality, examines the impact of the project on regional development.The regional backwardness index, which is a composite index of eight characteristicsfor local entities, has been developed by the PFS guidelines (Kim, 2012).


[Figure 2-6] Contents of PFS

Source: Kim Jay-Hyung (2012).


To synthesize the results of economic, policy, and balanced regional developmentanalyses, Analytic Hierarchy Process (AHP) technique is applied in the PFS. “AHP is amulti-criteria decision-making approach that combines quantitative and qualitativeanalyses into a decision under a hierarchical structure” (Kim, 2012).

PFS is indeed a realization in Korean version of the combined three features, i.e.“Formal Project Appraisal”, “Independence Review of Appraisal”, and “ProjectSelection and Budgeting” out of eight “must-have” features suggested by Rajaram etal. (2014).

On the basis of study results, only those projects which are assessed to satisfy theinvestment criteria are approved for and inclusion in the budget. <Table 2-4> showsthe proportions of the projects assessed feasible. 358 projects, or 61% out of 576,were evaluated as feasible by PFS conducted during the period 1999-2013. Such aresult represents a drastic change compared with the one prior to the introduction ofPFS described earlier.

The Total Project Cost Management System (TPCM)

Article 50 of the National Finance Act prescribes the Total Project Cost

Management System. This system is aimed at enhancing the efficiency of fiscal

spending on large-scale public projects by means of reasonably adjusting and

managing total project costs throughout the entire implementation stages of a

project. It is often the case particularly for large-scale projects that total cost increases

over time for a variety of reasons after the project implementation process gets

started. Some cases of increase such as those arising from inflation or unexpected

occurrence of incidents are unavoidable, while other cases that are due to reckless

and frequent changes in design or plan might be well under control of the concerned

line ministry. In addition, in Korea prior to the introduction of the Preliminary


Table 2-4 Proportion of Feasible Projects (1999-2013)

Total PFS Projects Assessed feasible

Number Project cost Number Rate Project cost Rate

265.5 61 147 57

Note: (1) As of December 2013.(2) Only include PFS carried out by PIMAC (excluding PFS on R&D Projects conducted by KISTEP).

Source: Hyeon Park, PIMAC at KDI and Its Role in PIM(2015).

(unit: trillion KRW, %)

576 358


Feasibility Study, the prevailing practice of line ministries’ underestimating of total

cost at the planning stage for the purpose of making the project look feasible

contributed to intensifying the tendency of increasing costs during implementation.

Such deliberate increases of total costs make it difficult for the fiscal authority to run

a stable and predictable fiscal operation, and furthermore, result in an inefficiency of

financial resources allocation. TPCM was introduced by the fiscal authority to address

such problems in Korea.

Since the introduction of the system in 1994, “Guidelines for Total project Cost

Management” has been revised and updated on an annual basis. At present, target

projects subject to the control of TPCM are those that take two years or longer for

completion with the cost exceeding KRW50 billion (approximately U$50 million), or

KRW 20 billion or more in case of architectural projects. Here, total project cost

includes all the cost items accrued throughout the project’s life, including design,

land acquisition, and construction costs.

Large-scale projects are implemented in order of project planning, preliminary

feasibility study, feasibility study, basic and working design, contracting and

construction, etc. When each stage is finished, changes in the details of projects and

total project costs shall be reviewed by MoSF. In principle, an increase in construction


Table 2-5 umber of Projects with Substantial Change in TPC

YearProjects under

TPCM [A]

Projects whose

TPC adjusted [B]

B/A

[%]

Increase in TPC

by over 20%[C]

C/A

[%]


1994 218 - -- -

1995 207 19 9.2

1996 159 19 11.9

1997 189 20 10.6

1998 183 17 9.3

1999 459 15 3.3

2000 483 24 5.0

2001 602 26 4.3

2002 602 325 54.0 10 1.7

2003 667 392 58.7 15 2.2

2004 698 493 70.6 26 3.2

2005 760 546 71.8

(unit: Number of projects)


size through design modifications is not allowed, except for unavoidable cases.

Project cost should be managed by construction phase and by construction unit. The

construction cost should not be arbitrarily interchanged between project phases or

between project units. In case that increases in construction size or construction costs

are inevitable, the implementing ministry is to consult with MoSF about adjusting

TPC.

<Table 2-5> shows the total number of projects subject to TPCM control, andprojects whose total project costs were adjusted during 1994-2005. From this table,we can observe the sharp decline between 1996 and 2004 of the percentage of theprojects where the TPC increased by more than 20 percent, which serves as asupporting evidence for the substantial effect of the TPCM control.

<Table 2-6> presents the trend of requests to increase TPCs. During 1996~1999,line ministries requested to increase by an average of 26.4% of TPCs, and 42.1% ofrequested amounts were reflected in the adjustments. During 2000~2003, however,when PFS was being applied coupled with a strengthened TPCM, the increase raterequested dropped to as low as an average of 4.4% of TPCs, and the acceptance ratioalso decreased to 22.7%, with the average increase rate in TPCs being kept aroundmere 1%, which was a dramatic change.

The Performance Management System

Article 8 of the National Finance Act stipulates the Performance ManagementSystem. This system was introduced, together with the top-down-budgetingapproach, to further heighten the efficiency and productivity of public expendituresthrough benchmarking the best practices of advanced countries such as NewZealand, the United States, and the United Kingdom. Prior to the adoption of thesystem, Korea’s traditional fiscal management had been focused on an input stage ofbudgeting and the ex post performance management and feedback had been


Table 2-6 Trend of TPC Increase Rate Requested and Adjusted

1996~1999 2000~2003


(unit: %)

Requested rate for TPC increase [A] 26.4 4.4

Adjusted increase rate [B] 11.1 1.0

B/A 42.1 22.7


insufficient. There had been consistent concerns that focusing on control by eachbudget item would bring about a lax and inefficient spending structure, making itdifficult to analyze the effectiveness of expenditures, even if it might be effective inpreventing unreasonable budget use and corruption. In response to these concerns,the Korean government undertook a bold decision to make a shift to a moreperformance-oriented fiscal management, pursuing the slogan of “provide morepublic services at less cost” as the basic idea.

The System consists of three-tier parts of performance management andevaluation of completed projects. They are the Performance Goal ManagementSystem, the Self-assessment System, and the In-depth Evaluation System. [Figure 2-7]shows the picture of the performance management system.

A. Performance Goal Management

The system requires all line ministries to draw up performance plans whereperformance goals, performance indicators and targets for all fiscal projects (andprograms) are set in advance, to compare them with the execution results of theprojects, and to reflect the compared results on ensuing fiscal management.Performance plans and performance reports containing the assessment results shouldbe submitted to the National Assembly. The reports can be utilized as a usefulreference material in drawing up performance plans for the following year as theyoffer the analysis of whether performance goals set by performance plans areachieved, how much each management task has contributed to achievement ofgoals, and what cause success or failure (MoSF 2014).


[Figure 2-7] The Gist of Performance Management System

Source: The Budget System of Korea (MoSF 2014).


B. Self-assessment of Fiscal Projects

Under this system, all line ministries are required to evaluate fiscal projects on itsown, and both the line ministries and the fiscal authority reflect the results ontobudget formulation. Currently, the system obliges each line ministry to evaluate one-third of all fiscal projects on an annual basis. The MoSF confirms and reviews the lineministries’ evaluation results according to evaluation criteria and standardsdeveloped by itself.

Each project is graded from “excellent”, “good”, “average”, “inadequate” to“poor” depending on performances. Again depending on such grade results,incentives or disincentives are determined - for example, as for “excellent” programsbudgets will be raised while “poor” ones will face budget cuts or entire suspension.In addition, evaluation results are not only subject to submission to the NationalAssembly for reference in the deliberation of budget and settlements but alsomaking public through the Internet, etc. with an aim of improving transparency ofthe fiscal management process and holding government agencies more responsiblefor fiscal management. Through these processes, the system makes it possible foreach line ministry to efficiently manage performance and to formulate budgets aswell, and it has contributed to budget-saving by utilizing evaluation results forbudget restructuring (MoSF, 2014). <Table 2-7> explains the linkage between theself-assessment results and budget allocation in 2007.

C. In-depth Evaluation of Fiscal Projects

“The system ensures that after the initial self-assessment, a more specialized andin-depth evaluation is performed to boost project performance by finding matters tobe improved in projects that are considered to require further evaluation” (MoSF,2014). Unlike the self-assessment, in-depth evaluation is conducted by the PIMAC at


Table 2-7 Linkage between the Self-assessment Results and Budget Allocation

’06 Budget [A] ’07 Budget [B] B-A [B-A]/[A] (%)


(unit: million KRW, %)

Excellent 889 887 -2 -0.2

Good 3,316 3,565 249 7.5

Average 29,718 28,997 -721 -2.4

Inadequate 1,143 538 -605 -52.9

Total 35,066 33,987


KDI in order to guarantee objectivity, neutrality, and expertise. Based on the self-assessment result, the MoSF annually selects ten projects which will be subject to theevaluation with the help of advice from experts. Then the PIMAC conducts examinationof the selected projects in terms of effectiveness, justifiability, efficiency, etc. with focuson finding matters to be improved. The effectiveness of the system is guaranteed byreflecting the evaluation results to on the budget for the years to come.

4.2.2. Administrative arrangements (Key Agencies)

The Ministry of Strategy and Finance (MoSF)

The key government agency involved with public investment management inKorea is the Ministry of Strategy and Finance. As a matter of fact, MoSF is playing therole of control tower for overall economic policies in the central government with itsminister assuming the status of Deputy Prime Minister for economic affairs at thesame time. This ministry is in charge of planning overall economic developmentstrategies, coordinating pending or short-term economic policy-related issues amongrelevant ministries, fiscal operation (including annual budget formulation, and fiscalpolicy and management), and other economic and fiscal policy affairs with threeoffices and ten bureaus created inside.13)

The organizational chart is shown in [Figure 2-8]. Specifically, MoSF’s mainmissions are as follow14):

Planning and establishing mid-to long-term national development strategiesFormulating and coordinating economic and fiscal policiesPlanning, executing and managing budgets and public funds and monitoringand reviewing expendituresDeveloping and administering policies in regard to taxes, tariffs, the nationaltreasury, government accounting, lottery, and public fund managementOverseeing public organizations, evaluating their performances, and promotingmanagement innovationFormulating and implementing policies for international finances and foreignexchange and strengthening international financial cooperationPromoting economic cooperation with both developing and advancedeconomies and taking measures to facilitate FTA’s in Korea

Here we need to take note that, unlike in the Kingdom of Saudi Arabia, thefunctions of economic planning, economic policies coordination, and fiscal operation


13) Korea’s Ministry of Strategy and Finance has responsibilities corresponding to a consolidation of those of the

Ministry of Economy and Planning and the Ministry of Finance in the Kingdom of Saudi Arabia.

14) http://english.mosf.go.kr/


are consolidated in the same ministry. In addition, an attention should be paid to theorganizational structure that apart from the Budget Office and the Fiscal PolicyBureau, the Ministry is also equipped with the Fiscal Management Bureau, which is adedicated unit designed to carry out the tasks involved with enhancing efficiency andproductivity of public projects including PPP related jobs. These three units work inclose cooperation with each other to ensure efficient allocation of national resourcesand sound fiscal management.

The Fiscal Management Bureau, newly established in 1999 when the PreliminaryFeasibility Study was first introduced, is currently comprised of six divisions as follow:

Fiscal Management and Coordination Division


[Figure 2-8] Organization Chart of the Ministry of Strategy and Finance

Source: Ministry of Strategy and Finance (web-site) http://english.mosf.go.kr/.


Social Affairs Fiscal Management DivisionEconomic Affairs Fiscal Management DivisionFeasibility Study DivisionPublic-private Partnership Policy Division

This bureau is taking care of the core policy measures involved with publicinvestment management, notably the preliminary feasibility study, the performancemanagement, and public-private partnership policy, playing the key role in publicinvestment management in Korea from the stage of project selection thru the expost performance evaluation for both of government-funded and PPP projects withthe exception for TPCM.15) 16)

Thus, the organizational structure of MoSF is designed in such a manner thatenables it to exert a powerful leadership over the line ministries and other governmentagencies with respect overall fiscal operation including public investmentmanagement.

Public and Private Infrastructure Investment Management Center

Another key agency playing the pivotal role with regard to public investmentmanagement in Korea is the Public and Private Investment InfrastructureManagement Center (PIMAC). This agency was established as a merger of the PublicInvestment Management Center (PIMA) at Korea Development Institute (KDI) andthe Private Infrastructure Investment Center of Korea (PICKO) at Korea ResearchInstitute for Human Settlement (KRIHS) with the amendment of the Act on Public-Private Partnerships in Infrastructure in January 2005. Article 23 of the Act prescribesthe mandatory establishment of the Center as an affiliated body of KDI.

Prior to the merger, PIMA was created in 1999 with the introduction of thePreliminary Feasibility Study System as a dedicated agency to exclusively conductpreliminary feasibility studies on large-scale public projects under the supervision ofthen the Planning and Budget Committee, which was later merged into the currentMinistry of Strategy and Finance. On the other hand, PICKO, established in 1999within KRIHS, had been supporting government agencies with regard to PPP relatedmatters.


15) TPCM is controlled directly by the Budget Office in terms of a part of budget formulation.

16) However, the Fiscal Management Bureau does not have in place a kind of the monitoring and evaluation system

for budget projects which KSA has introduced. In Korea, up to now, the problems of project implementation

delays are handled by each competent agency without supervision of the planning or fiscal authority. Instead, the

bureau is in charge of holding a meeting on a periodic basis, which is called “the Fiscal Management Review

Meeting”, and all the government agencies take part in. This meeting is aimed at addressing difficulties in budget

execution and encouraging timely budget spending particularly in times of economic slow-down.


The mandated mission of PIMAC largely includes evaluation of publicly financedinfrastructure projects, and administrating and supporting of PPP projects. Morespecifically, First, PIMAC executes preliminary feasibility studies and re-assessmentstudies of feasibility on large-scale public projects, procured either by the governmentor various public institutions, for which comprehensive research is conducted on thebasis of economic and policy analysis. As a think tank, the Center produces variousreports and policy recommendations on public investment system in Korea. Secondly,the Center supports the government in developing policies and plans on public-private partnership, and implementing PPP projects. This is done through support informulating request for proposals, evaluation of project proposal, and negotiation ofpotential concessionaire. The Center is also in charge of capacity building of publicofficials and provides managerial services for PPP database. Thirdly, PIMAC isengaged in ex post in-depth performance evaluation of government programs.Overall, PIMAC strives to enhance efficiency of national fiscal management.17)

As discussed in the section 2, “Independent Review of Appraisal” is suggested as a

crucial one of the eight “must-have” features for a good PIM by Rajaram et al. (2014).

In order to check subjective, self-serving bias which is highly likely in the project

proposing ministries’ evaluation, and to enhance the credibility of the appraisal,

Rajaram et al. (2014) strongly recommends that a peer review unit should be in the

central ministries to review work in the line ministries, but there should be also a unit

outside of the government in a university or research organization that can provide

quality control on the conduct of project project appraisal (Rajaram et al., 2014).

Clearly Korea’s PIMAC is an exemplary case for such a research organization outside

of the government.

To properly function as the supporting agency for both publicly financed and

privately financed infrastructure projects, PIMAC is structured into three separate

divisions as shown in [Figure 2-9]. Each division’s responsibility is described as follows

in the web-site of PIMAC.

Public Investment Evaluation Division carries out execution and management of

publicly financed infrastructure projects. Preliminary Feasibility Studies are

implemented at the planning stage of a project to examine the proposed project’s

objectives, economic feasibility, policy appropriateness and value for money.

Public Private Partnership Division provides administrative and technical support in

the process of PPP project preparation and implementation. The division develops

guidelines for PPP procurement, conducts value-for-money tests and assists in RFP

formulation, tendering negotiation, and refinancing.


17) http://english.mosf.go.kr/


Policy and Research Division is where policy research is conducted independently

of actual project implementation to give feedback to and assist the government in

deciding its medium to long term policy orientation. Role of the division also includes

evaluation of projects implemented by public institutions and executing feasibility for

tax expenditure. The division is also responsible for database management, capacity

building and training, and international cooperation.

4.3. Key Success Factors

Performances of public investment management in Korea have turned out quite

successful although having not little shortcomings. According to the assessment of

Rajaram et al. (2014), Korea is classified into the group which has advanced PIM

systems together with the United Kingdom, Ireland, and Chile.


[Figure 2-9] Organization of PIMAC

Source: PIMAC (web-site) http://primac.kdi.re.kr/eng/about/organiz.jsp.


4.3.1. The Korean Government’s Long Tradition of Commitment toFiscal Soundness

As a fundamental factor for this success, the Korean government’s long traditionof strong commitment to fiscal soundness can be pointed out. Since the early 1980s,the government has tried every effort to maintain a stance of fiscal soundness underthe belief that it will serve as the last guard of the national economy in hard times.18)

In practice, such a belief and stance proved highly valid when Korea was devasta-tingly hit by the IMF Crisis in 1997, and had to depend on public financing for reliefmeasures.

Traditionally, Korea’s fiscal authorities have been always standing at the center inmaintaining such a stance on the back of the top leadership’s strong support.

4.3.2. The Leading Role of the Ministry of Strategy and Finance

Next one may be the leading role of MoSF. MoSF has managed to succeed inintroducing reform measures such as PFS, TPCM, RASF, and so forth into the PIMsystem despite strong backlash or resistance from other government agencies. Inaddition, MoSF has been very effective in implementing such measures by creating adedicated unit inside, i.e., the Fiscal Management Bureau, which is mandated to playthe role of control tower for the overall public investment management.

The bottom-line is that it is the power this ministry is delegated, coupled with itsstaff members’ sense of duty as the guard for fiscal soundness which has made theintroduction of various reform measures possible and the implementation of themsuccessful.

4.3.3. Establishment of Dedicated Agency (PIMAC) and Its SuccessfulOperation

When discussing Korea’s successful performance of PIM, PIMAC’s role can never beoverestimated. As discussed in the previous subsection, PIMAC is a dedicatedcomprehensive supporting research agency with regard to PIM. It is playing thepivotal role under the supervision of, and at the same time, in close cooperation withMoSF’s Fiscal Management Bureau.

Its achievement has been particularly conspicuous in the field of PFS. During 1999-


18) However, this stance experienced suffering during the period of political democratization in the early 1990s

because of the appearance of strong opposition party pursuing region-oriented political interests. Recently this

stance is again showing a sign of faltering due to the competitive reckless attempts by political parties to

introduce a myriad of social welfare programs which are far beyond Korea’s financial capacity.


2013 since its inception, it undertook PFS for a total of 576 large-scale projects, out ofwhich 118 projects, corresponding to the amount of KRW119 trillion (approximatelyU$ 120 billion), were screened out from government funding. Such an amount meanta huge saving of national financial resources. PIMAC’s independent and explicitlyquantified judgments on project desirability have been respected in most governmentdecision-makings. To repeat, Korea’s PIMAC is an exemplary case for “IndependentReview of Appraisal” which is suggested as a crucial one of the eight “must-have”features for a good PIM by Rajaram et al. (2014). PIMAC is also conducting supportingroles in a comprehensive manner in the area of PPP scheme.

As such, PIMAC is conducting a wide range of research, analysis, evaluation,training, and data management related tasks which are indispensable to an effectivePIM, but government officials are not capable of doing on their own for variousreasons.


In this section, in the absence of sufficient knowledge of the KSA’s exact status

with regard to overall PIM systems, we just attempt to make policy recommendations

in broad generalities based on Korea’s experiences and the World Bank’s guidelines.

Therefore, the recommendations might have some limitations to be adopted

immediately. Instead, it can give the Saudi government intuition that would guide

into a good starting point to think of a sound PIM system.

In order to boost efficiency and productivity of public expenditures, overall public

investment management system needs to be strengthened in KSA. Such a strengthening

needs to be made in two dimensions. One dimension is policy measures at each stage

of project cycle, and another one is administrative arrangements.

5.1. Policy Measures

5.1.1. Ex Ante Stage

At the ex ante stage of project cycle, a function of pre-feasibility appraisal needsto be introduced in KSA. Rajaram et al. (2014) stresses the importance of projectselection and pre-feasibility phase as a key tool for a good public investmentmanagement. Despite such a critical importance, it is highly likely that due to theunique political structure combined with the heavy reliance on oil sector forgovernment revenues, KSA may be lacking in incentives to introduce a rigorousprocedure for project selection.



In order to enhance the efficiency and productivity of public expenditures, theSaudi government is recommended to be more selective in the future publicinvestment. Rather, such a stance is imperative considering the likelihood thatinfrastructure has almost reached the critical mass with the massive investment inpublic projects over the last four decades and that a continued new massiveinvestment, coupled with numerous on-going projects, might cause a bottleneck insecuring labor force and construction materials in the market, which in turn mightlead to intensifying delays in implementation of the projects.

An introduction of pre-feasibility appraisal system would be greatly effective instricter selection of projects as seen from Korea’s experiences. PFS is low-cost,simplified version of feasibility study which is intended to screen out unsoundproposals. Under this system, every new large-scale project should undergo aconsistent, objective and strict verification process-which is differentiated from theconventional feasibility study largely focused on technical aspect - ahead of annualbudget decision-making. In this process, such issues should be reviewed throughemploying highly sophisticated method as whether objectives and envisagedfunction of the project might well serve national needs (be high on the nationalpriorities), whether the costs could be justified in comparison with expected benefitsor utilities, whether the project would contribute to enhancing regional balanceddevelopment, etc. Based on the review results, whether the project in question willbe funded and implemented or not should be determined. In conducting such a pre-feasibility assessment, it is very important that all the projects proposed by ministriesand agencies should be following the same fundamental methodology incorporatingconsistent appraisal parameters under centrally established, uniform guidelines to getconsistent and comparable results. Basically in order for pre-feasibility appraisalsystem to be introduced and working effectively, there should be a strong and soliddemand for high-quality project appraisal from the top political leadership.

5.1.2. Intermediate Stage

With regard to the intermediate stage, KSA’s biggest challenge is how to addressthe problem of chronic delays in project implementation. KSA has introduced “TheBudget Project Monitoring and Evaluation System” in order to respond to thischallenge through creating the capacity to monitor implementation in a timely wayto address problems proactively as they are identified. This system beautifully meetsthe requirements of project implementation and adjustment of the eight “must-have” features for a good PIM suggested by the Rajaram et al. (2014). Werecommend that the Saudi government consistently improve this system byevaluating its actual performances on a regular basis.

Apart from a successful operation of this system, more comprehensive and radical



overhauls of project implementation would be required to resolve the chronic delayproblems.

First, it is strongly recommended that the Saudi Government conduct a compre-hensive field study to find and identify major factors repeatedly causing the delayand other inefficiency in implementing public projects. Then, based on the studyresults preemptive institutional solutions (measures) for preventing delays from beingrepeated for the same reasons should be drawn up. We encourage the Saudiauthorities to listen attentively to Mr. Abdel Aziz’s commentary on this issue carriedin the Arab News.19) And such a field study needs to be conducted repeatedly on aperiodic basis.

Secondly, project plans need to be drawn up in a more elaborate, delicate, anddetailed manner. Especially, action plans for handling and overcoming all theprobable impediments that might occur during the construction process - such asconflicts (of interests) involved with land acquisition, translocation of undergroundutilities, and preservation of cultural relics - should be prepared in a detailed mannerin advance so that remedial measures could be expedited.

In addition, completion duration should be set in a reasonable and realistic timeframe taking into the Saudi-specific labor environment (e.g. under heavy influence ofIslamic rituals and harsh weather conditions during summer time) account. Setting animpractical completion duration would only contribute to creating delay problems.What is more serious is that excessive enforcement of construction works to meetsuch an impractical duration (set by the client government agency) is very likely tolead to a faulty and poor construction. This is very important in order to prevent theprobable accident to be caused by such a faulty construction. It is encouraged thatproject plans should be subject to additional final review by an independentprofessional research agency in order to check these aspects.

There are also needs to take into consideration administrative and technicalcapacities of both government agencies and the private sector in the annualbudgeting process. Those capacities might have been stretched to the limit andbeyond. As results, hundreds, perhaps, thousands of projects are running behindschedule. Appropriateness of a total volume of construction works for a specific fiscal


19) In this commentary posted on December 29, 2013 in the Arab News, he writes “If government regulations are to

blame, then those regulations are due for a revision. If the problem is a shortage of qualified local contractors,

foreign contractors could be invited and encouraged to take part in. The problem may boil down to capacity

limitations at the government and private sectors. In addition, the technical and administrative capacities of line

ministries as well as supervisory and regulatory agencies may not be a match for the tasks at hand. Over the

past decade technical and administrative capacities have not been scaled up to match that jump (annual budget

outlays increased nearly five-fold). Nor have government regulations and procedures have adapted to the

requirements of fast-paced development.”


year should be reviewed in terms of such government agencies’ capacities as well assupply capacities of labor force and construction materials in the market.

5.1.3. Ex Post Stage

For countries with weak PIM systems, the ex post evaluation provides animportant diagnostic tool to identify weaknesses and undertake gradualimprovements to achieve a high-performing public investment system (Rajaram et al.,2014). The Ninth Development Plan already rightly required an introduction of thesystem of evaluating the project implementation process after it is completed anddocumenting experiences to benefit future projects.

Rajaram et al. (2014) also emphasizes that “Basic Completion Review andEvaluation”, which basically consists of an examination by a responsible agencysometime after project completion of (a) whether the project was finished within theoriginal budget and time frame, and (b) whether the outputs were delivered asspecified, is one of the eight “must-have” features for a good PIM. This featureunderlines the need to ensure that there is some learning and feedback from projectsthat will create a positive dynamic for systemic improvement over time.

In this context, it is recommended that the Saudi government should make surethat documentation and filing of the experiences of implementing projects isundertaken. Particularly, for every large-scale project detailed records of the majordelaying factors and how the problems were resolved should be kept so that theycan be used as a reference in planning the future projects.

It is also recommended that in the mid-to-long term the Saudi government shouldconsider introducing performance management system which focuses on thecomparison of the project’s outputs and outcomes with the established objectives inthe project the project design (Rajaram et al., 2014).

5.2. Administrative Arrangements

If the Saudi government decides to introduce the above recommended policymeasures, it will be equipped with key features for a good PIM at ex ante,intermediate, and ex post stage, respectively. Then, there should be administrativearrangements for taking care of those new measures.

5.2.1. Creation of a Dedicated Control ower Unit for PIM

First, we recommend that the Saudi government should create a dedicated unit toassume the role of control tower for overall PIM. Korea’s the Fiscal Management



Bureau within MoSF could serve as a role model to be taken after. Such anintegration and centralization of various PIM functions would enhance synergy effectamong the policy measures considering that respective measure is very closely relatedto each other.

Such a designated unit should be assigned the tasks as follow:Manages PFS for a rigorous project selection;Monitors project construction and implementation, and address the problemsof delays in progress;Reviews project completion and evaluates performances of projects/programs

MoEP, as its capacity as the planning agency, is the most appropriate agencywhere such a control tower unit can be placed.

5.2.2. Establishment of a Dedicated Supporting Research Agency

Next, we recommend the Saudi government to establish a dedicated researchagency which can support the government with respect to overall public investmentmanagement. Enhancing the efficiency and productivity in PIM involves a variety ofanalysis and research related jobs - such as feasibility appraisal, field survey foridentifying delaying factors for project implementation, project performanceevaluation - which it may be difficult for government officials to carry out bythemselves due to the lack of expertise.

Korea’s PIMAC can serve as a good model for benchmarking. In the previoussection, we pointed out that establishment and successful operation of PIMAC hasbeen one of the major factors for Korea’s success in public investment management.In KSA, such a research institute could be established as an affiliated agency (could bepositioned under the umbrella) of the Saudi Arabian Development Research Center(SADRC), which is shortly to be established. At the beginning stage it may start withthe mission of conducting PFS for all the new large-scale projects and researchesnecessary to address the problems of delays in project implementation. Over time itmay gradually expand its coverage of missions.




References

Albogamy, Abdullah and Darren Scott, and Nashwan Dawood. 2012. Addressing

Construction Delays in the Kingdom of Saudi Arabia. School of Science and

Engineering, Teesside University, TS1 3BA, UK

ALaraj, Abdulla. 2015. Kingdom’s Project Monitoring and Evaluation: Budget Project

Monitoring and Evaluation in the Kingdom of Saudi Arabia. Presentation Paper at the

2014 KSP Interim Reporting and Policy Practioners’ Workshop.

Aluwaisheg, Abdel Aziz. Saudi Budget 2014 and Economic performance. The Arab News,

Sunday 29 December 2013.

Al-Watan Newspaper, the field study by Turki Al-Turki, reported on Friday May 20 2011.

Bae, Deuk J. et al. 2012. Korean Experience of Financial Management Information System:

Construction, Operation, and Result, 2012 Modularization of Korea’s Development

Experience. Ministry of Strategy and Finance, the Republic of Korea.

Chang, Chul-Ki et al. 2011. Deduction and Impact Analysis of Factors Causing Inefficiency of

Public Construction Projects. Construction & Economy Research Institute of Korea.

[Korean version]

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Number 14.

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Institutional Assessment, Public Administration and Development 34:63-80.

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Efficiency and Sustainability of Public Expenditure. 2011 Modularization of Korea’s

Development Experience. Ministry of Strategy and Finance, the Republic of Korea.

Korea Institute of Public Fnance. 2011. Korea’s Public Finance 60 Years: The Road to the

Financial Soundness[Korean version]

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Ltd: A Vision Beyond 30 July 2013.

Mahamid, Ibrahim. 2013. Contributors to Schedule Delays in Public Construction Projects in

Saudi Arabia: Owners’ Perspective, Journal of Construction Project Management and

Innovation Vol. 3(2): 608-619, 2013.

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in Figures 1434/1435H (2013G)

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and Finance, the Republic of Korea.

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______. 2014. 2015 Saudi Budget, on-line.





Strategies for Successful NationalStatistical Data Bank of the KSA

Chapter3


Strategies for Successful NationalStatistical Data Bank of the KSA

Jung Jin Lee (Soongsil University)

■ Chapter 03

Summary

Research Objective

The Kingdom of Saudi Arabia (KSA) is now developing the National StatisticalData Bank (NSDB) to produce accurate governmental statistics and to disseminate itefficiently to public. The objective of the NSDB is to provide consistent and welldefined, single-source of information by combining current and historicalinformation from disparate sources processes. The NSDB is to reduce dependence ondedicated staff for report development and generation. The NSDB is to enabledecision makers to analyze and execute business decisions and activate statisticalwork in other governmental agencies.

Building a good National Statistical Data Bank of all governmental statistics isimportant, but it does not guarantee accuracy of data, timeliness of data and goodutilization of the NSDB. Having a good environment of statistics system andutilization system are more important. Although we have limited information of theNSDB, this article proposes strategies for a design of good National Statistical DataBank, but also general statistics system, law, committee, information system andestablishment of related institute based on Korea’s experience

Governmental Statistics in the KSA

The KSA has a decentralized system of governmental statistics. The Central



Department of Statistics and Information (CDSI) plays a major role for governmentalstatistics, but there are 32 other governmental agencies which produce thegovernmental statistics. Although the law of KSA supports the CDSI strongly to collectgovernmental statistics, the decentralized system of governmental statistics can causepossible difficulties on accuracy of data, timeliness of data, and quality of data.

All statistical data from governmental agencies of the KSA are administrative dataand none of data is produced by a sampling survey. Since the population and landsize of the KSA is large, collecting data only by administration may cause difficulty onaccuracy of data and timeliness of data.

The NSDB of the KSA is under construction by a project with Deloitte Company forfour years and it is now on Phase III stage out of Phase IV. We have only limitedinformation on the design and architecture of the NSDB and its information systemfor dissemination of data. The current dissemination system of governmentalstatistics by using the web site of the CDSI is only by tables and there is neither visualcontent nor geographical information graph.

Experience of Governmental Statistics in Korea

Korea has also a decentralized statistical system of governmental statistics. Thereare 298 governmental and 77 nongovernmental agencies which produce 935governmental statistics as of February 1, 2015. By the Statistics Act, Statistics Korea(KOSTAT) plays a major role from collecting data to dissemination of governmentalstatistics. In order to cooperate among governmental agencies for producingstatistics, the National Statistics Committee was established.

KOSTAT is in charge of regular inspection for the quality of all governmentalstatistics. In order to develop new governmental statistics, new statisticalmethodologies, and to analyze the trend of statistics, the Statistics Research Institutewas established.

KOSTAT operates a combined National Statistical Data Bank and its informationsystem (KOSIS). KOSIS provides the statistical data for a variety of users such as policymakers, researchers, universities, individuals. In order to promote governmentalstatistics and to increase utilization of the NSDB, the Statistics Training Institute (STI)was established. The STI has taught not only officials of KOSTAT and othergovernmental agencies, but also general public including students of all levels.

Strategies for a successful National Statistical Data Bank

‘A successful National Statistical Data Bank of KSA’ is related with the

Chapter 3 _ Strategies for Successful National Statistical Data Bank of the KSA 119


Governmental Statistical System. Since there is only limited information on the designand architecture of the NSDB under construction, based on request from officials ofthe CDSI, this article will focus on some general design idea of the NSDB and severalstrategies for good systematic environment of the NSDB based on Korean experienceas follows.

A. NSDB and its statistical information system should include various knowledgeinformation modules for general public as well as top decision makers andofficials.

B. Establish National Statistics Committee by law to cooperate amonggovernmental agencies which produce governmental statistics.

C. Build a quality control system of all governmental statistics to match with aninternational standard such as ISO.

D. Establish Statistics Research Institute to design new governmental statistics andto develop sampling survey methodologies for the KSA.

E. Establish Statistics Training Institute to teach how to utilize governmentalstatistics. It will increase utilization of the NSDB and its information system forgovernmental officials and general public.

F. Build a collaboration system with Statistics Society of the KSA

1. Introduction

1.1. Background and Research Objective

The word ‘statistics’ comes from ‘state’ and its meaning is ‘basic tools to rule astate’. Therefore, the King or President of a state and all government officials shouldbe able to use their governmental statistics on behalf of the state. Also, it would begood if many public citizens of a state utilize the governmental statistics tounderstand current situation of the state. Most of economic planning and developingstrategies in the developed countries are based on well-organized and accurategovernmental statistics.

Producing an accurate governmental statistics by using the nationaladministration system has become more difficult because the size and population ofa country has been grown rapidly. In order to overcome this difficulty, most ofdeveloped countries have built a National Statistical Data Bank (NSDB) forgovernmental statistics by using recent computer and telecommunicationtechnologies. However, accuracy of data, timeliness of data and utilization of theNSDB are always in questions. The following common difficulties have beenencountered in many countries including Korea while they produce governmentalstatistics and when they promote the governmental statistics to officials and public.



A. Several governmental agencies as well as Department of Statistics produce the

governmental statistics. Similar statistics can be produced from different

government agencies, but their results are sometimes different which make

people confusing.

B. If several agencies produce the governmental statistics, quality control of

statistics is difficult to handle. Budgets for producing a similar statistics are

sometimes different each other.

C. There is some difficulties in cooperation among governmental agencies to

produce statistics. Sometimes, it is difficult to share the statistics produced by

other agencies.

D. Some of the governmental statistics do not satisfy an international standard.

E. There are not many officials who are using the governmental statistics to

develop policies for their country. Also, there are not many public citizens who

utilize the governmental statistics.

The objective of this research is to propose strategies for a successful NSDB of the

KSA based on Korean experience to overcome the above mentioned difficulties.

Building a good NSDB of all governmental statistics is important, but it does not

guarantee accuracy, timeliness of data and good utilization of the NSDB. Having a

good environment of statistical system and NSDB utilization system are more

important. There are several factors which influence the accuracy, timeliness and

utilization of the NSDB as follows.

A. hardware technologies of the NSDB

B. software technologies to collect data

C. general statistics system to produce data

D. quality control system of the governmental statistics

E. dissemination system of governmental statistics

F. information system of the NSDB

G. statistics system to promote governmental statistics

Section 2 explains current situation to produce governmental statistics in the KSA.

But note that there is limited information on governmental statistics of the KSA.

Section 3 discusses experience in Korea to overcome the above mentioned problems.

Section 4 proposes several strategies based on experience in Korea for a successful

NSDB of the KSA. Section 5 concludes this article.

1.2. Limitation and Scope of Research

The National Statistical Data Bank of the KSA, which is under construction by




DeLoitte company, includes a data input system of each agency which produces thegovernmental statistics, data warehouse of the Central Department of Statistics andInformation which collects all data from related agencies, and several data servicesystems for dissemination. However, there is limited information available on theNSDB under construction. Since the main objective to build the NSDB, based oninterviews with high officials of the CDSI, is to have accurate and timelinessgovernmental statistics. Therefore, this article will focus on strategies for some designof good NSDB, general statistics system, law, committee, information system andestablishment of related institutes based on experience in Korea.

2. Governmental Statistics in the Kingdom ofSaudi Arabia

This section discusses the general statistics system of the Kingdom of Saudi Arabia,role of Central Department of Statistics and Information (CDSI), data collectionprocess of the CDSI from other governmental agencies, CDSI’s plan for the NationalStatistical Data Bank, and dissemination system of governmental statistics.

2.1. General Statistics System of the KSA

Statistical activity in the KSA has officially begun with the issuance of the Importsand Exports Statistics System according to the Royal Decree No. (326) dated3/2/1349H.

Sector of government statistics in the KSA consists of the Central Department ofStatistics and Information (CDSI), statistical units within government agencies andsome private institutions under supervision by the CDSI. The CDSI in the Ministry ofEconomy and Planning is in charge of all governmental statistics on trade, economic,health, educational, industrial, financial, agriculture and others as needed. The CDSI,as the sole official statistics reference of the KSA, is responsible for implementing andapplying the General Statistics System as well as providing governmental agencies,public and private organizations and individuals with official statistical informationand data. The role of the CDSI is supported by the strong law as follows.

Article (4): the types of statistics compiled through other ministries andgovernmental departments should deliver all statistical data they have to CDSI on aregular basis.

Article (5): A statistics section is to be established in each ministry orgovernmental agency whose work requires the establishment of such a section. Thissection’s mandate is to compile statistics related to the work of its ministry of


governmental agency, and develops scientific methodologies, in agreement with andunder the supervision of the Director General of CDSI, and abides by all technical andstatistical instructions issued by the Director General of CDSI. This section is to provideCDSI regularly and periodically by statistics it compiles, whether such statistics arecompiled monthly, quarterly, biannually, or annually.

Article (6): CDSI is to compile all statistics related to the Kingdom’s economic andsocial conditions through its staff as well as other employees seconded to CDSI forthat purpose, in agreement with the concerned Minister. CDSI is to cooperate withother Ministries and governmental departments and assist them in collecting andcompiling statistical information falling within their mandate, and CDSI may seekhelp, as needed, from community leaders, tribes’ heads and others, provided thatCDSI is to be solely in charge of analyzing, studying and disseminating the results ofsuch statistics.

Article (7): the persons assigned to collect statistics should carry out their work inaccordance with the instructions issued by CDSI in this regard. All employees of otheradministrative agencies in the Kingdom as well as arresting personnel are to providenecessary assistance to data collectors in order to achieve the goal and get thebenefits of such statistics.

Article (8): all requested real data should be submitted to CDSI or itsrepresentatives by individuals, companies, establishments, societies, and publicagencies according to the timing and mechanism illustrated in the resolutionsmentioned in article (4) of this system.

Article (9): the owners of industrial, commercial and public establishments ortheir agents should make available to the Director of CDSI all necessary documentsneeded to support the validity of data reported by them.

Article (10): CDSI is to disseminate statistical data in the form of generaltabulations, that do not show in any way individual- level data.

Article (11): all statistical data are confidential and to be used only for producingstatistical tabulations, no individual or special agency is entitled to see or use suchdata as an evidence against its reporting source.

Article (12): the responsibility of proving violation of this system is to be jointlyundertaken by the staff of the Public Security Department, CDSI as well as personnelhired for this purpose in collaboration with the staff of Public Security Departments.

Article (13): any of CDSI staff or other persons collecting statistical information



who reveals any piece of information collected in statistical questionnaires or any ofindustrial or commercial secrets or any of the work details seen by him, as part of hiswork obligations, is to be punished by no more than three months of imprisonmentor no more than 1,000 riyals fine, or by both penalties, in case of repeating theviolation.

Article (14): in case of intentionally obstructing statistical work or refusing to giverequired data or intentionally giving incorrect data, the obstructer or data reporter isto be punished by a fine of no more than 500 riyals for the first violation, and by afine of no more than 1,000 riyals for repeated violations or insistence on obstructingstatistical work. A person is considered refusing to give data if he exceeded thedeadline of submitting data by 30 days, unless he proves to have an acceptableexcuse for delay, and the Minister of Economy & Planning is entitled to grant thedata source an additional 30-day grace period to report the required data.

Article (15): the sanctions mentioned in article (14) apply to any person who triesby fraud, threat, deceit or by any other means to obtain data and information byimpersonating the character of CDSI staff, irrespective of the sanctions stipulated inthe Civil Service System or any other system regarding impersonation of officialemployees.

This law is strong enough to collect all governmental statistics produced by severalMinistries and agencies. However, since there are 32 governmental agencies whichproduce the governmental statistics as <Table 3-1>, accuracy of data and timeliness ofdata would be always in questions and quality control of the statistics would not beeasy.

All governmental agencies are producing governmental statistics by using theiradministrative records. It would need to develop some governmental statistics byusing some sampling methods which can increase accuracy and timeliness ofgovernmental statistics.




Table 3-1 List of Governmental Statistics in the KSA as of January 2015

Government Agency Statistics Method

9 Saudi Arabian General Investment Authority Administrative Records

10 Saudi Red Crescent Authority Administrative Records

11 Ministry of Communication and Information Technology Administrative Records

12 Ministry of Economy and Planning Administrative Records

13 Ministry of Petroleum and Mineral Resources Administrative Records

14 Ministry of Commerce and Industry Administrative Records

15 Ministry of Education Administrative Records

16 Ministry of Higher Education Administrative Records

17 Ministry of Culture and Information Administrative Records

18 Ministry of Hajj Administrative Records

19 Ministry of Foreign Affairs Administrative Records

20 Ministry of Civil Service Administrative Records

21 Ministry of Interior Administrative Records

22 Ministry of Defense Administrative Records

23 Ministry of Agriculture Administrative Records

24 Ministry of Social Affairs Administrative Records

25 The Ministry of Municipal and Rural Affairs Administrative Records

26 Ministry of Islamic Affairs, Endowments, Da'wah and Guidance Administrative Records

27 Ministry of Health Administrative Records

28 Ministry of Justice Administrative Records

29 Ministry of Labor Administrative Records

30 Ministry of Finance Administrative Records

31 Ministry of Water and Electricity Administrative Records

32 Ministry of Transport Administrative Records

1 Ministry of National Guards Administrative Records

2 General Presidency for Youth Welfare Administrative Records

3 Technical and Vocational Training Corporation Administrative Records

4 Saudi Arabian Airlines Administrative Records

5 Royal Commission for Jubail and Yanbu Administrative Records

6 General Auditing Bureau Administrative Records

7 Saudi Arabian Monetary Agency Administrative Records

8 Saudi Commission for Tourism and Antiquities Administrative Records

Source: NDB Project Team of CDSI.


2.2. Central Department of Statistics and Information

The Central Department of Statistics and Information (CDSI) was established in

accordance with the Kingdom’s General Statistics System introduced by the Royal

Decree No. (23) dated 7/12/1379H. CDSI became the official statistical authority in the

kingdom, and entrusted with the task of conducting all types of statistics, commercial,

economic, health, educational, industrial, financial, or agricultural as appropriate,

and assigned to the development of scientific methods and statistical and technical

instructions over which the statistical collection of other government bodies and the

preparation of statistics relating to the work of these agencies.

CDSI draws out its statistical information from two main sources representing the

core of national statistics system, namely:

a. General statistics of censuses, field surveys, research and statistical studies

conducted.

b. Administrative data derived from the records, bulletins and statistical reports

issued by the statistical units and information centers in government agencies

and institutions in its capacity as responsible for providing the service

concerned.

CDSI is the government agency responsible for the collection and dissemination of

statistical information locally and globally. The most salient statistical operations

undertaken by CDSI are the KSA’s population censuses. Moreover, CDSI carries out

different statistical surveys in the areas of population, social, and economic statistics.

Furthermore, CDSI prepares statistical studies continuously and periodically (monthly,

quarterly, biannually and annually).

The role of the CDSI is not limited to the task of collecting and processing

statistical data and information to be provided to the beneficiaries, but also to

activation of the statistical work in other government agencies and development

through coordination with their statistical departments for the preparation of

governmental statistics relating to their work. In addition, the CDSI provides

information and statistics to governmental and private organizations, researchers,

and regional as well as international bodies. The CDSI has been assigned the

responsibility to establish databases in all fields to be connected to an electronic

network, with the aim of establishing a Data Bank.

The most salient statistical operations undertaken by the CDSI were the Kingdom’s

population censuses and were carried out in 1974, 1992, 2004, 2010. The CDSI carried

out establishment censuses and different statistical surveys in the areas of population,




social, and economic statistics. Furthermore, the CDSI prepares statistical studies

continuously and periodically.

CDSI’s role is not confined to mere collection of statistical data and information,but rather goes beyond that to cover strengthening and developing statistical workin other governmental agencies through coordination with statistics’ sections in suchagencies with respect to the preparation of different governmental statistics.

2.3. National Statistical Data Bank

The KSA is building a National Statistical Data Bank (NSDB) in order to

a. Overcome current challenges in decision makingb. Simplify efforts needed for generation reports & Indicatorsc. Eliminate inefficiencies in daily operations due to manual processesd. Diminish discrepancies & variance between different data sourcese. Integrate and store enormous amount of dataf. Establish a highly advance IT infrastructureg. Adhere to Royal Decrees and cabinet requestsh. Act as the sole official statistical reference in the Kingdom

The key objectives of the NSDB are as follows:

a. Provide consistent and well defined, single-source of information by combiningcurrent and historical information from disparate sources processes

b. Enable decision makers to analyze and execute business decisionsc. Reduce dependence on dedicated staff for report development and generationd. Activate statistical work in other governmental agencies

The stakeholder and users of the NSDB can be summarized as [Figure 3-1].

When the NSDB is done, every government agency is to send their statistical dataautomatically through a secure network. In the design it was also taken into accountthe use of international standards for data collecting to suit with the statisticalstrategy of the kingdom, and done by the CDSI, and comply with the internationalstandards and regulations

Technically, the data acquisition process is proposed to be automated through thegovernment secured network (GSN). Each government agency is supposed to exposeits statistical data to this network to be pulled from CDSI ETL (Extract, Transform,Load) applications. Or to be pushed from the agencies themselves to a shared storagearea (landing area) and then the CDSI ETL applications will transform it to the staging



area. In this case, the data sharing model (SDMX) is considered to be part of thestatistical data collection

Since all statistical data from government agencies that will be provided to theCDSI are administrative data records, so there will be treatment in interest of theconversion of administrative records into statistical data. Therefore the process ofupdating the current statistical data by the censuses and statistical surveys has beenprepared (housing - facilities - families - agriculture . etc).

The NSDB is now under construction by a project with Deloitte Company for fouryears and it is now on Phase III stage out of Phase IV as [Figure 3-2].

[Figure 3-1] Process of National Statistical Data Bank Project



We have only limited information on the design and architecture of the NSDB andits information system for dissemination of data. The target business architecturebased on Generic Statistical Business Model established by the United NationEconomic Commission is as [Figure 3-3]. Conceptual target architecture of the NSDB


[Figure 3-2] Process of National Statistical Data Bank Project

[Figure 3-3] Target Business Architecture of the National Statistical Data Bank




consists of five layers such as Data Sources Layer, Data Acquisition and IntegrationLayer, Data Aggregation and Storage, Business Intelligence, Information Delivery. Inaddition to this, Metadata Services and Master Data Services will be provided. Logicalarchitecture of the NSDB is as [Figure 3-4].

At this point, 32 Governmental Agencies were assessed through questionnairesand interviews. The CDSI collected and analyzed agencies statistical data (reports,indicators, administrative records) and assessed the technical readiness of agencies forintegration and data exchange

2.4. Dissemination System of Governmental Statistics

Dissemination of governmental statistics is done by publications and statisticalinformation system provided by the CDSI. The CDSI web site (Figure 3-5) provides


[Figure 3-4] Logical Architecture of the National Statistical Data Bank



many governmental statistics in the form of tables as <Table 3-2>. The currentdissemination of statistics by using the web site has little visual contents.


Table 3-2 Population Data Downloaded from the CDSI Web Site

YEAR

SAUDI NON-SAUDI TOTAL

SAU_

MALE

SAU_

FEMALE

SAU_

TOTAL

NSAU_

MALE

NSAU_

FEMALE

NSAU_

TOTAL MALE FEMALE TOTAL

2004 8,245,575 8,198,412 16,443,987 4,248,335 1,871,564 6,119,899 12,493,910 10,069,976 22,563,886

2005 8,453,097 8,401,060 16,854,157 4,506,528 1,968,899 6,475,427 12,959,625 10,369,959 23,329,584

2006 8,663,597 8,606,584 17,270,181 4,780,413 2,071,296 6,851,709 13,444,010 10,677,880 24,121,890

2007 8,876,666 8,814,670 17,691,336 5,070,944 2,179,018 7,249,962 13,947,610 10,993,688 24,941,298

2008 9,091,249 9,024,301 18,115,550 5,379,132 2,292,343 7,671,475 14,470,381 11,316,644 25,787,025

2009 9,307,550 9,235,696 18,543,246 5,706,050 2,411,561 8,117,611 15,013,600 11,647,257 26,660,857

2010 9,525,178 9,448,437 18,973,615 6,052,837 2,536,980 8,589,817 15,578,015 11,985,417 27,563,432

2011 9,743,626 9,662,059 19,405,685 6,297,735 2,672,935 8,970,670 16,041,361 12,334,994 28,376,355

2012 9,962,397 9,876,051 19,838,448 6,581,439 2,776,008 9,357,447 16,543,836 2,652,059 29,195,895

2013 10,181,018 10,090,040 20,271,058 6,643,278 3,079,936 9,723,214 16,824,296 13,169,976 29,994,272

2014 10,398,993 10,303,543 20,702,536 6,867,332 3,200,507 10,067,839 17,266,325 13,504,050 30,770,375

[Figure 3-5] The CDSI Web Site

Source: http://www.cdsi.gov.sa.



الجملةذكور اناث جملة

غير سعوديينذكور اناث جملة

سعوديونذكور اناث جملة

السنة

3. Experience of Governmental Statistics inKorea

Korea has had similar difficulties mentioned in Section 1 to produce governmentalstatistics and to promote the governmental statistics for public. However, Korea hasovercome the difficulties by adopting the following strategies.

3.1. Statistics System in Korea

Korea has a decentralized statistical system to produce governmental statistics as[Figure 3-6].

The total number of governmental statistics in Korea is 935 products by 390entities; central and local government agencies and private institution as of Feb 1,2015. Of which, the number of designated statistics is 92, and general statistics 843.The number of survey statistics derived from practical investigation is 414, admini-strative statistics derived from administrative records 444 and analytic statistics 77.

Statistics Korea (KOSTAT) is the major producer of statistics by Census, samplesurvey, analytic, administrative statistics. KOSTAT is in charge of National StatisticalData Bank for all governmental statistics. KOSTAT established Statistical Standardsand Classification to improve comparability and consistency. KOSTAT controls quality


[Figure 3-6] Korean Statistical System to Produce Governmental Statistics

Source: KOSTAT.



of all governmental statistics. KOSTAT coordinates of all statistical activities such aschecking redundancy, omission of statistics and inconsistency between statisticscompiled by various agencies under a decentralized system. To preclude theseproblems of the decentralized statistical system, KOSTAT, as a central statisticalagency, plays a leading role in integrating and coordinating the statistical activities ofabout 298 governmental and 77 non-governmental agencies authorized by theStatistics Act.

Governmental statistics in Korea by agencies are as <Table 3-3> and by sectionsare as <Table 3-4>. The Statistics Korea produces the 58 surveys as <Table 3-5>.

Table 3-3 Governmental Statistics by Agencies (as of Feb 1, 2015)

No.Survey

statistics

Administrative

statistics

Analytic

statistics

Total 935 414 444 77

Government 768 310 400 58

- Central 340 170 139 31

tatistics Korea 58 41 2 15

Except Statistics Korea 282 129 137 16

- Local 428 140 261 27

Designated Agency 167 104 44 19

Table 3-4 Governmental Statistics by Sections (as of Feb 1, 2015)

No.Survey

statistics

Administrative

statistics

Analytic

statistics

Total 935 414 444 77

Population 28 3 22 3

Employment Wages 36 29 6 1

Prices Household Consumption 16 15 1

Health Society Welfare 203 154 44 5

Environment 26 11 13 2

Agriculture and Forestry Marine Products 49 29 17 3

Mining and Manufacturing Energy 31 20 8 3

Construction Housing Land 42 16 20 6

Source: KOSTAT.



Table 3-4 Continued

No.Survey

statistics

Administrative

statistics

Analytic

statistics

Transportation Communications 46 21 22 3

Wholesale & Retail Services 15 13 2

Business Cycle Business Enterprise 87 60 4 23

National Accounts Regional Accounts 21 21

Finances Government Finances 17 2 15

Trade Foreign Exchange 11 1 4 6

Education Culture Science 52 38 13 1

Others 255 2 253

Table 3-5 Governmental Statistics by Statistics Korea (as of Feb 1, 2015)

Survey

Statistics

(41)

Complete

Survey

[Census]

(12)

Sample

Survey

(29)

Population Census

Housing Census

Economic Census

Census of Agriculture, Forestry and Fisheries

Statistical Manpower and Budget Survey

Construction Survey

Mining and Manufacturing Survey

Census on Establishments

Agriculture and Fishery Corporation Survey

Survey of Business Activities

Survey on the Status of Fish Culture

Vital Statistics

Time Use Survey

Social Survey

Transportation Survey

Wholesale and Retail Trade Survey

Service Industry Survey

Farm Household Economy Survey

Agricultural and Livestock Production Cost Survey

Source: KOSTAT.



Table 3-5 Continued

Survey

Statistics

(41)

Complete

Survey

[Census]

(12)

Fishery Household Economy Survey

Agriculture, Foresty and Fishery Survey

Food Grain Consumption Survey

Private Education Expenditures Survey

Crop Production Survey

Agricultural Area Survey

Professional, Scientific and Technical Service Industry Survey

Survey of Household Finances and Living Conditions

Foreigner Labour Force Survey

Local Area Labour Force Survey

Livestock Statistics Survey

Price Index of Commodities Received and Paid by Farmers

Household Income and Expenditure Survey

Economically Active Population Survey

Consumer Price Survey(Index)

Monthly Survey of Mining and Manufacturing

Monthly Survey of Construction Orders Received and

Value of Construction Completed

Monthly Survey of Machinery Orders Received

Monthly Service Industry Survey

Fishery Production Survey

Monthly Online Shopping Survey

The Survey of Rice Price in Producing Area

Analytic Statistics (15)

Population Projections for Korea

Household Projections

Regional Income

Causes of Death Statistics

Life Tables

National Balance Sheets

Profit Corproration Statistics

Wage and Salary Employment Position Statistics

Statistics on Returned Farmers and Migrators to Rural Regions


3.2. Strengthen the Role of Statistics Korea by Lawand Committee

Since many governmental agencies are producing the governmental statistics inKorea, we strengthen the role of Statistics Korea by legislation of the Statistics Act. Bythis Act, Commissioner of the Statistics Korea is in charge of all governmentalstatistics. Any governmental agency which wants to announce their statistics forpublic requires permission from the Commissioner. The Statistics Act was enacted in1962 and most recently amended in 2010 to ensure the reliability of governmentalstatistics and the efficiency of the operation of the statistical system. The Act imposesobligations on the Statistics Korea to produce and disseminate statistics and tomaintain the confidentiality of information collected under the Act. Major provisionsof the Statistics Act are as follows.

3.2.1. Approval for Compiling Statistics

The agencies compiling the governmental statistics shall obtain in advance theapproval from the Commissioner of the Statistics Korea. Approval should also beobtained in case of suspension or alteration of the approved statistics.

3.2.2. Obligation to Report a Designated Statistical Survey

An agency which conducts a designated census or survey may be obliged to reporton the respondents. Penal regulations are provided for non-observance of thisobligation.


Table 3-5 Continued

Analytic Statistics (15)

Administrative Statistics

(2)

Business Demography Statistics

Statistics of Individual House Ownership

Accounting for Air Emissions

Composite Economic Indexes

Monthly Estimated Index of Equipment Investment

Index of all Industry Production

International Migration Statistics

Internal Migration Statistics

Source: KOSTAT.


3.2.3. Confidentiality

Data collection by the statistical agencies must carry a legal guarantee ofprotection of the confidentiality of individuals. Private information obtained fromindividuals, juridical persons or bodies in the process of the compilation of statisticsshall be kept confidential.

3.2.4. Prohibition of the Use of Data for Other than StatisticalPurposes

The utilization of statistical data collected for designated or general statistics isprohibited for anything other than statistical purposes.

3.2.5. Consultation and Approval of the Statistical Results forPublication

The head of agencies compiling governmental statistics shall immediately submitthe results of these statistics to the Commissioner of the Statistics Korea. Afterconsultation with the commissioner and upon his approval, the results shall bepublished. This provision aims at not only ensuring the timely publication of results,but also securing the truthfulness of governmental statistics.

3.2.6. The Quality Evaluation on Governmental Statistics

In order to reinforce the credibility of governmental statistics, the Statistics Koreawill perform quality evaluations on the compilation and dissemination ofgovernmental statistics both regularly and irregularly.

3.2.7. The Use of Administrative Data and Taxation Data

The commissioner of the Statistics Korea can require the use of administrativedata of other administrative organizations and the taxation data can be utilized inthe compilation of statistics due to the revision of the Framework Act on NationalTaxes(2009.2).

3.2.8. Establishment of National Statistics Committee

In order to cooperate among governmental agencies for producing the statistics,the National Statistics Committee was established. The function of the committee isto decide the followings related with the governmental statistics.



a. Mid to long range planning for developing governmental statistics.b. Basic planning and practice of governmental statistics.c. Unification of similar governmental statistics and abolishment of unnecessary

governmental statistics. d. Policies for collaboration among governmental agencies.e. Policies for improving quality of governmental statistics.f. Category of governmental statistics.g. Utilization of administrative data.h. Utilization of Korea Statistical Information Systemi. Other topics related with governmental statistics

Chair of the committee is a deputy Prime Minister and its members include 14Ministers from the cabinet, 4 presidents of public institutes and 12 experts fromnongovernmental side. There are six sub-committees to discuss specific subject ofgovernmental statistics.

a. Statistical policy sub-committeeb. Economic statistics 1 sub-committeec. Economic statistics 2 sub-committeed. Social statistics 1 sub-committeee. Social statistics 2 sub-committeef. Information statistics sub-committee

3.3. Quality Control of Governmental Statistics

Quality of governmental statistics can be inspected by the following six factors.

a. Relevance - usefulness by users’ point of viewb. Accuracy - deviation between true value of population parameter and

estimated valuec. Timeliness/Punctuality - deviation between measured time and announced time

of statistics should be smalld. Comparability - statistics collected at the same time should be comparablee. Coherence - statistics on the same social/economic behavior should be similarf. Accessibility - statistics should be reached easily by users

Quality of governmental statistics can be improved by standardizing all process ofstatistical production and ensure governance over. [Figure 3-7] is the standard processmodel for national statistical management and production.



KOSTAT is in charge of regular quality inspection for all governmental statistics. Astatistical quality assessment system, which is, now in place in Korea can be summedup as a combination of the statistical inspector system and the quality assessmentchecklist scheme. Since the revision of the Statistics Act in 2007, the rotationalassessment and self-assessment are being carried out every 5 years and every year,respectively by public experts. All process of quality control is summarized in themanual and its check list includes the followings.

- sampling design, sampling frame, sampling technique, - sample size, weight, standard error, interviewer management- data acquisition, dissemination, user group interview

ISO approved the quality management system of KOSTAT and all governmentalstatistics from KOSTAT are accepted by OECD, ILO, UN etc.

3.4. Establishment of Statistics Research Institute

The Statistical Research Institute (SRI) was established in 2006 to reflect theimportance of governmental statistics. The SRI has contributed to the advancementof governmental statistics through statistical research and development. The SRIconducts research projects required to develop new statistics and statistical


[Figure 3-7] Standard Process Model for National Statistical Management

Source: KOSTAT.


techniques to improve the quality of governmental statistics. It also conducts in-depthanalysis of statistical data. There are 31 staffs working for the SRI and it is divided into3 divisions as [Figure 3-8].

Research Planning Division is conducting research projects required to developbrand-new national statistics such as Green Growth Statistics, Quality of Life andPhilanthropy Statistics. The Division has developed 116 new governmental statisticsincluding National Transfer Accounts, Index of All Industry Production, CharityStatistics, Quality of Life Indicators etc.

Methodology Division is developing statistical techniques to improve quality ofnational statistics such as Editing and Imputation, Disclosure Control, QuestionnaireDesign, Small Area Estimation, Sampling Techniques, and Mixed Mode Survey. TheDivision has improved 297 statistical methodologies on Survey Design and Estimation,Statistical Model and Data Mapping and Security Protection.

Trend Analysis Division is doing in-depth analysis of national statistical data suchas Social and Economic Trends, Population Trends, and other social issues. Thedivision has done 97 analysis of economic and social trends such as Economic Effect ofSOC Investment, Business Diversification, Korea’s Social Trends, Life Cycles etc

The SRI also provide wide range consulting services to other governmentalagencies to support policy making such as Analysis of Housing Demand,Improvements on Public Safety Statistics. The SRI strives in many ways to advance and


[Figure 3-8] Organizational Structure of the Statistics Research Institute

Source: KOSTAT.


expand statistical research such as followings;

- Official Statistics Methodology Symposium- Publishing of Statistical Research Journal- Research Paper Competition for College Students- National Statistical Improvement Consulting Service

3.5. National Statistical Data Bank

KOSTAT operates a combined National Statistical Data Bank, called NARAStatistical System, and its structure is as [Figure 3-9]. The system consists of relationaldatabase system with many tables of governmental statistics over time.

Related database systems for the National Statistical Data Bank are SupportingSystem for Statistical Production, Statistical Data Production System and StatisticalInformation System as [Figure 3-10].


[Figure 3-9] Korea National Statistical Data Bank System

Source: KOSTAT.



There is also a system for building data structure, input/analysis screen, table, andprocess to be used in different statistical surveys as [Figure 3-11].

[Figure 3-10] Related System for Korea National Statistical Data Bank

[Figure 3-11] Build System for Each Survey and Process of Survey

Source: KOSTAT.

Source: KOSTAT.


Generic statistical production system for common use of statistical productionfunctions is as [Figure 3-12].

Each agency which produces governmental statistics has its own database systemand it transfers data within a real time to KOSTAT NSDB. Accuracy of data is checkedregularly by the quality management system of governmental system described in


[Figure 3-12] Generic Nara Statistics System

Table 3-6 Agencies Using Nara Statistical System (as of Feb 1, 2015)

Type of agencyNo. of

agency

No. of

Statistics

Data source

SurveyAdministrative

data

Total 235 314 102 212

Government agencles 226 304 92 212

- Central (KOSTAT) 13 44 43 1

Local 213 260 49 211

Private agencies 9 10 10 -

Source: KOSTAT.

Source: KOSTAT.


section 3.3. Timeliness of data acquisition is controlled by law and National StatisticsCommittee.

KOSTAT has its own data input system using web from field survey interviewerand the data are transferred automatically to KOSTAT NSDB. As stipulated in theArticle 7, statistical production of all officially approved statistics must be done usingNara Statistical System. Currently 235 agencies are using Nara Statistical System tocompile statistics on 314 subjects as <Table 3-6>.

Data Management System manages raw data, micro data in total database. Datawhich produced through statistical production is managed as Meta Data. The systemprovides statistical information in Excel or text format to agencies. The System has adata security module which manages authorization of access to data and system bysurvey. Personal data in the system are in encryption. Server and network are securelymanaged in ‘National Computing and Information Agency’

3.6. Dissemination System of Government Statistics

One of the major functions performed by KOSTAT is to provide the statistical datafor a variety of users such as policy-makers, governmental planners, administrators,researchers at research institutes, universities, political parties, enterprises, individuals,etc. KOSTAT disseminates the governmental statistics by using the NSDB which is acombined database from all agencies which produce governmental statistics byvarious means of publications, CDs, on-line database system, Statistical Datawarehouse system, Micro Data Service System, Statistical Geographic InformationSystem and tabulation for special requests, etc.

3.6.1. Korean Statistical Information System

KOSTAT operates on-line Korean Statistical Information System (KOSIS) whichincludes regional governmental statistics, international statistics and North Koreagovernmental statistics as well as Korea national governmental statistics..



KOSIS includes many visual contents as [Figure 3-14], [Figure 3-15] to intimateusers of all levels.


[Figure 3-13] KOSIS Main Screen

[Figure 3-14] KOSIS Data Category and Visualization Contents

Source: http://www.kostat.go.kr.



3.6.2. E-Nation Governmental Statistics

KOSTAT also provides the e-Nation system which is the selected key governmentalstatistics as [Figure 3-16], [Figure 3-17], and this system has many visual contents.


[Figure 3-15] KOSIS Visualization Content for Life Expectancy

[Figure 3-16] e-Nation System for Total Economic Indicator




3.6.3. Statistics Geographic Information System

Most of governmental statistics of NSDB are related with geographic location. Thisgeographic data can be better served to public by using Statistics GeographicalInformation System (SGIS).


[Figure 3-18] Statistics Geographical Information System

[Figure 3-17] e-Nation System for Population and Birth Rate




Rural growth of age 65 over population by small regions over time can be easilyobserved by using the graphs as [Figure 3-20] in SGIS and several policies to solvesocial and economic problems can be developed.


[Figure 3-19] SGIS for a Small Area Example

1995 2000 2005 2010

25% ~ 30%20% ~ 25%15% ~ 20%10% ~ 15%5% ~ 10%

More than 30%

Less than 5%

[Figure 3-20] SGIS - Age 65 Over by Small Region




Similarly urban growth of population by administrative regions over time can beeasily observed by using the graphs as [Figure 3-21] and several policies to solve socialand economic problems can be developed.

Population Pyramid of male and female population over time as [Figure 3-22]shows the average life has been increased dramatically in Korea. Korea becomes asuper age society which includes lots of social problems to be solved.


[Figure 3-21] Population by Administrative Region Over Time

Note: R plot by J.J. Lee.


3.6.4. Korean Standard Statistical Classification

KOSTAT establishes Korean Statistical Standards and Classifications in order toimprove the comparability and consistency of statistics and to standardize statisticalterms and classifications. These classifications include the Korean Standard Industrial


[Figure 3-22] Population Pyramid of Male and Female Population Over Time

Note: TongGrami plot by J.J. Lee.


Classification (KSIC), the Korean Standard Classification of Occupations (KSCO), theKorean Standard Classification of Diseases (KCD), the Standard Korean TradeClassification (SKTC), etc. KOSTAT also provides Korean standard statisticalclassification system as [Figure 3-23].

3.6.5. Micro Data Service System

KOSTAT also provides Micro Data Service System as [Figure 3-24].


[Figure 3-23] Korean Standard Statistical Classification

[Figure 3-24] Micro Data Service System




3.6.6. Statistics Training System for Children

KOSTAT also provides statistics training system for children as [Figure 3-25].

3.7. Establishment of Statistics Training Institute

In order to promote and to increase utilization of the governmental statistics, theStatistical Training Institute (STI) was established in 1991 to train officials of KoreaNational Statistical Office. The STI has extended its service to officials of central andlocal government whose works are related with statistics and to general publicincluding students and teachers of all school levels. Recently, the STI extended itsservice to foreign government officials from Afganistan, Egypt, Equador, Iran, Iraq,Vietnam, Mongolia, Kajahstan etc.

The STI has two divisions, one is Training Planning Division and the other isTraining Management Division. The organizational structure of STI as of 2015 is asfollows. Total 36 staff members are working at the STI and their budget is around 10million USD.

Facilities of the STI are as follows: 6 lecture rooms, 4 computer laboratories, 1language laboratory, 12 Discussion rooms, 1 Video room, Auditorium (300seats),International Conference Hall (91 seats), Small Conference room (41 seats),Dormitory of 130 standard rooms, Library, Exercise, Recreation room and Cafeteria


[Figure 3-25] KOSIS Statistics for Children



Many levels of education programs for statistics have been taught at the TrainingCenter. In 2014, the STI offered 141 different courses of statistics and the totalnumber of trainees is 32,500. 59 courses (551 sessions) are taught by the e-learningsystem such as [Figure 3-27].


[Figure 3-26] Organization of the Statistics Training Institute

[Figure 3-27] e-Learning System of the STI




The STI has built a mobile learning system by utilizing modern IT technologies as[Figure 3-28].

Training courses of the STI range from basic statistics to very advanced statisticsand are offered not only for KOSTAT officials and officials of other governmentalagencies, but also for general public including students. Training courses and itsperiod for KOSTAT and/or other governmental officials offered by the STI can besummarized as follows.

3.7.1. Training courses for KOSTAT officials:

Elementary CoursesDesign of Survey Questionnaire (1 week)Sampling and Estimation (1 week)Data Aggregation, Processing, Analysis (1 week)Data Dissemination, Quality Control (1 week)Application of SAS programming (3 days)Application of R programming (3 days)Industry Classification (3 days)Job Classification (3 days)Elementary Statistics and Application (1 week)


[Figure 3-28] Mobile Learning System

Source: KOSTAT.


Understanding of Governmental Statistics (3 days)Survey Interviewer Practice (3 days)

Intermediate CoursesSampling and its Practice (4 days)Editing Method (3 days)Processing of Non-response Data (3 days)Seasonal Adjustment (2 days)Index Theory (3 days)Masking Method (3 days)Statistical Report (3 days)Data Visualization (3 days)Statistical Quality Control (3 days)Comparing Statistics (often)Mass Data Application of SAS (5 days)Application of SPSS (3 days)Statistical Analysis Using Excel (3 days)Statistical Analysis Using R (3 days)Governmental Statistics and Policy Development (3 days)Economic Statistics (3 days)Financial Statements (3 days)Social Statistics (3 days)Population Statistics (3 days)Agricultural and Fishery Statistics (4 days)System of National Accounts (4 days)Survey Interview Method (3 days)

Advanced CoursesTime Series Analysis (1 week)Utilization of Administrative Data (1 week)Big Data Analysis (1 week)Advanced Data Analysis using SAS (1 week)Advanced Data Analysis using SPSS (1 week)

Expert Training CoursesSampling Survey Designs (12 weeks)Classification of Governmental Statistics (12 weeks)Sampling Survey and Estimation (12 weeks)Processing and Analysis of Non-response Data (12 weeks)Masking Methodology and Analysis (12 weeks)Economic Time Series (12 weeks)Index Theory (12 weeks)



Population Statistics Analysis (12 weeks)National Accounts (12 weeks)

In order to promote utilization of governmental statistics and to promoteawareness of statistics, the STI offers training course for the general public as follows.

- Statistical camp for children- Statistical academy for middle / high school students- Statistical workshop for university students- Course for writing statistical thesis for graduate students- Statistical training for elementary/middle school teachers- Love sharing Statistical camp- Statistical workshop for news reporters

4. Strategies for Successful NationalStatistical Data Bank

4.1. Successful National Statistical Data Bank

Successful National Statistical Data Bank can be defined in narrow sense such asgood hardware system, good database management system and well-designed datawarehouse for NSDB. However, it does not guarantee the accuracy of data, timelinessof data nor good utilization of NSDB. Accuracy and timeliness of data acquisition canbe accomplished by a good national statistical system by law and legislation.Successful utilization of NSDB can be accomplished by a good statistical informationsystem for all levels of officials and public.

In order to install the National Statistical Data Bank successfully and to increaseutilization of the Data Bank by administrators and public efficiently, several factorsshould be strengthened. The NSDB should include various knowledge informationmodules with visual contents to be intimate with users by using such as geographicalinformation system.

4.2. Suggestion for Law and General StatisticalSystem

4.2.1. Strengthen the Statistics Law

Since many governmental agencies are producing the governmental statistics inthe KSA, the current Statistics Law of the KSA should be strengthened on followingissues.



Approval for Compiling Statistics

The agencies compiling the governmental statistics shall obtain in advance theapproval from the Commissioner of the CDSI.

Confidentiality

Data collection by the statistical agencies must carry a legal guarantee ofprotection of the confidentiality of individuals. Private information obtained fromindividuals, juridical persons or bodies in the process of the compilation of statisticsshall be kept confidential.

Consultation and Approval of the Statistical Results for Publication

The head of agencies compiling governmental statistics shall immediately submitthe results of these statistics to the Commissioner of the CDSI. After consultation withthe CDSI and upon approval, the results shall be published. This provision aims at notonly ensuring the timely publication of results, but also securing the truthfulness ofgovernmental statistics.

The Quality Evaluation on Governmental statistics

In order to reinforce the credibility of governmental statistics, the CDSI willperform quality evaluations on the compilation and dissemination of governmentalstatistics both regularly and irregularly.

4.2.2. Establishment of National Statistics Committee

Since many governmental agencies are producing the governmental statistics inthe KSA, it is necessary to establish the National Statistics Committee as Korea. Thefunction of the committee is to decide the followings related with the governmentalstatistics.

a. Mid to long range planning for developing governmental statistics.b. Basic planning and practice of governmental statistics.c. Unification of similar governmental statisticsd. Abolishment of unnecessary governmental statistics. e. Policies for collaboration among governmental agencies.f. Policies for improving quality of governmental statistics.g. Category of governmental statistics.h. Utilization of administrative data.i. Utilization of Korea Statistical Information System



j. Other topics related with governmental statistics

Chair of the committee is the Minister of Economic Planning and its membersinclude important agencies which produce the governmental statistics Sub-committees to discuss specific subject of governmental statistics would also benecessary.

4.3. Suggestion for Statistical Information System

The Information System based on NSDB should include various decisionsupporting modules to be intimate with various users by using visual contents andgeographical information system. The National Statistical Data Bank with decisionsupporting module will help the policy makers, governmental planners,administrators, researchers, universities, enterprises and it will increase utilization ofNational Statistical Data Bank. Consider the following examples.

Example 1. (Population over time)

<Table 3-7> shows population of the KSA from 2004 to 2014 by nationality.


Table 3-7 Saudi and Non-Saud Population of the KSA

YEAR

SAUDI NON-SAUDI TOTAL

MALE FEMALE TOTAL MALE FEMALE TOTAL MALE FEMALE TOTAL

2004 8,245,575 8,198,412 16,443,987 4,248,335 1,871,564 6,119,899 12,493,910 10,069,976 22,563,886

2005 8,453,097 8,401,060 16,854,157 4,506,528 1,968,899 6,475,427 12,959,625 10,369,959 23,329,584

2006 8,663,597 8,606,584 17,270,181 4,780,413 2,071,296 6,851,709 13,444,010 10,677,880 24,121,890

2007 8,876,666 8,814,670 17,691,336 5,070,944 2,179,018 7,249,962 13,947,610 10,993,688 24,941,298

2008 9,091,249 9,024,301 18,115,550 5,379,132 2,292,343 7,671,475 14,470,381 11,316,644 25,787,025

2009 9,307,550 9,235,696 18,543,246 5,706,050 2,411,561 8,117,611 15,013,600 11,647,257 26,660,857

2010 9,525,178 9,448,437 18,973,615 6,052,837 2,536,980 8,589,817 15,578,015 11,985,417 27,563,432

2011 9,743,626 9,662,059 19,405,685 6,297,735 2,672,935 8,970,670 16,041,361 12,334,994 28,376,355

2012 9,962,397 9,876,051 19,838,448 6,581,439 2,776,008 9,357,447 16,543,836 2,652,059 29,195,895

2013 10,181,018 10,090,040 20,271,058 6,643,278 3,079,936 9,723,214 16,824,296 13,169,976 29,994,272

2014 10,398,993 10,303,543 20,702,536 6,867,332 3,200,507 10,067,839 17,266,325 13,504,050 30,770,375



الجملةذكور اناث جملة

غير سعوديينذكور اناث جملة

سعوديونذكور اناث جملة

السنة

This is a useful table, but the table is not easy to check some trends over time. Ifthe National Statistical Data Bank provides the following line graph as well as thetable, it will intimate the decision maker and users. The graph shows that totalpopulation shows a rapid linear trend, but it is mainly from Non-Saudi populationincrease.

Example 2. (Population by gender and age group)

The following table shows the population by gender, age group and nationalityby the Census 1425.


[Figure 3-29] Time Series Graph of Population

Note: Excel Plot by J.J.Lee.


By using the following graph, population pyramid, it can be easily checked thebirth rate of the KSA has been decreased recently. In order to prevent decreasing


Table 3-8 Population by Gender and Age Group of the KSA

[Figure 3-30] Population Pyramid of Male and Female Total Population




population of the KSA, the government officials should make some policies toincrease the birth rate.

Example 3. (Population by administrative area)

Most of governmental statistics are related with geographic location as thefollowing table. Together with this table visualization of population density byregion can help users to understand the data table. It is called as a GeographicalInformation System.


[Figure 3-31] Population Pyramid of Male and Female Saudi Population

[Figure 3-32] Population Pyramid of Male and Female Non-Saudi Population





Table 3-9 Population by Administrative Area of the KSA

[Figure 3-33] Population density graph by administrative area


Note: R plot by J.J.Lee.


4.4. Suggestion for Utilizing the NSDB

In order to utilize the NSDB, Statistics Training Center should be established toeducate governmental officials whose works are related with statistics. The StatisticsTraining Center provides also service to teach statistics for the general public becauseit is necessary to increase utilization of National Statistical Data Bank. Many levels ofeducation programs for statistics should be served at the Training Center. Courseswhich can be taught at the training center for the CDSI officials can be summarizedas follows.

Elementary coursesUtilizing National Statistical Data BankSurvey practiceData aggregation, processing, analysisElementary Statistics, Sampling and Estimation

Intermediate CoursesData VisualizationIntermediate StatisticsUtilizing Statistical Package (SAS, SPSS, R, Excel)Quality control of governmental statisticsIndex NumberAdvanced CoursesAdvanced Statistical Package (SAS, SPSS, R, Excel)Data VisualizationSampling DesignTime Series AnalysisPopulation Statistics

4.5. Suggestion for Quality Control of NSDB

4.5.1. Establishment of Statistics Research Center

Statistics Research Center should be established to activate research required todevelop brand-new national statistics, to improve quality of governmental statistics,and to do in-depth analysis of governmental data. Possible research topics of theCenter are as follows.

4.5.2. Quality Control of Governmental Statistics

All process of the governmental statistics should be inspected regularly by theResearch Center together with public experts and validate existing results of



administrative surveys.

4.5.3. Create new Governmental Statistics to Develop New Policies

Not only current governmental statistics, study for new governmental statistics todevelop new policies will be necessary.

4.5.4. Adopting Sampling Technique

Modern statistical techniques enable to estimate parameters of a large populationusing small number of samples within a short time. By considering the populationand territory of KSA, sampling techniques can be applied to produce statistics step bystep for the following reason.

4.6. Collaboration with Academic Society

Collaboration with academic society is necessary to increase utilization of NationalStatistical Data Bank. The number of students majoring in statistics at universityshould be increased to provide high quality statisticians to CDSI. The KSA wouldrequire high quality statisticians which understand the following statistical theories.

Sampling theory - population, sample, error, law of large number, central limittheorem, estimation, confidence intervalSampling design - sampling frame, sample size determination, simple randomsampling, cluster sampling, stratified samplingEstimation - parameter estimation, variance estimation, ratio estimationAdvanced statistical theory - forecasting, multivariate statistical analysis, qualitycontrol, data mining

The CDSI can initiate a national qualifying examination for the above statisticaltheories. Qualified persons who pass the examination can have priority to be agovernmental official of the CDSI.

5. Conclusion

Building a good National Statistical Data Bank of all governmental statistics isimportant, but it does not guarantee accuracy of data, timeliness of data and goodutilization of the NSDB. Having a good environment of statistical system and NSDButilization system are more important. This article proposes strategies for not only adesign of good National Statistical Data Bank, but also general statistics system, law,committee, information system and establishment of related institute based on



Korea’s experience. In summary,

A. NSDB and its statistical information system should include various knowledgeinformation modules for general public as well as top decision makers andofficials.

B. Establish National Statistics Committee by law to cooperate amonggovernmental agencies which produce governmental statistics.

C. Build a quality control system of all governmental statistics to match with aninternational standard such as ISO.

D. Establish Statistics Research Institute to design new governmental statistics andto develop sampling survey methodologies for the KSA.

E. Establish Statistics Training Institute to teach officials how to utilizegovernmental statistics. It will increase utilization of the NSDB and itsinformation system for governmental officials and general public.

F. Build a collaboration system such as the qualifying exam for statistics withStatistics Society of the KSA. The CDSI can recruit more qualified students.




References

UN Fundamental Principles of Official Statistics

EU European Statistics Code of Practice

ISI(International Statistical Institute) Declaration of Professional Ethics

Statistics Korea (KOSTAT) web site, www.kostat.go.kr/portal/englsih.

Kingdom of Saud Arabia, Central Department of Statistics and Information (CDSI) web site,

www.cdsi,gov.sa/english

Lee, Jung Jin , Data Mining using R, SAS and MS-SQL. Freedom Academy, 2011.

Yoon, J.S., Information Security Activities in Korea and Implications, KSP Report of KDI,

2011.

Lee, Y.B. The Introduction of e-Government in Korea, KSP Report of KDI, 2011





Developing Innovation in Manufacturingand Industry in the Kingdom of

Saudi Arabia

Chapter4


Developing Innovation in Manufacturingand Industry in the Kingdom of Saudi Arabia

Moonyearn Hwang

(Korea Financial Telecommunications & Clearings Institute)

■ Chapter 04

Summary

For the past decades, Saudi Arabia achieved rapid economic growth largely due to

affluence of natural resources. In order to continue economic growth, the Kingdom

has been pursuant of shifting its economic structure from an oil-based to a

diversified. Understanding that industrial innovation is imperative, the government

made several innovation plans including National Industrial Innovation Strategy led

by Ministry of Commerce and Industry (MCI).

Through the KSP, the MCI expects lessons from Korea that has successfully

strengthened its industrial competitiveness through innovation under ever changing

situations. The ministry also expects technical consultation on developing support

mechanisms towards the development and innovation of new enabling technologies

for the manufacturing sector in the kingdom of Saudi Arabia.

In the first part of this report, Saudi industry was reviewed from international

comparative perspective, which showed weak international competitiveness of Saudi

industry compared with its gross domestic product. The analysis also showed that

Saudi Government need to strengthen human capital development, change

regulatory business environment, provide better access to financing, do more active

knowledge creation and diffusion, etc.

In the second part, Korean industrial policies and industrial technology



development strategies that Korea has pursued since the early development stage of

1960s were introduced. Korean experiences of enhancement of technology

absorptive capacity by emphasizing human capital development, establishment of

technology development foundation, provision of support measures to promote

private sector’s technological innovation, and coordination of industrial innovation

strategies and projects among related ministries are described. Those are Korean

experiences that are worth referring to. Korean R&D policy and expenditure are also

presented with OECD’s review.

Korean Ministry of Trade and Industry that corresponds to Ministry of Commerce

and Industry of Saudi Arabia has played a leading role in industrial policy making and

technology innovation. MTI initiated and run industrial technology development

projects, made policies to promote technology transfer and commercialization, and

made efforts to provide proper retraining program for manpower of technology,

most of which are not taken by the Saudi MCI. Korean MTI’s affiliated organizations

and financial institutions have played key roles in industrial technology development

and technology commercialization. Among them two institutions which are worth

referring to are introduced in detail.

Based on the above study, policy recommendations for Saudi Arabia are

presented. The MCI needs to put more emphasis on industrial development with

diversified policy efforts. Policy making and implementing industrial technology

development and running major projects need to be their major roles. Through

continuous contacts with firms and chamber of commerce, the MCI needs to reflect

diverse demands of industry fields into industrial technology policy.

As Saudi Arabia already realizes, the creation of governing institutions is a vital

part of ensuring efficient carry out of the national innovation strategies. However,

the idea that they have a new department at MCI as innovation driver may not be as

fruitful as expected, unless MIC’s role for industrial technology innovation is limited.

With strengthened role of MCI, the department may be able to play a key role for

industrial innovation of Saudi Arabia. As industrial technology becomes complex and

technology needs from industry are diversified, government administrative system

needs to change and the governance structure among innovation related agencies of

Saudi government may need to be elaborated from a longer-term perspective.

Since connecting technology with business is an important issue and many SMEs

do not have sufficient financial capabilities, Saudi government needs to consider

establishment of institutes like Korean KITECH and KOTEC.

Chapter 4 _ Developing Innovation in Manufacturing and Industry in the Kingdom of Saudi Arabia 169


1. Introduction

For the past decades, Saudi Arabia achieved rapid economic growth largely due toaffluence of natural resources. In order to continue economic growth, the Kingdomhas been pursuant of shifting its economic structure from an oil-based to adiversified. As a national plan for this, the Saudi government established the NationalIndustrial Strategy (NIS) in 2007. Considering that innovation in manufacturing isimperative to implement the NIS, the government also made the National IndustrialInnovation Strategy (NIIS).

In this context, the Ministry of Commerce and Industry (MCI) of the Kingdomrealizes that there are key abilities to innovate successfully that Saudi industrialbusiness should explore, which MCI hopes to develop throughout the course of itsinnovation promotion activities. The MCI understands that it is important that theministry play a vital role to build the capabilities and capacities of Saudi industries toengage with markets, to attract and retain innovative people, and to invest in longterm innovative projects. However, the MCI finds it a priority promoting thedevelopment of new technologies by encouraging a culture and environmentconducive to innovation in Saudi industries.

The MCI plans to set up a department at the ministry for industrial innovation andcompetitiveness, which will specialize in policy making for innovation as well asproject and program design and implementation. The planned department isexpected to drive the national framework for innovation as to become a realinnovation enabler for Saudi industries.

Through the KSP, the MCI expects lessons from Korea that has successfullystrengthened its industrial competitiveness through innovation under ever changingsituations. The ministry also expects technical consultation on developing supportmechanisms towards the development and innovation of new enabling technologiesfor the manufacturing sector in the kingdom of Saudi Arabia. The ministry also wantsto be consulted about the role and management of the planned department as amajor enabler of industrial innovation in the Kingdom.

2. International Competitiveness andInnovation Strategy of Saudi Industry

2.1. Saudi Industry from International Comparativeerspective

The World Economic Forum has made competitiveness analysis on the Global



Competitiveness Index (GCI) by measuring the microeconomic and macroeconomicfoundations of national competitiveness. The analysis assumes three stages ofeconomic development. The first stage of the economy is factor-driven and countriescompete based on their factor endowment-primarily unskilled labor and naturalresources. Maintaining of competitiveness at this stage hinges primarily on well-functioning public and private institutions, a well-developed infrastructure, a stablemacroeconomic environment, and a healthy workforce that has received at least abasic education. The second stage of development is efficiency-driven. At this stagecompanies seek for more efficient production process and increase product qualitybecause wages have risen and they cannot increase prices. Competitiveness increasesby higher education and training, efficient goods markets, well-functioning labormarket, developed financial markets, the ability to harness the benefits of existingtechnologies, and a large domestic or foreign market. The final stage of developmentis the innovation-driven. At this stage, companies compete by producing new anddifferent goods using the most sophisticated production processes and by innovatingnew ones.

In order to allocate countries into stages of development, two criteria are used.The first is the level of GDP per capita. The second criterion is used to adjust forcountries that, based on income, would have moved beyond stage 1, but whereprosperity is based on the extraction of resources. This is measured by the share ofexports of mineral goods in total exports. The report put Saudi Arabia into thecategory of transitional stage from factor driven to efficiency driven. In the GCI 2014-2015, Saudi Arabia ranks 24th out of 144 countries. In recent years, the rank has slid.It was 17th in the 2011-2012, 18th in the 2012-2013, 20th in the 2013-2014.

The most problematic factors for doing business in Saudi Arabia are labor related.Restrictive labor regulations, inadequately educated workforce, poor work ethic innational labor workforce are the most prominent problems. Insufficient capacity toinnovate is one of the major problems with other problems like including inefficientgovernment bureaucracy, inconvenient access to financing, inadequate supply ofinfrastructure.

Given the particular emphasis on manufacturing industry, the United NationsIndustrialized Development Organization (UNIDO) has made comprehensive globalcomparative analysis of industrial competitiveness using its Competitive IndustrialPerformance (CIP) index. The index consists of three dimensions of industrialcompetitiveness; countries’ capacity to manufacture and export goods, countries’level of technological deepening and upgrading, countries’ impact on worldmanufacturing in terms of their value added share in world manufacturing valueadded and in world manufactures trade. According to the UNIDO’s CompetitiveIndustrial Performance Report 2012/2013, Saudi Arabia’s industrial competitiveness




ranks in the 37th out of 137 countries. Saudi’s manufacturing showed comparativelylow performance in all eight indicators of the three dimensions.

World Intellectual Property Organization has provided an inclusive perspective oninnovation through the Global Innovation Index (GII) in collaboration with INSEAD inFrance and Cornell University in the United States. The GII relies on two-indices; theInnovation Input Sub-Index and the Innovation Output Sub-Index. Innovation InputSub-Index consists of five input pillars capturing elements of the national economythat enable innovative activities. Innovation Output Sub-Index has two pillarscapturing the results of innovative activities within the economy.

According to the Global Innovation Index 2014, Saudi Arabia ranked 38th out of143 countries in terms of the overall GII scores, the simple average of the Input andOutput Sub-Indices. Creative outputs, market sophistication, and infrastructure areevaluated relatively better, while knowledge & technology outputs, institutions,human capital & research, business sophistication are poorly evaluated.

[Figure 4-1] Global Innovation Index of Saudi Arabia 2014

Note: Numbers in ( ) are Saudi’s ranking out of 143 countries.Source: Cornell Univ. INSEAD, and WIPO, THE GLOBAL INNOVATION INDEX 2014, The Human Factor in Innovation.


From the above three comparative studies on national competitiveness andinnovative capacity, Saudi Arabia’s economy shows lack of efficiency particularly inmanufacturing and innovative capacity has to be more developed. The economyneeds to put on emphasis on strengthening R&D activities, enhancing knowledgeabsorptive capacity, and developing human capital. Efforts need to be sought toimprove overall business environments as well as political and regulatoryenvironment.

2.2. Industrial Innovation Strategy of Saudi Arabia

2.2.1. Diagnosis on Saudi Industry

A diagnostic exercise was undertaken to formulate National Industrial Strategy ofSaudi Arabia. The process included the wide range of innovation stake-holders andreview of existing reports and undertaking interviews and consultations.

According to the diagnosis, there were some positive initiatives to drive andsupport innovation. In recent years the government led several initiatives to promoteinnovation, which shows that the Saudi leadership is aware of the importance ofinnovation to economic diversification and development. As a result of considerableamount investment in driving innovation, the country has exceptional technologicalinfrastructure.

However, the diagnosis finds three major shortcomings. First, innovationinitiatives were primarily focused on large companies and research institutes, and thebenefits from the initiatives are not shared by businesses and operations on a smallerscale. Programs and investment that stimulate innovation at the grassroots and helpentrepreneurs commercialize their ideas into viable businesses are a vital part ofpromoting the economic diversification of Saudi Arabia.

Second, there is little coordination among innovation initiatives. The littlecoordination may lead to overlapping in funding allocation and inefficiency forinnovation.

Third, Saudi Arabia lacks enough right people, culture and ideal businessenvironment to promote innovation. Despite high spending on education, the SaudiArabian education system does not yet produce desirable results. The Saudi Arabia’shistory of innovation has been overtaken by a mind-set that has shied away fromrisk-taking behavior. Despite the recent improvement, the business environmentremains relatively tough, particularly for SMEs. Obstacles to establishing a businessinclude government regulation, lack of intellectual property and copyrightprotection, limited female entrepreneurship, legal and regulatory risk, restrictive



financial market and poor ICT penetration. As a result, Saudi Arabia has yet reachedits innovation potential, and the innovation outputs are below expectation.

2.2.2. Industrial Innovation Strategy

As a plan to diversify its economy in order to spur economic growth and competeat a global level across a range of industries, the Saudi Arabian government madethe National Industrial Strategy (NIS) in 2007. The primary objective of the NIS is toincrease the industrial sector’s contribution to GDP from the current 11 percent to 20percent by 2020. It is broken into eight axes, each of which will provide a platform fordriving the strategy forward. And the Axis 4, prepared by the Ministry of Commerceand Industry, is for the creation of a National Industrial Innovation Strategy (NIIS) toincrease productivity and support the NIS goals.

The NIIS makes a series of recommendations to overcome above mentionedshortcomings and put Saudi Arabia on track to becoming an innovation-driveneconomy by 2025. The NIIS consists of four primary elements: the prioritization of six“industrial innovation platforms” on which Saudi Arabia should focus its innovationstrategy; the creation of governing institutions to coordinate and manage SaudiArabia’s innovation activities; the provision of funding and support mechanismsdesigned for innovation-based entrepreneurs, start-ups and SMEs; and thedevelopment of programs designed to promote a culture of innovation throughoutSaudi Arabian society.

First, six industrial innovation platforms were prioritized based upon market needsand Saudi Arabian capabilities. “Upstream oil platform” seeks to expand the oilindustry capabilities to increase the value added to oil production in Saudi Arabia.“Engineered plastics platform” seeks to exploit the Kingdom’s access to cheap newmaterials to manufacture more advanced polymers. “Halal life platform” seeks toencourage the Kingdom to lead the formation of a world-wide Halal standard,research and development as well as manufacturing Halal food additives. “Wellbeingfor all humans platform” seeks to provide Saudi companies attractive opportunitiesto find treatments like medical devices, plastic applicators. “Water for life platform”suggests developing leading innovative technologies in conservation and demandmanagement, reuse and recycling, and desalination. “Energy factory of the worldplatform” suggests that the Kingdom takes a leading role in developing new solarand wind power technologies, as well as algae-produced bio-fuels.

Second, the creation of governing institutions is a vital part of ensuring that theNIIS is carried out and governed efficiently. Four types of institutions were proposed.To maximize the impact of the NIIS, the National Industrial Innovation Center will becharged with coordinating and running high-impact programs to boost a culture of



curiosity and innovation throughout Saudi society. The Center will also play a majorrole in advising the Ministry of Commerce and Industry and other relevantgovernment departments on the best strategies and policies for enabling innovationin the country. Its third responsibility will be overseeing the Industrial InnovationFunding Program, which will be established to provide funding and support toinnovation-based entrepreneurs, start-ups and SMEs. The Center will coordinate theSaudi Innovation Network, a network of Saudi individuals from government,academia and business who are in the position to play a leading role in promotinginnovation in the Kingdom. The other types of governing institutions are; theEmerging Economies Industrial Innovation Council to foster cooperation withinternational innovation centers in other emerging economies, the SpecializedTechnology Centers to promote research collaboration and technology transfer,provide access to laboratory facilities for entrepreneurs and small businesses, andfoster and promote Saudi Arabian activities in innovation in the region, the IndustrialInnovation Commercialization Centers as regional one-stop-shops that supportinnovative SMEs and entrepreneurs in taking ideas into market through financing,mentoring and other services.

Third, providing proper funding and other supports are very important fornurturing innovation in the Kingdom. In order to address the paucity of fundingavailable to SMEs in Saudi Arabia, an Industrial Innovation Fund needs to beestablished to support innovation-based start-ups, entrepreneurs and SMEs. Giventhe underdeveloped nature of innovative SMEs and the lack of business experienceand expertise away from large corporations, entrepreneurs and SMEs are given non-financial support to help develop their business and technical skills. The program willrun a number of non-financial support roles, such as business training programs,internships, expert advice and networking events to help entrepreneurs learn theskills to make their companies a success.

Fourth, promoting interest in and awareness of, the benefits of entrepreneurshipand innovation across all segment of Saudi society is a vital part. Six initiatives willserve as showcases and provide first impact: innovation promotion media campaigndesigned to raise awareness and educate the public around the benefits ofinnovation, science and discovery TV shows aiming to provide a role model forinnovation and educate them on basic science principles in a fun way and popularizeinnovation-related career choices among teenagers, invention competition andexhibition designed to raise awareness of, and recognize and reward innovativethinking, national innovation awards to reward and showcase the achievements ofinnovators, innovation online portal as the central knowledge repository ofinformation on innovation technology, practices, businesses, IP protection andfunding sources, informational Saudi talent network to leverage the skills of Saudispursuing innovation-related educations or careers abroad by encouraging them to



become involved in fostering the next generation of innovators and spreadawareness of the pace of improvement of the Saudi innovation landscape.

The NIIS includes detailed implementation plans to turn the recommendationsoutlined above into reality. The implementation plans are structured around fiveprograms.

1) Coordination of the Industrial Innovation Program

The aim of this program is to develop the National Industrial Innovation Centeroutline above. The program consists of three initiatives: structuring the NationalIndustrial Innovation Center; developing innovation programs and mechanisms forcollaboration between industrial innovation stakeholders; and initiating thedevelopment of the Specialized Technological Centers and Industrial InnovationCommercialization Centers.

2) Emerging Economies Research and Industrial Innovation ProgramCoordination Council

This program consists of three initiatives: establish the Emerging EconomiesIndustrial Innovation Council; define and establish programs and policies to enableand promote collaboration between member nations; and initiate industrialinnovation joint projects with other, non-member, emerging economies.

3) Industrial Innovation Funding Program

The aim of this program is to implement the funding and support mechanisms forinnovation-based entrepreneurs, start-ups and SMEs. The program consists of threeinitiatives: establishing the Industrial Innovation Funding Program; promotingawareness of the program; and coordinating program projects and measuring theireffectiveness.

4) Innovation Commercialization and Specialized Technology

This program consists of three initiatives: designing and launching the IndustrialInnovation Commercialization Centers; designing and launching the SpecializedTechnology Centers; and attracting partners, promoting the centers, and measuringtheir effectiveness.

5) Programs to Foster Innovation Culture and Entrepreneurship

This program consists of three initiatives: promoting innovation and creativity in




Saudi society; promoting innovation and creativity in the Saudi education system;promoting innovation and creativity in Saudi corporations.

2.2.3. Observations on Industrial Innovation Strategy of SaudiArabia

Although the NIIS makes a set of recommendations such as prioritization of theaforementioned industrial innovation platforms, creation of innovation governinginstitutions, funding and other supports for innovation, programs to promoteinnovative culture, the measures included are not fully detailed for efficientimplementation of the strategy. The planned National Industrial Innovation Center atMCI may have difficulties working as a national innovation driver with the ministry’scurrent limited role and capacity for industrial technology development. The majorfunctions of the ministry have been regulating and licensing rather than establishingand conducting industrial development policies.

Considering that most of the previous Saudi government initiatives are mainlyfocused on large corporations and research institutes, it must be an improvement forthe NIIS to have included some support mechanisms for innovative SMEs and start-ups. However, in order to help small enterprises to grow in the real business world,the support needs to be comprehensive including funding, technology assistance,business advisories, and etc.

3. Korean Experience of Industrial Innovation

3.1. Evolution of Korean Industrial Technology Policy

Korean economy has developed through international cooperation and overseasmarket expansion because of its lack of resources and small domestic market. The“select and focus” has been a major characteristic of the Korean industrial policyfrom the early stage of development. The selected industries which industrial policyefforts have concentrated on have changed as the Korean economy grows and theglobal market condition changes. The science and technology policy has evolved withthe change of industrial policy direction. This subsection describes Korean science andtechnology policies to meet the needs of different periods and introduces diverseefforts the Korean government made in order to promote industrial technologydevelopment.



3.1.1. 1960s: Technology Acquisition from Abroad and Enhancementof Absorptive Capacity

Korea was recognized by most of people to be a hopeless country after theKorean War in early 1950s. Most people suffered from poverty with the lowest levelof per capita GDP comparable to those of the poorest nations in the world. Thecountry was seriously lack of resources and capital, not to mention technology. Afterfour years of mass destruction, even the poorest industrial base was severelydevastated. Furthermore, political instability of that time failed to provide anymomentum for the nation’s economic growth.

In 1962, the Korean government started its industrialization drive through theFirst Five Year Economic Development Plan. Planning and implementation of the Planand subsequent plans were led by the Economic Planning Board which wasestablished in 1961 and was empowered to make economic policies, allocate budgetsand coordinate policies among economic ministries. Because, in terms of technology,the nation’s situation was like the worst without any technology base, the nation hadno other option than depending on foreign technologies. While the Koreangovernment started technology acquisition through transfer from abroad, it soonpursued investment on technology development based on the transferredtechnologies and put a policy emphasis on enhancing domestic absorptive capacity tointernalize and develop the technologies. The education system in Korea wasimproved in accordance with the labor demand of the industry. In 1960s educationalpolicy emphasis was put on the expansion of the primary and secondary educationand vocational high schools were set up in order to supply skilled labor to the lightindustries. It has developed an unusually well-educated, industrious and disciplinedlabor force. In a broad sense Korean economic development has highly relied on thecontribution of knowledge.

In order to acquire technology from abroad, various channels were used. Foreignlicensing, turn-key base plant importation, reverse engineering and originalequipment manufacturing (OEM) were the major contributors to the technologyacquisition. In order to finance industrial investment, Korea depended on foreignloans. The Korean government allocated the loans to some strategically selectedindustries, which in turn led to a lot of importation of capital goods and turn-keyplants. Technologies were transferred into Korea with those importations. Althoughforeign direct investment (FDI) is often regarded as one of the most effective way toget foreign technology and new advanced managerial expertise, FDI didn’t play animportant role in the early stage of Korean economic development. Many foreigninvestors did not view Korea as an attractive country to invest because the nation wasnot politically stable and its economic prospect was not bright. Moreover, the Koreangovernment maintained restrictive FDI policies in some industries through ownership


regulation, technology transfer requirement, etc.

The 1960s in the history of Korean science and technology was the period whenKorea made its comprehensive plan for the first time and established institutionalsettings for science and technology development. In 1962, the Korean governmentmade the First Five Year Science and Technology Promotion Plan in parallel with theFirst Five Year Economic Development Plan. In the same year, the Technology PolicyBureau, the first government organization for science and technology administration,was set up within the Economic Planning Board. In 1966, the government establishedthe Korea Institute of Science and Technology, the first research institute andnational think tank in the field of science and technology. In 1967, the governmentestablished the Ministry of Science and Technology to administer science andtechnology development, enacted the Science and Technology Promotion Act, andmade the Long Term Comprehensive Plan for Science and Technology Development(1967-1986). One of the Korea’s differences from many developing countries whichfailed to achieve industry and technology development was that from the early stageof economic development the national leaders and top policy makers fullyappreciated the importance of science and technology and the government stronglycommitted to technology-based national development. Korea’s industrial policyputting great importance on technology has continued even with the changes ofgovernment and industrial environment.

3.1.2. 1970s: Laying the Groundwork for Technology Development

In 1970s, Korean government moved its industrial policy priority from the importsubstitution and cultivation of the light industries of the 1960s to promotion of theheavy and chemical industries’ growth. In the Third (1972-1976) and Fourth (1977-1981) Five Year Economic Development Plans, the industrial policy of selectivecultivation of heavy and chemical industries were adopted. The government chosesteel, machinery, shipbuilding, electronics, nonferrous metal, petrochemical as sixstrategic industries. The government intended to spread positive effects of theindustrial development and export growth led by the selected industries.

The technology policy was also geared toward the development of heavy andchemical industry. The government implemented aggressive foreign capital andtechnology importation policy. For chemical industries, Korea increased turn-key baseplant import, which had technical personnel training program as part of the import.For heavy machinery, acquisition of foreign technologies through license agreementwas frequently used. The government also made efforts to strengthen the domesticscience and technology development base. It enacted Specific Research InstituteSupport Act in 1973 and established 16 research institutes of many differentindustries and Daeduck Science Town. In order to promote technology development



of private sector, the government enacted the Technology Development PromotionLaw, provided tax and financial incentives, and loosened regulations on thetechnology import.

The Korean science and technology policy of the 1970s contributed to meet thetechnological demand of the major industries. However, it was criticized that itneglected the development of fundamental science and original technologydevelopment by allocating limited resources heavily to the development of shortterm practical industrial technology.

3.1.3. 1980s: Enhancement of International Competitiveness throughStrategic Technology Development

In the late 1970s, the imbalanced economic structure due to the previousinvestment overly concentrated on heavy and chemical industry and the newtechnology protectionism of the advanced economies had impact on the Koreaneconomy. The Korean industries, which maintained their competitiveness throughsimple imitation of the developed nations’ technologies, affluence of skilled labors,concentrative investment on selected strategic industries, faced difficulties continuingtheir growth.

As the situation continued to worsen, the change of Korean industrial policies wasrequired to find breakthroughs. Upon this situation, the government pursuedindustrial upgrading and enhancing international competitiveness throughtechnology development in 1980s. With the deregulation of FDI and liberalization offoreign licensing, the environment of technology import from abroad was improved.While the government was vigorously conducting the National R&D Project to fosterfuture high-tech industries, it also put an emphasis on the development of keycommon technologies necessary in the industry fields. In 1987, the Ministry ofCommerce, Industry and Energy launched the Industry Based TechnologyDevelopment Projects by providing up to two thirds of required funds for thedevelopment of technologies selected based on the annual survey. Several otherministries began to have their own R&D programs in subsequent years.

3.1.4. 1990s: Revamping the National Technology DevelopmentSystem

In late 1980s, the Korean manufacturing industry faced weakening ofinternational competitiveness, which led to sluggish export trade. This was mainlybecause price competitiveness was weakened due to rapid increase of labor cost andtechnology protectionism was globally spread. Korea had difficulties bringing intechnologies from industrialized countries and to pay high costs for technologyimport.



Therefore, the Korean industry pursued structural change from labor intensiveinto technology deepened. More fundamentally the government tried to make themanufacturing industry more value-added through restructuring and technologyimprovement. Industrial policy which previously emphasized export increase wasgeared toward science and technology development. Rather than seeking short termperformance, the government pursued enhancement of fundamental growthpotential through technology innovation. The focus of the government technologypolicy shifted from the catch-up of the advanced nations’ technologies to the creativeresearch and technology development.

As the technology innovation became a government-wide agenda and manyministries launched their own technology development programs, the governmentestablished the National Science and Technology Council in 1991 and strengthenedpolicy coordination among ministries through Science and Technology MinisterialMeeting. The Ministry of Science and Technology was in charge of generictechnologies and key national science and technologies while other ministries werein charge of industrial technology development of their jurisdictions.

The national R&D projects were strategically implemented by concentratinglimited resources on selected areas. With the goal of joining the technologyadvanced nation in 2000s, the government launched the G7 Leading TechnologyDevelopment Project focusing on specific science and technology development in


[Figure 4-2] Support Measures to Promote Technology Innovation

Description of incentives

Tax

Incentives

Financial

Support

Others

Recognition of technology development reserves as uncollectable lossesTax deductions on technology and human resources development expensesExemption of local taxes on site for company research centersReduction of tariffs on research suppliesExemptions of special consumption taxes on research samplesTax deductions on new technology investment Tax reductions on gains on technologyTax deductions on technology projectsIncome tax deductions for foreign technology experts

Government funding for research centers of private companiesVenture capital through joint investment by the government and private companies

Exemption of military service for those researchers who work for companies insteadFavorable treatment of the ‘ew technology-based product’ by the government ownedcompanies Technology credit guarantee service for SMEs

Note: reorganized from Ministry of Science, ICT and Future Planning, “2013 Modularization of Korea’s Development Experience: AStudy on the Korean Government’s Supporting Measures for Private Firms’ Science, Technology, and Innovation Promotion,”2014.


1992. Other major programs launched in the early 1990s were: EnvironmentalEngineering Technology Development Program of MOE1), Construction TechnologyDevelopment Program of MOCT, Agricultural Technology Development Program ofMOAF, Health and Medical Technology Development Program of MHW, BasicScientific Research Support Program of MoEd.

Incentives used to induce private sector’s R&D activities became diversified andstrengthened. Tax support, subsidy and loan support, technical manpower support,technology information support, other supports to help commercialization of newtechnologies were provided. The most striking result of private sector’s R&Dinvestments of the 1990s was that around 80 percent of the R&D investment inmanufacturing was made in semi-conductor and automobile industry which later ledthe country’s export.

3.1.5. 2000s: Enlargement of National Growth Engine through Developing Future Generation Technologies

In late 1990s when Korea experienced economic crisis, the government realizedthe limit of economic growth strategy which highly depended upon factor input.Besides, with the rapid increase of technological deficit, the government was not ableto stick to conventional technology catch-up. And the government conceived theimportance of the original and indigenous technologies that would compete in theglobal market. Therefore, the government pursued economic growth throughenhancement of productivity of factor inputs and put a policy emphasis ontechnology innovation rather than technology import from abroad. This was criticalfor the Korean economy because until the early 2000s, the gap of technologiesbetween Korea and the advanced countries was still big while the technological gapbetween Korea and China had been narrowing.

In the year of 2003, the government started the Next Generation Growth EngineIndustry Development Projects in cooperation with related ministries. As Korea’seconomic growth engine for future generation, the government selected tenindustries: robot, future car, next-generation semiconductor, digital TV andbroadcasting, mobile telecommunication, smart home-network, digital contents, SWsolution, next-generation battery, bio drug and organ. For these industries, thegovernment eased ownership regulations and partially allowed location ofcompanies in the capital metropolitan area. In 2004, the government established theNational Innovation System (NIS) in order to bring about technology innovation andto enhance overall productivity of the Korean economy. Under the Korean NIS which


1) MOE: Ministry of Environment; MOCT: Ministry of Construction and Transportation; MOAF: Ministry of Agriculture

and Forestry; MHW: Ministry of Health and Welfare; MoEd: Ministry of Education.



emphasized creative innovation, private sector was to lead technological innovationwhile the government was to provide supportive measures and technologymanpower reflecting demand from the industry. Largely due to continuous efforts,the contribution ratio of total factor productivity to national economic growthincreased to 19.95% in 2000s from 6.73% in the 1980s.

[Figure 4-3] Industrial Policy Directions in Korea

1960s 1970s 1980s 1990s 2000s

Major

IndustryLight

IndustriesHeavy Industries

Assembly &Processing Industries

IT IndustryNew

Growth Engine

Source of

Competitiv

eness

capability

Industrial

Policy

Directions

Importsubstitution

Nurturing ofexportorientedlight industries

Expansion ofheavy andchemicalindustries

Strengtheningof industrialcompetitiveness

Importliberalization

Transformationof industrialstructure

Strengtheningofdemanddriventechnologicalinnovation

Establishment ofnationwide ITinfrastructure

Pursuing ofsustainablegrowth

Promotion ofknowledge-based industry

Science

and

Technology

Policy

Technologyacquisition fromabroad

Build scientificinstitutionalframework’

Introduction ofnew technology

Expansion oftechnologicalcapability

Set up aScientificInfrastructure:S&T Institutions

Performnational R&Dprojects

Support privatetechnologydevelopment

Policycoordinationamongministries

Launch of majorR&D programs

Enrichment ofsupportmeasures fortechnologydevelopment

Shift from catch-up to innovation

Encourageprivate sector tolead R&Dactivities

Low cost labor

Innovation capability

Convergence

Manufacturing capability


3.2. R&D Activities in Korea

3.2.1. Increase of R&D Investment

Until the early 1980s, the major technology activity in Korea was the simpleimitation of foreign industrial technologies. With the increasing technologicalrequirements of the industry and the rising technology protectionism, the Koreangovernment put a policy emphasis on R&D investments through diverse programs.Private sector responded to the government policy by significantly increasinginvestment in R&D.

R&D investment has undergone a huge increase over 50 years.

Korea’s R&D investment, which was merely 1.4 billion won (0.20% of GDP) in1964, rose to 212 billion won (0.56% of GDP) in 1980, to 3,210 billion won (1.68% ofGDP) in 1990, to 13,848 billion won (2.3% of GDP) in 2000, and to 43,855 billion won(3.74% of GDP) in 2010. As of 2010, Korea was ranked 7th in total R&D expenditureand 5th in total R&D expenditure over GDP respectively.2)

Such an impressive increase of R&D investment is mainly attributed to private


[Figure 4-4] R&D Expenditure in Korea

Source: Historical Review of Korean STI Strategies (Jang Yongsuk, 2013).

2) IMD World Competitiveness Yearbook (2011).


sector. In 1969, the public sector accounted for 73.5% of the nation’s total R&Dexpenditure, but the share dropped to 49.8% in 1980 and to 15.9% in 1990.However, the trend was slightly reversed afterwards. When the financial crisis hitKorea in 1997, private sectors sharply decreased R&D investment, which was a blowto Korean innovation system. The government increased its R&D expenditures tocover the reduction by the industry. As R&D investment in Korea has been led by theprivate sector since the early 1980s, emphasizes have been placed on R&D activitiesfor applied technology development. Over 80% of R&D funds have been expendedfor applied technology development while fund for basic and theoretical researchhas remained insufficient.

3.2.2. Evaluation of Korea’s R&D Activities

Korea’s R&D investment has increased rapidly which is largely due to thecombined dynamism of the government’s strong commitment to technology-basedeconomic development and the private sector’s efforts to enhance competitiveness.As the national economy has developed, the focus of the R&D investment hasproperly changed from simple imitation of foreign technologies to the developmentof high- and state-of-the-art technologies.

Yet there have been some criticisms too3). Since the R&D efforts have beendevoted overly to industrial technology development, scientific and theoreticalresearch has been more or less neglected. Besides, heavy reliance on privateindustries for R&D investments has made the innovation system vulnerable asdescribed above. Moreover, high concentration of R&D activities by a few of largefirms may pose a serious structural weakness since SMEs and others are not activelyinvolved in R&D. And lack of interaction between major innovators like researchinstitutes, universities and industries is to be overcome for efficiency enhancement ofthe Korean R&D activities.


3) This section refers to Suh Joong Hae (2009).

Table 4-1 Share of R&D Expenditure

1969 1975 1980 1985 1990 1995 2000 2005 2010

Source: National Science & Technology Information Service (NTIS).

(unit: %)

Public 73.5 57.8 49.8 19.3 15.9 24.2 27.6 24.3 28.0

Private 18.4 28.8 48.4 80.5 84.1 75.7 72.4 75.0 71.8

Foreign 8.2 13.4 1.8 0.2 0.0 0.0 0.1 0.7 0.2


3.3. Governance of Science and Technology Policyand the Role of Korean Ministry of Trade andIndustry

Korean science and technology administration was a centralized system in theearly development stage. The important plans and policies were centered on theMinistry of Science and Technology (MOST) which was established in 1967. It was anefficient system to utilize limited resources for strategic development of science andtechnology. As science and technology policies evolves and demand for industrialtechnology becomes diverse and more complex, ministries other than the MOST wereauthorized to formulate policies of their industrial jurisdiction. Along with thischange, coordination function among different science and technology ministrieswas emphasized. The National Science and Technology Council, established in 1999,has been in charge of establishing the National Science and Technology Basic Planand has played as a coordinator.


MMaaiinn FFeeaattuurreess ooff tthhee KKoorreeaann IInnnnoovvaattiioonn SSyysstteemm

from OECD Reviews of Korean Innovation Policy:2009———————————————————————————————————————————1. Large firms in specific industries like information technology (IT), electronics, and automobile have been

the main players in Korean innovation. The catch-up strategy in advanced technology area was changedto leadership strategy by the role of the large firms.

2. SMEs were neglected in the previous technology catch-up model in which large firms dominated.However, SMEs have increased their innovation capability and new technology-based firms have playedmore important role for Korean innovation performance.

3. Government research institutes (GRIs) which have played a crucial role in Korea’s ability to move into high-technology sectors are required to increase their role to support SMEs’ technology development.

4. Higher education institutions have played a modest though increasingly important role in research, buthave been crucial for the mass education of young Korean adults. Mobilizing the pool of latent researchcapability in universities will be essential if Korea is to achieve technological parity with the leadingeconomies.

5. Korea’s transformation from an agricultural economy into one of the most modern economies in theworld is largely due to a growing population and investment in human capital. However, because of itscontinuously falling birth rate and aging society, Korea needs to bring more women into the workforceand to increase lifelong learning opportunities.

6. Linkage between the various actors in the innovation system has become more important in Korea.Researches performed by industry, higher education institutions and GRIs have been converged: Koreanindustry’s proportion of basic research spending has increased while its share of applied research hasdeclined. Korea also has a rich and successful history of private-public partnerships in technology andproduct development.

한컴_KSP_사우디(영문)_4장 2016.1.11 3:42 AM 페이지186 SJ_01

Since establishment in 1948, Korean Ministry of Trade and Industry (MTI) has beenreorganized and renamed several times to reflect the changing need of the nationaleconomy. Throughout its history, industrial growth and industrial technologydevelopment have been the core policy areas of MTI. As technology protectionismwas globally spread since late 1980s, technology has become the key of the nationalindustrial development and the role of MTI for technology innovation has becomemore important. MTI initiated and run industrial technology development projects,made policies to promote technology transfer and commercialization, and madeefforts to provide proper retraining program for manpower of technology.

Especially with the launch of Lee Myoung bak government in 2008, the ministrywas reorganized into Ministry of Knowledge and Economy (MKE) with wider


Table 4-2 Government R&D Budget Share by Ministries (2010)

MEST MKE MIFAFF MLTMA Others

Note: MEST: Ministry of Education and Science and Technology;MIFAFF: Ministry of Food, Agriculture, Forestry and Fisheries;MLTMA: Ministry of Land, Transport and Maritime Affairs.

Share of MKE includes R&D budget of Small and Medium Business Administration. Share of MIFAFF includes R&D budget of RuralDevelopment Administration.

(unit: %)

32.06 36.54 5.08 4.10 22.22

[Figure 4-5] History of Korean Ministry of Trade and Industry

Note: The author reorganized from Ministry of Trade, Industry & Energy. www.motie.go.kr.

한컴_KSP_사우디(영문)_4장 2016.1.11 3:42 AM 페이지187 SJ_01

Source: National Science & Technology Information Service (NTIS).

was reorganized into Ministry of Knowledge and Economy (MKE) with widerindustrial policy areas. MKE’s R&D budget accounted for over 30% of the totalgovernment R&D budgets.

3.4. Institutions for Korean Industrial Innovation

Korea has diverse institutions to promote industrial innovation. Here, the Smalland Medium Business Administration (SMBA) in charge of policy making andimplementation for SMEs, Technoparks referring to a local industrial andtechnological complex, and two other institutions such as Korea Institute of IndustrialTechnology (KITECH) and Korea Technology Finance Corporation (KOTEC) whichhave contributed to the development, application and commercialization ofindustrial technology are introduced.

In order to support SMEs-led innovation as the dynamo of the national economythe Korean government founded the Small and Medium Business Administration(SMBA) in 1996 as an affiliated body to MOTIE. The SMBA has pursued strategic goalsby putting emphasis on promoting the growth of the startups and venturebusinesses, enhancing the technological competitiveness of SMEs, improvement ofbusiness environment including financing, supply of manpower, marketdevelopment. Government effort to foster challenging and innovative SMEs is veryimportant so as to maximize the growth potential of the nation. Korean SMEsaccount for 99% of all corporations and 88% of all employees.

Understanding that a nation’s technological capability is the core of itscompetitiveness, many countries built technoparks since 1970s. In Korea the first sixtechnoparks were created in an attempt to build infrastructure for local businesses in1997. Technoparks are base institutions for nurturing local industries by formingcooperative networks with the regional innovative institutions including industry,academy, research organizations and local governments. As a single portal for newbusiness creation, technological innovation, nurturing tech-based industries,technoparks provide infrastructures, create business environments and operatevarious business support programs to incubate small-but-strong businesses. CurrentlyKorea has 18 technoparks across the nation.

Korean MTI’s affiliated organizations and financial institutions have played keyroles in industrial technology development and technology commercialization.Among them two institutions which are worth referring to are introduced below.




KKoorreeaa IInnssttiittuuttee ooff IInndduussttrriiaall TTeecchhnnoollooggyy ((KKIITTEECCHH))———————————————————————————————————————————

Background of Establishment

Korean manufacturing which depended on low wage and experienced workforce was losing itsinternational competitiveness largely due to rapid wage increase, technology protectionism of advancedcountries in 1980s. Moreover, SMEs which are lack of capital, technology, high quality manpower, werehaving more serious difficulties. Back then, technology development was made mostly at research centersand universities, far from production field of industries. Universities, having 80% of high quality technologymanpower, were basically conducting pure basic research and education. Most of government researchinstitutes were focusing on developing new product technologies rather than production technologies.Therefore, the government sought a new way to provide SMEs industrial technologies that are necessary atthe production fields. In 1989, in order to supply technical nourishments to SMEs which are the roots of thenational economy, the Korean government established the Korea Institute of Industrial Technology (KITECH)under the Ministry of Trade and Industry in 1989.

Mission of KITECH

The mission of the KITECH is to contribute to the growth of manufacturing industry through development,application and commercialization of industrial technology and support the SMEs with productiontechnologies.

Major Roles of KITECH

With regard to the mission, the KITECH has been sorting out various kinds of research fields to concentrateon the unique responsibility, and focusing on three research areas: root technology that may reinforceefficient production, clean manufacturing technology that may support environment-friendly production,industry convergence technology that may create new markets through the fusion of IT and productiontechnology. The root industry technology refers to six core technologies in the process of turning rawmaterials into processed materials and then into industrial components: casting, molding, heat treatment,surface treatment, plastic working and welding. The KITECH pursues sustainable growth of Korean industrywith clean manufacturing system by developing energy-efficient and eco-friendly production technology.The KITECH also reinforces nurturing new growth engine by developing up-to-date technology that fuses



technologies. This includes e.g. IT, NT, BT technology converged with robotics, fibers, and wellnesstechnology.

Programs to support SMES

In order to implement the mission of commercialization, the KITECH has six service divisions as technologysupporting agencies which do researches on the methods to put to practical use of the technologies rootedin the regional industry, transfer such performances in efficient manner, and provide a comprehensivetechnical supports to the SMEs in the region by supplying training, R&D facilities, technology informationand IPR for SMEs.

KITECH’s programs to support SMEs are diverse: facilitating technology transfer with internally developedR&BD process, operating research partner system to help selected companies grow to be global players withcustomized close-range support, granting SMEs full access to open labs with high-tech facilities, providingbusiness start-ups incubation center. Besides, KITECH is running the Integrated SME Support Center, anintegrated channel of 25 government-run institutes in the field of science and technology. Through thechannel SMEs can seek diverse supports: i) providing solutions to technology issues in product design,manufacturing process analysis and prototype fabrication along with needs-based technology development,ii) operating DB about technology, equipment and labs of government run institutes, iii) dispatchingcompetent researchers of GRIs to SMEs for technology consultation iv) making available of patents held bythe GRIs to SMEs.—————————————————————————————————————————————

TTeecchhnnoollooggyy CCrreeddiitt GGuuaarraanntteeee ffoorr SSMMEEss wwiitthh TTeecchhnnoollooggyy———————————————————————————————————————————

Foundation of the KOTEC

The credit guarantee system in Korea has been playing its role to lessen the SMEs’ problem of lack offinancial resources due to banks’ prevalent collateral-based lending practice. In 1980s, the necessity topromote SMEs with technology or other innovation capabilities was perceived in order to nurturecompetitive advantage of the overall economy for the future growth. As a result, Korean TechnologyFinance Corporation (KOTEC) was founded in 1989 by the Korean government as a non-profit creditguarantee institution under the special enactment, “Financial Assistance to New Technology Businesses Act”which was later titled “Korea Technology Finance Corporation Act.” in 2002. KOTEC is an institutionspecializing in providing full scale supports to SMEs and venture businesses with competitive technology,innovation, and other knowledge-based business contents at all growth stages.

Roles and Responsibilities

KOTEC has been playing a leading role to provide technology credit guarantee for tech-oriented SMEswhich have compelling business cases but do not have sufficient financial capabilities in an effort to enhancetechnological competitiveness of the SMEs and explore/expand support for tech-oriented start-ups, ventures.It also has been building comprehensive framework of finance support for technology by providing a widerange of services including investment based on technology assessment and tech management guide.Furthermore, KOTEC has been focusing on support for companies that are financially venerable buttechnologically competent by establishing future-oriented guarantee framework based on technologyappraisal. In particular, with an aim to promote technology development investment, KOTEC has beenexpanding financial support for R&D and business fund and has been actively explored SMEs withcompetent technological capabilities to serve as catalyst to expedite transformation into Inno-Biz structure.



Key Tasks

Key tasks of KOTEC are categorized into core initiatives of technology guarantee, technology appraisal, guarantee-linked investment and management of indemnity right and supplementary initiative of management guide andtech innovation support. The followings are detailed description.

(Technology Appraisal Service)

Until recently, technology has hardly been accepted as collateral in financial institutions, as it is hard to quantify themonetary value of such intangible assets and is not easily traded like commodities. Moreover, there were noreliable and specialized institutions in charge of appraising technology. In this situation, KOTEC launchedTechnology Appraisal Center (TAC) in 1997 and organized its infrastructure of the technology appraisalmanpower. In connection with the effort to enhance the technology appraisal capability and respond to growingdemand, 537 technology appraisal experts, including 126 PhD holders and equivalents, are currently working atKOTEC’s 52 TACs and 1 Technology Appraisal Institutes, with more than 1,000 experts of various fields across thenation, commissioned as outside advisors. TACs appraise the worth of corporate technologies so that their valuecan be used to make decisions on KOTEC’s credit guarantees; as reference data in technology collateral loans andin investment decision-making by financial institutions; or to set a standard price for technology transfers ortransactions. TACs assess technology value and business prospects under agreement with various governmentagencies and local government offices to help them select the beneficiaries of loans, investments or otherassistance programs.

Category Description

Core Initiative

Supplementary Initiatives

TechnologyGuarantee

Provide guarantee for financial debt in various kinds held by tech-oriented SME tosecure fund for start business, R&D and other business opportunities

TechnologyAppraisal Assess future value of technological potentials, marketability and business

Guarantee-LinkedInvestment

Purchase stock or bond in connection to financial guarantee for companies withtechnical competence

IndemnityManagement

Manage and exercise legal and contractual rights to the guaranteed from theinitiation of guarantee insolvency to termination of indemnity right

Management andTechnology Guide

Technology consulting to enhance productivity and comprehensiveness of SMEs

TechnologyInnovation Guide Select and certify venture, Inno-Biz, green companies




4.1. Strengthening MCI’s Role for IndustrialTechnology Development

As a ministry in charge of trade and industry, the Saudi MCI has been seekingeffective policies to achieve sustainable economic growth of the Kingdom. Judgingfrom the tasks of the ministry, however, regulating and licensing are the majorfunctions of the ministry while the role for industrial development has been relativelyweak. The MCI needs to put more emphasis on industrial development withdiversified policy efforts. They need to make policies for the development of non-oilmanufacturing industry. They also need to make efforts for policy making andimplementing industrial technology development and running major projects. Theyare particularly required to provide technology support measures for SMEs, start-upsand entrepreneurs. Through continuous contacts with firms and chamber ofcommerce, the MCI needs to reflect diverse demands of industry fields into industrialtechnology policy.

MMiissssiioonn aanndd TTaasskkss ooff MMCCII4)

———————————————————————————————————————————Mission: Enhancing both trade and industry sectors’ capacities and maintaining beneficiaries’ interests, through

developing and implementing effective and efficient policies and mechanisms that may contribute inachieving sustainable economic development.

Major Tasks of the Ministry:To participate in setting and carrying out the commercial policiesTo suggest issuing the commercial systems and regulation, review the systems and regulations appliedTo regulate the means of internal commercial development, supervise the internal markets and protect themagainst exploitation, monopoly, price controlTo issue licenses necessary for setting up the commercial industrial chambersTo develop the external commercial relations with friendly states at the economical, international arenaTo supervise the Kingdom’s joining of the WTO and the work of the National Committee for Commerce andFinanceTo boost up the procedures which help developing the non-oil exports, improve the commercial balance withall the world’s states

4) Summarized information from the MCI’s Internet site (www.mci.gov.sa)


4.2. Establishing Innovation and CompetitivenessDepartment at MCI5)

Realizing that the creation of governing institutions is a vital part of ensuringefficient carry out of the National Industrial Innovation Strategy (NIIS), the IndustrialAffairs Agency (IAA) of the MCI plans to set up a Department at the IAA for IndustrialInnovation and Competitiveness which will specialize in innovation policy making aswell as project/program design and implementation. The planned department at theIAA is expected to drive the framework for innovation as to become a real enablerfor Saudi industries. For effective functioning of the department, the MCI needs toplay a significant role in establishing national innovation plan, deregulate industrialactivities together with expansion of support measures to promote innovation.

Without strengthening industrial development and technology promotionfunctions of the MCI, the role of the new department will be limited. Currently in thefield of science and technology innovation, the King Abdulaziz City for Science andTechnology (KACST) has been emerging as a leader. The NSTIP, a unified vision andplan for innovation in Saudi Arabia, was established under the leadership of theKACST. The KACST is currently in charge of science and technology policy making,data collection, funding of external research, and services such as the patent office.The budget for research and development for science and technology innovation isconcentrated in the jurisdiction of the KACST. Therefore, if the MCI is notempowered to take responsibility of industrial technology policy, the planneddepartment at MCI may have limit of its role as a leader and a coordinator inimplementing the NIIS.


The Proposal of the NIIS———————————————————————————————————————————One of the primary elements of the NIIS is the creation of governing institutions to coordinate and manage SaudiArabia’s innovation activities. The strategy proposed four types of governing institutions. The first one is theNational Industrial Innovation Center. “To maximize the impact of the National Industrial Innovation Strategy, the National Industrial Innovation Centerwill be charged with coordinating and running high-impact programs to boost a culture of curiosity andinnovation throughout Saudi society. The Center will also play a major role in advising the Ministry of Commerceand Industry and other relevant government departments on the best strategies and policies for enablinginnovation in the country. Its third responsibility will be overseeing the Industrial Innovation Funding Program,which will be established to provide funding and support to innovation-based entrepreneurs, start-ups and SMEs.Finally, the Center will coordinate the Saudi Innovation Network, a network of Saudi individuals from government,academia and business who are in the position to play a leading role in promoting innovation in the Kingdom.”

5) This subsection is for consultation about setting up the Industrial Innovation and Competitiveness Department at

IAA of the MCI.



The Saudi government needs to refer to Korean experience that Korean MTI andSmall and Medium Business Administration under MTI have played crucial role indeveloping industrial technologies by closely working with businesses, commercialchambers and responding efficiently to technological needs of manufacturing sector.Moreover, as industrial technology becomes complex and more deepened,government administrative system needs to change in order to effectively meet theneeds of industry sector. Therefore, the governance structure among innovationrelated agencies of Saudi government may need to be elaborated from a longer-term perspective.

4.3. Establishing Institutes for Industrial TechnologyDevelopment and Commercialization

As introduced earlier, KITECH of Korea has contributed a lot to the developmentof industrial technology and enhancement of manufacturing competitiveness byproviding SMEs industrial technologies. One of the most important reasons to havethe institute is that many government research institutes were focusing ondeveloping new product technologies rather than production technology that arecrucial for SMEs in the industrial fields. In case that Saudi has that kind of institute,having the institute under MCI is recommended in order to harmonize with industrialpolicy and to efficiently interface with businesses.

Understanding that connecting technology with market is an important issue,Korean government has made diverse efforts to vitalize technology transfer andcommercialization. Since most of SMEs do not have sufficient financial capabilities,the government intended to support technologically competent SMEs with creditguarantee services. Korean Technology Finance Corporation has played its role tolessen the SMEs’ problem of lack of financial resources due to banks’ prevalentcollateral based lending practice. Having specialized financial institute for

Major Responsibilities of the KACST66))

———————————————————————————————————————————To propose a national policy for the development of science and technology and develop strategies and plansnecessary to implement them

To coordinate with government agencies, scientific institutions and research centers in the Kingdom toenhance research and exchange information and exerciseTo conduct applied research and provide advice to the government on science and technology mattersTo support scientific research and technology developmentTo foster national innovation and technology transfer between research institutes and the industryTo foster international cooperation in science and technology

6) KACST’s Internet site (www.kacst.edu.sa)



technologically competent SMEs and start-ups in Saudi Arabia would spur moreinnovative activities.

4.4. Others

The NIS is a plan for Saudi Arabia’s industrial development with a period of twelveyears from 2009 to 2020. The NIIS, one of eight axes of the NIS, is an industrialinnovation strategy of the same time period. Having a long-term plan is a proper wayto establish national economic vision and to improve industrial structure. However,for efficient and effective implementation, the government may need short- or mid-term goals and to give shape to the long-term vision with practical policy measures.In this context, the Saudi’s NIIS would be better for implementation if it had beenplanned in short- or mid-terms.

Almost half of the planned period has passed, which means it is right time tocheck the performance status for better implementation. The government may needto get the information about the policies behind the schedule and the reason if thereare delays. It may be necessary to supplement and revise the NIIS based on suchinformation.

And when the NIIS is to be revised, more efforts to enhance implementation arerequired to be made. Now that the NIIS already has many good ideas on innovationpolicy, the new revised plan needs to focus on methods and measures for betterimplementation of the plan. For example, what kind of role to be asked to the newdepartment and how to meet the demand for human and financial resources forimplementation of the plan need to be included. Announcement of theimplementation period and responsible department of each policy may help putmore pressure on the government to make more practical efforts.



References

Shin, Tae-Gon, “Evolutionary Process and Performance of Korean Science and Technology

Policy,” 2005 (in Korean)

Kim, Chan-ho, “A Study on the Effectiveness of Technology Import and R&D Investment in

Korean Manufacturing Industry,” 1998(in Korean)

Jang, Yongsuk(2013). “Historical Review of Korean STI Strategies,” presented for Industrial

Research Committee of IVA

Cornell Univ. INSEAD, and WIPO, THE GLOBAL INNOVATION INDEX 2014 The Human Factor

in Innovation

UNIDO, Competitive Industrial Performance Report 2012/2012

World Economic Forum, The Global Competitiveness Report 2014-15

Korea Development Institute, “Models for National Technology and Innovation Capacity

Development in Turkey,” 2009

Korea Development Institute, “Policy for Improvement in Industrial Competitiveness of

Turkey: Sharing Experience of Korea in the Areas of Productivity, Cleaner Production,

and Innovation Cluster,” 2009

Korea Development Institute, “Strengthening Uzbekistan’s National Innovation System,”

2012

Ministry of Science, ICT and Future Planning, “2013 Modularization of Korea’s Development

Experience: A Study on the Korean Government’s Supporting Measures for Private

Firms’ Science, Technology, and Innovation Promotion,” 2014

Korea Development Institute, “2011 Modularization of Korea’s Development Experience:

Building Technological Capacities: Four Cases from Manufacturing Sectors in Korea,”

2012

Korea Development Institute, “Toward Knowledge-based Economy of the Kingdom of

Saudi Arabia,” 2012

Ministry of Trade, Industry & Energy, White Paper on Industry and Energy, each year

Korea Institute for Industrial Economics & Trade, “Industrial Diversification Strategy of GCC

nations and Cooperation with Korea,” 2012(in Korean)

Korea Institute for Industrial Economics & Trade, “Oil-rich Nations’ Cooperation with Korea

for Industrial Diversification,” 2014(in Korean)

Ministry of Commerce and Industry of Saudi Arabia, “National Industry Strategy Axis 4 -

National Industrial Innovation Strategy, November, 2009



Websites

- Ministry of Trade, Industry & Energy www.motie.go.kr

- Korea Institute of Industrial Technology www.kitech.re.kr

- Korea Technology Finance Corporation www.kibo.or.kr

- For statistics of science and technology sts.ntis.go.kr

- Ministry of Commerce and Industry of Saudi Arabia www.mci.gov.sci

- King Abdulaziz City for Science and Technology of Saudi Arabia

www.kacst.edu.sa





Introduction of Energy ConservationLaw in Saudi Arabia

Chapter5


Introduction of Energy Conservation Law in Saudi Arabia

Pil-Bae Song (KDI School of Public Policy and Management)

■ Chapter 05

Summary

Energy efficiency and conservation is getting increased global attention as a majorenergy resource to achieve sustainable economic and social development goals. Itdelivers multiple benefits - prompting shifts in energy trade balance, creation ofemployment opportunities, reduction in public budgets, improvement of industrialproductivity, and alleviation of air pollution.

The Kingdom of Saudi Arabia (KSA) has abundant energy resources. It has 16% ofthe world’s proven oil reserves, and is the largest exporter of total petroleum liquidsin 2013. However, KSA’s domestic energy consumption has soared in recent year. Ithas been outstripping the economic growth rate, and thus posing a serious threat tothe economy that has been highly dependent on energy exports.

A recent study pointed out that domestic primary energy production in KSA in2040 will remain at 2009 levels at 534 million tons of oil equivalent (Mtoe).Meanwhile, domestic primary energy demand will increase from 196 Mtoe to 530Mtoe for the same period, which implies no room left for energy export.

Aiming to use energy more efficiently at all stages of the energy value chain fromits production and supply to final consumption, the government of KSA decided tointroduce the energy conservation law. This study seeks to share with KSA theexperience of Korea in crafting and implementing laws, policies, and programsrelated to energy efficiency. Such knowledge sharing aims to give policy



recommendations to KSA that would help effectively implement the energyefficiency policies and programs stipulated in the energy conservation law.

Unlike KSA, Korea has no indigenous energy resources. More than 95% of thecountry’s energy demand is met by imports. Since Korea started implementing itsindustrialization policy in 1962, its per capita gross domestic product has increased bymore than 250 times. For the same period, the total energy demand has grown bymore than 20 times, while the per capita energy consumption increased by morethan 10 times.

To help achieve energy supply security through efficient use of energy, thegovernment of Korea promulgated an energy conservation law in 1979, titled theEnergy Use Rationalization Act. Since then, the Act has been amended three times toreflect the changing environment in the energy supply and consumption. In line withthis, the government of Korea has prepared and updated its energy master plan andenergy use rationalization plan. All of these measures provided legal grounds andcreated an impetus for various energy efficiency and conservation policies andprograms.

Pursuant to the Energy Use Rationalization Act, Korea Energy ManagementCorporation (KEMCO) was established in 1980 with a mandate to formulate andimplement energy efficiency policies and programs for the rationalization of energyuse.

Upon review of the energy scenario in KSA as compared to the Koreanexperience, it is apparent that the following barriers are key to scaling up thedemand-side energy efficiency activities in KSA:

(1) Absence of adequate legislation and regulation;

(2) Lack of enforcing mechanism and motivation for energy efficiency;

(3) Lack of proven energy efficiency business models and absence of long-termand concessionary financing mechanisms;

(4) Inadequate human resource pool to scale up energy efficiency projects andprograms;

(5) Low awareness level of the public on energy efficiency; and

(6) Low energy prices that undermine energy efficiency efforts.

Chapter 5 _ Introduction of Energy Conservation Law in Saudi Arabia 201


To address these issues, the KAS government will be required to pass thenecessary law, based on which various sectoral energy efficiency policies andprograms may be developed and implemented with proper enforcing mechanisms. Indoing so, focus should be placed on large energy consuming sectors in KSA, i.e.building, transport and industry sectors that collectively account for more than 90%of national energy consumption.

Given that this effort will require considerable financial and human resources,interventions should be done in phases in accordance with the country’sdevelopment priorities. The KSA government must also set clear time-bound energyefficiency targets and develop road maps on how to achieve such targets.

Institutional capacity building is an essential component for successfulimplementation of energy efficiency policies and programs. The Saudi EnergyEfficiency Center (SEEC) has already been established and a number of internationalexperts have already been recruited. KSA should address the shortage of qualifiedengineers and experts through accelerated training and knowledge transferprograms from both onshore and offshore qualified experts. Appointment of energymanagers - who are supposed to coordinate closely with SEEC - is urgently needed,particularly in those buildings and industrial factories that consume a large amountof energy.

It is also necessary to establish a conducive environment to effectively implementthe energy efficiency policies and programs. This includes mobilization of funds andenergy efficiency market creation through promotion of energy service companies(ESCOs). Implementation of energy efficiency programs comes with high up-frontcosts, and access to long-term and low-interest loans is constrained since suchbusiness models are not common in commercial banks in KSA. To scale up energyefficiency efforts, financial support is essential. Therefore, government interventionswould be needed in getting concessionary loans, subsidies, or loan guarantees forcompanies and building owners to introduce new and high energy-efficient productsand technologies.

The government of KSA may also consider Korea’s experience in raising funds foraccelerated implementation of energy efficiency measures by levying on energyimports and electricity sales, part of which has been used to support ESCOs who lackfinancial and technical capacity. Korea has promoted the ESCO industry since 1992 byallowing them to tap concessionary loans and technical support from KEMCO. As aresult, the ESCO market has now matured, and the number of ESCOs has beenincreased from only four in 1992 to over 200 in 2014. The ESCOs now contribute to asignificant amount of energy savings for Korea.



Changing consumer behavior is likewise essential to the success of an energyefficiency program. Without the support and participation of pubic consumers inenergy efficiency efforts, it is difficult to succeed. As such, the government of KSAneeds to get all levels of energy consumers to commit to an energy efficient lifestyleand be more aware of energy saving. To this end, there is a need for preparation andimplementation of more rigorous public awareness programs on the importance ofenergy efficiency.

Since public awareness cannot be built in a short period of time, the campaignsshould be undertaken on a regular basis in schools, offices, and through variousmedia platforms. There should also be awareness raising programs for policy makerswho design and implement energy efficiency programs as their engagement isessential.

The designation of an “Energy Day” and giving awards to exemplary cases ofenergy savings may also be considered. This can further expose the public to the bestpractices in energy savings. This program has been implemented by Korea andcontinues to yield favorable results.

The current energy pricing structure in KSA encompasses a massive amount ofsubsidies, and as a consequence, the citizens of Saudi Arabia enjoy one of the lowestfossil fuel prices in the world. This undermines energy efficiency efforts anddiscourages consumers in introducing innovative energy efficiency relatedtechnologies and in using more energy efficient equipment and appliances. A reviewof energy price subsidies and rationalization of the domestic energy prices areurgently needed.

1. Introduction

1.1. Background

The Kingdom of Saudi Arabia (KSA) is endowed with abundant energy resources,possessing 16% of the world’s proven oil reserves. It was the world’s largest exporterof total petroleum liquids in 2013.1) Although the government of KSA has attemptedto diversify, the economy still relies heavily on the petroleum sector, which accountsfor about 80% of the national budget revenues, 45% of gross domestic product(GDP), and 90% of export earnings.2)


1) U.S. Energy Information System, “Country Analysis Brief: Saudi Arabia”.

2) Central Intelligence Agency (CIA), “the World Fact Book 2014, Saudi Arabia”,

https://www.cia.gov/library/publications/the-world-factbook/geos/sa.html



While KSA has achieved solid economic growth over the past decades, its domestic

energy consumption has soared, outstripping the growth rate of GDP, which

significantly narrowed trade surplus. Moreover, KSA’s total final energy consumption

has tripled between 1990 and 2011 with a compound annual growth rate (CAGR) of

5.7%.3) This high growth trajectory in energy demand is expected to continue, posing

a serious threat to the economy that has been highly dependent on energy exports.

Recognizing the importance of energy saving and conservation in addressing the

issue, the government of KSA has identified energy efficiency as a key national

priority. It subsequently established the Saudi Energy Efficiency Center (SEEC) in

October 2010 with a mandate to support preserving the national energy resources;

enhance the national development and economy through the rationalization of

energy consumption; and improve energy efficiency in order to achieve the lowest

possible levels of energy intensity.

Furthermore, the government of KSA intends to pass a law on energy

conservation, and has requested the government of Korea to share what it has

learned from its own experience in the matter. This Chapter seeks to provide policy

advice to the government of KSA in the enactment and implementation of the

energy conservation law with input from the Korean development experience.

1.2. Scope of Study

The scope of study composed of three parts, (1) study on KSA energy statistics andexisting policies, strategies and regulations; (2) case study on Korean experience inenergy efficiency and conservation; and (3) recommendations on energy efficiencyand conservation measures in the context of KSA.

1.2.1. Study on KSA Energy Statistics and Existing Policies, Strategies and Regulations

The current status of KSA, including their energy demand and supply, energyconsumption mix and patterns, energy efficiency policies, strategies and regulations,ongoing national energy efficiency initiatives and their progress as well as legal andinstitutional framework are reviewed to identify what more needs to be consideredand focused in enactment and implementation of the energy conservation law.

3) International Energy Agency, http://www.iea.org/statistics


1.2.2. Case Study on Korean Experiences on Energy Efficiency andConservation

A case study of Korea’s endeavors to improve energy efficiency in each and everykey sector is surveyed. This assignment, in particular, focuses on explaining howKorea achieved energy efficiency improvement targets for an extended period. Thisstudy further examines the evolvement of energy efficiency law and regulations,which shows Korea’s phased-approach to energy efficiency to cope with changingdomestic and global circumstances. The study also focuses on the institutionalframework for energy efficiency programs and progress for each sector.

Korea doesn’t have indigenous energy resources. More than 95% of domesticenergy demand is met by imports. In fact, the Korea’s total energy consumption in2013 was the 8th largest in the world. Therefore energy efficiency and conservationhas been a critical factor in sustaining economic and social growth in the country.Korea’s experience in energy efficiency and conservation could be a useful model forKSA.

1.2.3. Recommendations on Energy Efficiency and Conservation Measures in the Context of KSA

Recommendations on energy efficiency improvement focus on laws, policies,regulations, and projects/programs that may be considered in KSA, in view of Koreanexperience and practices. The Ministry of Trade, Industry and Energy (MOTIE) of theGovernment of Korea is in charge of all policy matters with regard to energyefficiency and conservation, while the Korea Energy Management Corporation(KEMCO)4) implements the energy efficiency laws and policies on behalf of thegovernment. This section will suggest key policy and strategic directions, actions tomake a conducive environment, and key factors that are essential for energyefficiency improvement in KSA.

1.3. Energy Efficiency Approaches

Energy efficiency is defined as a way of managing the increase in energyconsumption. If one delivers more services for the same energy input, or the sameservices for less energy input, it is considered more energy efficient. For example,when a new air-conditioner using an inverter motor uses less electricity than atraditional one to provide the same amount of cooling effect, the new air-conditioner is considered to be more energy efficient.


4) KEMCO has been renamed to Korea Energy Agency (KEA) effective 29 July 2015.


Generally, there are two ways to achieve energy efficiency. One is through supply-side energy efficiency, which entails the reduction of energy losses in the supply chainfor improved performance in the production and delivery of electricity and heat. Theother approach is demand-side energy efficiency, which involves the consumption ofless energy for the same level of service. <Table 5-1> compares the two different energyefficiency approaches.

1.4. Benefits of Energy Efficiency

Energy efficiency is getting increased global attention as a major energy resourceto achieve sustainable economic and social development goals. In particular, theInternational Energy Agency (IEA) has pointed out that the amount of attentiongiven to energy efficiency has begun to evolve. It has progressed from the lack ofvisibility inherent in its identification as “the hidden fuel” to an increasingrecognition of its role as “the first fuel”. It is worth noting that aggregate annualinvestments in energy efficiency was estimated at USD 300 billion in 2011, which isequal to aggregate investment in coal, oil and gas power generation.5)

As shown in [Figure 5-1], energy efficiency improvements can deliver multiplebenefits with direct and indirect impact on macro-economic development - promptingshifts in energy trade balance, creation of employment opportunities, reduction inpublic budgets, improvement of industrial productivity, and lessening air pollution.

IEA estimates that, in general, GDP changes due to large-scale energy efficiencypolicies show positive economic growth ranging from 0.25% to 1.1% per year,depending on a country’s economic structure and on the design and scale of the


Table 5-1 Comparison of Supply-Side and Demand-Side Energy Efficiency

Supply-Side Energy Efficiency Demand-Side Energy Efficiency

Source: Asian Development Bank, Same Energy and More Power.

Production and Delivery Consumption

Improved efficiency in the production and delivery ofelectricity and heat

New efficient power plantsPower plant upgradesTransmission and distribution system improvements

Uses less energy input and produces the same or moreenergy at the generation and distribution segment.

Lowers energy consumption without compromisingservice quality or organizational competitiveness

Improved efficiency at the point of final energy use* Products and appliances* Building design and use* Industrial operations* Alternative transport

5) International Energy Agency (IEA), Capturing the Multiple Benefits of Energy Efficiency.


underlying policies. For the global economy, energy efficiency can facilitate a moreefficient allocation of resources, and this has potential to bring a cumulativeeconomic output of USD 18 trillion by 2035.

1.5. Global Energy Efficiency Policy Trend

Recognizing that energy efficiency is the cheapest and most accessible source ofenergy supply to power economies, a number of countries have embarked on energyefficiency policy actions across the sectors such as buildings, appliances andequipment, lighting, transport, industry and energy utilities. As a result, the energyintensity6) - which is generally measured in terms of total primary energy supply(TPES) per unit of GDP - has fallen at world level over the span of a decade. Theaverage reduction rate of 1.6% was recorded between 2002 and 2012, as shown in[Figure 5-2].

Although priorities on policy actions to improve energy efficiency varies fromcountry to country depending on structure of the economy and developmentpriorities, IEA recommends various cost effective policy actions that would establishmarket signals to motivate effective actions, accelerate introduction of new


[Figure 5-1] Multiple Benefits of Energy Efficiency

Source: International Energy Agency, Capturing the Multiple Benefits of Energy Efficiency.

6) Energy intensity is measured by the quantity of energy required per unit of output or activity, and usually

defined as energy consumption per unit of gross domestic product (GDP). Thus using less energy to produce

a product reduces the intensity.


technologies, and strengthen and enforce minimum energy performance standards(MEPS) for appliances, lighting, equipment, and building energy codes, as highlightedin <Table 5-2>. If these policy actions are implemented globally, energy savings by 2030could be 17% of the current annual worldwide energy consumption.7)


[Figure 5-2] Energy Intensity by Region

Note: PPP = purchase power parity, toe = tons of oil equivalent. Source: International Energy Agency, Energy Efficiency Market Report 2014.

7) International Energy Agency, 25 Energy Efficiency Policy Recommendations, 2011 Update.

Table 5-2 Recommended Policy Actions by Sector

Sector Issues Policy Actions

Cross- sectoral

- Higher initial capital costs- Principal agent issues- Uninformed investors with little familiaritywith energy- efficient products

- Risk exposure- Discount rate issues- Difficulty of quantifying external benefits

- Energy efficiency data collection and indicators- Strategies and action plans- Competitive energy markets with appropriateregulation

- Private investment in energy efficiency- Monitoring, enforcement and evaluation ofpolicies and measures

- Split incentives between tenants andlandlords

- Lack of awareness of efficient technologies- Absence of qualified technicians - High initial investment costsBuildings

- Mandatory building energy codes andMinimum Energy Performance Standards(MEPS)

- Net-zero energy consumption in buildings- Energy efficiency improvement of existingbuildings

- Building energy labels or certificates- Improved energy performance of buildingcomponents and systems.



2. Overview of the Kingdom of Saudi Arabia

2.1. Energy Portfolio

KSA has abundant energy resources in the form of oil, gas, and renewable energy.Their energy production and consumption, though, is highly based on fossil fuels,especially oil and natural gas. There is no record of production, import orconsumption of coal in KSA, and hydro energy resources are not available due tolocal climate and topographic conditions. Renewable energy resources such as

Table 5-2 Continued

Sector Issues Policy Actions

Appliances and

Equipment

Transport

Industry

Energy Utilities

Source: International Energy Agency, 25 Energy Efficiency Policy Recommendations, 2011 Update.

- Residential appliances and equipmentrepresent fastest-growing energy loads

- Needs for accurate energy performancemeasurement standards and protocols

- Mandatory MEPS and labels for appliancesand equipment

- Test standards and measurement protocols forappliances and equipment

- Market transformation policies for applianceand equipment

- Represents almost 20% of global electricityconsumption

- Phase-out of inefficient lighting products andsystems

- Improved lighting system design andmanagement

- Remains one of the most challenging areasfor improving energy efficiency

- Mandatory vehicle fuel efficiency standards- Performance standards of tires, air-conditioning, lighting and other non-enginecomponents

- Labeling, incentives and taxes- Eco-driving promotion- Transport system efficiency

- Substantial opportunities to improveindustrial energy efficiency exists

- Needs policies to promote use andoptimization of energy efficient industrialequipment and system, and to improveoverall efficiency through energymanagement

- Energy management in industry to conform toISO3001 or equivalent

- MEPS for electric motors and other industrialequipment

- Energy efficiency services for small andmedium sized enterprises (SMEs)

- Comprehensive policies to support industrialenergy efficiency

- Are in a unique position to design and delivereffective low-cost energy savings

- Can play an important role in promotingenergy efficiency

- Regulatory and other policies for energyutilities to support cost-effective, verifiable end-use energy efficiency improvements such aspreferential procurement of energy andobligation to deliver cost-effective energy

- Energy tariffs as a funding mechanism forenergy efficiency

Lighting



biofuels and waste as well as solar photovoltaic, are tapped, albeit the amount isnegligible.

KSA has demonstrated rapid economic growth over the past two decades. TheGDP in 1990 was USD 197.8 billion. It grew to USD 258.6 billion in 2000, and then toshot up to USD 497.6 billion in 2012, representing an average annual growth rate of2.72% during 1991-2000 and 5.61% during 2001-2012. For the same period, the totalfinal energy consumption of the country increased by more than four times from 39.5million tons of oil equivalent (MToe) in 1990 to 133.2 MToe in 2012 with an averageannual growth rate of 4.9% during 1991-2000 and 6.4% during 2001-2012. [Figure 5-3]illustrates the growth trend of GDP and final energy consumption in KSA, and <Table5-3> shows the breakdown of GDP and final energy consumption growth ratebetween 1991-2000 and 2001-2012.

[Figure 5-3] GDP and Final Energy Consumption

Note: GDP = gross domestic product.Source: International Energy Agency, http://www.iea.org/statistics.

Table 5-3 Breakdown of GDP and Final Energy Consumption Rate

Year 1991-2000 2001-2012

Note: GDP = gross domestic product, Mtoe = million tons of oil equivalent.Source: International Energy Agency, http://www.iea.org/statistics.

(unit: compound annual growth rate (%))

GDP 2.7 5.6

Final Energy Consumption 4.9 6.4


2.1.1. Primary Energy Production

2.1.1.1. Crude Oil

KSA is the world’s largest holder of crude oil reserves, which amounted to 266billion barrels as of January 2014. KSA produced an average of 11.6 millionbarrels/day (bbl/d) of total petroleum liquids in 2013, of which 9.9 million bbl/d wascrude oil production, and 2.0 million bbl/d of non-crude oil production. Of this, KSAexported an estimated 7.7 million bbl/d of crude oil, mainly to the United States,Japan, China, Korea, and India.8) By the end of 2014, KSA also maintained the world’slargest crude oil production capacity, estimated at 12 million bbl/d.

As shown in [Figure 5-4], KSA’s total crude oil production stood at around 10million bbl/d in early 1980s. It went down to around 3-5 million bbl/d from mid-1980still 1990 because of the low world oil demand at that time. From mid- 1990s, KSA’scrude oil production ranged between 8 and 10 million bbl/d. On the other hand, localconsumption of crude oil in KSA has steadily increased from 0.6 million bbl/d in 1980to 2.7 million bbl/d in 2013, narrowing the amount of oil export.


[Figure 5-4] Crude Oil Production

Source: U.S. Energy Information Administration, http://www.eia.gov.

8) U.S. Energy Information Administration, Country Analysis Brief: Saudi Arabia, 2014.


2.1.1.2. Natural Gas

Apart from crude oil reserves, KSA had proved natural gas reserves of 291 trillioncubic feet (Tcf) as of January 2014, which is the fifth largest country in the world afterRussia, Iran, Qatar, and the United States.9)

KSA does not import or export natural gas, and all production is for domestic use,except for flare burning and injection into oil fields to increase production. In 1980,the total natural gas production was 0.3 Tcf, which has increased by more than tenfolds to 3. 6 Tcf in 2013, as shown in [Figure 5-5].

2.1.2. Primary Energy Demand and Supply

The primary energy resources in KSA comprise mainly crude oil and natural gas. In2012, KSA’s domestic production of primary energy resources amounted to 625.0Mtoe, comprising crude oil production of 558.8 Mtoe (89%) and 66.2 Mtoe (11%) ofnatural gas production. Of this, 377.3 Mtoe or 68% of crude oil production and 97.8Mtoe or 85% of refined oil products - which were transformed from 115.1 Mtoe ofcrude oil at refinery - were exported.

The total primary energy demand in KSA has grown from 58.5 Mtoe in 1990 to97.9 Mtoe in 2000. In 2012, it increased to 200.3 Mtoe with an average annualgrowth rate of 5.8%, compared with 4.3% for GDP. [Figure 5-6] shows the trend oftotal primary energy demand over time in KSA, and <Table 5-4> delineates thedemand by year.


9) U.S. Energy Information Administration, Country Analysis Brief: Saudi Arabia, 2014.

[Figure 5-5] Natural Gas Production

Source: U.S. Energy Information Administration, http://www.eia.gov.


As for primary energy consumption, power plants and oil refineries account for amajor portion of the consumption. In 2012, of 186.4 Mtoe of crude oil available fordomestic consumption, 99.6 Mtoe or 53.5% of available crude oil was supplied to oilrefineries, which, in turn, was converted to 98.2 Mtoe of oil products for finalconsumption. The remaining crude oil was used mostly by power plants. That sameyear, the total available natural gas was 66.2 Mtoe, of which 33.1 Mtoe was used bypower plants and the rest as petrochemical feedstock.

In particular, a total of 73.3 Mtoe of primary energy was supplied for power plantsin the form of crude oil (22.1 Mtoe), refined oil products (18.1 Mtoe) and natural gas(33.1 Mtoe) to produce 23.4 Mtoe of electricity.

Just like in other sectors, the primary energy consumption by power plants hasalso gone up from 21.8 Mtoe in 1990 to 73.3 Mtoe in 2012 at the rate of 6.4% perannum. Natural gas accounts for about 45% of fuel consumption for powergeneration in terms of the amount of energy. This is followed by about 30% by crudeoil and the remaining by oil products such as heavy fuel oil and diesel. [Figure 5-7]shows the trend of fuel mix of power generation and total power generated.


[Figure 5-6] Total Primary Energy Demand Trend

Source: International Energy Agency. http://www.iea.org/statistics.

Table 5-4 Total Primary Energy Demand by Year

Year 1990 1995 2000 2005 2010 2012 CAGR

Note: CAGR = compound annual growth rate between 1990 and 2012.Source: International Energy Agency. http://www.iea.org/statistics.

(unit: Mtoe)

Amount 58.5 84.5 97.9 122.6 186.4 200.3 5.8%


Although the fuel efficiency of power plants in KSA has improved over time from27.5% in 1990 to 31.0% in 2012, there is still room for further improvements. In fact,the latest technology of combined cycle gas-fired power plants may achieve over55% of fuel efficiency. <Table 5-5> compares consumption by fuel types and theamount of power generation, and fuel efficiency by year.


[Figure 5-7] Trend of Primary Energy Consumption for Power Generation


Table 5-5 Consumption by Fuel Type for Power Generation and Fuel Efficiency

Year 1990 1995 2000 2005 2010 2012 CAGR

Note: CAGR = compound annual growth rate between 1990 and 2012, n.a. = not applicable.Source: International Energy Agency. http://www.iea.org/statistics.

(unit: Mtoe)

Crude Oil 5.3 8.9 9.5 6.8 20.6 22.1 6.7%

Oil Products 4.0 5.7 9.9 14.0 14.2 18.1 7.1%

Natural Gas 12.5 15.0 18.0 28.2 30.2 33.1 4.5%

Total 21.8 29.6 37.4 49.0 65.0 73.3 5.7%

Power Generation 6.0 8.4 10.9 15.1 20.6 23.4 6.4%

Fuel Efficiency (%) 27.5 28.4 29.1 30.8 31.7 31.9 n.a

FuelType



2.1.3. Final Energy Demand and Supply

The final energy in KSA is supplied in the form of crude oil, oil products, naturalgas and electricity. The total final energy demand has grown from 39.4 Mtoe in 1990to 133.1 Mtoe in 2012 with an average annual growth rate of 5.7%.

In 2012, oil products such as gasoline, diesel, and heavy fuel oil represented 58.7%of total final energy supply in 2012, with 22.9% natural gas and 14.9% electricity.Crude oil was only 3.5% of the final energy supply. The trend of final energy supplymix is provided in [Figure 5-8] and <Table 5-6>.

[Figure 5-8] Trend of Final Energy Supply Mix


Table 5-6 Final Energy Supply by Year

Year 1990 1995 2000 2005 2010 2012 CAGR

Note: CAGR = compound annual growth rate between 1990 and 2012Others refer to biofuels and waste.


(unit: Mtoe)

Oil Products 28.2 33.6 40.8 54.5 69.6 78.1 4.7 %

Natural Gas 6.2 8.8 11.6 16.0 27.3 30.5 7.5 %

Electricity 4.7 6.6 8.5 11.6 17.4 19.8 6.8 %

Crude Oil 0.3 2.1 2.6 1.4 6.1 4.7 13.3 %

Others 0.01 0.01 0.004 0.006 0.006 0.007 -


<Table 5-7> tracks how KSA’s final energy supply was used in 2012. Of the totalfinal energy supply of 133.1 Mtoe, 50.7 Mtoe or 38.1 % of the total final energy wasconsumed for non-energy use as petrochemical feedstock. The transport sector is thenext highest final energy consuming sector burning 40.3 Mtoe or 30.3% of the totalfinal energy supply in the form of refined oil products such as gasoline and diesel.The industry and residential sector consumed 20.1 Mtoe and 11.9 Mtoe, respectively.The energy balance of KSA is further detailed in Appendix 1.

2.1.4. Electricity

KSA is one of the countries with the highest electricity consumption, and is thecountry that generates the highest percentage of electricity from fossil fuels in theworld. The total amount of electricity consumed in KSA has increased by more thanfour times from 4.7 Mtoe in 1990 to 19.8 Mtoe in 2012, with an average annualgrowth rate of 6.8%.


Table 5-7 Final Energy Consumption Mix in 2012

OilOil

Product

Natural

Gas

Biofuels

and

waste

Electricity Total

Commercial andPublic Service

Non-energy

use

Total Final EnergyConsumption


(unit: Mtoe)

Residential 0 1.6 0 0.01 10.3 11.9

0 0 0 0 6.4 6.4

4.74 78.08 30.50 0.01 19.83 133.1

Agriculture 0 0 0 0 0.3 0.3

Non-specified 0 0 0 0 0.1 0.1

0 20.2 30.5 0 0 50.7

Other 0 3.3 0 0 0 3.3

Subtotal 0 23.5 30.5 0 0 54.0

Subtotal 0 1.6 0 0.01 17.1 18.7

Industry 4.7 12.7 0 0 2.7 20.1

Transport 0 40.3 0 0 0 40.3

Other

Chemical/Petrochemical


All sectors - including industry, residential, commercial and public services, andagriculture - demonstrated more than 6% of annual average growth rate inelectricity consumption. The consumption of the industry sector grew from 0.7 Mtoein 1990 to 2.7 Mtoe in 2012. For the same period, the consumption of the residentialsector and the commercial and public services sector grew from 2.5 Mtoe to 10.3Mtoe, and from 1.4 Mtoe to 6.4 Mtoe, respectively. Overall, however, the incrementalconsumption by residential sector is the highest with 7.8 Mtoe, followed by the


[Figure 5-9] Trend of Electricity Consumption by Sector


Table 5-8 Yearly Electricity Consumption by Sector

Year 1990 1995 2000 2005 2010 2012 CAGR

Commercial andPublic Services

Note: CAGR = compound annual growth rate between 1990 and 2012.Source: International Energy Agency. http://www.iea.org/statistics.

(unit: Mtoe)

Industry 0.7 0.9 1.1 1.3 2.5 2.7 6.3%

Residential 2.5 3.6 4.8 6.7 9.3 10.3 6.7%

1.4 2.0 2.4 3.3 5.3 6.4 7.2%

Agriculture 0.1 0.1 0.2 0.3 0.3 0.4 6.5%

Non-Specified - - - 0.01 0.04 0.05 -

Total 4.7 6.6 8.5 11.6 17.4 19.8 6.8%


commercial and public sector with 5.0 Mtoe, and the industry sector with 2.0 Mtoe.[Figure 5-9] shows the trend of electricity consumption by different sectors, and<Table 5-8> compares the consumption by sector and by year.

In 2013, Saudi Electricity Company (SEC) provided 69.3% of the grid connectedelectricity in the country, while independent power producers provided 18.6%,desalination plants produced 5.3%, and water & electricity companies came up with5.2%. Other minor suppliers include rental power by 1.6%, Gulf Cooperation CouncilInterconnection Authority by 0.002%, and solar photovoltaic power plants by0.0003%.10)

While there is no data available for the nationwide consumer mix and theirconsumption, the analysis of SEC’s consumer mix and their consumption wouldprovide useful information. The total electricity sold by SEC in 2013 was 256.7terawatt-hour (TWh). Of this, the building sector - which is composed of residential,commercial and government consumers - took the lion share with 76.5% of electricitysold or 196.3 TWh. The industrial sector was positioned the next with 19.9% of theelectricity sold or 51.1 TWh. <Table 5-9> highlights the breakdown of the consumercategory, amount of electricity sold, and their percentage against the total electricitysold.


10) Saudi Electricity Company, Electrical Data 2000-2013.

Table 5-9 Electricity Sold by Consumer Category in 2013

Consumer Category Amount (GWh) %

Industrial

Agricultural

Others

Total

Note: GWh = gigawatt-hour.Source: Saudi Electricity Company Annual Report 2013.

(unit: Mtoe)

Residential 125,678 49.0

Commercial 38,733 15.1

Governmental 31,864 12.4

Sub-total 196,275 76.5

51.080 19.9

4.476 1.7

256,686 100.0

Health and Education 1,849 0.7

Desalination 3,005 1.2

Sub-total 4,854 1.9

Building


2.1.5. Per Capita Total Energy Consumption and Energy Intensity

Per capita total primary energy consumption in KSA increased moderately up untilthe mid-1990s. However, the growth rate soared after the mid-1990s - a developmentthat can be attributed to the KSA government’s effort to industrialize the economyand improve the living standards of the population.

While the average per capita primary energy consumption of the world remainedunchanged at around 1.9 tons of oil equivalent (Toe) from 1980 to 2011, KSA’s per capacityprimary energy consumption doubled from 4.2 Toe to 8.5 Toe for the same period.

As shown in [Figure 5-10], KSA’s per capita primary energy consumption of 8.5 Toein 2011 is among the highest in the world. It is more than four times higher than theworld average of 1.9 Toe. Moreover, it surpassed the United States’ per capitaprimary energy consumption of 7.8 Toe in the same year. This compares with 3.4 Toefor the United Kingdom, 4.1 Toe for Japan, and 5.8 Toe for Korea.

Among the aforementioned countries, only Korea and KSA showed a steepgrowth rate in per capita total energy consumption. It is to be noted, however, thatKorea has achieved a remarkable economic growth in tandem with the high energyconsumption. Their per capita GDP growth and per capita total primary energyconsumption is compared in <Table 5-10>.


[Figure 5-10] Per Capita primary Energy Consumption by Country

Note: Toe = tons of oil equivalent.Source: U.S. Energy Information Administration, http://www.eia.gov.


Similarly, KSA’s energy intensity,11) which is a measure to determine the energyefficiency of a nation’s economy, is also high and shows an increasing trend. This is incontrast with the situation both in developing and developed countries such asChina, India, the United States and the United Kingdom - all of which have shown asharp declining trend.

More specifically, the energy input that KSA requires to produce USD1,000 ofGDP12) has increased by nearly 40% from 0.29 Toe in 1990 to 0.40 Toe in 2012. For thesame period, the United States’ energy intensity declined by 35% from 0.23 Toe to


Table 5-11 Energy Intensity Trend of Selected Countries

1990 1995 2000 2005 2008 2010 2012


(unit: Toe/thousand 2005 USD)

World 0.29 0.27 0.25 0.25 0.24 0.25 0.24

Saudi Arabia 0.29 0.37 0.38 0.37 0.39 0.43 0.40

China 1.66 1.11 0.82 0.79 0.67 0.66 0.64

India 0.90 0.86 0.76 0.65 0.61 0.58 0.57

Japan 0.11 0.12 0.12 0.11 0.11 0.11 0.10

Korea 0.26 0.27 0.28 0.25 0.24 0.25 0.24

UK 0.14 0.13 0.11 0.10 0.08 0.09 0.08

USA 0.23 0.22 0.20 0.18 0.17 0.16 0.15

Table 5-10 Comparison of Per Capita Energy Consumption and GDP Growth

Country

Per Capita

Primary Energy

Consumption

(Toe)

Per Capita GDP

(current USD)Yearly Energy

Consumption

Grow Rate

Yearly

GDP

Growth

Rate1980 2011 1980 2011

Note: GDP = gross domestic product, Toe = tons of oil equivalent.Source: U.S. Energy Information Administration, http://www.eia.gov.

World Bank, http://databank.worldbank.org.

KSA 4.2 8.5 16,192 24,116 2.30% 1.19%

Korea 1.2 5.8 1,779 24,156 5.21% 8.78%

11) Energy intensity is calculated as units of energy per unit of GDP. High energy intensity implies a high cost of

converting energy into GDP.

12) 2005 constant value.


0.15 Toe and the United Kingdom’s by 43% from 0.14 Toe to 0.08 Toe. Similarly,China and India showed a sharp declining trend by over 60% from 1.66 Toe to 0.64Toe and by 37% from 0.90 Toe to 0.57 Toe, respectively. Japan and Koreademonstrated a marginal decline from 0.11 Toe to 0.10 Toe and from 0.26 Toe to0.24 Toe, respectively. The world’s average energy intensity has also declined from0.29 Toe in 1990 to 0.24 Toe in 2012. <Table 5-11> compares the trend of energyintensity over time in selected countries.

2.1.6. Energy Demand Forecast

A recent study13) supported by the King Abdullah University of Science andTechnology projected, among others, that:

(1) primary energy production in 2040 will be at the 2009 level and remain at 534Mtoe, which is the average production of the last 10 years;

(2) total primary energy supply will increase from 169 Mtoe in 2009 to about 530Mtoe in 2040;

(3) final energy consumption will reach 425 Mtoe in 2040 from 105 Mtoe in 2010at an annual growth rate of 4.3%; and

(4) electricity consumption is expected to increase from 240 TWh per year in 2009to about 850 TWh per year in 2040

The aforementioned projections imply that while the primary energy productionwill remain the same level till 2040 at 534 Mtoe, the more than three-fold increase intotal primary energy supply by the same year at 530 Mtoe will have a huge impact onoil exports, leaving virtually no room for export by 2040, unless KSA can increase oilproduction.

Given that KSA economy is highly rely on energy exports, this could pose amaterial threat to sustaining its economic and social growth. This clearly points to theurgent need for KSA to pursue more rigorously energy efficiency and conservationmeasures.

2.2. Energy Efficiency Initiatives

As highlighted in earlier paragraphs, the growth rate of energy demand for bothprimary and final energy in all fronts has outstripped the GDP growth rate of KSA.This is due to energy-intensive industrial structures, high energy-consuming lifestyles,and all other elements that aggravate the inefficient use of energy. This trend is likelyto continue in future unless immediate corrective measures are undertaken.


13) Appraisal and Evaluation of Energy Utilization and Efficiency in the Kingdom of Saudi Arabia, 2014.


Realizing the importance and urgency of addressing these issues to help ensurefuture energy supply security, the government of KSA is prioritizing energy efficiencyand conservation measures. The country has pushed a number of energy efficiencyand conservation initiatives and programs. This includes the introduction of newstandards by the Saudi Arabian Standards Organization in the use of advancedinsulation materials in the construction of new commercial buildings.

It also entailed the restructuring of electricity tariffs by the Saudi ElectricityCompany (SEC), setting the limit on maximum power delivered to large electricityconsumers and implementing various demand-side energy efficiency programs by theMinistry of Water and Electricity (MOWE) to shave the peak demand.

MOWE further called for major electricity consumers in the industry andcommercial sectors to reduce consumption during peak hours and shift their usagesto off-peak hours. Agricultural consumers are also required to shift their irrigationschedule to off-peak hours. At the same time, the reform of electricity sector is beingconsidered and implementation of some activities started, which includes privatizationof power facilities, unbundling of the power utility into generation, transmission anddistribution, and private sector participation in power generation business.

While an estimated 837 MW of peak load reduction in the government sector,and 34 MW of reduction in the industry sector were achieved in 2011 through theseinitiatives, the commercial sector’s peak load was increased by 126 MW in the sameyear, mainly due to construction of new office buildings and shopping malls.14) Inaddition, the government of KSA has a firm plan to enact a law on energy conservation.

Among the various energy efficiency initiatives, one of the most notable ones isthe establishment of the National Energy Efficiency Program (NEEP), which waslaunched in 2003 with support of the United Nations Department of Economic andSocial Affairs (UNDESA) and sponsored by national, ministerial and private sector. TheNEEP was a three-year program whose mandate was to enhance demand side energyefficiency focusing on electricity covering industry, commerce and governmentsectors. The NEEP ended in 2006.

Building on the experience gained from the NEEP - and with the goal ofsustaining and unifying energy efficiency efforts under a single entity - the Ministryof Petroleum and Mineral Resources recommended in 2007 creation of a permanentnational entity. As a result, the Saudi Energy Efficiency Center (SEEC) was establishedin 2010 by a Council of Minister’s decree.15)


14) Y. Alyousef and M. Abu-ebid, Energy Efficiency Initiatives for Saudi Arabia on Supply and Demand Side.

15) Prince Abdulazis Bin Salman Al-Saud, A brief on Saudi Arabia’s Energy Efficiency Program, the Oxford

Institute for Energy Studies, Forum.


2.2.1. National Energy Efficiency Program16)

The specific activities of the NEEP included (1) implementation of energy audits ofgovernment, commercial and industrial facilities; (2) maintaining a leasing programfor energy efficient equipment and appliances; (3) managing energy efficiencyawareness campaigns; (4) promoting the energy service industry; (5) practicingenergy efficiency labeling and standards for new equipment; and (6) conductingtechnical and managerial training on energy efficiency.

Energy audits were conducted at various levels: (1) walk-through surveys ofvarious government, commercial, and industrial buildings and premises; (2) energyaudits of medium- and large-scale industrial and commercial facilities; and (3)comprehensive energy audits of boilers, furnaces, and steam systems.

Walk-through surveys were to provide immediate feedback of low-hangingenergy saving options. The results revealed the energy saving potential of at least15% in school buildings, 10% in shopping malls, and 10% in industrial facilities, andsome smaller commercial premise up to 35%.

Energy audits of medium- and large industrial and commercial facilities wereconducted to identify specific measures where electrical and thermal energy could besaved. The results indicated that energy savings could be realized up to 20%compared with current levels. Comprehensive energy audits of boilers, furnaces andsteam turbines were undertaken in tandem with intensive training courses in boilerand furnace efficiency. The energy audit results concluded that energy savingsbetween 5 to 10% could be achieved with simple tune-ups or complete retrofit.

On the other hand, the energy efficiency equipment leasing program wasdesigned to eliminate financial burdens of consumers through leasing energyefficient equipment, for which consumers make lease payments that are added toelectricity bills. The program initially targeted air-conditioners aiming to replace oldand inefficiency units with more energy efficient ones, and the costs of lease arepartly covered from energy savings.

The energy efficiency awareness program started with surveys of energy servicecompanies (ESCOs) to gauge their level of understanding on energy efficiencyopportunities, equipment, and financing options. The second part of the programtargeted energy end-users.


16) Yousel Alyousel and Abdulhadi Vernham, Saudi Arabia’s National Energy Efficiency Program; description,

achievements, and way forward.



The ESCO industry was promoted through business advisory seminars to provideadvice on how to start the business by addressing commercial and legal barriers andhow to identify and realize energy efficiency opportunities in a commercial setting.As a result, there are five ESCOs at present, and the annual energy efficiency marketis estimated at 1.2 billion Saudi Riyal.

The energy efficiency labeling and standards program was conducted incollaboration with Saudi Arabian Standards Organization starting with three types ofelectrical appliances, i.e. air-conditioners, refrigerators, and washing machines. Theminimum energy performance standards (MEPS) were set, as well as the test andcertification methods developed, for each type of appliance.

The labeling program aims to provide potential buyers information on the level ofenergy efficiency by the number of stars awarded to the appliance - from 1 to 6 starswith 6 stars being most energy efficient and 1 star being the least energy efficient.The labels display manufacturer specific details, appliances’ electrical specificationsand operation capacity, as well as information on its performance under standardtests.

Technical and management training was also conducted through workshops andseminars that primarily target qualified professionals working in energy efficiencyindustry. The program topics included quick saving programs, detailed energy audits,energy-efficiency project financing, performance contracting and ESCO development,boiler and furnace efficiency, steam systems, motor efficiency, technical efficiency andenergy management, demand-side management, and energy efficiency technologies.

2.2.2. Saudi Energy Efficiency Center

The SEEC established in October 2010 aims to transfer the NEEP to a permanentnational center for energy efficiency. At present, it is within the King Abdulaziz Cityfor Science and Technology (KACST), and reports directly to the president of KACST.

It is supervised by a management committee composed of representatives frommore than 20 entities from ministries. government entities, and public and privatesector companies, as shown in [Figure 5-11].


The mission of SEEC is to improve domestic energy consumption efficiency andcoordinate all related activities between government and non-governmentstakeholders. The key objectives of SEEC are to develop a national energy efficiencyprogram; propose energy efficiency policies and monitor their implementation;promote awareness; and participate, as needed, in the implementation of pilotprojects. The main activities of the SEEC include the following:17)

Development of National Energy Efficiency Program;Support the integration of the stakeholders’ efforts to improve energyefficiency and coordination among them;Promote energy efficiency awareness at both public and institutional levels;Support building capacity in energy efficiency; and Participate, as needed, in the implementation of energy efficiency pilot projects

2.2.3. Saudi Energy Efficiency Program18)

In 2012, the SEEC launched the Saudi Energy Efficiency Program (SEEP) in a bid to

improve the KSA’s energy efficiency by setting energy efficiency goals for sub-sectors


[Figure 5-11] Management Committee of Saudi Energy Efficiency Center

Chairman: KACST’s President

Ministries

- Petroleum & Minerals- Water and Electricity- Municipality and RuralAffairs

- Commerce and Industry- Transportation- Culture and Information- Housing- Finance

- Presidency of Meteorology andEnvironment

- King Abdullah City for Atomic andRenewable Energy

- Saudi Standards, Metrology andQuality Organization

- Electricity & Co-generation RegulatoryAuthority

- Saline Water Conversion Corporation- Designated National Authority

- Saudi Aramco- Saudi Electricity Company- Saudi Basic IndustriesCorporation

- Two private sectorrepresentative

Other Governmental

Entities

Companies and

Private Sector

Source: Naif M. Alabbadi, Saudi Energy Efficiency Center, AFED 6th Annual Conference, 28-29 October 2013.

17) Naif M. Alabbadi, Saudi Energy Efficiency Center, AFED 6th Annual Conference, 28-29 October 2013

18) Prince Abdulaziz Bin Salman Al-Saud, A brief on Saudi Arabia’s Energy Efficiency Program, The Oxford

Institute for Energy studies, May 2014: Issue 96

Naif M. Alabbadi, Saudi Energy Efficiency Center, AFED 6th Annual Conference, 28-29 October 2013 and


as well as designing and implementing initiatives and their enablers through

involvement of key stakeholders including those in the government, business, and

public sectors.

A subcommittee chaired by the Ministry of Petroleum and Mineral Resources -

which was composed of members of all related government entities - was established

to prepare the SEEP. The subcommittee focused the scope of the SEEP on (1) three

energy-demand sectors, namely building, transport, and industry that account for

more than 90% of the national energy consumption, and (2) five enablers comprising

regulations, ESCOs, funding, governance, and awareness.

More than 120 professionals from over 20 entities have been mobilized to work

directly on the SEEP, while hundreds of government officials are involved in

implementing the energy efficiency initiatives.

The guiding principles of the SEEP are as below and the principles of SEEP

developments are enumerated in <Table 5-12>.

Limited to energy demand-side management only;

Does not include price reforms in the program design;

Designs energy efficiency initiatives based on the efforts on the end-users to

ensure reasonable payback periods; and

Designs the initiatives in consensus with the stakeholders, including the private

sector, if necessary.

As shown in [Figure 5-12], the SEEP is governed by the national energy efficiencysaving goals supported by specific saving goals for each key sector of buildings,transport, and industry. Specific initiatives are prepared and implemented for new


Table 5-12 Saudi Energy Efficiency Program Development Principles

Phase Principles

Developing

Implementation


- Technical developing teams composed from all related organizations and led by the mostrelevant one

- Secure consensus and agreement of all stakeholders including private sector- SEEP has to enable all related organizations to achieve the energy efficiency goals

- Have an updating mechanism- Preserve the mandates of each governmental organization and ensure their accountability- SEEC will coordinate, monitor, and support


and existing buildings, new and existing vehicles, and new and existing plants. Theseare backed by five enablers of regulation, ESCOs, funding, governance, andawareness.

2.2.3.1. Approaches

To achieve the objectives, the SEEP uses a bottom-up approach, which has thefollowing four steps: (1) energy demand analysis; (2) establishment of technical teamsand mobilization of stakeholders, (3) design and planning of initiatives and enablers,and (4) implementation of energy efficiency initiatives and enablers. The details onthe steps and activities are in <Table 5-13>.


[Figure 5-12] Saudi Energy Efficiency Program Framework



2.2.3.2. Building Energy Efficiency

The building sector in KSA - which is composed of residential, commercial andgovernment consumers - accounts for nearly 80% of the total electricity consumptionin the country. In particular, air-conditioners consume about 70% of building energyconsumption.

The high energy consumption of air-conditioners is known to be partly caused bylocal appliances that have a low energy efficiency ratio.19) Hence, the rationalizationof building energy consumption especially by air-conditioners is crucial in achievingenergy efficiency goals.

For the building sector, the SEEP has attempted various initiatives such asstrengthening a minimum energy performance standard (MEPS) and energy efficiencylabeling for air-conditioners and other appliances that consume a large share of


Table 5-13 Saudi Energy Efficiency Program Steps and Activities

Steps Activities

Step 1Energy Demand

Analysis

Step 2

Establishment ofTechnical Teams and

Mobilization ofStakeholders

Step 3Design and Planning ofInitiatives and Enablers

Step 4Implementation ofEnergy Efficiency

Initiatives and Enablers

Source: Prince Abdulaziz Bin Salman Al-Saud, A brief on Saudi Arabia’s Energy Efficiency Program, The Oxford Institute for EnergyStudies, May 2014: Issue 96.

- Data collection and analysis of energy demand by end-use sectors- Identification of key energy consumption drivers for each sector- Prioritization of sectors and drivers

- Identification of government, semi-government, and private sectorstakeholders for each sector

- Creation of technical team for each sector with stakeholders’ representatives,and technical experts

- Liaison with international organizations and experts, and establishment ofpartnerships

- Benchmarking of energy efficiency initiatives globally and assessment ofapplicability in KSA

- Proposal of energy efficiency initiatives to the sub-committee- Selection of energy efficiency initiatives by the sub-committee- Design and implementation plan detailing for selected energy efficiencyinitiatives

- Ensuring that enablers are in place including (1) budget and manpower forgovernment entities, (2) private sector infrastructure such as testing labs,ESCOs, and (3) regulations and standards

- Handing over of energy efficiency initiatives to the relevant entities forimplementation

- Monitoring of implementation and evaluation of impact on energyconsumption/ efficiency

19) Samar Kahn, Energy Efficiency: the first renewable, “Oxford Energy Forum,”May 2014, p.17.


electricity, validation of energy efficiency baseline for buildings, and launching thefirst wave of lead-by-example initiatives for new government buildings.

In order to ensure compliance with the regulation, KSA is developing amechanism to monitor thermal insulation in the country. As part of this effort, theSEEC engaged American Society for Heating, Refrigerating, and Air-conditioningEngineers (ASHRAE) to develop insulation standard and regulation, and theninitiated product control process.

There is a building code in KSA, but it is complex, long, and outdated. Moreover,it doesn’t have proper enforcement mechanisms. The building energy efficiencyprogram under SEEP covers both new and existing buildings. For new buildings, SEEPstarts with government buildings, which include schools and hospitals, and it will beexpanded to private buildings at a later stage.

The SEEP also encompasses implementation of projects to improve energyefficiency of selected existing government buildings. Further, it prescribes financial


Table 5-14 Recommended Energy Saving Measures for Building Sector

Item Measures

Air-conditioners

(A/C)

Lighting

Thermal Insulation

- Conduct regular maintenance for A/C - Use timer devices to switch A/C off when not required.- Avoid having windows and doors open when A/C is on- When central A/C is on, switch off other units and vice-versa- Clean A/C filter regularly- Switch off A/C upon leaving the office, room, and house- Set A/C thermostat on 23-25- Choose optimum A/C capacity and size

- Switch off lights when work is done in offices, houses, and shops- Utilize natural lighting as much as possible- Replace existing tungsten bulbs with more energy efficient lamps such as compactfluorescent lamps (CFL) or light emitting diode (LED) lamps

- Set lighting in elevators to switch off when not in use- Use right type of lamps consuming less energy and stop using old and inefficient bulbs- Replace existing bulbs around house with more energy efficient ones and decrease usingthem as much as possible especially during summer

- Augment insulation of existing buildings by adding insulators to ceilings, external walls, andwindows.

- Close all holes to prevent warm air access by inserting fillings around doorjambs, ventilators,and other areas

- Conduct maintenance for building entrance - Use double glazed windows- Use thermal insulations


incentives to encourage the general public to improve energy efficiency of theirhouses and appliances. Specific suggested energy efficiency measures for the buildingsector under the SEEP are articulated in <Table 5-14>.20)

2.2.3.3. Transport Energy Efficiency

In 2012, the transport sector consumed over 50% of refined oil products in KSA inthe form of gasoline and oil. This was largely due to lack of transportationalternatives such as public buses and metro trains. It so happens when landtransportation accounts for 90% of energy consumption in the transport sector. Thefact that the average fuel price in KSA is the lowest in the world after Venezuela andIran is also considered a critical factor contributing to the high energy consumptionby the transport sector in the country.

The SEEP has attempted and will continue to endeavor to improve energyefficiency of both light-duty and heavy-duty vehicles. For light-duty vehicles, theobjective of SEEP is to enhance the fuel economy of incoming vehicles, reduce thefuel consumption of on-the-road vehicles, and develop programs such as mandatoryfuel economy reporting and fuel economy labeling.

More specifically, the SEEP introduced a mandatory reporting of fuel economy in2014. A fuel economy labeling is also to be introduced for all new light-dutypassenger vehicles that are sold in the second half of 2015 or early 2016, and fuel-


20) Saudi Energy Efficiency Center Homepage, http://www.seec.gov.sa

Table 5-14 Continued

Item Measures

Washing Machines

Refrigerator andFreezer

Heater

Source: Saudi Energy Efficiency Center Home Page, www.seec.go.sa.

- Choose high efficient washing machines as indicated on energy efficiency labels- Choose washing machines of suitable size for family’s needs- Select “fast washing” for little dirty clothes- Operate washing machines at full load if possible- Use air and sun to dry clothes and avoid using washing machines

- Choose high efficient refrigerators and freezers as indicated on energy efficiency labels- Ensure closing refrigerator’s door tightly- Install refrigerator in the coolest place in the kitchen- Set refrigerator thermostats in mid temperature- Check insulating rubber of refrigerators door to ensure no leakage- Keep at least 15 cm distance between refrigerator and wall

- Avoid having heater connected to electricity- Set heater’s temperature at less than at 65


economy standards is to be introduced for imported vehicles at up to 18.5 kilometersper liter by 2019-2020.

In view of heavy-duty vehicles consuming a large amount of energy, a number ofinitiatives are under consideration to promote energy efficiency. These initiativesinclude anti-idling regulation, aerodynamic additives, and retirement of old vehicles.The SEEP also prepared a preliminary proposal for defined rolling resistance standardfor tires.

Through its homepage, the SEEC is trying to enhance public awareness of vehicleenergy efficiency, and their key points are:

The use of large vehicles and vehicles with large engines increases fuelconsumption;Performance of diesel fuel vehicle is not much different from gasoline poweredvehicles, and generally diesel power vehicles are more energy efficient;Old vehicles are cheap, but they are costly in maintenance and fuel consumption;andEngine size and cylinder number do not necessarily reflect engine’s real power;

<Table 5-15> lists specific recommended measures to improve energy efficiency inthe transport sector in KSA.

2.2.3.4. Industry Energy Efficiency

The industry sector in KSA represents roughly 15% of final energy consumption ofthe country. Cement factories, steel mills, and petrochemical factories account forabout 80% of the industry sector’s final energy consumption. Therefore, the SEEPseeks to focus on these factories and mills as well as industrial equipment, and it willexpand its coverage to other industry factories at a later stage.


Table 5-15 Recommended Energy Saving Measures for Transport Sector

Item Measures

Light-duty Vehicles and

Heavy-duty Vehicles

Source: Saudi Energy Efficiency Center Home Page, http://www.seec.gov.sa.

- Perform regular maintenance on your vehicle- Pay attention to speed limits. Increasing speed from 100km/hour to 140 km/hour willincrease fuel consumption by 25-30%

- Use cruise control when driving on highways- Maintain the factory specified tire pressure- Try to perform multiple tasks in one trip


The major challenges in energy efficiency of the industry sector are (1) no energyefficiency targets for existing plants; (2) no energy efficiency requirements inapproval process of new plants; and (3) no established baseline for production outputand energy consumption. Similarly, challenges regarding industrial equipmentinvolve the lack of minimum energy performance standards (MEPS), absence ofenergy efficiency labeling, and no mapping of imports and local manufacturers.

To address the said challenges, the SEEP intends to set energy efficiency targetsfor new and existing plants. As for cement factories, energy efficiency targets arealready defined and validated, while the same for steel mills and petrochemicalfactories are being finalized. Therefore, new plants will have to be designed and builtmeeting the energy efficiency targets, while existing plants in these sub-sectors willbe given certain energy intensity levels that should be met within a specifictimeframe.

Consensus is being sought among the concerned industry representatives toensure that these levels will not jeopardize their competitiveness. These targets arebased on international benchmark average performance. The MEPS for electricalmotors have been increased, and the SEEP plans to expand its coverage to othercommon industrial equipment such as boilers.

2.2.4. Energy Efficiency Program Enablers

2.2.4.1. Regulations

In recognition of the urgent need for proper laws, policies and regulations toeffectively implement the SEEP with appropriate incentives and penalties, thegovernment of KSA has been undertaking necessary actions, which include thefollowing:

establishment of SEEC in 2010; preparation of a draft energy conservation law;formulation of regulations on MEPS and energy efficiency labeling of certainelectrical appliances such as air-conditioners, refrigerators, and washingmachines; setting up an enforcement mechanism for the use of energy efficient insulation,lighting, and air-conditioners; developing insulation standard and regulation in collaboration with ASHRAE;development of fuel economy labeling; drafting a proposal for rolling resistance standard for tires; anddevelopment of enforcement mechanism for new industrial plants and

factories.



Admittedly, the establishment of pertinent policies and regulations for promotionof energy efficiency is still at an early stage of development, and this effort willcontinue as energy efficiency market matures.

2.2.4.2. New Market Creation through Energy Service Companies

Energy service companies (ESCOs) are working well in many countries. ESCOs canhelp their customers reduce energy consumption through a combination of energyefficiency technologies and designing financial support. Thanks to various promotionendeavors, there are now several energy service companies in KSA. To furthersupport the development of the ESCO market in KSA, the SEEP includesestablishment of an accreditation system, a measurement and verification protocol,and standard energy services performance contacts.

2.2.4.3. Funding

One of the hurdles in promoting or scaling up energy efficiency measures is highup-front cost. Therefore, in many countries, the governments establish dedicatedfunds for energy efficiency, through which financial incentives or subsidies can beprovided. At present, operation of SEEC and SEEP appears to be supported from thegovernment budget, but there seem no dedicated funds available in KSA to lowerinitial capital costs of energy efficiency technology applications, provide cheaperloans with longer tenure or direct subsidies.

2.2.4.4. Governance

Planning and implementation of energy efficiency efforts is led by the SEEC inKSA pursuant to the decision by the Council of Ministers. At present, there are about50 staff working in SEEC. The SEEP is pursued in collaboration with variousgovernment entities and has mobilized more than 70 engineers/specialists form over20 organizations ranging from government ministries, government entities, publiccompanies and the private sector. This is to ensure that energy efficiencyrequirements are included in their operation.

2.2.4.5. Awareness

It is important to have the general public on board to make any energy efficiencyprogram successful as it requires change of culture and behavior of their energyconsumption. In particular, it is more so in KSA where per capita energy consumptionis among the highest in the world mainly due to high energy consuming lifestyles.

In line with this, the NEEP embarked on an information and awareness program



to determine the current levels of awareness on opportunities, availabletechnologies, and financing options for both energy service industry and energy endusers. The results are used to help formulate awareness building programs and toassist ESCOs identify and exploit market opportunities.

Building on the experience, the SEEP conducted several awareness campaigns insync with changes in the regulations and standards to provide the general publicwith the rationale and contents of those changes such as an unprecedented level ofair-conditioner awareness campaign conducted in 2014.

2.3. Energy Pricing

Just like many other energy exporting countries, KSA maintains domestic energyprices at levels significantly lower than the international market prices. Hence, thecitizens of KSA enjoy one of the lowest fossil fuel prices in the world as compared in<Table 5-16>. As a consequence, the government of KSA spent a total of $32.5 billionon fossil fuel subsidies in 2009, $43.6 billion in 2010, and $60.9 billion in 2011.21)


21) Harvard Kennedy School of Government. Journal of Middle Eastern Politics and Policy, Saudi Arabia’s Fossil

Fuel Subsidies: Understanding the Problem. January 2014.

Table 5-16 Gasoline and Diesel Price Comparison by Country

CountryGasoline

(USD/liter)

Diesel

(USD/liter)

Note: Prices as of 13 July 2015.Source: Global Petrol Prices.Com http://www.globalpetrolprices.com.

Saudi Arabia 0.16 0.07

Kuwait 0.21 0.36

United Arab Emirates 0.47 0.79

United States 0.79 0.75

China 1.11 0.99

India 1.12 0.85

Japan 1.14 0.95

France 1.59 1.34

Germany 1.63 1.36

United Kingdom 1.82 1.86


Electricity tariff in KSA has also been heavily subsidized. Before 1984, there was asingle flat-rate tariff of 0.05 Saudi Riyal (SAR)/kWh (equivalent to USD 0.013/kWh) forindustrial consumers and 0.07 SAR/kWh (equivalent to USD 0.019/kWh) for residentialconsumers. Since then, there were a few times of tariff reforms includingintroduction of varied tariff levels based on the brackets of consumption levels and apilot based time-of-use tariff for industrial consumers. As summarized in <Table 5-17>,the current electricity tariff in KSA ranges 0.05-0.26 SAR (equivalent to USD 0.013-0.069) per kWh. This compares with the average electricity tariff for domesticconsumers of USD 0.192/kWh in Germany, USD 0.154/kWh in U.K, USD 0.107/kWh inFrance, and USD 0.100/kWh in the United States.22)

While there are certain justifications for keeping the domestic energy prices lowsuch as inclusive growth and enhanced competitiveness of industrial products, thenegative impacts of such low energy prices outweigh the benefits especially in acountry like KSA where energy prices are substantially lower than the internationalmarket prices. It undermines energy efficiency efforts and discourages consumers ininvesting in more energy efficient technologies, products and appliances.


22) Statistics Portal. http://www.statista.com/statistics/263492/electricity-prices-in-selected-countries/

Table 5-17 Electricity Tariff in Saudi Arabia

Consumption

Category

(kWh)

Residential Commercial Governmental Agricultural Charities

20

26

Note: ahaha = 1/100 Saudi Riyal (SAR).As of 19 July 2015, USD 1 = 3.75 SAR.

Source: Saudi Electricity Company.

(unit: Hahala)

1-1000 5

1001-2000 5

2001-3000 10

3001-4000 10

4001-5000 12

5001-6000 12

6001-7000 15

7001-8000 20

8001-9000 22

9001-10000 24

10000 26

5 5

5 5

10 10

10 10

10 10

12 12

12 12

12 12

12 12

12 12

12 12

12

26


3. Energy Efficiency in Korea

3.1. Background and History23)

The total primary energy consumption in Korea in 2013 was 264 Mtoe, being theeighth largest energy consuming country in the world, and 96% of the demand forenergy was met by imports in that year due to lack of indigenous energy resources.

With implementation of the five-year development plans started in 1962, Koreahad achieved rapid and solid economic development since then. Per capita GDP ofKorea in 2013 was more than 250 times compared to that of 1962, which had beenfueled by massive energy consumption. As such, the total energy consumption hadincreased by more than 20 times and the per capita energy consumption by morethan 10 times during this period. Unlike KSA, which has an abundance of energyresources, Korea has had no other alternatives but to rely on energy imports tosustain economic and social development.

Before the oil crisis hit the world in 1973 and 1979, high dependence on energyimports was not a major burden to Korean economy thanks to stabilized global oilprice and supply at that time. However, after the oil crisis, Korea suffered fromeconomic turbulence. Also, as the economic transformation moved towards heavyindustry consuming more energy, the government of Korea realized the importanceof energy efficiency, and embarked on a number of energy efficiency policies andstrategies.

To help achieve stable energy supply and address the fast increasing energyconsumption, Korea attempted to break through the hardship through therationalization of energy use and energy efficiency improvements. More specifically,after the first global oil shock in 1973, the government of Korea promulgated theHeat Management Act in 1974 that focused on energy efficiency improvementpolicies as well as safety of boilers for energy intensive industry. After the 1979 globaloil shock, the government of Korea introduced the Energy Use Rationalization Act inDecember that year to promote rational use of energy.

The introduction of the Energy Use Rationalization Act laid the foundation forestablishment of a dedicated energy efficiency institution in Korea namely KoreaEnergy Management Corporation (KEMCO), and gave an impetus to initiatingvarious energy efficiency policies. Further in September 2006, the government of


23) Ministry of Trade, Industry and Energy and Korea Energy Management Corporation (KEMCO), Presentation on

Energy Efficiency Policies at KEMCO Sustainable Energy Development Exchange. July 21-25, 2014, Seoul,

Korea.


Korea passed the Energy Act to contribute to sustainable development of thenational economy by setting forth the basic matters related to the formulation andimplementation of energy policies and energy related plans.

3.2. Energy Consumption Trend

The total primary energy supply in Korea mainly consists of crude oil, coal, naturalgas, and nuclear with minor contribution from biofuels, hydro, and renewableenergy. As shown in [Figure 5-13], the total primary consumption reached to 263.4Mtoe in 2012 from 92.9 Mtoe in 1990 at an ACGR of 4.9%. For the same period, finalenergy consumption grew from 64.9 Mtoe to 166.4 Mtoe at an ACGR of 4.4%, and


[Figure 5-13] Energy Consumption and GDP Trend


Year 1990 1995 2000 2005 2010 2012 CAGR

GDP (billion 2005 USD)

Total Primary EnergySupply (Mtoe)

Final EnergyConsumption

(Mtoe)

Note: ACGR = annual compounded growth rate for 1990-2012, Mtoe = million tons of oil equivalent.Source: International Energy Agency, www.iea.org/statistics.

360.3 526.7 678.3 844.9 1,019.1 1,978.2 5.1%

92.9 144.8 188.2 210.3 250.0 263.4 4.9%

64.9 104.7 127.1 140.5 157.7 166.4 4.4%


the GDP from USD 360.3 billion to USD 1,978.2 billion at an ACGR of 5.1%.

3.3. Energy Consumption Mix

In 2012, of the total final energy consumption of 166.4 Mtoe, the industry sectorrepresented the highest energy consumption of 47.3 Mtoe (29%), followed by non-energy use mostly as a feedstock for chemical/petrochemical factories for 43.4 Mtoe(26%). The transport sector consumed 30.2 Mtoe representing 18% of the total finalenergy consumption. Meanwhile, the commercial and public services consumed 21.0Mtoe, and the residential sector 20.2 Mtoe. [Figure 5-14] shows the final energyconsumption mix by sector in Korea in 2012.

3.4. Energy Efficiency Governing Laws and Plans

All energy efficiency policies and regulations in Korea are governed by the EnergyUse Rationalization Act and the Energy Act, which are supported by thecorresponding ordinances and enforcing presidential decrees. Pursuant to these Acts,Energy Master Plans and Energy Use Rationalization Plans are prepared to providethe overall directions to implement these Acts.


[Figure 5-14] Energy Consumption Mix

Source: International Energy Agency, www.iea.org/statistics.


3.4.1. Energy Use Rationalization Act

The purpose of the Energy Use Rationalization Act at the time of firstpromulgation in 1979 was to prevent the harm caused by heat using equipment andto contribute to sound development of economy by promoting rational use ofenergy, enhancing efficiency of heat using equipment and regulating their safetymanagement. After being amended three times since then to reflect the changes inpattern of energy consumption and market conditions, the purpose of the EnergyUse Rationalization Act has now been changed to contribute to sound developmentof national economy, promotion of national welfare, minimizing global warming bystabilizing the demand and supply of energy, increasing the rational and efficient useof energy, and reducing environmental damage caused by consumption of energy.

The Energy Use Rationalization Act calls for the government to establish theNational Energy Saving Promotion Committee to be chaired by the Minister of Trade,Industry and Energy (formerly the Minister of Knowledge Economy) to formulate thebasic plans for rationalization of energy use, and deliberate on other importantmatters.

This Act also requires preparation of a master plan (the Master Plan) forrationalized energy use. The Master Plan has the following four components: (1)transformation towards energy-saving industrial structure; (2) enhancement ofenergy efficiency; (3) plan for alternative energy; and (4) other requirements toimplement the plan. The Act further requires implementation of several policyactions including the setting of energy intensity targets for energy consumingproducts, indication of energy consumption efficiency, energy use restriction, and taxand financial benefits. The government of Korea, through the Act, also establishedthe foundation for setting up energy efficiency standards for building,transportation, and industry, especially for manufacturing industry. A copy of thelatest Energy Use Rationalization Act is in Appendix 2.

3.4.2. Energy Act

The Energy Act was passed in September 2006, with the aim to contribute tosustainable development of the national economy and the welfare of people byproviding for basic matters concerning formulation and implementation of energypolicies and energy-related plans.

The Act is made up of 20 articles defining the responsibilities and duties of thestate as well as the requirements for formulation of a local plan, to achieve theobjectives of the basic energy plan. It also calls for the government to establish theEnergy Committee to be chaired by the Minister of Trade, Industry and Energy to



deliberate on matters concerning major energy policies and energy related plans. Acopy of the latest Energy Act is given in Appendix 3.

Pursuant to these Acts, the government of Korea published two Energy MasterPlans and five Energy Use Rationalization Plans, as summarized in <Table 5-18>, andfurther elaborated in the following paragraphs.

3.4.3. National Energy Master Plans

The Energy Master Plan is covering a planning period of 20 years, and in every fiveyears, the government should present the plan covering that particular time frame tothe public, pursuant to the Energy Act.

The first Energy Master Plan was published in 2008, focusing on policies forfulfilling low carbon green growth and supply side of energy. To this end, the firstEnergy Master Plan sought to build sustainable energy industry and promote green


Table 5-18 Energy Master Plans and Energy Use Rationalization Plans

Year Plans Coverage Key Features

20081st Energy Master

Plan

20142nd Energy Master

Plan2014-2035

19931st Energy Use

Rationalization Pla1993-1997

19992nd Energy Use

Rationalization Plan1999-2003

20043rd Energy Use


20084th Energy Use


20135th Energy Use


Source: Korea Energy Management Corporation.

Low carbon green growth and long term vision post oil era2008-2030

To achieve the national target of 13.3% reduction of final energyconsumption and 15% reduction of electricity consumptioncompared with business-as-usual scenario by 2035

Energy demand reduction target from 169.3 Mtoe to 150.2 Mtoethrough shifting to an energy efficiency economy

Energy demand reduction target from 218 Mtoe to 196 Mtoethrough shifting from individual and regulatory policies to structuraland systemic policies

Energy demand reduction target from 269 Mtoe to 250.2 Mtoethrough cross-governmental measures combining regulation andincentives

Improvement of energy efficiency by 11.3% by 2012 with sectoralenergy demand reduction action plan of the national EnergyMaster Plan

Reduction in final energy consumption by 4.1%, and improvementof energy efficiency by 3.8% by 2017 through market mechanismand innovative technologies for demand management


technology. The second Energy Master Plan was issued in 2014 of which the salientfeatures include:

Transition of energy policies towards demand-side management to achieve thepolicy objective of 13.3% reduction in energy demand and 15% reduction inelectricity demand by 2035 through tax reforms, tariff revision, ICT-baseddemand management, reinforcement of regulations for each sector;Expansion of distributed generation from 5% to 15% such as integrated energysystems, renewable energy, and in-house system by 2035;Enhancement of sustainability by strengthening climate change response andachieve environmental protection, improved safety of nuclear energy, andpromotion of development of innovative technologies to support strongerdemand management, and expansion of distribution generation , etc.;Reinforcement of energy security to avoid energy isolation by building capacityfor overseas resource development, and raise renewable energy deploymentrate to 11% by 2035; Establishment of a stable supply system for oil, gas, integrated energy, andelectricity; andAdjustment of energy policy to reflect public opinion by proactive response toenergy related conflicts and improved energy welfare.

[Figure 5-15] illustrates the projected demand under business-as-usual scenario by2035 and the target for reduction under the 2nd Energy Master Plan. The energy


[Figure 5-15] Energy Demand and Reduction Target



demand reduction target of 13.3% shall be met by 6.3% point from industry, 4.5%point from transport, 1.2% point from commercial, and others from residential andpublic.

3.4.4. Energy Use Rationalization Plans24)

3.4.4.1. The First Energy Use Rationalization Plan

The 1st Energy Use Rationalization Plan was announced in 1993, and the target ofthe 1st Plan was to reduce 10.5% of primary energy demand compared withbusiness-as-usual, and the key features of the 1st Plan were: (1) establishment of thefoundation for moving towards energy saving economy, (2) maintaining the growthrate of energy consumption lower than the economic growth rate, and (3) capacitybuilding for reducing CO2 responding to environmental regulation through energysaving.

More specifically, the government of Korea emphasized in this Plan the need fortechnology development of energy equipment and appliances in addition toefficiency improvement in energy distribution. The Plan also considered the rationaladjustment of energy prices and incentive policies, including tax incentives.

3.4.4.2. The Second Energy Use Rationalization Plan

The 2nd Energy Use Rationalization Plan was for the period of 1999-2003. Itunderscored the need to consider energy saving as a national agenda and savingthrough a structural approach. The target of the 2nd Plan was to reduce primaryenergy consumption by 10.2%, equivalent to 22 Mtoe, compared with the projectionfor 2003, and to lower the annual energy consumption growth rate from 5.7% to3.3%. The Plan pointed out that the target can be achieved through reduction inenergy consumption by 7 Mtoe from industry, 35 Mtoe from transport and 6 Mtoefrom household, commerce and public sector.

To achieve this target, the government of Korea implemented policies thatinclude restructuring of energy industry, rationalization of price regulation, andtransformation to low energy consuming society. With implementation of thesepolicies, Korea was able to reduce the primary energy consumption by 15.5 Mtoeduring this period.

In the industry sector, 9.1 Mtoe was reduced through policies including Voluntary


24) National Achieves of Korea Home Page

http://www.archives.go.kr/next/search/listSubjectDescription.do?id=006554


Agreement and development of high efficiency equipment. In the transport sector,1.1 Mtoe was reduced through distribution of light-weight vehicles and expansion ofpublic transportation. For the household, commerce and public sector, 3.8 Mtoe wasreduced through enforced standard of energy efficiency and ESCO business.

3.4.4.3. The Third Energy Use Rationalization Plan

The 3rd Energy Use Rationalization Plan that covered 2004-2008 called for (1)creation of low energy consuming society in preparation for global high oil prices, (2)market-based energy use rationalization, (3) improved policy acceptance throughparticipation of various stakeholders, and (4) meeting demand for environment-friendly energy including climate change agreements.

The target of the 3rd Plan was to reduce 18.84 Mtoe of primary energyconsumption during the planning period, which was about 7% of the primary energyconsumption projected for 2008.

The major policies in the 3rd Plan considered price and market function,expansion of civil society and international environmental agreement. Thus, itimplemented policies such as building rational energy price structure, transformationtowards low energy consuming society, promoting investment in energy savingfacility. Specific sectoral and energy targets under the Plan are shown in <Table 5-19>.

3.4.4.4. The Forth Energy Use Rationalization Plan

The 4th Energy Use Rationalization Plan was for the period of 2008-2012, and itaimed to improve national energy efficiency by 11.3% compared with business-as-


Table 5-19 Amount of Energy Consumption Reduction

Sector Before Plan After PlanAmount of

Reduction (%)

Residential, Commercial and Public Services

Source: National Achieves of Korea Homepage, http://www.archives.go.kr/next/search/listSubjectDescription.do?id=006554.

(unit: million tons of oil equivalent)

Industry 197.7 102.0 5.7 (5.3%)

Transport 45.5 43.4 2.1 (4.5%)

49.4 45.4 3.5 (7.1%)

Final Energy 202.6 191.2 11.3 (5.6%)

Primary Energy 269.0 250.0 18.8 (7.0)


usual scenario from 299.3 Mtoe to 265.1 Mtoe to overcome global high oil prices andimprove the trade balance by providing various incentives including concessionaryloans, tax deduction, and preferential public procurement of high energy efficientproducts.

The 4th Plan focused specifically on energy demand management by

implementing policies including phasing out of incandescent lamps by 2013,

introduction of energy efficiency target management, and promotion of innovative

technologies. These demand management policies aimed to reduce energy by 342

Mtoe by 2012.25)

3.4.4.5. The Fifth Energy Use Rationalization Plan26)

The 5th Energy Use Rationalization Plan was issued in December 2014, setting the

national target to reduce the final energy consumption by 4.1% and improve energy

intensity by 3.8% in 2017 compared with the business-as-usual scenario through new

demand-side management technologies, market schemes, and stronger demand-side

management policies in the electricity sector. Specific targets and key measures for

sectoral demand-side management are:

- Industry (3.8% reduction): self-generation agreements, industrial complex

energy efficiency programs;

- Transport (6.3% reduction ): enhanced fuel efficiency, promotion of market-

driven electric vehicles;

- Building (2.8%): green remodeling, wider adoption of mandatary energy

efficiency grade labeling and certification; and

- Public sector (5.6%): replacement of obsolete street lighting with LED bulbs,

support regional energy projects.

The five key policies were prescribed in the 5th Plan, i.e. (1) energy demand

management by consumers groups, (2) reducing conversion loss, (3) improvement in

energy pricing and market system, (4) providing energy information, and (5)

improvement of energy efficiency.

The 5th Plan also aims to improve coal thermal efficiency, utilize heat recovery

from thermal effluents in power plants to reduce conversion loss, restructure the


25) Prime Minister’s Office and Ministry of Knowledge Economy, [Press Release], “Confirmation of the forth

Energy Use Rationalization Master Plan”, Dec. 16, 2008,

http://www.greenplatform.re.kr/com/file/fileDown.do;jsessionid=2EF9333951F1A3CF5924FFD861DAD4EF?fileId=FI

LE0000000000000181&fileSn=0

26 Korea Energy Management Corporation


electricity market through improved pricing structure and creation of a Negawatt

market.27) It supports the demand management R&D, promotion of ESCOs, and

strengthening safety of heat using equipment.28)

3.5. Implementation of Energy Efficiency Policies andPlans

For effective implementation of energy efficiency policies, the government ofKorea has prepared specific time-bound action plans in the form of Energy MasterPlan or Energy Use Rationalization Plan, as stated above. They are based on inputfrom cross-ministerial collaboration and reflect public opinions and views. For eachplan, it prescribes specific energy efficiency targets and detailed sectoral measurerscovering energy intensive sectors such as industry, transport, building, and electricalappliances.

To facilitate the realization of the energy efficiency targets and implementationof specific energy efficiency action plans, enabling environment or buildinginfrastructure is established, which include smart grid, ESCO, R&D, energy pricing,


27) Negawatt refers to a theoretical unit of power representing the amount of energy saved.

28) Ministry of Trade, Industry, and Energy Press Release, Confirmation of the Fifth Energy Use Rationalization

Master Plan”, Dec. 12, 2014,

http://www.motie.go.kr/motie/ne/presse/press2/bbs/bbsView.do?bbs_seq_n=156772&bbs_cd_n=81

[Figure 5-16] Implementation Hierarchy of Energy Efficiency Policies and Plans



and public awareness. [Figure 5-16] illustrates under what structure energy efficiencypolicies and plans are implemented.

3.6. Korea Energy Management Corporation29)

Pursuant to Chapter 4 of the Energy Use Rationalization Act, Korea EnergyManagement Corporation (KEMCO) was established in July 1980 with a mandate toimplement projects for the rationalization of energy use, thereby reducing carbondioxide emission and contributing to the sound development of the nationaleconomy. KEMCO implements various projects aimed at rationalizing energy use suchas creating an energy use culture that is responsible to climate change, enhancingenergy use efficiency, and developing and supplying technologies for new andrenewable energies as future energy sources.

KEMCO’s vision is to become a global specialized organization that contributes tothe national economy, and develops and supplies future energy technologies backedby international competitiveness and expertise. KEMCO currently has about 500


29) Korea Energy Management Corporation Homepage, http://www.kemco.or.kr/renew_eng/main/main.aspx

Table 5-20 Core Activities of Korea Energy Management Corporation

Category Core Activities

Supply Support

TechnologyDevelopment

Foundation Forming

Consulting Business

Source: Korea Energy Management Corporation Homepage. http://www.kemco.or.kr/new_eng/pg01/pg01050000.asp.

- Provision of subsidy for high efficiency machine/equipment- Energy saving education- Energy service company (ESCO)- Helps with funds and taxation

- New and renewable energy- Energy support and technology development- Group energy supply/small combined heat and power

- Energy saving in building- Countermeasures again the convention on climate change- Energy saving in transportation- Discussion on energy use plans- Korea Energy Show- Energy saving technology cooperation (ESP)- Voluntary agreement (VA)- Energy hall- Efficiency management system

- Energy management diagnosis- Inspection of heat-using machinery - Clean Development Mechanism (CDM) Project- Energy diagnosis system


employees and is composed of 17 departments, 12 regional headquarters located allover the country, and 1 affiliated institution.

The funding for KEMCO’s operation comes mainly from the Ministry of Trade,Industry and Energy’s Special Account of Energy and Natural Resources, which aremobilized from levies on import or sales of energy and natural resources. A portionof KEMCO’s operation budget is also taken from revenues generated through energyaudit, boiler and pressure vessel inspection, energy efficiency and renewable energycertification, soft loan fee, and training fee. The total budget of KEMCO in 2014including soft loans and subsides managed by KEMCO reached to approximately USD890 million, of which the operational budget was about USD 60 million.

The activities of KEMCO are broken down into four categories of supply support,technology development, foundation forming, and consulting business. <Table 5-20>lists the core activities of KEMCO.

3.7. Financial and Tax Incentives

The Government of Korea formulated the Energy Use Rationalization Fund tosecure financial sources required to implement energy use rationalization projects.This fund is composed of money collected from special consumption tax onpetroleum; endowment of government and non-government agencies; loans; profitsfrom the fund; and incomes defined in other presidential decrees.

KEMCO manages this fund on behalf of the government of Korea. Among its usesis to provide long-term and low-interest loans for energy efficiency facilities. As of2014, the fund size is 600 billion Korean won, or about USD 550 million. Lately, KEMCOhas prioritized small and medium enterprises in using the fund to help boost theircompetitiveness. The fund is mandated by the law to be used in the following areas.

- Energy transformation projects;- Research, development and production of energy-saving equipment;- Installation of energy saving equipment;- Research and development of alternative energy; - Development and implementation of technologies for rational energy use; and- Technical training for rational energy use.

In addition, the government of Korea provides tax incentives for companies andindividuals who invest in energy efficiency facilities to promote energy savings andcreate new energy efficiency markets. In accordance with the Special Tax TreatmentControl Act, a certain portion of investment in energy efficiency is eligible for taxexemption.



3.8. Energy Service Company Program

Energy service companies (ESCOs) provide energy end-users with integratedenergy saving solutions. It may cover project costs and receive the benefits andinvestment fees in return from the saved costs. It has been proved successful inimproving energy efficiency, offering maintenance services and technical support,and building energy infrastructure at times. To promote the ESCO business, KEMCOstarted an ESCO program in 1992 when there were only 4 ESCOs in Korea, which isnow expanded to more than 200 ESCOs.

Essentially, KEMCO’s ESCO Program provides financial support to businesses thatretrofit energy facilities and guarantee the ensuing savings effect. During the earlystage of the ESCO Program from 1993-1997, the average annual investmentamounted to 3.7 billion Korean won. The funding has since been increased reflectingstronger support from the government of Korea. In 2014, the budget for the ESCOProgram grew to 254 billion Korean won, equivalent to approximately USD 230million.

3.9. Energy Efficiency Programs by Sector

As stated in earlier paragraphs, the government of Korea’s energy efficiencypolicies and programs primarily focus on energy intensive sectors, i.e. industry,transport, building, and electrical appliances.

3.9.1. Industry Sector

The industry sector consumes a major part of energy in Korea, and therefore, hasalways been in the center of energy efficiency policies and programs. For theefficiency and effectiveness of interventions, KEMCO deals mainly with energyintensive companies, which represent roughly 65% of the national energyconsumption. As of 2013, the number of these energy intensive companies wasaround 480.

The government of Korea’s energy efficiency programs for the industry sectorconsist of several measures such as energy management system (EMS), managementof targets for greenhouse gases and energy, soft loan for energy saving facilities, taxincentives, energy audit, green growth partnership, green credit, negotiation onenergy use plan, etc. All of these efforts aim to collectively reduce greenhouse gasesand improve energy efficiency in Korea. Key energy efficiency measures and theirsalient features are:



Energy Management System

The purpose of the Energy Management System (EMS) is to standardize activitiesof all members of an organization to save energy and enhance energy efficiency in asystematic and continuous way. The 1st Energy Master Plan (2008-2030), and the 4thEnergy Use Rationalization Plan (2008-2012) highlight plans to promote EMS, which isa new paradigm shift for energy management of industrial facilities and buildings,under which KEMCO also seeks to cooperate with other international institutions todevelop ISO standards and Global Superior Energy Performance Partnership (GSEP).

The EMS in Korea is taking a two-pronged approach, one on management sideand the other on technical side, as shown in <Table 5-21>.

The EMS has been carried out in three phases. The first phase was conductedduring 2006-2011, and laid the foundation for EMS in Korea. Milestones under thefirst phase included preparation of ISO 50001 Domestic Certification System, runningof pilot EMS certification, and development of materials on the technology.

The second phase was conducted between 2011 and 2014, undertaking more


Table 5-21 Energy Management System Structure

Management Side Technical Side

ManagementAccountability

Do

Check

Act

Source: Korea Energy Management Corporation Homepage, http://www.kemco.or.kr.

- Management accountability- Energy policy

Plan

- Energy review- Energy baseline- Energy performance index- Detailed goals- Action plan

- Regulations

- Eligibility- Training- Awareness- Communication- Documentation

- Compliance evaluation- Internal assessment- Keep records of unsatisfactory causes

- Management review

- Operation management- Design- Procurement

- Monitoring- Measurement- Analysis


detailed programs for scaling up of EMS. In this phase, KEMCO implementeddomestic certification system of ISO 50001, designated the first certificationinstitution, and conducted a feasibility assessment of adopting internationalstandards for energy management performance evaluation for eight industrialfacilities and two commercial buildings. In addition to this, Korean national standardsfor energy management evaluation and related software were developed, trainingfor EMS experts were conducted in this phase.

The third phase started in 2015 with the main objective of implementinggovernment support programs and working on EMS international cooperationprojects.

Target Management System of GHGs and Energy for Industry

This program is supervised by the Ministry of Environment covering seven sectors:industry, power, building, transport, agriculture, stockbreeding and waste.

The Ministry of Trade, Industry and Energy oversees the industry and powersectors. The Ministry of Land, Infrastructure, and Transport focuses on the buildingand transport sectors. The Ministry of Agriculture, Food and Rural Affairs takes onthe agriculture and stockbreeding sectors. The Ministry of Environment deals withthe waste sector. These four Ministries set the targets, support their implementation,and evaluate and provide administrative supports for the designated companies inthe seven sectors.30)

The program targets companies and businesses that emit a large amount ofgreenhouse gases and energy consumption. The designated companies and businesspremises are imposed with reduction targets and their performance is monitored andverified to help meet the national goal of reducing greenhouse gas emissions andenergy consumption by 30% compared with the business-as-usual scenario by 2020.

Companies and business premises whose recent three-year average greenhousegas emission and energy consumption exceed the threshold prescribed as of 1January every year are designated as “controlled entities”, and are subject to thisprogram. As of 1 January 2014, the threshold is 50,000 tons of CO2 and 200 tera joule(TJ)31) for a company, and 15,000 tons of CO2 and 80 TJ for a business premise. There isa penalty clause attached to the program as summarized in <Table 5-22>.


30) Management of Targets for GHGs and Energy Homepage. http://www.greencompany.or.kr

31) 1 TJ = 23.88 tons of oil equivalent.


Soft Loan for Energy Saving Facilities

After the second oil shock in 1979, Korea started providing financial support forthe investment on energy saving facility to vitalize economy and to promoteinvestment on energy saving facility. The program offers long-term and low-interestrate loans to cover part of the investment in energy saving facilities to conserveenergy and reduce greenhouse gas emissions.

The scope of the program includes all of the construction costs including facilitiesand material costs, labor charges, overheads, and administrative expenses, with a capof 15 billion Korean won per entity and 30 billion Korean won for ESCO. Examples ofeligible projects for soft loans are in <Table 5-23>.


Table 5-22 Penalty Clauses

Requirements ViolationPenalty

(Korean won)

Source: Management of Targets for GHGs and Energy Homepage, http://www.greencompany.or.kr.

Submission of document- Details on yearly CO2 emission and energy consumption

- Performance report- Compliance report with remedial actionif failure to meet the target

Compliance with recommended remedialaction (in case of failure to meet thetarget)

Delay less than 1 month 3 million

Delay over 3 1 month 7 million

False report 10 million

5 million

First violation 3 million

Third violation 10 million

Second violation 6 million

First violation 3 million

Third and onward violation 10 million

10 million

Second violation 6 million

Delay over 1 month and lessthan 3 months

No disclosure of complianceresults

Revision and update on detail report onyearly CO2 emissions and energyconsumption (in case of failure to reviseand/or update)


Energy Audit

The energy Audit program seeks to provide energy consumers with technicalconsulting services of professional energy auditing agencies that have properequipment and manpower. Auditing agencies analyze energy consumption flow ofenergy facilities, identify the process that cause energy losses, and suggest an optimalsolution for energy savings.

An energy facility consuming more than 0.2 Mtoe per year is required to have afull energy audit once every five years, and a partial audit once every three years..Those energy facilities consuming less than 0.2 Mtoe per year is required an energyaudit once every five years.

Since 2007, KEMCO has supported small and medium enterprises (SMEs) who haveless means to save energy and reduce greenhouse gas emissions by subsidizingenergy audit cost. At present, the subsidy is up to 70% of the energy audit cost.

Green Growth Partnership

This program aims to promote partnership between large and small companiesencouraging large companies to share their advanced energy management skills withSMEs who lack technology, manpower, and capital. Small companies will receivetechnology and financial support from large companies. In return, large companiescan claim a portion of the green credit realized in small companies through theirinterventions.


Table 5-23 Examples of Eligible Projects for Soft Loan

Type Eligible Projects

ESCO InvestmentProjects

Investments in thetarget controlled

companies

Energy savingfacilities installation

projects

Note: ESCO = energy service company.Source: Korea Energy Management Corporation Homepage, http://www.kemco.or.kr.

-- Replacement of facilities with those listed as target facilities of this program- Insulation retrofit projects for building older than 10 years- Energy conservation project on existing buildings and plants utilizing information technology- Installation of new and renewable energy facilities for private use

- Projects to install target facilities of this program- Energy use rationalization and greenhouse gas emission reduction through processimprovement and fuel change

- Projects to install facilities as target facilities of this program


3.9.2. Building Sector

To improve energy efficiency for the building sector, the government of Korea hasdeveloped and implemented a number of policies and programs, which involves theMinistry of Land, Infrastructure and Transport, and the Ministry of Trade, Industryand Energy. Key policies and programs include building codes, energy efficiencylabeling certification, mandatory clauses for public buildings, and management oftargets for greenhouse gas emission and energy for buildings, performance evaluationof eco-friendly homes.

Building Codes

The building codes in Korea consist of mandatory and recommended standardsthat have to be followed in order to obtain a building permit. Pursuant to thebuilding codes, a new building with the floor area of 500 m2 or above has to get acertain level of energy performance index and adopt all mandatory items. Thestandard specification calls for adoption of high performance construction materials(heat transmission, air insulation) and certain insulation method, adoption ofefficiency certified product and energy saving control techniques, and replacement ofheating & cooling, hot water and electrical load capacity with renewable energy.

To get a building permit, the property owner should prepare an energy savingworksheet. The document will then be submitted to the local government, who willrequest the designated energy specialized agency (currently six companiesaccredited) to review the worksheet. The property owner and the energy specializedagency review and discuss the worksheet, based on which the energy specializedagency provide its review results to the local government for consideration.

In particular, the heat insulation targets for windows and walls have been updatedin Korea over time, namely 12% reduction by 2009, 30% reduction by 2012, 60% by2017, and obligatory zero energy by 2025.

Energy Efficiency Labeling Certification

This program pushes the building sector to adopt energy-efficient design ofbuildings from the building permit stage, and targets both new and existingbuildings with over 500 m2 of heating and air-conditioning areas. The certificates willbe valid for 10 years from the date of issuance. There are two types of certification: apreliminary certificate given when the building permit is released, and a maincertificate given upon completion of the building. As of 2014, more than 2,000preliminary certificates and over 900 main certificates have been issued.



This program is supported by various incentives such as local tax cut; relaxation inthe maximum floor area ratio; relaxation in the landscaping area standard andbuilding height standard; additional points in public procurement qualification; andreduction in compulsory environmental improvement costs.

Mandatory Clauses for Public Buildings

For public buildings, more stringent standards are applied. For any new andextension of public buildings with over 3,000 m2 of floor area, it is compulsory toacquire Grade 1 Building Energy Efficiency Labeling Certification. Any new andextension of public buildings of more than 1,000 m2 of floor area should installdemand management facilities that can handle at least 60% of the daily maximumcooling load. These buildings will have to install renewable energy facilities thatsupply at least 13% of total energy by 2015, which gradually increase to 20% by 2020.

Moreover, public buildings for business with more than 3,000 m2 should haveenergy audit, and implement any recommendations that can save more than 5% ofenergy and that the payback period is less than 10 years. All public buildings will alsohave to use Grade 1 energy efficiency equipment and appliances, and replace existinglights to LED by 2020.

Target Management System of GHGs and Energy for Buildings

Similar to the industry sector, the building sector is also guided by the TargetManagement System of Greenhouse Gases and Energy program, which applies tolarge greenhouse gas-emitting buildings. The designated large greenhouse gas-emitting and energy consuming buildings are subject to the reduction targetprovided by the relevant Ministry. The Ministry of Land, Infrastructure and Transportsupervises the Target Management System for the building sector. Penalty clause in<Table 5-22> applies to the building sector as well.

Performance Evaluation of Eco-friendly Homes

This program started in 2009 and seeks to develop standards for construction ofenergy-saving and eco-friendly houses and to construct 2 million units of such housesby 2020.

Under this program, those who construct an apartment building thataccommodates more than 30 households are required to submit a green homeperformance evaluation report together with its supporting documents to the localgovernment for approval of the project. Then, the local government deliberates onthe submission based on the review of energy agencies including KEMCO.



The performance of eco-friendly houses is based on the percentage of reductionin total energy consumption through review of heating, hot water supply, heatsource, and electricity energy. As of 31 March 2015, the reduction in total energyconsumption should be higher than 40%, in case the size of individual unit is morethan 60m2. If it is less than 60m2, the reduction should be more than 30%.

3.9.3. Transport Sector

A well structured public mass transportation system is among the most effectiveways of energy savings. Public transportation in Seoul accounts for more than 60% ofall commuters, and this situation is similar in all other major cities in Korea. Thegovernment of Korea is working towards further expansion and improvement ofpublic transportation system.

Aside from this effort, the government of Korea has implemented a number ofpolicy actions to improve energy efficiency and save energy in the transportationsector, of which key programs include vehicle energy efficiency labeling andstandard, tire efficiency standards and ratings, vehicle average fuel economy, andgreenhouse gas reduction program.

Vehicle Energy Efficiency Labelling and Standard

The government of Korea started the Vehicle Energy Efficiency Labeling in 1988to encourage consumers to purchase high energy efficiency vehicles and themanufacturers to produce better energy efficient vehicles by providing informationon energy efficiency and rating of vehicles.

KEMCO standardizes vehicle fuel efficiency test methods, develops criteria for fuelefficiency rating, coordinates with vehicle manufacturers and importer, conductsfollow-up measures related to the program, and discloses vehicle-related informationfor consumers.

At present, all vehicles with a total weight less than 3.5 ton (passenger cars, light-weight trucks, all purpose cars and others), vans with capacity of up to 15 passengers(including van trucks), and light-duty trucks other than special purpose are subject tothis program.

As shown in [Figure 5-17], a Vehicle Energy Efficiency Label indicates energyconsumption efficiency grade from 1 to 5, 1 being the most efficient and 5 being theleast efficient, fuel economy in terms of km/liter, amount of CO2 emissions ingram/km.



Tire Energy Consumption Efficiency and Rating System

The purpose of the program is to provide consumers with information on thelevel of tire energy efficiency for their decision on purchase of tires. It started inNovember 2011 in Korea on a voluntary basis, and is now broken down into twocategories, i.e. mandatory labelling and minimum energy performance standard(MEPS).

The mandatory labelling program started in December 2012 for passenger cars,and in June 2014 for light trucks. MEPS became applicable in December 2013 forpassage cars, and in December 2014 for light trucks. Now, all tires, which are made inKorea or imported for sales or installed on the motor vehicles for passenger cars andlight trucks are subject to this program.

As indicated in [Figure 5-18], a tire energy efficiency label shows informationabout energy efficiency grade based on the rolling resistance,32) and wet grip33) indexgrade, both from Grade 1 to Grade 5, Grade 1 being the most efficient, and Grade 5the least efficient.


[Figure 5-17] A Sample Vehicle Energy Efficiency Label


32) Rolling resistance is the force resisting the motion when a tire rolls on a surface. Lower roll resistance implies

less consumption of fuel.

33) Tire’s braking ability on wet roads. Good wet grip implies shorter braking distance on wet roads.


Corporate Average Fuel Economy

The objective of the program is to encourage vehicle manufacturers to improvefuel economy of vehicle by complying with the average fuel economy standard set bythe government, and thereby improve overall vehicle fuel efficiency in Korea. Theprogram has been enforced since 2006 for passenger vehicles sold more than 1,000units in a year excluding light-weight vehicles and liquefied petroleum gas (LPG)vehicles, both locally manufactured and imported.

From 2016, the program will be expanded to include small trucks. The averagefuel economy of vehicles sold in 2013 was 14.19 km/liter, an average 4%improvement compared with 2006.

Greenhouse Gas Reduction in Transport

This program aims to provide information about measures and technologies tosave energy to private companies working in the transport sector. Based on theEnergy Use Rationalization Act, KMECO established mid- and long-term strategy forreduction of energy consumption in the transport sector in collaboration with theprivate sector companies. Under this program, KEMCO provides working levelsupports to private companies in collecting data in energy consumption in thetransport sector by implementing pilot projects as well as sharing information onnew technologies. KEMCO also develops a measurement, reporting and verification(MRV) method for fuel consumption in the transport sector.


[Figure 5-18] A Sample Tire Energy Efficiency Label



3.9.4. Equipment and Appliance Sector

As shown in [Figure 5-19], Korea is implementing three core programs for energyefficiency of equipment and appliances, comprising: (1) Energy Efficiency Label andStandard Program, (2) High-efficiency Appliance Certification Program, and (3) e-Standby Program. These programs target energy consuming equipment andappliances mainly in buildings and households.

Energy Efficiency Label and Standard Program

Korea started the Energy Efficiency Label and Standard Program in 1992 with fourtypes of products including refrigerator. As of 2014, the number of products subjectto this program has been expanded to 35 covering appliances, cooling-heatingequipment, heating equipment, lamps, and others. It is a mandatory program withapplication of the minimum energy performance standards (MEPS). Apart from theenergy rating, the program requires indication of CO2 emissions in the label from2009, and annual/monthly energy cost in the label from 2010.

The program rates energy efficiency performance on a scale of Grade 1 to 5 basedon the rating standards set by KEMCO. These rating standards are upgraded as and


[Figure 5-19] Appliances Energy Efficiency Labeling Program



when needed to encourage manufacturers to continuously improve energy efficiencyof the products. The highest energy efficiency product in the category gets Grade 1and the lowest energy efficiency product gets Grade 5. If a product does not meetthe MEPS, then the product cannot be produced, imported, traded or sold.

All manufacturers and importers of the products listed under the program areobliged to report the rating. Some products require the rating to be indicated on thelabel, while others are required to meet only the MEPS without the rating beingindicated in the label. On the other hand, some products are required to indicatetheir estimated energy costs and CO2 emissions in the label.

<Table 5-24> shows the types of products included in the program, which types ofproducts require the ratings to be posted in the label, and which types of productsrequire the estimated energy costs and CO2 emissions to be indicated in the label. Allheating equipment, ballasts for fluorescent lamps, 3-phase induction motors,transformers, and adapter-chargers do not require the rating to be placed on thelabel, while other types of products are required to show their ratings in the label.


Table 5-24 Products under Energy Efficiency Label and Standard Program

Group ProductsLabeling Energy

CostRating Non

O O

O

O

O

O

O

O


Refrigerator, Freezer, Kimchi Refrigerator,Washing Machine, Dishwasher, Dish Drier,Electrical Cooler and Heater for Drinking WaterStorage, Rice Cooker, Vacuum Cleaner,Electric Fan, Air Cleaner, TV, Dehumidifier,Commercial Refrigerator

Air-conditioner, Electric Cooling-HeatingEquipment,

Appliance(15)

Cooling-heatingequipment

(3)

Heatingequipment

(7)

Lamps(4)

Others(6)

O O

O

O O

Incandescent Lamp, Compact FluorescentLamp

Ballast for Fluorescent Lamp

3-phase Induction Motor, Transformer

Adapter-Charger

Household Gas Boiler, Gas Water Heater,Window Set

Electric Fan Heater, Electric Stove, Electric Pad,Electric Heating Water Mat, Electric HeatingBoard, Electric Heating Bed, Electric Radiator

Electric Heat Pump


Those products categorized as appliances, cooling-heating equipment except electricheat pumps, heating equipment, and 3-phase induction motor and transformerrequire the estimated energy costs and CO2 emissions to be posted in the label.

High-efficiency Appliances Certification Program

The High-efficiency Appliances Certification Program is a voluntary participationsystem that was started in 1996 to encourage research and development (R&D) ofhigh energy efficiency products, and promote expanded use of such products. A totalof 45 products in four groups of lighting, insulation materials, electric power facility,and boiler and cooling/heating facility are in the program. The producer ofequipment or facilities included in the program may apply for an energy efficiencytest, and gets a certificate as high-efficiency equipment or facility if passed the test.

The program aims to encourage consumers to purchase high energy efficiencyequipment and facilities. Also, to promote production of high efficiency products, thegovernment of Korea provides various incentives to the manufacturers includingsubsidies to certified products, tax cut and preferential procurement of certifiedproducts by the central procurement agency. <Table 5-25> lists the products that mayavail the program.


Table 5-25 Products under High-efficiency Appliance Certification Program

Group Products

InsulationMaterials

(2)

Electric powerfacility(11)

Boiler andcooling/heating

facility(11)


Automatically Controlled Light Fixture, Ballast for Metal Halide Lamp, Ballast for Sodium Lamp,Metal Halide Lamp, Lighting Equipment for Plasma Lighting System, Lighting Equipment forUltra Constant Discharge Lamp, High Illumination Reflectors using High-intensity Display Lamps,Light-emitting diode (LED) Traffic Light, LED Exit Sign, LED Lamps using External Convertor, LEDLamps using Internal Convertor, Recessed and Fixed LED Luminary, LED Guard Lighting, LEDSensor Lighting, Electronic Control Gear for LED Modules, LED Street Lighting, LED Flood-lighting Luminary, LED Tunnel Lighting Luminary, LED Fluorescent Lamp, LED Module forChannel Letter Signs, LED Lamp for Fluorescent Lamp Retrofit - Internal Converter Type.

High Performance Insulated Door, Adhesive Window Film for Glazing

Lighting(21)

Uninterruptable Power Supply System, Inverter, Multi-Functional Distribution System, SinglePhase Induction Motor, Pump, Ventilator, Centrifugal Fan, Submersible Aerator, Turbo Blower,Energy Storage System, Demand Controller

Gas Boiler for Industry and Building, Oil-fired Hot Water Boiler, Oil-fired Boiler for Industry andBuilding, Thermal Storage Type Burner, Heat Recovery Ventilator, Centrifugal/Screw Chiller,Temperature Automatic Control Apparatus for Heating, Direct-fired Generator for anAbsorption Chiller, Thermo-hygrostat, Gas Heat Pump, Gas-fired Vacuum Hot Water Boiler


e-Standby Program

The e-Standby Program started in 1999 with the objective of distribution ofstandby power-saving products. The program seeks to minimize standby power byadopting power-saving technologies at standby period. The program awards energy-saving logos to products that satisfy the standby power standard. By contrast, itaffixes warning signs to products that fail to satisfy the standard, and imposes apenalty of up to 5 million Korean won in case of violation. The standard was tocontain the standby power below 1 watt until 2010, and the standard will bestrengthened to keep the standby power lower than 0.5 watt from 2015. As listed in<Table 5-26>, there are 22 types of products included in this program.

3.10. Key Findings and Lessons Learned

For over three decades, the government of Korea has attached high priority toenergy efficiency to help reduce energy imports and achieve stable energy supply,and implemented rigorous energy efficiency programs and projects. The key findingsand lessons learned from this experience may be summarized as below:

(1) Need for a holistic approach

Energy efficiency involves multiple stakeholders at various levels, which makesimplementation even more difficult. While legislation of energy conservation lawprovides a strong ground for implementation of energy efficiency programs andprojects, there is a critical need to undertake a holistic approach in combination ofsetting up appropriate policies, targets and roadmaps as well as establishment ofadequate regulatory and institutional framework to enable preparation andimplementation of energy efficiency projects and programs possible.

(2) Enforcing mechanisms and incentives are essential

It is not practical to monitor energy consumption behaviors of all consumers


Table 5-26 Products under e-Standby Program

Group Products


Computer, Monitor, Printer, Set-up Box, Facsimile, Copier, Scanner, Multi-function Copier,Automatic Energy Saving Controller, Audio, Digital Versatile Disc (DVD) Player, MicrowaveOven, Door Phone, Telephone and Cordless Phone, Radio Cassette Player, Home Gateways,Servers, Hand Drier, Bidet, Modem, Digital Converter, Router and Wireless Router

Equipment andAppliances


considering the financial and human resources limitations. Korea has focused energyefficiency efforts on selected energy intensive factories and buildings throughapplication of mandatory requirements and corresponding penalty clauses. For smallenergy consumers and general public, voluntary application of energy efficiencymeasures has been used with various incentives. This approach has been foundeffective.

(3) Financial support is necessary

There are a number of barriers to implementing energy efficiency measures.Among others, it involves high up-front costs and is difficult to tap commercialfinancing. Hence, it is necessary to mobilize concessionary funds to help consumersalleviate initial financial burden and thereby encourage consumers to bring aboutinnovative technologies and use energy efficient equipment and appliances.

(4) Public awareness building on energy efficiency is crucial

Any energy efficiency effort cannot work without understanding by the public onthe need for such an effort and their engagement. Awareness building is needed atall levels including schools, offices, and media.

4. Recommendations and Conclusions

Recognizing the urgent need to improve energy efficiency, the government ofKSA has already taken various actions to address energy efficiency issues, and therebyimprove energy balance. These include the decision to legislate energy conservationlaw, establishment of the Saudi Energy Efficiency Center, and implementation of theSaudi Energy Efficiency Program. While this is the right move, there is still more to bedone to further reduce consumption of energy, and thereby to sustain economic andsocial growth in the country.

Upon review of energy demand and supply scenario, energy consumptionpatterns and trends, consumer mix, and ongoing energy efficiency programs as wellas taking into account Korean experience, it is apparent that addressing thefollowing issues is a key to scaling up the demand-side energy efficiency activities inKSA.

(1) Absence of adequate legislation and regulation;

(2) Lack of enforcing mechanisms and motivation for energy efficiency;



(3) Limited proven energy efficiency business models and absence of long-termand concessionary financing mechanisms;

(4) Inadequate human resource pool to scale up energy efficiency projects andprograms;

(5) Low awareness level of the public on energy efficiency; and

(6) Low energy price undermining energy efficiency efforts.

To effectively address these issues, (1) well-structured energy efficiency policiesand strategies must be established and implemented; (2) adequate institutional andhuman capacity must be in place; (3) an environment conducive to implementationof energy efficiency polices and strategies must be created - including financialresources and systems such as ESCOs, dedicated energy efficiency funds, and properpenalties and incentives; (4) public awareness of energy efficiency must be improved;and (5) review of energy price structure and implementation of energy price reformis essential.

This study suggests the following policy actions for consideration by theGovernment of KSA, and in phases based on the government of KSA’s developmentpriorities:

4.1. Energy Efficiency Law, Policies and Roadmaps

A number of energy efficiency efforts are ongoing in KSA, but most of them aredone on an ad-hoc basis. Moreover, there is no specific law outlining the legalgrounds to effectively pursue national energy efficiency measures. Thus, thegovernment of KSA must first establish a law that sets forth clear policy directionspertaining to energy efficiency and conservation, and perhaps, including climatechange issues. This law will also lay the foundation for the creation of anenvironment that is conducive to energy efficiency. This would include the legal andregulatory framework, institutional arrangements, market development, and publicawareness campaigns. It will also be necessary for the law to provide clear guidelineson how national energy efficiency plans are developed, implemented, monitored,reviewed, and updated.

In Korea’s case, the Energy Use Rationalization Act promulgated in 1979 providedthe legal grounds for energy efficiency interventions. It has been amended thricesince then to cope with the changing environment. As prescribed by law, anadequate enabling environment was established - which included, among others, thecreation of a dedicated national energy efficiency agency, i.e. Korea Energy



Management Corporation in 1980; development, implementation, monitoring, andupdate of long-term National Energy Efficiency Master Plans and five-year rollingEnergy Use Rationalization Plans; mobilization of dedicated energy efficiency funds;enforcement mechanisms such as penalties and incentives; and structured publicawareness campaigns. In particular, the data bank accumulated through thirty yearsof energy efficiency experience is a valuable asset.

Upon passing the energy conservation law, the government of KSA will need toprepare a long-term energy efficiency master plan with clear road maps, based onwhich detailed implementation plans may be prepared and implemented. In doingso, specific energy system and energy portfolio of KSA needs to be consideredfollowing the national development priorities.

For example, in KSA, the building sector consumes about 76% of electricitygenerated, of which 70% is used for air-conditioning, and the transport sectorconsumes a major share of final energy, and the industry sector consumes the largestamount of primary energy. These three sectors account for over 90% of energyconsumption in KSA. This fact should be reflected in preparation of the master planand associated road maps. Specific targets along with strong enforcing regulationsshould be included therein especially for the public sector and large energyconsumers. Adequate levels of incentives such as tax credit should also be preparedfor all types of consumers.

To help ensure successful implementation of energy efficiency policies andprograms, the government of KSA also needs to prepare proper tools for enforcinglaws and regulations. Without them, it would be difficult to implement energyefficiency policies and programs. The government of Korea has devised variousenergy efficiency policies with corresponding penalty clauses based on the EnergyUse Rationalization Act, mainly for large energy consumers and public consumers.

On the other hand, Korea provides incentives for general consumers and smalland medium enterprises in the combination of cheap and long-tenure concessionaryloans, subsidies, technical support, and tax incentives. It was found that this has beenhighly effective. It is therefore suggest that the government of KSA considerincluding penalties and incentives in implementing the energy efficiency measures.

It may also be useful if the government of KSA uses as benchmarks the countriesthat have good track record in energy efficiency in setting and achieving energyefficiency targets.



4.2. Energy Efficiency Programs and Projects

In order to achieve the prescribed energy efficiency targets and goals, thegovernment of KSA will be required to formulate and implement programs andprojects following the associated master plans and road maps. Since implementationof such programs and projects will require financial and human resources, there is aneed to prioritize and implement them in phases depending on the available budgetand manpower.

In the case of Korea, the industry sector consumes the largest share of energy, so itis at the forefront of every energy efficiency policies and programs. Given that morethan 90% of domestic energy is used in three sectors, i.e. building, transport, andindustry, placing focus of the Saudi Energy Efficiency Program on those three sectorsis inevitable.

To improve KSA’s building sector energy efficiency, it is essential to addressinsulation issues of buildings. At present, more than 50% of the existing buildings inKSA do not have proper insulation. Moreover, building codes lack energy efficiencyconsiderations and there is no adequate enforcing mechanism. Therefore, priorityshould be given to insulation walls, doors, and windows through amendment of thebuilding codes and establishing their enforcing tools in collaboration with theconcerned ministries and agencies.

Just like what was done in Korea, the program may initially have to target newbuildings consuming large amount of energy and public buildings with penalties, andexpand to private and existing buildings as it moves forward. It is also advisable todevise a monitoring system that can reduce and eliminate the time of airconditioning of buildings when not in use.

Building on the ongoing effort in KSA, introduction and expansion of the labelingprogram for key appliances - starting with air-conditioners, refrigerators and freezers,washing machines, and lighting, which shall be expanded gradually - would help KSAreduce energy consumption and facilitate the use of products with high energyefficiency. These key appliances account for a major portion of electricityconsumption in KSA, and especially air conditioner represents about 50% of thenational electricity consumption due to local weather conditions. It is also suggestedto apply the Minimum Energy Performance Standard (MEPS). Continuous monitoringand upward adjustment of labeling standards will also be necessary to furtherencourage consumers to use more energy efficient appliances and equipment.

The government of KSA will also need to address the transport sector in view ofthe large amount of energy the sector consumes in the form of gasoline and diesel.



Expansion of public transportation is foremost essential apart from the VehicleLabeling Program and Tire Labeling Program, which is being considered in KSA.

The government of KSA must likewise consider implementing mandatory auditrequirements for large buildings and factories consuming more than a certain level ofenergy and public buildings and factories.

4.3. Institutional Capacity Building

Institutional capacity building is an essential component for successfulimplementation and operation of energy efficiency programs and projects. The SaudiEnergy Efficiency Center has already been established and a number of internationalexperts are recruited. The government of KSA should address the shortage ofqualified engineers and experts through implementation of accelerated training andknowledge transfer programs from qualified experts both onshore and offshore.

In particular, training and appointment of energy managers - who are supposedto coordinate closely with the Saudi Energy Efficiency Center - would be urgentlyneeded in buildings and industrial factories consuming a large amount of energy. Atthe same time, training and certifying of energy auditors will be necessary.

It is also essential to establish laboratories to test the products - ranging fromelectrical appliances and equipment to vehicles and tires - for labeling certification,coupled with building their institutional capacity. Similarly, the government of KSAneeds to support research and development of energy efficiency technologies andproducts because energy efficiency is closely related to technology development.

Korea was affected by the lack of institutional capacity in the early stage offormulating and implementing energy efficiency policies and programs. To addressthe issue, rigorous training programs - on energy efficiency policies and programs,business models, and technologies - were conducted at a national level both onshoreand offshore for KEMCO staff, energy auditors, energy managers, R&D staff, andtesting laboratories. This helped produce qualified engineers, experts, energymanagers, auditors, and technology development in the country.

4.4. Creation of Energy Efficiency Funds

Although implementation of energy efficiency policies and programs comes withhigh up-front costs, access to long-term and low-interest loans is constrained in KSAsince such business models are not common in local commercial banks. To scale upenergy efficiency efforts, financial support is essential. Therefore, the governmentinterventions would be needed in the form of providing concessionary loans,



subsidies, or loan guarantees for companies and building owners to introduce newand high energy-efficient products by lowering their financial burden.

The government of KSA may consider Korea’s example in raising a dedicatedenergy efficiency fund - the Energy Use Rationalization Fund - for acceleratedimplementation of energy efficiency measures by levying on energy imports andelectricity sales, as elaborated in earlier paragraphs.

The government of KSA may also consider Korea’s experience in supporting ESCOswho lack financial and technical capacity. Korea has promoted ESCO industry from1992 by allowing them to tap concessionary loans and technical support fromKEMCO. As a result, the ESCO market has become mature now, and the number ofESCOs has been increased from four in 1992 to over 200 in 2014, who contributed toa significant amount of energy savings.

4.5. Public Awareness Campaigns

It is important to change consumer behavior in order to make an energy efficiencyprogram successful. Without the support and participation of pubic consumers inenergy efficiency efforts, it is not going to work. The government of KSA needs toconvince energy consumers of all levels to commit to energy-saving lifestyle and havebetter awareness on energy efficiency.

To this end, there should be more rigorous public awareness programshighlighting the need for energy efficiency as well as specific energy efficiencyopportunities, measures and technologies to realize the opportunities.

However, it must be noted that public awareness cannot be built in a short periodof time. It is therefore recommended that the government of KSA conduct regularand frequent public awareness campaigns in schools, offices, and otherestablishments using various media platforms. There should also be awarenessraising programs for policy makers who actually decide on energy efficiency policiesand their directions, as their engagement is essential.

It may also be beneficial to designate an “Energy Day”, and confer awards toexemplary cases of energy savings. This could raise public awareness and change thebehavior of people in KSA by teaching them the best practices in energy savings. Thisprogram has been implemented in Korea and continues to yield favorable results.

4.6. Energy Pricing Reforms

Just like other energy exporting countries, KSA tends to maintain domestic energy



prices at a significantly low level compared to international free-market prices. As aresult, diesel and gasoline are sold at only about 12% and 30% of internationalreference prices, respectively. Similarly, domestic electricity tariff in KSA is USD 0.013-0.070 per kWh compared with USD 0.10-0.20 per kWh in most countries in the world.Empirical studies have shown that such energy subsidies do more harm than good.Apart from leading to economic inefficiency, adverse impacts on social equity, andmoreover, high fiscal cost for the government, it provides little motivation forconsumers to save energy and leads consumers to consume energy without dueconsideration. Rationalization of energy prices including price reforms and gradualremoval of subsidies is essential to free up government budget that may otherwisebe used for other essential activities, and motivate consumers to save energy.



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Appendix

1. Saudi Arabia Energy Balance in 2012


Crude oilOil

products

Natural

gas

Biofuels

and

waste

Electricity Total

Source: International Energy Agencyhttp://www.iea.org/statistics/statisticssearch/report/?year=2012&country=SAUDIARABI&product=Balances.

(unit: thousand tons of oil equivalent (ktoe) on a net calorific value basis)

Production 558780 66224 0 0 625003

Imports 0 16926 0 0 0 16932

Exports -377347 -65112 0 0 0 -442458

International marine bunkers 0 -2744 0 0 0 -2744

International aviation bunkers 0 -2315 9 0 0 -2315

Stock changes 5003 834 0 0 0 5837

TPES 186436 -52411 66224 7 0 200256

Production 558780 66224 0 0 625003

Transfers -52661 55464 0 0 0 2803

Statistical differences -7334 0 0 0 -68 -7401

Residential 0 1573 0 7 10360 11940

Commercial and public services 0 0 0 0 6369 6369

Agriculture/forestry 0 0 0 0 360 360

Non-specified 0 0 0 0 45 45

Non-energy use 0 23471 0 0 0 53977-of which chemical/petrochemical

0 20197 30505 0 0 50703

Production 558780 66224 0 0 625003

Transfers -52661 55464 0 0 0 2803

Statistical differences -7334 0 0 0 -68 -7401

Electricity plants -22111 -18073 -33070 0 23364 -49889

CHP plants 0 0 0 0 0 0

Heat plants 0 0 0 0 0 0

Gas works 0 0 0 0 0 0

Oil refineries -99582 98181 0 0 0 -1401

Energy industry own use -12 -5077 -2649 0 -1427 -9165

Losses 0 0 0 0 -2045 -2045

Total final consumption 4736 78085 30505 7 19825 133157

Industry 4736 12737 0 0 2691 20164

Transport 0 40303 0 0 0 40303

Other 0 1573 0 7 17134 18714

KSP_사우디(영문)_5장-부록 2016.2.24 3:41 AM 페이지273 SJ_01


2. ENERGY USE RATIONALIZATION ACT

[Enforcement Date 14. Apr, 2010.]

[Act No.9931, 13. Jan, 2010., Other Laws and Regulations Amended]

CHAPTER GENERAL PROVISIONS

Article 1 (Purpose) The purpose of this Act is to contribute to the sound development ofthe national economy, the promotion of the national welfare, and the internationalefforts to minimize the global warming by realizing the stability of the demand andsupply of energy, increasing the rational and efficient utilization of energy, and reducingthe environmental damage caused by the consumption of energy.<Amended by Act No.7018, Dec. 30, 2003>

Article 2 (Definitions) The definition of terms used in this Act shall follow the provisionsof each subparagraph of Article 2 of the Energy Act.<Amended by Act No. 9931, Jan. 13,2010>

Article 3 (Responsibility of the Government, Energy Users, Energy Suppliers, etc.)(1) The Government shall be responsible for the establishment and enforcement of afundamental and comprehensive policy aimed at reducing the emission of greenhousegases by stabilizing the demand and supply of energy and the rational and efficient useof energy.(2) Local governments shall be responsible for the establishment and enforcement of alocal energy policy to efficiently carry out a national energy policy and for thedevelopment of the regional economy by taking into account the characteristics of aregion under its jurisdiction.(3) Energy users and suppliers shall proactively participate and cooperate in a national orlocal energy policy, and shall endeavor to maximize efficiency in the production,conversion, transport, storage, use, etc. of energy and to reduce the emission ofgreenhouse gases.(4) Manufacturers producing energy-using machinery, equipment or materials, andenergy supply facilities shall endeavor to develop and introduce the technology toincrease the energy efficiency of such machinery, equipment, materials or facilities and toreduce the emission of greenhouse gases.(5) All citizens shall endeavor to rationally use energy in their daily living, therebyreducing the emission of greenhouse gases.


CHAPTER PLANS AND MEASURES FOR THE RATIONALIZATIONOF ENERGY USE

Article 4 (Basic Plans for the Rationalization of Energy Use) (1) The Minister ofKnowledge Economy shall formulate basic plans (hereinafter referred to as “basic plans”)for the rationalization of energy use to ensure that nationals can use energy in a rationalmanner. <Amended by Act No. 8852, Feb. 29, 2008>(2) Basic plans shall include the following matters:<Amended by Act No. 8852, Feb. 29,2008>1. Transition to an energy-saving economic structure;2. Improving the efficiency of energy use;3. Technology development for the rationalization of energy use;4. Publicity and education for the rationalization of energy use;5. Substitution between energy resources;6. Safety management of heat-using machinery, equipment or materials;7. Matters concerning the implementation of the system for price indication for the

rationalization of energy use;8. Measures to reduce the emission of greenhouse gases through the rational use of

energy; and9. Other matters necessary in promoting the rationalization of energy use, and as

prescribed by the Ordinance of the Ministry of Knowledge Economy.(3) When the Minister of Knowledge Economy intends to formulate basic plans underparagraph (1), he/she shall consult with the heads of the relevant administrative agencies.In such cases, he/she may request the heads of the relevant administrative agencies tosubmit the necessary data.<Amended by Act No. 8852, Feb. 29, 2008>

Article 5 (National Energy-Saving Promotion Committee) (1) The Government shallestablish the National Energy-Saving Promotion Committee to formulate the basic plansand deliberate on other important matters.(2) The Minister of Knowledge Economy shall be the chairperson of the National Energy-Saving Committee, and the Committee shall be composed of not more than 25 members,including the chairperson.<Amended by Act No. 9373, Jan. 30, 2009>(3) Matters concerning the composition and operation of the National Energy-SavingCommittee shall be prescribed by Presidential Decree.

Article 6 (Implementation Plans for the Rationalization of Energy Use) (1) Theheads of the relevant administrative agencies, the Special Metropolitan City Mayor,Metropolitan City Mayor, Do Governor or Special Self-Governing Province Governor(hereinafter referred to as “Mayor/Do Governor”) shall formulate and execute theimplementation plans for the rationalization of energy use, in accordance with the basicplans.(2) The heads of the relevant administrative agencies and Mayors/Do Governors shall



submit the implementation plans under paragraph (1) and the outcomes of executionthereof to the Minister of Knowledge Economy.<Amended by Act No. 8852, Feb. 29,2008>

Article 7 (Measures for the Stabilization of Supply and Demand) (1) In order toprepare for the disruptions in the supply and demand of energy due to any change indomestic and foreign energy circumstances, the Minister of Knowledge Economy mayimpose responsibility to secure energy storage facilities and store energy on major energyusers and energy suppliers prescribed by Presidential Decree. <Amended by Act No. 8852,Feb. 29, 2008>(2) If it is deemed that any major disruption in the supply and demand of energy occurs ormight occur due to any change in domestic and foreign energy condition, the Minister ofKnowledge Economy may adjust the following matters, issue an order to energy users,energy suppliers or owners and managers of energy-using machinery, equipment ormaterials, or take other necessary measures, to the extent necessary for stabilizing thesupply and demand of energy:<Amended by Act No. 8852, Feb. 29, 2008>1. Allotment of energy by area, major consumer and supplier;2. Operation of energy supply facilities;3. Reserve and storage of energy;4. Introduction, export, import, and consignment processing of energy;5. Exchange or distribution of energy among energy suppliers;6. Distribution facilities of energy, the use of such facilities, and distribution channels;7. Distribution of energy;8. Restriction or prohibition of the transfer of energy;9. Matters prescribed by Presidential Decree, such as the number of times and the ways of

using energy and the restriction or prohibition on the use of energy-using machinery,equipment or materials; and

10. Other matters determined by Presidential Decree to stabilize the supply and demandof energy.

(3) The Minister of Knowledge Economy may request the heads of the relevantadministrative agencies or local governments to provide any cooperation necessary forthe execution of the measures referred to in paragraph (2), and the heads of theadministrative agencies or local governments shall comply therewith.<Amended by ActNo. 8852, Feb. 29, 2008>(4) If it is deemed that the cause for which a measure under paragraph (2) is takendisappears, the Minister of Knowledge Economy shall, without delay, cancel suchmeasure.<Amended by Act No. 8852, Feb. 29, 2008>

Article 8 (Measures for the Efficient Use of Energy by State and Local Governments)(1) Persons falling under any of the following subparagraphs shall promote measuresnecessary for the efficient use of energy in accordance with the purposes of this Act andfor the reduction of the emission of greenhouse gases:



1. State;2. Local governments; or3. Public institutions under Article 4 (1) of the Act on the Management of Public

Institutions.(2) Details of measures necessary for the efficient use of energy and for the reduction ofthe emission of greenhouse gases, which shall be promoted by the State and localgovernments under paragraph (1), shall be determined by Presidential Decree.

Article 9 (Demand Management Investment Plans of Energy Suppliers) (1) Energysuppliers prescribed by Presidential Decree, from among energy suppliers, shall formulateand implement annual demand management investment plans to improve the efficiencyof the production, conversion, transport, storage or use of the relevant energy, shallpromote the reduction of energy demand and greenhouse gas emission, and shall submitsuch plans and outcomes of implementation to the Minister of Knowledge Economy. Thesame shall apply to revisions of annual demand management investment plans.<Amended by Act No. 8852, Feb. 29, 2008> (2) When changes in energy supply and demand, fluctuations in energy prices, or othergrounds prescribed by Presidential Decree occur, the Minister of Knowledge Economymay order energy suppliers to revise or amend demand management investment plansunder paragraph (1) and implement such plans.<Amended by Act No. 8852, Feb. 29,2008>(3) Energy suppliers under paragraph (1) may partially subsidize costs for annual demandmanagement investment projects to institutions specializing in demand managementprescribed by Presidential Decree.(4) The Minister of Knowledge Economy may formulate and implement measures tominimize costs and losses incurred by demand management investment to energysuppliers, so as to promote demand management investment by energy suppliers underparagraph (1).<Amended by Act No. 8852, Feb. 29, 2008>

Article 10 (Consultation on Energy Use Plans) (1) Any person who intends to execute aproject or install facilities (hereinafter referred to as “project supervisor”) using energy ina specific or larger scale as prescribed by Presidential Decree, such as urban developmentprojects, industrial complex development projects, etc., shall assess the impact ofexecuting such project or installing such facilities on the supply and demand of energyand the emission of greenhouse gases (limited to carbon dioxide) due to the consumptionof energy, shall formulate plans to supply the required energy, plans on the rational useof energy, and the evaluation thereof (hereinafter referred to as “energy use plans”), andshall submit them to the Minister of Knowledge Economy before such project is executedor such facilities are installed. <Amended by Act No. 8852, Feb. 29, 2008> (2) The Minister of Knowledge Economy shall consult with persons falling under any ofthe subparagraphs of Article 8 (1) (hereinafter referred to as “public project supervisors”),and from among project supervisors on energy use plans submitted under paragraph (1)



and shall listen to the opinions of persons, other than public project supervisors(hereinafter referred to as “private project supervisors”).<Amended by Act No. 8852, Feb.29, 2008>(3) Paragraphs (1) and (2) shall also apply to cases where project supervisors intend to altermatters prescribed by Presidential Decree, including the projected energy demand orplans for energy supply, from among energy use plans submitted under paragraph (1).(4) Project supervisors may allow any person capable of establishing energy use plans,such as any national or public research institute, Government-contributed researchinstitution, etc., to establish energy use plans on their behalf.(5) Details of energy use plans, procedures for holding consultations or listening toopinions, requirements for acting institutions under paragraphs (1) to (4), and othernecessary matters shall be determined by Presidential Decree.(6) The Minister of Knowledge Economy shall determine and publicly announce thestandards for calculating costs incurred in establishing energy use plans by proxy underparagraph (4).<Amended by Act No. 8852, Feb. 29, 2008>

Article 11 (Examination on Energy Use Plans) (1) When it is deemed that the details ofenergy use plans are not suitable for the supply and demand of energy, or insufficientefforts are made to help rationalize energy use and reduce the emission of greenhousegases (referring to only carbon dioxide), as the result of examining energy use plans, theMinister of Knowledge Economy may, as prescribed by Presidential Decree, request apublic project supervisor to adjust or supplement the energy use plans and advise aprivate project supervisor to adjust or supplement the energy use plans. When a publicproject supervisor has received a request for the adjustment and supplementation of theenergy use plans, he/she shall comply with it unless there is justifiable reason not tocomply with such request. <Amended by Act No. 8852, Feb. 29, 2008>(2) The Minister of Knowledge Economy may, if deemed necessary for examining energyuse plans, request a project supervisor to present any related materials.<Amended by ActNo. 8852, Feb. 29, 2008>(3) The criteria for and methods of examination of energy use plans as referred to inparagraph (1) and other necessary matters shall be determined by Ordinance of theMinistry of Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 12 (Post Management of Energy Use Plans) (1) The Minister of KnowledgeEconomy may examine or ascertain whether a project supervisor implements energy useplans or takes the measures requested or advised under Article 11 (1). <Amended by ActNo. 8852, Feb. 29, 2008>(2) The method of examination or ascertainment under paragraph (1) and other necessarymatters shall be determined by Presidential Decree.

Article 13 (Publicity for Rationalization of Energy Use)The Government shall take measures to publicly announce its energy policies, basic plans



and methods of efficiently using energy, for the rationalization of energy use.

Article 14 (Financial and Tax Support) (1) The Government may provide financial or taxsupport, subsidies or other support to investments in energy-saving facilities prescribed byPresidential Decree, the manufacture, installation or construction of energy-savingmachinery, equipment, materials or projects concerning the rationalization of energy useand the reduction of the emission of greenhouse gases, in an effort to rationalize energyuse, thereby reducing the emission of greenhouse gases.(2) When the Government provides support under paragraph (1), it may prefer to providesupport to small or medium enterprises under Article 2 of the Framework Act on Smalland Medium Enterprises.

CHAPTER POLICIES FOR THE RATIONALIZATION OF ENERGY USE

SECTION 1 POLICIES RELATED TO ENERGY-USING MACHINERY, EQUIPMENTOR MATERIALS

Article 15 (Designation of Efficiency Management Machinery, Equipment orMaterials) (1) The Minister of Knowledge Economy may, if deemed necessary for therationalization of energy use, determine and publicly announce the following matterswith respect to the energy-using machinery, equipment or materials which are widelydistributed, which consume a considerable quantity of energy, and which are prescribedby Ordinance of the Ministry of Knowledge Economy (hereinafter referred to as“efficiency management machinery, equipment or materials”): <Amended by Act No.8852, Feb. 29, 2008>1. Standards for target energy efficiency or target quantity consumed;2. Standards for minimum energy efficiency or maximum quantity consumed;3. Indication of energy efficiency or quantity consumed;4. Indication of energy efficiency rating standards and energy efficiency ratings;5. Measurement methods of energy efficiency or quantity consumed; and6. Other matters necessary for the management of efficiency management machinery,

equipment or materials, which are prescribed by Ordinance of the Ministry ofKnowledge Economy.

(2) Testing institutions designated by the Minister of Knowledge Economy (hereinafterreferred to as “efficiency management testing institutions”) shall measure the amounts ofenergy used by the relevant efficiency management machinery, equipment or materialsand the manufacturers or importers of efficiency management machinery, equipment ormaterials shall indicate energy efficiency rating or energy consumption efficiency in therelevant efficiency management machinery, equipment or materials. Provided, that anymanufacturer or importer equipped with testing facilities and specialized humanresources determined and publicly notified by the Minister of Knowledge Economy, who



has obtained approval from the Minister of Knowledge Economy, as prescribed byOrdinance of the Ministry of Knowledge Economy, may substitute the measurement ofefficiency management testing institutions with a self-measurement.<Amended by ActNo. 8852, Feb. 29, 2008>(3) Any manufacturer or importer of efficiency management machinery, equipment ormaterials shall report the outcome of measurement under paragraph (2) to the Ministerof Knowledge Economy, as prescribed by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>(4) Any manufacturer, importer or seller of efficiency management machinery, equipmentor materials who advertises efficiency management machinery, equipment or materials byusing advertising media prescribed by Ordinance of the Ministry of Knowledge Economy,shall include the energy efficiency ratings or energy efficiency under paragraph (2) in thedetails of advertisements.<Amended by Act No. 8852, Feb. 29, 2008>(5) Efficiency management testing institutions shall be those recognized as testinginstitutions under Article 23 of the Framework Act on National Standards, falling underany of the following subparagraphs:<Amended by Act No. 8852, Feb. 29, 2008>1. Testing or research institutes established by the State;2. Specific research institutes under Article 2 of the Support of Specific Research Institutes

Act; or3. Institutions recognized by the Minister of Knowledge Economy as having capabilities to

administer a test, which are equivalent to or better than those of the research institutesunder subparagraphs 1 and 2.

Article 16 (Post Management of Efficiency Management Machinery, Equipment orMaterials) (1) If any efficiency management machinery, equipment or materials aredifferent with the details publicly announced under Article 15 (1) 1, 3 or 4, the Minister ofKnowledge Economy may order a manufacturer, importer or distributor of the saidefficiency management machinery, equipment or materials to correct such differencewithin a prescribed period. <Amended by Act No. 8852, Feb. 29, 2008>(2) If any efficiency management machinery, equipment or materials fail to meet thestandards for the minimum energy efficiency publicly announced under Article 15 (1) 2, orexceeds the standards for the maximum quantity consumed, the Minister of KnowledgeEconomy may order a manufacturer, importer or distributor of the said efficiencymanagement machinery, equipment or materials to prohibit the production or salethereof.<Amended by Act No. 8852, Feb. 29, 2008>(3) If any efficiency management machinery, equipment or materials fail to meet thedetails publicly announced under Article 15 (1) 1 to 4, the Minister of KnowledgeEconomy may publish such facts.<Amended by Act No. 8852, Feb. 29, 2008>(4) The Minister of Knowledge Economy may conduct an investigation into whethercommercially available efficiency management machinery, equipment or materials meetthe details publicly announced under Article 15 (1), as determined by Ordinance of theMinistry of Knowledge Economy, when it is necessary for taking measures under



paragraphs (1) to (3).<Newly Inserted by Act No. 9373, Jan. 30, 2009>

Article 17 (Systems for Average Energy Efficiency) (1) The Minister of KnowledgeEconomy shall consult with the head of related administrative agency with regard to theaverage energy efficiency computed by dividing the total sum of energy efficiency of eachefficiency management machinery, equipment or materials by the total number of itemsof relevant machinery, equipment or materials, and shall publicly announce the averageenergy efficiency to be observed by the person who manufactures or imports and sellsmachinery, equipment or materials determined by Ordinance of the Ministry ofKnowledge Economy (hereafter in this Article referred to as “average efficiencymanagement machinery, equipment or materials”), for which it is deemed that animprovement of total energy efficiency is specially required, such as automobiles, etc.provided for in Article 3 (1) of the Automobile Management Act AutomobileManagement Act. <Amended by Act No. 8852, Feb. 29, 2008>(2) The Minister of Knowledge Economy may order the person who manufactures, orimports and sells any average efficiency management machinery, equipment or materialswho fall short of the average energy efficiency publicly announced under paragraph (1)(hereafter in this Article referred to as “standard average energy efficiency”), to improvehis/her average energy efficiency within a specific period.<Amended by Act No. 8852, Feb.29, 2008>(3) The Minister of Knowledge Economy may publicly announce the details, with respectto persons who have failed to comply with the improvement order under paragraph(2).<Amended by Act No. 8852, Feb. 29, 2008>(4) Any person who manufactures, or imports and sells average efficiency managementmachinery, equipment or materials shall submit data concerning sales, which arerecognized as necessary for computing energy efficiency, and data concerning themeasurement of efficiency to the Minister of Knowledge Economy.<Amended by Act No.8852, Feb. 29, 2008>(5) The method of computing average energy efficiency, improvement period, andperformance procedure of improvement order, method of public announcement andother necessary matters shall be determined by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 18 (Designation of Products Subject to Reduction of Standby Power)The Minister of Knowledge Economy shall determine and publicly announce thefollowing matters, relating to products prescribed by Ordinance of the Ministry ofKnowledge Economy (hereinafter referred to as “products subject to the reduction ofstandby power”), which are energy-using machinery, equipment or materials thatrequires the reduction of power (hereinafter referred to as “standby power”) consumed,that waits for turn-on signals or that fails to perform their main functions, whenconnected to the outside power supply:<Amended by Act No. 8852, Feb. 29, 2008; Act No. 9373, Jan. 30, 2009>



1. Scope of application of each product subject to the reduction of standby power;2. Standards for the reduction of standby power;3. Methods for the measurement of standby power;4. Indication of products (hereinafter referred to as “excellent products subject to the

reduction of standby power”) subject to the reduction of standby power, which showthe excellent capacity to reduce standby power; and

5. Other matters necessary for the management of products subject to the reduction ofstandby power, which are prescribed by Ordinance of the Ministry of KnowledgeEconomy.

Article 19 (Designation of Products Subject to Warning Signs of Standby Power)(1) The Minister of Knowledge Economy shall determine and publicly announce thefollowing matters, relating to products determined by Ordinance of the Ministry ofKnowledge Economy (hereinafter referred to as “products subject to warning signs ofstandby power”), which must comply to the standards for the reduction of standby powerunder subparagraph 2 of Article 18, so as to raise the efficiency of energy use through thereduction of standby power, from among products subject to the reduction of standbypower: <Amended by Act No. 8852, Feb. 29, 2008>1. Scope of application of each product subject to warning signs of standby power;2. Indication of products subject to warning signs of standby power; and3. Other matters necessary for the management of products subject to warning signs of

standby power, which are prescribed by Ordinance of the Ministry of KnowledgeEconomy.

(2) Any manufacturer or importer of products subject to warning signs of standby powershall undergo measurement of products subject to warning signs of standby power by atesting institution (hereinafter referred to as “standby power testing institution”)designated by the Minister of Knowledge Economy. Provided, that any manufacturer orimporter equipped with testing facilities or specialized human resources determined andpublicly announced by the Minister of Knowledge Economy, who has obtained approvalfrom the Minister of Knowledge Economy, as prescribed by Ordinance of the Ministry ofKnowledge Economy, may replace the measurement of standby power testinginstitutions by a self-measurement.<Amended by Act No. 8852, Feb. 29, 2008>(3) Any manufacturer or importer of products subject to warning signs of standby powershall report the outcome of measurement under paragraph (2) to the Minister ofKnowledge Economy, as prescribed by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>(4) When the outcome of measurement under paragraph (2) shows that the relevantproducts fall short of the standards for the reduction of standby power undersubparagraph 2 of Article 18, any manufacturer or importer of products subject towarning signs of standby power shall attach warning signs of standby power to suchproducts.(5) Anyone who intends to be designated as a standby power testing institution under



paragraph (2) should meet all of the following requirements and apply for thedesignation to the Minister of Knowledge Economy, as prescribed by Ordinance of theMinistry of Knowledge Economy:<Amended by Act No. 8852, Feb. 29, 2008>1. Anyone who intends to be designated as a standby power testing institution must be

any of the following:(a) Testing or research institute established by the State;(b) Specific research institute under Article 2 of the Support of Specific Research

Institutes Act;(c) Institution recognized as a testing or examination institution under Article 23 of the

Framework Act on National Standards; or(d) Institutions recognized by the Minister of Knowledge Economy as having

capabilities to administer a test, which are equivalent to or better than those ofresearch institutes under items (a) and (b);

2. Anyone who intends to be designated as a standby power testing institution shouldhave testing facilities or specialized human resources of product subject to thereduction of standby power which are determined and publicly recognized by theMinister of Knowledge Economy.

Article 20 (Indication of Products Excellent in Reduction of Standby Power) (1)When any manufacturer or importer of products subject to the reduction of standbypower intends to indicate that relevant products are products excellent in the reductionof standby power, he/she shall be issued with a determination that the relevant productsmeet standards for the reduction of standby power under subparagraph 2 of Article 18,after standby power testing institutions measure the relevant products: Provided, Thatany one who has received approval from the Minister of Knowledge Economy under theproviso to Article 19 (2) may replace the measurements of standby power testinginstitutions by a self-measurement. <Amended by Act No. 8852, Feb. 29, 2008>(2) Any manufacturer or importer who indicates products excellent in the reduction ofstandby power, after a determination under paragraph (1) is issued, shall report outcomesof measurement under paragraph (1) to the Minister of Knowledge Economy, asprescribed by Ordinance of the Ministry of Knowledge Economy.<Amended by Act No.8852, Feb. 29, 2008>(3) The Minister of Knowledge Economy may order persons falling under any of thesubparagraphs of Article 8 (1) to preferably purchase products that are effective in thereduction of standby power, or to encourage factories, places of business or collectivehousing areas to install or use such products, when it is deemed necessary to promote thedistribution of products effective in the reduction of standby power.<Amended by ActNo. 8852, Feb. 29, 2008>

Article 21 (Post Management of Products Subject to Reduction of Standby Power)(1) When products effective in the reduction of standby power fall short of standards forthe reduction of standby power under subparagraph 2 of Article 18, the Minister of



Knowledge Economy may order any manufacturer or importer of products subject to thereduction of standby power to make a correction within a specific period, as prescribed byOrdinance of the Ministry of Knowledge Economy. <Amended by Act No. 8852, Feb. 29,2008>(2) When any manufacturer or importer of products subject to the reduction of standbypower fails to comply with an order for correction under paragraph (1), the Minister ofKnowledge Economy may announce such fact.<Amended by Act No. 8852, Feb. 29, 2008>

Article 22 (Certification of High-Efficiency Energy Machinery, Equipment orMaterials) (1) The Minister of Knowledge Economy shall determine and publiclyannounce the following matters, with respect to energy-using machinery, equipment ormaterials prescribed by Ordinance of the Ministry of Knowledge Economy, and thedistribution of which needs to be promoted due to high efficiency in energy use(hereinafter referred to as “machinery, equipment or materials subject to the certificationof high-efficiency energy”): <Amended by Act No. 8852, Feb. 29, 2008>1. The scope of application of item of machinery, equipment or materials subject to the

certification of high-efficiency energy;2. Standards, methods and procedures for the certification of machinery, equipment or

materials subject to the certification of high-efficiency energy;3. Methods for measuring the performance of machinery, equipment or materials subject

to the certification of high-efficiency energy;4. Indication of the certification of machinery, equipment or materials (hereinafter

referred to as “high-efficiency energy machinery, equipment or materials”) subject tothe certification of high-efficiency energy, which shows excellent efficiency in energyuse; and

5. Other matters necessary for the management of machinery, equipment or materialssubject to the certification of high-efficiency energy, prescribed by Ordinance of theMinistry of Knowledge Economy.

(2) When any manufacturer or importer of machinery, equipment or materials subject tothe certification of high-efficiency energy indicates that the relevant machinery,equipment or materials are high-efficiency energy machinery, equipment or materials,he/she shall undergo evaluation by a testing institution (hereinafter referred to as “highefficiency testing institution”) designated by the Minister of Knowledge Economy,whether the relevant energy-using machinery, equipment or materials meet thestandards for certification under paragraph (1) 2 and when said standards are met shallobtain certification from the Minister of Knowledge Economy<Amended by Act No. 8852,Feb. 29, 2008>(3) Anyone who intends to obtain the certification of high-efficiency energy machinery,equipment or materials under paragraph (2) should apply for certification to the Ministerof Knowledge Economy, as prescribed by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>(4) When machinery, equipment or materials subject to the certification of high-efficiency



energy under paragraph (3) meet the standards for certification under paragraph (1) 2,the Minister of Knowledge Economy shall grant the certification to such machinery,equipment or materials.<Amended by Act No. 8852, Feb. 29, 2008>(5) No one, other than those persons who have obtained certification under paragraph(4), may indicate that the relevant machinery, equipment or materials subject to thecertification of high-efficiency energy are high-efficiency energy machinery, equipment ormaterials.(6) The Minister of Knowledge Economy may order persons falling under any of thesubparagraphs of Article 8 (1) to preferably purchase high-efficiency energy machinery,equipment or materials, or to encourage factories, places of business or collective housingareas to install or use such machinery, equipment or materials, when it is deemednecessary for promoting the distribution of high-efficiency energy machinery, equipmentor materials.<Amended by Act No. 8852, Feb. 29, 2008>(7) Anyone who intends to be designated as a high efficiency testing institution underparagraph (2) should meet all of the following requirements and should apply fordesignation to the Minister of Knowledge Economy, as prescribed by Ordinance of theMinistry of Knowledge Economy:<Amended by Act No. 8852, Feb. 29, 2008>1. Anyone who intends to be designated as a high efficiency testing institution must be

any of the following:(a) Testing or research institute established by the State;(b) Specific research institute under Article 2 of the Support of Specific Research

Institutes Act;(c) Institution recognized as a testing or examination institution under Article 23 of the

Framework Act on National Standards; or(d) Institutions recognized by the Minister of Knowledge Economy as having the

capabilities to administer a test, which are equivalent to or better than those of theresearch institutes under items (a) and (b);

2. Anyone who intends to be designated as a high efficiency testing institution shouldhave testing facilities or specialized human resources of machinery, equipment ormaterials subject to the certification of high-efficiency energy which are determinedand publicly recognized by the Minister of Knowledge Economy, by product subject tothe reduction of standby power.

Article 23 (Post Management of High-Efficiency Energy Machinery, Equipment orMaterials) (1) When high-efficiency energy machinery, equipment or materials fallunder subparagraph 1, the Minister of Knowledge Economy shall revoke the certificationthereof, but when such machinery, equipment or materials fall under subparagraph 2, theMinister of Knowledge Economy may either revoke the certification or issue an order tostop the use of the certification within six months: <Amended by Act No. 8852, Feb. 29,2008>1. When any manufacturer or importer obtains certification by fraud or other wrongful

means;



2. When high-efficiency energy machinery, equipment or materials fall short of thestandards for certification under Article 22 (1) 2.

(2) The Minister of Knowledge Economy shall not grant certification to high-efficiencyenergy machinery, equipment or materials whose certification has been revoked underparagraph (1) within one year from the date of revocation as determined by Ordinance ofthe Ministry of Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 24 (Cancellation of Designation as Testing Institutions) (1) When anyefficiency management testing institution, standby power testing institution or highefficiency testing institution falls under any of the following subparagraphs, the Ministerof Knowledge Economy may cancel the designation or order the suspension of thebusiness by fixing a period not exceeding six months: Provided, that when such institutionfalls under subparagraph 1 or 2, the designation thereof shall be cancelled: <Amended byAct No. 8852, Feb. 29, 2008>1. When it acquires designation by fraud or other wrongful means;2. When it administers a test during the period of business suspension;3. When it refuses or delays a test without any justifiable ground;4. When it administers a test, failing to comply with methods for measurement

determined and publicly announced by the Minister of Knowledge Economy; or5. When it fails to meet the standards for designation as a testing institution under Article

15 (5), 19 (5) or 22 (7).(2) When any person who has obtained approval of a self-measurement under the provisoto Article 15 (2) or 19 (2) falls under subparagraph 1 or 2, the Minister of KnowledgeEconomy shall revoke such approval, and when he/she falls under subparagraph 3 or 4,the Minister of Knowledge Economy may revoke such approval or issue an order tosuspend a self-measurement by fixing a period within six months:<Amended by Act No.8852, Feb. 29, 2008>1. When he/she obtains approval by fraud or other wrongful means;2. When he/she takes a measurement during the period of business suspension;3. When he/she takes a measurement, failing to comply with the standards for

measurements determined and publicly notified by the Minister of KnowledgeEconomy;

4. When he/she fails to meet the standards for testing facilities or specialized humanresources determined and publicly announced by the Minister of Knowledge Economy.

SECTION 2 POLICIES RELATED TO INDUSTRIES AND BUILDINGS

Article 25 (Support to Enterprise Specializing in Energy Saving) (1) The Governmentmay provide necessary support to energy-saving projects and projects to reduce theemission of greenhouse gases by saving energy, conducted by any person who operatesthe following business entrusted by a third person and has registered with the Minister ofKnowledge Economy (hereinafter referred to as “enterprise specialized in energy



saving”): <Amended by Act No. 8852, Feb. 29, 2008>1. Management and service projects of energy-using facilities for energy saving;2. Projects concerning investment in energy-saving facilities prescribed in Article 14 (1);3. Other energy-saving projects determined by Presidential Decree.(2) Anyone who intends to be registered as an enterprise that specialized in energy savingshould meet the standards for the registration of machinery, equipment or materials,assets or technical human resources and should apply for registration to the Minister ofKnowledge Economy, as prescribed by Presidential Decree.<Amended by Act No. 8852,Feb. 29, 2008>

Article 26 (Revoking Registration of Enterprise Specializing in Energy Saving)Where an enterprise specializing in energy saving falls under any of the followingsubparagraphs, the Minister of Knowledge Economy may revoke the registration orsuspend the support as prescribed by this Act. Provided, that where such enterprise fallsunder subparagraph 1, the registration thereof shall be revoked:<Amended by Act No.8852, Feb. 29, 2008>1. When it obtains registration as prescribed in Article 25 (1) by fraud or other wrongful

means;2. When it receives support under Article 14 (1) by fraud or other wrongful means or uses

subsidies for purposes other than their original purpose;3. When any enterprise, which has been registered as an enterprise specializing in energy

saving, applies for the revocation of such registration;4. When it allows another person to operate the business falling under any of the

subparagraphs of Article 25 (1) by using its name or title, or lends to other persons theregistration certificate issued by the Minister of Knowledge Economy to enterprisesspecialized in energy saving;

5. When it falls short of standards for registration under Article 25 (2);6. When it fails to submit a report under Article 66 (1), or submits a false report, or

refuses, interferes with, or evades an inspection prescribed in the said paragraph; or7. Where it fails to commence business within three years after its registration without

any justifiable reason, or it has no business performance results for three consecutiveyears.

Article 27 (Restrictions on Registration of Enterprise Specializing in Energy Saving) Any enterprise specializing in energy saving, the registration of which is revoked underArticle 26, shall be prohibited from having itself registered again within two years underArticle 25 (2) from the date on which its registration is revoked.

Article 28 (Support for Companies which Conclude Voluntary Agreements) (1)When any energy user or energy supplier guarantees (hereinafter referred to as“voluntary agreements”) the Government or local governments to voluntarily establishplans with an objective of reducing the emission of greenhouse gases by saving energy



and using energy in a rational way, and the methods for the implementation of suchplans and methods, requires the investment in energy-saving facilities or other facilitiesprescribed by Presidential Decree, the Government may provide support for suchinvestments.(2) Necessary matters concerning the objectives of voluntary agreements and standardsfor or evaluation of methods for implementation thereof shall be prescribed byOrdinance of the Ministry of Knowledge Economy, in consultation with the Minister ofEnvironment.<Amended by Act No. 8852, Feb. 29, 2008>

Article 29 (Registration and Management of Records of Reduction of GreenhouseGases) (1) Where any enterprise that has voluntarily entered into agreements or anyenterprise that specializes in energy saving files an application for the registration of itsrecord of reduction in the emission of greenhouse gases through the rationalization ofenergy use, the Government shall keep and maintain said record of reduction.(2) Necessary matters concerning applications, registration, and management referred toin paragraph (1) shall be prescribed by Presidential Decree.

Article 30 (Education and Training, Fostering of Human Resources, to ReduceEmission of Greenhouse Gases) (1) The Government may, if it is deemed necessary toreduce the emission of greenhouse gases, conduct education and training for persons incharge of the affairs related to reduce the emission of greenhouse gases, includingindustrial workers.(2) The Government may designate any graduate school or graduate school universityfrom among graduate schools provided for in Article 29 of the Higher Education Act andfrom among the graduate school universities provided for in Article 30 of the HigherEducation Act as a specialized graduate school for climate change, in order to fosterprofessional human resources necessary to reduce the emission of greenhouse gases.(3) The Government may provide support to operate specialized graduate schools forclimate change designated pursuant to paragraph (2).(4) Necessary matters concerning persons eligible for education and training, details ofeducation and training under paragraph (1), procedures for designating specializedgraduate schools for climate change under paragraph (2) and details of support underparagraph (3) shall be prescribed by Presidential Decree.

Article 31 (Report, etc. of Excessive Energy-Consuming Business Operator) (1)Anyone for whom the quantity of energy consumed is not less than the standard quantityprescribed by Presidential Decree, (hereinafter referred to as “excessive energy-consumingbusiness operator”) shall report the following matters to the Mayor/Do Governor havingjurisdiction over the area where the relevant energy-using facilities are located, not laterthan January 31 of each year, as prescribed by Ordinance of the Ministry of KnowledgeEconomy: <Amended by Act No. 8852, Feb. 29, 2008>1. Quantity of energy consumed and the products manufactured in the previous year;



2. Estimated quantity of energy to be consumed and the products to be manufactured inthe current year;

3. Current status of energy-using machinery, equipment or materials;4. Outcomes of the rationalization of energy use in the previous year, and plans for the

rationalization of energy use in the current year; and5. Current status of persons in charge of the affairs referred to in subparagraphs 1 to 4

(hereinafter referred to as “person in charge of energy management”).(2) The Mayor/Do Governor shall, upon receipt of the report under paragraph (1), informthe Minister of Knowledge Economy not later than the end of February of eachyear.<Amended by Act No. 8852, Feb. 29, 2008>

Article 32 (Energy Examinations) (1) The Minister of Knowledge Economy shalldetermine and publicly announce the standards, by section, necessary for an efficientmanagement of energy (hereinafter referred to as “energy management standards”) byany excessive energy-consuming business operator, after consulting with the head of therelevant administrative agency. <Amended by Act No. 8852, Feb. 29, 2008>(2) Any excessive energy-consuming business operator shall undergo an examination byan institution specializing in energy examination designated by the Minister ofKnowledge Economy (hereinafter referred to as “examination institution”) as to whetherhis/her place of business efficiently uses energy (hereinafter referred to as “energyexamination”) during the period prescribed by Presidential Decree within three years.Provided, that this shall not apply to apartment houses and power plants where energyexamination is not physically or technically possible, or where the effect of energyexamination is marginal, and other place of business determined by Ordinance of theMinistry of Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>(3) The Minister of Knowledge Economy shall manage and supervise an examinationinstitution, by requiring such institution to submit data concerning energy examination,as prescribed by Presidential Decree.<Amended by Act No. 8852, Feb. 29, 2008>(4) The Minister of Knowledge Economy may exempt from energy examination or mayreduce the frequency of energy examination as prescribed by Ordinance of the Ministryof Knowledge Economy any excessive energy-consuming business operator recognized asefficient in reducing energy consumption.<Amended by Act No. 8852, Feb. 29, 2008>(5) If it is found as a result of energy examination that an excessive energy-consumingbusiness operator fails to observe the energy management standards, the Minister ofKnowledge Economy may provide such business operator guidance for implementationof energy management standards (hereinafter referred to as “energy managementguidance”).<Amended by Act No. 8852, Feb. 29, 2008>(6) The Minister of Knowledge Economy may subsidize all or part of the expenses incurredby any excessive energy-consuming business operator in undergoing energy examination.In such cases, the subject matter, size and procedure of support shall be determined byPresidential Decree.<Amended by Act No. 8852, Feb. 29, 2008>(7) The designation of an examination institution shall be determined by Presidential



Decree, and the designation procedure for an examination institution and othernecessary matters shall be determined by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>(8) The scope and methods of energy examination and other necessary matters shall bedetermined and publicly announced by the Minister of Knowledge Economy.<Amendedby Act No. 8852, Feb. 29, 2008>

Article 33 (Cancellation of Designation as Examination Institutions)Where any person who is designated as an examination institution falls under any of thefollowing subparagraphs, the Minister of Knowledge Economy may cancel thedesignation or order the suspension of business for a period not exceeding two years.Provided, that in cases falling under subparagraph 1, the designation thereof shall becancelled:<Amended by Act No. 8852, Feb. 29, 2008>1. Where it acquires designation by fraud or other wrongful means;2. Where it performs energy examination in a profoundly inappropriate way in view of

energy management standards;3. Where it fails to meet the designation criteria under Article 32 (7); or4. Where it fails to submit a report under Article 66 (1), submits a false report or refuses,

obstructs or evades any inspection under the same paragraph.

Article 34 (Orders for Improvement) (1) The Minister of Knowledge Economy may, ifdeemed necessary to reduce energy loss factors as a result of energy managementguidance, order an excessive energy-consuming business operator to improve suchfactors. <Amended by Act No. 8852, Feb. 29, 2008>(2) The requirements and procedures for orders for improvement referred to in paragraph(1) shall be determined by Presidential Decree.

Article 35 (Establishment, etc. of Prime Target Unit of Energy) (1) The Minister ofKnowledge Economy shall, if deemed necessary to increase the efficiency of energy use,determine and publicly announce the energy use target by unit of productsmanufactured using energy or by unit area of a building (hereinafter referred to as“prime target unit of energy”) in consultation with the head of the relevantadministrative agency. <Amended by Act No. 8852, Feb. 29, 2008>(2) The Minister of Knowledge Economy may provide funds incurred in achieving theprime target unit of energy, as prescribed by Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 36 (Utilization of Waste Heat) (1) Each energy user shall endeavor to utilizewaste-produced heat in the place of business and proactively cooperate with any personwho will obtain waste heat not used in the place of business of the energy user to beutilized outside the relevant place of business.(2) If he/she deems it necessary, to promote the utilization of waste-produced heat, the



Minister of Knowledge Economy may recommend energy users producing waste heat toutilize the same jointly or to supply waste heat to any third person. Provided, that whereany consultation between the interested parties on the joint utilization of waste heat orits supply to a third party is not achieved or is impossible, he/she may adjust it.<Amendedby Act No. 8852, Feb. 29, 2008>(3) Any business operator prescribed by the Integrated Energy Supply Act shall proactivelyendeavor to utilize waste heat generated from incineration facilities or industrial facilitiesin the area designated as an area subject to the supply of integrated energy under Article5 of the same Act.

Article 36-2 (Designation of Heating and Cooling Temperature RestrictionBuildings) (1) The Minister of Knowledge Economy may designate any of the followingbuildings as a heating and cooling temperature restriction building by determining therestrictions on heating or cooling temperatures or the period of restriction, when it isdeemed necessary for saving energy and using energy in a rational way: 1. Any building used by a person falling under any of the subparagraphs of Article 8 (1)

for his/her business; or2. Any building where the quantity of energy used is within the standard quantity

prescribed by Presidential Decree, from among energy-using facilities of excessiveenergy-consuming business operators.

(2) The Minister of Knowledge Economy shall, when he/she designates any heating andcooling temperature restriction by determining restrictions on heating or coolingtemperatures or the period of restriction under paragraph (1), give notice according tothe following subparagraphs and shall publicly announce such fact:1. Any building falling under paragraph (1)1: Management institutions (referring to the

head of the relevant institution, when no management institution exists; hereinafterthe same shall apply) shall be notified;

2. Any building falling under paragraph (1) 2: Excessive energy-consuming businessoperators shall be notified.

(3) The management institution of a building (hereinafter referred to as “heating andcooling temperature restriction building”) designated as a building restricting heatingand cooling temperatures under paragraphs (1) and (2) or any excessive energy-consuming business operator shall maintain and manage heating and coolingtemperatures of the particular building to ensure that such temperatures are suitable forrestricted temperatures.(4) The Minister of Knowledge Economy may check whether the management institutionof a heating and cooling temperature restriction building or any excessive energy-consuming business operator maintains or manages the heating and coolingtemperatures of the particular building within the scope of the restricted temperatures orascertain the actual status thereof.(5) Necessary matters concerning standards for determining restrictions on heating andcooling temperatures under paragraph (1), standards for the designation of a heating



and cooling temperature restriction building or methods for checking under paragraph(4) shall be prescribed by Ordinance of the Ministry of Knowledge Economy.[This Article Newly Inserted by Act No. 9373, Jan. 30, 2009]

Article 36-3 (Measures for the Maintenance and Management of Heating andCooling Temperature Restriction Buildings) When the management of the heating and cooling temperature restriction buildings orexcessive energy-consuming business operators fail to maintain or manage the heatingand cooling temperatures of the particular building within the scope of the restrictedtemperatures under Article 36-2 (3), the Minister of Knowledge Economy mayrecommend the taking of measures necessary for the suitable maintenance ormanagement of heating and cooling temperatures, such as controlling heating andcooling temperatures, or order the taking of corrective measures.[This Article Newly Inserted by Act No. 9373, Jan. 30, 2009]

CHAPTER MANAGEMENT OF HEAT-USING MACHINERY,EQUIPMENT OR MATERIALS

Article 37 (Specific Heat-Using Machinery, Equipment or Materials)Any person who is in the business (hereinafter referred to as “business of constructionexecution”) of installing, constructing heat-using machinery, equipment or materialsdetermined by Ordinance of the Ministry of Knowledge Economy (hereinafter referred toas “specific heat-using machinery, equipment or materials”), who is required to undertakesafety control, hazard prevention, and efficiency management of energy use in the courseof manufacture, installation, construction and utilization, from among heat-usingmachinery, equipment or materials, or who is in the business of washing a pipe thereof,shall register with the Mayor/Do Governor pursuant to Article 9 (1) of the Framework Acton the Construction Industry.<Amended by Act No. 8852, Feb. 29, 2008>

Article 38 (Requests for the Cancellation of the Registration of the ConstructionBusiness Execution)Where any person (hereinafter referred to as “constructor”) who has filed registration ofthe business of construction under Article 37 causes serious problems to the safety of thefacilities or the management of energy efficiency because of the poor installation, theconstruction of specific heat-using machinery, equipment or materials, or the poorwashing of a pipe thereof intentionally or by negligence, the Minister of KnowledgeEconomy may request the Mayor/Do Governor to cancel such registration or suspend allor part of the particular construction business.<Amended by Act No. 8852, Feb. 29, 2008>

Article 39 (Machinery and Equipment Subject to Inspection) (1) Any manufacturer ofmachinery and equipment subject to inspection (hereinafter referred to as “machinery



and equipment subject to inspection”), which are determined by Ordinance of theMinistry of Knowledge Economy, from among specific heat-using machinery, equipmentor materials, shall undergo an inspection by the Mayor/Do Governor with regard to themanufacture of such machinery and equipment. <Amended by Act No. 8852, Feb. 29,2008>(2) Any person falling under any of the following subparagraphs (hereinafter referred toas “installer of machinery and equipment subject to inspection”) shall undergo aninspection by the Mayor/Do Governor, as determined by Ordinance of the Ministry ofKnowledge Economy:<Amended by Act No. 8852, Feb. 29, 2008>1. A person who intends to install, or to use by reengineering, machinery and equipment

subject to inspection;2. A person who intends to use machinery and equipment subject to inspection by

altering their place of installation; or3. A person who intends to reuse machinery and equipment subject to inspection after

suspending their use.(3) The Mayor/Do Governor shall deliver without delay the certificate specifying thevalidity period of inspection to the manufacturer or installer of machinery and equipmentsubject to inspection as proof that it passed the inspection under paragraph (1) or (2).(4) Any person who intends to continue the use of the machinery and equipment subjectto inspection, which validity term of inspection expires, shall undergo a re-inspection bythe Mayor/Do Governor, as determined by the Ordinance of the Ministry of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>(5) Machinery and equipment which fail to pass the inspection under paragraph (1), (2) or(4) may not be used. Provided, that the Mayor/Do Governor may permit the continueduse of any machinery and equipment subject to inspection which fail to pass theinspection as to the items under paragraph (4) prescribed by the Ordinance of theMinistry of Knowledge Economy, within the scope not to undermine the safety controland hazard prevention of such machinery and equipment subject to inspection, oncondition that it should pass such inspection within the period prescribed by Ordinance ofthe Ministry of Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>(6) In any inspection under paragraphs (1), (2) and (4), the Mayor/Do Governor may whollyor partially exempt an inspection, within the scope that will not undermine the safetycontrol and hazard prevention of machinery and equipment subject to inspection, asprescribed by Ordinance of the Ministry of Knowledge Economy.<Amended by Act No.8852, Feb. 29, 2008>(7) Any installer of machinery and equipment subject to inspection shall, when fallingunder any of the following subparagraphs, report to the Mayor/Do Governor, asdetermined by Ordinance of the Ministry of Knowledge Economy:<Amended by Act No.8852, Feb. 29, 2008>1. Where machinery and equipment subject to inspection have been destroyed;2. Where the utilization of machinery and equipment subject to inspection has been

suspended;



3. Where an installer of machinery and equipment subject to inspection has beenchanged; or

4. Where machinery and equipment subject to inspection prescribed by Ordinance of theMinistry of Knowledge Economy, from among machinery and equipment subject toinspection, the inspection of which is wholly or partially exempted under paragraph (6),have been installed.

(8) The details and standards for the inspection of machinery and equipment subject toinspection and other necessary matters shall be determined by Ordinance of the Ministryof Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 40 (Appointment of Operator of Machinery and Equipment Subject toInspection) (1) Any installer of machinery and equipment subject to inspection shallappoint an operator of such machinery and equipment (hereinafter referred to as“operator of machinery and equipment subject to inspection”) for the safety control,hazard prevention, and efficiency management of energy use of the machinery andequipment subject to inspection.(2) The standards for qualification and appointment of operators of machinery andequipment subject to inspection shall be determined by Ordinance of the Ministry ofKnowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>(3) Where any installer of machinery and equipment subject to inspection appoints ordismisses an operator of machinery and equipment subject to inspection, or the operatorretires from office, he/she shall report it to the Mayor/Do Governor, as prescribed byOrdinance of the Ministry of Knowledge Economy.<Amended by Act No. 8852, Feb. 29,2008>(4) Where any installer of machinery and equipment subject to inspection dismisses anoperator of machinery and equipment subject to inspection, or the operator retires fromoffice, he/she shall appoint another operator of machinery and equipment subject toinspection, before the dismissal or retirement. Provided, that if it falls under a causeprescribed by Ordinance of the Ministry of Knowledge Economy, the appointment ofanother operator of machinery and equipment subject to inspection may be postponedupon approval of the Mayor/Do Governor.<Amended by Act No. 8852, Feb. 29, 2008>

CHAPTER ORGANIZATION OF CONSTRUCTORS

Article 41 (Establishing the Organization of Constructors) (1) Constructors may, forthe maintenance of their dignity, the advancement of technology, the improvement ofconstruction execution systems, and the sound development of the construction business,establish the organization of constructors upon the authorization of the Minister ofKnowledge Economy. <Amended by Act No. 8852, Feb. 29, 2008> (2) The organization of constructors shall be a juridical person.(3) The organization of constructors shall be established by completing the registration of



incorporation.(4) Necessary matters concerning the establishment, matters to be entered in the Articlesof association, and supervision of the organization of constructors shall be prescribed byPresidential Decree.

Article 42 (Membership Qualification of the Organization of Constructors)Any constructor may join the organization of constructors.

Article 43 (Proposal and Advice)The organization of constructors may make a proposal for matters concerningconstruction business to the Government or provide advice thereon as requested by theGovernment.

Article 44(Application Mutatis Mutandis of the Civil Act)Except as provided by this Act, the provisions of the Civil Act concerning an incorporatedassociation shall be applicable mutatis mutandis to the organization of constructors.

CHAPTER ENERGY MANAGEMENT CORPORATION

Article 45 (Establishment of Energy Management Corporation) (1) In order toefficiently promote a rationalization project of energy use, the Energy ManagementCorporation (hereinafter referred to as the “Corporation”) shall be established. (2) The Government or any person may make contribution to cover the funds incurred inthe establishment, operation and projects of the Corporation.(3) The times and methods of contribution under paragraph (2) and other necessarymatters shall be determined by Presidential Decree.

Article 46 (Legal Personality)The Corporation is a juristic person.

Article 47 (Office) (1) The seat of the principal office of the Corporation shall bedetermined by the Articles of association of the Corporation.(2) The Corporation may establish any branch offices, training institutes, business offices,or affiliated organization, at any necessary place, upon approval of the Minister ofKnowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 48 (Articles of Association)The following matters, other than matters to be entered under Article 16 (1) of the Act onthe Management of Public Institutions, shall be included in the Articles of association ofthe Corporation:1. Matters concerning branch offices, training institutes and business offices;



2. Matters concerning the operation and management of affiliated organizations;3. Matters concerning property; and4. Matters concerning the enactment, amendment or repeal of rules and provisions.This Article Wholly Amended by Act No. 9373, Jan. 30, 2009]

Article 49 (Registration of Incorporation) (1) The Corporation shall come into existenceupon registration of the Articles of incorporation at the seat of its principal office.(2) The registration of incorporation under paragraph (1) shall include the followingmatters:1. Objectives;2. Title;3. Principal office, branch offices, training institutes and business offices;4. Names and addresses of executives; and5. Methods of public announcement.(3) Matters necessary for registration, other than the registration of incorporation, shallbe determined by Presidential Decree.

Article 50 (Prohibition of Use of Similar Title) No person, other than the Corporation, may use the title “Energy Management

Corporation” or any titles similar thereto.

Article 51 (Executives)The Corporation shall appoint directors, including a chief director and a deputy director,an auditor, and the entire composition thereof shall be as follows:1. One chief director;2. One deputy director;3. Not more than nine directors, excluding a chief director and a deputy director

(including not more than six non-standing directors); and4. One auditor.

Article 52 Deleted. <by Act No. 9373, Jan. 30, 2009>

Article 53 (Duties of Executives) (1) The chief director shall represent the Corporationand shall have the general control over the affairs of the Corporation. (2) The deputy director shall assist the chief director.<Amended by Act No. 9373, Jan. 30,2009>(3) The directors shall take partial charge of the affairs of the Corporation pursuant to theArticles of association.<Amended by Act No. 9373, Jan. 30, 2009>(4) The auditor shall inspect the affairs and accounts of the Corporation.





Article 56 (Appointment and Dismissal of Employees)The employees of the Corporation shall be appointed and dismissed by the chief director,in accordance with the Articles of association.

Article 57 (Projects)The Corporation shall carry out the following projects:<Amended by Act No. 8852, Feb.29, 2008>1. Projects for the rationalization of energy use, thereby reducing the emission of

greenhouse gases;2. Development, introduction, guidance and dissemination of energy technology;3. Loan and support of funds for the rationalization of energy use, development and

dissemination of new and renewable energy and collective energy supply projects;4. Projects falling under each subparagraph of Article 25 (1);5. Energy examination and energy management guidance;6. Promotion of new and renewable energy development projects;7. Investigation, research, education and public relations for energy control;8. Acquisition, installation, operation, lease and transfer of land, buildings, facilities, etc.

for the rationalization project of energy use;9. Support and management for the promotion of collective energy projects under Article

2 of the Integrated Energy Supply Act;10. Efficiency management of energy-using machinery, equipment or materials, and

safety control of heat-using machinery, equipment or materials;11. Projects connected to projects under subparagraphs 1 to 10; and12. Projects for the rationalization of energy use and for the reduction of the emission of

greenhouse gases, other than those under subparagraphs 1 to 11, which are entrustedby the Minister of Knowledge Economy, the Mayor/Do Governor, other agencies, etc.

Article 58 (Liability for Expenses) The Corporation may have any person who benefits from the project bear the expensesincurred in the project, upon approval of the Minister of Knowledge Economy.<Amendedby Act No. 8852, Feb. 29, 2008>

Article 59 (Borrowing of Funds)If the Corporation conducts a project under subparagraph 4 of Article 57, it may borrowfunds from the Government, the Fund established by the Government, a domestic orforeign financial institution, the government of any foreign country or an internationalorganization.

Article 60 (Accounts) (1) Deleted. <by Act No. 9373, Jan. 30, 2009>(2) The Corporation shall, before each fiscal year commences, formulate a budget by



classifying it into the general provision of a budget, estimated income statement,estimated balance sheet and fund plans and obtain the approval of the Minister ofKnowledge Economy, by a resolution of the board of directors. And the same shall alsoapply in cases where it intends to modify it.<Amended by Act No. 8852, Feb. 29, 2008; ActNo. 9373, Jan. 30, 2009>(3) Deleted.<by Act No. 9373, Jan. 30, 2009>

Article 61 (Settlement of Profits)If there is any profit as a result of the settlement of accounts in each fiscal year, theCorporation shall appropriate it for making up any loss brought forward, and theremainder shall be reserved, if any, as determined by the Minister of KnowledgeEconomy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 62 (Guidance and Supervision on Affairs) (1) The Minister of KnowledgeEconomy may guide and supervise the following affairs of the Corporation, and may, ifnecessary, give any direction, disposition or order necessary for carrying out such affairs,to the Corporation: <Amended by Act No. 8852, Feb. 29, 2008>1. Project plans and formulation of a budget;2. Projects results and the settlement of accounts;3. Projects conducted by the Corporation under Article 57; 4. Affairs entrusted by the

Minister of Knowledge Economy under Article 69 (3).(2) The Minister of Knowledge Economy may have the Corporation report on mattersnecessary for the affairs, accounts and property of the Corporation, or have any publicofficial under his/her control inspect any books, documents and other items of theCorporation.<Amended by Act No. 8852, Feb. 29, 2008>(3) Any public official who conducts an inspection under paragraph (2), shall carry anauthorization, and shall show the same to the intended persons.

Article 63 (Prohibition against Disclosure of Confidential Information)No one who works or worked as an executive or employee of the Corporation shalldisclose or use any confidential information known to him/her in the course of his/herperformance of duties.

Article 64 (Application Mutatis Mutandis of the Civil Act)Except as provided by this Act and the Act on the Management of Public Institutions, theprovisions of the Civil Act on the incorporated foundation shall be applicable mutatismutandis to the Corporation.<Amended by Act No. 9373, Jan. 30, 2009>

CHAPTER SUPPLEMENTARY PROVISIONS

Article 65 (Education) (1) The Minister of Knowledge Economy shall conduct education



for persons in charge of energy management, technical human resources of constructionn business and operators of machinery and equipment subject to inspection that will helpthem to efficiently manage energy and to safely manage specific heat-using machinery,equipment or materials. <Amended by Act No. 8852, Feb. 29, 2008>(2) Persons in charge of energy management, technical human resources of constructionbusiness and operators of machinery and equipment subject to inspection shall undergotraining under paragraph (1).(3) Excessive energy-consuming business operators, constructors and installers ofmachinery and equipment subject to inspection shall have the persons in charge ofenergy management, technical human resources of construction execution business, andoperators of machinery and equipment subject to inspection appointed or employed bythem, to undergo training under paragraph (1).(4) Training institutions, the period and curricula of training under paragraph (1), andother matters necessary for training, shall be determined by Ordinance of the Ministry ofKnowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>

Article 66 (Reporting and Inspections) (1) The Minister of Knowledge Economy or theMayor/Do Governor may order manufacturers, importers or distributors of efficiencymanagement machinery, equipment or materials, and products subject to the reductionof standby power or machinery, equipment or materials subject to the certification ofhigh-efficiency energy, any testing institutions, enterprises specializing in energy saving,excessive energy-consuming business operators, examination institutions and installers ofmachinery and equipment subject to inspection, to report on the relevant affairs, asprescribed by Ordinance of the Ministry of Knowledge Economy, or to have any publicofficial under his/her control or any employee of the Corporation enter the businessoffices, places of business, factories or warehouses of manufacturers of efficiencymanagement machinery, equipment or materials, etc. to inspect books, documents,energy-using machinery, equipment or materials or other items, when it is deemednecessary for the enforcement of this Act. <Amended by Act No. 8852, Feb. 29, 2008>(2) Any public official or employee of the Corporation, who conducts an inspection underparagraph (1), shall carry a certificate indicating his/her authority and shall show the sameto the intended persons.

Article 67 (Fees)Any person falling under any of the following subparagraphs shall pay the fees prescribedby Ordinance of the Ministry of Knowledge Economy:<Amended by Act No. 8852, Feb. 29,2008>1. Any person who intends to apply for certification of high-efficiency energy machinery,

equipment or materials under Article 22 (3);2. Any person who intends to undergo an energy examination under Article 32 (2); or3. Any person who intends to undergo an inspection of machinery and equipment subject

to inspection under Article 39 (1), (2) or (4).



Article 68 (Hearings)If the Minister of Knowledge Economy intends to take any of the following dispositions,he/she shall hold a hearing:<Amended by Act No. 8852, Feb. 29, 2008>1. Order to prohibit the production or sale of efficiency management machinery,

equipment or materials under Article 16 (2);2. Cancellation of certification of high-efficiency energy machinery, equipment or

materials under Article 23 (1);3. Cancellation of designation as testing institutions under Article 24 (1);4. Revocation of approval to take a self-measurement under Article 24 (2);5. Revocation of the registration of enterprises specializing in energy saving under Article

26; or6.Cancellation of designation as examination institutions under Article 33.

Article 69 (Delegation or Entrustment of Authority) (1) The Minister of KnowledgeEconomy may delegate part of his/her authority under this Act to the Mayor/DoGovernor, as prescribed by Presidential Decree. <Amended by Act No. 8852, Feb. 29,2008>(2) The Mayor/Do Governor may entrust part of his/her authority delegated underparagraph (1) to the head of a Si/Gun/Gu (limited to the head of autonomous Gu) afterobtaining approval from the Minister of Knowledge Economy.<Amended by Act No.8852, Feb. 29, 2008>(3) The Minister of Knowledge Economy or the Mayor/Do Governor may, as prescribed byPresidential Decree, entrust the following affairs to the Corporation, the organization ofconstructors or institutions prescribed by Presidential Decree:<Amended by Act No. 8852,Feb. 29, 2008; Act No. 9373, Jan. 30, 2009>1. Examination of an energy use plan under Article 11;2. Examination or ascertainment as to whether a project supervisor implements energy

use plan, etc. under Article 12;3. Receipt of reports on measurement results of efficiency management machinery,

equipment or materials under Article 15 (3);4. Receipt of reports on measurement results of products subject to warning signs of

standby power under Article 19 (3);5. Receipt of reports on measurement results of products subject to the reduction of

standby power under Article 20 (2);6. Receipt of applications for the certification of high-efficiency energy machinery,

equipment or materials and the certification thereof under Article 22 (3) and (4);7. Order to cancel the certification of high-efficiency energy machinery, equipment or

materials or suspend the use of such certification under Article 23 (1);8. Registration of enterprises specializing in energy saving under Article 25 (1);9. Registration and management of the results of reducing the emission of greenhouse

gases under Article 29 (1);10. Receipt of reports of excessive energy-consuming business operators under Article 31

(1);



11. Management and supervision of examination institutions under Article 32 (3);12. Guidance for energy management under Article 32 (5);12-2. Examination and ascertainment as to whether heating and cooling temperatures

are maintained or managed appropriately under Article 36-2 (4);13. Inspection of machinery and equipment subject to inspection, issuance of certificates,

and acceptance of reports on the destruction of machinery and equipment subject toinspection under Articles 39 (1) through (4) and (7); and

14. Receipt of reports on the appointment, dismissal or retirement of operators ofmachinery and equipment subject to inspection, and approval for extensions ofappointment periods of said operators, under Article 40 (3) and the proviso toparagraph (4) of the same Article.

Article 70 (Legal Fiction as Public Official in Application of Penal Provisions)For purposes of Articles 129 to 132 of the Criminal Act, officers and employees ofinstitutions or organizations engaged in affairs entrusted by the Minister of KnowledgeEconomy under Article 69 (3) shall be deemed as public officials.<Amended by Act No.8852, Feb. 29, 2008>

Article 71 (Relations to other Acts) (1) Deleted. <by Act No. 9373, Jan. 30, 2009>(2) Where the propriety of the supply of collective energy is consulted under Article 4 ofthe Integrated Energy Supply Act, the matters concerning the supply of collective energy,among details of consultation on energy use plans under Article 10 shall be considered tohave been consulted.

CHAPTER PENAL PROVISIONS

Article 72 (Penal Provisions)Any person who falls under any of the following subparagraphs shall be punished byimprisonment of not more than two years or by a fine not exceeding 20 million won:1. Any person who refuses or fails to fulfill duty to secure energy storage facilities or store

energy under Article 7 (1) without any justifiable grounds;2. Any person who violates measures, such as adjustment and orders under Article 7 (2) 1

to 8 or 10; or3. Any person who discloses or uses any confidential information known to him/her in

performing his/her duties, in violation of Article 63.

Article 73 (Penal Provisions)Any person who falls under any of the following subparagraphs shall be punished byimprisonment of not more than one year or by a fine not exceeding 10 million won:1. Any person who fails to undergo an inspection of machinery and equipment subject to

inspection, in violation of Article 39 (1), (2) or (4); or



2. Any person who uses machinery and equipment subject to inspection, in violation ofArticle 39 (5).

Article 74 (Penal Provisions)Any person who violates an order to prohibit the production or sale under Article 16 (2)shall be punished by a fine not exceeding 20 million won.

Article 75 (Penal Provisions)Any person who fails to appoint operators of machinery and equipment subject toinspection, in violation of Article 40 (1) or (4) shall be punished by a fine not exceeding 10million won.[This Article Wholly Amended by Act No. 9373, Jan. 30, 2009]

Article 76 (Penal Provisions) Any person who falls under any of the following subparagraphs shall be punished by afine not exceeding five million won:1. Deleted;<by Act No. 9373, Jan. 30, 2009>2. Any person who fails to report the outcome of measuring the energy used by the

relevant efficiency management machinery, equipment or materials, in violation ofArticle 15 (3);

3. Deleted;<by Act No. 9373, Jan. 30, 2009>4. Any person who fails to report measurement results of products subject to warning

signs of standby power under Article 19 (3);5. Any person who fails to attach warning signs of standby power to products under

Article 19 (4);6. Any person who indicates that the relevant products are products effective in the

reduction of standby power, in violation of Article 20 (1), or gives a false indication;7. Any person who fails to comply with a corrective order under Article 21 (1) without any

justifiable grounds; or8. Any person who indicates certification, in violation of Article 22 (5).

Article 77 (Joint Penal Provisions)If a representative of a juristic person, or an agent, employee or other employed personof a juristic person or individual, commits the offenses prescribed in Articles 72 to 76 inconnection with the affairs of the juristic person or individual, the fine prescribed in therespective Articles shall also be imposed on the juristic person or individual, in addition tothe punishment of the offender. Provided, that the same shall not apply where the juristicperson or individual has exercise due diligence and supervision over the relevant affairs inorder to prevent such violation.[This Article Wholly Amended by Act No. 9236, Dec. 26, 2008]

Article 78 (Fines for Negligence) (1) Any excessive energy-consuming business operator



who fails to undergo energy examination, in violation of Article 32 (2), shall be punishedfor negligence with a fine not exceeding 20 million won. (2) Any person who falls under any of the following subparagraphs shall be punished fornegligence with a fine not exceeding 10 million won: <Amended by Act No. 9373, Jan. 30,2009> 1.Any person who fails to submit energy use plans or altered energy use plans, inviolation of Article 10 (1) or (3). Provided, that the project supervisor which is the State orlocal government shall be excluded; 2.Any person who fails to comply with animprovement order under Article 34 without any justifiable grounds; or3.Any person whorefuses, obstructs or evades an inspection under Article 66 (1).(3) Any person who falls under any of the following subparagraphs shall be punished fornegligence with a fine not exceeding five million won: <Newly Inserted by Act No. 9373,Jan. 30, 2009> 1.Any person who fails to indicate energy efficiency rating or energyefficiency in the relevant efficiency management machinery, equipment or materials, orgives a false indication, in violation of Article 15 (2); or2.Any person who runs anadvertisement which does not include matters under Article 15 (4).(4) Any person who falls under any of the following subparagraphs shall be punished fornegligence with a fine not exceeding three million won. Provided, that in cases undersubparagraphs 1, 4 to 6, 8, 9 and 9-2 to 9-4, the State or local governments shall beexcluded:<Amended by Act No. 9373, Jan. 30, 2009>1. Any person who violates any adjustment, order, or other necessary measure concerning

the restriction or prohibition of the use of energy as prescribed in Article 7 (2) 9;2. Any person who fails to submit a demand management investment plan and the

outcome of implementation without any justifiable grounds, in violation of Article 9(1);

3. Any person who fails to implement a demand management investment plan aftercorrecting or supplementing such plan, in violation of Article 9 (2);

4. Any public project supervisor who refuses or fails to comply with a request for necessarymeasures as prescribed in Article 11 (1) without any justifiable grounds;

5. Any project supervisor who refuses a request for presentation of related materials asprescribed in Article 11 (2) without any justifiable grounds;

6. Any project supervisor who refuses, obstructs or evades an examination orascertainment as to whether he/she implements an energy use plan as prescribed inArticle 12 without any justifiable grounds;

7. Any person who fails to submit data or submits false data, in violation of Article 17 (4);8. Any person who fails to preferentially purchase products excellent in the reduction of

standby power or high-efficiency energy machinery, equipment or materials withoutany justifiable grounds, in violation of Article 20 (3) or 22 (6);

9. Any person who fails to submit a report under Article 31 (1) or submits a false report;9-2. Any person who refuses, obstructs or evades an examination or ascertainment as to

whether heating and cooling temperatures are maintained or managed under Article36-2 (4) without any justifiable grounds;

9-3. Any person who fails to comply with a corrective order under Article 36-3 without any



justifiable grounds;9-4. Any person who fails to submit a report under Article 39 (7) or 40 (3) or submits a

false report;10. Any person who uses the name “Energy Management Corporation” or any name

similar thereto, in violation of Article 50;11. Any person who fails to receive education, in violation of Article 65 (2), or fails to have

other persons receive training, in violation of Article 65 (3); or12. Any person who fails to submit a report under Article 66 (1) or submits a false report.(5) Fines for negligence as prescribed in paragraphs (1) to (4) shall be imposed andcollected by the Minister of Knowledge Economy or the Mayor/Do Governor, asprescribed by Presidential Decree.<Amended by Act No. 8852, Feb. 29, 2008; Act No. 9373,Jan. 30, 2009>(6) Deleted.<by Act No. 9373, Jan. 30, 2009>(7) Deleted.<by Act No. 9373, Jan. 30, 2009>(8) Deleted.<by Act No. 9373, Jan. 30, 2009>

ADDENDA <No. 9931, 13. Jan, 2010>

Article 1 (Enforcement Date)This Act shall take effect three months after the date of its promulgation. Provided, thattransitions from environment management system certification into green managementsystem certification under Article 4 (12) and (13) of the Addenda shall take effect 18months after the date of its promulgation.

Article 2 Omitted.

Article 3 Omitted.

Article 4 Omitted.Source: Korea Ministry of Government Legislation

http://www.law.go.kr/engLsSc.do?menuId=0&subMenu=5&query=%EC%97%90%EB%84%88%EC%A7%80%EC%9D%B4%EC%9A%A9%ED%95%A9%EB%A6%AC%ED%99%94%EB%B2%95#liBgcolor0



3. ENERGY ACT

[Enforcement Date 14. Apr, 2010.]

[Act No.9931, 13. Jan, 2010., Other Laws and Regulations Amended]

Article 1 (Purpose)The purpose of this Act is to contribute to the sustainable development of the nationaleconomy and enhancement of the welfare of people by providing for basic mattersconcerning the formulation and implementation of energy policies and energy-relatedplans to realize a stable, efficient and environment-friendly energy demand and supplystructure.

Article 2 (Definitions)The terms used in this Act shall be defined as follows:<Amended by Act No. 8852, Feb. 29,2008>1. The term “energy” means fuel, heat and electricity;2. The term “fuel” means petroleum, gas, coal and other heat sources: Provided that

those used as raw materials of products shall be excluded;3. The term “new and renewable energy” means the energy under subparagraph 1 of

Article 2 of the Act on the Promotion of the Development, Use and Diffusion of Newand Renewable Energy;

4. The term “energy-using facility” means facilities using energy in factories, business sites,etc. or facilities using converted energy;

5. The term “energy user” means the owners or managers of energy-using facilities;6. The term “energy-supplying facility” means facilities installed to produce, convert,

transport or store energy;7. The term “energy supplier” means business operators producing, importing,

converting, transporting, storing or selling energy;8. The term “energy-using apparatus and material” means heat-using apparatuses and

materials and other energy-using apparatuses and materials;9. The term “heat-using apparatus and material” means fuel and heat-using equipment,

thermal storage type electric equipment and insulation materials, which aredetermined by Ordinance of the Ministry of Knowledge Economy;

10. The term “greenhouse gas” means substances in gas form in the atmosphere thatabsorb and re-emit radiation within the thermal infrared range causing the greenhouseeffect, such as carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O),hydrofluorocarbon (HFCs), perfluorocarbon (PFCs) or sulfur hexafluoride (SF6).

Article 3 Deleted.<by Act No. 9931, Jan. 13, 2010>

Article 4 (Responsibilities and Duties of State, etc.) (1) The State shall formulate andexecute comprehensive measures to realize the purposes of this Act.



(2) Each local government shall formulate and execute regional energy measures, takinginto account the purposes of this Act, national energy policies and measures, and regionalcharacteristics. In such cases, matters necessary for the formulation and execution ofregional energy measures may be determined by Municipal Ordinances of relevant localgovernments.(3) Energy suppliers and energy users shall actively participate in and cooperate with theenergy policies of the State and local governments and endeavor to maximize safety,efficiency and environment-friendliness in the production, conversion, transportation,storage, use, etc. of energy.(4) The people shall actively participate in and cooperate with the energy measures of theState and local governments and endeavor to use energy in a rational and environment-friendly manner in their daily lives.(5) The State, local governments and energy suppliers shall contribute to the universalsupply of energy to the people, including the poor, etc.

Article 5 (Scope of Application)The enactment or amendments of Acts or subordinate statutes on energy shall complywith the purposes of this Act and the basic principles under Article 39 of the FrameworkAct on Low Carbon, Green Growth: Provided, That research, development, production,use and safety control of atomic energy shall be governed by the Atomic Energy Act andother relevant Acts.<Amended by Act No. 9931, Jan. 13, 2010>

Article 6 Deleted.<by Act No. 9931, Jan. 13, 2010>

Article 7 (Formulation of Local plans) (1) Each Special Metropolitan City Mayor,Metropolitan City Mayor, Do Governor or the Governor of a Special Self-GoverningProvince (hereinafter referred to as “Mayor/Do Governor”) shall, for the efficientachievement of the objectives of the basic energy plan under Article 41 of the FrameworkAct on Low Carbon, Green Growth (hereinafter referred to as “basic energy plan”) anddevelopment of the regional economy, formulate and implement a local energy plan(hereinafter referred to as “local plan”) with a plan period of not less than five yearsevery five years, taking into account the regional characteristics of the area under his/herjurisdiction. <Amended by Act No. 9372, Jan. 30, 2009; Act No. 9931, Jan. 13, 2010>(2) The local plan shall include each of the following matters for the area concerned:1. Matters concerning the trends and prospects of energy demand and supply;2. Matters concerning measures for the stable supply of energy;3. Matters concerning measures for the use of environment-friendly energy, such as new

and renewable energy;4. Matters concerning measures for the rationalization of energy use and reduction of

greenhouse gas emissions thereby;5. In cases of districts designated as those subject to the integrated energy supply

pursuant to Article 5 (1) of the Integrated Energy Supply Act, matters concerning



measures for the integrated energy supply to the districts concerned;6. Matters concerning measures for the development and use of energy sources that have

yet to be exploited;7. Other matters that Metropolitan City Mayors/Do Governors deem necessary for the

energy measures and related projects.(3) In cases where a Metropolitan City Mayor/Do Governor formulates a local plan, he/sheshall submit it to the Minister of Knowledge Economy. The same shall apply to alteringformulated local plans.<Amended by Act No. 8852, Feb. 29, 2008>(4) The Government may devise measures for support necessary to facilitate the energymeasures and related projects of local governments.

Article 8 (Formulation, etc. of Contingency Energy Supply Plan) (1) The Minister ofKnowledge Economy shall formulate a contingency energy supply plan (hereinafterreferred to as “contingency plan”) in case a serious failure in energy supply were to occur.<Amended by Act No. 8852, Feb. 29, 2008>(2) The contingency plan shall be determined following the deliberations of the EnergyCommittee under Article 9. The same shall apply to altering formulated contingencyplans.<Amended by Act No. 9931, Jan. 13, 2010>(3) The contingency plan shall include each of the following matters:1. Matters concerning the trends and prospects of domestic and overseas energy demand

and supply;2. Matters concerning measures for the reduction of energy consumption in case of an

emergency;3. Matters concerning measures for the utilization of energy in reserve in case of an

emergency;4. Matters concerning measures for the adjustment of demand and supply, such as the

allocation, rationing, etc. of energy in case of an emergency;5. Matters concerning measures for international cooperation for the stabilization of

energy demand and supply in case of an emergency;6. Matters concerning administrative plans for the efficient implementation of the

contingency plan.(4) The Minister of Knowledge Economy may take necessary measures as prescribed byrelevant Acts and subordinate statutes, such as imposing restrictions on energy use, inorder to prepare for any failure in energy demand and supply resulting from any changein the energy market both domestically and overseas.<Amended by Act No. 8852, Feb. 29,2008>

Article 9 (Organization and Operation of Energy Committee) (1) The Governmentshall establish the Energy Committee (hereinafter referred to as the “Committee”) todeliberate on matters concerning major energy policies and energy-related plans.<Amended by Act No. 9931, Jan. 13, 2010>(2) The Committee shall be comprised of not more than 25 members, including one



chairperson, and its members shall be comprised of ex officio members and commissionedmembers.<Amended by Act No. 9931, Jan. 13, 2010>(3) The Minister of Knowledge Economy shall chair the Committee.<Amended by Act No.9931, Jan. 13, 2010>(4) A senior public official who belongs to the Senior Civil Service of the centraladministrative agencies concerned determined by Presidential Decree shall become exofficio members of the Committee.<Amended by Act No. 9931, Jan. 13, 2010>(5) Persons with affluent knowledge and experience in the area of energy who arecommissioned by the Minister of Knowledge Economy shall become commissionedmembers of the Committee. In such cases, not less than five persons recommended byenergy-related civil organizations shall be included in commissioned members asprescribed by Presidential Decree.<Amended by Act No. 9931, Jan. 13, 2010>(6) The chairperson may, when deemed relevant to the items on the agenda referred tothe Committee, have the heads of the central administrative agencies concerned andheads of institutions corresponding thereto, and civil experts in the area of energyparticipate in the Committee to present their opinions.(7) The chairperson shall represent the Committee and supervise its duties.(8) Where the chairperson cannot perform his/her duties due to unavoidablecircumstances, the member designated in advance by the chairperson shall act on his/herbehalf.<Amended by Act No. 9931, Jan. 13, 2010>(9) For the efficient operation of the Committee, the Committee shall have two secretarymembers, and the Vice-Minister of Knowledge Economy and one of commissionedmembers shall jointly become the secretary committee members.<Amended by Act No.8852, Feb. 29, 2008; Act No. 9931, Jan. 13, 2010>(10) The term of office of commissioned members shall be two years and they may bereappointed.(11) Specialized committees by area shall be established to examine agenda items to bereferred to the Committee or to investigate and study agenda items delegated by theCommittee.(12) The secretary members shall handle the affairs of the Committee.(13) Detailed matters concerning the organization and operation of the Committee andspecialized committees by area and nomination of secretary members, etc. shall bedetermined by Presidential Decree.

Article 10 (Functions of Committee)The Committee shall deliberate on each of the following matters:<Amended by Act No.9931, Jan. 13, 2010>1. Matters concerning prior deliberations on formulation and alteration of the basic

energy plan under Article 41 (2) of the Framework Act on Low Carbon, Green Growth;2. Matters concerning the contingency plan under Article 8;3. Matters concerning energy development both domestically and overseas;4. Matters concerning plans related to energy-related transportation or logistics;



5. Matters concerning the adjustment of major energy policies and energy projects;6. Matters concerning the prevention of social conflicts concerning energy and the

settlements thereof;7. Matters concerning the efficient use, etc. of energy-related budgets;8. Matters concerning atomic energy development policies;9. Matters concerning energy from among measures for the United Nations Framework

Convention on Climate Change;10. Matters determined to undergo the deliberation of the Committee by other Acts;11. Other major policy matters concerning energy, referred to by the chairperson.

Article 11 (Energy Technology Development Plan) (1) The Government shallformulate an energy technology development plan with a plan period of not less thanten years (hereinafter referred to as “energy technology development plan”) every fiveyears to facilitate the development and dissemination of energy-related technologies, andformulate and implement annual action plans accordingly. (2) The energy technology development plan shall be formulated, following consultationwith the heads of the central administrative agencies concerned and the deliberation ofthe National Science and Technology Council under Article 9 of the Framework Act onScience and Technology as prescribed by Presidential Decree. In such cases, it shall bedeemed to have undergone the deliberation of the Committee under Article 9.(3) The energy technology development plan shall include each of the following matters:1. Matters concerning technology development for the efficient use of energy;2. Matters concerning technology development related to environment-friendly energy,

such as new and renewable energy;3. Matters concerning technology development for the reduction of environmental

pollution caused by energy use;4. Matters concerning technology development for the reduction of greenhouse gas

emissions;5. Matters concerning the facilitation to put developed energy technologies to practical

use;6. Matters concerning the facilitation of international cooperation for energy

technologies;7. Matters concerning the expansion and efficient use of technology development

resources, such as energy technology-related human resources, information, andfacilities.

Article 12 (Conduct of Energy Technology Development Activities) (1) The head ofeach central administrative agency concerned may, to efficiently promote energytechnology development, have a person falling under any of the followingsubparagraphs conduct energy technology development activities as prescribed byPresidential Decree: <Amended by Act No. 9372, Jan. 30, 2009>1. A public institution under Article 4 of the Act on the Management of Public



Institutions;2. A national and public research institution;3. A specific research institute governed by the Support of Specific Research Institutes Act;4. A specialized manufacturing technology research institute under Article 42 of the

Industrial Technology Innovation Promotion Act;5. An enterprise specialized in technology development of components and materials

under the Act on Special Measures for the Promotion of Specialized Enterprises, etc. forComponents and Materials;

6. A Government-invested research institution under the Act on the Establishment,Operation and Fostering of Government-Funded Research Institutions;

7. A Government-invested research institution in the areas of science and technologyunder the Act on the Establishment, Operation and Fostering of Government-FundedScience and Technology Research Institutions;

8. An enterprise specialized in R&D business under the Special Act on Support ofScience and Engineering Manpower for Sharpening National Science and TechnologyCompetitiveness;

9. A university or college, industrial university and junior college under the HigherEducation Act;

10. An industrial technology research cooperative under the Act on the Support ofIndustrial Technology Research Cooperatives;

11. A research institute annexed to an enterprise under the Technology DevelopmentPromotion Act;

12. Other research institutions or organizations in the areas of science and technology,determined by Presidential Decree.

(2) The head of each central administrative agency concerned may fully or partiallycontribute towards expenses incurred in supporting technology development underparagraph (1).

Article 13 (Establishment of Korea Institute of Energy Technology Evaluation andPlanning) (1) The Korea Institute of Energy Technology Evaluation and Planning(hereinafter referred to as the “KETEP”) shall be established to efficiently support theplanning, evaluation, management, etc. of the energy technology development-relatedprojects under Article 12 (1) (hereinafter referred to as “energy technology development-related projects”). (2) The KETEP shall be a juristic person.(3) The KETEP shall be incorporated by completing registration of incorporation at theseat of its principal office.(4) The KETEP shall conduct each of the following projects:1. Planning, evaluation and management of energy technology development-related

projects;2. Support to projects to foster experts in the area of energy technology;3. Support to international cooperation and international joint research projects in the



area of energy technology;4. Other projects determined by Presidential Decree in connection with energy

technology development.(5) The Government may fund the establishment and operation of the KETEP withinbudgetary limits;(6) The heads of the central administrative agencies concerned and the heads of localgovernments may have the KETEP conduct the project in each subparagraph ofparagraph (4) and may provide it with expenses incurred for it fully or partially asprescribed by Presidential Decree.(7) The KETEP may conduct profit-making projects as prescribed by Presidential Decree toraise money necessary to achieve its objectives under paragraph (1).(8) Matters necessary for the operation, supervision, etc. of the KETEP shall be determinedby Presidential Decree.(9) The executives and employees of the KETEP shall be deemed public officials in theapplication of the provisions of Articles 129 through 132 of the Criminal Act.(10) The provisions of the Civil Act, which pertain to incorporated foundations shall applymutatis mutandis to matters concerning the KETEP except for those provided for in thisAct.[This Article Wholly Amended by Act No. 9372, Jan. 30, 2009]

Article 14 (Energy Technology Development Project Fund) (1) The head of eachcentral administrative agency concerned may raise an energy technology developmentproject fund necessary for the implementation of the annual action plans under Article 11(1) to comprehensively and efficiently promote energy technology development projects. (2) The energy technology development project fund under paragraph (1) shall be raisedwith contributions and loans from the Government, energy-related project operators, etc.and other financial resources determined by Presidential Decree.(3) The head of the central administrative agencies concerned may have the KETEP takecharge of affairs concerning the raising and management of the energy technologydevelopment project fund.<Amended by Act No. 9372, Jan. 30, 2009>(4) The energy technology development project fund shall be used to support the projectsin each of the following subparagraphs:<Amended by Act No. 9372, Jan. 30, 2009>1. Matters concerning the research and development of energy technologies;2. Matters concerning surveys of energy technology demand;3. Matters concerning technology development for energy-using apparatuses and

materials, energy supply facilities, and the components thereof;4. Matters concerning the dissemination and publicity of the results of energy technology

development;5. Matters concerning international cooperation in energy technology;6. Matters concerning the fostering of key personnel engaged in energy research;7. Matters concerning technology development for the reduction of air pollution caused

by energy use;



8. Matters concerning technology development for the reduction of greenhouse gasemissions;

9. Matters concerning the collection, analysis and provision of information on energytechnology and academic activities related thereto;

10. Matters concerning the management of the KETEP’s energy technology developmentprojects.

(5) Matters necessary for the management and use of the energy technologydevelopment project fund under paragraphs (1) through (4) shall be determined byPresidential Decree.

Article 15 (Recommendation of Investment, etc. in Energy TechnologyDevelopment)The head of the central administrative agencies concerned may, if necessary for thefacilitation of energy technology development, recommend investment in, orcontributions to energy technology development to energy-related project operators.

Article 16 (Fostering of Experts in Energy and Energy Resource Technology) (1) TheMinister of Knowledge Economy may conduct projects ecessary for the fostering ofexperts in the areas of energy and energy resource technology. <Amended by Act No.8852, Feb. 29, 2008>(2) The Minister of Knowledge Economy may provide necessary support, includingfinancial support, for the conduct of the projects under paragraph (1). In such cases,matters necessary for the objects of, procedures for, etc. of such support shall bedetermined by Ordinance of the Ministry of Knowledge Economy.<Amended by Act No.8852, Feb. 29, 2008>

Article 17 (Administrative and Financial Measures)The State and local governments may take administrative and financial measuresnecessary for academic research and survey, technology development, etc. to achieve thepurposes of this Act.

Article 18 (Support to Civil Activities)The State and local governments may provide necessary data or financial support to theprivate sector to facilitate energy-related activities for the public interest.

Article 19 (Management and Announcement of Energy-Related Statistics) (1) TheMinister of Knowledge Economy shall compile, analyze and manage statistics on energydemand and supply both domestically and overseas for the efficient formulation andimplementation of the master plan and energy-related measures, and announce themwithin the scope not against relevant Acts and subordinate statutes. <Amended by ActNo. 8852, Feb. 29, 2008; Act No. 9931, Jan. 13, 2010>(2) The Minister of Knowledge Economy shall compile and analyze statistics on



greenhouse gas emissions generated in the course of energy use and industrial processingeach year and may announce the results thereof.<Amended by Act No. 8852, Feb. 29,2008>(3) Deleted.<by Act No. 9931, Jan. 13, 2010>(4) The Minister of Knowledge Economy may, if he/she deems necessary for thecompilation of statistics under paragraphs (1) and (2), demand the submission of datafrom energy-related institutions or energy users determined by Ordinance of the Ministryof Knowledge Economy.<Amended by Act No. 8852, Feb. 29, 2008>(5) The Minister of Knowledge Economy may, if deemed necessary, conduct an energycensus as prescribed by Presidential Decree.<Amended by Act No. 8852, Feb. 29, 2008>(6) The Minister of Knowledge Economy may designate a specialized institution to have itconduct all or part of affairs concerning the compilation, analysis and management ofstatistics under paragraphs (1) and (2) and the energy census under paragraph(5).<Amended by Act No. 8852, Feb. 29, 2008>

Article 20 (Reporting to National Assembly Energy Act) (1) The Government shallreport the results of the implementation of major energy policies and the results thereofto the National Assembly each year. (2) Reporting under paragraph (1) shall include the matters in each of the followingsubparagraphs:1. Matters concerning the trends and prospects of energy demand and supply both

domestically and overseas;2. Matters concerning the progress of measures for the security, introduction, supply and

management of energy and resources and the plans therefor;3. Matters concerning the progress of energy demand management and the plans

therefor;4. Matters concerning the progress of measures for the supply and use of environment-

friendly energy and the plans therefor;5. Matters concerning the status of greenhouse gas emissions, progress of measures for

the reduction of greenhouse gas emissions and the plans therefor;6. Matters concerning the progress of matters concerning international cooperation in

energy policies, etc. and the plans therefor;7. Other matters concerning the promotion of major energy policies.(3) Matters necessary for reporting under paragraph (1) shall be determined byPresidential Decree.

ADDENDA <No. 7860, 03. Mar, 2006>

Article 1 (Enforcement Date)This Act shall enter into force six months after its promulgation.



Article 2 (Transitional Measures concerning National Energy Master Plan, etc.)(1) The national energy master plan formulated under Article 4 of the former Energy UseRationalization Act at the time this Act enters into force shall be deemed the master planunder Article 6 of this Act.(2) The regional energy plan formulated under Article 5 of the former Energy UseRationalization Act at the time this Act enters into force shall be deemed the regionalenergy plan under Article 7 of this Act.(3) The contingency plan for energy supply formulated under Article 6 of the formerEnergy Use Rationalization Act at the time this Act enters into force shall be deemed thecontingency plan under Article 8 of this Act.(4) The energy technology development plan formulated under Article 37 of the formerEnergy Use Rationalization Act at the time this Act enters into force shall be deemed theenergy technology development plan under Article 11 of this Act.

Article 3 (Transitional Measures concerning Institutions Taking Full Charge ofEnergy Technology Development Business)The institution taking full charge of energy technology development business designatedunder Article 39 of the former Energy Use Rationalization Act at the time this Act entersinto force shall be deemed the institution taking full charge of energy technologydevelopment business under Article 13 of this Act.

Article 4 (Transitional Measures concerning Energy Technology DevelopmentBusiness Fund)The energy technology development business fund under Article 40 of the former EnergyUse Rationalization Act at the time this Act enters into force shall be deemed the energytechnology development project fund under Article 14 of this Act.

Article 5 Omitted.

Article 6 (Relations with other Acts)Any Act that has cited the provisions of the former Energy Use Rationalization Act at thetime this Act enters into force shall, if provisions corresponding thereto exist in this Act, bedeemed to have cited this Act or the corresponding provisions of this Act in lieu of theformer provisions.

ADDENDA <No. 8852, 29. Feb, 2008>

Article 1 (Enforcement Date)This act shall enter into force on the date of its promulgation. (Proviso Omitted.)

Articles 2 through 7 Omitted.



ADDENDA <No. 9372, 30. Jan, 2009>

Article 1 (Enforcement Date)This Act shall enter into force three months after its promulgation.

Article 2 (Preparations for Establishment of KETEP)(1) The Minister of Knowledge Economy shall commission not more than five foundingmembers to handle affairs concerning the establishment of the KETEP before this Actenters into force.(2) The founding members shall prepare each of the following matters and obtainauthorization of the Minister of Knowledge Economy for them:1. Articles of association of the KETEP;2. Plan for succeeding employees belonging to the institution taking full charge of energy

technology development businesses, designated pursuant to former Article 13 (1).(3) The founding members shall recommend the first officials to be appointed to theKETEP to the Minister of Knowledge Economy under joint signature, and the Minister ofKnowledge Economy shall appoint the officials of the KETEP from among therecommended persons.(4) The founding members shall, when officials are appointed pursuant to paragraph (3),complete registration of incorporation of the KETEP under joint signature without delay.(5) The founding members shall transfer affairs to the president of the KETEP withoutdelay after completing registration of incorporation of the KETEP.(6) The commissioning of founding members shall be deemed to have terminated at thetime the transfer of affairs under paragraph (4) terminates.

Article 3 (Transitional Measures concerning Korea Institute of Energy andResources Technology Evaluation and Planning, etc.)(1) The Korea Institute of Energy and Resources Technology Evaluation and Planning(hereinafter referred to as “incorporated foundation”) an incorporated foundationestablished under Article 32 of the Civil Act at the time this Act enters into force mayapply for the approval of Minister of Knowledge Economy to enable the KETEPestablished pursuant to the amended provisions of Article 13 to succeed all its property,rights and obligations by the resolution of the board of directors.(2) The incorporated foundation approved pursuant to paragraph (1) shall be deemed tohave been dissolved concurrently with the establishment of the KETEP under this Act,notwithstanding the provisions of the Civil Act, which pertain to the dissolution andliquidation of juristic persons.(3) All the property, rights and obligations of the incorporated foundation dissolvedpursuant to paragraph (2) shall be succeeded by the KETEP by a universal title. In suchcases, the value of the property subject to succession shall be the book value on the dateimmediately preceding the date of registration of incorporation.(4) The name of the incorporated foundation, entered in registers concerning its property,



rights and obligations and other official books at the time when this Act enters into forceshall be deemed the name of the KETEP.(5) With respect to the acts and other legal relations of the incorporated, which wereconducted and established before this Act enters into force, the incorporated foundationshall be deemed the KETEP.(6) Any agreement concluded between the institution taking full charge of the energytechnology development business conducted pursuant to Article 12 (1) and the institutiontaking full charge of energy technology development business designated pursuant toformer Article 13 (1) (excluding the incorporated foundation; hereafter referred to as“institution in full charge” in this Article) before this Act enters into force shall be deemedan agreement concluded with the KETEP under the amended provisions of Article 13.(7) The employees of the incorporated foundation dissolved pursuant to paragraph (2)and employees conducting the duty of energy technology development businessmanagement at the institution in full charge as at the time this Act enters into force shallbe deemed the employees of the KETEP pursuant to the planned matters under Article 2(2) 2 of Addenda.

Article 4 (Transitional Measures concerning Designation of Public Institutions)The designation of the incorporated foundation by the Minister of Knowledge Economyas a public institution under the Act on the Management of Public Institutions as at thetime this Act enters into force shall be the designation of the KETEP under this Act as apublic institution under the Act on the Management of Public Institutions.

Article 5 Omitted.

ADDENDA <No. 9931, 13. Jan, 2010>

Article 1 Enforcement DateThis Act shall enter into force three months after its promulgation. (Proviso Omitted.)

Articles 2 through 4 Omitted.

Source: Korea Ministry of Government Legislation http://www.law.go.kr/engLsSc.do?menuId=0&subMenu=5&query=%EC%97%90%EB%84%88%EC%A7%80%EB%B2%95#liBgcolor25



2014/15 Knowledge Sharing Program

with the Kingdom

of Saudi Arabia

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w.k

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o.kr

Ministry of Strategy and Finance Government Complex-Sejong, 477, Galmae-ro, Sejong Special Self-Governing City 30109, Korea

Tel. 82-44-215-7762 www.mosf.go.kr

Korea Development Institute263 Namsejong-ro, Sejong Special Self-Governing City 30149, Korea

Tel. 82-44-550-4114 www.kdi.re.kr

Knowledge Sharing Program ● www.ksp.go.krCenter for International Development, KDI● cid.kdi.re.kr

2014/15 Knowledge Sharing Programwith the Kingdom of Saudi Arabia:


MINISTRY OF STRATEGYAND FINANCE

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