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Overview & Procedures Content Start

Overview & Procedures

Overview

The presence of a stable supply of raw materials for commercial and industrial use is one of the most important factors for the development of the Korean economy, because Korea is scarce in the area of natural resources.

As the Korean economy grows by leaps and bounds, its dependence on foreign raw materials is increasing. One way of ensuring that supplies are available when and where they are needed is to stockpile large quantities in advance by using Government funds. For this purpose, PPS has managed its stockpile fund and stockpiled and released various commodities.

In particular, a stable supply of raw materials is of great importance to small and medium enterprises. They faced many difficulties in acquiring raw materials due to irregular small scale purchases and their lack of experience when dealing directly with overseas suppliers.

In this context, Commodity Stockpile Division has given priority to small and medium enterprises in the release of stockpiled raw materials. Additionally, in order to efficiently operate the stockpile business, the market research and information analysis section has been substantially reinforced.

In line with the government's open door policy, coupled with efforts to introduce diversification of import sources, PPS has tried to develop new import sources from Eastern European countries including the Commonwealth of Independent States and People's Republic of China. This has led to the expansion of trade with those countries and also contributed to ensuring a more stable supply of raw materials. The major items stockpiled are divided into four categories;

  1. 01non-ferrous metal group (aluminium, copper, lead, tin, zinc),
  2. 02rare metal group (rare metals),
  3. 03others (fundamental construction materials, forest products, recyclable raw materials, materials subject to emergency supply measures)

Procedures

As a central procurement agency, PPS handles the procurement for large-scale construction works for the use ofgovernment agencies and semi-government institutes, and also, with its in-house officials, provides supervision services for major construction projects at the request of the end-user.

  1. 01Procurement
    • a. PPS proposes a list of stockpile items and quantities to the Ministry of Strategy and Fiance, and upon its approval, PPS prepares a stockpile fund operation plan.
    • b. Based on the stockpile fund operation plan, PPS determines the specifications of the goods, procurement period and contract methods.
    • c. The procurement of stockpile goods from foreign sources follows the same procedures as described under 'Foreign Procurement' while procurement from domestic sources follows 'Domestic Procurement' procedures. For details of the pre-award phase, the issuance of the L/C, and the post-award phase, please refer to the appropriate chapters as mentioned above.
  2. 02Release When it is considered necessary to release stockpiled goods in order to maintain price stability, and after receiving approval from the Ministry of Strategy and Fiance, PPS sells the stockpiled goods at favorable prices and on a timely basis to various private sector concerns.

Procedures

PPS, has operated the futures trading system through the international futures market since it adopted the system at the end of 1974, as part of its strenuous efforts to stabilize the acquisition of raw materials against price fluctuations.

This move was inevitable; as the first oil shock brought a heavy blow to Korea's economy with its heavy reliance on imports for raw materials, which comprised about 42 percent of the nation's total imports.

The futures market has many advantages. One is the reduction of overhead costs, including storage charges, until delivery. The system also works as a hedge against future price fluctuations, as a ten-percent (10%) advance payment after the contracted bill secures a buyer for all needed goods. All the items traded on the foreign futures exchanges are available for futures trading in Korea.

Futures trading is instrumental in bringing about a stable commodity management system through risk hedging, achieving other objectives including forecasting the value of inventory goods in case of a drop in price, and contributing to the formation of capital.

PPS, in charge of futures trading management for the last 27 years, has upgraded the awareness of the general public about futures trading by promoting its public relations activities through educational programs for the related companies and business groups. This was a move to expand the futures trading system toward full fledged development.

Such promotional activities have highlighted the need for establishing a domestic futures market. The Futures Trading Act regarding commodities and financial futures was enacted on December 29, 1995.

The Act came into effect from July 1, 1997 in relation to the establishment of the Korea Futures Exchange. Futures trading in Korea has taken root on the strength of the contributions made by PPS.

Meaning and History Content Start

Meaning and History

Overview

Our ancestors had systems of storage as people in other countries would. Under the realm of King Kogukchon of Koguryo (194 AD), Prime Minister Ulpaso adopted a system of Chindaepup under which the people could borrow grains from their regional authorities and repay them at the end of the year.

One of its successor system named Sangpyungchang adopted during the realm of King Sungjong of the Koryo Dynasty was more sophisticated than its predecessor. The offices in charge of this was established in 12 provinces nation wide. The authorities bought grains in the market when the grain prices fell in a bumper crop year to sell them in the market in a lean year. In this way, the grain prices could maintain reasonable level and this helped the people. For this, the government put aside 64,000 bags of rice, putting 5,000 bags in the charge of the local municipality of Seoul and others in other provincial offices. Thus, the system worked not only for storage for a rainy day, but for adjustment of grain prices.

Function of Storage

Even today, nations run a system of storage, mainly, to make price of various items stable through adjustment of demand and supply. The difference between what they did in the past and now for the same system of storage is that in the past grains including rice were main items of storage by the authorities, whereas nowadays raw materials such as petroleum, nonferrous metals, rare metals, etc are.

The Business of Storage by PPS

Even today, nations run a system of storage, mainly, to make price of various items stable through adjustment of demand and supply. The difference between what they did in the past and now for the same system of storage is that in the past grains including rice were main items of storage by the authorities, whereas nowadays raw materials such as petroleum, nonferrous metals, rare metals, etc are.

Scope of Items for Storage
  • Items for storage are the following everyday necessaries or raw materials or facilities and equipment for industrial purpose. The Government of Korea purchases first hand and stores for short and long-term smooth supply of them and their stable prices:
    • 1) those with high dependability on overseas sources
    • 2) those indispensable for the people's everyday lives.
    • 3) those for which there is a need for emergency measures from time to time as the case may require
  • for adjustment of demand and supply and price stabilization and which are put on a public notice by the Minister of Strategy and Finance (MOSF) in consultation with other relevant ministries as per the Law pertaining to the business of the Public Procurement Service, Article 2, Paragraph 3.

The Public Notice No. 2008-7 by the Minister of Strategy and Finance (MOSF)

The scope of the supplies for storage by the Public Procurement Service shall be changes as follows as per relevant laws and regulations:

June 2, 2008 : Minister of Strategy and Finance

Scope of Supplies for Storage
  1. 1. Aluminum
  2. 2. Electrolyzed Copper
  3. 3. Zinc
  4. 4. Lead
  5. 5. Tin
  6. 6. Rare metals
  7. 7. Fundamental construction materials
  8. 8. Forest products
  9. 9. Recyclable raw materials
  10. 10. Materials subject to emergency supply measures

Stockpile Materials Content Start

Stockpile Materials

Establishment of Storage Plan

Changes in economic conditions will require changes in storage plan. Public Procurement Service(PPS) formulates a storage plan for each year for proper action in accordance with the economic policies of the government. For this, PPS collects all-covering data including items that need to be stored, quantity, trend and prospect of their demand and supply and prices in consultation withthe Ministry of Knowledge Economy, the Small and Medium Enterprises Cooperatives Federation as well as other relevant ministries, if so required.

Formalization of Storage Plan

The storage plan prepared by PPS that covers how to store and release on the basis of the status of the available funds for storage and characteristics of items to be stored shall be submitted to the MOSF for approval. In response to this, MOSF will finalize the plan for storage and put a public notice of the list of those items and advise PPS of such.

Purchase of Items for Storage

PPS shall decide on when and how much to purchase in consideration of the price trends at home and abroad and status of demand and supply at home. From time to time, the Office can utilize the futures market in preparation against the danger of price fluctuations in future.

Release of Items Stored

Release of items stored shall be carried out in accordance with the standard plan and procedure, but flexibly enough to take into account prices and status of demand and supply for each item.

In case of high demand, priority shall be given to SMEs The quantity of items released respect the end-user's wish, but the quantity could be limited where necessary.