[Outlook]Water workOn July 16, the government released a five-year plan to boost the water industry. The idea is to have an integrated and effective water treatment and services industry and to nurture Korean water services companies to join the ranks of world leaders in this field within the next decade. This is good news. The government wants first to make the domestic water treatment and services sector competitive and then propel the industry toward becoming a major exporter. As water has become a crucial resource, advanced water supply and treatment companies are now preparing for global opportunities.
Currently there are many problems in Korea’s water industry. First, the scale of the industry is fairly small and service varies from area to area. Many water service management companies are ineffective and have been losing money for a long time.
Investment has decreased to the point where losses from leaky pipes are more than 500 billion won ($550 million) yearly. The quality of service also differs from one local government to another. As of 2003, in provincial and metropolitan cities, 98.7 percent of residents had fresh water, but in some small subdivisions within counties, only 33 percent of residents had access to fresh water.
In the water services sector, many staff members are also unprofessional, largely because the government wants the sector to be run by public entities and does not allow market principles to come into play. As managers are secure in their positions, they often lack professional knowledge and experience. Only 19.3 percent of water company staff members are engineers. Meanwhile, the managers are also regulators, making the people more suspicious about the quality of tap water. The water treatment and services business is run by local, provincial or metropolitan governments in a way that is inefficient because of its scale. In addition, facilities have been built in every city or county, resulting in waste and duplication. Several urgent tasks must be done to make the industry effective and competitive.
First, more participants must be allowed to enter the water industry if Korean companies are to become competitive on the global stage. The entry barriers to the market must be removed so that some water treatment and services companies can be run directly by local governments, while others are run by public or private companies. Concrete measures also must be prepared, such as standardized qualifications, service evaluations and regulations. A variety of incentives to induce companies to enter the market and penalties for misdeeds must be established.
Second, workers in the industry currently run no risk of being fired, and that has been one of the main difficulties in restructuring the industry. This must be changed. The central government must resolve this issue in the process of transforming the water treatment and services sector from a cozy government preserve to a competitive industry.
Third, some people worry that nurturing companies to enter the water industry might be harmful because water is a public resource. The government must work hard to prove such a fear is baseless. To start with, an example can be made of a handful of successful private businesses before the whole industry is privatized. For instance, different local governments of comparable size using either the public sector or a private company to provide water services could be assessed for effectiveness and safety. Private companies would also gain valuable knowledge from this kind of arrangement.
Fourth, the huge financial deficit in the water industry must be improved. The deficit amounts to more than 3.9 trillion won, divided between water supply, 1.9 trillion won, and waste water services, 2 trillion won. The water services sector must become more competitive if it is to nurture new companies entering the market. Otherwise, these players will face too great a burden.
Currently the price of fresh water in Korea is 83 percent of the cost of production. It is possible to raise it by 17 percent, but most local governments use the revenues just to sustain services at the current level. They borrow money or redirect funds allocated for other budgetary priorities in order to make investments in water facilities. That way, they keep recording deficits year after year. Local governments should make plans to set a rational price on water supplies in order to normalize services. If not, the industry can never be realistic.
Finally, institutional support and sponsorship are needed to nurture the water industry as an export business in the next generation. Development of technology must be sponsored. Systematized information must be provided. Attempts to open up new export markets will have to be promoted. Some worry that the government’s plan will actually damage the the water industry. This is not likely to be the case. Such worries will be resolved in the process of implementing the plan when the national government, local governments and consumers take part in preparing measures to manage water services effectively.
*The writer is a professor of environmental engineering and biotechnology at Myongji University. Translation by the JoongAng Daily staff.
by Namkung Eun