The railroad to nowhereThe Korea Railroad Corporation, or Korail, agreed to shell out 1.2 trillion won ($982.7 million) to buy out Airport Railroad Co. in Incheon, which represents the biggest failure of a private infrastructure investment project in Korea.
A spokesperson of the Ministry of Land, Transportation and Maritime Affairs said, “13.8 trillion won of tax money was scheduled to be spent by 2039 to help cover any budget deficit of Airport Railroad. This deal will contribute to lowering the financial burden to below 6.7 trillion won.” However, it amounts to nothing more than a stopgap measure, and we should bear in mind that this is only meant to be a temporary solution.
The railroad operator drowned in red ink, posting a deficit of 740 billion won last year. At a time when the government is putting pressure on Korail to lower its operational deficit drastically to promote the development of the railroad, this is an absurd idea.
Airport Railroad Co. now represents the biggest failure of both the Kim Young-sam and Kim Dae-jung administrations. There’s no doubt we need a railroad connecting Incheon International Airport to the center of Seoul. However, the predictions about demand - which appear to have been groundlessly inflated - were the biggest culprit behind the project’s failure. The actual number of passengers served equates to just 7 percent of the predicted totals, which shows that the project just doesn’t make economic sense. At the same time, construction companies received unprecedented preferential treatment guaranteeing a return close to 10.4 percent annually as part of the deal. However, taxpayers’ money was spent to make up the whole deficit, with the National Treasury subsidizing 104 billion won in 2007 and 166.6 billion won in 2008.
This disposal by sale is the first case we have of dealing with a failed private infrastructure project in such a way, though we have seen this type of incident on the private side, including the Daegu-Busan highway and the Mount Woomyeon tunnel. The danger is that it will set a precedent for unloading huge burdens arising from management failure upon the government.
There is no fundamental, all-encompassing solution. However, we should immediately make it clear who is responsible for causing such unprecedented budgetary waste. Last July, the Board of Audit and Inspection embarked on several audit initiatives for Airport Railroad Co., and we are looking forward to hearing the results. This type of large-scale disaster involving a state-funded project should not be repeated again.