Report urges infrastructure cutback

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Report urges infrastructure cutback


Ahead of the government’s drastic restructuring plan for public corporations, a state-run research institute proposed that the country scale back infrastructure projects to reduce debt at public entities.

At a public hearing yesterday, the Korea Institute of Public Finance announced the results of research into growing debt at public corporations, considered a major economic threat, and potential solutions to the problem.

The hearing was held less than a month after Deputy Prime Minister Hyun Oh-seok summoned the heads of 25 public corporations to warn them about practices that allow large debt and excessive spending on executive and employee welfare.

The institute proposed that public corporations slash infrastructure spending if they want to cut debt. It targeted 12 public institutions and analyzed their debt growth patterns over the past 15 years.

They are the Land and Housing Corporation, Korea Water Resources Corporation, Korea Railroad Corp., Korea Expressway Corporation, Korea Rail Network Authority, Korea Electric Power Corporation, Korea Gas Corporation, Korea National Oil Corporation, Korea Resources Corporation, Korea Coal Corporation, Korea Deposit Insurance Corporation, and Korea Student Aid Foundation.

Aggregate debt at the institutions stood at 412.3 trillion won ($392.5 billion) as of last year, accounting for about 84 percent of the total debt of 493.3 trillion won at 295 institutions.

Land and Housing, which has been leading public housing and innovation city projects, and Kepco, which is in charge of power distribution, were the most indebted organizations. Their combined debt hit more than 50 trillion won last year, accounting for 57 percent of the total debt of the 12 bodies. The two companies also saw the steepest growth in debt over the 15-year period.

Debt growth of the institutions accelerated in 2008, the research found. From 2008-12, total debt spiked at 225.5 trillion won.

The research institute pointed out that debt at infrastructure companies like Land and Housing and Korail has been on the rise since 2004, while debt at energy companies like Kepco and Korail began piling up in 2008.

For the past five years, the institute found, about 132 trillion won of debt was incurred by the former Lee Myung-Bak administration’s 10 representative public projects, including the innovation city, the overseas resource development, the four-river restoration, the Seoul and Incheon Arabaetgil canal creation and frequent roadworks.

Those projects were part of Lee’s efforts to revive the economy.

Korea Resources Corporation ended up with an additional 7.1 trillion won debt due to the four-river restoration project. Land and Housing is now saddled with 15 trillion won in debt incurred by the Bogeumjari Housing project of the Lee government, 14.3 trillion won by new town projects and 13.9 trillion won by public rental housing projects.

The institute said excessive investment in new projects ordered by the government, which requires a bigger budget and workforce, were the main cause of today’s massive debt. Those public companies monopolize government-ordered projects, lacking efforts to improve efficiency, it added.

“It is difficult to discern who should take responsibility for the debt due to the nature of public businesses,” said Park Jin, director at KIPF. “Public companies can’t avoid criticism about their lax management, resulting from the lack of a sense of urgency in terms of efficiency due to their monopoly position in public businesses, while the government can’t deny its responsibility for heavy reliance on public entities for new government projects.”

Since public utility prices are relatively low compared to production costs, there needs to be a transparent system that reveals production costs for public utilities and services in order to help public institutions restructure debt and increase profits, the institute suggested.

“One of important roles of the government is to help maintain appropriate levels of public utility prices by enhancing its monitoring of production costs,” Park added.

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