Restructuring of Public Sector
On December 11, the Finance Ministry ordered 12 debt-ridden major public organizations to map out self-rescue plans in a bid to tackle their soaring debt and become more efficient in management.
They were also urged to sell unnecessary assets, refrain from issuing additional bonds, and conduct more vigorous feasibility studies before and after launching new businesses.
The ordered companies include state-run companies such as LH Corp, Korea Electric Power Corp. (KEPCO), Korea Gas Corp., Korea National Oil Corp., and Korea Resources Corp.
“This is a comprehensive set of measures intended to restore normality in public organizations which have skyrocketing debt that has dragged down our economy and whose excessive benefits for their workers have angered the public,” Finance Minister Hyun Oh-seok said at a press conference in Seoul.
As part of efforts to normalize the operation of public organizations, the government urged 41 public organizations including those 12 companies to reduce their debt ratio to 200 percent by 2017 from 220 percent at the end of 2012. The 12 companies subject to the government’s stepped-up monitoring have a combined 412.3 trillion won (US$392.1 billion) in debt.
In particular, state-run companies including Korea Coal Corporation (KCC), Korea Gas Corporation, and Korea Hydro & Nuclear Power (KHNP), which are either unlikely to revive on their own with poor finances or perform functions that overlap with those of private counterparts, will undergo restructuring through shutdown and integration or sales of their business units.
“Some public agencies that cannot recover without outside assistance, including KCC, will be encouraged to be integrated,” said a senior governmental official, adding, “Merging KHNP and KEPCO is in the right direction.”
Anyway, they are ordered to map out their own self-rescue plans, including debt reduction, and submit the plans to the Finance Ministry by January, which will be closely monitored and evaluated by the government.
Separately, the Ministry ordered 20 other public organizations to draw up business-normalization plans by January. They include the Korea Racing Authority, Korea Exchange, and Korea Eximbank, which are among those accused of providing excessively generous salaries, bonuses, and other benefits to their workers.
The Finance Minister recently lashed out at public organizations, saying, "The party is over," referring to large bonus payouts and generous benefits handed out to their workers.
As of the end of 2012, the debt of the nation’s 295 public organizations reached about 493 trillion won (US$468.9 billion). The amount will soar to as high as 566 trillion won (US$538 billion) if the debt owed by public organizations of regional governments is included.
In response to the normalization plans, officials of some public firms argued that the debt problem stems in part from the government’s efforts to control the prices of major public services, including electricity, water and transportation, while pushing to enforce government-led projects such as the construction of apartments for lower-income citizens.
They also worried that many government-led projects could also be disrupted, possibly hampering the overall economic stimulus efforts being carried out through public organizations.
Others expressed concerns that the reform plans, most of which are targeted at removing long-held benefits and generous welfare programs, could be met with harsh resistance from their labor unions.
The Ministry plans to work with an advisory body consisting of personnel from both the public and private sectors to constantly inspect operations of public organizations.
Among 295 public organizations, the government also intends to conduct an interim evaluation of the agencies saddled with debt next year. The government reportedly seeks to dismiss three to four chiefs of public agencies that delivered sluggish improvement, and slash the average salaries of officials at public organizations.