Shocking is the word that describes a report by Korea’s government auditors on the debt of major state-owned companies; During five years under the former Lee Myung-bak administration, the combined debt of nine public enterprises more than doubled, from 128 trillion won ($113 billion) to 284 billion won

2013-06-13 17:32

Public enterprises’ debt

Shocking is the word that describes a report by government auditors on major state-owned companies released Wednesday. During five years under the former Lee Myung-bak administration, the combined debt of nine public enterprises more than doubled, from 128 trillion won ($113 billion) to 284 billion won.

The biggest reason was the “ostrich” fiscal operation of the previous government. While pushing ahead with massive public works, including the controversial four-river refurbishment project, it passed the burden from snowballing budget deficits to state-owned enterprises (SOEs).

That was a most glaring example of irresponsible fiscal management, which does not stop at aggravating the bottom lines of these state firms but puts strict restraints on the succeeding government’s economic operation and eventually leads to heavier burdens on taxpayers. Major, if not the only beneficiaries were large construction firms and officials who received kickbacks from them. This collusive absorption of taxpayer’s money is not an issue that can be resolved with just an audit report but requires parliamentary investigations.

This year, the aggregate debt of SOEs is estimated to top 500 billion won, nearly half the nation’s GDP. It is a small surprise then that Moody’s and Standard and Poor’s are hesitating to raise the credit rating of Korea’s SOEs.

This, coupled with the artificial curbing on the charges basic services such as electricity and urban gas, has resulted in a serious ethical laxity of officials working for public enterprises. For example, the average pay of Korea Electric Power Corp. hovers above such global corporate powers as Samsung and Hyundai, while the state utility suffers from near perennial operational losses, which KEPCO officials attribute to below-cost supply of electricity mainly to large consumers meaning industries.

On the other hand, household consumers enjoy no price discounts but are applied with steep progressive rates when their energy consumption exceeds the KEPCP-set threshold. Families are also the first ones forced to cut consumption during summer and winter peak seasons to prevent blackouts, a combined result of the government’s policy mistakes as well as corruption and poor management of power companies. In short, these governmental and semi-governmental officials are giving a peck to and getting a bushel from the public.

The time is long past for Korea to overhaul its state enterprise system by subjecting their projects to far tighter feasibility studies and their fiscal management to strict monitoring by government-civilian joint bodies. For instance, KEPCO should be able to raise electricity charges ― only in exchange for thorough self-reform by cutting pay, selling assets and eliminating corruption.

A country where state-owned companies are called “godly workplaces,” such as Korea, can hardly be called normal. It’s not that state enterprises have no competitors just because they provide public services. They must find competitors not at home but abroad ― state-owned enterprise in major foreign countries.