Subsidiaries of state-run companies increased in numbers

State-run companies have established over 300 subsidiaries for the past six years. Although the government announced that it would eliminate over 130 subsidiaries as part of its effort to advance state-run companies, it rather increased more than twice number of subsidiaries.

While a majority of the subsidiaries make losses every year, state-run companies have given jobs to more than 200 people in their subsidiaries for the past five years. They spent public money to set up loss-making subsidiaries to help their employees get a position in them. Given this, many point out that the subsidiaries of state-run companies need an overhaul and an increased oversight.

According to a report on the assessment on the management of the subsidiaries of state-run companies released by the National Assembly Budget Office on Sunday, 74 entities including state-run companies, quasi-government organizations and other public organizations had 560 subsidiaries as of the end of last year, and 302 of them have been established since 2010.

To set up a subsidiary, state-run entities are required to have a prior consultation with relevant ministries and the Strategy and Finance Ministry. However, 85 percent of them are estimated to have not followed the step. Instead, some state-run companies, such as Korea East-West Power (Seokmun Energy, etc.), Korea Racing Authority (Eco Green Farm), and Korea Expressway Corporation (Highway Solar), exploited the clause that require a state-run company to have a prior consultation if it has more than 30 percent in equity and established subsidiaries with a 29 percent stake.

Unless stipulated by the government, the subsidiaries have no requirement to disclose its business conditions to the public. By exploiting this, many subsidiaries remain unchecked despite annual losses and lax management. Korea Gas Corporation decided to sell a 19.4 percent stake in 2014 in the subsidiary running compressed natural gas station in Uzbekistan, which it bought at 7.25 million dollars, but this was not known well to the public. While state-run companies arranged jobs for their 213 employees to their subsidiaries between 2011 and 2015, but only 24 appointments were disclosed to the public.

“While the Strategy and Finance Ministry has assessed the subsidiaries of state-run companies indirectly through the management assessment test, it is difficult to expect any actual effect from this,” the National Assembly Budget Office said. “The subsidiaries' overall business performance should be reviewed.”

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