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[Editorial] Public Enterprise Reform Can Lower Public Utility Charges

[Editorial] Public Enterprise Reform Can Lower Public Utility Charges

Posted April. 12, 2005 23:33,   


Amid slow economic recovery, a surge in various public utility charges is putting pressure on the people’s livelihood. Last month, subway fares rose as much as 26.9 percent compared to the previous year. Bus fares and gas rates have also increased by 17.4 percent and 7.8 percent, respectively. From August, sewage facilities charges and taxi fares in downtown Seoul will increase 40.5 percent and 19.5 percent, respectively. Increased public charges added to the increasing taxpaying burden related to housing, land, and oil products are weighing on the people’s livelihood.

The price hike in imported raw materials is a contributing factor in driving up some public utility charges. However, it is questionable whether a two-digit rate increase is appropriate given the reckless management and moral hazard of public corporations. Public grievances over the rise in charges are increasing.

Perhaps in response, the government has announced that it would lower some of the public utility charges that are raised excessively by analyzing annual financial statements of public corporations. It plans to scrap valuation on total cost basis that ensure appropriate amount of profit and introduce a price ceiling and other valuation methods. Albeit belatedly, it is welcomed news that the government, which used only to put forward reasons for price hike, has expressed intentions to look for ways to reduce the costs. We want a concrete outcome instead of words. Whether or not the local public utility rates are adequate must also be taken into consideration.

The Korea Independent Commission Against Corruption has pointed out that moral hazard pervades state-owned enterprises as seen in slush fund, abuse of extra-expenses, collusive ties with specific businesses, private contracts through expedient measures, and shoddy internal audit. One public corporation has even reportedly offered a car, driver, and gasoline to a director at the supervisory authorities. With the help of tax revenues that fill the gap of mismanagement, in addition to monopoly, moral hazard in public corporations is growing. Their labor productivity stands at a mere 70 percent of that of private counterparts. Reforming public corporations seems to be a way to lower public utility charges.

The government must seek ways to reduce public charges by fundamentally reforming public corporations as well as by analyzing financial statements. Appointment of an outsider to a high post based on personal connections that fuel “divisive climate” in public corporations must be eliminated, and enhancing the management transparency is an urgent task. Also, intense restructuring to enhance productivity is required. The sectors that can be entrusted with the private sector must be boldly privatized, and market participation of private companies must also be expanded.