Flawed Traffic Estimates Cost Government Billions

The estimated traffic volume of expressways when they are under construction or on the drawing boards by the Ministry of Construction and Transportation has turned out to be much more than the actual traffic on them after they are built.

When the traffic is lighter than expected after construction, the government has to provide private companies with money to make up for the short profits ranging from tens of billions of won to hundreds of billions won, a drain on the governmental coffers.

This was disclosed by the ministry’s statement of accounts for the 2004 fiscal year submitted to the National Assembly on August 21.

Overblown Traffic Estimates-

According to the review report conducted by the Korea Construction Institute during the period from last October to this March on the traffic volume of expressways constructed using private capital, traffic estimates for five out of 10 privately-funded highways whose construction was being considered by the Ministry was found to be less by 34 percent at the most.

The report showed that the highway between Hwado in Incheon and Yangpyeong in Gyeonggi Province will have average traffic volume of 26,609 cars a day, only 65.8 percent of 40,429 cars suggested by a private company.

The estimated traffic volume of Pyeongtaek-Siheung Highway in Gyeonggi Province (72.9 percent), Yeongju-Sangju Highway in North Gyeongsang Province (80.2 percent), Seoul-Dongducheon (91.8 percent) and the second Yeongdong Highway (92.7 percent) turned out to be overestimated in the corporate report.

According to the review report, two out of four highways under construction by private companies have overestimated traffic.

The Board of Audit and Inspection showed in its report on private investment in social overhead capital that the actual traffic on the Seoul-Chuncheon Highway and West Suwon-Pyeongtaek Highway will run short by 59.95 percent and 46 percent, respectively.

Overestimation and Waste of Taxes-

The same is true for Incheon Airport Highway and Cheonan-Nonsan Highway in that the traffic was overestimated for the two highways constructed by private companies.

Incheon Airport Highway opened in November, 2000 and had 40.7 percent to 46.9 percent smaller traffic than anticipated until last year. This year’s traffic use number stands at 48.4 percent.

The government granted 405.6 billion won in subsidies to the construction companies to make up for the lacking profits from 2001 to last year.

In the case of the Cheonan-Nonsan Highway, which has been open since November 2002, the government offered a total of 79 billion won as the traffic on it fell short of expectations by 47.1 percent and 52.4 percent in 2003 and 2004, respectively.

Rep. Lee Nak-yeon of the Millennium Democratic Party, a member of Construction and Transportation Committee, pointed out that “through revising the law that guarantees corporations that constructed highways will have a fixed amount of profit when traffic and operating profits are short, it is urgent to stop taxes from being wasted.”

The Ministry of Construction and Transportation said “It is hard to predict the traffic because environments are to change along private highways, say, because of construction of new cities. The government has given financial support to liven up the private speedway construction project, which is in its early stage. In the long term, it will reduce the profit guarantees for private companies.”

Dr. Lee Heon-joo at the Korea Transport Institute remarked that “it is not uncommon for private companies to overestimate traffic because that way, the company can secure profits,” adding, “It is important to re-examine the details of the agreements between the government and companies to prevent waste of taxes.”

Tae-Hun Hwang beetlez@donga.com