Public Corporation Reform

Politicians in the ruling and opposition camps decided to push forward a bipartisan reform of public corporations to address the lax management that was revealed in the recent inspection of government offices.

On October 11, the final day of the inspection, questions were continuously raised about lax management and the moral hazard of public corporations.

In the inspection of the Ministry of Construction and Transportation that day, the Construction and Transportation Committee of the National Assembly focused on problems of squandering budgets, giving advantage to the officials’ children for employment, offering beneficial treatment to former officials, and distributing money for public projects to employees. The problems were found in five public corporations under the ministry, including Korea Land Corporation (KLC), Korea Water Resource Corporation (KWRC), Korea National Housing Corporation (KNHC), Korea Highway Corporation (KHC) and Korea Railroad (KORAIL).

According to the data that the ministry and its affiliated public corporations submitted to the National Assembly, four public corporations – the KLC, the KWRC, the KNHC and the KHC – donated 341 billion won in employee welfare funds although their combined debt reached as much as 45 trillion won. The KLC donated 109.7 billion won, while the KWRC, KHC and KNHC contributed 100.9 billion won, 77.3 billion won, and 50.3 billion won, respectively.

The fund aimed at providing welfare for employees is accumulated within five percent of net profit before deduction of corporate tax or income tax. It is used to help employees’ housing purchase, extend loans for living expenses, and assist expenses for family events.

Employees of the four corporations are entitled to receive a loan with an annual interest rate of the five percent range, lower than the bank interest rate. In total, 34 billion won is extended to the KWRC, while the KNHC, KLC and KHC received 25 billion won, 20 billion won, and five billion won, respectively.

It was found that incentives for employees grew to 103.2 billion won last year from 56.4 billion won in 2002 and 69.2 billion won in 2003, leading to the accusation that the corporations distributed profits to their employees rather than on using it to improve their financial structure.

Another problem is beneficial treatment for retired officials.

KORAIL gave 8.1 billion worth of concessions, including consignment of managing dormitories for train crews, to an association of its retired employees in the form of a private contract over the recent three years.

In a similar way, the KHC, the KNHC, the KWRC, and the KLC offered more than 18 billion won worth of concessions and benefits to retirees.

As lawmakers continue raising questions about the issue, Choo Byung-jik, the minister of Construction and Transportation, said, “We will study improvement measures by forming an innovation committee for public corporations affiliated to the ministry.”

Won Hye-young, chief policymaker of the ruling Uri Party, said, “If necessary, it is possible to form a special committee in the National Assembly. We will embark on detailed restructuring of public corporations after the inspection through continuous policy consultation not only with the government but also with the Grand National Party.”

The opposition GNP revealed 36 representative cases of lax management of public corporations that day. The 36 cases fall into four categories: squandering of taxpayers’ money; moral hazard; speculations over corruption; and giving a job to well-connected candidates. Prior to that, GNP floor leader Kang Jae-sup, proposed the ruling party to install a “special committee for public corporation reform” in the National Assembly on October 10.

In-Jik Cho cij1999@donga.com ddr@donga.com