Projects Evading Feasibility Studies

It is being reported that the government has wasted government budget money by neglecting to undertake preliminary feasibility studies for 23 major public works projects.

According to a report by Korea Development Institute (KDI) submitted to the Ministry of Planning and Budget yesterday, 23 cases have been found where public works have not undergone preliminary feasibility studies or have been put through feasibility re-inspections due to a dramatic increase in working expenses during its course of work. Considering the average cost (302 billion won) for 735 public works administered by the government, these public works amount to 7.0 trillion won.

Deliberate Reductions of Total Cost to Avoid Preliminary Feasibility Tests-

It was discovered that some of the enterprises that carry out government projects have reported total expenditures of less than 50 billion won to avoid a KDI feasibility study. After the budget has been adjusted, these enterprises have changed the business plan to increase working expenses. If the total expense is increased by more than 20%, pertinent public work is inspected through feasibility research conducted by KDI. However, if the increase is below 20%, it does not even go through an interim inspection.

The construction cost for the Complex Center for Distribution of Agriculture and Fishery Products, which the Ministry of Agriculture and Forestry is going to build in Jinjang-dong, Ulsan was initially 43.3 billion won in 2003. However, it recently changed to 82.6 billion won while it changed its basic plan. KDI has re-examined the necessity of a distribution center, main body of its operation and establishment, and appropriateness of its functions and working expenses. These should have been examined at the initial stage of the public enterprise.

Also, construction of an access road to Gwangju high technology industrial complex only cost around 49.8 billion won at the time of its approval. But during its construction, the cost increased to 79.2 billion won.

Building a new regenerative energy theme park in Buan-gun, Jeonbuk proceeded without a preliminary feasibility test, and its budget ballooned from 120 billion won to 195.7 billion won.

Government Should Widen Criteria for Feasibility Test-

The Ministry of Planning and Budget announced that from 1999 to late October 2005, it conducted preliminary feasibility studies on 234 public works (amounting to 129.1 trillion won) and suspended 101 (amounting to 63.3 trillion won) of those works. This means that one out of two public works carried out by public enterprises failed to pass feasibility tests.

Lee Tae-sik, the president of School of Industrial Management at Hanyang University said, “In order to increase transparency in public works, the government needs to increase the number of projects that are subject to preliminary feasibility studies and should consider changing the organization that conducts the study from the KDI to another institute to increase efficiency."

legman@donga.com