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Public Corporation Reform Remains Slow

Posted May. 19, 2008 07:55,   


The affiliates of public corporations including Korea Housing Management, Korea Real Estate Investment Trust, and Korea Gas Technology Corporation were ordered by relevant ministries to make adjustments such as privatization or restructuring under the previous government for loose management, but failed to take any action.

This shows that the strong opposition from within public corporations makes it difficult for the government to achieve successful reform with one-round advices.

○ Labor unions set out to refuse privatization

According to the Board of Audit and Inspection (BAI) on May 18, the Planning and Budget Committee, a direct body under the president during the Kim Dae-jung government, had designated Korea Housing Management and Korea Expressway Corporation, affiliates of Korea National Housing Corporation, and Korea Construction Management Corporation, an affiliate of Korea Water Resources Corporation, as corporations to be privatized.

It had judged that the task of Korea Housing Management to manage rental houses and the audit and review tasks of Korea Construction Management Corporation were beyond the boundaries of public corporations since those were the areas where private companies competed against each other.

In 2001, however, the labor unions of these affiliates opposed to the privatization plan, justifying themselves that they serve public good and eventually nullifying privatization.

Among them, Korea Housing Management has been degraded into a weak enterprise with the net income smaller than 100 million won in 2007, as the number of houses under its management dropped from 250,000 in 2005, 230,000 in 2006, to 220,000 in 2007. It could only avoid deficit because Korea National Housing Corporation passed over projects worth 773 billion won over the last three years based on a contract ad libitum.

Korea Real Estate Investment Trust, an affiliate of Korea Land Corporation, was advised by the BAI last year to sell off the entire stock to the private sector, after an audit.

Though Korea Land Corporation sold its share of Korea Real Estate Investment Trust to a private equity fund, it left out 30 million out of 100 million stocks from the sale. The BAI presumes that the public corporation shortened the sales list to maintain the authority to appoint over two executives of its affiliate.

○ Neglected criticism on multidirectional management

The Ministry of Commerce, Industry and Energy, in charge of Korea Gas Technology Corporation, revealed its reading in 2005 that “the collective energy project which constructs steam supply and power generation plant and provides community residents with warm water is not appropriate as a project of Korea Gas Technology Corporation.” Its judgment was based on the initial purpose of Korea Gas Technology Corporation, which is the maintenance and repair of facilities to supply natural gas.

But in March 2006, Korea Gas Technology Corporation established an affiliate named Gyeonggi CES and began the collective energy project. In 2007, the gas corporation recorded a deficit of 50 million won in the collective energy category. The market domination is also small at about 0.7 percent. It would be safe to assume the project has failed.

In the end, the BAI gave a warning to the troubled company in November 2007 for entering into business beyond the initial purpose, but no change has been made so far.

Also, the Korea Container Terminal Authority was advised by the audit agency in January 2005 to “take actions to improve fundamental strength, including the restructuring of its affiliates, to make up for the net loss amounting to 21.2 billion won.”

Despite the advice, the authority newly invested in a logistics company named Sunkwang Logistics, together with SKCTA, increasing the number of affiliates from three to five.