The total public enterprise expenditure of KRW 102.9 trillion as of the end of 2004 has increased drastically to KRW 246.1 trillion by the end of 2013. While external factors such as the expansion of policy projects and revisions in establishment laws for public enterprises have played a role in increasing the total expenditure, the continued expansion of businesses at the discretion of the public enterprises was another major factor. Recently, the administration is driving for the normalization of public institutions, focusing on improving the issues of poor management, mostly with respect to the reduction in debt and welfare expenses, but there is an insufficient level of investigation and review on the issues relating to the business expansions of public enterprises.
This report analyzed the current status of the business expansions as outlined in the medium- to long-term management objectives of public enterprises and assessed their validity, profitability, and possibility of competition with the private sector with examples of some major public enterprises.
The assessment results showed that a review is necessary to revalidate the scale of the North East Asia Oil Hub project currently run by Korea National Oil Corporation and Ulsan Port Authority. For the International Theme Park Project run by K Water in Songsan Green City, a review on the outsourced research results on the enterprise's theme park business strategy is necessary to establish various options to secure the land for the theme park in advance. The International Goods Export business, operated by Korea Minting, Security Printing & ID Card Operating Corporation, requires plans to improve its profitability as it continues to record operating losses since 2010. Moreover, the privately funded road operation and management business of Korea Expressway Corporation and the new business under the subsidiary of Korea Railroad Corporation are competing with the private sector. The lease operation and management business of Korea Land & Housing Corporation is also competing with its subsidiary, Korea Housing Management Co., Ltd, highlighting the need for adjustment.
In order to resolve the issues that may occur together with the business expansions of public enterprises, the following solutions for improvement have been proposed.
First, for the ongoing monitoring of the functionality of the public businesses, the primary relevant ministry and the Ministry of Strategy and Finance need to prepare a means of checking the medium- to long-term management objectives of the public enterprises. This is because the businesses with low relevance and profitability, run autonomously by the enterprises, and the businesses that are in competition with their subsidiaries or the private sector need to be adjusted. Second, a production and management framework for the business budgeting information of public enterprises is needed. This is because the role of the National Assembly in allocating the budget for public enterprises is restricted to only a small fraction of the decisions, as can be seen from the 2013 financials where the total expenditure of public enterprises is at KRW 246.1 trillion while the budget reviewed by the National Assembly is only at KRW 5.6 trillion. To reinforce transparency and accountability in setting the budget for public enterprises, the Act on the Management of Public Institutions needs to be revised so as to have the budgets of the public enterprises finalized by board resolutions to be reported to a standing committee under the National Assembly for review. Third, the public enterprise business pre-management framework needs to become more robust and efficient. Currently, when public institutions work on large-scale projects, a preliminary feasibility analysis is required. However, as there are no provisions on the need for re-analysis of the business feasibility, there are effectively no controls over the projects that have reduced demand or increased cost in the business preparation process. Thus, the Ministry of Strategy and Finance needs to review the option of introducing the re-testing of the business feasibility of public enterprises in the future.
This report analyzed the current status of the business expansions as outlined in the medium- to long-term management objectives of public enterprises and assessed their validity, profitability, and possibility of competition with the private sector with examples of some major public enterprises.
The assessment results showed that a review is necessary to revalidate the scale of the North East Asia Oil Hub project currently run by Korea National Oil Corporation and Ulsan Port Authority. For the International Theme Park Project run by K Water in Songsan Green City, a review on the outsourced research results on the enterprise's theme park business strategy is necessary to establish various options to secure the land for the theme park in advance. The International Goods Export business, operated by Korea Minting, Security Printing & ID Card Operating Corporation, requires plans to improve its profitability as it continues to record operating losses since 2010. Moreover, the privately funded road operation and management business of Korea Expressway Corporation and the new business under the subsidiary of Korea Railroad Corporation are competing with the private sector. The lease operation and management business of Korea Land & Housing Corporation is also competing with its subsidiary, Korea Housing Management Co., Ltd, highlighting the need for adjustment.
In order to resolve the issues that may occur together with the business expansions of public enterprises, the following solutions for improvement have been proposed.
First, for the ongoing monitoring of the functionality of the public businesses, the primary relevant ministry and the Ministry of Strategy and Finance need to prepare a means of checking the medium- to long-term management objectives of the public enterprises. This is because the businesses with low relevance and profitability, run autonomously by the enterprises, and the businesses that are in competition with their subsidiaries or the private sector need to be adjusted. Second, a production and management framework for the business budgeting information of public enterprises is needed. This is because the role of the National Assembly in allocating the budget for public enterprises is restricted to only a small fraction of the decisions, as can be seen from the 2013 financials where the total expenditure of public enterprises is at KRW 246.1 trillion while the budget reviewed by the National Assembly is only at KRW 5.6 trillion. To reinforce transparency and accountability in setting the budget for public enterprises, the Act on the Management of Public Institutions needs to be revised so as to have the budgets of the public enterprises finalized by board resolutions to be reported to a standing committee under the National Assembly for review. Third, the public enterprise business pre-management framework needs to become more robust and efficient. Currently, when public institutions work on large-scale projects, a preliminary feasibility analysis is required. However, as there are no provisions on the need for re-analysis of the business feasibility, there are effectively no controls over the projects that have reduced demand or increased cost in the business preparation process. Thus, the Ministry of Strategy and Finance needs to review the option of introducing the re-testing of the business feasibility of public enterprises in the future.