Government's Public
Entity Reform Shapes Up

Finalizes plan for advancing 108 public enterprises

The Lee Myung-bak government has come up with a plan to advance public entities with the goal of building up a dynamic market economy and upgrade the national economy to an advanced level by making the government smaller and the market bigger.
The government has finalized its plan to reform 108 public entities, including 38 public enterprises to be privatized. It has decided to remove entities related to electricity, gas, tap water, and health insurance from the list of privatization, but those public entities will be revamped through management rationalization.
The following are excerpts of an interview between NewsWorld and Vice Minister Bae Kook-hwan of the Ministry of Strategy and Finance. Mr. Bae touched on the details of the plan for advancing public entities, including its purpose and implementation process.
Question: Will you tell our readers about the background and purpose of the government's plan to advance public enterprises?
Answer: Public enterprises have contributed to the development of the national economy during the economy's infant stage, but as the economy matures, they need to shift roles. Public firms were established to proactively boost investments into arenas with the lack of private capital and technology and with high risk. But public firms have lost their ground as the private sector has now greatly developed. Worse, they have proved to be inefficient, lacked the ownership spirit, and have slowly reacted to changes, which therefore served as an obstacle to the development of the national economy.
The plan is designed to build up a dynamic market economy and advance the national economy by seeking "small government, big market."The ultimate goal of advancing public enterprises is to improve the welfare of the people by providing high-quality public services and to relieve the burden on the public by cutting down on the government's support for public enterprises.
It has four options: first, privatizing public enterprises which are considered to compete in the market or have the potential for competitiveness; second, consolidating and merging public firms which have similar or overlapping functions; third, disbanding public companies which provide services that can be provided by other public entities or the private sector and which are operated inefficiently; and fourth, readjusting functions and roles of public firms which need to be restructured due to circumstantial changes.
Q: The public enterprise sector underwent tremendous restructuring in 1998. Will you explain the difference between the current government's plan to advance public enterprises and the past governments'public firm reform plans?
A: The public sector was first restructured under the Kim Dae-jung administration as part of efforts to tide over the Asian financial crisis. This restructuring was mainly designed to expand fiscal revenues through selling public enterprises and to curtail manpower in the public sector.
The Rho Moo-hyun administration put on hold a plan to privatize, consolidate and merge public enterprise, thus resulting in making the public sector bigger.
The Lee Myung-bak government launched a plan to reform an economic system designed to upgrade the national economy to the standard of advanced economies. It plans to work out differentiated steps suited to each individual entity in order to enhance efficiency of public firms. The plan calls for not privatizing such essential public services as electricity, gas and other areas related to the ordinary people's life. Rather, it will implement a comprehensive management rationalization strategy to reduce costs and minimize the public's burden.
Q: The government has announced the first, second and third phase of the plan to advance public entities on three occasions so far. Will you describe the big picture of the plan?
A: The first, second and third phases of the plan affect a total of 108 public entities.
Thirty-eight public entities, including the Korea Development Bank and the Industrial Bank of Korea, will be privatized. Among others are the Incheon International Airport Authority, Korea Airports Corp., Korea District Heating Corp., Korea National Committee for Pacific Economic Cooperation (KOPEC), and Korea Plant Service & Engineering (KPS), whose government stakes will be disposed of.
The Korea Gas Corp. and the Korea Broadcasting Advertising Corp., which have monopolized the gas distribution and broadcasting advertising industries, respectively, will be opened up to private competitors.
Thirty-eight public enterprises which have similar or overlapping functions will be consolidated into 17 public entities. For instance, the Korea Housing Corp. and the Korea Land Corp. will be merged.
Five public enterprises, including the Resolution & Finance Corp., will be broken up.
Twenty public entities, including the Korea Deposit Insurance Corp. and the Korea Tourism Organization, will be scaled back or handed over to private companies.
Eight public firms, including the Korea Electric Power Corp. and its subsidiaries, five power companies, and the Korea Railroad Corp. will advance management efficiency and transparency.
If the plan goes as smoothly as possible, 45 out of 305 public enterprises will be scrapped or privatized, thus reducing the number of public entities to 260.
Q: The government has already finalized plans to advance the management of 108 out of a total of 319 public entities including 14 public fund injected corporations. However, has it yet worked out management improvement plans for the remaining 211 public enterprises?
A: The plan for advancing public entities is a concept of encompassing privatization, consolidation & merger, readjustment of functions and managerial rationalization.
The first, second, and third phases of the plan focus on fine-tuning such hardware of public entities as the re-establishment of the roles of each entity through privatization, consolidation & merger, and readjustment of functions.
Afterward, the government plans to consider options to rationalize such overall management factors as organization, manpower and budgetary management of all public entities and translate into action steps to streamline systems on a constant basis.
In particular, 211 public enterprises, which are not in the plan for advancing public entities, will have their management streamlined in organization, manpower and budgetary management together with all other public enterprises.
Q: What impact will the current global financial crisis have on the privatization of Korean public entities?
A: Some people believe that the government will find it difficult to privatize public entities due to the global financial crisis.
However, the privatization of public entities will be pursued step by step, and the timing of disposing of the government's stakes and amounts will be flexibly readjusted in consideration of the recent stock movements and economic developments.
The government plans to take such diverse steps to supplement unfavorable market conditions as the one designed to raise the selling price through such stringent restructuring as management rationalization in the course of preparing to put public entities on the block.
It strives to do its best in selling public entities, which are national assets arising from people's wealth, for the price they deserve.
Q: Do some people worry about the possibility that the privatization of public entities will raise public utility charges?
A: There is no need to worry about charge hikes.
First of all, the government decided to delist electricity, gas, tap water and health insurance, which are the subject of mounting worries over fare increases, from the list of public entities to be privatized. For Korea Gas Corp., added to the privatization list, the government will dispose of only a 49 percent stake in the public company to retain it as a public entity. There are no worries about charge increases because the public sector continues to provide the services.
Q: Lately, the government announced a plan to expand new growth engines through overseas resources exploration. Does the plan for advancing public entities also embrace the one for expanding overseas resources exploration?
A: It was included in the first phase of the plan for advancing public entities.
In an effort to help Korea National Oil Corp. (KNOC) and Korea Resources Corp. expand their functions of exploring for overseas natural resources such as crude oil and minerals, the government plans to step up the capability to develop overseas natural resources by expanding its investments and cashing in on private capital while shoring up overseas exploration departments by reorganizing non-exploration departments with a focus on core functions.
In accordance with steps to expand the function of overseas resources exploration, KNOC aims to increase six-fold its overseas crude oil production from 50,000 barrels per day to 300,000 BPD in 2012. The government plans to make an additional 600 billion won investment in KNOC through the supplementary budget to boost its investments in overseas resources exploration.
Q: How will the first, second and third phases of the plan for advancing public entities be pushed ahead from now on?
A: The finalized plan will be implemented on a step-by-step basis by each relevant government agency.
The third phase of the plan was announced on Oct. 10, but the first and second phases, announced one month ago, are proceeding as planned. The revision of laws is underway for revamping 36 public entities. Public notice on the enactment and revision of 23 out of 44 laws are under way while the government prepares for the revision of 21 other laws.
Each relevant government agency will form a task force to reform public entities listed in the third phase and their implementation process will be inspected by the Ministry of Strategy and Finance.
Within this year, the government also plans to finalize and implement steps to rationalize organization, manpower and budgetary management and other management factors of all public entities, including 211 public enterprises, not put on the list of the government plan, with the goal of raising efficiency by more than 10 percent. nw

Vice Minister Bae Kook-hwan of the Ministry of Strategy and Finance

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