The Real Story Behind the Railroad Privatization Controversy - koreaBANG

The Real Story Behind the Railroad Privatization Controversy

The railroad strike has dominated Korean headlines for the past three weeks, culminating in a massive demonstration in front of Seoul City Hall on December 28th (video below). While the railway labor union has relented and since returned to work, the issue of railroad privatization seems unlikely to soon disappear from street protests and the halls of the National Assembly. To help our readers understand the emotions at the center of this issue and make their own conclusions, koreaBANG has prepared a comprehensive guide to both sides of the issue.

From The Hankyoreh: [Dec. 24]

Is It Privatization?..The Truth Behind the Privatization of the Railroads

The strike by the Korean Railway Worker’s Union (KRWU) against “railway privatization”, which began on December 9th, has now gone into its sixteenth day. Rail traffic is down to 70% of what it was before the strike. Police have laid siege to the headquarters of the Korean Confederation of Trade Unions (KCTU) in the belief that KRWU leadership is hiding in the building. The KCTU is planning a general strike for December 28th in response to the police behavior, and government has come to a halt as it sorts out the crisis. The Hankyoreh offers the following explanation of the railway privatization issue as an answer to lingering questions about the changes at the root of this latest controversy.

How did the KTX Suseo line become such a controversy?

The problem lies with KORAIL’s profit structure. KORAIL operates the Mugunghwa, Saemaul, and KTX lines across the country. Except for the KTX Seoul-Busan line, all of the railway lines are not profitable. In the current situation, profit from the KTX line is offsetting the losses on the other lines. The Suseo line will only pass through the prosperous areas of Gangnam, Bundang, and Seongnam. Suspicions began as soon as the locations were announced, as the line appeared to be targeted at the “1%” in order to rake in high profits. The KRWU saw the creation of a separate high-profit Suseo line as part of a plan to hand over operations to a private operator.

If there is a separate Suseo KTX operator, will KORAIL suffer significantly?

The railway market is distinguished by its regional monopolies. This means that it is highly likely that resident of Gangnam will use the Suseo station rather than Seoul Station. The Korea Road and Transport Association recently published a report that estimates that an average of 55,000 people per year will use the KTX service from Suseo for the next thirty years. They estimate that this will result in KORAIL losing WON 450-500 billion every year.

Of course the government has prepared a response to these estimates, saying that KORAIL will earn money by renting out trains and selling equipment to the new rail line operator. The Ministry of Land, Infrastructure, and Transport claims that these new sources of income will amount to WON 200 billion. The creation of the new railway operator will also result in a reorganization of KORAIL employees, lowering labor costs. The competition will also increase efficiency. All of these factors are supposed to result in KORAIL not suffering any significant losses. However, the KRWU have called these claims unrealistic, saying that KORAIL records indicate that it will only make 12 billion won profit after the labor costs and depreciation have been taken out of the fees it will charge the new railway operator.

Does selling equity to the government amount to privatization?

The government plans to split the ownership of the new KTX operator between KORAIL and government stakeholders. According to legislation, funds from the national pension fund and other accounts will be used to buy 59% of the new company, while KORAIL will own the remaining 41%. The government argues that private money will not be allowed to buy any share of the new operator. However, this conflicts with the status of of the National Pension Fund.

Since the objective of the National Pension Fund is to care for the retirement savings of all citizens, it is clearly intended to be invested in public causes. However, this doesn’t mean that the investment practices for that money are any different from those used for private funds. According to Article 102 of the National Pension Law, “in order to maximize returns from the National Pension Fund, it shall be invested in a way that brings returns greater than the market average.” In practice, this means that the Fund operators have a target of 7% growth. This means that the Suseo KTX line will have to protect the investment return of the National Pension Fund. The nation’s transportation network will end up serving the demands to make a profit. The KRWU states that this relationship fits “the broader definition of privatization.”

Isn’t the government vowing that this isn’t privatization?

The government is well aware of the opposition to privatization, so it has prepared a number of measures intended to reassure the public. First of all, it will include a prohibition on equity sales in the articles of association for the new rail line operator. In addition, in any cases where equity in the venture is sold, the sale must first be approved by a special session of the Board of Directors, one requiring two thirds attendance by the board and two thirds approval. The government has also said it would strip the rail operator of its operating certificate were it to ever transfer equity from a public owner to a private one. Public officials say that these safeguards make transfer of ownership impossible.

The KRWU has a different opinion of these safeguards. In recent years, privatization has taken many forms. For example, it could happen that the National Pension Fund would not sell its equity directly, but could do so indirectly through a separate fund, one which could be purchased by private investors. There is a possibility that the voting requirements for the Board of Directors meeting concerning equity sales could be modified, and even the promise to revoke the operation certificate could be broken for the excuse of an administrative measure to based on “decision authority”.

Isn’t it true that KORAIL has suffered from reckless management?

It is true that KORAIL is weighed down with significant debt. According to the Ministry of Land, Infrastructure, and Transportation (MLIT), KORAIL is losing WON 570 billion a year. Debt has passed WON 17 trillion, reaching 435% of annual sales as of mid-June. The MLIT points out that, “KORAIL employees earn an average of WON 70 million per year, and labor costs are rising by 5.5% per year. Annual bonuses paid to workers exceed WON 100 billion.”

The KRWU has a lot to say about KORAIL’s debt problems. Principal among their claims is that a majority of the debt is due to failed government policies rather than reckless KORAIL management. KORAIL took out a WON 1.2 trillion loan in order to purchase the Incheon Airport Railway, which had become a private company in 2009. KORAIL also took losses of WON 4-6 trillion when the Yongsan International Business Zone Development Corporation went bankrupt. KRWU has stated that KORAIL’s debt problems must be solved through cooperation with the government. The union argues that KORAIL has worked to reduce labor costs ever since it was founded in 2005, shedding 10% of its workforce over the past eight years, for a total of 2700 jobs eliminated. Publicly available information about government departments also shows that the average annual salary for a KORAIL employee has fallen to WON 57 million. The union argues that the government is exaggerating figures about KORAIL employee salaries in order to strengthen accusations of reckless management.

Wouldn’t service improve if there was greater competition?

Typically, competition brings lower prices and increases in the quality of service. The government predicts that increased competition will lower the cost of operating the railroads and increase the quality of service. However, it must be pointed out that the sheer scale of the Korean railway market prevents adoption of a competitive system. South Korea only has 3500 km of railroads, just a tenth of the size of the German or the Japanese markets, countries which have pursued railway competition. Due to the particularly high levels of labor input needed for railways, they are only profitable once they reach a certain fixed size. Splitting up a rail system that is already small will not aid growth.

From Ilbe: [Dec. 15]

I will refute railroad privatization claims with facts

The KTX platform under construction in Suseo appears in this December 9th photo, construction is 52% complete.

The KTX platform under construction in Suseo appears in this December 9th photo.
The construction is 52% complete.

1. Currently, the only KTX line is the blue line starting from the Seoul Station. The new Suseo-outbound KTX will run from Suseo to Dongtan, Pyeongtaek, the region in 7 o’clock [Jeolla-do] and finally Mokpo.

You can take it and easily go to the 7 o’clock region. With this Suseo-outbound KTX, it becomes easier to go to Jeolla-do, especially for the people living in the eastern parts of Seoul like Gangdong-gu. CEO Choi Yeon-hye aims to increase the total number of riders by expanding the areas of service.

Then, some lefty zombies said, “Didn’t the Park Geun-hye administration build the Suseo-outbound line to make it compete against Korail? How is competition possible? There will be no significant increase in the total number of passengers from Seoul, so there is a fixed number. There is no profit to gain from doing this.”

While you could look at it from that perspective, the reality is that even if the Suseo-outbound KTX takes away profits from Korail, KTX still belongs to Korail as a subsidiary company. There is no overall loss for Korail. The purpose of the new KTX is not to increase competition.

The primary goal is this: This is what the Park government called “competition”-It has been criticized that Korail’s lousy management has resulted in a debt of 17 trillion won. However, the Suseo-outbound operation will be reasonable in terms of the management and the level of wages.

If the Suseo line turns out to be successful, Korail will have a justification to change their management method. They will eventually implement reconstruction of the company. The government will pressure them to do it by referencing the new model. Of course, Korail labor union guys oppose it. They are afraid that they will get laid off. Once the Suseo line makes it, their position will be weakened.

2. Hence, Korail labor union guys are trying to bait public opinion with talk of privatization.

When it comes to mobilizing investment to start the new line, Korail announced they will contribute 41% from their own budget, with the remaining 59% coming from public funds. As everyone knows, Korail and the government announced that Korail would declare articles of association to prevent private companies from attracting public investment money, a limitation that the government will turn into law in the near future. The government is in the legislation process right now. Even if Korail was to decide to start using private money, modifying the articles of association requires a majority vote of more than 2/3 or 66%. Since Korail will own 41% of the venture, there is no way the government could get more than 59% support for any modifications. That’s why it’s impossible to change the articles.

Both parties pursue legislation of ban on selling Suseo-outbound KTX to private companies

As in the article, both ruling and opposition parties agreed to legislate against selling the Suseo KTX to a private company. However, those poor misled folks are supporting the labor union, which is demanding a wage increase and throwing tantrums to avoid getting laid off….

3. Nevertheless, lefty zombies do not give up.

Let’s take a look at what lefty zombies claim: There are international agreements that are enforced stronger than domestic laws, such as the WTO Government Procurement Agreements (GPA). Its member countries get equal conditions in bids for major national construction projects. Last time, the agreements were revised so that railroad infrastructure was included. Wouldn’t this let foreigners bid and take over the management of national railroads? Wouldn’t that be selling railroads to foreigners?

However,

From the Ministry of Foreign Affairs

The claim that the revised GPA will impose significant burden on citizens

* The revised GPA allows for procurement of a set amount of component parts. This has nothing to do with railroad privatization and thus does not impose a significant burden on citizens.

* Rather, it is expected that competition will be introduced between domestic and foreign companies in the components market. This will decrease the prices of materials and services, consuming less of the national budget and improve convenience for citizens.

The relations between the GPA and railroad privatization

* The GPA defines the principle of equality and clear and fair bidding procedures for member countries when public organizations or companies buy goods or services. It has nothing to do with railroad privatization.

* Some claim that it is related to railroad privatization but ownership equity isn’t included in the regulation reforms.
– It covers only construction, maintenance and supply of equipment for public construction projects.
– The management of the Suseo-outbound KTX is completely unrelated. It is a baseless claim that foreign capital will participate in it.

If you just read the last three lines, ownership isn’t included. It covers only construction, maintenance and supply of equipment. When they need some materials or equipment, the supplying job is open to foreign companies for efficient management. It absolutely doesn’t mean “privatization” that hands over ownership.

4. But there is another way to privatize the company. Fuck.

Some say “If profits decrease due to the Suseo-outbound KTX, wouldn’t Korail eventually sell off other lines with lower profits to private companies? That is privatization.” Let’s listen to what CEO Choi has to say.

Joongang’s interview with Korail CEO Choi Yeon-hye

Q: Then, is there any way to reduce snowballing deficits?
A: We spend a trillion won to purchase consumables for a year. There are 35,000 items to buy. We are checking on how the consumables are supplied. Our goal is to reduce 10% of expenses by changing how we spend money. With just this one modification, we can reduce our expenditures by 100 billion won. Closing lines should be the last resort.

Q: Except for the lines providing mobility for citizens living in remote places, wouldn’t it be nationally beneficial to close the lines which are running deficits?
A: We try to promote tourism for those lines. We created travel packages, ‘O trains’ for the middle inland line and ‘V trains’ for ravines. There used to be 30~40 passengers in each train but now it is even hard to make a reservation. Next year, we plan to create more tourism packages such as the DMZ Peace Train, West Coast Gold Line and East Coast Blue Belt. In this method, we can turn the unprofitable lines into profitable products. We are creating a way to provide good memories and sightseeing for our passengers and lessen the company’s financial burden.

The CEO of Korail has no intention to close the lines that cause deficits. She rather wants to turn them into tourist attractions. As I said, if the Suseo line is profitable, that profit comes back to Korail. This is not a system for competition. Korail will support the Suseo line with facilities.

The Suseo line (in red), will parallel the existing KTX line for much of its length, but depart from a different location within Gyeonggi Province.

The Suseo line (in red), will parallel the existing KTX line for much of its length, but depart from a different location within Gyeonggi Province.

Q: Is there any merit to the labor union’s claims?
A: Before I became the CEO of Korail, I also thought there is a possibility for privatization after the announcement of “Plans for development of the railroad industry” from the Ministry of Transportation in June. After I became CEO, I expressed my concerns to the ministry and got answers to all of my questions from them. Afterwards, they changed the proportion of our ownership from 30% to 41% to prevent privatization. The Suseo-outbound KTX is definitely a subsidiary company and when the head company begins to have a surplus, we are planning to increase our ownership share so the Suseo KTX becomes a 100% subsidiary of Korail. President Park said she will not pursue privatization. Nevertheless, the labor union protests against privatization. It is regrettable. They remain suspicious, claiming that the 59% public ownership can be sold to private companies at any time.

Q: The labor union denies that their strike is illegal, saying “The Suseo KTX will put pressure on the management of Korail, which will lead to massive layoffs.”
A: As a CEO, I was more worried than them that Korail’s profits will decrease because of passengers switching to the Suseo KTX. My mission is to create a surplus. I was concerned that we would lose business to the Suseo KTX. But then, the Suseo line uses our facilities, giving us 200 billion won in fees per year. When the low cost airlines were introduced to the market, no company had to suffer deficits and the existing companies even increased the size of their airplane fleet. Just like the new demands that has been created in the airline industry, our high-speed railroad industry will continue to grow. We expect an increase in the total number of passengers instead of just losing them to Suseo. Given the increasing GDP, dispersion of public institutions across the country, and aging population, we expect demand to increase. We will not implement layoffs forcefully. There are lines such as Wonju-Gangwon where passengers increase.

After all, the labor union is on strike because they are afraid that they will get laid off when they are compared to the Suseo line. They are bullshitting about “privatization”… However, fuck, most citizens think this is about privatization and only criticize the government.

Moreover, this is an illegal strike. They say they had to ask for a wage increase to make the strike legal on paper? Okay, but there is some illegal factor when they interfere with the company’s management. They are trying to bait public opinion and justify their behavior…. Anyway, I hope you don’t buy into the zombies’ baseless propaganda.

Three-line summary
1. You have to crush
2. lefty zombies
3. with facts.

Comments from Ilbe:
고생끝운지시작:

Lousy management? It seems a stretch to blame that for all of their debt. They spent just 1.5 trillion out of 17 trillion won debt on bonus fests for their employees. I’m not saying that is a small amount but it is not the biggest part of the debt. The Incheon Airport railroad’s debt, newly added railroad usage fees and the purchase of new trains account for the majority of the debt. There were many inevitable burdens stemming from the system and policies. If you try to make the claim that it is all due to lousy management, it may backfire.

어제처럼:

Noble labor union bastards play victim freaking too much through media propaganda. What’s the purpose of the labor unions? I would understand if it was like in the past when laborers were exploited and treated like subhumans. Fuck, it is the opposite now. The companies are pushovers who get ripped off and threatened by strikes of the unions.

만식순이:

What I can’t fucking understand is how there can be any competition when 80% of the Suseo KTX line and the existing Korail line coincide. And some people keep yapping about lousy management but what about the fact that the government imposed unprofitable business on Korail in the first place? Do you think those labor union members are doing this in this cold weather just to get 100 or 300 thousand more won at risk of getting fired? Debt-ridden Korea Land and Housing Corporation and K-Water pay the same level of salaries but they are immune to bashing just because they don’t go on strikes? It seems like Ilbe bugs are more prone to propaganda. ^오^

밴드골드에이:

1. As you know, the Suseo KTX will add a new line only between Pyeongtaek and Suseo. How much more demand do you think that will create? The demand survey was conducted by the Korea Transport Institute but they are infamous for bullshitting those surveys.

2. It is true that the Suseo KTX will compete against Korail. In June, when they discussed the competition plan, they were inclined to make another public company through mutual investment to compete with Korail. They are trying to do that now. As far as I know, originally, the government planned to make Korail compete against a private company but they compromised due to the huge backlash from Korail.

3. As some others have pointed out, although lousy management contributed to Korail’s debt to a degree, the main cause is that the government fixed the railroad fares in accordance with their price policy.

Moreoever, the Ministry of Land have repeatedly announced in the past that they are aiming for privatization. Is what you said really based on facts? Think again.

노란베츙: [responding to above]

The Minister of Land said, “No private investors will participate in the Suseo KTX. The president promised not to implement privatization without the consent of people and the government is honoring the promise.”
http://www.molit.go.kr/USR/NEWS/m_71/dtl.jsp?id=95073181

The government’s stance about the Korail labor union’s strike: http://www.molit.go.kr/USR/NEWS/m_71/dtl.jsp?id=95073150

The government’s plea about the strike: http://www.molit.go.kr/USR/NEWS/m_71/dtl.jsp?id=95073146

In this month alone, there are three official statements that they will not pursue privatization, ke ke ke ke ke ke ke ke. I’m sorry but I made up my mind after doing some research. I will trust the government about this issue.
http://www.molit.go.kr/USR/NEWS/m_71/dtl.jsp?lcmspage=1&id=95072381

– The articles of association clearly state the limitations on disposal of shares to private investors. It is impossible to sell off public shares without approval of Korail because it requires the board’s special resolution (1/2 attended, 4/5 agreed).
-To modify the disposal limitations imposed by the articles, a special vote in a shareholder meeting (2/3 attended, 4/5 agreed) is required, which is a newly added safety device.
– If one sells shares without approval of the board, according to the agreement of shareholders, the seller will be fined and the transaction becomes null and void. The buyer cannot exert the right of shareholder at all.

Bro, if there is any way to break through these legal devices placed by law firms (Kim&Jang, Sejong and Hangyeol) and sell it off to private investors, please let me know. The union bros will be very pleased to hear that because it helps justify their strike. ^^

자유주의사상가:

If you use this post for industrialization [meme meaning to persuade people to agree with claims from the politically conservative side], you are doomed. There cannot be any competition with their subsidiary in the first place and there is a chance that Korail’s debt will increase even further. It’s deceptive to create a subsidiary company with the excuse that there is no money to build the new Suseo line. Even the pension fund is involved. Korail’s current deficit is due to the fees paid to the Korea Rail Network Authority. Korail should just merge with them to become the Korean National Railroad again or Korail should be completely privatized to deal with the problem. Do you think a gimmick like the Suseo KTX will be able to reduce the deficit? The government’s predictions are fucking too optimistic. If the new KTX ends up simply dividing the existing passenger traffic with no increase in the total number, there is no point. It will only increase Korail’s deficit.

예술달-걀:

One of the claims from lefty zombies is that President Park brought up privatization while she was visiting France. Anybody know what this is about?

노란베츙: [responding to above]

This guy made a translation mistake and that spread through the Internet.
http://kk1234ang.egloos.com/2958709

This is the original news article from Le Monde.
http://www.lemonde.fr/economie/article/2013/11/04/la-coree-du-sud-va-ouvrir-ses-marches-publics_3507967_3234.html

“Marchés publics” should be translated as “government procurement”. “Marchés public” means public market.

The Ministry of Land refuted the claim.
http://www.molit.go.kr/USR/NEWS/m_72/dtl.jsp?id=95073099

마리개주인:

You mixed up the facts and what you want to believe. Should I applaud you for at least being one step ahead of lefty zombies?

1. Korail will not suffer any damage?
– If Korail runs the Suseo KTX, they can take 100% of the profits but now they can only take 41% according to their shares. If they plan to increase their shares by 10% every year, where does that money come from? They have to depend on public bonds and that will only increase Korail’s debt. Dividing up Korail’s only cash cow KTX will financially help Korail? What bullshit.

2. Improvement of management and wages?
– Unlike the office jobs, you can’t easily find facility managers and drivers. To drive a KTX, you should have at least 5 years of experience in driving common trains. The labor pool is very limited. If Korail decreases wages, it will be even harder to get new employees. The wage level and benefits can’t change much in current circumstances.

3. Modifying the articles of association
– I also simply thought they are making such a big fuss when modification is impossible as long as Korail opposes it. However, if you think about it, the owner of Korail is the Korean government. If the government pursues privatization, Korail has no independent brake to it. Unless it becomes legally impossible on paper, it will keep producing controversy.

KflowR:

There are many problems stemming from the articles of association and the related legislation. The articles can be modified by a group of stockholders. 59% is from external capital? Then Korail with 41% can lose. Even if it’s legislated, the problem remains. Because as long as the ruling party wants to, it can be modified. The strikers are talking about that.

Also, is it true that the average annual salary for Korail employees is 60 million won? I read a news article that the ticket agents get paid 41 million won on average.
http://www.segye.com/content/html/2012/01/18/20120118003380.html

Also, it seems you don’t understand the concept of public property. Deficit is inevitable when you run public property because it is for everyone’s equal convenience. It is natural that services provided by public companies such as K-Water and KEPCO run a deficit. Those who criticize such public companies for lousy management are none other than the media promoting privatization. The media spreads the impression that public companies have serious problems.

Anyway, because the articles of association can be modified, the Korail workers claim the KTX should be run by Korail themselves.

마리개주인: [responding to above]

We should not forget that the shareholder of Korail is the government. It is true that if the government wants to implement privatization, there is no brake. At least until the legislation is completed, it is supposed to be a hot potato.
It is true that Korail workers earn about 60 million won including bonuses. It was officially stated by both the Ministry of Strategy & Finance and Korail. However, their basic salary is decreasing each year.

KflowR: [responding to above]

That’s the point. There are also railroad plans Pres. Park discussed in France. As long as the government wants to, the railroads can be privatized. However, these guys on Ilbe approach it parroting “The government said they will not do it~~~ Why do you not trust them?” The Korail workers want to completely block any possibility of privatization. It seems the newspapers supporting the ruling party are trying to mislead their readers with a phrase like “pampered labor union” while those supporting the opposition party try to make it look like “privatization” will definitely happen.

After all, I object to privatization of public companies. When I briefly stayed in Japan where the railroads are privatized, the transport costs were reaaaaaaally high. It was “naturally accepted” that transfers are unavailable in consideration of the companies’ profits. I believe public services provided by the government should not pursue a “profit-oriented model”. Quality control will not be optimal but it is the common users who suffer the most when the services are privatized.

There are only 500 ticket agents out of 28,000 Korail employees. That’s a freaking small number. In such a blessed workplace Korail, how many people do you think really get 60 million won? The salary distribution is very skewed. For Class 1 or 2 employees, Korail is a sweet workplace. The strikers are from the lower side of the echelon. In 2009, the auditors’ salary was 240 million won. And do you know how many new hires they get? Very few. That means there are many long-timers and the salary distribution is skewed accordingly. Workers with 15 years of employment at Korail make 50 million. I think it’s on the low side.

Lastly, there is a very unfair perception about labor charges in Korea. Korail workers are the ones who transport freight and people in Korea. Even in the army, you get paid more each time you rappel from a helicopter. I think it’s okay to raise wages a bit for Korail workers.

마리개주인:

Frankly speaking, they even built a consortium for privatization during the Lee Myung-bak administration. As long as the government has the will, privatization can happen quickly. I don’t know whether these Il-gays are naive or stupid for believing privatization can be stopped by the articles of association.

SK하이닉스주주: [responding to above]

The biggest problem is that lefty zombies are making a ruckus preventing the public from having a rational discourse. It seems you are a naysayer of privatization. I know very well that the current government came up with a rushed plan, too. Separating the most profitable part from Korail greatly increases the possibility of disposal to a private owner in the future and it also makes it more efficient to manage internal expenses. I get the articles of association and special law bullshit, but the bigger problem is the lefty zombies who foam at the mouth even at the sight of “p” of “privatization”. They are emotionally bullshitting that the plan will increase the service’s prices while decreasing its quality. As a supporter of privatization in a free market, I wish it was possible to hold rational debate. The only method for investment collection is privatization or selling shares. What else can they do? Doosan Heavy Industries, Korean Air, KT, KT&G and KEPCO were all born out of privatization or disposal of public shares. Why does nobody point this out? Seeing how people emotionally react to privatization, I guess socialism might be suitable for Korea.

노란베츙:

There are wrong ideas about the railroad situation in the UK. It is false that the train fees doubled after privatization there.
– The fees for normal cabins increased along with inflation. There has been almost no effective increase.
– The fees for special cabins almost doubled but it is misleading to say as if the fees generally doubled for all passengers.

The Ministry of Land idiots made this great post but couldn’t promote it, tsk tsk.
http://www.molit.go.kr/USR/NEWS/m_71/dtl.jsp?lcmspage=1&id=95070195

Q & A from the blog of the Ministry of Land, Infrastructure and Transport:
1. Wouldn’t the KTX fares increase due to the Suseo KTX subsidiary?

The fares at the Seoul Station will be 10% cheaper with the introduction of the Suseo KTX. If the fares increase by several fold, who will ride the train? Before the 1970s, it was hard to travel without the train, but today, there are other means of transportation such as cars, buses, and airlines. Almost nobody will be willing to use the train if the fares increase that much. It is common sense that monopoly increases the fares while competition lowers the fares.

2. Is the current Korail labor union’s strike illegal?

For a strike to be legal, it has to meet the requirement for its purpose and means. The Korail labor union is protesting against establishment of the Suseo KTX subsidiary, which is unrelated to any issue of their working conditions. Therefore, the strike is illegal.

3. What is the purpose of creating a subsidiary company of Korail?

Korail set up plans for management improvement in 2006 and implemented them. Despite the decreased number of employees, business deficit and debt kept increasing to reach 17.6 trillion won. The daily interest is 1.2 billion won. The establishment of the Suseo KTX subsidirary is part of the management innovation to increase efficiency through internal competition and pay the debt. The Kim Dae-jung and Roh Mu-hyun administrations first planned introduction of competition for performance improvements. What we see today is the result of such effort. Competition will introduce comparative assessments and make the management more transparent.

4. Isn’t Korail’s debt inevitable because they are running public property?

The current amount of debt is not optimal with the best efficiency. It is “bad” debt that burdens citizens. The government is trying to reduce that bad debt imposed on citizens by introducing the competitive system.

5. Is Korail’s debt problem that much serious?

The current debt ratio exceeds 435% (as of June 2013). Despite the aid of 750 billion won from the governmental on average, the business deficit amounts to 570 billion won annually. At this rate, the debt will exponentially increase to reach 50 trillion won before 2020. It should be paid from our citizens’ taxes.

6. What concrete benefits will citizens get from this plan?

Competition between the existing KTX and the Suseo KTX will suppress fare increases. Citizens will have more options. Recently, Italy and Austria introduced competitive railroads. Their fares are less than half of the fares of the existing public companies and they provide various customized services. Opening the monopolized industry with unclear management to a competitive market introduces comparative standards where they can learn from each other. If their performance improves, the burden of debt on citizens will be relieved.

7. Why can’t Korail improve their management under the current structure?

Although the government implemented various plans such as the general measures for management improvement (2007-2011) and the measures for advancement of railroads (2009-2012), it wasn’t successful under the current structure of the company. The current monopoly and unclear accounting makes it hard to diagnose the problems and set up measures. Korail will try to rely on the government again. We need a system where we can compare Korail’s management with another business in the same line. The free market system will improve citizens’ convenience with better fares and services.

8. Isn’t setting up a subsidiary a step for privatization?

The railroad industry will be centered around Korail with co-management. Korail owns 100% of the subsidiaries dealing with freight, trains and maintenance. There will be no private capital involved in the Suseo KTX. Korail will own more than 41% of shares (public shares make up the rest) and acquire owndership. As for the provincial lines for public convenience, the government will make sure of stable services.

9. If the public shares are sold to a private sector, isn’t that privatization after all?

The government has repeatedly made it clear that no private investment is involved in the Suseo KTX subsidiary and has placed multiple measures to block private investment in the future. As soon as a transaction is made with a private investor, the license is canceled. The Suseo KTX will not be privatized. Please trust the government’s promise and watch over.

10. Why do you establish a separate company if you have no plan for privatization?

The purpose of introducing competition in the railroad industry is to increase the efficiency of management and reduce the burden of debt on citizens. Citizens, passengers and railroad employees will all benefit. The fares will be cheaper with better quality of services. Korail’s accounting becomes transparent and pursuing comparative advantages will lead to a low cost and efficient system. In most developed European countries, the US and Japan, many railroad companies are competing for citizens.

11. The labor union demands amendment of the law to prevent privatization. Why is it not possible?

As for the ownership of the Suseo KTX, legal devices preventing any transfer to private investors have been placed in accordance with commercial laws. It is not allowed to legislate a law banning privatization for a company established by commercial laws.

12. There is a claim that attaching conditions to the license is unconstitutional.

The current railroad business law states that the Minister of Land, Infrastructure and Transport can attach conditions while issuing a license to keep order of the railroad business. A licensed company can be deprived of the license by the Minister when the conditions are violated. Therefore, it is legally possible to impose conditions on a license and cancel the license in case of violation.

13. Will the competitive system be really effective?

Korean Airports Corporation was suffering from more than 300 billion won deficit. Although they transferred the profitable international airlines to the Incheon International Airport, both of them have surpluses now. With improved services, the Incheon International Airport has won Best Airport Worldwide at the Airport Service Quality Awards for eight years in a row. For the subway in Seoul, Seoul Metro, Seoul Metropolitan Rapid Transit Corporation and the Line 9 compete to decrease fares and satisfy passengers better.

14. Are there any countries who benefited from a competitive railroad market?

Germany established a subsidiary with the head company DB (Deutsche Bahn). It turned the deficit of 2,998 million Euros in 1994 to the surplus of 1,886 million Euros in 2010. Sweden split SJ into six companies. From 1990 to 2010, their passenger traffic increased by 64% and from 2003, they began to gain surplus. In most countries with advanced railroad systems such as Germany, Sweden and the UK, introduction of competition increased demand and popularity of railroad services.

15. If passengers flock to the Suseo KTX, wouldn’t Korail try to close or sell unprofitable lines to reduce deficit?

Initially, Korail is expected to have 10,000-20,000 less passengers everyday than now. However, the reduction in sales (est. 100-200 billion won) can be canceled out by the rental and maintenance fees from the Suseo KTX (about 200 billion won).

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