Since 2012, the administration prepares the medium- to long-term financial management plan of public institutions with asset size of KRW 2 trillion or more for the following 5 years and submits it to the National Assembly to raise the financial soundness of public institutions. Since 2013, public institutions with impaired capital or those compensated for non-financial losses have been included in the report. In 2014, the ｢2014~2018 Medium- to Long-term Financial Management Plan of Public Institutions｣ for 40 state-owned enterprises and quasi-governmental institutions was submitted to the National Assembly.
The recent hike in the volume of debt of public institutions has sparked the concern that the debt of public institutions may become a burden to the government's finances. Against this backdrop, securing sound finances for public institutions has become a key policy objective, and it is essential to clarify the reasons for increases in public institution debt and manage them thoroughly.
Among the 40 public institutions, this report analyzed the appropriateness of the medium- to long-term financial management plans and their feasibility, focusing on the debt status and current issues of the public institutions that are subject to enhanced management, such as being included in the announcement of ｢Public Institution Normalization Plan｣.
According to the results of the "comprehensive analysis,"the yearly total debt ratio forecasted in the 2014 public institution medium- to long-term financial management plan shows a 27%p drop in 2017 when compared to the forecast of the 2013 plan. As the outlook for such a decrease in debt ratio is driven by the reduction in investments or increases in sales of assets in the short term, mainly following the debt reduction plan of the ｢Public Institution Normalization Plan｣, continued monitoring is required to check for any excessive reductions in the roles of public institutions or for the potential of asset sales at low values. Moreover, as the preparation of the medium- to long-term financial management plan and its submission to the National Assembly has its significance in reviewing the impact of public institution debts on national finance due to their deteriorating financial soundness, we need to review the criteria for selecting the institutions to be included in the medium- to long-term financial management plans from an asset size of KRW 2 trillion or more to having any financial debts.
According to the results of the "focused analysis," in order to implement the segment-based accounting framework for the accurate diagnosis of the causes of debt increases at public institutions and for their efficient resolution, the units for the segment accounting need to be checked for adequacy, the policy projects need to be clearly outlined, and the administration needsto come up with practical resolutions in regards to the debts of quasi-fiscal activities. In regards to the financial soundness and investment efficiency of public enterprises in theindustrial resources sector, various issues were pointed out in relation to overseas resources development projects, as can be seen from the estimated loss of KRW 1.3775 trillion in the acquisition of NARL, a subsidiary of Harvest, by Korea National Oil Corporation and in writing-off CAD 550 million in 2013 after investments in shale gas fields of West Cut Bank and Horn River in Canada by KOGAS. Efforts are required for robust plans to improve the overseas resource development projects and to raise the efficiency of their investments. The analysis results on the debts of public institutions in the transportation sector show that the debt of Korea Expressway Corporation was due to investments in road constructionthat were in excess of the funds generated in the course of business and losses arising from demand forecast errors, and Korea Rail Network Authority's debt was due to the delayed repayment of the debt for the construction of the high-speed rail caused by demand forecasting errors. Thus, a comprehensive review needs to be conducted on the plans to reduce debt, including the reshaping of the scale of expressway constructions
According to the results of the "individual institution analysis,"Korea Land & Housing Corporation needs to improve its land bank business, which has a distorted house lease business that focuses only on public leases and an excessive stock of industrial land, to cut down on its debt. For K Water, an alternative solution to the delayed new city development project needs to be put in place, together with a clear criteria on the withdrawal overseas projects. Meanwhile, Korea Expressway Corporation has gone through a restructuring of its projects as it was selected for intensive debt management, but its budget for expressway investment actually increased in the administration's budgeting process for the purpose ofreviving the economy. Thus, it is necessary to enhance the correlation between medium- to long-term financial management plans and budgeting. Korea Electric Power Corporation has been identified to have an excessive budget for the expenses of emissionstrading that is to be implemented from 2015, which requires the modification of its medium- to long-term financial management plan, and its medium- to long-term risks need to be reduced via a rationalized electricity bill scheme. For Korea Coal Corporation, the completely impaired state of its capital is expected to be maintained, for which the fundamental reason for its deteriorated financial capacity is its poor productivity of only about 68% that of a private coal mine, thus requiring restructuring for rationalizing its operations. Korea Industrial Complex Corporation needs to mitigate its volatile financial structure by improving its investment plans in industrial complexes as the delay in industrial complex developments may deteriorate its business profitability. In case of Korea Deposit Insurance Corporation, it should be noted that an excessive recovery of its subsidy funding to cut down on its debt may ultimately adversely impact its financial structure in the long run as this may trigger an early disposal of quality assets at low prices.
The recent hike in the volume of debt of public institutions has sparked the concern that the debt of public institutions may become a burden to the government's finances. Against this backdrop, securing sound finances for public institutions has become a key policy objective, and it is essential to clarify the reasons for increases in public institution debt and manage them thoroughly.
Among the 40 public institutions, this report analyzed the appropriateness of the medium- to long-term financial management plans and their feasibility, focusing on the debt status and current issues of the public institutions that are subject to enhanced management, such as being included in the announcement of ｢Public Institution Normalization Plan｣.
According to the results of the "comprehensive analysis,"the yearly total debt ratio forecasted in the 2014 public institution medium- to long-term financial management plan shows a 27%p drop in 2017 when compared to the forecast of the 2013 plan. As the outlook for such a decrease in debt ratio is driven by the reduction in investments or increases in sales of assets in the short term, mainly following the debt reduction plan of the ｢Public Institution Normalization Plan｣, continued monitoring is required to check for any excessive reductions in the roles of public institutions or for the potential of asset sales at low values. Moreover, as the preparation of the medium- to long-term financial management plan and its submission to the National Assembly has its significance in reviewing the impact of public institution debts on national finance due to their deteriorating financial soundness, we need to review the criteria for selecting the institutions to be included in the medium- to long-term financial management plans from an asset size of KRW 2 trillion or more to having any financial debts.
According to the results of the "focused analysis," in order to implement the segment-based accounting framework for the accurate diagnosis of the causes of debt increases at public institutions and for their efficient resolution, the units for the segment accounting need to be checked for adequacy, the policy projects need to be clearly outlined, and the administration needsto come up with practical resolutions in regards to the debts of quasi-fiscal activities. In regards to the financial soundness and investment efficiency of public enterprises in theindustrial resources sector, various issues were pointed out in relation to overseas resources development projects, as can be seen from the estimated loss of KRW 1.3775 trillion in the acquisition of NARL, a subsidiary of Harvest, by Korea National Oil Corporation and in writing-off CAD 550 million in 2013 after investments in shale gas fields of West Cut Bank and Horn River in Canada by KOGAS. Efforts are required for robust plans to improve the overseas resource development projects and to raise the efficiency of their investments. The analysis results on the debts of public institutions in the transportation sector show that the debt of Korea Expressway Corporation was due to investments in road constructionthat were in excess of the funds generated in the course of business and losses arising from demand forecast errors, and Korea Rail Network Authority's debt was due to the delayed repayment of the debt for the construction of the high-speed rail caused by demand forecasting errors. Thus, a comprehensive review needs to be conducted on the plans to reduce debt, including the reshaping of the scale of expressway constructions
According to the results of the "individual institution analysis,"Korea Land & Housing Corporation needs to improve its land bank business, which has a distorted house lease business that focuses only on public leases and an excessive stock of industrial land, to cut down on its debt. For K Water, an alternative solution to the delayed new city development project needs to be put in place, together with a clear criteria on the withdrawal overseas projects. Meanwhile, Korea Expressway Corporation has gone through a restructuring of its projects as it was selected for intensive debt management, but its budget for expressway investment actually increased in the administration's budgeting process for the purpose ofreviving the economy. Thus, it is necessary to enhance the correlation between medium- to long-term financial management plans and budgeting. Korea Electric Power Corporation has been identified to have an excessive budget for the expenses of emissionstrading that is to be implemented from 2015, which requires the modification of its medium- to long-term financial management plan, and its medium- to long-term risks need to be reduced via a rationalized electricity bill scheme. For Korea Coal Corporation, the completely impaired state of its capital is expected to be maintained, for which the fundamental reason for its deteriorated financial capacity is its poor productivity of only about 68% that of a private coal mine, thus requiring restructuring for rationalizing its operations. Korea Industrial Complex Corporation needs to mitigate its volatile financial structure by improving its investment plans in industrial complexes as the delay in industrial complex developments may deteriorate its business profitability. In case of Korea Deposit Insurance Corporation, it should be noted that an excessive recovery of its subsidy funding to cut down on its debt may ultimately adversely impact its financial structure in the long run as this may trigger an early disposal of quality assets at low prices.