Korea’s public corporations are set to suffer from shrinking profits and mounting debt, largely due to what critics view as the Moon Jae-in administration’s ill-conceived policies on energy and employment.

Since its launch in May last year, the Moon government has pushed to replace cost-effective nuclear power generation with renewable energy and create a massive number of jobs in the public sector. Such moves have placed heavier financial burdens on utility companies in particular.

According to government data submitted to a lawmaker last week, combined net profits earned by 38 major public institutions with assets worth more than 2 trillion won ($1.77 billion) are projected to plummet to 700 billion won this year from 6.9 trillion won last year. The figure amounted to 14.8 trillion won in 2016.

In 2016, the 38 public organizations were expected to earn 9.63 trillion won in net profits in 2020. But the figure is now estimated to have dropped to 7.78 trillion won.

The Korea Electric Power Corp. has lowered its estimated net profits for 2020 by 78.1 percent, or 2.46 trillion won. Korea Hydro and Nuclear Power and other state-funded utility companies also expect their net profits in the coming years to be far less than estimated in 2016.

Experts attribute the worsening profitability of public energy companies to the government’s plan to phase out nuclear power generation over the coming decades.

KEPCO spent 3.53 trillion won to purchase electricity from nuclear power stations in the first half of the year, down from 4.53 trillion won a year earlier. In contrast, the company’s expenditure to buy electricity from thermal power plants rose from 15.52 trillion won to 18.38 trillion won over the cited period.

Rep. Choo Kyung-ho of the main opposition Liberty Korea Party, who obtained and analyzed the relevant government data, said the utility company could have saved costs if it had not reduced the use of nuclear power, the price of which is relatively cheap and stable.

The price of KEPCO shares has fallen 44.7 percent since the launch of the Moon administration, inflicting a considerable loss on the National Pension Service, whose 6.2 percent stake in KEPCO was worth 1.04 trillion won as of Oct. 8. Analysts believe the state pension operator may have lost as much as 500 billion won as a result of KEPCO’s reduced market capitalization.

Experts say utility companies will be compelled to borrow heavily to cover trillions of won in annual facility investment if their profits continue to decrease.

“The burden will ultimately fall on ordinary people in the form of a hike in electrical bills and a reduction in facility investment (needed to provide proper service),” said Lee Chang-mok, a researcher at NH Investment and Securities.

Public corporations have also been forced to shoulder more labor costs as they have been pressed by the Moon government to hire more workers and turn temporary jobs into permanent ones.

Pressure from the government has increased lately as the country’s employment conditions worsen despite Moon’s repeated pledges to prioritize job creation, particularly for young people. The Ministry of Economy and Finance has changed its guidelines for evaluating the managerial performance of state-funded institutions, assigning more weight to increasing manpower and less to enhancing cost-efficiency.

The Korea Racing Authority and the Incheon International Airport Corp. have expanded their payrolls by 176 percent and 22 percent, respectively, since 2017. About 85,000 temporary workers at public institutions have been granted permanent status since Moon pledged to turn all non-regular jobs in the public sector into regular positions shortly after taking office.

With their profits declining, the combined debt owed by the 38 major public entities is estimated to exceed 500 trillion won for the first time in 2020. The figure, which stood at 472.3 trillion won last year, is projected to rise to 480.8 trillion won in 2018 and 491.8 trillion won in 2019.

KEPCO is expected to record the largest debt increase of 9.5 trillion won over the coming three years, followed by 8.1 trillion won for the Korea Land and Housing Corp. and 3.3 trillion won for KHNP.

Rep. Choo said years of efforts by the previous administration to streamline the management of public corporations have come to nothing due to what he described as the Moon government’s reckless policy of expanding the public sector. It is essential to enhance the managerial efficiency of public corporations, he stressed, as it is taxpayers who will eventually shoulder their debt.

The main opposition party warned earlier this week that it would file breach of trust lawsuits against public corporations and the Finance Ministry for what it called “reckless hiring,” saying workers were hired solely to inflate deteriorating employment figures.

By Kim Kyung-ho
(khkim@heraldcorp.com)