KORAIL rules out privatization of its planned new unit

By Kim Kwang-tae

SEOUL, Dec. 5 (Yonhap) -- Korea Railroad Corp., South Korea's state-owned railway operator, has decided to raise its stake in a new unit and ban private funds from investing in the unit, officials said Thursday, a move that could end speculation over its privatization.

However, the labor union of the railway operator did not retract its plan to go on strike next week, citing the company's decision to deter private funds from buying stakes in its unit, which has yet to be confirmed.

KORAIL, the operator of the high-speed KTX train service, is scheduled to set up an affiliate in the coming weeks that will operate a separate bullet train service by 2016.

The move is aimed at enhancing KORAIL's management efficiency through competition with its affiliate in running the bullet train service, said KORAIL spokesman Lim Seok-gyu.

The government has been pushing for an overhaul of public organizations accused of lax management and soaring debt.

KORAIL's debt reached 11.6 trillion won (US$10 billion) last year, with the company losing between 400 billion won and 500 billion won annually, according to the Ministry of Land, Infrastructure and Transport.

In consultations with the ministry, KORAIL said it has decided to increase its stake in the envisioned affiliate to 41 percent from the previously planned 30 percent, while state-run investors, including the National Pension Service, will cut their stake to 59 percent from 70 percent.

The company said that only the government, state-owned firms and public organizations are allowed to transfer and sell the 59 percent stake, a move that would preempt any move to privatize KORAIL's new affiliate.

The railroad operator also said it will be allowed to eventually increase its stake in the affiliate to 100 percent in coming years if it achieves an operating profit, beginning 2016.

The state-run company plans to discuss details in setting up the affiliate during a meeting of its board of directors on Tuesday.

"KORAIL's stake hike is a sign that it will not privatize" the planned affiliate, Lim said.

Choi Yeon-hye, the president and CEO of KORAIL, appealed to the union to call off the planned strike, noting the new affiliate is not subject to privatization.

Still, KORAIL's union said its members will launch a strike on Monday for an indefinite period to stop what they claim is a precursor to privatization.

KORAIL workers suspect that the stake owned by public investors may eventually end up in the hands of private firms, which in turn could result in mass layoffs and fare hikes.

"The envisioned affiliate is a step toward privatization, and we cannot believe that the affiliate will not be privatized," said union spokesman Baek Sung-gon.

Baek said the company's decision to restrict the transfer and sale of the 59 percent stake to only state-run investors has yet to be verified.

He said some 12,500 out of 21,000 unionized workers plan to walk off the job, beginning Monday, though 8,500 workers -- the essential number of workers required to operate the rail service -- will not join the strike.

Lim, the KORAIL spokesman, warned that those who join the work stoppages will be punished, calling the planned work stoppage an illegal strike.

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