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KORAIL rules out privatization of new unit

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(Globalpost/GlobalPost)

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 planned new unit and ban private funds from investing in the unit, officials said Thursday, a move that could end speculation over its privatization.

KORAIL's labor union nevertheless vowed to go ahead with its planned strike next week over the new unit. Experts also questioned whether the new affiliate will make any difference in terms of competition.

KORAIL, the sole 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, said KORAIL spokesman Lim Seok-gyu.

The government had planned to give the right to operate a separate bullet train service to another company to foster competition in the country's railway sector long dominated by KORAIL.

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.

But the government has agreed to increase the role of KORAIL in running the planned new company.

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 will be allowed to transfer and sell the 59 percent stake, an action that would preempt any move to privatize KORAIL's new affiliate.

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

Ha Hun-koo, dean of Inha University's Graduate School of Logistics, said there will be no big differences between KORAIL and its new unit in terms of fares and service.

Another logistics expert said the move to allow KORAIL to fully own its unit rendered the idea of a competitive railway system "virtually meaningless."

The state-run company plans to discuss the details of 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 that the new affiliate will be shielded from privatization.

KORAIL's union, however, said its members will begin 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 they say could result in mass layoffs and fare hikes.

"The envisioned affiliate is a step toward privatization," claimed 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 rail services -- will not join the strike.

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

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http://www.globalpost.com/dispatch/news/yonhap-news-agency/131205/korail-rules-out-privatization-new-unit