Transparency needed in opening KTX lines

Is it privatization or the introduction of competition?

The controversy over the operation of KTX bullet trains has been reignited as the Ministry of Land, Transport and Maritime Affairs announced a request for proposals (RFP) for a new bullet train service Thursday. The guideline envisions allowing a private company to operate KTX bullet trains from 2015 for 15 years in the form of leasing lines.

A new KTX line is being built between Suseo, southern Seoul, and Pyeongtaek, Gyeonggi Province. When the line is completed in 2015, a private company will operate trains from Suseo to Busan on the Gyeongbu line and from Suseo to Mokpo on the Honam line.

With the new system, the government says, KTX fares will go down 20 percent on average. At first, the fares will begin at 85 percent of fares charged by Korail, the state-run monopolistic railroad operator. Over the following 15 years, the fares will be lowered by 20 percent on average. The government is supposed to receive at least 40 percent of the company’s transport revenue as line-leasing fees, compared with 31 percent paid by Korail currently. Unlike other projects open to the private sector, minimum revenue guarantees are not allowed.

To rule out the possibility of special favors for large conglomerates, the government will adopt an open bidding system in choosing the operator. Large companies will be barred from owning more than 49 percent of the operating consortium with the remaining equity spread among public enterprises, small- and medium-sized firms and the general public.

Given that the government will sell nothing and Korail remains a public entity, we don’t see the latest KTX plan as privatization. The government is right to stress the need to break down Korail’s monopoly to introduce competition in railroad operations. Korail posted an operating deficit of nearly 530 billion won in 2010 and its debt amounts to nearly 10 trillion won. The public company is also wrestling with 14 trillion won in debt from the profit-making KTX operation owing to hefty investment for the construction of KTX lines that cost 18.6 trillion won.

It is inevitable for Korail to compete with a private company in one form or another. We do know that the railroad company is beleaguered with inefficiency and frequent breakdowns. Behind the problems are high wages and tough labor unions.

Of course, the government needs to listen to those who oppose the plan. Concerns over possible fare hikes, safety problems and privileged benefits for chaebol or family-run conglomerates should be heard.

It’s right for the government to shelve the selection of an operator in consideration of protests from opposition parties and civic groups. The government initially planned to select the successful candidate by the end of June but the plan has been delayed to July or August.

Introducing competition to railroad management is worth trying but in the process of implementation, the government should be more transparent and prudent so as not to repeat blunders seen in past state projects.