Taxpayers pay for snowballing losses on expressways

Government criticized for private-public joint projects

By Yoon Ja-young

The government has come under fire for causing taxpayers to shoulder snowballing costs for expressways built “recklessly” under private-public partnerships.

Data shows that the government will have to pay an additional 5 trillion won ($4.6 billion) to private investors in expressways due to minimum revenue guarantees based on wrong predictions of toll revenue.

According to the National Assembly Budget Office data submitted to Rep. Yoon Young-il of the minor opposition People’s Party, the government will likely have to pay seven operators of expressways built under private-public partnerships to make up for their losses.

The cost is due to miscalculated minimum revenue guarantees. To attract private investors in infrastructure projects such as expressways, the government used to guarantee the investors a certain amount of revenue even if it incurred a deficit.

The government stopped signing such contracts in 2009 due to increasing costs, but it still has to pay for those it had signed previously.

For instance, the government is expected to have to pay over 1.6 trillion won to private investors operating the expressway between Busan and Ulsan through 2039 when the guarantee contract expires.

The expressway between Daegu and Busan will incur 1.4 trillion won in costs, and Incheon Bridge, 132.3 billion won. The additional 5 trillion won comes on top of the 2.2 trillion paid to investors in expressways since 2007.

The National Assembly Budget Office said that the amount of the minimum revenue guarantee may change following development around the expressways, demographic changes or economic conditions.

“The minimum revenue guarantee was scrapped in 2009 on snowballing costs to the government, but there still remains a considerable burden that it will have to shoulder. The government should prepare measures to lessen it,” Yoon said.

A spokesman for the Citizens’ Coalition for Economic Justice, a local NGO, pointed out that the government is continuing supporting the seven private investors with taxpayers’ money.

“The government has tried to attract private investors in infrastructure projects to lessen costs, but in fact it is passing on the burden to taxpayers. The private businesses tend to levy high rates while getting government subsidies for construction.”

Though the minimum revenue guarantee has been scrapped, he added that the government adopted models under which it shared losses and risks, eventually forcing taxpayers to pay for these.

“Despite getting government support, the private investors have been out of government control for two to three decades. We don’t think this is fair,” he added.