Privatized Projects on the Brink of Collapse... Reduced to One-Tenth in 12 Years

Last Year’s Total Investment Plummeted to 1.5 Trillion Won
Project Profitability Not Guaranteed, Increasingly Overlooked
Government’s 12.7 Trillion Won Target This Year Seems Unattainable
Insufficient Investment Ultimately Leads to Fiscal Burden

[Asia Economy Reporter Jang Sehee] The scale of private investment projects (PIPs) has shrunk to one-tenth over the past 12 years. This is because private companies are avoiding investment due to a lack of suitable opportunities and no guaranteed returns. Although the government announced plans to discover PIPs worth 12 trillion won this year, achieving this goal seems difficult. If private participation remains low, the government will have to cover the shortfall with public funds, increasing the fiscal burden accordingly.

According to the Ministry of Economy and Finance on the 23rd, the total investment cost of PIPs dropped sharply from 12.3 trillion won (118 projects) in 2007 to 1.5 trillion won (12 projects) last year. This represents an 88% decrease over 12 years.

Even looking at the recent five years from 2015 to last year, the average investment cost was only 5.14 trillion won. In 2018, the scale temporarily increased due to project agreements for the Shinansan Line (4.4 trillion won) and the Seoul Metropolitan Area Express Train (GTX)-A Line (3.5 trillion won), but last year the investment scale collapsed within a year.

PIPs traditionally refer to projects where the private sector constructs and operates social overhead capital (SOC) such as roads, railways, schools, and sewage facilities, which were previously the government's responsibility. Once spotlighted, PIPs have continuously declined since the minimum revenue guarantee (MRG) system was abolished in 2009. A government official said, "While it is appropriate for the government to build SOC with public funds, the scale of roads and railways is so large that the budget cannot fully cover it," adding, "If PIPs decrease, the fiscal burden increases accordingly."

The fiscal situation is also insufficient. The National Assembly Budget Office pointed out in its analysis report titled 'Problems and Improvement Measures of Private Investment Projects' that due to increases in defense, education, and health and welfare expenditures, the government's fiscal capacity for SOC investment has reached its limit.

As private company investment rates in PIPs have sharply declined, the government has hastily responded. In March, the government fully shifted the Private Investment Act (PIA) for SOC from a listing method to a comprehensive approach. The government plans to discover PIPs worth a total of 12.7 trillion won this year.

In particular, the government plans to privatize some parts of the Korean New Deal projects, but there are concerns about how much private sector interest there will be. Through the Green New Deal, the government plans to promote the Green Smart School project (4.3 trillion won) and the expansion of hydrogen charging stations (500 billion won). It also plans to proceed with seismic reinforcement of public buildings (7.8 trillion won) and LED lighting replacement projects (100 billion won).

A government official explained, "Companies have a lot of investment funds but requested projects with investment value to be discovered," adding, "Therefore, we applied the comprehensive approach to broaden the scope of PIPs."

This content was produced with the assistance of AI translation services.