ROK Drop

Avatar of GI KoreaBy on January 1st, 2014 at 3:13 am

The Truth Behind the Railroad Strike In South Korea

KORAIL image from the Korea Herald.

If the railroad workers strike in Korea has got you confused on what they are complaining about KoreaBang has a good post that goes into detail about what this is all about:

How did the KTX Suseo line become such a controversy?

The problem lies with KORAIL’s profit structure. KORAIL operates the Mugunghwa, Saemaul, and KTX lines across the country. Except for the KTX Seoul-Busan line, all of the railway lines are not profitable. In the current situation, profit from the KTX line is offsetting the losses on the other lines. The Suseo line will only pass through the prosperous areas of Gangnam, Bundang, and Seongnam. Suspicions began as soon as the locations were announced, as the line appeared to be targeted at the “1%” in order to rake in high profits. The KRWU saw the creation of a separate high-profit Suseo line as part of a plan to hand over operations to a private operator.

If there is a separate Suseo KTX operator, will KORAIL suffer significantly?

The railway market is distinguished by its regional monopolies. This means that it is highly likely that resident of Gangnam will use the Suseo station rather than Seoul Station. The Korea Road and Transport Association recently published a report that estimates that an average of 55,000 people per year will use the KTX service from Suseo for the next thirty years. They estimate that this will result in KORAIL losing WON 450-500 billion every year.

Of course the government has prepared a response to these estimates, saying that KORAIL will earn money by renting out trains and selling equipment to the new rail line operator. The Ministry of Land, Infrastructure, and Transport claims that these new sources of income will amount to WON 200 billion. The creation of the new railway operator will also result in a reorganization of KORAIL employees, lowering labor costs. The competition will also increase efficiency. All of these factors are supposed to result in KORAIL not suffering any significant losses. However, the KRWU have called these claims unrealistic, saying that KORAIL records indicate that it will only make WON 12 billion profit after the labor costs and depreciation have been taken out of the fees it will charge the new railway operator.

Does selling equity to the government amount to privatization?

The government plans to split the ownership of the new KTX operator between KORAIL and government stakeholders. According to legislation, funds from the national pension fund and other accounts will be used to buy 59% of the new company, while KORAIL will own the remaining 41%. The government argues that private money will be allowed to buy any share of the new operator. However, this conflicts with the status of of the National Pension Fund.

Since the objective of the National Pension Fund is to care for the retirement savings of all citizens, it is clearly intended to be invested in public causes. However, this doesn’t mean that the investment practices for that money are any different from those used for private funds. According to Article 102 of the National Pension Law, “in order to maximize returns from the National Pension Fund, it shall be invested in a way that brings returns greater than the market average.” In practice, this means that the Fund operators have a target of 7% growth. This means that the Suseo KTX line will have to protect the investment return of the National Pension Fund. The nation’s transportation network will end up serving the demands to make a profit. The KRWU states that this relationship fits “the broader definition of privatization.”  [KoreaBang]

You can read much more at the link, but basically the government has set up a rail line that should make money and is using the National Pension Fund as the major investor in it.  Since by law the National Pension Fund must invest in things that make a greater than market return the rail line is going to reorganize employees for the rail line to lower labor costs.  So the claims of privatization from the protesters are technically not true since public entities are still going to own the rail line and a private company is forbidden by law from buying the rail line.  However the line will be run like a private business in order to make a profit.  This is what is causing the protests because if the labor reorganization is successful for this line and it turns a profit than the government would have justification to seek reform on other KORAIL lines in future which the rail workers union does not want.  Thus why they have to lie about privatization in order to get public opinion on their side in order to change the plans for the competing rail line.

  • Flyingsword
    4:43 pm on January 1st, 2014 1

    Disband the union, arrest the leadership! Unions in South Korea are puppets of north Korea and work to ferment strife and promot civil discord!

  • Bob
    8:14 pm on January 1st, 2014 2

    The National Pension Fund is one of the largest in the world, and yet it pays peanuts to retirees.

  • Jinro Dukkohbi
    2:53 pm on January 2nd, 2014 3

    KORAIL goes back to work…really?

    In order to get things back to normal, they have to take more time off? Whata bunch of buffoons. From what I’ve been able to decipher from the Korean TV news, the union says even though they’re back to work for the time being, they plan on more strikes at a ‘time to be determined’. I think the only reason they went back to work now was for the union avoid any blame for a travel disaster during the Lunar New Year holiday, which is at the end of January this year. After that, it’s likely to be game-on with these guys again…


RSS feed for comments on this post | TrackBack URI

By submitting a comment here you grant this site a perpetual license to reproduce your words and name/web site in attribution.

Bad Behavior has blocked 32318 access attempts in the last 7 days.