"Korail-SR Competition System Wastes 40.6 Billion Won Annually... Integration Needed" [2024 National Audit]

National Assembly Land, Infrastructure and Transport Committee Member Lee Yeon-hee of the Democratic Party
"SR Deficit Persists Despite End of COVID-19, Serious Problem"

On the 1st, when the SRT Gyeongjeon Line, Donghae Line, and Jeolla Line began operation, passengers boarded the Jeolla Line at SRT Suseo Station in Gangnam-gu, Seoul. Photo by Jin-Hyung Kang aymsdream@

It has been revealed that the competition system between Korail and SR results in an annual duplication cost of 40.6 billion KRW. On the 11th, Lee Yeon-hee, a member of the National Assembly's Land, Infrastructure and Transport Committee from the Democratic Party of Korea, cited the evaluation results of the 'Governance Subcommittee' on the railway public enterprise competition system announced by the government in December 2022, stating, "There is a need to restart discussions on the Korail-SR integration."

In December 2016, with the opening of the Suseo High-Speed Railway and the commencement of SRT operations, a railway operation competition system was introduced. Rep. Lee said, "Opposition parties, civic groups, and railway labor unions have continuously argued that 'Korail-SR integration' is necessary to resolve inefficiencies such as duplication costs in the high-speed railway public enterprise competition system between Korail and SR."

Accordingly, an evaluation of the public enterprise competition system was reviewed in the early days of the Moon Jae-in administration. Subsequently, the 'Governance Subcommittee' issued a comprehensive opinion stating, "Due to COVID-19, which began in early 2020, the competition system was only properly operated for three years from 2017 to 2019, limiting the analysis; therefore, the decision on maintaining or integrating the public enterprise competition system is deferred."

Rep. Lee said, "The Governance Subcommittee's evaluation result defers the decision on Korail-SR integration; it does not mean a decision not to integrate," adding, "It has been eight years since the high-speed railway competition system was introduced, and with COVID-19 effectively over and railway operations having returned to normal for over two years, it is time to re-discuss Korail-SR integration."

He noted, "Looking at SR's management performance, its operating profit in 2023 was 13.8 billion KRW, of which 13.1 billion KRW came from ancillary businesses such as leasing, advertising, and parking, while operating profit from high-speed train operations was only 700 million KRW. Especially in the first half of 2024, operating profit was just 3.4 billion KRW, with a net loss of 2 billion KRW."

He continued, "Excluding the COVID period, it is problematic that SR, which operates only profitable routes like high-speed rail, is running a net loss. Particularly, last year, when SR's financial investors such as the Private School Teachers' Pension Fund exercised their stock purchase rights, increasing the debt ratio beyond SR's license maintenance standard of 150%, the Ministry of Land, Infrastructure and Transport provided an emergency bailout of 360 billion KRW in kind, yet a deficit still occurred, which is a serious issue," he pointed out.

Furthermore, he said, "Despite operating only profitable routes and receiving billions of won in-kind contributions from the government, SR's deficit proves that the Ministry of Land, Infrastructure and Transport's claim that the competition system would improve railway operation deficits is wrong, meaning the competition system has failed. Ultimately, it can be seen as creating one more deficit public enterprise due to the introduction of the railway competition system," he criticized.

Korail is the second-largest shareholder of SR, holding 41.05% of shares following the Ministry of Land, Infrastructure and Transport's 58.95%. In other words, SR is a subsidiary of Korail. SR independently operates train services and three exclusive stations, but entrusts Korail and Korail affiliates with train leasing, maintenance, facility upkeep, ticket sales, control, accident recovery, emergency response, as well as train cleaning and onboard supplies.

Rep. Lee analyzed, "Ultimately, the strange competition system where the parent company and subsidiary compete and take from each other, the abnormal competition system where two railway public enterprises share the same tracks and compete, and the distorted competition system where SR cannot independently operate high-speed rail without Korail, represent the reality of Korea's high-speed rail."