Oh Se-hoon: "We underestimated the public sector... With extreme patience, we will prevent private capital from exploiting it" (Comprehensive)

"We have underestimated the public. We have endured with extreme patience. We will ensure that private capital does not come in and disrupt the system."

Seoul Mayor Oh Se-hoon has announced a major overhaul of city bus operations. Repeatedly delivering messages hinting at intense adjustments, he promised to promote the '20th Anniversary Innovation Plan for the Semi-Public City Bus System,' centered on comprehensive management measures for private capital. The core points are to induce healthy private capital entry and improve financial soundness. The previously one-sided financial support structure will also be changed. This time, the patchwork route adjustments will be significantly revised, including the elimination of long-distance and overlapping routes.

On the 22nd, Mayor Oh issued a warning message targeting private capital that has entered the transportation industry. This is based on the fact that private equity funds perceive the bus industry as a stable investment destination. Currently, private capital such as private equity funds, which view semi-public transportation companies as stable investment targets, have acquired several Seoul city bus companies, leading to a judgment that public interest has been significantly compromised.

In particular, Mayor Oh pointed out, "It is truly lamentable that private capital, called private equity funds, has begun entering the bus industry operated under the semi-public system to seek profits," adding, "In short, they have underestimated the public." He warned, "It is unimaginable. We have endured with extreme patience until now, but we can no longer stand by silently."

Immediately after Mayor Oh's announcement, the Seoul Bus Association also expressed a positive stance. The association stated in a document, "We agree with the broad framework of the semi-public system improvement plan announced by Seoul City," and added, "Regarding parts where there are differences and specific issues and implementation plans, we will actively collect opinions from member companies and experts in academia and work closely with Seoul City to achieve successful results."

Seoul Mayor Oh Se-hoon announced the "20th Anniversary Innovation Plan for the Semi-Public Operation System of City Buses," focusing on the reorganization of the city bus operation system, at Seoul City Hall on the 22nd.
[Photo by Seoul City]

Oh Se-hoon: "We will prevent profit-seeking entries... No disruptions allowed"

To this end, Seoul City will introduce a pre-screening system based on strict entry criteria to restrict the entry of unsound, foreign capital, and capital excessively pursuing profits. Furthermore, foreign capital and asset management firms will be banned from entering, and domestic asset management firms will only be given opportunities if they have been established for more than two years. To ensure the effectiveness of management measures before entry, Seoul City plans to revise the ordinance related to the semi-public system operation within this year in cooperation with the city council. Mayor Oh elaborated, "In short, we will prevent them from entering to make money," and added, "My firm determination is to ensure that private capital does not come in and disrupt the system."

Management of private capital that has already entered will also be strengthened. Dividend payout ratios exceeding 100% will be prohibited, and the obligation to maintain cash assets equivalent to one month's operating capital will be enforced to limit dividend profits. Additionally, prior notification will be mandatory when issuing corporate bonds, and if interest expenses increase due to bond issuance, this will be reflected in company evaluations to establish a structure that prevents excessive profit-seeking.

The so-called 'eat-and-run'?where private capital exploits loopholes in the semi-public system by selling off prime assets and quickly liquidating and exiting the transportation industry?will also be fundamentally blocked. If a garage is sold arbitrarily, garage rent support will not be provided. To induce stable and long-term investment by private capital, if resale occurs within five years of initial entry or to foreign capital, 200 points will be deducted from the company evaluation for five years, creating a structure that makes 'eat-and-run' fundamentally impossible.

The financial support structure and financial operation methods will also change through improvements. The current 'post-settlement system,' which fully compensates for transportation deficits after settlement, will be converted to a 'pre-determined system,' which sets total income and total expenses in advance and supports only the difference. The existing full compensation 'post-settlement system' provided no incentive for transportation companies to actively reduce costs, but with the change to the 'pre-determined system,' companies will need to engage in management innovation such as voluntarily increasing revenue and reducing costs. Additionally, switching to the pre-determined system will simplify settlement tasks, reduce settlement personnel, decrease administrative costs, and is expected to save up to 18 billion KRW annually in loan interest and other expenses.

The compensation method for labor and fuel costs will also be reformed. The current reimbursement method, which fully compensates actual expenses regardless of usage, will be changed to a standard unit price reimbursement system (hereafter, standard reimbursement system) that sets upper limits. Currently, actual expenses are reimbursed for two items?driver labor costs and fuel costs?which account for 85% of the standard transportation cost, while other items such as tire costs, maintenance costs, and labor costs for maintenance and management staff are reimbursed under the standard reimbursement system with limits based on the number of vehicles or operating distance.

Increased route curvature slows travel speed... Route overhaul to realize 'major catchment areas'

Route restructuring will also be promoted. Although service quality greatly improved with the introduction of the semi-public system, including main and branch line route adjustments and the establishment of central bus-only lanes, after 20 years, service levels have declined due to increased route curvature causing slower travel speeds and overlaps with other transportation modes.

According to internal Seoul City data, the provider-centered route operation has increased commuting and school travel times for citizens, lowering life satisfaction. Analysis shows that even within Seoul, commuting takes 44 minutes during rush hour, and commuting from Gyeonggi Province to Seoul averages 72 minutes. Simply put, the city plans to overhaul the cost-effective city bus public transportation system.

Seoul City plans to realize 'major catchment areas' where any Seoul citizen can access public transportation within a 5-minute walk through a comprehensive bus route overhaul. Instead of railways, which require long construction periods and massive construction and operating costs, the plan is to build a public transportation system centered on cost-effective buses. Highly curved city bus routes will be changed to a flat structure, and long-distance and overlapping routes will be reduced. Customized buses such as Daramswi Bus and Owl Bus are expected to increase.

New concept bus vehicles will also be introduced. Double-decker buses will be deployed mainly on low-curvature main routes with high passenger volumes and severe onboard congestion. Autonomous buses will be prioritized on routes with many early morning and late-night workers, such as cleaning and security staff, where driver supply is difficult. Demand-responsive transportation will be introduced in areas with a high elderly population or near social welfare facilities.

Seoul City has been conducting consultations with stakeholders such as the Bus Association since January. Starting next year, the city plans to promote institutional reforms for the full route overhaul and implementation of the pre-determined system. Mayor Oh said, "Marking the 20th anniversary of the semi-public system, we will achieve three innovations in finance, public interest, and service to realize reliable transportation welfare that citizens can feel convenient and satisfied with in their daily lives, thereby establishing Seoul city buses as the world's top-level system."