Ministry of Strategy and Finance Announces Fiscal Consolidation Plan
Sales of assets such as office buildings and reorganization of equity shares
Debt ratio reduced from 350% to 265%
14 public corporations classified as financial risk institutions, such as Korea Electric Power Corporation (KEPCO), Korea Land and Housing Corporation (LH), and Korea Railroad Corporation (KORAIL), will reduce debt by 34 trillion won over the next five years. These institutions plan to reduce the debt ratio from 350% this year to 265% by 2026 by selling assets such as office buildings and corporate housing and liquidating overseas business shares.
The Ministry of Strategy and Finance held the 11th Public Institution Steering Committee chaired by Vice Minister Choi Sang-dae on the 31st and reported the ‘2022-2026 Financial Consolidation Plan for Financially Risky Institutions’ and ‘2022-2026 Mid- and Long-term Financial Management Plan for Public Institutions’.
In June, the government selected 14 public institutions with poor profitability or weak financial structures and designated them as financial risk institutions. KEPCO, Korea Hydro & Nuclear Power (KHNP) and five power generation subsidiaries, Korea District Heating Corporation, LH, Korea National Oil Corporation, Kwanghae Mining Corporation, Korea Gas Corporation, and Korea Coal Corporation designated as financial risk institutions, a total of 34 institutions for 5 years. A fiscal consolidation plan was established and announced this time to reduce debt and increase capital by KRW trillion.
First of all, these institutions will reduce debt and increase capital by KRW 34 trillion over five years through asset sales of KRW 4.3 trillion, business adjustment KRW 13 trillion, management efficiency KRW 5.4 trillion, revenue expansion KRW 1.2 trillion, and capital expansion KRW 10.1 trillion decided to proceed.
KEPCO plans to sell 14.3 trillion won worth of financial consolidation over five years by selling the idle substation site and branch office building and refining its stake in overseas coal power plants. LH will also sell office buildings and corporate housing to reduce costs such as complex construction costs and building construction costs, while limiting new contributions to promote soundness of 9 trillion won. The Gwanghae Mining Corporation plans to sell non-core mines, and the Coal Corporation plans to sell its overseas assets.
If the fiscal consolidation plan proceeds without any setbacks, the debt ratio of 14 institutions, which is 345.8% this year, will drop by 9~34% points every year for five years, down to 265.0% by 2026. The size of the debt was previously expected to increase by 44.4 trillion won from 434.2 trillion won this year to 478.6 trillion won in 2026.
As a result of the fiscal consolidation of 14 institutions, the debt ratio of 39 public and quasi-governmental institutions with assets of 2 trillion won or more or the government’s loss compensation clause is also expected to decrease.
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