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State entity profits drop as Moon pushes health

May 02,2019
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“Moon Jae-in Care,” as the president’s health policy has become known, is driving a major decline in the profits of state-owned institutions, as is his energy strategy.

According to a Ministry of Economy and Finance report released late Tuesday, the net profits of 339 public entities plummeted 84.7 percent from 7.2 trillion won ($6.1 billion) in 2017 to 1.1 trillion won in 2018.

The net profits of these institutions have been on a steady decline, falling from 15.4 trillion won in 2016.

The National Health Insurance Service was hit hardest. After reporting 368.5 billion won in net profit in 2017, it posted a 3.9 trillion won net loss last year.

The dramatic change is largely blamed on the president’s health policies, which went into effect in July 2018. Moon Jae-in Care increases the range of medical treatments covered by national health insurance.

The goal is to raise national insurance coverage from 63.2 percent of treatments in 2016 to 70 percent by the end of 2022.

President Moon in August 2017 promised to improve national health insurance coverage, as Korea’s coverage rate falls far short of the Organisation for Economic Cooperation and Development (OECD) average of 80 percent.

Public energy company net profits shrunk as a result of the changes in energy policy.

Korea Electric Power Corporation’s (Kepco) net profit fell from 7.1 trillion won in 2016 to 1.4 trillion won in 2017. Last year, it reported a 1.2 trillion won net loss.

The five affiliates of Kepco all reported net profit declines.

Korea Hydro & Nuclear Power reported its first net loss in five years. In 2016, before the Moon administration began, the company reported 2.45 trillion won in net profit. Its net profit decreased to 861.8 billion won in 2017, and the company reported a net loss of 102 billion won last year.

The loss is considered to have been the result of the government reducing the use of nuclear power while increasing power generated from renewables, including solar and wind. Alternative energy is more expensive than nuclear power.

The Moon government has vowed to phase out nuclear power, and since fine dust became a problem, it has been cutting down on the burning of fossil fuels.

Government employment policies may also have had a significant impact on the net profits of public companies. Since Moon took office, the government has transitioned many workers hired under contracts to regular employment. That has increased labor costs.

The number of public institution employees increased 10.5 percent year on year, with 36,000 added to the 383,000 headcount. Among the 36,000 workers, 66 percent are people transitioned from contract positions to full-time employment. New recruit numbers were up 49.8 percent.

“Although public companies have to focus on serving the public interest, they are, at the same time, companies that need to make profit accordingly to market principles,” said Kim Won-sik, an economics professor at Konkuk University. “However, the current government is using public companies in pursuing their policy goals while lowering the priority of profitability.”

The professor said if the performance of public companies continues to worsen, future generations could be burdened as any losses will have to be offset by taxes. The situation could worsen with the current administration’s policy goals.

The government recently announced a goal of raising the ratio of renewable energy, which currently accounts around 7 to 8 percent of all power generated in Korea, to 20 percent in 2030 and to between 30 and 35 percent by 2040.

To fight fine dust and lower greenhouse gas emissions, the government also said it will “boldly” cut coal power production by banning new plants and closing old facilities.

It will limit the production capacity of existing coal power plants and increase the taxation of their environmental impact.

This is expected to increase costs faced by public energy companies.

The burden of Moon Jae-in Care is expected to increase.

Over the next five years, national health insurance spending is estimated to total 41.5 trillion won. That’s far more than the 30.6 trillion won estimated through 2022.

Korea Land & Housing Corporation “saw its fiscal structure worsen under the Roh Moo-hyun government, which pushed for balanced regional development, and K-water suffered a similar fate under the Lee Myung-bak administration, which pushed for the four rivers restoration project,” said Ock Dong-seok, a trade professor at Incheon University. “The government has the tendency to expand public projects in order to reduce the direct burden that the central government would have to bear.

“There is a need to set up an independent fiscal institution that would free public institutions from being used for political populism.”

The debt to capital ratio of public companies, however, when compared to the previous year, has fallen 2.7 percentage points to 154.8 percent. The debt ratio has been shrinking for six consecutive years. The debt to GDP ratio is the lowest since 2009, at 28 percent.


BY SUH YOU-JIN, KIM DO-NYUN AND KO JUN-TAE [ko.juntae@joongang.co.kr]