Recently, the power struggle between Korea Railroad Corporation (Korea Train Express) and the government over KTX fare increases has surfaced. Han Moon-hee, the president of Korea Railroad Corporation, announced that he would pursue a "17% increase" without discussing it with the government, leading to the government's startled reaction. The government is firmly drawing the line on the possibility of fare increases, stating that they cannot raise fares due to policy directions such as price stability, and that subsidies have already been injected to improve Korea Railroad Corporation's financial health.
On the 3rd, the Ministry of Economy and Finance and the Ministry of Land, Infrastructure and Transport stated through a press release on the evening of the 25th of last month that "the government is not considering a KTX fare increase at all." On the same day, during a meeting with reporters at the Ministry of Land, Infrastructure and Transport's headquarters in Daejeon, Han Moon-hee argued that it is necessary to adjust the KTX fares frozen for 14 years to reflect realistic financial conditions, stating that "there is a consensus on the need for fare increases with the government," which prompted an immediate rebuttal.
After Han's meeting, the government contacted the working-level officials at Korea Railroad Corporation to ascertain the situation, and the officials reportedly seemed flustered, saying, "We didn't think the president would act like that." This suggests that President Han deliberately conducted "media play" to push for the KTX fare increase.
President Han's appeal for the need to increase KTX fares in a public setting is based on the judgment that the financial sustainability of Korea Railroad Corporation has reached its limits due to soaring electric rates and increasing liabilities. The last time KTX fares increased was in December 2011.
Korea Railroad Corporation has recorded operating losses for nine consecutive years through last year since 2016. Cumulative liabilities stand at approximately 21 trillion won, necessitating an annual interest expense of 413 billion won.
Korea Railroad Corporation is also concerned about rising electric rates. Following the decision to increase industrial electric rates by an average of 9.7% in October last year, Korea Railroad Corporation’s electric costs are expected to rise from 579.6 billion won last year to 640 billion won this year. Furthermore, it asserts that with more than 53.5% of the KTX being over 20 years old, securing funds for replacing aging KTX trains is necessary.
However, the government maintains that a KTX fare increase is impossible for price management. The government has included the suppression of public fare increases in its economic policy direction for several years.
This is due to South Korea experiencing severe inflation since 2021. Factors such as the COVID-19 pandemic and the war between Ukraine and Russia caused a collapse in the global supply chain. The annual consumer price inflation rate rose from the 0% range in 2019-2020 to 2.5% in 2021, 5.1% in 2022, and slowed to 3.6% last year.
Although the inflation rate has slowed to around 2% this year, consumer-perceived prices remain high due to previously elevated prices. In this context, the government believes that a KTX fare increase would place an additional burden on consumers. It is also considering the point that if KTX fares rise, justifications for increases in fares for ITX and electric trains would follow.
Additionally, the government is already making efforts to improve the financial health of Korea Railroad Corporation. Beyond merely ordering asset sales or manpower efficiency, it is providing compensation for public service obligations (PSOs). PSOs are systems in which the government compensates for public costs incurred by Korea Railroad Corporation in offering discounted fares for the elderly, students, and veterans as well as maintaining deficit routes as stipulated in the Basic Law on Railways. The government reportedly pays around 300 billion won in subsidies related to this each year.
A government official stated, "A KTX fare increase will first require consultations with the Ministry of Land, Infrastructure and Transport as the ministry in charge, and then progress will be made if consultations occur between the Ministry of Land, Infrastructure and Transport and the Ministry of Economy and Finance," adding that "While there are demands for fare increases from within Korea Railroad Corporation and the National Assembly, the Ministry of Land, Infrastructure and Transport has not even considered the matter yet." The official concluded by saying, "The government prioritizes price stability when looking at public fares."