Low fare recovery rates for water utilities and urban rail weigh on finances

102 entities designated as debt-priority management institutions

Kim Min-jae, vice minister of the Ministry of Interior and Safety, presides over a vote at the third Local Public Enterprise Policy Committee meeting of 2026, held at Government Complex Seoul in Jongno-gu, Seoul, on Aug. 6. [Ministry of Interior and Safety]
Kim Min-jae, vice minister of the Ministry of Interior and Safety, presides over a vote at the third Local Public Enterprise Policy Committee meeting of 2026, held at Government Complex Seoul in Jongno-gu, Seoul, on Aug. 6. [Ministry of Interior and Safety]

South Korea's local public enterprises posted a combined net loss of 3.52 trillion won ($2.55 billion) last year, a 31 percent increase from the previous year.

The widening losses reflect persistently low fare recovery rates — the ratio of unit fares to unit costs — caused by fare freezes on water utilities and urban rail systems aimed at keeping consumer prices in check, as well as deteriorating financial performance at public development and urban development corporations.

Total assets held by local public enterprises rose for the fifth consecutive year, approaching 256 trillion won, while total debt climbed 7.5 percent year on year to 75 trillion won.

The Ministry of Interior and Safety released the 2025 settlement results for local public enterprises on Wednesday.

The 421 local public enterprises nationwide include 254 directly operated municipal utilities such as water and sewage services, 78 local corporations and 89 public agencies.

The combined net loss for last year came to 3.52 trillion won, up 840.3 billion won, or 31.3 percent, from 2.68 trillion won the previous year.

Fare freezes on water utilities and urban rail systems, introduced to stabilize consumer prices, kept fare recovery rates low and drove continued net losses across those sectors.

Water supply services recorded a fare recovery rate of 74.7 percent, generating a net loss of 490.7 billion won, while sewage services posted a rate of 48.1 percent and a net loss of 1.85 trillion won. Urban rail systems averaged a fare recovery rate of 52.4 percent and recorded a net loss of 1.49 trillion won.

Financial performance at public development and urban development corporations also deteriorated partly due to fluctuations in land sale revenues. Public development entities saw their deficit widen by 207.2 billion won from the prior year, recording a net loss of 285.8 billion won.

Urban development corporations posted a net profit of 467.4 billion won, but that figure was sharply lower than the 809.1 billion won recorded the previous year.

Total debt at local public enterprises reached 75 trillion won last year, up 5.2 trillion won, or 7.5 percent, from 69.8 trillion won the year before. The ministry attributed the increase to higher borrowings and long-term lease deposits at development corporations in the greater Seoul area tied to new town construction.

The debt-to-equity ratio stood at 41.4 percent, which the ministry described as stable, noting it has hovered around 40 percent with only modest increases over the past eight years.

Equity grew 3.5 trillion won, or 2.0 percent, from 177.3 trillion won the previous year. The ministry assessed the overall financial structure as stable, supported by the equity increase.

Total assets — the sum of debt and equity — came to 255.8 trillion won. Assets have grown every year since 2021, when they stood at 223.3 trillion won, surpassing 250 trillion won last year.

The workforce at local public enterprises has also grown alongside assets each year, reaching 106,699 employees as of 2025.

Based on three years of settlement data, the ministry evaluated a range of financial indicators and designated 102 institutions — 22 corporations, 30 invested entities and 50 funded entities — as debt-priority management institutions, three fewer than the previous year.

Among those designated are 19 institutions classified as priority management entities, including the Seoul, Busan, Daegu, Incheon and Gwangju transportation corporations, as well as Gyeonggi Housing and Urban Development Corporation in Gyeonggi Province, which recently declared a fiscal emergency.

Of the 102 institutions, 28 — including two local corporations and 26 invested and funded entities with the highest financial risk — were separately designated as debt-reduction targets. Seoul Medical Center, Busan Medical Center, Jeju Medical Center, Gwangju Metropolitan City Urban Corporation and Gyeonggi Housing and Urban Development Corporation were among those included.

Song Gyeong-ju, director general of local fiscal and economic affairs at the ministry, said local public enterprises are "core institutions responsible for the basic infrastructure of local communities, including housing supply, regional development, transportation, and water and sewage services." He added that the ministry would "actively support efforts to strengthen fiscal soundness through sound management practices even under difficult financial conditions, and to provide residents with high-quality public services in a stable manner."


thlee@heraldcorp.com