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[226] 2019.10.07
Financial Support Criteria of the Seoul Public Bus System Need to be Refined

Financial Support Criteria of the Seoul Public Bus System Need to be Refined

based on a Reasonable Standard Costs Analysis in order Not to Waste Taxpayer Money


Dividends for Shareholders of the Top 10 Bus Providers have Increased by 9.5 Times in 2018 Compared to 2004

- 2018 Retained Earnings[1] are KRW 121.72 Billion

The Top 10 bus providers have paid dividends to their shareholders since 2004 when the semi-public transportation system was established, as the financial structures have been improved and a net profit has been generated. The total sum of the dividends paid by the bus providers was KRW 112.35 billion from 2004 to 2018, and in 2018 the retained earnings after paying out the dividends was KRW 121.72 billion, which is even larger than the total sum. Paying a high dividend is a natural policy for private companies, but these providers are semi-public companies that cover their costs from taxpayer money. Therefore, it does not seem to be reasonable that a few shareholders are awarded high dividends by semi-public companies – in fact, you could say that they are over-privileged.

2018 Average OP Margin of the Top 10 Bus Providers is 4.2%

- 7.2% Points Higher than the 2017 OP Margin of the Land Transport Industries

As of 2018, the bus providers operating in Seoul have numbered 65 in total, among which 40 companies are externally audited. The Top 10 providers based on the number of vehicles owned, among the externally audited companies, have a minimum of 167 to a maximum of 293 vehicles, with an average of 198.5. Referring to the financial statements of the Top 10 providers, the average transportation revenue is KRW 43.73 billion, and the average transportation cost is KRW 38.84 billion. The average gross margin is 11.2%, which has increased by 0.4% points from 10.8% in 2017. The average OP margin is 4.2%, which has increased by 0.3% points from 3.9% in 2017, and is 7.2% points higher than the 2017 OP margin of the land transport industries of -3.3%, as announced by the Bank of Korea.

Reasonable Cost-Plus Pricing Needs to be Discussed

- Guaranteed 3.6% to 3.9% of the Total Transportation Revenue as a Fair Profit for Both Spare and Running Vehicles

The fair profit for the standard cost settlement is determined by annual consultations, and has been guaranteed as 3.6% to 3.9% of the total transportation revenue as the profit per bus for the past five years. In 2014, the Board of Audits and Inspections (BAI) recommended that the fair profit should be calculated based on the rate of return instead of the total revenue, and also pointed out that the same profit was guaranteed for both spare and operating vehicles; however, these recommendations were never adopted.

Currently, Seoul’s public bus system guarantees a fair profit in proportion to the total income, but we highly suspect that taxpayer money is used to cover the budget deficits and that the profit is divided for the sake of the shareholders. Therefore, reasonable cost-plus pricing needs to be discussed.

Seoul Support Funds Increase by 6.6 Times in 2018 Compared to 2014

- 84.2% Increase in 2018 Compared to the Previous Year

- Problems are Standard Costs and Excessive Financial Support

The financial support offered by Seoul to the bus providers has been increasing since the semi-public transportation system was initiated, which was KRW 81.6 billion in the second half of 2004 but increased by 6.6 times to KRW 540.2 billion in 2018. Referring to the last five years, the amount of grants was KRW 253.8 billion in 2014 and remained similar until 2017, but then rapidly increased by 84.2% to reach KRW 540.2 billion in 2018. Therefore, that drivers’ wages and fair profit, which particularly affect the standard costs, should be determined very carefully and reasonably. Meanwhile, the Seoul Metropolitan Council needs to keep monitoring whether or not an excessive grant is being made based on the excessive operating cost.



[1] Some of the net profits that may be carried forward to the next financial year as a reserve and surplus to meet any contingencies.








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