Korean parliament to pass bill on preliminary feasibility study standard

[Photo by MK DB]

South Korea’s National Assembly is poised to pass a bill that drastically eases the preliminary feasibility study standard for social overhead capital (SOC) projects that are backed by tens of billions of won in state funds.

According to the National Assembly on Tuesday, the Strategy and Finance Committee will hold a subcommittee meeting on Wednesday and vote on a partial revision of the National Finance Act to raise the standard amount for SOC and research and development projects that require preliminary feasibility studies to 100 billion won ($75.7 million) from 50 billion won. The ruling People Power Party (PPP) and opposition Democratic Party (DP) have already agreed on the revision late last year, leaving only the voting process.

The parties had initially planned to move forward with the revision in connection with the introduction of a tighter fiscal rule as it entails financial burden. They, however, failed to narrow their differences over the fiscal rule that involves capping the deficit to 3 percent of the country’s gross domestic product (GDP) and agreed to deal with the revision in the preliminary feasibility study standard first.

Under a revised National Finance Act, large-scale projects, such as those involving roads, railways, ports, airports, dams, waterworks, and river facilities, can be carried out without preliminary feasibility study if the total cost does not exceed 100 billion won. Currently, the law stipulates that studies should be carried out on new large-scale projects that cost 50 billion won and more of which 30 billion won minimum is subsidized by the state.

The standard has not changed for 24 years since 1999 when the preliminary feasibility study system was adopted.

There have been calls from both inside and outside the political circle for the standard for preliminary feasibility study to be eased to reflect the size of the national economy and finance but critics point out that such a move is inappropriate now and see them as a populist move ahead of the general elections next year.

“The move is not in line with the current government’s fiscal policy stance and there is also a concern that it may lead state finance to be concentrated in SOC projects when we need to focus on fostering high-tech industries,” said Hong Ki-yong, a professor at Incheon National University. “It is also untimely as there are concerns about a decline in tax revenue.”