2.1. Environmental Change and Current Status of Infrastructure Asset Management
This section analyzes infrastructure maintenance and asset management systems, along with environmental change and the current status of asset management in domestic infrastructures such as obliged infrastructure asset assessment, aging of infrastructure, market expansion of existing infrastructure, national financial pressure and increased rationale required for budget securement. It also describes the insufficiencies of infrastructure asset management in Korea and justification for development of an asset management manual.
(1) Obligation to measure performance against investment through assessment of infrastructure asset value.
To provide reliable information on the national financial status, financial execution results and financial operation performance, and to reinforce the competitiveness of the public sector and soundness of government financing, major developed nations have switched to an accrual basis accounting method, which conforms to the global accounting standard called the International Financial Reporting Standards (IFRS).
Ever since the introduction of accrual accounting by New Zealand (1993) [
4], major members of OECD and IMF have converted their existing cash basis accounting into accrual basis accounting. Korea also converted its government accounting to accrual basis accounting (2009) [
5] to focus on responsible budget execution and a performance-oriented responsible administration system. Accordingly, the Ministry of Strategy and Finance first conducted price evaluation on infrastructure assets in 2011 and obliged reporting of infrastructure value to the National Assembly. According to the criteria provided by the accounting guidelines on infrastructure asset revaluation, the overall value of existing infrastructure was evaluated to be about 272 trillion and 115.4 billion Korean won. Such obligatory infrastructure evaluation requires more accurate and responsible spending with regards to taxes paid to the government by citizens as consumers of infrastructure. This becomes the grounds for measurement of performance against investment, and the importance of asset management techniques that handle such performance measurement is expected to have increased [
6,
7].
(2) Deterioration of infrastructure and market expansion of existing infrastructure.
The majority of infrastructure in Korea was constructed as part of the industrialization and economic revival in the 1970–90s, and played a pivotal role in the national economy. However, quantitative increases and deterioration of such infrastructure are seriously impacting the limited national finances and maintenance budgets. According to the number of use years of type 1 and type 2 infrastructure in Korea shown in
Table 1, type 1 and type 2 structures, which mainly include infrastructure such as bridges and tunnels, were increased by a factor of 5.2 from 11,444 in 1995, the year of the “Special Act on Safety Control for Infrastructure”, (Due to a series of accidents involving large-scale infrastructure such as the collapse of Seongsudaegyo Bridge (1994), safety inspections and maintenance were systematized in 1995 with the Special Act on Safety Control for Infrastructures, which placed these obligations and responsibilities on infrastructure administrators. This law requires infrastructure of a certain size to be divided into type 1 and 2 infrastructure for safety inspection.) to 60,106 in 2012. Of type 1 and type 2 infrastructure, infrastructure constructed 21 or more years ago includes dams (73.8%), harbors (29.2%), waterworks and sewage (28.3%), rivers (27.4%), bridges (15.7%), retaining walls (15.2%), tunnels (12.5%) and cut slopes (1.0%). Deterioration of infrastructure related to water resources, such as dams, harbors, waterworks and sewage, and rivers, is of particular concern. In particular, rivers have a higher percentage of the infrastructure constructed five years ago than other infrastructure after completion of the four rivers project on the scale of 22 trillion Korean won.
Since the asset management market is extremely limited in Korea, the facilities maintenance market was analyzed. The facilities maintenance market increased by 8% to 3.7 trillion Korean won in 2013, compared to 2012, when it was 3.5 trillion Korean won as shown in
Figure 1. This represented a 2.8-fold increase compared to the 1.3153 trillion Korean won market of 2003, suggesting that the facilities maintenance market has grown by about 25% every year for 10 years (2003–2013) [
8].
Despite environment-caused changes in infrastructure and considering that the size of domestic construction market is 130 trillion Korean won [
9], the size of the facilities maintenance market (3.7 trillion Korean won) is only 2.8% of the total construction market. Based on the fact that maintenance markets in developed foreign nations take up about 40%–60% of the overall construction market, the potential and market for infrastructure asset management should be analyzed for expansion in Korea. Accordingly, the development of processes and guidelines for infrastructure asset management is expected to gain importance.
Table 1.
The number of use years of type 1 and type 2 infrastructure in Korea. (Unit: each, %).
Table 1.
The number of use years of type 1 and type 2 infrastructure in Korea. (Unit: each, %).
Item | 5 Years or Less | 6~10 Years | 11~15 Years | 16~20 Years | 21~25 Years | 26~30 Years | 31 Years or More | Total |
---|
Bridges | 2291 | 2042 | 2016 | 1219 | 543 | 343 | 516 | 8970 |
25.5% | 22.8% | 22.5% | 13.6% | 6.1% | 3.8% | 5.8% | 100.0% |
Tunnels | 803 | 553 | 502 | 289 | 74 | 124 | 108 | 2453 |
32.7% | 22.5% | 20.5% | 11.8% | 3.0% | 5.1% | 4.4% | 100.0% |
Harbors | 71 | 49 | 53 | 62 | 31 | 17 | 49 | 332 |
21.4% | 14.8% | 16.0% | 18.7% | 9.3% | 5.1% | 14.8% | 100.0% |
Dams | 18 | 38 | 52 | 29 | 32 | 53 | 300 | 522 |
3.4% | 7.3% | 10.0% | 5.6% | 6.1% | 10.2% | 57.5% | 100.0% |
Buildings | 9609 | 11,463 | 12,021 | 8143 | 1124 | 468 | 432 | 43,260 |
22.2% | 26.5% | 27.8% | 18.8% | 2.6% | 1.1% | 1.0% | 100.0% |
Rivers | 945 | 89 | 98 | 129 | 125 | 86 | 264 | 1736 |
54.4% | 5.1% | 5.6% | 7.4% | 7.2% | 5.0% | 15.2% | 100.0% |
Waterworks and sewage | 238 | 284 | 297 | 177 | 130 | 125 | 137 | 1388 |
17.1% | 20.5% | 21.4% | 12.8% | 9.4% | 9.0% | 9.9% | 100.0% |
Retaining walls | 424 | 212 | 142 | 99 | 35 | 15 | 108 | 1035 |
41.0% | 20.5% | 13.7% | 9.6% | 3.4% | 1.4% | 10.4% | 100.0% |
Cut slopes | 82 | 179 | 105 | 29 | 2 | 2 | 0 | 399 |
20.6% | 44.9% | 26.3% | 7.3% | 0.5% | 0.5% | 0.0% | 100.0% |
Total | 14,481 | 14,909 | 15,286 | 10,176 | 2096 | 1233 | 1914 | 60,095 |
24.1% | 24.8% | 25.4% | 16.9% | 3.5% | 2.1% | 3.2% | 100.0% |
Figure 1.
Increasing trend in the facilities maintenance market of Korea [
8].
Figure 1.
Increasing trend in the facilities maintenance market of Korea [
8].
(3) Increasing financial pressure of the nation and rationale for budget securement.
With recent increases in the financial budget competition in Korea, greater emphasis is being placed on rationale for securing an appropriate infrastructure maintenance budget. Financial pressure and budget competition for an appropriate maintenance budget for infrastructure will be further increased by the efforts to secure a growing budget for national welfare and the creative economy ambitiously promoted by the Park Geun-Hye government.
Looking at the SOC maintenance expenses and budget distribution of the Ministry of Land, Infrastructure and Transport, expenses have increased from 1.2436 trillion Korean won in 2011 to 1.5250 trillion Korean won in 2012, and 1.6986 trillion Korean won in 2013, but the limited budget results in insufficient support for the demands of various affiliated organizations [
10]. In the case of the Korea Expressway Corporation (2012), while the repair and reinforcement funding demanded by regional headquarters was 288.5 billion Korean won, the allocated budget was 128.2 billion Korean won, approximately 45% of demand. Budget expenditures were divided as follows: 16% for new construction of road facilities, 74% for reinforcement (bridge deck improvement, seismic reinforcement, expansion joint,
etc.) and 10% for other administrative expenses. A preventive maintenance budget was not included. This budget shortfall is the result of the ordering authorities’ failure to provide sufficient rationale for a maintenance budget for the corresponding infrastructure [
11]. Accordingly, ordering authorities in Korea are conducting research on asset management to improve budget rationale, but this research is only in the preliminary stages of level of service, and there is no standardized asset management process or manual for efficient management and embodiment of infrastructure.
2.2. Domestic Infrastructure Maintenance and Asset Management System
(1) Facilities maintenance system.
Facilities maintenance work in Korea is performed by organizations affiliated with the central government, according to the characteristics of each facility, and the maintenance system is further divided into metropolitan cities, provinces and local governments. Based on the “Special Act on Safety Control for Infrastructures” (Special Act on SCI), the representative maintenance laws of Korea, such maintenance work requires safety inspections and diagnoses to be conducted within a certain period for infrastructure assets of a certain size. Targets of the Special Act on SCI are divided into type 1 and type 2 infrastructures, according to size. However, the safety inspections of such infrastructure are mainly about structural safety, and do not consider asset management techniques, which integrate managerial and economic techniques with engineering to maximize function and minimize cost [
6].
(2) Infrastructure asset management promotion status of the government and ordering authorities
Representative Korean government institutions promoting infrastructure asset management include the Ministry of Strategy and Finance and the Ministry of Land, Infrastructure and Transport. The Ministry of Strategy and Finance has made official its interest in the implementation of accrual basis accounting to accommodate for IFRS, and it has begun to reinforce the basis for legal grounds and systems by amending the National Accounting Act and National Finance Act in 2008. Particularly for infrastructure, various guidelines, such as the Accounting Guideline for Asset Revaluation and the Accounting Guideline for Infrastructure, were prepared with the intention that the Ministry of Strategy and Finance will apply the National Accounting Standards to accrual basis accounting [
5]. The national settlement report, prepared according to accrual basis accounting, examined the asset values of major infrastructure through price revaluation. Nonetheless, these guidelines are only provided for asset revaluation of infrastructure and do not include asset management methodology, processes and relevant guidelines.
The Ministry of Land, Infrastructure and Transport, which supervises major infrastructure assets such as roads, railroads and public buildings, conducted infrastructure asset evaluation with the Ministry of Strategy and Finance. The Ministry of Land, Infrastructure and Transport merely executes some functions of asset management on the level of listing and price evaluation of infrastructure assets. It does not have guidelines on the procedures and processes involved in asset management to cope with national demand for efficient management of infrastructure against investment, increasing deterioration and financial pressure.
After visiting and interviewing major ordering authorities such as the Korea Expressway Corporation, shown in
Table 2, Korea Water Resources Corporation and Korea Railroad Corporation to examine existing infrastructure asset management manuals, it was determined that none of these organizations had independent asset management procedures. Korea Water Resources Corporation has an “asset management manual”, according to the asset management regulations, but this manual focuses on tax accounting of fixed assets and real estate properties; it does not define asset management to a satisfactory level of service demand for dams and waterworks management for minimum cost and maximum effect. There is a great need to supplement core details of asset management such as LOS (Level of Service) and risk management [
12].
Table 2.
Current asset management manual of the Korea Water Resources Corporation.
Table 2.
Current asset management manual of the Korea Water Resources Corporation.
Chapter | Composition | Major Details |
---|
Chapter 1 | Grounds for establishment of corporation | Type of corporation |
Chapter 2 | Asset overview and system | Classification of assets |
Inventory assets |
Fixed assets |
Off-balance fixed assets |
Off-balance inventory assets |
Chapter 3 | Asset management work | Fixed asset constant |
Inventory level of spare materials |
Supply plan establishment system |
Acquisition of fixed assets |
Management and depreciation of fixed assets |
Depreciation of fixed assets |
Disuse and disposition of fixed assets |
Chapter 4 | Real estate management | Concept and type of real estate management |
Real estate management work |
Acquisition of real estate |
Real estate study |
Chapter 5 | Taxes related to assets | Review of value added tax upon purchase and sale of delivery vehicles |
Value added tax upon selling of company house |
Acquisition of generation plant building and facility upon completion of dam construction |
Matters on acquisition/registration taxes according to national investment in kind |
Payment of ship and pontoon acquisition tax |
Problem of local tax on approval of booster station building |
Chapter 6 | Accounting related to assets | Accounting on acquisition, disuse and disposition of fixed assets |
Accounting on landscape trees |
Accounting method on insurance gain |
Land resale accounting know-how |
Accounting on additional tax after payment of ship acquisition and registration taxes |
Accounting on advertisement display boards |
Arrangement of tangible and intangible assets according to implementation of financial accounting standards |
Questions related to accounting on fixed assets |
Chapter 7 | Asset-related system | Financial Accounting Standards Provision 3 Intangible Assets |
Financial Accounting Standards Provision 5 Tangible Assets |
Chapter 8 | Methods of using asset management and material management systems | Method of using asset management systems |
Method of using spare material management systems |