The Korea Local Administration Review

This study searches for debt reduction policies and financial management ofKorean In-house Local Public Enterprises using recent 3-year debt statisticsfrom Ministry of Security and Public Administration which are based onbusiness accounting standards rather than using statistics from Ministry ofEnvironment which are based on cash basis accounting. Though water andsewer sectors are in a stable debt condition, such financial soundness is due tosubsidies from general account and outside government such as national grants.Rate increase is critical to the fiscal soundness of Korean In-House LocalPublic Enterprises.The one-way random effects model confirms that rate increase can reducewater utilities debt level. Though this is not the case for sewer utilities, thecurrent low rate level implies that rate increase will help sewer utilitiesbusiness conditions. It is strongly recommended that an independent regulatorycommission should be established to increase water and sewer rate on aregular basis using price cap regulation.
□ Keywords: water utilities, sewer utilities, debt, price cap regulation, independentregulatory commission