The government and the ruling Saenuri Party decided on Wednesday to establish a new regulation to tighten supervision of local public enterprises.

The envisioned law is expected to include clauses that close down companies in financial trouble due to lax management and executives’ misdeeds.

Public firms more than half-owned by local governments are currently regulated under the Local Public Enterprises Act. However, there are no specific regulations for companies with government stakes of less than 50 percent.

Policymakers from the Ministry of Security and Public Administration and the party agreed to enact the new law to close the loopholes.

Under the proposed regulation, potential public enterprises with a certain amount of capital will be subject to the ministry’s review of viability before establishment and annual performance evaluations by local governments.

Those companies whose founding goals have already been achieved, whose duration dates have expired, and whose performance failed to meet minimum standards of evaluation will be shut down or put on sale, officials said.

“Many local public enterprises are recklessly managed under no consistent rules. With the new legislation, we hope they will be reborn as organizations serving the people.” said Rep. Kweon Seong-dong, chief of the party’s policy coordination committee.

He represented the party in the consultation with the ministry led by Vice Minister Park Chan-woo.

They plan to submit the bill to the National Assembly in September.

The new law will apply to 463 local public corporations that currently hire about 25,300 workers.

According to the most recent financial report, 338 larger local public companies had a combined debt of 69.1 trillion won ($60.9 billion) in 2011, a 45 percent increase from three years before.

Net losses of those enterprises in the same year totaled 101 billion won.

By Lee Hyun-jeong (rene@heraldcorp.com)