Republic of Korea: President Lee accused of benefiting private constructors

A Seoul Metro Line 9 station.
(Photo: Ssangyong Engineening
& Construction Co)

Civic groups have charged the President of the Republic of Korea Lee Myung-bak of saddling Seoul residents with losses while he was mayor of the capital city, by signing an unfair contract with a leading private sector infrastructure fund to build a metro line, reported journalist Park Hyun-chul on The Hankyoreh daily newspaper.

The Citizens’ Coalition for Economic Justice (CCEJ, national focal point of Social Watch), and Spec Watch Korea, a civic group that monitors foreign investors, filed a complaint with Seoul Central Prosecutors’ Office on August 30 against four individuals who were behind the May 2005 signing.

The accused include former Major and current President Lee Myung-bak; former Seoul subway construction headquarters chief Gang Chang-gu; and Kim Mun-hyeon, the Seoul Institute’s former top negotiator.

CCEJ and Spec Watch Korea accused the men of granting Seoul Metro Line 9 Corporation special powers by allowing it to set the fares passengers must pay to use the line. Macquarie Korea Infrastructure Fund is the majority stakeholder in Seoul Metro Line 9 and the complaint states that the firm has been given room to charge unfairly high fares.

According to the contract, the line’s basic fare was set at 1,000 won (0.88 US dollars), 43% higher than the 700 won (0.62 US dollars) proposed by the private operator.

They also claimed Seoul included in the contract a minimum revenue guarantee to provide Seoul Metro Line 9 Corporation up to 1.4 trillion won (about 1.23 billion US dollars) in minimum operating revenues over 15 years.

This made the contract extremely unfair, they complained, as the number corresponds to 78% of the line’s expected fare earnings over the next 15 years, making it highly likely the city would suffer major losses, according to The Hankyoreh.

“In fact, Seoul Metropolitan Government paid Seoul Metro Line 9 Corporation 13.1 billion won (some 11.5 million US dollars) in minimum fare earning guarantee funds in 2010 and 29.2 billion won (some 25.7 million US dollars) in 2011,” CCEJ added.

The organization made similar charges against the directors of 12 projects, including Seoul Metro Line 9, Woomyunsan Infraway Corporation and Gyeongsu Highway Corporation, all of which took out high interest loans with Macquarie.

“Through high-interest loans and paid reductions in capital, these companies have hurt themselves and at the same time provided Macquarie, their major shareholder, with profits,” the civic group said.

“Eleven of the twelve companies have seriously impaired capital, and the losses are being filled by local governments like Seoul City, which signed contracts with the twelve. The shareholders like Macquarie are making greater profits the deeper the companies they invested in fall into ruin,” CCEJ complained.

The civic groups also charged National Tax Service commissioner Lee Hyun-dong with failing to properly tax the profits made by private operators like Macquarie.

The Hankyoreh: