Consortium Has Not Been Formed, Making the Start of Construction Within Next Month Impossible

The government-run “overseas first new city project” is drifting away after failing to stay on its target schedule due to lack of preparation and an unrealistic initial plan.

In particular, the project was started under a contract between the Korean and Algerian governments after President Roh Moo-hyun’s visit to the nation in March of last year. Hence, there have been concerns that Korea’s external construction rating would fall if it fails to meet the terms of construction in Algeria.

According to the Ministry of Construction and Transportation and the construction industry, the government has promised its Algerian counterparts to build a new city with a golf course, hotel and 10,000 houses in an area of 595-hectares in Bouinan, which is 30 kilometers south of Algiers, the Algerian capital. Under the Korean government promise, approval for a construction plan should be given by the end of June, and construction should begin by July of this year and be completed by 2011.

However, Dong-A Ilbo has revealed that even the Korean construction companies for this project have yet to be selected so far, making an approval for a working plan within June out of the question. As of now, the commencement of construction within this year seems unlikely as well.

The project to build a new city in Bouinan, Algeria has been pursued as a follow-up project after President Roh visited Algeria in March of last year and announced a “Korea-Algeria partnership.” The construction, under a government estimate, would cost two to three trillion won, and construction costs could be recouped by selling the new apartments in the city to local residents.

After the announcement, the government has been eliciting the participation of private construction companies in Korea, but little progress has been made thus far.

The construction industry is showing a lukewarm attitude toward the project because the rate of return in this project is not high enough for private construction companies to participate in.

The ministry has estimated that a certain level of return would be guaranteed, but companies are still reluctant since the rate of return for the Algerian project is lower than that of building new cities in Korea. What is making them hesitant are the unexpected risks that inherently come with overseas construction.

In the first place, the new city development consortium for the Algerian project was supposed to include Dong Il Highvill, Bando Construction, Woolim Construction, Samsung C&C, and Gongkan International. However, Dong IL Highvill recently stated that it was to withdraw from the consortium.

Considering that with only small-and-medium size construction companies, it would be difficult to continue the project, the ministry has persuaded Daewoo E&C and Hanwha E&C into participating in the consortium, but how much share of the consortium would go to which participants or how the construction would proceed have not been confirmed yet.

The ministry stated, “We have to establish a good business plan to begin with to meet the expectations of our nation, but we might have viewed the project as too easy of one. However, currently we are working hard to start the construction within the year and recently asked the Algerian government to extend the construction term.”

However, an executive of a private construction company stated in reply, “Even when a private company fails to meet the construction terms in an overseas project, the company could tarnish the image of its country. It is almost dumbfounding to see such a thing happening in a government-led project right now.”

koh@donga.com