Gov`t Pays 36 Billion Won in Penalty

It tuned out that the government had paid a 36 billion won penalty to Kyungin Canal Corporation, which signed a contract with the government to construct a canal linking Seoul and Incheon in September 2007. The construction firm also filed a lawsuit against the government to receive 3.6 billion won of value added tax back.

The government has wasted national funds since it recklessly pursued large-scale projects without thoroughly estimating environmental damage and economic feasibility. Along with the Janghang industrial complex project, the canal project is one of prime examples showing the Roh Moo-hyun government’s careless spending of tax.

○ Failure of Canal Project Wastes 200 Billion Won

The government began the project in 1998 when it reached an agreement on private sector driven government projects with Kyungin Canal Corporation led by Hyundai Engineering & Construction. The project was designed to construct a canal which connects Haengju Bridge in the Han River, Incheon and the Yellow Sea, thus preventing the western metropolitan area from flooding and improving logistics.

Kyungin Canal Corporation completed the construction of a temporary trail race for the Gulpo Stream in June 2003. Due to strong resistance from environmentalists and criticism over economic efficiency, the Roh Moo-hyun government canceled its contract with the construction consortium in July 2004, after paying 120 billion won.

Since the government refused to pay an additional 67.8 billion won in penalty, the consortium filed a lawsuit against the government.

The Seoul High Court ordered the government to pay 36 billion won to the construction consortium in September 2007. Recently, Kyungin Canal Corporation took the case to the Seoul Central District Court, demanding the government pay value added tax of 3.6 billion won which was imposed on 36 billion won.

An official at Kyungin Canal Corporation argued, “We have suffered losses since the government had failed to successfully deal with the project. Therefore, the government should pay the tax. It is estimated that the government has spent 200 billion won on the bungled project for 10 years.”

○ Inefficient Policy

The government began constructing the Janghang Industrial Complex in Seocheon-gun, South Chungcheong Province, back in 1989. But, the project has also presented the government with a massive amount of loss.

In the wake of the financial crisis, possibilities that the factories in the industrial complex would sell well sharply decreased and environmentalists began strongly resisting against the project. Facing mounting difficulties, the former Roh Moo-hyun government eventually stopped the project, saying, “The environment has changed a lot since the government designated Janghang as an industrial complex.” The government had spent 323 billion won to pave the ramp and compensate fishermen for their loss. It was considered as the government’s loss.

A source from the Chungnam Development Institute pointed out, “It is a prime example in which the government made a decision based on politics and public opinions, not the feasibility of project.”

○ Decision-making System

President Lee Myung-bak’s transition committee pointed out last month that the Roh Moo-hyun government uselessly spent 10.7 trillion won of tax on fruitless government projects. Also, the transition committee promised that it would cut budget by 10 percent by minimizing ten types of squandering including ineffective reviews of feasibility of projects and pork barrel projects.

Park Yeong-cheol, Sungkyul University’s urban planning professor, said, “In order to prevent the government from uselessly spending tax on bungled government projects, it should call policymakers to account and improve its decision-making system.”

Some experts blamed environmental groups for inconsiderate opposition against the government’s projects.

A government project expert said, “Ever-stronger civic organizations’ vehement opposition was one of the several factors that discouraged the Roh Moo-hyun government from executing its projects.”

bell@donga.com