‘Macquarie pursuing excessive gains’
NGOs call for probe of ‘unfair’ subway deal costing taxpayers
By Na Jeong-ju
A civic coalition called for a full-scale investigation Tuesday to clear suspicions surrounding Macquarie’s investment in 2005 in the construction of Subway Line 9. It says then-Seoul Mayor,Lee Myung-bak, who is now President, was behind the contract that they claim was against public interests.
The coalition, led by the People’s Solidarity for Participatory Democracy, allege that Seoul City has spent a huge amount of taxpayers’ money to plug losses of Line 9 operators while they pocketed high dividends due to what they call disadvantageous terms of the contract.
“Under the contract signed in 2005, Lee guaranteed an after-tax investment earnings rate of 8.9 percent for Macquarie and other private investors, which was much higher than ordinary infrastructure deals, until 2035. It was preferential treatment,” the coalition said in a press conference in front of Macquarie’s office in Jung-gu, Seoul. “Seoul City also promised to protect them from excessive losses based on a so-called minimum revenue guarantee (MRG) agreement.”
The conference came amid a growing controversy over Metro 9’s plan to raise fares by 50 percent from the current 1,030 to 1,550 won in June. Metro 9 is a consortium of 12 firms that operates Line 9. The Macquarie Korea Infrastructure Fund (MKIF) is the second largest shareholder with a 24.5 percent stake.
Other major shareholders include Hyundai Rotem, Shinhan Bank and POSCO ICT.
The fund, listed on the Seoul stock exchange, has invested in various infrastructure projects here, but is in a feud with Seoul City and other municipal governments over contract terms. The fund is under criticism for pursuing excessive gains while refusing to take its own risks under the “disadvantageous” contracts. The local governments have also been hit for wasting taxpayers’ money by signing such deals. The firm has invested in 14 projects here to build roads, subways and tunnels.
Critics say Metro 9’s high dividend policy and the city’s high interest payments to shareholders are behind the mounting operating losses for Line 9. The Seoul city government said it has so far spent more than 70 billion won to offset Metro 9’s losses. Despite the growing deficits, the firm’s shareholders have received high dividends every year since Line 9 began operating in 2009.
Unlike Lines 1 to 8, built and run by city government-affiliated corporations, Line 9 was constructed under a private financing scheme. Metro 9 invested money in the construction of Line 9 and have the right to operate it for 30 years.
The firm said it would go ahead with the price hike because the accumulated deficit has surpassed 180 billion won due mainly to low fares. Seoul City, now headed by activist-turned-mayor Park Won-soon, has threatened to revoke the line’s license unless it gives up the plan.
City officials said the city will soon publicly demand the resignation of the president of Metro 9.
Adding fuel to the dispute, a former senior Seoul City official, who negotiated terms in 2004 with the consortium, was found to possess some 10,000 shares of the MKIF.
Lee In-keun, currently a professor at the University of Seoul, is in the hot seat following reports that he has been a shareholder of MKIF since 2008, when he was working at the city government. As head of Seoul’s infrastructure planning bureau, he was in charge of negotiations with Metro 9.
His investment in the firm complied with laws, but it is ethically questionable. When he first bought 5,000 shares of the MKIF in 2008, he was working as head of the urban planning bureau, a position that can influence various development projects. Since then, he has increased his investment. He currently owns a total of 10,003 shares worth some 55 million won ($48,700). He retired from public posts earlier this year.
Lee said he decided to invest in the firm because he liked the firm’s high dividend policy for shareholders.
“At the time, I didn’t think the investment would violate the ethics code because it was four years ago when I negotiated with Metro 9,” he told reporters. “I selected the firm because it paid out high dividends. I will sell all of the shares right away if I did anything wrong.”
Seoul City said it is looking into the case to see if Lee purchased shares in any other firms that had contracts with the city government in the past.