Gov't to intervene in Macquarie deals
By Na Jeong-ju
The Ministry of Strategy and Finance indicated Thursday that it will help resolve disputes between Macquarie and municipal governments over the firm’s business practices in Korea.
“Local governments deserve support from the central government in addressing unfair contracts they signed with Macquarie,” a ministry official said. “We can give advice to them if they re-negotiate the terms of the contracts.”
The comments came one day after a crucial administrative ruling against the Australian firm concerning its contract with Gwangju.
Gwangju and Macquarie’s infrastructure investment unit, the Macquarie Korea Infrastructure Fund (MKIF), are feuding over a section of a roadway that encircles the southwestern city. The 5.7-kilometer-long section between Dooam Interchange and Jiwon Interchange, built by private investors in 2000 under a public-private partnership project, is owned by MKIF. Citizens there have complained about high toll fees charged on drivers, despite the fact that the city has plugged its losses, using taxpayers’ money, under a contract with the firm.
The issue at stake this time is that MKIF reduced its own capital from 29.91 percent to 6.93 percent in 2003, while raising the interest on the debts Gwangju owed to the firm without prior consultation with the city government. According to Gwangju officials, the city has offset some 119 billion won of MKIF’s operating losses for the past years, and would pay up to 488 billion won in interest until 2028, should the current terms of contract remain unchanged. The firm invested 190 billion won in the project.
Gwangju recently took an administrative measure to nullify the firm’s decision in 2003. The firm, however, filed a complaint with the Central Administrative Appeals Commission, which judges the legality of administrative decisions, claiming that the city’s measure was unlawful.
The commission turned down its petition, paving the way for Gwangju to renew or cancel its contract with MKIF on the operation of the road section. The city government has been urged to take over the road section so that it will no longer waste taxpayers’ money, and to protect the public interest.
The rejection is a serious blow to Macquarie, which has reportedly invested some 1.78 trillion won in 14 projects to build major roads, tunnels and subways here.
The firm is also in dispute with Seoul, Incheon and Busan over what the latter call disadvantageous contracts. Some civic activists have described Macquarie as a “public enemy,” alleging that it has pursued excessive gains while refusing to take its own risks. The local governments themselves have been criticized for neglecting their duty of serving the public interest by signing unfair contracts with Macquarie.
One of such examples is Macquarie’s investment in 2005 in the construction of Subway Line 9 in Seoul.
The line’s operator Metro 9, in which Macquarie is the second largest shareholder, recently drew a public backlash by announcing a plan to raise fares by 50 percent. The firm said the fare hike was inevitable due to mounting operating losses, but city officials claimed that it was an excuse.
The officials said the firm’s high dividend policy and the city’s high interest payments to shareholders were behind the mounting losses. Seoul City has so far spent more than 70 billion won to offset Metro 9’s losses, while its shareholders have received high dividends every year since it began operating in 2009.
In May, a civic coalition led by the People’s Solidarity for Participatory Democracy, called for a full-scale investigation into Macquarie’s investment in the construction of Subway Line 9, alleging that President Lee Myung-bak, then-Seoul mayor, was behind the contract.