A government-backed policy fund created with public and private money to help South Korean construction firms win overseas contracts has run up losses approaching 45 billion won, prompting calls for corrective measures.
The first-stage fund has incurred 44.9 billion won in impaired investments, according to data on investment and performance of the PIS fund — covering plants, infrastructure and smart cities — that the Ministry of Land, Infrastructure and Transport submitted to the office of Rep. Yoo Sang-bum of the People Power Party, a member of the National Assembly's Land, Infrastructure and Transport Committee, on the 2nd.
The PIS fund is a public-private policy fund set up to support Korean companies bidding on large overseas construction projects such as roads, power plants and urban development. A first stage worth 1.5 trillion won was launched in 2019, followed last year by a second stage worth 1.1 trillion won. In the first stage, private investors matched 900 billion won against a 600 billion won parent fund formed by the government and state-run institutions. In the second stage, 660 billion won in private money was matched against a 440 billion won parent fund from the government and public agencies.
According to the first-stage investment data submitted to Yoo's office, an infrastructure fund that invested in roads and telecommunications wrote off 34.6 billion won in full after the finances of one project deteriorated. The entire principal was booked at zero on the accounts, with none of it recovered. A separate proposal-based fund that invested in crude oil transport facilities also recorded a 10.3 billion won impairment loss on one project after a sharp drop in value, pointing to further losses.
The ministry said the first-stage fund has recovered 378.1 billion won from 29 projects in 13 countries, but that amount is understood to consist of loan interest and partial repayments of principal at maturity. With more than 1 trillion won in invested principal still tied up, a total loss of principal has surfaced first. A closer look at the 29 first-stage projects shows that six — two plant projects, one infrastructure project and three smart city projects — have yet to break ground, raising concerns about additional impairments depending on how those projects proceed.
The second-stage PIS fund, pushed ahead while the first stage stalled, is also faltering. In August last year, the ministry announced it had "completed the formation of the 1.1 trillion won second-stage PIS fund" and outlined a plan to raise 400 billion won in project funds, which identify deals first and then recruit investors. But as of August this year, a year after that announcement, only one project fund worth 73.5 billion won had actually closed — 18.4% of the target. With suitable investments and private capital failing to come together on schedule, 109 billion won, or 61.9% of the 176 billion won in public money paid into the parent fund, is sitting in bank deposits.
"The ministry has pointed to the headline figure of $2.2 billion in contracts and exports it helped drive, but losses approaching 45 billion won have now materialized," Yoo said. "The government must thoroughly determine why these overseas infrastructure assets, funded by taxpayers, went bad, and completely review how the second-stage fund is being deployed."
A ministry official said it was too early to call the figures losses. "These holdings are only wound up once a project is finished and the stake is sold, so it is premature to classify this as a loss, and several projects are on track," the official said. "The second-stage fund began investing this year and is looking for investment targets. It is proceeding without problems."
