South Korean lawmaker and liberal newspaper allege that SK E&C altered original plans to maximize profits
Explosive allegations made by a South Korean lawmaker and detailed in a leading South Korean newspaper point the finger at a leading Korean company as being responsible for hundreds of deaths and thousands of homeless in July’s Lao dam collapse.
According to ruling-party lawmaker Kim Kyung-hyup, and to a related report in the leading left-leaning Korean daily The Hankyoreh published on October 15, the company with lead responsibility for the project, SK Engineering and Construction, made dams lower than called for in plans and altered some materials in order to maximize profits.
As per SK E&C documents reportedly obtained by Kim and passed on to the Hankyoreh, the company used its authority to tweak existing designs to maximize “maintenance costs and profits.” So, the heights of auxiliary dams were lowered by an average of 6.5 meters from the original design, and some construction materials were altered, resulting in the company realizing US$19 million in savings.
The accusers also allege that although the project fell under the banner of official Overseas Development Aid, there was no parliamentary budget review under the government of the now-jailed Park Geun-hye.
Kim called the Laotian tragedy, a “man-made disaster spawned by SK E&C’s desire to generate excessive profits by altering the very design, and the last administration, which disregarded procedure in disbursing the loan.”
Kim’s Democratic Party was vehemently opposed to Park, and the Hankyoreh has taken a stance against Korean business groups in the past. However, they are the not first parties to allege slipshod construction.
Separately, Laotian Minister of Energy and Mines Khammany Inthirath told Radio Free Asia in July that unseasonably heavy rains and poor construction of the auxiliary dam were the factors behind the tragedy.
The disaster took place at a series of dams that were part of a major hydroelectric project in southeastern Laos undertaken by Xe-Pian Xe-Namnoy Power Company (PNPC), a joint venture formed in March 2012 by SK E&C, Korea Western Power, Ratchaburi Electricity Generating Holding and Lao Holding State Enterprise. Much of the funding was supplied by Seoul, and SK E&C held the leading Korean stake.
Civic groups who spoke to foreign reporters in Bangkok this week stated that the responsibility for oversight was clearly the Laotian government’s. But given the fact that Laos is a one-party state, the civic groups said the best opportunity victims may have for redress is the South Korean court system. Given the recent revelations by Kim Kyung-hyup and the Hankyoreh, that would likely put SK in the crosshairs.
SK: Fast response in July, caution in October
SK E&C is part of SK Group, one of Korea’s top 10 conglomerates. A group spokesman told Asia Times by telephone: “We consider very deeply every accident related to SK Group.” Although the responsible SK E&C PR executive was on vacation, given the gravity of the matter, he contacted Asia Times.
Asked about the company’s response, he said: “We are awaiting the results of the Laotian government investigation, so cannot say anything at the moment.” He was familiar with the allegations raised by Kim and by media, but said that SK “was waiting to be sure” and “waiting for a full answer” before responding.
The cautious response to the accusations stands in contrast to SK’s earlier, dynamic, crisis-management operations.
The day prior to the disaster, the company detected a crack in one of the project’s auxiliary dams, and reportedly warned authorities to evacuate the area as water levels rose alarmingly. After that dam burst and flash floods swept away homes, villages and infrastructure, SK dispatched nearly 200 rescue workers and executives to provide medical equipment and relief goods.
SK also began building temporary shelters for flood victims who were forced to flee their homes and SK Group’s high-profile leader, chairman Chey Tae-won, visited the Laotian Embassy in Seoul to deliver $10 million in relief funds.
Recognizing the role of South Korean companies in the dam project, South Korean President Moon Jae-in also deployed official assets to assist in disaster recovery.
SK Group is one of Korea’s biggest and most successful chaebol, or family-managed conglomerates: Last year its nine affiliates raked in profits of 20.8 trillion won ($17 billion), a jump of 119.8% over the previous year. Its main operations are in telecommunications – it is the leading carrier in South Korea, a world leader in the sector – energy and construction.
Its chairman, Chey, is lauded as a business maestro who married the daughter of a former South Korean president. He is also a survivor, as, like a number of chaebol heads, he has faced proxy fights and ethical/legal issues.
He won a battle with Dubai-based fund Sovereign Asset Management, which was attempting to unseat him, in 2005, and has twice been jailed: for breach of trust and embezzlement. Both times he was released before completing his four- and six-year sentences.
Economic miracle …
Business groups like SK were central players in Korea’s “economic miracle,” the country’s zero-to-hero rise to industrial superpower in the 1960s, ’70s and ’80s.
It was a top-down affair. Authoritarian governments in Seoul set forth development goals, then passed national infrastructure and business projects over to favored chaebol to implement. The firms were granted preferential access to projects, capital and other state resources; were protected in their home market; and were incentivized to enter international markets. It worked like a dream. The model propelled South Korea from agrarian backwater to industrial powerhouse in three turbocharged decades.
The collusive government-business culture received little criticism as the economy surged, and chaebol like Samsung, Hyundai and LG went global. Problems underlying the model were laid bare in the 1997-98 financial crisis, which required a record $68 billion International Monetary Fund bailout. Unprofessionally managed, state-run banks had lent massively to chaebol, which had over-invested and taken on mind-boggling debt-equity ratios.
Under IMF supervision, practices were upgraded. However, cronyism survived. It was largely corrupt ties between her key advisers and chaebol that led to the impeachment of Park in 2016. The ex-president is currently serving a 33-year jail term.
… deadly disasters
On the hardware front, Korea’s development accelerated so swiftly that details were overlooked. According to Michael Breen’s The Koreans, a “can do” attitude to business was combined with a “that’ll do” approach to quality. The result, in recent years, has been a string of lethal, and probably avoidable, disasters.
In 1994, as a result of corner-cutting construction practices, Seoul’s Seongsu road bridge fell into the Han River, killing 32. In 1995, Seoul’s Sampoong Department Store collapsed because of slipshod engineering practices, killing 502 people. In the aftermath, Sampoong executives were jailed and the company dissolved. Also in 1995, 101 persons were killed by underground gas explosions in the city of Daegu, which were likely linked to nearby construction work.
In 2014, the ferry Sewol sank off southwestern Korea, killing 304 (mainly schoolchildren). The operating company had made changes to the ferry’s structure, unloaded ballast water and overloaded the ship with cargo, which was unsecured. Its crew panicked, ordering children to remain below while officers abandoned ship. After a nationwide manhunt, the body of the operating company owner’s was found, but his cause of death remains murky.
Even by these grim standards, the Laotian tragedy – latest estimates suggest at least 800 dead – represents a particularly lethal reckoning.
Thus far, Korean firms’ overseas construction projects have not been bedeviled by the disasters suffered at home: Flagship structures like Singapore’s Marina Bay Sands Hotel and Kuala Lumpur’s Petronas Towers embody the excellence of Korean engineering. But if the Laotian catastrophe is proved to have been linked to profiteering or corruption, Korean firms’ formidable reputation in the sector could be besmirched.