Reform in Construction Industry

'The Gyeongin Canal will not only help Korea tide over the economic downturn, but will also upgrade the construction industry'

"The government is pulling out all the stops to upgrade the Korean construction industry to the levels of advanced countries in order to enhance its competitive edge: eliminating luck-favoring chances by overhauling bidding, turn-key and other systems and uprooting unfair practices related to subcontractors," said Kwon Jin-bong, assistant minister of the Office of Construction and Water Resources Policy at the Ministry of Land, Transport and Maritime Affairs.
Kwon comes to his office even on the weekends these days toiling away to tackle decades-old standing structural problems and pushing such pending issues as the construction of the projected Gyeongin Canal. As if he takes the message of the Bible, "Knock and the door shall open," literally, Kwon is now putting his heart and soul into carrying out his tasks in a dynamic and aggressive manner.
Kwon paints a rosy picture of the Korean construction industry, saying that Korea could join the ranks of the world's top five construction powerhouses by raising Korean contractors's share in the global construction market with a focus on value-added design and construction. With the Ministry of Land, Transport and Maritime Affairs taking the leading role, he said, the government is putting its heart and soul into translating policies into action.
Kwon said, "Korean contractors now have the capability to turn projects, which take at least 10 years, into landmarks within a period the clients want. He recently made a round of road shows designed to publicize the Korean construction industry in Uzbekistan, Kyrgyzstan, Siberia and Algeria, then held a forum on overseas construction.
Kwon, a technocrat who passed the government higher technology examination, held such positions as the director in charge of technology safety, the director of industrial site placement, the head of the Wonju District Land Office, the ministry spokesman, the director-general of the Land Bureau and the director general of water resources.
He is considered to be one of the most versatile picks in doing all things ranging from task performance to playing sports and singing songs together with Kwon Tae-shin, minister of the Prime Minister's Office, and Ryu Sung-geol, chief of the Budget Office at the Ministry of Strategy and Finance.
While serving as a representative of a government-governing party GNP panel on policies on subcontractors, Kwon is crusading for the cause of eliminating malpractices related to subcontractors. As announced last January, he said his ministry will make public all transactions between contractors and subcontractors in a move to uproot such illegal practices as the one in which subcontractors are given such payments in kind as bills and apartments they built for contractors, not in cash.
Kwon said, "I'll spearhead a movement to make the construction industry the one helping the national economy get back on track again."Turn-key and other systems will be revamped to renew the image of the construction industry as a clean one.
He said the government's steps to advance the Korean construction industry to the levels of advanced nations and the Gyeongin Canal project would not only contribute to helping Korea overcome the slumping economy, but also to develop the construction industry into a top-notch one in the long-term perspective. In particular, he said, "The steps for the advancement of the construction industry will be pushed on a continuous basis despite pending problems and conflicts." "The Gyeongin Canal is designed not only to prevent such areas as Bupyeong and Gyeyang in Incheon, and Bucheon, Gyeonggi Province, from floods, but also to ease logistics and traffic problems and build globally renowned culture, tourism and leisure infrastructure, and it is to be completed by late 2011.'s Along the waterway will be bicycle and in-line skate roads and resting spaces. International ferries will be run according to the Seoul Metropolitan Government's so-called Renaissance Plan to renovate the Han River, making Seoul a port metropolis in a shift in the development of areas surrounding the canal as western landmarks of the Seoul metropolitan area, he said.
The following are excerpts of his interview with NewsWorld.
Question: Will you tell our readers about the direction of steps to advance the construction industry to the levels of advanced countries?
Answer: The steps for the advancement of the construction industry are intended to upgrade all systems and practices of the industry to global standards so that its competitive edge in Korea is the same abroad.
First, such irrational restrictions on business as a limitation on the business scope of each business category, a ban on performing architectural design and construction and an obligation to separate tenders on electricity and communications projects will be streamlined in order to build an industrial structure that encourages flexible collaboration and competition.
The public bidding system will be changed to give more leeway to agencies placing tenders and in the way technology competition can be stepped up. The government will strengthen the judgment on pre-qualification screening guidelines for selecting companies with excellent construction competence while ramping up technology competition by plotting alternative options to determine whether the lowest bid can be appropriate.
It is seeking to shift the selection of designers from a price-oriented one to a technology-based one in order to enhance design engineering capability. Payments of design costs and specification systems will be upgraded to global standards to improve the quality of work in Korea.
An ad hoc specialization committee will be regularized instead of using a pool of experts to ensure the transparency of turn-key projects. Surcharges will be levied as penalties against bribes and bidding collusion. An option to expel companies found to repeat violations within a given period is under consideration.
A public tender agency consultation committee comprising the representatives of five public entities under the control of the MLTM, including the Korea National Housing Corp. and Korea Land Corp., will be formed in order to ensure sustainability of the steps for the advancement of the construction industry. This is aimed at helping tender agencies, the biggest beneficiary of the construction industry, make across-the-board innovations, and pilot projects designed to improve bidding systems and best practices will be proliferated as parts of efforts to step up the capabilities of those tender agencies.
Q: Will you explain the necessity of the project to construct the Gyeongin Canal, which has been launched so abruptly after long-standing consideration?
A: When it comes to the Gyeongin Canal project, you need to take a look at the Gulpocheon drainage channel. The Gulpocheon basin area covering Gyeyang and Bupyeong in Incheon as well as Bucheon and Gimpo, Gyeonggi Province, is a frequently flooded, low-lying area, 40 percent of which is situated below flood levels of the Han River. A big flood that hit the area in July 1987, claiming 16 lives and leaving 5,427 people homeless, had forced the Gulpocheon drainage channel project to break ground in 1992 in order to drain the water from the Gulpocheon Stream directly into the West Sea. The Gyeongin Canal project calls for stretching the existing 14.2 km-long water control channel by 3.8 km toward the Han River. The projected canal is designed not only to serve as a channel to drain the swollen water in the event of flooding, but also to use as a multi-purpose canal.
It will also cut down on logistics costs and ease traffic congestion, while invigorating culture, tourism and leisure industries, shifting the paradigm for new national development by setting up a foundation for low-carbon, green growth.
Q: Will you specifically tell our readers the benefits the projected Gyeongin Canal will bring about?
A: As I mentioned, the canal is designed to prevent the frequently flooded Gulpocheon basin area from inundations by doubling as a water control channel.
The canal will enable the transportation of containers equivalent to 250 truckloads of cargo at one time, having an effect of reducing logistics costs though the large-scale transportation of freight and lessen inland traffic congestion by invigorating the coastal transportation industry.
The canal will be an environmentally-friendly transportation means that can diversify the road-oriented transportation mechanism to shipping transportation. Figures made available in foreign countries show that canals turn out to be 2.5 times and 8.7 times more efficient than railways and roads, respectively, while railways and roads produce greenhouse gas emissions 1.4 times and 4.9 times as much as canals, which are considered to contribute to promoting low-carbon, green growth.
The Gyeongin Canal, which will link the Han River and the West Sea, will have synergetic effects in such areas as tourism and leisure industries. In keeping with the Seoul Metropolitan Government's so-called Renaissance Plan to renovate the Han River, ferries will run on a direct route linking Yongsan, central Seoul, and China, while yachts and boats will be able to navigate along the planned route connecting the Han River and the West Sea via the Gyeongin Canal. Areas surrounding Songdo, Cheongna and Geomdan will be developed as western landmarks of the Seoul metropolitan area.
Bicycle paths, promenades, parks and observatories, to be built along the projected canal, will serve as leisure and rest spaces for visitors.
Lastly, the project is expected to boost the regional economy by building logistics centers. The construction of the canal is projected to bring a production induction effect worth about 3 trillion won and create approximately 25,000 jobs, thus enhancing national competitiveness.
Q: Will you elaborate on the status of the Gyeongin Canal project?
A: The project got the green light at a meeting of the National Policy Coordination Committee held last December. Korea Water Resources Corp. is now in charge of the implementation of the project, which has shifted a private investment project into a public enterprise.
Of the canal project, the construction of a section that will link the Gulpocheon water control channel with the Han River is to begin in late March and be completed late this year.
The main project to build floodgates, bridges and terminals will be launched in June with completion scheduled for December 2011 due to a fast track project process.
Along the waterway, bicycle roads and the "Top-eight beauty, leisure and tourism attractions" will be constructed in order to make the canal an environmentally-friendly one suitable to its surroundings.
Q: Are the Incheon Metropolitan City, Gyeonggi Province and Seoul Metropolitan governments playing a part in the canal project? Will you tell us about their future collaboration plans?
A: Seoul Mayor Oh Se-hoon, Incheon Mayor Ahn Sang-soo and Gyeonggi Gov. Kim Moon-soo signed an MOU on cooperation between their governments on Feb. 11 and agreed to actively cooperate in the implementation of projects linked with the canal project.
In the future, the local governments will hold meetings and promote collaboration in order to establish a master plan for developing the area surrounding the Gyeongin Canal.
Q: These days the nation is suffering from a shortage of water due to a drought. Will you tell us what the government's response is to climate change in the water resources field?
A: Water is one of the things that takes the biggest brunt of the effects of climate change. Across the globe, water-related disasters, including droughts and floods, are on the rise in scale and frequency.
In this regard, the central government makes predictions on the effects of climate change in the water resources field and embraces them in policies to respond to climate change to minimize possible damages.
Initially, it plans to overhaul the long-term, comprehensive plan on water resources by taking into account the effects of climate change by 2011. The government is working toward such steps as the construction of small- and mid-sized dams, the redevelopment of existing dams, projects to readjust tap water supply systems in metropolitan areas and the development of auxiliary water resources like desalination plants.
Q: The sagging global economy is predicted to cause a slowdown in the global construction market. Will you tell us what the 2009 target is for landing overseas construction orders and its prospects?
A: In 2008, Korea won a record high of $47.6 billion worth of construction orders due to a rise in construction project tenders arising from the crude oil price hikes and a development boom in the Middle Eastern region. The effects of the global economic crisis had been feared to cause a setback since last September, yet Korea's overseas construction industry has been least affected so far as the nation continues to win orders from the oil producing countries.
Despite the global economic crisis, Korea is forecast to rake in more than $40 billion worth of construction orders abroad this year. As of February, the nation posted $6.2 billion worth of orders, equivalent to 64 percent of the orders secured in the same period last year, yet a whopping 137 percent jump from the same period of 2007, which recorded an aggregate $39.8 billion worth of orders.
Korea strives to achieve this target by stepping up its activities to land orders from the stable parts of the Middle East and by employing a strategy of winning orders in conjunction with the development of projects in resources-rich countries in Africa and Asia.
Q: Will you give our readers more specifics of the strategies to diversify the overseas construction market and enhance profitability?
A: A look into the structure of the Korean overseas construction industry during the period between 1965, the year in which it made its debut, and 2008, showed that the countries of the Middle Eastern region, including Saudi Arabia and Qatar, took up an aggregate $174.6 billion or 58 percent of the total amounts. The Asian region, centered on Singapore and China, earned Korea $94.2 billion, accounting for 31 percent of the total, while the African and Central and South American regions, which registered $16.5 billion worth of orders, is on the rise. The government is striving to build infrastructure for Korean contractors' entry in the newly emerging markets and is sending government-civilian joint overseas exploration delegations since Korean contractors face high risks due to the uncertainties in the markets.
The ministry is trying to build a component database and provide support for registering foreign procurement client companies of Korean-made components so that they can be used as much as possible in foreign fields through joint entries by Korean contractors and component makers. It provides financial support for contractors to help with development projects in cooperation with domestic financial institutions through easy loans, while encouraging them to utilize an escalator clause to hedge against risks caused by raw material price hikes and foreign exchange fluctuations. In particular, the government strives to support contractors' investments in the development of technologies in order to step up their competitive edge to the levels of advanced countries.
Q: What's the status of the plan to raise a global infrastructure fund?
A: The government is seeking to raise a fund to support overseas development investments given the stark reality of contractors who want to make project investments having difficulties in raising funds even though overseas project investments are on the rise. The government and public entities in charge of overseas projects are to invest for about a 10 percent stake and the remainder will be raised by institutional investors.
To this end, the government has set aside 4 billion won in the 2009 budget to launch the planned fund and 1 billion won in feasibility study costs. On March 2, the parliament approved an amendment to the act on the facilitating of overseas construction, which laid a legal foundation for public entities to invest in the projected fund.
With the institutional infrastructure in place, a feasibility study on project investment candidates will be conducted between March and April, with the selection of a financial institution managing the fund. A deal on the fund will be signed in April for launching investments with the goal of raising the operation size of the fund to 2 trillion won by 2012.
Q: Will you speak about ways to nurture the overseas construction industry?
A: Amid the uncertainties of the national economy, the government pins high hopes on the overseas construction industry, which does not incur hefty import costs, unlike the manufacturing industry.
Designating the overseas construction industry as a new growth engine, the government is pulling out all the stops to expand the number of orders won and raise foreign exchange earnings. It is building up infrastructure for Korean contractors to penetrate into such regions as the Middle East, Asia and Africa through aggressive diplomatic efforts, while officials of Korean contractors' would-be procurement client companies will be invited. A joint government-civilian market exploration delegation will be formed to help Korean contractors land orders in markets where they face difficulties on their own. The government is considering an option of collaborating in joint efforts to explore markets among Korean contractors with technological expertise and public entities with experience in the construction and operation of social overhead capital projects.
The government is striving to solve the difficulties facing Korean contractors in such areas as financing, manpower and information. In cooperation with related organizations, the government is seeking to expand financial support, including extending loans and guarantees related to overseas construction projects while implementing a project to cultivate specialized manpower in the overseas construction industry. A center for supporting SMEs wanting to penetrate foreign markets will provide consultation services and information on overseas construction projects.
For its part, the government plans to aggressively play a role as a bridge for the overseas construction industry by seeking public opinions in the years to come on a continuous basis. nw

Kwon Jin-bong, assistant minister of the Office of Construction and Water Resources Policy at the Ministry of Land, Transport and Maritime Affairs.

An artist's conception of the planned Gyeongin Canal and its map

Assistant MLTM Minister Kwon gestures during his interview with NewsWorld.

Assistant MLTM Minister Kwon holding an interview with NewsWorld President-Publisher Elizabeth M. Oh.