Audit Shows 49B Won Wasted in 2 Years

It was found on Tuesday that the central government and provincial governments have misallocated more than 49 billion won, or 55 percent, of the 89 billion won that was to be used as subsidies for companies currently located in the Seoul area and relocating to other provinces.

Among other offenses, the central government rewrote its policy, allowing it to dole out more than 26.6 billion won in subsidies to four companies that were preparing to relocate to other provinces even before the government project arose.

Dong-A Ilbo uncovered this situation by analyzing a report prepared by the Ministry of Commerce, Industry and Energy titled, “Overview of Company Relocation Promotion Project” that Grand National Party Assemblyman Shim Jae-chul, a member of the Special Committee on Budget and Accounts, passed on. It is the first time the details of the subsidies for companies relocating to other provinces have been released.

Shortcuts Taken to Allow Subsidies-

According to the data, the central government and provincial governments passed on more than 89.1 billion won to companies in the Seoul area relocating to other provinces over 32 subsidy payments from May 2004 to June 2006.

Behind many of these payments were shortcuts taken to aid the companies, and there were insufficient follow-up checks.

LS Cable purchased land in Wanju-gun, Jeonbuk Province and built a factory there in 1995, 10 years before this project was initiated in May 2004. That did not stop LS Cable from applying for subsidies for relocating to another province and receiving 15 billion won from the Ministry of Commerce, Industry and Energy. Daesang, Yuyu, and Sewoon Medical, three companies that bought factory sites in 2002 and 2003 respectively, also received subsidies ranging from 256 million won to 10 billion won.

During the process, the central government fixed its regulation that exempted companies that bought factory sites prior to October 2004 and relaxed the regulation to include companies that constructed buildings or facilities on land that was purchased beforehand.

Insufficient Follow-up Checks-

Fourteen companies including Daechang Industrial, which is located in Siheung, Gyeonggi Province, received more than 13.8 billion won in subsidies after proposing to relocate to Chungnam Province in 2005, but still have not started construction.

Wooree ETI and Nano Shine Tech have only moved a small share of their facilities to other provinces and are still doing business as usual in Gyeonggi Province. Mobile phone manufacturer VK received more than 1.8 billion won in government subsidy, but did not show any signs of relocating before going bankrupt in July 2006.

Assemblyman Shim commented, “Unsound investment and insufficient follow-up checks led to the waste of several billion won under the pretext of promoting the relocation of companies to other provinces.”

Few Payments Made-

Overall, there have been just a few cases of completed subsidy payments. There are only a few companies that wish to move to the countryside. The central government had allocated 30 billion won as subsidy for companies relocating in 2004. Only 44 percent, or 13.5 billion won, was paid out. In 2005, the entire 30 billion-won budget was spent. However, 26.6 billion won was given to four companies including LS Cable that had already moved to the countryside before the government project was initiated. This leaves just 3.3 billion won as subsidy that was rightfully paid.

During the first half of this year, just 832 million won out of a 23.8 billion won annual budget was spent and it was to a single company. Regardless of this, the central government put aside another 30 billion won as next year’s budget for this project.

The subsidies involved in this project are paid out under a “matching fund” principle – the provinces that receive the relocating companies pay whatever amount the central government pays and sometimes even more. A mistake by the central government could mean wasted provincial tax money as well as national tax money.

myzodan@donga.com