Floating Island called a major white elephant

The Floating Islands, made of three separate but connected man-made islands, in Seocho District, southern Seoul. [NEWSIS]

The Floating Island, a private capital project and one of the first completed pieces of the Seoul Metropolitan Government’s Han River Renaissance Project, was totally mismanaged and the contract was written in favor of the corporation that has ownership of the so-called Seoul Floating Island, an audit conducted by the municipal government said yesterday.

At a press briefing at City Hall, the city government revealed the result of an audit conducted starting January. The audit was ordered by Seoul Mayor Park Won-soon when a revised contract that extended the ownership of the islands to Flossom, an urban development company based in Seoul, from 20 to 30 years was signed in late December.

Mayor Park has been strongly against the large-scale construction projects of former Mayor Oh Se-hoon, including the artificial island, but signed the contract in December, although he wasn’t fully informed of the contract details by his office.

The project is made of three separate but connected man-made islands that were to be used for cultural performances and concerts. The islands were supposed to become a cultural landmark for the capital, and were inaugurated in June 2011 with a Fendi fashion show.

The majority of the Floating Island project was funded by private investors, and the project was carried out by Flossom. But SH Corporation, a firm owned by the government and financed by taxpayers, owns 29 percent of the company’s share. The rest of the funding for the project is shared by Hyosung Group, a large conglomerate, and Chinhung Corporation, an urban development corporation and a Hyosung affiliate.

The original contract guaranteed Flossom ownership of the Floating Island for 20 years in return for investing 66.2 billion won ($57.46 million). Ownership was supposed to go to the city government afterward. However, total investment in the project almost doubled to 139 billion won and the ownership was extended by 10 years. Under the contract, the city government is supposed to pay back the invested money to Flossom if the project is canceled or the corporation goes bankrupt.

The city government suspects that Flossom was exaggerating investment and management expenses.

The audit said that the revised contract was invalid because it wasn’t approved by the Seoul Metropolitan Council before it was signed by the city government and Flossom.

The city government said it will punish 15 officials involved in the revised contract and also will adjust the agreements.

“The Floating Island will be run as planned, but we concluded that the contract must be canceled and re-established,” said Kim Sang-beom, a senior deputy mayor of the Seoul Metropolitan Government during the press briefing. “The Floating Island will be remembered by Seoul citizens as the worst private capital inducement ever in the city’s history and we sincerely apologize to our citizens for its poor management.”

By Kwon Sang-soo [sakwon80@joongang.co.kr]