KAMCO’s contract practice brews controversy of underselling state assets

South Korea’s debt clearing house Korea Asset Management Corp. (KAMCO) has been accused of underselling nationalized or forfeited assets by relying mostly on closed arrangements instead of open competitive auctions for divestitures.

The share of open bidding transactions continued to decline to 5 percent in KAMCO-mediated state asset sales over the past five years, while the share of negotiated arrangements steadily rose to over 90 percent, according to KDI (Korea Development Institute) data submitted to the Office of Rep. Shim Jae-cheol, a lawmaker from the conservative opposition Liberty Korea Party.

The problem is that KAMCO is selling the assets at a bargain price compared to the private sector as the transactions of state-owned assets remain unknown to the outside beyond only a few individuals involved in the contract.

KDI’s regression analysis of land transaction data from the Korea Public Finance Information Service and the Ministry of Land, Infrastructure and Transport found KAMCO has sold state property about 30 percent cheaper than the private sector did.

The government has secured fiscal income by selling state-owned land which remains inoperative and KAMCO has been commissioned to sell it since 2013. Under the National Property Act, state-owned property should in principle be sold through open competitive bidding. Exceptions like negotiated arrangements are applicable but open bidding should be considered first. Among the KAMCO deals, the number of transactions in compliance with this principle was only one out of 20 in the five-year period.

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