Gyeongnam Province vs. Machang Bridge, '3.4 Billion KRW Financial Support' International Legal Battle

The difference of opinion between Gyeongnam Province and the operator regarding financial support funds for the Machang Bridge has escalated into an international lawsuit.

Gyeongnam Province announced a strong response after the Machang Bridge operator, a private investment road, filed an international arbitration lawsuit claiming it did not receive billions of won in financial support funds from Gyeongnam Province.

Machang Bridge, officially opened on July 1, 2008, is a 1.7 km-long sea bridge connecting Gapo-dong, Masanhappo-gu, Changwon City, and Gwisan-dong, Seongsan-gu.

The major shareholder of Machang Bridge, Macquarie Korea Infrastructure Investment Company (MKIF), has invested 33.8 billion won for a 70% stake and 79 billion won in subordinated loans for 50%, and has held the management and operation rights for 30 years from 2008 to 2038.

Kim Young-sam, Director of Transportation and Construction Bureau of Gyeongnam Province, is announcing the response direction related to the international arbitration filing of the Machang Bridge.
[Photo by Lee Se-ryeong]

On September 28, Machang Bridge filed an international arbitration request with the International Chamber of Commerce (ICC), claiming that 3.4 billion won out of the 4.2 billion won in financial support funds requested from Gyeongnam Province had not been paid.

According to Gyeongnam Province and Machang Bridge, the competent authority, Gyeongnam Province, and the project implementation corporation, Machang Bridge, signed a modification implementation agreement on January 26, 2017, changing from a Minimum Revenue Guarantee (MRG) method to a revenue-sharing method.

Under the MRG method, the local government compensated for the revenue shortfall when the estimated daily traffic volume was not met, allowing Machang Bridge to receive all toll revenue while bearing all operating costs.

After the modification agreement, the method changed to dividing the amount calculated by multiplying the standard toll based on the current price by the actual traffic volume, with Machang Bridge receiving 68.44% and Gyeongnam Province 31.56%.

Instead, Gyeongnam Province agreed to bear the senior loan and corporate tax, while Machang Bridge would cover the remaining operating costs.

Machang Bridge claimed, “We received the financial support funds calculated according to the 2017 modification agreement, but Gyeongnam Province notified us in January this year that it would apply a different, self-determined financial support calculation standard.”

“Since then, Gyeongnam Province has paid only 800 million won out of the 4.2 billion won requested this year, excluding 3.4 billion won,” they said. “Despite sending several official letters and making protest visits to explain our position, no agreement was reached, so we applied for arbitration as stipulated in the dispute resolution method at the time of the modification implementation agreement.”

Machang Bridge. [Photo by Gyeongnam Provincial Government]

On the 23rd, Gyeongnam Province held a briefing at the provincial government press center, rebutting, “The financial support calculation standard newly established by the 2017 modification agreement has been applied since this year.”

Kim Young-sam, Director of the Transportation and Construction Bureau, said, “Although the calculation standard changed at the time of the modification agreement, a full investigation found that the newly established standard had not been applied until now,” adding, “We corrected the parts that were applied differently from the agreement.”

He continued, “Since August last year, we conducted a full investigation into the appropriateness of the Machang Bridge financial support funds and confirmed that excessive financial support had been paid over the past seven years,” and explained, “We tried to resolve this amicably through negotiations since last year, but as differences could not be narrowed, we withheld 3.4 billion won from the financial support funds to be paid from January this year to the present.”

Gyeongnam Province announced plans to respond to arbitration focusing on key issues such as ▲additional toll revenue ▲consumer price index applied to determine the standard toll ▲criteria for dividing toll revenue.

Director Kim said, “We will appoint legal representatives and submit a response to the International Chamber of Commerce,” adding, “We will actively respond to the international arbitration and do our best to prevent any further unjust financial support payments.”

The International Chamber of Commerce will form an arbitration panel after receiving the response from the respondent, Gyeongnam Province, and proceed with arbitration hearings and rulings.

This content was produced with the assistance of AI translation services.