Will Hyundai corruption affair delay construction of multi-million car plant in Moravia?

28-04-2006

Czech politicians and thousands of unemployed in North Moravia, in the east of the Czech Republic, are watching with concern as a large corruption case, involving the Hyundai car maker, unfolds. The president of the South Korean car giant, which was scheduled to launch construction of a new plant in the Moravian town Nosovice on May 17, is under investigation for corruption and embezzlement. Mr Chung Mong-Hun is suspected of siphoning money from the car maker into secret bank accounts to bribe Korean politicians and officials while negotiating mergers and acquisitions of local firms in Korea. Just last autumn, he personally visited and chose the site in Moravia.

Chung Mong-Hun, photo: CTKChung Mong-Hun, photo: CTK With Hyundai's recent announcement that the investigation is starting to affect its sales in Europe and the United States, will it jeopardise the project in Moravia? The investment of almost two billion US dollars, is one of the biggest in the Czech Republic's history. Dita Asiedu discussed the Hyundai case with Lyle Frink, a writer for Automotive News Europe:

"The Koreans have just initialled a memorandum of investments with the Czech authorities but no deal has actually been signed. So, right now the Czech authorities are a bit nervous that they could be left holding the bag for buying the Nosovice industrial zone. The Czech government has committed itself heavily to buy the land but they don't have anything guaranteed or anything in writing from the Koreans. So, of course they are nervous."

Do you think that construction could be delayed?

"The Nosovice factory fits hand in hand with the Korean's European expansion plan. They are building two factories about 150 km apart and this way the two factories can share the same supplier base and the factories are close enough that management can shift back and forth between the two. This is the same strategy that they are using in the United States and so this [project] will go ahead, just the actual timing might be delayed."

How would delayed construction affect the Czech Republic?

"Right now the Czechs are just waiting. They are not going to do anything more until they've got something signed on paper with the Koreans. What's interesting is that this is a question of top executive behaviour and not about the company fundamentals. So, what I would expect is some change in top executives but I believe that their strategy will remain the same for Hyundai and Kia and for them stepping into the European market. That doesn't affect how the cars are made, it's not loan fraud, customs, evasion, things that were earlier an issue with Korea's Daewoo Motors."

Czech Trade and Industry Minister Milan Urban has been promising the plant would bring up to ten thousand new jobs in the strongly unemployed part of Moravia. Is there anything that the government can do to avoid a delay or worse a complete withdrawal of the project?

"The road between the two plants is not very good so one of the investments that the Koreans want the Czechs to do is to improve this road. This means to make it wider, perhaps separate lanes, and to do this improvement requires an environmental impact report. But I imagine that the Koreans are now thinking about 'okay, what happens if the actual contract signature is delayed by three months, how can we still get the factory up and running within two years from now and not two years from when the contract is signed?' This delay on the Korean side means that there is more pressure put on the Czech government to finish the environmental impact report more quickly."

28-04-2006