2 June 2018

Ethiopia: Despite Hurdles Keangnam Hopes for Reentry

Keangnam Enterprise Limited, a Korean construction company that pulled out of the country after bankruptcy and landing in debt for 339 million Br of taxes and customs duties, has requested the government of Ethiopia to be reinstated despite its past ordeals.

The company ceased operations in Ethiopia three years ago after it entered into bankruptcy following the financial crises that emerged after the death of its board chairman, Sung Woan-Jong. Its assets, properties, bank accounts and headquarters in Ethiopia were seized and put under injunctions by the Ethiopian Revenues & Customs Authority (ERCA) for unpaid taxes and customs duties. It was also blacklisted by the Ethiopian Roads Authority (ERA) after reports of its financial crises emerged.

On May 22, 2018, the country director of the company, Lee Joon, submitted a letter to the Ministry of Finance & Economic Cooperation (MoFEC) for a retrieval of 75.6 million Br of interests it owed in corporate taxes. Keangnam also requested to pay upfront 91 million Br of customs duties it owes and to settle the remaining balance in five-years instalment payments. It is also asking to have the current injunction orders to be lifted on its properties.

Since its entrance into the country in 1997, the company has constructed a total of 1,600Km of asphalt road. It is one of the pioneers foreign construction companies in Ethiopia along with the European joint venture firm of Dragados-J&P and the Tokyo based Kajima Corporation. Its first project was upgrading the Addis Abeba Bole International Airport runway. Keangnam has completed 12 road projects including Modjo-Awash-Gewane; Azezo-Genete-Metema; Hirna-Kulubi; Hossana-Sodo and Jimma-Bonga-Mizan.

The company suspended its operations in Ethiopia following the financial crises it experienced in 2011 after the death of its chairman who committed suicide after being investigated for alleged grand corruption crimes. Soon, the company started selling or transferring its heavy construction machinery and vehicles in Ethiopia. Keangnam had imported 1,300 construction equipment and machinery with temporary customs guarantee bonds issued in 2007. The company settled for 285 million Br with ERCA as part of customs duties for 875 equipment and machinery it sold or transferred to third parties, thus incurring the import duty taxes. Keangnam did not settle or pay customs duty for the remaining 435 equipment and machinery.

Meanwhile, ERCA's Kality branch requested that the company pay an additional 263 million Br duty for the equipment and machinery it still holds. To add to the company's woes, ERCA's other division, Large Taxpayers Office (LTO) put in a demand for 75.67 million Br corporate interest payment that remained unpaid for five years between 2012 and 2016. The total corporate tax imposed on the company was 290 million Br in addition to interests and fines. Except for the 75.67 million Br interest payments, Keangnam has settled all taxes it owed ERCA two months ago.

Before its bankruptcy and before it seized operations in the country, Keangnam was awarded a contract for the Meki-Ziway Expressway financed by Korea's EXIM Bank. The bank provided 228 million dollars in loans for the project with a 40-year term and 15-year grace period. Informed by the Korean bank of Keangnam's bankruptcy, ERA revoked the contract award.

"The financier informed ERA that it does not have confidence in the company," said a senior official at ERA. "after receiving this information, the company was blacklisted."

Recently, the company has announced it is reorganising and emerging out of bankruptcy. The announcement reports that Keangnam has changed its name to S.A. Keangnam and that it is merging with another giant company which has 68 subsidiaries and an annual revenue of 10 billion dollars.

Established in 1951 and headquarters in South Korea, Keangnam has been engaged in the construction business worldwide including in South Korea, the Middle East, Southeast Asia and Africa. It has constructed housing developments, and civil works projects including railways, subways, highways, expressways and site development projects.

"There is no law which will enable the company to pay corporate taxes or duties it owes the government in instalments," said a source from the ERCA. "The company has no active projects or a renewed guarantee bond. It has to pay the due amounts up front," emphasised the source.

Yohannes Woldegebriel, an expert with broad experience in tax laws, affirms that customs duties on temporary import cannot be settled with instalments and that payments have to be made up front. However, he argues, instalment payments may work if the equipment and machinery first entered the country without settling customs duties at the clearance point; and if subsequent transfers to third parties occurred without any duty-free privileges.

"As the machines have been used in actual operations, ERCA can accept the request of instalment payments to resolve the issue harmoniously," Yohannes told Fortune.

ERCA's Kality Branch is still working out the account to calculate the total amount due from the company. So far, 171 million Br of the total 263 million Br assessed against the company still remains unsettled, and a balance of 91 million Br is considered a delinquent amount. It is also reported that ERCA has seized 13 million Br from the bank accounts of the company.

Though officials from the MoFEC refrained from giving any comment on the issue stating that their mandate requires them to keep confidentiality of companies' information, sources disclosed to Fortunethat the case is still pending at the Ministry.

Fortune's repeated attempt to reach the management of S.A Keangnam through phone call has borne no fruits.

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