Roundup: S.Korean firms struggle to cover losses from inter-Korean park shutdown

South Korean companies facing actual bankruptcy after an abrupt shutdown of the once-jointly-run factory park with the Democratic People's Republic of Korea (DPRK) are struggling to cover potential losses estimated at hundreds of millions of U.S. dollars.

As part of its own retaliatory actions to the DPRK's rocket launch and nuclear test, Seoul decided to stop operations at the Kaesong Industrial Zone on Feb. 10, three days after Pyongyang's launch of a long-range rocket which outsiders see as a banned test of ballistic missile technology.

The rocket launch came amid ongoing discussions at the UN Security Council about tougher new sanctions toward the DPRK over what it claimed was its first H-bomb test on Jan. 6, the fourth of Pyongyang's nuclear detonations.

The DPRK responded on Feb. 11 by closing down the last inter-Korean economic cooperation project at the DPRK's border city of Kaesong, freezing all of South Korean assets and deporting South Korean workers. The border city has been put under military control by the DPRK since then.

The emergency committee to represent 123 South Korean companies having run factories in the Kaesong factory park on Wednesday announced its estimate for losses from the closure at 815.2 billion won (660 million U.S. dollars). It included 568.8 billion won of losses from fixed assets like factories and machinery left there and losses worth 246.4 billion won from liquid assets such as manufactured products and materials.

Actual losses are predicted to far exceed the estimate as the figure excluded the expected operating losses from the stop of businesses and the expected damages claim lawsuit from client companies. Loss of credibility from clients for failure to meet the delivery deadline was not reflected in the estimate.

South Korean firms having operated factories in Kaesong are mostly small- and mid-sized ones, producing socks, clothing, machinery and electronics parts. Many of them have a production base only in Kaesong, so the shutdown of the factory park may result in a wave of bankruptcies.

South Korean companies forced into the business closedown would take several months to receive compensations. It may take several years to find factory sites in the much more expensive South Korean soil and employ skilled South Korean workers demanding much higher wages.

The industrial park, which first manufactured products in late 2014, combined the DPRK's cheap labor and skilled workers with South Korea's capital and technology.

The South Korean government only promised to compensate for as much as 90 percent of losses from fixed assets. It means that the very victims of South Korean companies should bear responsibility for additional losses from the shutdown, determined by Seoul and confirmed by Pyongyang.

Later on Wednesday, Seoul's unification ministry in charge of inter-Korean affairs said in a statement that the government will rapidly make up for 90 percent of losses from fixed assets under the ceiling of 7 billion won per company.

The ministry said it was considering extra compensations for additional losses from the closure, but it noted that the estimated losses of 815.2 billion won seemed to be exaggerated as there were no confirmed documents and asset valuations.

The shutdown did huge damages to about 54,000 DPRK workers, who had worked in Kaesong for South Korean companies, and their family members believed to total 200,000 or so. It was tantamount to breaking the humanitarian principle, which South Korean President Park Geun-hye has emphasized, said Park Chang-Il, co-representative of civil peace forum, on Tuesday.

"About 54,000 North Korean (DPRK) workers lost their jobs all of a sudden. Including their family members, some 200,000 North Koreans were damaged by the Kaesong closure," said the civic group activist.

He said that DPRK workers and their families became the biggest victims of the shutdown in contrast to Seoul's claim that it was aimed at barring hard currency from flowing into the DPRK leadership in charge of developing nuclear and missile programs.

Right after the shutdown decision, Seoul stopped providing electricity to the Kaesong industrial zone, resulting in the cutoff of tap water supply powered by electricity. Seoul's decision, which caused the loss of tens of thousands of jobs and the shutoff of water supply for hundreds of thousands of people in the DPRK border city, was clearly against humanitarian principle, said the activist.

"The Kaesong industrial zone's shutdown escalated tensions on the Korean peninsula seriously. It is expected to raise the inter-Korean confrontational mood to the highest level," said Lee Seung-whan, co-representative of civil peace forum. Enditem