Essential Institutions for Smart City Projects
The development of large-scale smart cities on vacant land is increasing globally. A prominent example is Neom City, which has garnered international attention. Other notable projects include Toyota Woven City in Japan, Indonesia’s new capital relocation, and Egypt’s new administrative capital.
Currently, I am involved in Korea’s national pilot smart city projects in Sejong and Busan. These are large-scale smart city developments based on public-private partnerships (PPP). Developing such cities requires participation and commitment from various stakeholders, including central and local governments, public institutions, financial institutions, construction companies, and private IT companies, and innovative startups. To ensure project progress and successfully coordinate the diverse interests of these stakeholders, three essential institutions must be established. This article outlines the three key institutions established for the Songdo Smart City project and their roles, providing a framework for the necessary institutions in large-scale smart city development.
NSIC is a real estate developer established specifically for the development of the Songdo Smart City. It was founded in 2002 as a special purpose company (SPC) through a joint venture between Gale International, a U.S. real estate developer, and POSCO E&C, a leading Korean construction company. Gale International holds 70.1% of the shares, while POSCO E&C holds 29.9%.
In South Korea, land developments are typically handled by the national government, local governments, or public institutions designated by the Minister of Land, Infrastructure, and Transport. Specialized land development institutions in South Korea include but are not limited to LH (Land and Housing Corporation), K-Water, and SH (Seoul Housing and Communities Corporation). Land development involves creating land parcels and building urban infrastructure such as roads, water and sewage systems, and utilities. These institutions fund land development projects by issuing government bonds and then sell the developed land to private companies to recoup the investment. In the case of Songdo Smart City, Incheon City developed the land through reclamation projects. The city then sold the land in the Songdo IBD (International Business District) area to the newly established NSIC. This sale was conditional on NSIC developing the area into a futuristic and global district, in line with Incheon’s vision.
By accepting Incheon City’s conditions, NSIC was able to purchase the land at a relatively lower price than the market rate. Through its investor Gale International, NSIC brought in renowned architectural firms like OMA and KPF to design a unique cityscape that is rarely seen in South Korea. This collaboration led to the creation of notable landmarks such as the 100-acre Central Park, POSCO Tower — the sixth tallest building in Korea — and the 550-meter-long Songdo Triple Street. Gale International led the creation of competitive and marketable spaces in collaboration with renowned architectural firms. POSCO E&C worked closely with NSIC, taking on the role of constructing buildings and amenities according to the design intentions.
In developing an attractive and marketable smart city, there are limitations to public institutions taking the lead. They often lack the expertise to understand real estate market trends and to design a distinctive or attractive city. Additionally, public institutions are subject to scrutiny from citizens and higher authorities, making quick responses difficult. Therefore, a private-sector-driven real estate development role is essential for smart city development. In Songdo, NSIC took on this role.
2. Incheon Smart City Cooperation
When designing smart city solutions for a new city, it’s essential to understand that these solutions fall into two categories. The first category includes smart city solutions aimed at social benefits and functioning as public goods. Examples include smart poles, surveillance CCTV, smart shelters, and citizen service apps. These services are designed to generate social benefits rather than profit and need to be developed and operated through investments by local governments and public institutions, funded by taxpayers.
The second category comprises profitable smart city service models, such as car-sharing or bike-sharing services, smart home services, and smart signage services. These can be developed with business purposes and operated through revenue models involving paid memberships, monthly subscription systems, or annual advertisement contracts with commercial firms.
Incheon Smart City Corporation specializes in developing and operating smart city solutions that fall into the first category. This includes, but is not limited to, one-time implementation and government-funded projects such as the development of integrated smart city platforms, the deployment of city-wide CCTV systems, and the installation and maintenance of smart poles. Additionally, Incheon Smart City Corporation is also responsible to manage and operate those built smart city solutions or facilities on behalf of Incheon City or the Incheon Free Economic Zone Authority.
Institutions like Incheon Smart City Corporation are crucial for smart cities, addressing the IT expertise gap in local governments. Staffed with IT specialists, they manage and enhance smart city solutions in Songdo and export similar technologies overseas. Operating as a private company allows for more flexibility, faster responses, and quicker adoption of new technologies.
However, public smart city facilities have unique needs, such as heightened security. The implementation and management of smart city solutions by Incheon Smart City Corporation are legally authorized. Only Incheon Smart City Corporation can initiate, build, and operate smart city infrastructure within Incheon, aside from local governments.
Initially, Songdo Smart City did not foresee the need for such an organization. Incheon Smart City Corporation was established in 2012 as a public-private partnership (Incheon City 28.57% and CENTIOS 51.43%) to implement Songdo’s smart city infrastructure. In 2015, Incheon City acquired CENTIOS’s shares, transforming the corporation into a public institution. This change granted it the authority to develop smart city solutions with the same qualifications as local governments.
- CENTIOS is a company jointly established by KT, a leading Korean telecommunications company, and CISCO.
If Incheon Smart City Corporation builds smart city solutions for citizens using financial resources from governments, u.Life Solutions falls into the second category. It focuses on developing and operating profitable smart city solutions specifically targeting residents and businesses. The costs for implementing these smart city solutions are not funded by taxes but are instead covered by construction expenses, which will be recovered through subsequent sales and leases.
The u.Life Solutions was established in 2011 as a joint venture between NSIC’s subsidiary, Songdo u.Life (holding a 70.1% stake), and Cisco (holding a 29.9% stake). To facilitate the development of the Songdo International Business District (IBD), NSIC designated Gale International for real estate development and sales, POSCO E&C for construction, and Songdo u.Life for ICT oversight and project deliveries. Songdo u.Life, founded in 2006, had partial investment from LG CNS, a prominent Korean IT company renowned for developing the T-money smart transportation card system. The company contracted to supply the home network systems for 17 apartment complexes in Songdo IBD and also provided facility management systems for the Jack Nicklaus Golf Club and Chadwick International School. Following Cisco’s involvement in the Songdo Smart City project, the role of Songdo u.Life was transferred to the new entity, u.Life Solutions.
Following Cisco’s investment and involvement in the Songdo Smart City project, the role of Songdo u.Life was transferred to the new entity, u.Life Solutions. u.Life Solutions continues to undertake information and communication technology (ICT) projects, including those for commercial buildings such as Songdo Convensia, the 64-story Northeast Asia Trade Tower(Posco Tower), and Songdo Canal Walk, all of which were constructed by POSCO E&C.
In large-scale smart city development projects, including those in Sejong and Busan that I am involved in, participants often face confusion at the outset. The complexity of the urban development process, the uncertainty of smart city technologies, and the blurred boundaries between public and private sectors present several challenges. The Songdo Smart City experienced similar issues. Through this process, entities like NSIC, which acts as the real estate developer, Incheon Smart City Corporation, responsible for building and managing smart city infrastructure and solutions supporting the public, and u.Life Solutions, which aims to provide profitable smart city services, were established. As I conclude this article, I hope that such governance structures are thoughtfully considered and designed in the early stages of current and future smart city development projects.
[This article was taken from the SparkCity newsletter post on LinkedIn.]
