Updated January. 08, 2014 05:33
As the Korean government pushes state-owned energy corporations to reduce their debts, projects for the development of natural resources in foreign countries are expected to go under restructuring. After President Park Geun-hye emphasized reforms of state-owned organizations at the press conference on Monday, Trade, Industry and Energy Minister Yun Sang-jik announced that he would have a meeting with heads of Korea National Oil Corp. and Korea National Gas Corp. on Thursday and Friday respectively to inspect their plans for business normalization. He threatened that leaders of public organizations whose willing for debt reduction is not strong enough would have to risk resignations. The resource development projects in foreign countries that kicked off during the Lee Myung-bak administration are on top of the restructuring list.
The development of overseas natural resources was a key business of the previous administration. Lee Sang-deuk, the elder brother of former President Lee Myung-bak, was appointed a special envoy for resources development, and then-Vice Minister Park Yeong-jun of Knowledge and Economy who was nicknamed king vice minister due to his close relationship with the then-president. The previous administration invested a total of 43 trillion won (40 billion U.S. dollars) including the investments through state-owned corporations in overseas resource development during its term. This amount is twice as much as the budget for the four rivers restoration project (22 trillion won or 20.5 billion dollars), the largest social overhead project of the Lee administration. Despite some achievements, most of the projects are in the red or have been suspended. The development of lithium mine in Bolivia pushed forward by Lee Sang-deuk has been halted. And the Cameroonian diamond project led by Park Yeong-jun has been tainted by speculations about stock price manipulation.
These resource development projects have been criticized that they were handled with more haste than caution because the then-administration focused too much on tangible achievement. State-owned energy corporations carried out M&A deals with large foreign firms, but with the lack of organized strategies, the deals only weakened their business fundamentals. At the latest parliamentary inspection, it was found that Korea National Oil Corp. acquired Harvest Energy Trust, a Canadian oil company that was traded only for one U.S. dollar, at one trillion won (93.59 million dollars). The debt ratio of KNOC rose to 168 percent from 73 percent in five years, and that of Korea Mineral Resources Corp. was doubled from 85 percent to 177 percent. Moral hazard and reckless management in state-run companies are prevalent along with careless overseas investments.
However, it is not desirable to negate all projects inherited from the previous administration. Developing natural resources in foreign countries cannot yield tangible results in a one- or two-year timeframe. In addition, not all investments can succeed. If the new administration sells mines and oil fields bought just a few years ago before they make any profits, the loss would have to be borne by the Korean people. Koreas dependence on imported energy stands at 97 percent. Korea scare in natural resources has to import most of natural resources needed from overseas. In some way, the resource development projects during the Lee Myung-bak administration helped people recognize the importance of energy security and securing national resources outside Korea.
As the global economy grows and China is rapidly industrialized, competition over national resources is getting fiercer. The government should take a prudent manner when not just making but also halting the investments in the development of foreign natural resources. Debt reduction is important, but this should not lead to selling valuable assets bought for a high price at a loss.