[Reporter’s View] Why the Government Supports Doosan Heavy Industries

Doosan Heavy Industries & Construction's gas turbine. (Photo by Doosan Heavy Industries & Construction)

[Asia Economy Reporter Moon Chaeseok] "It is unacceptable that KDB Industrial Bank and the Export-Import Bank are providing 1 trillion won in financial support unconditionally to Doosan Heavy Industries, which has neglected future investments due to its persistent insistence on coal power generation, effectively making the entire nation share the burden caused by the management failure of a specific company." "The Industrial Bank's bailout support for Doosan Heavy Industries is tantamount to binding the bank to a coal power business that is financially risky and without prospects."

Recently, domestic and international environmental organizations such as Greenpeace and Climate Solutions have voiced criticism over the national policy banks' emergency injection of 1 trillion won into Doosan Heavy Industries. They argue why public funds should be used to cover the management difficulties of an individual company. But is that really the case?

First, the energy industry views Doosan Heavy Industries' management difficulties not as the fault of an individual company but as a tragedy intertwined with government failures. The government's financial support is the first case of national policy banks supporting a large corporation due to the spread of the novel coronavirus infection (COVID-19). One of the reasons the government decided to prioritize support for Doosan Heavy Industries over other companies severely hit by COVID-19, such as airlines and oil refiners, was a significant concern that if Doosan Heavy Industries collapsed, the government would face severe criticism.

After the construction project of Shin Hanul Nuclear Power Plant Units 3 and 4, worth 8.26 trillion won, was halted following the government's '7th Basic Plan for Electricity Supply and Demand' established in 2015, Doosan Heavy Industries' new orders sharply declined. From about 9 trillion won in 2016 before the Moon Jae-in administration took office, it dropped to about 2.1 trillion won as of the third quarter of last year. Although there is no law mandating that companies harmed by government policy must be rescued with public funds, it is an undeniable fact that there is a strong voice demanding responsible government support.

In particular, Doosan Heavy Industries' management difficulties are not just an individual company's problem. The workload of Doosan Heavy Industries' partner companies has halved compared to 2016 before the Moon administration, putting them at risk of collapse. Since Doosan Heavy Industries accounts for 15.4% of production in Changwon, this inevitably leads to regional economic recession. There are about 3,000 partner companies, and the future of approximately 100,000 people employed directly or indirectly by these companies has also darkened. The government is additionally held responsible for policy failure, regional economic collapse, partner company bankruptcies, and employment difficulties.

Doosan Heavy Industries is also simultaneously pursuing management reform centered on 'coal phase-out,' as advocated by environmental groups. On the 30th, Choi Hyung-hee, Vice President and CEO of Doosan Heavy Industries, announced at the regular shareholders' meeting that they plan to increase the proportion of new business orders to about 50% by 2023. He emphasized actively promoting new businesses such as gas turbines, renewables, services, hydrogen, and 3D printing to achieve financial performance.

Environmental groups also have the freedom of expression to urge the government to accelerate the implementation of the nuclear phase-out (energy transition) policy. However, labeling the government's decision to support companies, partner firms, and regional economies struggling due to government policy as "helping companies that did not comply with the nuclear phase-out" seems like an overly shortsighted criticism.