[2020 National Audit] Poor Overseas Resource Development of Three State-Owned Resource Companies Under Scrutiny

Korea National Oil Corporation, Korea Gas Corporation, Korea Resources Corporation... "Rapid Increase in Debt Ratio, Flexible Asset Disposal"

Korea National Oil Corporation

[Asia Economy Reporter Moon Chaeseok] The issue of poor performance in overseas resource development by three state-owned resource enterprises?Korea National Oil Corporation, Korea Gas Corporation, and Korea Mineral Resources Corporation?was brought up at the National Assembly’s Industry, Trade, Energy, Small and Medium Enterprises Committee’s audit on the 20th.

Democratic Party lawmaker Shin Jeong-hoon pointed out that, based on an analysis of Korea National Oil Corporation’s data, the debt ratio soared from 73.3% in 2008 to 3415.5% in 2019 due to the failure of overseas resource development projects under the Lee Myung-bak administration, with interest expenses during this period reaching 4.3429 trillion KRW.

During the same period, the Oil Corporation pursued a total of 28 overseas oil development projects. The cumulative investment amounted to 15.4593 billion USD, but only 3.998 billion USD was recovered, resulting in a recovery rate of just 25.9% relative to the investment. Among the 28 projects, 16 had no recovery at all. The Oil Corporation is currently pushing for the sale of non-core assets.

Lawmaker Shin emphasized, "As low oil prices persist, the market value of assets targeted for sale has significantly declined," and urged, "Sell non-core assets flexibly considering market conditions."

Regarding the Mineral Resources Corporation, which is in a state of capital erosion, Shin pointed out that as of June this year, its debt reached a staggering 6.6517 trillion KRW, and the total interest expenses paid from 2008 to this year amounted to 1.0535 trillion KRW.

He added, "It is absolutely impossible to normalize management through self-help efforts alone," and proposed, "First, firmly establish government support measures for restructuring and remaining debt."

Democratic Party lawmaker Lee Jang-seop demanded the suspension of the sale process of the world’s largest copper mine, Cobre Panama, which the Mineral Resources Corporation is currently pursuing.

Lee stated, "Considering production since operations resumed at Cobre Panama, dividends of approximately 3.8 trillion KRW are expected through 2054."

The Mineral Resources Corporation participated in the Cobre Panama project in 2009 and has invested about 852.1 billion KRW to date. Construction began in 2012, and full-scale copper concentrate production started in 2019, with dividend payments to shareholders beginning this year from sales proceeds.

Lee emphasized, "Minerals need to be approached from a different perspective than fossil fuels," adding, "The importance of minerals is increasing in the production of key products such as secondary batteries and electric vehicles, so the direction of mineral resource policy must be reexamined."

People Power Party lawmaker Lee Joo-hwan raised concerns about Korea Gas Corporation’s overseas resource development. According to Lee, the Gas Corporation is currently pursuing 25 overseas resource development projects in 13 countries.

As of the end of last month, the Gas Corporation’s total investment amounted to 16.9 billion USD (19.3 trillion KRW), but only 4 billion USD has been recovered (a recovery rate of 23.7%). The accumulated losses amount to approximately 4.2 billion USD.

Among the Gas Corporation’s overseas investment projects, six projects have investment gains and losses reflected in city gas costs. Lee pointed out, "Recently, due to low dividend returns relative to investment costs in these projects, city gas prices have risen and the burden has been passed on to consumers."

A total of 406.8 billion KRW has been reflected in fees: 98.4 billion KRW in 2016, 68.3 billion KRW in 2017, 75.5 billion KRW in 2018, 89.1 billion KRW in 2019, and 75.5 billion KRW this year.