[The Era of Mineral Hegemony] Overseas Resource Development Funding Dries Up... Loan Budget Cut to One-Tenth in 12 Years

2010: 309.3 Billion → 2021: 34.9 Billion KRW
Applications Decreased After 2017 Due to Stricter Standards
Yoon Administration Expanded Resource Development and Increased Budget Support
Experts Say "Application Procedures Should Be Simplified and Requirements Relaxed"

[Asia Economy Reporter Kwon Hyun-ji] Government budgets for lending funds to companies to promote resource development such as minerals, gas, and oil overseas have shrunk to one-tenth of their size over the past 12 years. As securing resources directly links to national competitiveness, concerns are rising that the government's commitment to resource development has become excessively negligent. Although the Yoon Seok-yeol administration has shown a stronger willingness to expand support, a meticulous approach, such as easing loan conditions, is necessary to attract the interest of resource development companies.

According to data on the '2010-2021 Overseas Resource Development Special Loan Project Budget Execution Details' received by Rep. Noh Yong-ho of the People Power Party, a member of the National Assembly's Industry, Trade, Resources, Small and Medium Enterprises Committee, from the Ministry of Trade, Industry and Energy, the related budget was 309.3 billion KRW in 2010 during the Lee Myung-bak administration but decreased to 34.9 billion KRW last year, the final year of the Moon Jae-in administration. Compared to 426 billion KRW in 2008, the first year of the Lee Myung-bak administration, it is about one-twelfth (a 92% decrease). The Lee Myung-bak administration encouraged resource development, with related budgets totaling 1.5836 trillion KRW over its five years in power. Subsequently, the budget decreased to 474.4 billion KRW during the Park Geun-hye administration and further declined to 278.5 billion KRW during the Moon Jae-in administration.

The Overseas Resource Development Special Loan Project lends funds for overseas resource development such as oil and minerals, supporting up to 30% of the total development project cost. The interest rate is about 2% as of the third quarter of this year. In the past, the project operated under a 'success-based loan' system, where if the project succeeded, the principal and interest plus a portion of net profits were collected as a special charge, and if the project failed, the loan was 100% waived. However, since 2017, the waiver rate upon failure has been reduced to 70%.

The sharp reduction in government budget support largely reflects a waning commitment to overseas resource development. After 2008, many public enterprises such as the Korea Mine Reclamation Corporation (now Korea Mine Reclamation and Mining Corporation), Korea National Oil Corporation, and Korea Gas Corporation, as well as private companies, actively engaged in the sector. However, under the Park Geun-hye and Moon Jae-in administrations, 'resource diplomacy' was stigmatized as a corrupt practice. Additionally, poor project performance and low loan recovery rates worsened public opinion on overseas resource development. In 2016, the special loan project was even temporarily suspended. Although it resumed in 2017 after institutional reforms, loan criteria were tightened, and application procedures became more complicated, representing a significant regression. Consequently, company applications declined.

Since the 2017 reform, the actual execution rate of the budget has dropped sharply: 33.7% in 2017, 71.5% in 2018, and 22.9% in 2019. For example, if a budget of 100 billion KRW was allocated, the actual amount used in 2018 was at most 71.5 billion KRW.

Recently, with raw material prices soaring and global supply shortages intensifying, the importance of overseas resource development has been reemphasized, and the Yoon Seok-yeol administration has expressed its intention to expand overseas resource development. This year, a budget of 63.1 billion KRW was allocated, and next year, it plans to increase it nearly threefold to 175.4 billion KRW.

However, the industry remains skeptical. Negative perceptions of overseas resource development have not been fully resolved, and the stringent loan conditions remain unchanged. Mr. Oh Seok-min (50), who has been developing a metal mine project in Mongolia for 14 years, lamented, "The loan amounts are small, and the interest rates are not particularly attractive. There are many bothersome requirements like audits, so from a company's perspective, there is little incentive to apply."

Professor Kang Cheon-gu, an invited professor in the Department of Energy Resources Engineering at Inha University, said, "It is encouraging that the budget has increased, but it is important to create conditions that allow the system to be utilized." He explained, "The management entities divided among the Ministry of Trade, Industry and Energy, the Korea Energy Agency, and the Overseas Resource Development Association should be unified to simplify the application process, and measures such as preferential treatment for collateral and interest rates should be prioritized."

There are also calls for consistency in resource development policies, which have fluctuated with each administration. Rep. Noh Yong-ho emphasized, "As seen in the Russia-Ukraine war case, a national-level strategy to secure a stable supply chain of raw materials is necessary even in unpredictable emergency situations." He stressed, "Policies on resource development, energy, and science and technology should be pursued consistently from a long-term perspective, prioritizing national interests."