Truth Game
Korea National Oil Corporation (KNOC) denied the recent report released by the Chosun Ilbo, one of the major newspapers in South Korea, that the company would lose 43 billion won (US$37.21 million) of taxes in arrears that it paid on behalf of Offshore International Group, Inc, (OIG), the U.S.-based investor and seller of the Peru’s state-run oil company Savia Peru S.A., when the KNOC and Colombia’s national oil company Ecopetrol acquired Savia Peru in 2009 with each owning 50% of the stake.
The KNOC immediately issued the press release on May 3 that the arbitration bureau of the United States ordered OIG to pay back the value-added tax (VAT) to the KNOC and Ecopetrol via an escrow account three times on April 16 and December 1 in 2013 and De
cember 10 in 2015, and there is no problem to secure the money through the withdrawal from the escrow account. It also said that the balance of the escrow account stands at US$102 million (117.86 billion won) as of May 2016. Out of US$102 million (117.86 billion won), the KNOC owns 57.8 billion won (US$50.02 million). Also, the company has 26.6 billion won (US$23.02 million) out of the total account receivable of US$47 million (54.31 billion won). Persuading Ecopetrol, the KNOC will collect the remaining VAT receivable, according to the company.
However, the KNOC admitted the Chosun Ilbo’s report that the company has no right to sell oil even when it took over Savia Peru. The company said that the contract signed with the Peruvian government was a service contract - not a licensing contract. Since oil producing countries put the domestic consumption first, it is just for securing the priority rights to purchase. However, they don’t limit the sales right to contractors, said the KNOC.
The Business Korea asked the KNOC about lingering doubts. Here are answers from the KNOC.
Q: You said the contract signed by the KNOC and the Peruvian government is a service contract. What do you mean exactly about the service contract?
A: This is a subcontract under which the Peruvian government pays a block operation fee to the KNOC for the oil that it produces. It is a common type of contracts signed with oil producing countries.
Q: You said that there is no problem to get back the VAT receivable through the withdrawal from the escrow account. Then, why haven’t you recollect it in the past five years?
A: In order to withdraw money from an escrow account, both companies which have sold and bought need to send a withdrawal order to a bank at the same time. The KNOC and Ecopetrol, which took over the Savia Peru, filed the petition in the U.S. court to confirm an interim arbitration against the OIG after paying the VAT, and the court provisionally ordered OIG to make payment on April 16, 2013, and to finalize the decision on December 10, 2015. At the same time, our joint shareholder, Ecopetrol, filed a contempt motion against OIG in May 2015 and the KNOC waited for the ruling. Since the first trial recently ended, the KNOC will persuade Ecopetrol to withdraw the VAT receivable through the escrow account.
Q: What are the gains of the KNOC after the takeover of Savia Peru in 2009 and how does it affected Korea’s resource economy?
A: During the acquisition in 2009 and December 2015, the KNOC posted US$200 million (231.11 billion won) in operating profits. However, the money has been reinvested so the KNOC hasn’t collected it through dividends. By securing productive assets in South America and improving the ability to operate blocks, the company has established a bridgehead to push into the South American markets, and secured 75 percent of exploration maritime blocks in Peru. Accordingly, there is a great growth potential in the future.