Escape from Swamp
As a Nigerian oil exploration and development project, which has been jointly led by Korea Electric Power Corporation (KEPCO) and Korea National Oil Corporation (KNOC), has been stalled for seven years due to a lawsuit, the KEPCO has decided to pull out of the project. The state-run power company liquidated a local subsidiary in Nigeria for the project.
According to KEPCO on May 22, the board members of the KEPCO closed down Dolphin Property Limited, its Nigerian affiliate established to manage the oil exploration and development project in the Gulf of Guinea, the southwestern region in Nigeria.
The offshore block exploration project in Nigeria, which was participated in by a Korean consortium consisted of KEPCO, KNOC and Daewoo Shipbuilding & Marine Engineering (DSME) in 2005, has been stalled for seven years from 2009. Accordingly, it is unclear that the consortium will be able to retrieve the investments. In particular, the lawsuit against the Nigerian government, which insists on the confiscation of the project if there are flaws in the contract, is currently pending and the project is still dragging down. The KEPCO has decided to liquidate the local subsidiary because it believes that the project will continue to be stalled, according to industry sources. Therefore, the future of KEPCO’s another project in Nigeria to build a 2,250 MW power plant is also uncertain.
The KEPCO is said that it will keep carrying forward the power plant construction project unlike the oil exploration and development project.
As the KEPCO has practically pulled out of the project, businesses are paying attention to the future prospect of the project. In 2005, the deep water blocks, OPL 323 and OPL 321, in the Gulf of Guinea in Nigeria was estimated to reserve 1 billion barrels of oil each at that time, and the Korean consortium consisted of the KEPCO, KNOC and DSME won the blocks with a 60 percent stake. Out of 60 percent, the KNOC owns 40 percent, while the KEPCO and DSME possess around 10 percent each.
However, the Nigerian government nullified the contract with the Korean consortium in 2009 before the exploration in earnest, citing there are serious flaws in the contract. Then, it transferred the exploration rights to India’s state-owned Oil and Natural Gas Corporation Limited (ONGC). Accordingly, the Korean consortium filed a lawsuit against the Nigerian government in the Nigerian Federal High Court for reversing its decision to cancel the contract, and won the case in August 2009.
The Nigerian government appeal against the court decision. Currently, the case is still going through the appellate court. Thus, it is hard to tell the Korean companies can retrieve the investments.