The nation’s three state-run resource corporations – Korea National Oil Corporation (KNOC), Korea Gas Corporation (KOGAS) and Korea Resources Corporation (KORES) – have voluntarily disclosed the huge losses they incurred undertaking overseas resources development projects over the past decade.
Past inspections by the Board of Audit and Inspection and lawmakers have only partially exposed the three companies’ losses from overseas resources development projects under the Lee Myung-bak government.
But the three disclosed the whole truth on July 26. They said in unison, “We admit that our resource development projects have been poorly managed, causing huge losses. We deeply apologize for it.” The combined losses of the three corporations’ overseas resources development projects reached a whopping 15.9 trillion won (US$14.19 billion) as of the end of last year.
According to the reports submitted by the three corporations, they managed the projects badly, inflated the rate of returns on investment and didn’t properly review investment plans. The ethical standards of the officials at the three state-run corporations were terribly lax. The Ministry of Trade, Industry and Energy (MOTIE), which had to conduct supervision on them, sat on its hands on that matter. Eventually, trillions of won of precious taxpayer's money was lost under the pretext of resource development.
The results of the voluntary inspection were announced on July 26 in a joint briefing by the MOTIE and the three companies at the Government Complex Sejong. The government task force created to reform the nation's programs for overseas resources development recommended the three corporations to carry out severe restructuring.
The KNOC, KOGAS and KORES had invested 41.4 trillion won (US$36.95 billion) in 169 resources development projects in 51 countries by the end of 2017. They recovered only 14.5 trillion won (US$12.94 billion) from the investments. The three firms suffered losses of 15.9 trillion won (US$14.19 billion), while their total debts amounted to 51.5 trillion won (US$45.96 billion).
Major investment failures included the KNOC’s acquisition of Canada’s Harvest Energy, which resulted in US$2.47 billion (2.76 trillion won) of losses, the KOGAS investment in Canada’s West Cutbank gas field, which caused 170.9 billion won (US$152.52 million) in losses, and the KORES investment in Mexico’s Boleo copper mine, which incurred US$1.17 billion (1.31 trillion won) in losses.
The KNOC posted the largest losses at 9.7 trillion won (US$8.66 billion), followed by KORES at 3.8 trillion won (US$3.39 billion) and KOGAS at 2.4 trillion won (US$2.14 billion). KOGAS had the biggest debts at 29 trillion won (US$25.88 billion), followed by the KNOC at 17.1 trillion won (US$15.26 billion) and KORES at 5.4 trillion won (US$4.82 billion). Accordingly, the task force advised the three corporations to carry out a higher level of restructuring than now.
The task force recommended that the government pressure the corporations to carry out a thorough restructuring process before providing financial support. It also advised the government to link retention of the corporations’ executives, including presidents, to their performance in achieving the restructuring goals and restrict the provision of new loans and surety for subsidiaries. It also said the three corporations should sell existing resource development assets that are not lucrative and strategically less important.
The task force didn’t say what to sell but asked to sell the assets behind closed doors to prevent them from being sold at giveaway prices. In this regard, it advised them to transfer the assets to domestic private companies to minimize the outflow of national wealth. The government has decided to focus on pressing matters first. It will carry out a large-scale restructuring, sell off non-performing assets and reporting officials responsible for the losses to the prosecution.