A joint venture between the SK Group and a Japanese company finally came to fruition after three years of negotiations. It is the first case in which companies have become beneficiaries of the Foreign Investment Promotion Act (FIPA), which was enacted by the National Assembly last year, after many twists and turns.
The Ministry of Trade, Industry and Energy (MOTIE) announced that it approved SK Global Chemical’s ownership stake in Ulsan Aromatics in its first foreign investment committee meeting on April 24. Ulsan Aromatics is a chemical plant making paraxylene (p-xylene), which was founded with investment from SK Global Chemical — SK’s affiliate — and the JX Nippon Oil & Energy. The Korean company holds a 55.9 percent stake in the joint venture, and the Japanese firm 44.1 percent.
The investment partnership started in 2011, but almost foundered owing to the Monopoly Regulation and Fair Trade Act. The law stipulates that when a holding company’s sub-subsidiary creates a great grandson subsidiary, the sub-subsidiary is required to own a 100 percent stake in the great grandson subsidiary. The provision is aimed at preventing conglomerates from making cross investments. Petrochemical companies, on the other hand, have maintained that a joint venture between local and foreign firms is necessary for a several-trillion-won project.
In May 2013, the government accepted the industry’s suggestion, introduced a measure to revitalize investment for the first time, and tried to amend the FIPA. Finally, the revised bill was narrowly passed by the National Assembly at a plenary session at the end of 2013.
The petrochemical industry anticipates that similar types of business partnerships will continue. Currently, GS Caltex is working to enlarge an annual 1 million ton p-xylene plant by investing about 1 trillion won (US$960 million) in the facility in Yeosu, South Jeolla Province, along with Japanese firms Showa Shell and Taiyo Oil. In the past, the joint project did not go smoothly because of FIPA, but it has reportedly been gaining momentum after the revised law was put into effect. SK Lubricants, which is another sub-subsidiary of the SK Group, is also pursuing a joint venture with JX Nippon Oil & Energy.
In the meantime, the foreign investment committee also passed a plan that designates a site for Legoland in Chuncheon, Gangwon Province as a separate foreign investment region. The theme park is going to be exempted from paying business taxes for seven years after it turns profitable. The MOTIE is also discussing a way to provide support for building infrastructure including roads with relevant government agencies such as the Ministry of Culture, Sports and Tourism. MOTIE expects that Legoland will generate 1,600 jobs after 487.2 billion won (US$467 million) of investment.
In addition, the ministry revealed its goal to attract US$17 billion of foreign investment this year, which is the highest amount ever invested. It is also planning to repeal or ease FIPA’s 21 regulations after its review. The total amount of foreign investment increased 49.1 percent year-on-year to reach US$5.6 billion in the first quarter. Kim Jae-hong, vice-minister of the MOTIE, stressed, “We will definitely relax regulations on foreign investment companies, which account for 20 percent of our country’s total exports.”