The Park Geun-hye government is mulling over the necessity of a control agency to supervise the development of overseas natural resources. Specifically, the government is intending to upgrade the Korea Institute of Geoscience and Mineral Resources (KIGAM) and provide it with full-scale support so that it can assume a central role in this area of great importance.
Industry experts are welcoming the news, having advocated the establishment of a pivotal, ministry-level institution to take charge of such matters. Still, opinions are split regarding the detailed future role of KIGAM. Not a few are pointing out that the organization should have more leadership, policy initiative and competitiveness to cover everything about overseas natural resources development and embrace related entities in both the public and private sectors.
At the same time, voices are being raised that the new government’s energy security policy direction is still rather unclear. As a matter of fact, the incoming government has not come up with any policy measures with regards to overseas natural resources development, which are key to protecting energy security. The lack of such policy actions is quite contrary to the Lee Myung-bak administration, which put resources diplomacy as a top priority from its very inception. It has raised the self development rate for oil from 4.2% to 13.7% during the last five years. Nevertheless, despite this achievement, few experts are rating the administration’s policy for overseas natural resources development as successful. “Problems have been around all throughout the term, surrounding the development of natural resources abroad, such as the hasty purchase of mining lots, show-offish projects led by those in the inner circle, and the somewhat wrong method of calculating the self development rate that has caused an optical illusion,” said one.
Over the past five years, national state-run energy companies such as the Korea Gas Corporation and the Korea National Oil Corporation (KNOC) have made great efforts for overseas resources development, and private-sector companies have also joined in these endeavors. They have achieved excellent results at least on the surface. As of the end of 2011, Korean corporations are engaged in no less than 307 projects in 48 countries around the world, working on 37 types of resources, with their total cumulative investment adding up to US$9.8 billion. This total investment has tripled and the number of participating companies more than doubled over four years ending in 2011, when the self development rate for fix strategic minerals and the total amount reached 29% and US$12.1 billion, respectively.
However, Korea’s energy self-sufficiency rate is standing at just around 4%, easily eclipsed by the OECD member countries’ average of 60%. It does not take a genius to figure out how vulnerable it is in terms of energy security, with the energy self-sufficiency rates of the United States, China and Japan being as high as 81%, 93% and 38%, respectively. Korea has an industrial structure highly dependent on manufacturing and imported energy resources. Furthermore, dependency on the consumption of natural resources is gradually on the rise.
Practical Interests Matter the Most in Overseas Resources Development
According to professor Shin Jung-shik, who is heading the Korean Resource Economics Association, resource nationalism is intensifying these days around the world and countries are racing to take more and more natural resources, meaning the importance of a stable supply of natural resources is higher than ever. “Existing government-led resources development policy has not been free from dissenting opinions in view of the characteristics of the business, and therefore the government and private sector should discuss the division of roles from now, even if this is belatedly,” he said in a recent report, suggesting seven agenda items of: readjustment of policy goals; enhancement of energy cooperation diplomacy; refinement of the administrative systems to that end; improvement of the capabilities of domestic natural resources developers; reorganization of industrial support systems; establishment of infrastructure for resources development; and the full revision of related laws and regulations.
The first item is characterized by the reestablishment of the concept of independent energy development and complementary measures associated with indices and indicators that can better current circumstances. The second is to avoid one-off, result-oriented diplomatic activities led by high-ranking figures and political purposes to pursue practical interests instead. It is directly related to the third goal that is reorganizing the administrative systems into the Ministry of Knowledge Economy while reducing the intervention of the Prime Minister’s Office and the Ministry of Foreign Affairs and Trade.
More Discussion Needed Regarding Role of Policy Coordinator
It has yet to be determined how much the status of the KIGAM should be promoted. Some industry insiders are even remarking that it may as well remain an information and service provider, rather than a control agency, in view of its past role and the size of the corporation.
“Overseas natural resources development projects require huge funds and high value added technologies throughout the entire steps ranging from exploration and development to actual production,” said a senior official at the company, pointing out, “Korea’s resources development and service industry is lagging behind other countries’ and thus Korean companies can’t but pay an increasing amount of expenses to their foreign counterparts as the investment goes up.” The term of resources development service is defined as providing related services to resources developers abroad.
As of now, the Ministry of Knowledge Economy is taking a cautious stance regarding the determination of its role, simply reiterating that no guidelines have been given from the government. The ministry is currently moving ahead with some measures for the promotion of basic sectors in the industry and the establishment of the Resources Development Service Center in accordance with the 4th National Program for Overseas Resources Development. These measures include giving the KIGAM the role of managing the center in which domestic resources development service companies are to join as members. In addition, the KIGAM is supposed to function as a channel receiving service contracts while taking charge of business certification, equipment management and international personnel exchange. It is said that the broad capabilities of the institute, which is an affiliated organization of the ministry covering the development of petroleum, gas and mineral resources, have caused it to emerge as a new control agency in the industry.
Nonetheless, such remarks that the institute is not enough to act as a pivotal center in that it has concentrated on supporting activities such as research projects, information service and technical assistance are not entirely groundless.
In fact, larger organizations like the KNOC and Korea Resources Corporation (KORES) are refraining from coming forward to take the role, despite agreeing on the necessity of a sort of command center. KORES is striving to enhance its technological strength and intends to hire more employees until 2020 in order to make a better business partner for private-sector players. However, it is aiming to become the leader of the mineral industry rather than an all-encompassing policy coordinator.
KIGAM itself is very prudent, too. “As far as I know, nothing has been fixed yet and it seems that the rumors began to spread outside the company first while our employees remaining ignorant,” one of its executive members said.
Overseas natural resources development is a matter of national security beyond economic significance. It should be a top-priority, national policy task for sustainable future growth and maintain its direction regardless of regime change. More attention should be paid to the new government’s will and specific action plans than to who takes the critical role.