The diplomatic spat with Libya is feared to hurt Korean businesses, largely in construction in the lucrative North African market.

Korean companies are closely watching the development after it was learned this week that Libyan authorities deported a Korean agent charged with illegal information gathering in June.

A total of 29 Korean companies are currently operating in Libya.

“We’re not expecting the case to adversely effect contractors’ operations there (Libya) for now since most of the deals are long-term ones,” said Kang Sin-young, head of the Middle East and North Africa research team at the International Contractors Association of Korea.

“But builders in Libya are keeping their low-key stance and communicating with their offices here to respond quickly if need be.”

Koreans currently are operating 51 construction projects valued at about $9.2 billion.

Diplomatic sources say Libya’s fury is with information-gathering activities by a Korean National Intelligence Service agent who probed into the activities of leader Muammar Gaddafi and his son.

The Korean government acknowledged the report on the agent’s information gathering work but denied that the case involved Gaddafi.

Sources also said the Libyan government in March sent formal complaints to Seoul about Korea’s negative depictions of Libya in its textbooks.

Libya withdrew its entire workforce on a trade mission to Seoul last month without notifying Seoul officials, paralyzing all consular activities between the two nations.

Two other Koreans were arrested on separate incidents on charges of violating Libya’s Muslim law.

Medium-term effects are on businesses that recently won contracts and are thus in need of visas and supply equipment but haven’t cranked up.

Hyundai Engineering and Construction only last week won a 1.5 trillion won ($1.24 billion) contract to build a power plant from the government of Libya.

Hyundai officials downplayed the impact of the troubled relations, saying there currently is no restriction on shipping activities.

Daewoo Engineering & Construction, who currently operates five projects totaling $1.42 billion including the development of Tripoli Hotel, also expected no immediate impact from the case.

“There might be troubles if the situation lingers on like this for a long time. But we don’t need more visas to be issued for now,” a Daewoo Construction official said.

The Korea Trade-Investment Promotion Agency said its trade department in Libya detected no special moves from the authorities there.

The Korean diplomatic team led by Grand National Representative Lee Sang-deuk was sent on July 20 but is making little progress. Lee is accompanied by top executives of Daewoo E&C, POSCO E&C, Korea Express and Hyundai E&C.

Daewoo E&C CEO Seo Jong-wook, on his trip with Lee, said the Libyan government isn’t regarding the case to be related to economic ties between the two nations in an interview Wednesday.

“We have no problem with our current operations now apart from the administrative troubles we have in getting certificates of origin for our construction equipment,” Seo said.

“Lee met with high-level officials of the Libyan government for a total of six times to solve the misunderstanding. I think Lee’s work contained the situation from spilling over to other problems.”

By Cynthia J. Kim (cynthiak@heraldm.com)