Korea National Oil Corp. was pounded during the parliamentary audit on Monday for mismanagement of Harvest Operations, a Canadian oil producer and refiner wholly owned by South Korea’s state-run energy company.

As part of the former Lee Myung-bak administration’s resource diplomacy, KNOC acquired a 100 percent stake in Harvest, including its money-losing refinery affiliate North Atlantic Refining Limited.

Of the total acquisition price of 4 trillion won ($3.8 billion), KNOC paid some 900 billion won to take over the troubled refinery.

As largely expected, NARL continued to suffer losses due to mismanagement and falling oil prices. On Sept. 5 this year, KNOC decided to sell the company to a U.S. investment firm, SilverRange Financial Partners.

Even though the price was not revealed, KNOC is said to have agreed to bear about 1.7 trillion won in company losses as part of the sales conditions.

“About 2.5 trillion won was poured into the failed project, excluding the maintenance costs of 350 billion won over the past five years,” said Rep. Kim Je-nam of the Progressive Justice Party in a document submitted to the audit committee.

She raised doubts about the buyer, SilverRange, saying it seemed impossible that the company, which employees only two people and generates some $100,000 a year, could afford to buy it.

The Ministry of Trade, Industry and Energy ― formerly the Ministry of Knowledge Economy ― also came under fire for failing to play a proper role in the international mega deal.

According to the document submitted by Rep. Boo Jwa-hyun of the main opposition New Politics Alliance for Democracy, KNOC’s business plan included several inaccurate figures regarding the company, including shareholders and their stakes.

“The Harvest buyout is one of the key failures of overseas resource development during the Lee Myung-bak government. I’m demanding a reinvestigation into the whole process and punitive measures against those responsible,” he said.

In 2008, the government at the time announced an ambitious road map for elevating overseas oil production from an annual 50,000 barrels to 300,000 barrels through an investment of 19 trillion won over the next five years.

As part of the plan, KNOC acquired Canada’s Harvest, while Korea Gas Corp. took over an Iraqi oil field. Korea Resources Corp. also participated in a copper development project in Panama.

During the five years following the acquisition, Harvest’s assets fell in value from 3.8 trillion won to 1.1 trillion won.

In 2012, the Board of Audit and Inspection raised questions about the deal, leading to the resignation of the then-KNOC president, whose term was soon to expire.

By Lee Ji-yoon (jylee@heraldcorp.com)