A local court on Friday acquitted the former head of the national oil company of causing a huge loss to state coffers in the purchase of two Canadian firms.

The Seoul Central District Court ruled Kang Young-won, the former CEO of the Korean National Oil Corp. (KNOC), should not be held responsible for losing 550 billion won ($464 million) of state funds by acquiring two Canadian resource companies -- Harvest Oil Operation Corp. and its affiliate North Atlantic Refining Limited -- in 2009.

Prosecutors said the company paid C$10 per share for the two companies under Kang's instruction, despite the market price being $7.31.

The KNOC paid 1.37 trillion won for the latter but sold it in 2014 for 32.9 billion won, or less than three percent of the money the KNOC had paid to acquire it, prosecutors said.

Still, the court said to acknowledge that the defendant had a motivation for dereliction of duty, the property value of the Harvest at that time should be lower than the money the KNOC paid to acquire it, which has not been proved by the prosecutors, the court said.

"While (Kang) can be evaluated to have had a certain degree of fault, the charges have not been proved enough to say that it was a breach of trust," the court added.

The acquisition took place under then President Lee Myung-bak, whose signature projects included few-strings-attached loans to resource companies.

Critics say the "energy diplomacy" initiative encouraged resource companies to make indiscreet business decisions, causing huge losses to state coffers. (Yonhap)