Back To Top

Resources development policy hobbled by inconsistency

[THE INVESTOR] Korea relies on imports for 96 percent of primary energy sources and 99 percent of key mineral resources. 

In the 2015 Energy Sustainability Index released by the World Energy Council, the country ranked 121st, far behind China and Japan, which placed Nos. 21 and 83, respectively.

This means that Korea needs to implement a consistent, efficient and long-term policy for developing resources abroad. But it has failed to do so over the past years, with President Park Geun-hye’s government backing off from the active but costly efforts by her predecessor Lee Myung-bak’s administration to expand overseas resources development.


In 2008 when international oil prices hovered above $100, the Lee administration began encouraging projects to develop oil and other resources abroad. Over the five years through 2012, Korea’s public corporations and private companies spent $40.4 billion to explore oil, gas and minerals overseas and buy foreign resources development firms.

But the rush could not come at a worse time.

International crude oil prices plummeted by more than half over the same period. Other commodities prices also tumbled as demand shrank amid a worldwide economic slowdown in the aftermath of the 2008 global financial crisis.

Korea’s three major state-run energy and resources developers, which were at the forefront of the push for overseas resources development, have come to be saddled with huge amounts of debt.

According to data from the Ministry of Strategy and Finance, the debt to asset ratio of Korea Resources Corp. soared from 103 percent in 2007 to 6,905 percent last year. Korea National Oil Corp. and Korea Gas Corp. saw their corresponding figures climb from 64 percent and 228 percent to 453 percent and 321 percent, respectively, over the cited period.

The government last week announced measures to downsize the three debt-ridden companies as part of a plan for restructuring public institutions in the energy and resources sector.

They will be made to cut manpower, dispose of nonessential assets and scale down operations abroad.

While agreeing on the need to improve the managerial efficiency of the loss-making corporations, experts express worries that the measures to be forced on them may prove ill-timed and result in withering the country’s capability of exploiting resources overseas.


“It should be kept in mind that the value of overseas assets will possibly go up in keeping with the upward trend in global prices of oil and other commodities,” said Kim Tae-heon, a researcher at the Korea Energy Economics Institute.

With international crude prices forecast to eventually rise to a range between $70 and $80, a hasty sell-off of what are now deemed as nonessential assets may squander opportunities to make up for overpriced purchases in the past.

Many experts note it is not the time to reduce resources development projects abroad, but to expand them in preparation for a rebound in prices.

China and Japan have continued to increase investment in overseas energy and resources development, acquiring oil and gas blocks and mining lots at a low price.

In 2014, Korea invested $6.7 billion in resources development projects abroad, compared with $93.4 billion for Japan and $71.2 billion for China.

Measures to reduce overseas operations of the three corporations will further widen the gap between Korea and its bigger competitors in securing energy and mineral resources abroad, experts say.

They emphasize the need to go beyond short-term damage limitation to work out and implement a plan to enhance the country’s capability of developing overseas resources in a consistent manner from a long-term perspective.

“No other country reverses policies on overseas resources development with the change of government,” said Shin Hyun-don, a professor of energy resources engineering at Inha University.

He said there is the likelihood that similar mistakes will be repeated in the future if policy for developing resources abroad continues to be hobbled by inconsistency and short-sightedness.

With private companies’ ability still limited in overseas resources exploitation, the government should be cautious on reducing the operations of the state-run corporations, experts note.

Policymakers need to give serious consideration to the idea of merging the KNOC and KOGAS, which could help enhance their competitiveness and ability to raise funds.

In a report released early this year, the Federation of Korean Industries, a major business lobby here, suggested strengthening financial and taxation support to encourage private companies to undertake resources development projects abroad, which are essential for the country’s energy security but carry high risks.

By Kim Kyung-ho (khkim@heraldcorp.com)
MOST POPULAR