Over the past decade, South Korean companies, public and private alike, have retreated from natural resources development projects abroad. State-run energy and mining firms invested a total of $713 million in overseas resources development projects last year, about one-tenth of the corresponding figure for 2011, which stood at $7.03 billion, according to data submitted to a lawmaker’s office recently by the Ministry of Trade, Industry and Energy. The amount allocated from the state budget to help finance offshore resources development projects decreased from 309.3 billion won ($272.7 million) in 2010 to a record low of 34.9 billion won this year. Various tax benefits for such projects have also been repealed during the cited period.
A steep rise in the prices of raw materials in the international market -- which stems from expectations for a post-pandemic increase in demand, coupled with bloated global liquidities -- is heightening concerns about the country’s continuous retreat from overseas resources development. The price of lithium, a key material for electric vehicle batteries, stood at $12,000 per ton in the first week of March, having nearly doubled from a year earlier, according to figures from the Korea Resources Corporation. The prices of cobalt and nickel also jumped 60 percent and 40 percent, respectively, over the same period.
Korea’s rollback of overseas resources development is all the more worrisome as it runs counter to the intensifying global competition to secure materials needed to fuel new growth engines in the era of the “fourth industrial revolution.”
The country made aggressive efforts to explore resources abroad during the 2008-2013 tenure of corporate executive-turned-President Lee Myung-bak. But most of the resources projects initiated by the Lee government were scrapped or became subject to thorough scrutiny under the administration of his successor Park Geun-hye.
The incumbent government under President Moon Jae-in appeared poised to change its negative stance on overseas resources development when it unveiled a long-term blueprint aimed at enhancing “resources security” in June. Announcing its 10-year vision for 2020-2029, the government said it would focus on guaranteeing a secure supply of resources rather than setting quantitative goals.
This approach seems to be an attempt to strike a balance between the opposing positions of the two previous administrations. Under the Lee government, state-funded energy and mining firms recklessly participated in massive resources development projects abroad and suffered significant losses. By contrast, the Park administration placed excessive constraints on endeavors to explore resources overseas.
The latest blueprint for resources development envisions pushing for public-private partnerships, in which public firms implement exploration projects with big price tags that carry high risks, while private enterprises are allowed to join in at the development and production stages. It is desirable to set up such platforms, which could help reactivate overseas resources development by making it possible for public and private companies to share risks and profits.
Under the blueprint, which is renewed every five years, the government plans to increase financial support and revive tax benefits to encourage private firms to participate in resources development abroad. It is also pushing to build a database by 2022 to give them access to comprehensive information on resources exploration implemented by state-run corporations.
But there has been little progress in implementing the envisioned plans, as shown by the record-low amount within the state budget that is earmarked to help fund offshore resources development projects this year. With slightly over a year to go before his five-year tenure ends, Moon needs to pay attention to putting the implementation of the resources development blueprint on track.
For major economic powers around the world, it is becoming an urgent task to secure a stable supply of natural resources amid growing uncertainties in global geopolitical and market conditions. It is all the more so for Korea, which remains more vulnerable to external shocks, as it relies on imports for 94 percent of its energy sources.
From the viewpoint of energy security, the Moon government must also reconsider its policy to phase out nuclear power generation. The basic plan for the electricity supply for 2020-2034, which was fixed in December, calls for reducing the number of nuclear power plants from the current 24 to 17 over the cited period. Accordingly, nuclear power is set to decrease in proportion to the country’s overall electricity generation capacity from 25.6 percent to 10.4 percent over the coming 15 years.
It is nonsensical to seek to break away from a stable source of cheaper and cleaner energy, with local providers keeping sufficient stockpiles of uranium to run all nuclear reactors for at least two years.