By Senior Researcher Jeong U-jin at Korea Energy Economics Institute
Overseas resource development programs initiated by public companies are continuously under fire. Criticism over public enterprises that are developing overseas resources is getting harsher as they ranked the lowest grade in management assessment of public organizations, and they are revealed to have posted huge amount of losses in overseas resources development projects.
High debt rates of resource developing public companies are cited whenever enormous amount of debts at public companies in Korea is discussed in public.
According to data of the National Assembly Budget Office, the amount of investment made in overseas resources development by three major public companies, including Korea National Oil Corporation (KNOC), Korea Gas Corporation (KOGAS) and Korea Resources Corporation (KORES) between 2008 and 2012 reached $23.2 billion, but the amount of government investment is less than $5 billion of the total. This indicates that these companies secured finance for investment in overseas resource development projects mainly by issuing bonds and loans.
Naturally, criticism over government policies for overseas resources development that brought such results is growing high. Experts criticized that indexes of independent development rates are exaggerated, overseas resource development projects faltered due to impractical resource development policies with obsession over achieving targets, and their financial soundness was weakened.
It is true that these companies can hardly evade such criticism. Therefore, overseas resources development policies are now required to be changed and resource developing public companies need to conduct drastic self-innovation. But they have to remember that improvement of policies and self-innovation may lead to greater national loss unless they are accompanied by comprehensive and professional analysis on ‘causes of failure’ in these processes.
Looking back overseas resources development policy 5 years ago, and in light of the level of Korea’s overseas resource development industry that was not developing any sizable mining lot, the policy of large scale investment led by public companies is thought to be a reasonable choice and it was supported by sufficient nationwide consensus. In those days, the amount of Korea’s resource development investment was less than one third of today’s amount under the situation that competition between countries for securing resources was heated and oil prices skyrocketed.
But, at present, the policy is consequently evaluated to have failed not because of direction of the policy but because of several factors developed in the course of implementing the policy. In carrying out the policy, investments in overseas resource development were decided on the standpoint of achieving indexes or targets rather than based on professional analysis or strategic perspective, implicit demand of political community for showing outcomes of the policy early, and organizational expansion of public enterprises in these processes.
While change in policy and self-innovation are required to improve these problems, it is concerned that the policy improvement may result in another failure in policy. This is because only apparent unfavorable figures or negative factors in past policies may be highlighted while professional evaluation is overlooked amid growing criticism on resource development projects.
Then, how professional evaluation should be conducted? First of all, features of overseas resource development programs should be fully considered. The resource development program is a long-term business, and prices, foreign exchange rates and production volume are very variable during business period. And they are difficult to predict in many cases. Therefore, one should be prudent in deciding whether any development project is insolvent or not simply based on evaluation of gain and loss at a certain time.
Though earnings rate is one of important yardsticks in evaluating business, external effects of business should also be evaluated. Particularly, Korea essentially needs to secure intangible assets, such as technologies, experience in operating mine lots and human networks with resource production countries or global leading companies, through overseas resource development projects since its resource development industry is still in fledgling stage.
And, it is quite natural to determine rights and wrongs of resource development projects carried out by public companies as they spent tax-payers’ precious money, but one needs to be prudent not to expose companies’ internal information or strategic matters in these processes. Transparency of policies is important, but one should not forget that resource developing public companies are combat troops that have to fiercely compete with companies in other countries to secure mine lots.
Source : e2news