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Korean Government to Tidy Up Public-sector Energy Companies

Korean Government to Tidy Up Public-sector Energy CompaniesThe South Korean government is planning to reorganize the overseas business of government-run energy companies. At present, the Korea National Oil Corporation (KNOC), the Korea Gas Corporation (KOGAS) and the Korea Resources Corporation (KORES) are engaged in a total of 37 resource exploration projects and 54 resource development and production projects abroad. Most of them were launched by the previous government and their huge scale has resulted in a significant increase in the corporations’ debts. The government is going to clean up those less viable in a hurry so that the corporations can be improved in terms of financial soundness and management efficiency.

These days, the financial conditions of the state-run companies are deteriorating with time. For example, the debt ratio of the KORES amounts to 6,905% and those of the KNOC and the KOGAS are also as high as 453% and 321%, respectively. The figures used to be as low as 64% to 228% in the early days of the previous government, that is, in 2007, but the conditions began to deteriorate in 2008, when a number of new projects were initiated with international energy prices plummeting amid the global financial crisis. The energy prices are unlikely to rebound for the time being, and thus intensive restructuring of the companies is inevitable.

Inefficient business structures and practices of such companies are slated to be dealt with, too. For example, the Korea Hydro & Nuclear Power Corporation, which is leading nuclear power projects in South Korea, is to be given a bigger role in overseas nuclear power projects as well and hand over its hydroelectric dam control to the Korea Water Resources Corporation instead. The Korea Electric Power Corporation’s optical network construction is to be stopped soon to avoid overlapping investments.

Experts agree to the direction of the plan but point out that it is focusing too much on the improvement of their financial structures. “We cannot determine the success of those projects with the single yardstick of profitability and the private sector is likely to be discouraged if the government opts to step out of the projects,” said Inha University professor Shin Hyun-don, adding, “We need to refer to the examples of China and Japan, which are pretty aggressive in investment in resources nowadays.”

The Original Posted by Jung Min-hee/Business Korea