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Lee-era projects led to big losses

Public oil company says it fudged profit forecasts to push deals
July 27,2018
Major state-run energy and resource companies admitted that they suffered huge losses due to controversial resource exploration projects carried out under the Lee Myung-bak administration, which was in power from 2008 to 2013.

Three public companies - the Korea National Oil Corporation, Korea Gas Corporation and Korea Resources Corporation - said on Thursday in a press briefing that they exaggerated the amount of resources they claimed to have discovered and the profitability of their projects.

The case is currently the subject of an investigation by a special task force set up by the ruling Moon Jae-in administration into outside influence from the Blue House or Trade Ministry on the public corporations’ projects.

The Trade Ministry also requested that prosecutors investigate the case in May.

The Korea National Oil Corporation (KNOC), for instance, spent about $4 billion to buy Harvest Energy, an oil and natural gas company based in Alberta, Canada, in September 2012.

The Korean oil company was interested in oil reserves that the Canadian company owned in Alberta and British Columbia.

“Consulting firms categorized some deposits as uncertain, without a detailed examination into their economic value,” said the oil corporation.

“But the corporation considered and valued such deposits the same as deposits [with confirmed values] and exaggerated the asset value by as much as $381 million.”

KNOC explained that it fudged the estimates to meet internal standards and get a gain green light for the project from its board of directors.

It reported losses of $2.47 billion from the project.

KNOC participated in a project to build an oil field in the Kurdistan region of Iraq as part of a consortium. But when the project was on the verge of failure in late 2008, with the consortium unable to deliver all the necessary funding, KNOC took the lead on the project and made an additional investment of $750 million, according to the company’s statement.

“It’s suspected that there was pressure from the Trade Ministry, which was then the Ministry of Knowledge Economy, or the Blue House, which were concerned about the government’s first resource-diplomacy project running aground,” said the company.

In total, the three companies invested 41.4 trillion won ($36.9 billion) into 169 projects in 51 countries around the world, according to the Ministry of Trade, Industry and Energy on Thursday.

The companies managed to retrieve 14.5 trillion won while suffering total losses of 15.9 trillion won. The amount of debt they currently hold due to the two projects is 51.5 trillion won.


BY CHOI HYUNG-JO [choi.hyungjo@joongang.co.kr]