South Korea has virtually pulled out of overseas resource exploration after the scandalous clampdown on overseas resource projects under the former Lee Myung-bak administration at a time when neighboring countries have been aggressive to expand overseas energy assets amid cheap oil prices.

Korean state-owned companies such as Korea National Oil Corporation (KNOC) came under fire for squandering public funds after many of their heavy investments in overseas resource projects under Lee Myung-bak administration flopped.

The current Park Geun-hye government has been scaling back the business projects as part of efforts to reform the public sector and distance itself from the former administration.

The budget allocated for overseas resource development this year was slashed by 73 percent to 95.8 billion won ($86 million) from 359.4 billion won last year. The government didn’t set aside a single penny for resource loans security for private companies engaged in resource projects. Against this backdrop, private firms such as LG International Corp., Posco Daewoo Corp. and LS-Nikko Copper Inc. have downsized or withdrawn their overseas exploration businesses.

Another resource-poor country Japan, on the other hand, has gone all-out in developing natural resources overseas. According to sources from the industry on Monday, the state-run Japan Oil, Gas and Metals National Corporation (JOGMEC) pledged to invest three trillion yen ($29.8 billion) in resource development businesses pursued by private companies over the next five years. The Japanese government has urged private firms to aggressively engage in the business especially in resource-rich countries such as Australia and Mozambique where the prices of gas field and mineral rights have dropped due to the falling raw material prices.

A source from the industry said that public companies such as KNOC and Korea Gas Corp. (KOGAS) haven’t launched a new resource development project since 2014 and private firms are also reluctant to invest in the high-risk business as the government scales down its support.

Although the budget for next year includes special loans for private companies who pursue resource development projects, critics say that it is not enough to encourage private companies to jump in the business. Under the revised plan, the government will lend just 30 percent of the projected cost rather than 80 percent it used to provide and the companies should pay back principal and interest when the projects end up in failure.

By Ko Jae-man

[ⓒ Pulse by Maeil Business News Korea & mk.co.kr, All rights reserved]