The South Korean government is studying various options to improve profitability of two energy entities including merging Korea National Oil Corporation (KNOC) with Korea Gas Corporation (KOGAS) or combining overlapping businesses of the two state-run entities. The Ministry of Trade, Industry and Energy has assigned Deloitte Anjin to look into ways to rationalize the state energy enterprises.

According to multiple industry sources, of the four reform measures suggested in the report, the most viable plan to improve overseas resources development is to merge KNOC with KOGAS. The report notes that the merger between the two would allow the combining of overlapping businesses such as exploration and production (E&P), which will naturally boost synergy and resolve manpower issues. The economies of scale will help Korea in future prospects of raising funds from overseas.

According to the report, the merger between KNOC and KOGAS would help improve overall profit structure, which has been the foremost priority for both companies. But there are concerns that the losses of KNOC would be translated to KOGAS.

In another suggestion, KNOC would be selling its resources development unit to a private company. This plan, however, raises concerns over the possibility that the country’s overall resource development asset could end up being sold undervalued.

Concerns also include the draining of national wealth if KNOC sells its resources development unit to a private firm and if that firm resells the unit to an overseas company later on.

Industry observers note that it is the general trend globally to consider oil as a major energy security resource and public asset.

The report also included the plan of transferring KNOC’s resources development business to KOGAS, which will allow more lenient financing activities. This plan, however, will likely be met with opposition from minority shareholders.

The report also suggested spinning off KNOC’s overseas resources development unit and establishing a new entity to seek private investment. The plan, however, would fall short of resolving current inefficiencies when promoting resource development projects.

The energy ministry will present the report at a public hearing on Friday at the Energy & Mineral Resources Development Association building in Yeoksam-dong, southern Seoul, and collect opinions from various industry circles.

By Kim Gyu-sik

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