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S. Korea to downsize energy-developing corporations

All News 12:00 June 14, 2016

By Kim Boram

SEJONG, June 14 (Yonhap) -- The South Korean government said Tuesday that it will downsize state-run energy and resource development companies and open the power supply market to the private sector as part of its industry-wide corporate restructuring efforts to increase adaptability to a global low oil price trend.

The Ministry of Strategy and Finance and the Ministry of Trade, Industry and Energy unveiled a set of restructuring plans for public firms at a workshop presided over by Deputy Prime Minister Yoo Il-ho in Seoul.

According to the plan, the Korea National Oil Corp. (KNOC), the Korea Gas Corp. (KOGAS), the Korea Resources Corp. (KORES) and other energy companies will sell their loss-making overseas assets, cut workforce by up to 30 percent and reorganize their business portfolios by 2020 in order to streamline the management structure and improve their balance sheets.

But some analysts warn that the planned downsizing could weaken the nation's overseas resources development capabilities.

"Development of overseas resources should be approached from the long-term perspective of national interests," said a professor at Inha University.

KORES will focus on conserving mineral resources, with its overseas resource-developing business stripped off, while the Korea Electric Power Corp. will be also exempted from energy-exploring operations.

The government also plans to partly open the local electricity and fuel gas supply markets, which are monopolized by KEPCO and KOGAS, respectively, to private companies, and seek to list some big-name corporations, including the Korea Hydro and Nuclear Power Corp., on the local exchange.

"We are not the only country that is struggling with unprofitable energy firm issues. Due to an oversupply of energy and a price drop, global energy firms are also undergoing strict restructuring," Noh Hyeong-ouk, deputy finance minister for fiscal affairs, said in a prior press conference.

"It's a long-term task. We have to reorganize and restructure our key energy-developing firms."

There are 27 state-run energy-related corporations in South Korea, with their combined assets reaching 244.1 trillion won (US$207.9 billion) and debts totaling 170.3 trillion won.

During the former Lee Myung-bak administration, the government had put its policy priority on winning overseas resource development projects amid higher oil prices. KNOC, KOGAS and KORES had spearheaded the move, as they currently run a combined 91 exploring operations outside Korea.

But a recent freefall in oil and other resources prices weighed heavily on the companies and pushed up their debt ratios, with that of the KNOC skyrocketing to 453 percent in 2015 from 64 percent in 2007.

"The government's plan is aimed at streamlining public firms' asset management lines and improving their balance sheets as fast as we can," said Chae Hee-bong, deputy trade minister for energy and resources policies.

"Also, the local power supply market is excessively dominated by public firms. We're trying to expand the participation of the private sector in order to give wider opportunities to companies doing business in the renewable energy sector."

He said the trade ministry will announce a more detailed plan on the restructuring program later in the second half.


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