Overseas Resources, If Not Sold Within Deadline, Will Be Sold Through Third Parties... Shift from 'Restructuring to Support Measures'

Overseas Resource Development Innovation 2nd TF Announces Government Recommendations
If Deadline Missed, Sale to Third-Party Organization... Shift to 'Restructuring First, Government Support Later'

[Sejong=Asia Economy Reporter Kwon Haeyoung] The sale of overseas assets by resource public enterprises, whose financial conditions have deteriorated due to 'MB (former President Lee Myung-bak)'s resource diplomacy,' will accelerate. The government plans to establish a measure whereby if the sale of overseas assets is delayed, an organization composed of third parties will effectively dispose of the overseas assets. Departing from the existing principle that there is no government support without restructuring, the government will also support public enterprises when their role is necessary for resource security, shifting the direction of restructuring to 'restructuring first, government support later.'

On the 28th, the 2nd Task Force (TF) for Overseas Resource Development Innovation announced a government recommendation containing these details. The government plans to establish a normalization plan for resource public enterprises based on the TF recommendation centered on three main principles: ▲Strategic asset management ▲Sustainability of public enterprises ▲Revitalization of the ecosystem.

The core of this recommendation is the acceleration of restructuring of resource public enterprises. The TF judged that the poor performance in overseas resource development projects was due to restructuring not being carried out in a timely manner. It also recognized the role of resource public enterprises and allowed for government support to be provided concurrently if necessary.

Introduction of Third-Party Sale System... Speeding Up Overseas Asset Sales

First, the recommendation includes a measure to introduce a third-party sale system if resource public enterprises fail to sell overseas assets according to their self-established roadmap. This changes the previous restructuring direction of selling overseas assets at a reasonable price without a sales deadline. The TF cited the 'Overseas Asset Management Committee' to be newly established in the Korea Mine Reclamation Corporation, which will be launched in September by merging the Korea Resources Corporation and the Korea Mine Reclamation Corporation, as a benchmark case. When a committee composed of third parties deliberates and resolves the sale of the existing Minerals Corporation's overseas assets, the Korea Asset Management Corporation will carry out the sales work.

Park Jung-gu, chairman of the 2nd TF for Overseas Resource Development Innovation (professor at Seoul National University of Science and Technology), said, "Considering that resource public enterprises may be passive in asset sales due to market conditions and the burden of sales responsibility, it is necessary to prevent excessive delays in sales through the introduction of a third-party sale system."

Originally, the TF set a principle in the first recommendation announced in 2018 that no sales deadline would be set when restructuring resource public enterprises. However, due to excessive delays in sales, it was judged that measures to prevent this should be introduced.

The TF also recommended selling overseas assets to the optimal domestic or foreign buyers, but when purchase conditions are similar, domestic companies should be given priority. This is a step back from the previous policy of prioritizing domestic private companies in overseas asset sales. The TF also recommended creating an environment that facilitates smoother sales of overseas assets by relaxing regulations such as competitive bidding principles, adjustment of estimated prices, and requirements for bid and contract guarantees.

Shift to 'Restructuring First, Government Support Later'... Recommendation to Split Prime Assets of Korea National Oil Corporation and Integrate with Korea Gas Corporation in the Future

This TF recommendation also includes the principle of 'restructuring first, government support later.' It considered ▲the necessity from the perspective of the national economy and resource security ▲the high debt ratio and the long-term trend of low oil prices, which make it difficult to overcome insolvency through restructuring alone. While the first TF recommendation was negative about government support, it has shifted toward the need for concurrent restructuring and government support. Park Jung-gu said, "Previously, the policy was no government support without restructuring, but the role of resource public enterprises is essential," and added, "While promoting restructuring, government support should also be provided if necessary for resource security."

The TF also demanded the establishment of financial improvement goals and strategies to be achieved by 2029 for resource public enterprises, along with high-intensity restructuring.

In particular, for the Korea National Oil Corporation, which has fallen into complete capital erosion, the TF recommended setting goals to resolve capital erosion and restructuring its business structure that depends on oil prices. It advised separating and operating core prime assets through physical and personnel division, and recommended government support if financial improvement is difficult even with high-intensity restructuring. In the mid-to-long term, it proposed integrating the oil and gas corporations into a comprehensive resource security public enterprise.

For Korea Gas Corporation, the TF recommended lowering the current debt ratio of 340% to 280%, which is the level of global gas companies, by 2029, and establishing strategies to prevent financial deterioration due to large-scale future investments.

Additionally, the TF stated that resource public enterprises should reorganize their business portfolios focusing on prime assets and strengthen responses to major risks. It recommended establishing exit strategies for six oil and gas projects that lack both economic feasibility and strategic value, and for the Korea National Oil Corporation to establish an emergency management strategy and dispose of projects lacking profitability and strategic value. The recommendation also included building a flexible business management system that adjusts production and capital expenditures (CAPEX) according to oil price fluctuations and expanding risk management organizations within public enterprises.

Furthermore, the TF urged the preparation of measures to restore the role of resource public enterprises, activate private investment, and strengthen public-private cooperation to revitalize the industrial ecosystem.

Chairman Park said, "The 2nd Innovation TF recommendation focuses on improving the severe financial situation of public enterprises and restoring the ecosystem," adding, "I hope it will be a cornerstone for public enterprises, the private sector, and the government to unite and overcome the crisis facing Korea's resource development, and that public enterprises will also undergo a thorough self-reform through painful efforts as soon as possible."

This content was produced with the assistance of AI translation services.