[2021 National Audit] Lee Cheol-gyu "KOGAS Manipulated Economic Feasibility of 'Gimhae Manufactured Hydrogen Refueling Station'"

"Overestimation of Economic Feasibility Due to Incorrect Assumptions"
"Audit Needed for CEO and Management by Board of Audit and Inspection"

[Asia Economy Reporter Joo Sang-don] Allegations have emerged that Korea Gas Corporation manipulated the economic feasibility in the process of promoting its first directly managed hydrogen charging station, the 'Gimhae Manufacturing-type Hydrogen Charging Station.'

On the 15th, Lee Cheol-gyu, a member of the National Assembly's Industry, Trade, Energy, Small and Medium Business Committee from the People Power Party, stated, "According to the 'Special Audit Results of the Gimhae Manufacturing-type Hydrogen Charging Station' submitted by the Gas Corporation, the project was promoted inappropriately by applying incorrect assumptions and overestimating economic feasibility."

In December 2018, the Gas Corporation signed a business agreement with Gimhae City to establish hydrogen charging station infrastructure, and on March 29 of the following year, an agreement was made for the Gas Corporation to secure, build, and operate the hydrogen extraction facility project.

According to the lawmaker, the basic project plan including the hydrogen extraction facility was finalized on October 17, 2019, but the project was halted on June 16, 2020, due to excessive costs required to build the hydrogen extraction facility.

In response, the Gas Corporation changed the plan to secure hydrogen extractors previously purchased and owned by Hyundai Kia Motors to proceed with the project, and reported the revised basic plan to the CEO on August 19, 2020. Subsequently, on November 20 of the same year, the board of directors finalized the basic project plan for the Gimhae Manufacturing-type Hydrogen Charging Station, and the project was promoted, officially commencing commercial operation in July this year.

The lawmaker pointed out, "According to the special audit results, the Gas Corporation commissioned an external professional institution to analyze economic feasibility between August 18 and September 27, 2020, immediately after the revised plan was reported to the CEO. However, the key assumptions for the economic feasibility analysis were directly investigated, reviewed, decided, prepared, and provided by the responsible department rather than the external institution, resulting in an excessively estimated profitability."

Based on manipulated assumptions, the economic feasibility was evaluated as generating a profit of 321 million KRW in net present value (NPV) from an investment of 3 billion KRW, but in reality, it resulted in a loss of 1.9 billion KRW. Furthermore, the basic plan set an unrealistic deadline of March 2021 for the completion of the hydrogen manufacturing facility, causing losses to the Gas Corporation. The lawmaker criticized, "To commence commercial operation as planned in March this year, the extraction facility should have been introduced and operated before March, but no specific period was agreed upon, and the Gas Corporation bore the losses while exempting Hyundai Kia Motors from responsibility for adhering to the manufacturing facility installation schedule."

As a result, the Gas Corporation incurred a loss of 59.89 million KRW by purchasing hydrogen externally and supplying it to the hydrogen charging station until August 2022.

The lawmaker stated, "Despite the agenda based on the manipulated economic feasibility evaluation being submitted to and approved by the management committee and board of directors, only the practical staff received reprimand disciplinary action, with no measures taken against the CEO and management for breach of trust, citing procedural defects. It is necessary not to stop at an internal special audit but to verify the CEO's and management's prior knowledge and breach of trust through an audit by the Board of Audit and Inspection."

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