FKI "Korea Should Refer to Japan's High Public-Private Cooperation in Resource Development"

With the U.S. Inflation Reduction Act and Europe’s Critical Raw Materials Act making supply chain diversification an essential strategy for electric vehicle and battery companies, there are calls to refer to Japan’s case, where a stable resource supply chain was established through public-private cooperation.

On the 16th, the Federation of Korean Industries (FKI) announced that Japan’s development rate of six strategic minerals (thermal coal, uranium, iron, copper, zinc, nickel) stands at 76%, significantly higher than South Korea’s 28%. This means that resource-poor Japan, like South Korea, secures its domestic supply by developing and producing scarce resources overseas.

At the center of Japan’s overseas resource development are the Japan Oil, Gas and Metals National Corporation (JOGMEC) and general trading companies. JOGMEC is an independent administrative institution specializing in resource development, established in February 2004. It provides financial support such as up to 75% equity investment and debt guarantees, as well as technical and informational support including geological surveys.

There are many cases where JOGMEC has partnered with private general trading companies to secure overseas resources. In 2019, JOGMEC invested 125 billion yen in the Mozambique LNG development project involving Mitsui & Co., and in 2020, it additionally guaranteed 1.44 billion dollars. For the Russia Arctic-2 LNG development project, it invested 290 billion yen and supported debt guarantees of 45 billion yen.

Regarding the hydrogen and ammonia supply chain construction, which is gaining attention for achieving carbon neutrality, JOGMEC and general trading companies are closely cooperating. In December 2020, Itochu Corporation conducted a demonstration test of a project that separates hydrogen at the plant of Irkutsk Oil Company (IOC) in Russia, transports it to Japan in ammonia form, and uses it as fuel. Mitsubishi Corporation is conducting joint research on ammonia production and supply chain construction in Indonesia, and Mitsui & Co. is doing the same in Western Australia. All these projects are being carried out jointly with JOGMEC.

The FKI pointed out that the Korea Mining Promotion Agency, which has a similar role to JOGMEC, has effectively lost its overseas resource development function. It also noted that the special loan ratio, which allows the private sector to borrow part of the project cost from the government when promoting overseas resource development projects, has drastically decreased from a maximum of 90% in 2012 to 30% in 2022. Amid the decline in resource development, companies such as POSCO and LG Energy Solution are individually securing resources in countries like Argentina and Australia.

The acceleration of the U.S.-China hegemonic competition and the reorganization of supply chains centered on allied countries could pose a significant burden on Korean companies. Choo Kwang-ho, head of the Economic and Industrial Headquarters at FKI, advised, “Resource development requires long-term investment but carries high risks of failure, and sometimes resource-holding countries restrict exports citing resource security, making it difficult for private companies to resolve alone. It is time to build a stable resource supply chain through steady government support in funding and technology development, cooperating with the private sector, as exemplified by Japan’s case.”

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