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Governance of Extractive Industries in the Republic of Korea: A Brief Introduction

Governance of Extractive Industries in the Republic of Korea: A Brief Introduction. Jae-Young Yu Kangwon National University. Introduction. ROK has the 15 th largest economy in the world GDP: 29 th in 1960  15 th in 2013

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Governance of Extractive Industries in the Republic of Korea: A Brief Introduction

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  1. Governance of Extractive Industries in the Republic of Korea: A Brief Introduction Jae-Young Yu Kangwon National University

  2. Introduction • ROK has the 15th largest economy in the world • GDP: 29th in 1960  15th in 2013 • Average of 10% annual growth from 1962 to 1994 (http://www.worldbank.org/en/country/korea/overview) • Early stage of development; Domestic resources played crucial roles (coal, tungsten, talc, lead, zinc, iron, gold, cement, etc.) • ROK heavily relies on the extractive industries

  3. Annual mineral resources consumption in 2012: • 23 trillion KRW (ca. 23 billion USD) • 94% of it imported • Domestic mining occupies only 0.18% of GDP • (Source: Yearbook of Minerals Statistics, KIGAM, http://mici.kigam.re.kr/portal/)

  4. Annual Energy consumption in 2012 • ca. 279 MTOE (petroleum 38.1%, coal 29.1%, LNG 18.0%, nuclear 11.4%) • 96% of it imported • Source: http://www.index.go.kr/potal/main/EachDtlPageDetail.do?idx_cd=2781

  5. Policies • Basic direction • Measures

  6. Basic direction Aims (Source; Handbook of Resources Development Policies) • Expand financial aid for the promotion of extractive industries from private sector • providing private companies more loans to promote overseas resources development • increasing financial aid from state-run banks • creating more resources-development fund financed by the public corporations • Continuing consolidation and specialization of the resources-development public corporations • increasing the investment to pursuit oil company M&A, purchase strategic mineral producing blocks, and secure REE minerals • Strengthening the cooperation in energy and mineral resources with the promising resource-rich countries through summit diplomacy or ODA • preemptive search for the promising projects for the boosting packaged resource development • organizing and running a pan-governmental supporting system for business feasibility assessment and close examination of detailed financial assistance program

  7. Strengthening the infrastructure producing information, professionals, and technology on the resources development • [information] find means of sharing information between Energy and Mineral Resources Development Association of Korea (EMRD) and other related companies and organizations • [professionals] increase matching fund to 10 BKRW for the specialized university for resource development • [technology] increase the portion of overseas resources development in the corresponding budget of the government

  8. Basic directions • Increasing financial aid through government and state-run banks • allocate all the loans to the private companies to develop overseas resources • introduce various financing programs e.g. reserve based financing (RBF) and syndicate loan • Raising more private funds by rewarding tax benefits • expand tax exemption & postpone the deadline of repayment • raise resource-develop funds contributed from the public-companies having the corresponding specialties • Creating large-scale projects through well coordinated cooperation between public and private sector • consolidate & specialize public corporations through M&A and purchasing active producing blocks, bringing further investment from the private sector • organize “Korea consortium” consisting of public corporations, resource-related companies and general trading companies capable of launching the big projects • Securing REE resources • promote overseas development of REE essential for the domestic smelting and rapidly increasing in import • designate 6 strategic minerals (bituminous coal, uranium, iron, copper, zinc, nickel) and 6 quasi-strategic minerals (chrome, manganese, molybdenum, tungsten, lithium, REE) • support securing projects from the REE-rich countries through strategic energy-resource collaboration

  9. Strategic cooperation taking account of the characteristics of the region and project • design collaboration customized to each energy-mineral rich country • support overseas resource development with the know-hows and network obtained from ODA • Encourage packaged resource development • prepare a pan-governmental system to support finding the projects with good potential • reduce investment risk of the private companies by expanding financial aid and sharing the risk by the public companies • diversify the packaged resource development by invoking the participation of multiple parties • put more investment to the infrastructure to strengthen the specialties • equip information system gathering the information both from on/off line network • provide more educational funds to the Specialized University for Resource Development • increase R&D budget on overseas resource development

  10. Main Measures • Establishment of Resources Cooperation Committee • intergovernmental channel to discuss all the policies, information and collaborations in extractive industries • minister, vice minister, CEO’s of public and private extractive-industry companies, presidents of research institute of the corresponding fields. • Human resources cultivation in oil & mineral development • nomination of 10 specialized universities for resource development –provide educational funds to train graduates and professors to be specialized in the field • establishment of Academy of resource development –short term training

  11. R&D on Resources Development Technology • draw technology roadmap • R&D funding through KIGAM • Domestic Resources Development (Measures) • continental shelf development projects • gas hydrates development projects • promoting domestic extractive industries

  12. Promoting Domestic Extractive Industries • Reason • Too much relies on the imported resources (metal 98.94%, nonmetal 27.22%) • Environment friendly development while strategically secure minimum amount of the resources • Current Status • Production: domestic mining occupies only 0.3% of GDP in 2008 • Analysis of reserve: metal resources are absolutely deficient , while nonmetal supplies are acceptable • Basic direction • efficient development of economically valuable resources • enhancement of the competitive edge through the advances in technology • more strict management and prevention of the “resources curse” • improvement of the supporting system along with the change in the environment of extractive industries

  13. Some principal projects • More basic surveys and reevaluation of the domestic resources • Promotion of exploration and efficient development of the metal deposits • upgrading of the equipment for better productivity of active mines • heightening the added-value and strengthening the competitiveness through providing more funds to R&D • pushing it up to higher-levels by creating more added-values • more education to train the professionals having resources development specialties • help to equip safety facilities to prevent mine casualties • tighter control of ‘resources curse’ for the sustainable resources development • further automation and informatization of mining management system • introduction of more electronic commerce by standardizing the qualities of (mine) products • regular meeting of private-public sector joint council to promote more investment in extractive industries • improving law and regulations for the advanced governance of the extractive industries

  14. Promoting Overseas Resource Development • Supporting system (services) for the overseas resources development companies • General procedures of overseas development • gathering information • purchasing a mining lot (or sector) • survey & exploration • Development • Production • Reporting a development plan • Reporting; Overseas Resources Development Business Act, Article 5 • Required forms and documents: Enforcement Decree of Overseas Resources Development Business Act, Article 2 • Feasibility assessment; Enforcement Decree of Overseas Resources Development Business Act, Article 7 • Complemnt of the plan; Enforcement Decree of Overseas Resources Development Business Act, Article 5-2

  15. General Loans • For both domestic and overseas development • 60% of the project budget • Exceptions: continental shelf projects: 80% • Exceptions: Public-corporations: 100% • through EMRD • Fire Success Loans • Return principal with surcharge only if it’s successful, otherwise it evaporates • Resource Development Funds • Overseas Resources Development Business Act, (Chapter 3) Article 11 • can be raised by a resources development investment firm or private equity fund (PEF) • Benefits • tax abatement on the dividends (Restriction of Special Taxation Act, Article 96-1) • Investment Risk Guarantee(Overseas Resources Development Business Act, Article 13-8) • Other general benefits

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