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Energy deals in a mess

The state audit agency has filed a complaint with the prosecution against a former CEO of the state-run Korea National Oil Corp. (KNOC) for breach of trust over a bungled overseas oil development project. The Board of Audit and Inspection (BAI) also urged the trade ministry to seek a compensation suit against its former president, Kang Young-won.

This is the first time that the top auditor has acted to hold a state company CEO responsible for a shady takeover deal they led while in office, both criminally and through a civil suit.

What had happened over this deal is beyond imagination. According to the BAI, the state oil company suffered a loss of nearly $1.2 billion from its failed investment in Harvest Operations, a Canadian oil producer, and its money-losing North Atlantic Refining Limited (NARL) refinery.

The loss was incurred after KNOC acquired NARL for the inflated price of $1.22 billion in 2009, although its fair value was only $941 million. KNOC sold the refinery to a New York-based merchant bank for just $3.5 million last year.

The state auditor said Kang was well aware of the prospect of a loss, but went ahead with the deal to meet his annual performance goal. He is also suspected of lying while obtaining approval for the project at the oil company's board of directors.

True, there is no denying that the NARL project is the biggest case of failure among a handful of resource projects undertaken by the previous Lee Myung-bak administration. But a lot of questions remain unanswered.

Apart from the fact that Kang made the acquisition decision in just a matter of days, it's doubtful why KNOC took over not oil fields but a refinery. It's also questionable why the state oil company accepted the inflated acquisition price evaluated by Merrill Lynch.

That's why we believe that the prosecution should do its utmost to get to the bottom of the botched oil deal and other overseas energy and resources projects carried out by other state companies. Lawmakers also ought to conduct a thorough parliamentary probe into what happened in the course of massive investments abroad in accordance with the bipartisan agreement late last year.

Of course, none will deny the high risk associated with investments in overseas resources. That's badly needed, especially given our poor natural resources. It's undesirable to hold someone accountable merely for the result, but this oil deal has obviously gone too far.

What must be noted is that there should be thorough investigations into the henchmen of former President Lee Myung-bak, including his elder brother Lee Sang-deuk, who allegedly pressured the state firms in question to make aggressive investments.

Korea Times
Published on:
January 5, 2015
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