Korea's Energy Diplomacy Is Failing

      August 11, 2009 10:41

      The Korean government and businesses have lost a series of bids to China in acquiring stakes in promising mines and energy-related companies overseas. A Korean consortium led by state-run Korea Resources Corporation (KORES) lost to China's Wuhan Iron & Steel in a bid last month to acquire a stake in a Canadian iron ore mine in Bloom Lake. And the Korea National Oil Corporation lost to China in a bid in June to acquire Swiss oil and gas exploration and production group Addax Petroleum. Another consortium led by KORES lost to China in February in acquiring a stake in Australia's Rosebery mine and was defeated in another bid in May to buy a stake in mineral developer PanAust Limited.

      The foremost reason behind China's success is the phenomenal amount of financial leverage stemming from its US$2 trillion foreign currency reserve. In 2008 alone, China spent $47.8 billion to acquire foreign businesses, and it has been on a buying frenzy since the global financial crisis erupted, gobbling up foreign energy and mineral resource businesses. Until March this year, China spent $19 billion to buy resource development companies around the world.

      But financial resources alone are not the only reason. The Lee Myung-bak administration has touted energy diplomacy as a major policy goal since it was launched. President Lee and Prime Minister Han Seung-soo have been busy publicizing their accomplishments in energy diplomacy every time they returned from visits abroad. But they have often been outsmarted by competitors at the last minute when they let their guard down in negotiations, or were embarrassed to see talks fall through altogether after the government exaggerated the results of talks.

      In February, the government announced a joint project with Iraq to develop oil fields in the southern part of the country, touting the deal as the biggest accomplishment of a summit between the leaders of the two countries. But two months later, Baghdad excluded Korean businesses from the project. In September last year, the government touted as the "biggest achievement of President Lee's energy diplomacy" a project to pump in natural gas via a pipeline through North Korea. But almost a year has passed with no progress whatsoever in that plan.

      In May last year, the government announced it had agreed with Kazakhstan to acquire a 27 percent stake in the Central Asian country's Jambil oil block in the Caspian Sea for $85 million. But last month, the Board of Audit and Inspection pointed out that the actual amount paid for the stake was $1.17 billion, 14 times greater than the amount that the Prime Minister's Office had announced. The BAI also stated that the Korean government had committed "inappropriate" actions in its pursuit of the project.

      And it is not just energy diplomacy that is failing. Early this year, Korea failed to sell the T-50 advanced trainer jet, developed with its own technology, to the United Arab Emirates. Korea has made a lot of premature announcements involving military exports, but very few sales have actually taken place. It is extremely embarrassing to see a government that has pledged to save Korea through economic policies do so poorly in sales.

      If Korea is to secure niche opportunities in energy resources while competing with heavyweights like the U.S., U.K. and France and newly emerging financial powers such as China, it needs to bolster its information-gathering abilities, sharpen its negotiating skills and be very decisive in focusing all its resources on specific targets. And if Korea wants to compete with other countries in energy diplomacy, it needs to revise its policy and aggressively channel its diplomatic and capital resources into those regions and countries that have resources.

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