Korea to boost offshore resource development

Myanmar Shwe gas field [Courtesy of POSCO International]

South Korea’s energy regulators are increasing support for offshore resource development amid rising resource nationalism and the geopolitical weaponization of resources globally.

According to the Ministry of Trade, Industry and Energy (MOTIE), on Monday, the Korean government is considering a plan to reduce loan payments if companies fail to achieve the target outcomes in their offshore resource exploration projects.

In a successful project with a special loan for such development, companies are required to pay a special levy to the government as a fee in addition to the principal amount. If the projects fail, they can be exempted from paying up to 70 percent of the remaining principal after a review, and the energy regulators are reportedly considering a loan reduction rate of up to 100 percent.

As pressure on loan payments eases, more companies will have the backing to embark on offshore resource projects.

“A lack of loan support has led to the collapse of business activity in overseas resource development over the past few years, with a few larger companies involved in the realm,” Lee Won-bok, an associate researcher at the Korea Institute for Industrial Economics & Trade, pointed out. “The loan exemption program will be helpful in restoring the ecosystem.”

With critics concerned about the difficulties in a run-up in loan support, some called for more feasible alternatives, such as tax credits for share investments as well as mergers or acquisitions. In response to the calls, the government is set to give a tax credit of 3 percent on offshore resource investment in the latest bill.

“International resource exploration and development take at least a decade to produce tangible outcomes, so government policies and support should be consistent,” according to Kim Jin-soo, a professor of Natural Resources and Environmental Engineering at Hanyang University.