Refinery sale leads to gov’t losses

Lawmakers are accusing the Korea National Oil Corporation (KNOC) and the Ministry of Trade, Industry and Energy of selling off the Korean-owned Canada-based North Atlantic Refining Limited (NARL) oil refinery at a scrap-heap price.

According to data released by two opposition party lawmakers at a parliamentary audit yesterday, KNOC’s decision to sell off the NARL plant for 100 billion won ($93.6 million) to the U.S.-based investment advisory firm SilverRange Financial Partners in August resulted in losses of 2.5 trillion won for the state.

The two lawmakers, Boo Jwa-hyun of the New Politics Alliance for Democracy (NPAD) and Kim Je-nam of the Justice Party, said that 800 billion won worth of the losses came from letting the refinery go at a low price as part of a government-driven public corporation debt reduction plan.

The facility’s initial cost was 900 billion won.

The lawmakers added that a 1.7 trillion won loss occurred after the ministry agreed to take on NARL’s existing debt in order to persuade the U.S. investment company into purchasing it.

The Newfoundland-based processing plant wasn’t considered cheap when the state-run oil company initially bought it in 2009.

As part of the former Lee Myung-bak administration’s focus on natural resources, it moved to expand the state-run KNOC’s business by acquiring Canadian oil company Harvest Operations Corporation.

The acquisition of Harvest cost 4.1 trillion won, of which 20 percent came from taxpayers’ money and the KNOC budget. The rest came from a loan.

But Harvest Operations’ shareholders said that if KNOC wanted to purchase the Canadian company, it also had to acquire its debt-ridden affiliate, NARL.

Despite the debt, KNOC purchased the refinery in the belief that its prospects were bright as it had 220 million barrels of oil and gas resources. KNOC was also swayed by the idea that the procurement would give Korea an oil supply for its own use. So far, KNOC has sold 90 percent of the oil refined at NARL to the United States and 10 percent within Korea.

Although there was oil and gas ready to mine at the refinery, the facility was so old that KNOC had to spend a total 350 billion won over four years until last year just on maintenance and to fix it up.

Even while it was operating, the refinery saw a mounting net loss each year, which stood at 634 billion won last year compared to 629 billion won in 2012, 106 billion won in 2011 and 96 billion won in 2010. As of last year, NARL’s total sales were estimated at about 442 billion won.

Opposition party members Boo and Kim pointed out that the Energy Ministry and KNOC should take joint responsibility for the sale.

“We request a confirmation hearing on the people and organizations involved in the Lee Myung-bak administration’s natural resource diplomacy initiative,” said Kim.

Boo emphasized that the KNOC and the Energy Ministry should clarify why the debt-ridden refinery was acquired and that the people who are accountable for the move should be punished if necessary.

BY KIM JI-YOON [jiyoon.kim@joongang.co.kr]