BAI criticized for flip-flopping on oil deal stance

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BAI criticized for flip-flopping on oil deal stance

The Board of Audit and Inspection (BAI) is facing backlash for backtracking on its original assessment nearly three years ago of an overseas energy project by the Korea National Oil Corporation (KNOC), leading to speculation that the audit office was influenced by a transfer of power at the Blue House.

Criticism first emerged on Friday when audit officials released an investigative report into the KNOC’s purchase in 2009 of the North Atlantic Refining Limited (NARL), a Canadian oil refinery, for 1.37 trillion won ($1.24 billion) - a deal slammed by the board as having been made without due diligence.

In its report, the board claimed that a business miscalculation on the part of former KNOC President Kang Young-won had caused the state-run oil developer 1.33 trillion won in losses and asked the prosecution on Friday to investigate him.

The audit office’s referral of the case to the prosecution was the first crackdown on what the country’s main opposition claims was a disastrous “resource diplomacy” initiative by former President Lee Myung-bak.

The controversy centers on the audit office’s sudden change in stance on the KNOC’s business deal with the Canadian oil refinery, which the state-run body sold to an American merchant bank in September for 32.9 billion won, a fraction of what it paid four years ago.

According to the report, the state-run body overpaid for the troubled energy company by paying $10 per share in 2009, when the Lee government was in its second year, instead of $7.30, NARL’s share value at the time.

As well as a prosecutorial investigation, the audit office has also notified the Ministry of Trade, Industry and Energy to file for compensation against KNOC for losses incurred.

The controversy stems from the fact that the audit office already led a probe three years ago into the KNOC’s business deal with NARL in 2012, Lee’s last year in office.

Its 2012 report highly praised the deal, noting that the KNOC ranked in the top 70 in the global market in terms of oil production capacity through its mergers with major overseas oil companies, including the Canada-based oil developer Harvest Operations, of which the NARL is an oil refinery subsidiary.

The report also reveals that the audit office was already aware that KNOC was overcharged in purchasing NARL by 313 billion won.

In stark contrast to its aggressive demand for legal steps to be taken over an alleged breach of trust by Kang, the audit office merely recommended at the time that the person in charge of the merger be suspended for a few months.

Amid growing suspicions that the BAI has consistently reversed its position in order to meet the demands of those in power, an audit official acknowledged that the state-run body had omitted some truths in the 2012 KNOC investment because Kang, who oversaw the signing of the purchase in 2009, was still running the oil developer and did not cooperate with audit procedures.

The audit office has a history of flip-flopping on policy projects dated to former administrations, evidenced most clearly in its change of tune on the four-rivers restoration project carried out under the Lee administration.

While the audit office was completely positive in its evaluation of the 23 trillion won mega project in its 2011 report - in which it said dam construction contributed to the enhanced flood prevention management - inspectors have only recently pointed out that Lee’s signature venture was done in haste and had adverse effects.

“Though it could just be coincidence [that the audit office changed its position following a shift of power], it will lose public trust if it [continues to] display similar behavior,” said Sohn Byung-kwon, a political science professor at Chung-Ang University.


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