Revamp for energy firms

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Revamp for energy firms


Amid a tide of industrial restructuring on debt-ridden sectors, the Korean government is considering overhauling state-run energy companies that are plagued with mounting debt.

In a recent report, global business consulting firm Deloitte suggested that Korea tighten government spending on the indebted state-run oil, gas and natural resources companies by minimizing the government’s role in management of these resources. The firm also said the government should give the resource exploration and drilling functions to private-sector energy companies, the Ministry of Trade, Industry and Energy said on Thursday.

With the report, the Korea National Oil Corporation (KNOC), Korea Gas Corporation (Kogas) and the Korea Resources Corporation (Kores) may face restructuring of their exploration and drilling divisions.

As for KNOC and Kogas, Deloitte suggested four scenarios for KNOC and Kogas. First, sell the KNOC’s oil development business to private companies to reduce corporate debt; second, foster a separate oil exploration company under KNOC to attract private investment; third, sell KNOC’s oil exploration business to Kogas, which has a relatively lower debt burden; and last, a complete merger of KNOC and Kogas.

As Kogas is a Kospi-listed company, the firm’s shareholders may face declines in stock prices if the two energy companies merge.

For the development of other mineral resources, the report suggested the government sell the state-run Kores to a local private company, or foster a separate affiliate under Kores to specialize in exploration and drilling and later attract private money by going public.

The report urged the government to expedite restructuring before the rock-bottom crude oil and natural resources prices rebound. “Due to still-low crude prices, many countries are slashing investments in upstream businesses like exploration and drilling while pushing M&As with other countries,” the report said.

Japan, a large resources importer like Korea, has privatized its state-run energy companies and let them go public to attract private investment and grow on their own. China has also merged its three national oil companies and let them go public for private investment.

The report comes almost two years after liberal lawmakers first criticized the Energy Ministry’s multibillion-won budget during the Lee Myung-bak administration from 2008 to 2012, saying the public energy companies’ overseas projects have barely yielded returns and only left mounting debt.

The debt-to-equity ratio of KNOC nearly tripled from 156 percent in 2010 to 453 percent last year, while Kogas dropped to 321 percent last year from 358 percent in 2010, according to the Energy Ministry. The debt ratio of Kores stood at 6,905 percent last year, from a mere 162 percent in 2010.

Given the worsening balance sheets, the Park Geun-hye government has slashed the energy resource development budget every year since taking office in 2013, and eventually allocated zero won this year.

The Energy Ministry will discuss the consulting firms’ suggestions at a public hearing on Friday to finalize its restructuring plan for state-run energy enterprises by June.


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