Governance of Extractive Industries in the Republic of Korea: A Brief Introduction Jae-Young Yu Kangwon National University

Introduction ROK has the 15 th largest economy in the world GDP: 29 th in 1960  15 th in 2013 Average of 10% annual growth from 1962 to 1994 ( erview) erview Early stage of development; Domestic resources played crucial roles (coal, tungsten, talc, lead, zinc, iron, gold, cement, etc.) ROK heavily relies on the extractive industries

Annual mineral resources consumption in 2012: – 23 trillion KRW (ca. 23 billion USD) – 94% of it imported – Domestic mining occupies only 0.18% of GDP (Source: Yearbook of Minerals Statistics, KIGAM,

Annual Energy consumption in 2012 – ca. 279 MTOE (petroleum 38.1%, coal 29.1%, LNG 18.0%, nuclear 11.4%) – 96% of it imported Source: geDetail.do?idx_cd=2781

Policies Basic direction Measures

Basic direction Aims (Source; Handbook of Resources Development Policies) – Expand financial aid for the promotion of extractive industries from private sector providing private companies more loans to promote overseas resources development increasing financial aid from state-run banks creating more resources-development fund financed by the public corporations – Continuing consolidation and specialization of the resources- development public corporations increasing the investment to pursuit oil company M&A, purchase strategic mineral producing blocks, and secure REE minerals – Strengthening the cooperation in energy and mineral resources with the promising resource-rich countries through summit diplomacy or ODA preemptive search for the promising projects for the boosting packaged resource development organizing and running a pan-governmental supporting system for business feasibility assessment and close examination of detailed financial assistance program

– Strengthening the infrastructure producing information, professionals, and technology on the resources development [information] find means of sharing information between Energy and Mineral Resources Development Association of Korea (EMRD) and other related companies and organizations [professionals] increase matching fund to 10 BKRW for the specialized university for resource development [technology] increase the portion of overseas resources development in the corresponding budget of the government

Basic directions 1.Increasing financial aid through government and state-run banks 1)allocate all the loans to the private companies to develop overseas resources 2)introduce various financing programs e.g. reserve based financing (RBF) and syndicate loan 2.Raising more private funds by rewarding tax benefits 1)expand tax exemption & postpone the deadline of repayment 2)raise resource-develop funds contributed from the public-companies having the corresponding specialties 3.Creating large-scale projects through well coordinated cooperation between public and private sector 1)consolidate & specialize public corporations through M&A and purchasing active producing blocks, bringing further investment from the private sector 2)organize “Korea consortium” consisting of public corporations, resource-related companies and general trading companies capable of launching the big projects 4.Securing REE resources 1)promote overseas development of REE essential for the domestic smelting and rapidly increasing in import 2)designate 6 strategic minerals (bituminous coal, uranium, iron, copper, zinc, nickel) and 6 quasi-strategic minerals (chrome, manganese, molybdenum, tungsten, lithium, REE) 3)support securing projects from the REE-rich countries through strategic energy- resource collaboration

5.Strategic cooperation taking account of the characteristics of the region and project 1)design collaboration customized to each energy-mineral rich country 2)support overseas resource development with the know-hows and network obtained from ODA 6.Encourage packaged resource development 1)prepare a pan-governmental system to support finding the projects with good potential 2)reduce investment risk of the private companies by expanding financial aid and sharing the risk by the public companies 3)diversify the packaged resource development by invoking the participation of multiple parties 7.put more investment to the infrastructure to strengthen the specialties 1)equip information system gathering the information both from on/off line network 2)provide more educational funds to the Specialized University for Resource Development 3)increase R&D budget on overseas resource development

Main Measures – Establishment of Resources Cooperation Committee intergovernmental channel to discuss all the policies, information and collaborations in extractive industries minister, vice minister, CEO’s of public and private extractive- industry companies, presidents of research institute of the corresponding fields. – Human resources cultivation in oil & mineral development nomination of 10 specialized universities for resource development –provide educational funds to train graduates and professors to be specialized in the field establishment of Academy of resource development –short term training

– R&D on Resources Development Technology draw technology roadmap R&D funding through KIGAM – Domestic Resources Development (Measures) continental shelf development projects gas hydrates development projects promoting domestic extractive industries

Promoting Domestic Extractive Industries – Reason Too much relies on the imported resources (metal 98.94%, nonmetal 27.22%) Environment friendly development while strategically secure minimum amount of the resources – Current Status Production: domestic mining occupies only 0.3% of GDP in 2008 Analysis of reserve: metal resources are absolutely deficient, while nonmetal supplies are acceptable – Basic direction efficient development of economically valuable resources enhancement of the competitive edge through the advances in technology more strict management and prevention of the “resources curse” improvement of the supporting system along with the change in the environment of extractive industries

– Some principal projects More basic surveys and reevaluation of the domestic resources Promotion of exploration and efficient development of the metal deposits upgrading of the equipment for better productivity of active mines heightening the added-value and strengthening the competitiveness through providing more funds to R&D pushing it up to higher-levels by creating more added-values more education to train the professionals having resources development specialties help to equip safety facilities to prevent mine casualties tighter control of ‘resources curse’ for the sustainable resources development further automation and informatization of mining management system introduction of more electronic commerce by standardizing the qualities of (mine) products regular meeting of private-public sector joint council to promote more investment in extractive industries improving law and regulations for the advanced governance of the extractive industries

Promoting Overseas Resource Development – Supporting system (services) for the overseas resources development companies General procedures of overseas development – gathering information – purchasing a mining lot (or sector) – survey & exploration – Development – Production Reporting a development plan – Reporting; Overseas Resources Development Business Act, Article 5 – Required forms and documents: Enforcement Decree of Overseas Resources Development Business Act, Article 2 – Feasibility assessment; Enforcement Decree of Overseas Resources Development Business Act, Article 7 – Complemnt of the plan; Enforcement Decree of Overseas Resources Development Business Act, Article 5-2

General Loans – For both domestic and overseas development – 60% of the project budget » Exceptions: continental shelf projects: 80% » Exceptions: Public-corporations: 100% – through EMRD Fire Success Loans – Return principal with surcharge only if it’s successful, otherwise it evaporates Resource Development Funds – Overseas Resources Development Business Act, (Chapter 3) Article 11 – can be raised by a resources development investment firm or private equity fund (PEF) – Benefits » tax abatement on the dividends (Restriction of Special Taxation Act, Article 96-1) » Investment Risk Guarantee (Overseas Resources Development Business Act, Article 13-8) » Other general benefits