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of the government’s resource development efforts can be summarized as follows. First, the government aims to ensure the stability of supply and demand in case of emergency. Resource development by the public sector can be more rational if resources are developed for security purposes, because the security-related incentive for the private sector, involving such measures as the establishment of an emergency import system, is small, and the operation of resource development projects through state-owned enterprises is more efficient. In this way, if an E&P project is led by state-owned enterprises, equity investment and debt from the government can be effective.
The second purpose is economic stabilization through the price hedging of resource prices. In order for price hedging to have a significant impact, it is necessary to expand the scale of resource development, which can be accomplished by making resource consuming companies participating or acquiring stakes in resource development projects, along with the resource development projects of public enterprises. As the private sector’s ownership of operating right and active participation in upstream projects are not key drivers of the price hedging of resource prices, it can be achieved by attracting private sector for investment if a government support policy to improve the internal rate of return through the loan and tax reduction is implemented. The final purpose is to foster the E&P industry, enabling it to grow alongside new domestic industries. Although private sector’s participation through its equity investment in the resource development industry has contributed to the goal of economic stabilization, its active participation in the operation right business will be necessary to foster the industry. Therefore, it is necessary to establish a support system capable of offering incentives that induce companies to participate in the operating rights business through the taxation system, such as the tax credit for overseas resource development facility investment, Japan’s loss reserves, and the exploration reserves tax exemption.
The purpose of overseas resource development policy is not limited to securing energy security, mitigating the impact of economic shocks, and nurturing the E&P industry. Engaging in resource development for the purpose of economic stabilization can have a positive impact on resource security. As the E&P industry and related industries grow, economic stabilization and security objectives can be achieved simultaneously.
Not only the establishment of policy goals and institutions but also the way in which they are operated needs to be considered. What is important is how consistently the system is operated. The Success Repayable Loan, which was established to support private investment, was not operated consistently, and the improved Special Loan has been poorly implemented. However, Korea’s public sector, rather than the private sector, has started taking the lead in the resource development industry due to the fact that resource development projects require such large amounts of investment. By selecting the performance index, the government has set the target for the public sector. However, as we have seen, policy consistency is a rare thing in the public sector. Considering this,
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the establishment of clear policy objectives and consistent operation of support systems designed to induce private companies to participate in overseas resource development projects should be prerequisites for the establishment of new support systems.
This study has analyzed the Special Loan through theoretical analysis and simulation of the Success Repayable Loan; however, it should be noted that our analysis results have some limitations. In the future, we expect to be able to draw up detailed plans for the Special Loan by establishing models and conducting more realistic simulations that better represent real-world systems.
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Source agency
Korea Trade Insurance Corporation Ministry of Industry
Energy & Resources Development Association of Korea