General loan and Special Loan systems

35

36

Table 3-1. Petroleum development loan amount and cumulative loan recovery

Categor y

Total loan amount

Amount collected Exem

pted or reduce

d amoun

t Loan Interest Special

charge Total

Success Repayable

Loan

3003.6 543.3 175.5 881.0 1599.8 817.9

General

loan 731.2 720.5 175.4 - 895.9 -

Total 3734.8 1263.8 350.9 881.0 2495.7 817.9 Source: Korea National Oil Corporation (2017), as of the end of March 2017.

The basic Success Repayable Loan covers 50% of a project’s total cost and can cover up to 80% of the total cost if a certain percentage of merit points is added, depending on the type of business.²⁹ Since 2017, the maximum loan ratio has been limited to 30% of the project cost through the Special Loan. The loan period is 15 years or less, including the grace period, but can be extended, if necessary, with the approval of the Minister of Industry and Commerce. The interest rate applied to the loan principal is determined in accordance with the

“Guidelines on Special Accounting for the Energy and Resource Development Business” and is usually similar to that of three-year government bonds. The interest is assumed to be accrued from the end of a grace period, and an amount equivalent to six months of accrued compound interest is added to the principal.

Figure 3-1. Changes in loan ratios of overseas resource development loans (after Asian financial crisis)

29 Based on the ninth revision (2012) of the loan standards for funds required for overseas resource development projects.

37

Source: Overseas Resource Development Promotion Foundation (2017, p.59).

원문 번역문

15차/16차/17차/18차/19차/20차 개정 15th / 16th / 17th / 18th / 19th / 20th revision 탐사: 민간 60-80%, 공사 60-80%

개발: 민간 50%, 공사 50%

생산: 민간 50%, 공사 50%

개발생산: 민간 50%, 공사 100%

석유정제업자 20% 우대지원

Exploration: private 60-80%, public corporation 60- 80%

Development: private 50%, public corporation 50%

Production: private 50%, public corporation 50%

Development and production: private 50%, public corporation 100%

20% preferential for petroleum refining companies

22차/9차 개정 22nd / ninth revision

탐사 개발 생산: 기본 60% + 가점비율

동반진출사업 10%, 운영권자사업 10% 우대지원

Exploration, development, and production: basic 60%

+ merit points

10% preferential support for Joint venture project or operator’s business

14차 개정 14th revision

탐사 개발 생산: 최대 30%

감면비율: 최대 70%

Exploration, development, and production: up to 30%

Reduction ratio: up to 70%

*해외자원개발기본계획 수립(1차: 2001년, 2 차: 2004년, 3차: 2007년)

* Establishment of Basic Plan for Overseas Resource Development (1st: 2001, 2nd: 2004, and 3rd: 2007)

In the case of oil development loans, a portion of the principal and interest is repaid twice a year: the first half is paid by the end of September 15, and the second half is paid by March 15 of the following year.³⁰ Currently,

30 For the overseas mineral resource development loan, a portion of the principle and interest is repaid once a year.

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the amount of semi-annual redemption is equivalent to the operating balance multiplied by the loan contribution ratio.³¹ In contrast to general loans, the Special Loan, which allows for the exemption of all or part of the loan principal and interest, reduces the principal to be repaid by up to 70% in the event of the failure of an exploration (survey) project. The remaining 30% of the principal is reimbursed after the termination of the exploration (research) project.³² Under the Special Loan, the “failure of a project” refers to an exploration project that was terminated without reaching the commercial production stage or for which all or part of the loan principal cannot be repaid due to non-business-related reasons, despite having reached the commercial production stage.³³ If a company wishes to receive an exemption for all or part of the principal of a loan, it may submit an application for such an exemption to the Ministry of Commerce, Industry and Energy within two years after the termination of the project (or contract). The loan exemption or reduction will be reviewed by the Loan Deliberation Committee.³⁴

In the case of project success, the company is required to pay a special contribution to the government in addition to repaying the principal of the loan. The Special Loan reduces risk by reducing the amount of loan principal that is to be repaid in the case of project failure, while imposing a special charge on the company in the case of project success, thereby recovering the premium for the project and returning it to the national treasury.

After successfully reaching the commercial production stage, the company will pay a special charge equivalent to 20% of the net profit multiplied by the loan contribution rate to the government for a period of 15 years after it completely recovers the exploration and development funds it spent and the principal of the government loan it received. As the number of successful projects grows, it will be possible to recover Special Loan principal losses.

If the special charges are operated in the form of a single fund, they can be used as a means of preserving the principal and interest or expanding the fund when the project success rate increases.

Table 3-2. Comparison of the success repayable loan and special loan Category Success Repayable Loan Special Loan Ceiling on

loan amount

50% of investment

(up to 80% through merit points) 30% of investment

31 The operating balance is the balance after offsetting operating expenses for the period, cumulative unrecovered operating expenses, recovered development expenses, and cumulative unrecovered development expenses from semi-annual business income. The loan contribution ratio is the ratio of the total loan amount to the total exploration (survey) expenses.

32 A 100% exemption for the loan principal is provided in the case of the Success Repayable Loan.

33 Article 13 of the Ministry of Industry’s Notification No. 2017-9 (Loan standards for funds required for overseas resource development projects).

34 Article 21 of the Ministry of Industry’s Notification No. 2017-9 (Loan standards for funds required for overseas resource development projects).

39 Reduction

rate in failure

100% reduction

70% reduction (30% of loan amount received is repayable after completion of

exploration project) Special

charges

Profit³⁵ x loan contribution x 20%

Same as Success Repayable Loan

Source: Notification of “Loan standards for funds required for overseas resource development projects.”