hankyoreh

An oil development site operated by Canadian company Harvest. (Hankyoreh file photo)

An analysis suggests a difference roughly US$1 billion would need to be paid to liquidate Harvest, a Canadian petroleum and gas mining company acquired by the Korea National Oil Corporation (KNOC) as part of resource diplomacy efforts during the Lee Myung-bak administration (2008-13).

“Harvest’s current liquidation value is US$1.38 billion (around 1.52 trillion won), but a difference of around US$1.03 billion (1.13 trillion won) would need to be paid in the sale at the time of liquidation,” said opposition Minjoo Party lawmaker and National Assembly Trade, Industry, and Energy Committee member Lee Hoon in an Oct. 3 press release.

“The reason for this is that the loans and purchase liabilities held by Harvest and KNOC amount to around US$2.41 billion (2.66 trillion won), which means liabilities are greater than the liquidation value,” Lee explained.

Materials received by Lee on the Harvest disposal plan showed KNOC reaching this liquidation cost estimate during its consideration of a sale.

Other disposal plans under consideration included a default and improvement of the company‘s financial structure. KNOC objected to a default as too disadvantageous, noting the potential negative impact on its own credit rating and procurement interest rate. Instead, it focused more on improving the financial structure, stating that it would “develop an exit plan once management improvement has been achieved through government investment and new investment in good assets to allow it to manage projects.”

But Lee argued that “by selling only assets with high strategic value, they’re basically stripping off healthy flesh to treat their wounds.”

“Successful restructuring appears unlikely unless there is a sharp rise in oil prices,” he predicted.

“The Harvest issue is a matter of KNOC‘s very survival. It’s time for the government to take active measures to solve it,” he concluded.

In announcing findings from a late 2015 inspection analyzing performance by overseas resource development projects, the Board of Audit and Inspection said KNOC “spent 4.5 trillion won (US$4.1 billion) on the Harvest acquisition, yet confirmed losses alone have exceeded 1.5 trillion won (US$1.4 billion).”

By Ko Na-mu, staff reporter

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