http://www.koreatimes.co.kr/www/news/nation/2015/03/116_175486.html

Posted by LE Hoang Trinh, Year 4 undergrad at the School of Information Systems, Singapore Management University

Updated : 2015-03-18 18:37

Prosecution raids Korea National Oil

Investigation into failed energy diplomacy expands

By Kim Rahn

Prosecutors raided the head offices of the Korea National Oil Corp. (KNOC) and Keangnam Enterprises, Wednesday, as part of their widening investigation into allegations of corruption surrounding the failed “energy diplomacy” conducted under the Lee Myung-bak administration.
The raid follows a series of reports by The Korea Times about suspicious money deals made between the KNOC and the Kurdistan Regional Government (KRG) in northern Iraq over the firm’s energy development projects.

Prosecutors said they are currently focusing on an oilfield exploration project that the KNOC and Keangnam jointly conducted in Kamchatka, Russia, from 2005 to 2009. However, they indicated that the probe will expand to include other failed overseas energy projects.

Sources said the prosecution may target Lee’s elder brother and former Saenuri Party lawmaker Lee Sang-deuk and former Vice Minister of the Knowledge Economy Park Young-june, who led the energy diplomacy during the Lee administration.

Investigators from Seoul Central District Prosecutors’ Office seized documents, accounting books and computer files from the state-run KNOC’s headquarters.

The search came several hours after a raid on the offices of Keangnam.

Prosecutors also raided the home of Keangnam Chairman Sung Woan-jong, a former ruling Saenuri Party lawmaker and a close confidant of former President Lee.

In the oilfield exploration in Kamchatka, a consortium consisting of the KNOC and other Korean companies invested some 300 billion won. The consortium held a 45 percent stake in the project ― 27.5 percent by the KNOC, 10 percent by Keangnam and 7.5 percent by SK Gas.

But the project failed, and the KNOC withdrew from it in 2010.

Prosecutors said they obtained tips about embezzlement and other corruption cases while the consortium was pushing ahead with the investment although it knew the expected rate of return from the development would be poor.

The prosecution is looking into other energy projects ― a development program for a nickel mine in Ambatovy, Madagascar, in which Keangnam took part in, together with the state-run Korea Resources Corp. (KORES) in 2008.

As Keangnam was unable to pay for its investment because of poor financial conditions, KORES paid 17.1 billion won on behalf of the firm. In 2010 when Keangnam withdrew from the project, KORES also bought the company’s shares of the project at a price higher than stated in the contract, resulting in losses of 11.6 billion won.

In 2012, the Board of Audit and Inspection (BAI) identified the losses, and it was alleged that KORES accepted the request for the share purchase from Sung because he was close to then-President Lee.

The investigation is expected to expand to other failed energy projects.

In the case of the KNOC’s 2009 takeover of a Canadian oil producer, Harvest Operations, it purchased the company’s debt-ridden affiliate, North Atlantic Refining Limited (NARL), at a higher-than-market price, causing losses of approximately 1 trillion won.

Regarding the deal, the BAI asked the prosecution to investigate former KNOC President Kang Won-young for breach of trust in January.

The Korea Times has reported allegations involving the KNOC, such as alleged shady deals made between the state firm and the Kurdistan government.

It is alleged that $31.4 million which the KNOC sent to the Kurdistan government through an HSBC bank account in return for the right to develop an oilfield there disappeared. Suspicions are that the money was offered as a bribe to ranking officials in the KRG or even to President Lee’s aides.