Seoul suspected of inflating oil development deal with UAE

The South Korean government is suspected of having exaggerated an oil development deal with the United Arab Emirates, which it earlier claimed would “guarantee” participation by South Korean companies, informed sources said Thursday.

The government had claimed its memorandum of understanding, signed with the UAE early last year, would entitle the country to a production-sharing-agreement at one of the Middle Eastern country’s six production mines with more than 1 billion barrels of oil in confirmed reserves.

The sources, however, said the deal only states the UAE “may” offer a chance to eligible South Korean companies to purchase stakes in one of the six oil mines that are currently owned by major global oil companies.

An official from the Presidential Council for Future and Vision, which led negotiations for the MOU, also noted the MOU itself may not guarantee South Korean companies’ participation, but said it will eventually lead to participation by South Korean firms “in one way or another.”

The official said negotiations were already under way for how and when South Korean companies will join the UAE’s oil development project, adding Abu Dhabi’s production sharing agreements at its joint oil mines with global oil companies will begin to expire from January 2014.

Still, the suspicion about the government’s intentional exaggeration is expected to spark a new round of debates over the Lee Myung-bak administration’s so-called energy diplomacy.

The government has long been under fire for overstating its achievements, especially the ones that involved the president, including the controversial oil development deal with Abu Dhabi.

In 2009, the government greatly emphasized the president’s role in signing a $40-billion deal with the UAE to build a nuclear power plant in the Middle Eastern country. In fact, the deal had been negotiated and signed by the Korea Electric Power Corp. and was only worth some $20 billion.

The government then claimed an additional $20 billion would be added by future contracts for the maintenance and operation of the power plant for at least 60 years upon its completion. No such deal has yet been signed.

When announcing its MOU with the UAE on the oil development project, the government also publicized its agreement to store up to 6 million barrels of UAE oil at the country’s emergency reserve facilities free of charge.

The sources, however, said the free storage service had been offered in exchange for South Korean companies’ participation in UAE’s oil development projects, which, reportedly, is not even guaranteed.

Storing 6 million barrels of oil at the country’s strategic reserve facilities costs up to 12 billion won ($10.5 million) a year, according to officials from the Korea National Oil Corp.

South Korea had 40.5 million barrels oil in emergency stockpiles at the end of last year. 

(Yonhap News)