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Energy

South Korea moves in on overseas coal project financing ban

Aug 24, 2020 (Gmt+09:00)

South Korea's parliament looks set to pass new legislation to ban financing on foreign coal power projects, putting all overseas coal-fired plant deals under way at risk of being scrapped.

Late last month, four lawmakers from the ruling Democratic Party proposed a set of bills, aimed at prohibiting utility Korea Electric Power Corp. (KEPCO), two state-run Korean banks and the state trade insurance provider from financing foreign coal projects.

The draft bills concerning KEPCO, Korea Development Bank, Export-Import Bank of Korea (Korea EXIM) and Korea Trade Insurance Corp. are very likely to pass at the ruling party-controlled National Assembly next month.

Under the proposed bills, the four state-run entities will be prohibited from participating in the construction and operation of coal-fired power plants abroad, as well as extending the life of existing plants.

After passing through the National Assembly’s regular session, the bills will take effect immediately.

“Because of (participation in) foreign coal power projects, the South Korean government faces strong criticism from international society,” said Woo Won-shik, one of four MPs who tabled the bills.

Last month, Japan announced a cut in state support for coal power plants, under growing pressure from environmental activists to cut carbon emissions.

Amid criticism of South Korea lagging in its efforts to comply with the Paris Agreement, President Moon Jae-in unveiled a so-called Green New Deal last month. The state project includes the capacity expansion of renewable energy plants and increase in electric and hydrogen-powered vehicle rollouts. The government plans to invest 114 trillion won ($95.8 billion) in the project by 2025, which it expects will create jobs and boost investment.

COAL PROJECTS IN INDONESIA, VIETNAM

The legislative move comes just ahead of KEPCO’s board meeting set for later this month. Its board of directors will vote on the power utility’s 220 billion won ($185 million) investment in a $2 billion coal-fired power project in Vietnam.

Once KEPCO participates in the Vietnam’s state project as an investor, two South Korean builders -- Samsung C&T Corp. and Doosan Heavy Industries & Construction Co. Ltd. – will be responsible for engineering, procurement and construction of the power plant. Korea EXIM and Korea Trade Insurance are expected to provide financing and insurance coverage, respectively.

In June, KEPCO had difficulty pushing ahead with its investment in the $3.2 billion coal project in Indonesia, in the face of strong opposition from environmental groups. For the project, Doosan Heavy received a $1.5 billion order to construct the two plants. Additionally, 342 small- to medium-sized Korean companies will participate in the project worth $700 million in export orders received, according to a KEPCO source.

Indonesia and Vietnam are the world’s two-biggest coal plant importers, awarding $24.4 billion and $15.9 billion worth of contracts between January 2013 and July 2020, respectively, according to EndCoal, an international environmental group.

Passage of the proposed bills will lead to the scrapping of all Korean companies' overseas coal projects now in motion, as well as heavy penalties for the contract cancellations, an industry source told the Korean Investors.

FURTHER IMPACT

In line with President Moon’s drive to reduce greenhouse gas, Korea has been shutting down coal-fired plants and has banned new construction of coal-fired plants. Accordingly, coal power generators and builders have been looking abroad.

South Korea is the world’s No. 2 coal power plant exporter in terms of orders received, winning $5.8 billon worth of orders between January 2013 and July 2020, according to EndCoal. China is the biggest coal power plant exporter for orders of $50 billion, nearly 10 times more than South Korea.

To compete with Chinese rivals, Korean companies have turned to highly advanced technology owned by Doosan Heavy to cut emissions from coal power plants. Chinese companies have not yet secured eco-friendly technology.

But the new legislation may herald the collapse of the relevant industry in Korea.

In particular, Doosan Heavy would be hard hit by a ban on the country's financing of overseas coal plants, as this accounts for half of its overseas business. The company has already suffered from the South Korean government’s policy to phase out nuclear power.

For Korea EXIM, foreign coal power plant financing represents a significant portion of its business. Between January 2008 and August 2018, the state-run lender provided a combined 6.2 trillion won in the form of overseas coal plant financing. Korea Trade Insurance provided 5 trillion won worth of insurance coverage during the same period.

By Kyung-min Kang

kkm1026@hankyung.com



(Photo: Getty Images Bank)

Yeonhee Kim edited this article

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