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S Korea's energy diplomacy tainted by insider-trading scandal

Saturday, 28 January 2012 | 00:00
South Korea's energy ministry said it convened a meeting with state-run energy developers, including Korea National Oil Corporation and Korea Gas Corporation, to call for strict discipline to avoid further insider trading scandals.
At the meeting, which also included executives from Korea Resources Corporation and Korea Electric Power Corporation, the ministry urged energy developers to abide fully by government regulations over insider information. "The meeting was aimed at preventing irregularities on handling insider information and enforcing a screening process in overseas energy development projects," the Knowledge Economy Ministry, which is responsible for energy, industry and commerce, said in a statement.
The meeting follows a stock manipulation scandal related to a Cameroon diamond development, involving key government officials, a scandal that could damage President Lee Myung-Bak's much touted drive to develop oil, gas and other natural resources overseas.
Lee, who took office in early 2008, launched a resource diplomacy drive, sending his elder brother Lee Sang-Deuk and key aides to foreign nations to seek opportunities to develop energy resources there. The president's key aide, Park Young-Joon, has been in charge of the country's resource development strategy as Vice Minister of Knowledge Economy.
But the resource diplomacy drive has come under fire as Lee's key aides including Park are alleged to have been behind a scam for personal gains from a deal to develop a diamond mine in Cameroon.
After a month-long probe into the allegations, the Board of Audit and Inspection urged President Lee Thursday to dismiss Kim Eun-Seok as Ambassador for Energy and Resources on suspicion that he played a key role in driving up the stock price of CNK International, a mineral development company involved in mining diamonds in Cameroon.
The Prosecutor's Office, which has launched its own investigation, Thursday raided CNK's headquarters in Seoul and residences of the company chief and government officials involved and said that they have secured evidence including computer disks and accounting books that would back the allegations.
Energy Ambassador Kim is suspected of deliberately overestimating the size of diamond reserves in a Cameroon mine in a press release the foreign ministry issued in December 2010, which pushed CNK's stock price up.
The ministry's press release later turned out to have been exaggerated. Some foreign ministry officials, including former Vice Minister Cho Jung-Pyo and some of the energy ambassador's relatives, were found to have pocketed large profits, apparently helped by the exaggerated press release.
Park Young-Joon is also alleged to have played a major role in the stock manipulation scandal as he traveled to the Cameroon diamond mine in May 2010 as the Vice Minister in charge of energy, the Prosecutor's Office said.
The energy ministry Thursday denied news reports that the government has extended any loans or financial benefits to the Cameroon diamond project.
Local media, meanwhile, has claimed that the CNK case is just one of the Lee government's failed overseas energy development projects.
A project to develop oil blocks in Iraq's northern Kurdish region Lee initiated in early 2008 has been found to be commercially unviable with little crude reserves discovered, after it used about $400 million, according to a parliamentary report.
Another project pushed by Park and Lee's other aides to develop an offshore gas field in Myanmar is also found to hold little reserves, according to local media reports.
In response, the energy ministry issued a separate statement Thursday and said it is "too early to say that the Iraqi project has ended up with empty hands," noting KNOC is still exploring five blocks in Iraq.
"KNOC has so far drilled one exploratory hole each in the four blocks of Bazian, Sangaw North, Sangaw South and Qush Tappa, and is currently reviewing them," it said.
The state company is in preparation for drilling Hawler, the statement said.
KNOC said earlier that the five fields were estimated to hold a combined 1.9 billion barrels of crude reserves, calling the project a major achievement of the Lee government's "energy diplomacy."
But according to an earlier published parliamentary report, KNOC had failed to find commercial quantities of crude there.
In the case of the Bazian block, the largest of the five, KNOC earlier said it held 1.2 billion barrels of crude reserves, but the parliamentary report said exploration drilling showed it could produce only 200 b/d, far short of initially expected 200,000 b/d.
KNOC has spent about $400 million?$211 million in signature bonus and $189 million on drilling?in exploring five oil blocks since it concluded a deal with the Kurdistan Regional Government in 2007.
The energy ministry Thursday vowed to press ahead with the project to develop the five blocks in the northern Kurdish region until 2013 as scheduled despite the criticism.
Source: Platts
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