12/05/2011

Korea's Proactive Energy and Natural Resources Policy: Another Failed Venture?

The Korean Administration has taken a great deal of flack from politicians, the media and the population because of many failed overseas energy and natural resources projects.

The criticism is justified, but the bold efforts should be welcomed and fostered.   I wish the U.S. government would take a much more proactive stance as is being taken by China, Korea and India.

The most recent efforts on the part of the Korean government is to secure a consistent and predictable supply of rare earth minerals.  97% of the mined supply is controlled by the Chinese. 

The target for the Korean investment is South Africa.  I have no knowledge of the specifics of the deal, but I fear that the due diligence and process that led to the deal may lead to another loss of Korean taxpayers' money.

The major reason for previous loses is the poor choice of business, legal and other advisers.  The Korean government, overwhelmingly, wants to work with Korean advisers.  Many of these advisers are hired through social networks and are, thus, not properly vetted.

The vast majority of the Korean business, legal and energy and natural resources advisers operating in Africa, Southeast Asia, Eastern Europe, the Middle East and China are ill equipped to perform the services that they perform for clients.  Also, a natural tendency to not be proactive has led to many advisers not having an active approach, an essential quality for being an adequate adviser.  Obviously, I am making an over-generalization, but, overwhelmingly, these observations hold true. 

Some of the deals that these advisers and lawyers draft, negotiate and execute are laughable at best.  I have seen English agreements drafted to a level that would make native English speaking elementary students laugh.  I have seen joint venture agreements with none of the even most rudimentary minority protection clauses and I have seen leases and real estate deals where obviously the adviser did poor due diligence, which lead to prices far in excess of market prices.

Many of the issues that caused the down fall of the banks were caused, in large part, because of the lack of proactive and informed advice.

Hopefully, Korea will learn its lesson and hire true international business, legal, tax, and energy and natural resources advisers.   If the Korean government would rather work with Koreans, then, most of these advisers would not mind working with Korean advisers.

I would like to note that many Korean business and legal advisers are well equipped for international transactions.  However, the vast majority lack the necessary experience and training to perform to a level necessary in these major international transactions, since the counter-parties often hire (often not facially) the most experienced and equipped international advisers.

The IPG has been on the opposite side of many deals with Korean.  We often work with Chinese companies doing business with Korean and the client is, normally, happy when the counter-party is a Korean law firm and not a Hong Kong, U.S. or British law firm.

NOTE:  The IPG Legal is not engaged in projects in South Africa and we have no affiliation with any advisers in S. Africa.   The IPG is engaged, exclusively, in projects in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, Vietnam and the United States.

For more information on the specifics of the deal, please see:  Korea Invests in Rare Earth Minerals Mines in S. Africa 

What do you think?
____________
SeanHayes@ipglegal.com
www.ipglegal.com