Energy Reform of Korea National Oil Corporation high on the agenda The Ministry of Commerce, Industry and Energy (MOCIE) will place the focus of its energy policy for 2006 on energy creation as a new growth engine, Lee Won-gul, vice minister of the MOCIE, said recently. "In 2006, the ministry will firm up its base to expand the energy supply capacity on a stabilized basis, while promoting the public functionality of energy,' said the vice minister in an interview with the Korea IT Times. The ministry will map out the third electric power supply and demand basic plan, which includes the implementation of a contract to introduce LNG on a long-term basis after 10 years and the setup of a long-term plan for the coal industry. Along with this, the ministry will activate development of overseas resources by pushing for revision of the Korea Petroleum Corporation Act in such a way as to actively foster enterprises exclusively dealing with resources development and introducing the oil field development fund amounting to 200 billion won, he said. "At the same time, we will strive to create a new growth engine in the energy sector through active fostering of the market-friendly energy saving industry and the new and renewable energy industry, advancement into overseas markets by the domestic energy industry and expansion of R&D investment," said the vice minister. Also, the government plans to strengthen public function by enhancing equality of the energy service for the low-income bracket. Asked about the government's measures to tide over the era of high oil prices, Vice Minister Lee said, "In the past two years, international crude oil prices structurally upgraded by one step under the pressure of a rising demand for oil amid the favorable global economy and restrictions on oil producing countries' ability for surplus supply," said Lee. "Entering this year, the global oil prices continue rising, affected by Iran's nuclear development issue and Nigeria's unstable oil supply in the wake of recent unrest," he said. As of Feb. 1, 2006, international oil prices hit a record high with the Dubai oil reaching $61.1 per barrel. The average oil price between Jan. 1 and Feb. 21 this year stood at $58.22 per barrel, up 51.6% from a year earlier and up 8.8% from the end of last year. "To effectively cope with the recent high oil prices, the government will exert all-out efforts to secure energy and resources stably through expansion of development of overseas resources," Lee said. "The government will also seek ways to improve efficiency of energy use and bolster its energy-saving policy, while striving to develop future energy, including new and renewable energy," he said. Along with this, the ministry will enhance its ability to cope with possible crises, including worsening of the Iranian nuclear issue, by expanding its oil storage for emergency. As part of its efforts to save more energy, the ministry will encourage people to participate in the energy saving campaign voluntarily, while accelerating the conversion into an energy low consumption society on a mid- and long-term basis. In case self-regulatory steps reach a limit owing to an abnormal surge in oil prices, the government will seriously consider employing a compulsory energy saving measures on a step-bystep basis, he said. Commenting that Korea depends for 97% of the energy it uses on foreign countries, Vice Minister Lee stressed the necessity of securing energy stably. "In line with this, the government has set development of overseas resources as a national agenda and has been pushing ahead with proper measures through hosting of national energy consultation meetings, which are presided over by the president," he said. Korea's development activities of overseas resources dampened temporarily right after the 1997-1998 Asian financial crisis, but the results of the government's such efforts have been visualized thanks to summit diplomacy and enterprises' strategic participation in the overseas resources development project. Korea's investment in oil field development continued to rise from $340 million in 2001 to $590 million in 2003, $670 million in 2004, and again to $800 million in 2005. Accordingly, the nation's self development ratio of crude oil went up from 2.0% in 2001 to 3.0% in 2003, 3.8% in 2004, and further to 4.1% in 2005. In particular, the nation attained tangible results in oil exploration projects in Nigeria and Vietnam last year, following Russia and Kazakhstan, thanks to President Roh Moo-hyun's summit diplomacy, he said. As a means of expanding such favorable results for development of overseas resources, the government will continue bolstering resource diplomacy by strategic region, while pursuing expansion of diverse financial resources for oil exploration projects and strengthening of public and private companies' ability to develop overseas resources. In particular, it will analyze main factors for successful advancement into overseas markets by the domestic energy industry and make the best use of the analyzed results, setting them as model cases for Korean-style development of overseas resources. Besides, the ministry will use private financial sources through introduction of oil field development funds and actively foster private enterprises specialized in development of overseas resources through expansion of infrastructures such as R&D and manpower. Along with this, the government will make a strong push for reform of Korea National Oil Corporation gradually for effective management.

The following are excerpts from an interview with Lee Won-gul, vice minister of the MOCIE: Q: Would you comment on the Ministry of Commerce, Industry and Energy's plan to expand supply of new and renewable energy A: In preparation for continuation of high oil prices and regulations on international environment, the government will make policy efforts, including allotment of enough budgets for development and supply of new and renewable energy. The ministry plans to expand the portion of new and renewable energy to primary energy to the 5% level of advanced countries by 2011, he said. In 2001, the supply ratio of new and renewable energy was 7% in France, 4.3% in the United States, 3.0% in Japan and 2.2% in South Korea (in 2005). Q: Global societies are making jointed efforts to tide over an era of high oil prices. What is the meaning of the international cooperation And what is the role and future plan of Korea A: Recently, uncertainties are continuing in the international energy market owing to political instability in the Middle East region and a surge in demands for oil by developing countries, including China. Resource-rich countries need massive amounts of money and time to develop and produce resources, whereas resource consumption countries are staging stiff competition to secure enough resources, resulting in uneasiness in the supply of oil. Accordingly, to jointly cope with energy crisis and strengthen energy security, oil producing and consuming countries are required to seek energy cooperation for mutual survival, said Vice Minister Lee. Q: Would you introduce the government's plan for privatization of Korea South-East Power Co. (KOSEP), an affiliate of Korea Electric Power Corp. (KEPCO) Do you have any idea for privatization of other KEPCO subsidiaries A: Under the basic plan to privatize affiliates of KEPCO, the government selected KOSEP as the first target for privatization and tried to do so. However, the sell-off of the managerial right of KOSEP was suspended temporarily owing to nonattendance of final bidders, including POSCO, SK and J-Power, in the bidding. As a second step, the government attempted to list shares of KOSEP on the stock market, but failed as the anticipating public subscription price fell far behind the book value. As a result, the ministry plans to concentrate its energy on enhancing the corporate value of KOSEP, while pushing for listing of its shares on the stock market at a proper time in the near future. As for privatization of other KEPCO subsidiaries, the ministry is planning to map out various measures for privatization suitable for market conditions in the future.