Workshop on PPP in the African Energy Sector: Comprehensive Scheme for Development of Resources and Energy Infrastructur

1. <Workshop on PPP in the African Energy Sector> Comprehensive Scheme for the development of resources and energy infrastructures between African countries and Korea July, 2011 Chung, Woo Jin Senior Research Fellow

2. Outline of Contents I. Review of Korean energy industry and investment in African countries II. Africa-Korea cooperation scheme for the development of resources and energy infrastructure

3. I. Review of Korean energy industry and investment in Africa

4. Energy Consumption and Imports in Korea <Primary Energy Consumption> <Energy Imports> million toe billion USD • Energy import / Energy Consumption : 96.4% (2010) • Energy import / total import : 28.6% (2010)

5. Energy Infrastructures in Korea < power plant > < gas trunk line> GW km < oil refinery > thousand b/d export petroleum • Korea’s Place in the World • - Power generation : 10th • - Nuclear capacity : 6th • - Crude oil import : 6th • - Refinery capacity : 4th • Petroleum Export : USD 31.7billion(2010)

6. Minerals Manufacturing Facilities in Korea < copper smelting > < zinc smelting > Th. ton/year Th. ton/year < steel making > Th. ton/year • Korea’s Place in the World • - Steel making capacity: 6th • - Copper smelting capacity : 2th • - Zinc smelting capacity: 4th • Self sufficiency of metallic mineral : 1.2% • Imports of mineral ores : USD 14 billion( 2010)

7. Korea’s Investment in the Energy Plants in Africa < Overseas energy plant construction of Korean companies > <Shares of Investment by African countries> 2006∼2010 Billion USD

8. Korea’s Investment in the E&P in Africa < Overseas E&P investment of Korean companies > <Shares of Investment by African countries> 2006∼2010 million USD

9. II. Africa-Korea cooperation scheme for the development of resources and energy infrastructures

10. Basic Business Scheme Combining E&P project with infrastructure project • Korean companies invest in both of E&P and infrastructure projects in the • African country • The revenues from the E&P project aredistributed to the African government • and E&P investor, and used to repay for infrastructure investment Korean Companies invest invest resource (revenue) E&P projects repay for infrastructure investment Basic Scheme Combining E&P project with Infrastructure project Infrastructure projects revenue African government

11. Model 1 : single investor case • The consortium is composed by the E&P and infrastructure companies in Korea • The consortium invests in both the E&P project and infrastructure project • in Africa Infrastructure company E&P company Korea Consortium (one company) invest E&P project Infrastructure project Africa

12. Model 2 : different Investors case • The E&P and infrastructure companies in Korea invest in the E&P project and • infrastructure project in African country, respectively • The E&P company use some of the revenues for repayment to the infrastructure • investor under the African government’s guarantee E&P company Infrastructure company Korea resource invest invest repay for infrastructure E&P project Infrastructure project Guarantee revenue African government

13. Key Challenges in the Scheme • If the E&P project is in the exploration phase, it is not easy for the scheme to be • an viable business • ex) The world average of probability to find oil or gas is less than 20% • The business characteristics of the E&P investor are different from the • infrastructure investor • The E&P business : a large scale of investment in early stage of the project, a • long term in the recovery of investment • The infrastructure business : recovery of investment is much shorter • Need to negotiate the risk and reward sharing between E&P investor and • infrastructure investor • Majorityof African countries have low sovereign credit rating • Only a few of countries have credit rating of BB- or higher in Africa • This means that it is not easy to secure the sources of finance such as loan and • project financing

14. Possible Solutions • Two step approach • The E&P project in exploration to be linked with smaller scale construction project • After finding the resources, the E&P project to be combined with a larger scale • of infrastructure construction • Adequate risk and reward sharing between the participants including the African • government • The Korean government could involve in the negotiation to draw the agreements • Securing the financing source through the efforts of the participants • The African government’s effort is required to create favorable investment • environment (direct guarantee for the projects, transparent legislative • frameworks, reasonable pricing system for the infrastructure services and etc.) • The participants including Korean government should try to secure the financing • source in their local banks as well as international agencies like World Bank, IBRD

15. Conclusion • Close exchanges on the ideas and discussion between African countries and • Korea will provide a win-win solutions to promote the investment in the • development of resources and energy infrastructures in Africa • The Korea’s investments in the African energy, resources and infrastructure • will contribute to job creating, industrialization and technology transfer • in African countries • - The Korean government is preparing to support various training and • technology transfer programs in Korea as well as the local places of Africa

16. Thank you !