“Oilfield Project Forced From the Top”

“The working staff of the Korea Railroad was troubled because they had no choice but to follow the initiative of the confident “top” authority, even though they preferred a careful approach on the project.”

“The project was carried out in an unreasonable manner, such as signing the contract and remitting the 10 percent down payment even before due diligence,” said Doctor Kim Gwang-hwan (39, photo) who helped investment in the Sakhalin, Russia oilfield development project of the Korean National Railroad (currently the Korea Railroad). Kim testified in an reporter’s interview in Moscow on April 16, saying, “I heard officials of Korea Crude Oil (KCO), which had suggested the project, confidently telling Korea Rail ahead of President Roh Moo-hyun’s visit to Russia last September that ‘this project will be included on the Korea-Russia summit agenda.’”

Kim is an international conference interpreter who graduated from the Graduate School of Interpretation and Translation at Hankuk University of Foreign Studies, and is a Russian specialist who majored in international politics at the Moscow State Institute of International Relations. At the request of the state-run railway corporation, he has submitted two reports related to the oil exploration project since last September, engaged in the due diligence on the oilfield development company Petrosakh in Sakhalin Islands, and also participated in the three negotiations between the Korean railway authority and the Russian investment company Alfa Eco to demand repayment of the contract deposit after the cancellation of the deal. The following are questions and answers from the interview with Kim.

Why did this project become so unusual as to give the deposit even before signing the contract?-

“The contract was already concluded when I jumped into the project, but deals are generally made after signing MOUs and due diligence. I think the process was rushed to save time. According to what I heard from an Alfa Eco official during the negotiation for deposit repayment, the chairman of a Korean oil development company, Gwon Gwang-jin, had promised Alfa Eco since 2003 that he would sell Petrosakh to a Korean company, which was not realized. Kwon was convinced that Korea Rail would acquire Petrosakh, but Alfa Eco demanded 10 percent of the deposit in advance, saying it was hard to trust his words.”

Was everything suggested by the KCO to the Korea Railroad true?-

“The KCO said that Petrosakh had business rights over the entire Sakhalin-Six block, but actually it was entitled to only some 20 percent of the onshore oilfield and continental shelves. It was later revealed that its officials’ remarks of including the project in the ‘summit agenda’ to exaggerate the project as if it was the president’s ‘interest’ were not true.”

What were your reports submitted to the railway corporation about?-

“The first report presented in September advised a prudent approach given the risk of the project, and the second report submitted in November after due diligence was optimistic and judged the project “worth doing.” The Sakhalin-Six block had ample business potential as it was already producing 200,000 tons in onshore oilfields annually. The financial status of Petrosakh was actually in the black, although there were problems with the books due to Russian corporate practices.”

Ki-Hyun Kim kimkihy@donga.com