By Kim Hyun-cheol
Staff Reporter
The disqualification of SK Energy, Korea's largest refiner, and the state-run Korea National Oil Corp. (KNOC) from a lucrative oil deal in Iraq is inviting criticism on their lack of a global sense in business.
The two companies were removed in the second screening of eligible bidders for the project, in which nine companies out of 38 interested parties were accepted.
Prior to the announcement, Iraqi Oil Minister Hussein al-Shahristani notifie Korean Ambassador Ha Tae-yun of the exclusion, saying the earlier signing of a $2.1-billion deal with the Kurdish Autonomous Region was the reason.
``The signing of this contract was against Iraqi law and its Constitution,'' Shahristani was quoted as saying to Ha in a meeting in Baghdad. ``For that reason, these two companies have been blocked from taking part in tenders.''
In June last year, SK Energy and the KNOC inked a deal with the Kurdistan government for access to nearly two billion barrels of crude in eight fields in northern Iraq that are believed to hold some 7.2 billion barrels of oil reserves. They agreed to invest $2.1 billion in the development of the region's infrastructure.
Critics say the Korean firms had the wrong idea about the situation in Iraq by underestimating the political discord between Baghdad and the Kurds.
Rep. Noh Young-min, currently a spokesman of the opposition Democratic Party, had repeatedly predicted the Iraqi oil deal might end in failure, and it did.
At last year's annual parliamentary inspection of the administration, Noh warned Baghdad would annul all the deals Korea had made with the Kurds, saying the KNOC incited ``false rosy hopes'' by leading a consortium into the northern Iraqi project.
Without the establishment of a new oil law by the central government, all the deals with the Kurdistan autonomous government will be invalid, he said.
``(The Kurds) are trying to get Korean firms involved just because they want to consolidate their rights acquired against the central government. Korean companies were just exploited by the scheme,'' Noh said.
KNOC CEO Kang Young-won told lawmakers that his oil firm would be cautious in their Iraqi project, but eventually ended up being penalized.
Friction between parties within the current Iraqi government, as well as the rocky relationship between the central and Kurdistan regional governments, overshadowed the positive effects of the first visit of its president to Korea, experts say.
Political power in the Iraqi government is shared by the majority Shiites, led by Prime Minister Nouri al-Maliki, and Kurds, including President Jalal Talabani, making it possible for the Shiites to take a different stance from presidential policies.
Kurds, in charge of three of 18 states in Iraq, have long been at odds with the central government over sharing the country's oil wealth.
Talabani's visit in February was expected to be a turnaround moment for chilling relations between the two countries, as the president signed a memorandum of understanding (MOU) on exploration work in southern Iraq's Basra region. However, remarks from Minister Shahristani mean complications are still lingering on the issue.
Criticism is also on the rise that overly hurried moves from Korea have led to the failure, with no sign of agreement yet within the Iraqi government on how to deal with the Kurd issue.
From what Shahristani said, it signals that ``settling down the Kurdistan issue should be paralleled with enforcing mutual cooperation,'' said Professor Seo Jeong-min of the Hankuk University of Foreign Studies.
Both SK Energy and the KNOC say they will not back off from the Kurd deal and the oil minister's remarks cannot represent Baghdad's stance.
``It was an important deal for us, and we are not planning to go back on it,'' a KNOC official said. ``And Iraq also has to respect that the president-signed an MOU.''
An SK Energy spokesman said it was not going to withdraw from the ongoing project in Kurdistan, but would not set up any new businesses without permission from Baghdad.
The only positive sign comes from the fact that the ban was limited to those engaged in the northern projects only. Another state-run Korean firm, the Korea Gas Corp., survived the first qualification last year and is set to vie for the lucrative tender.
The Korea government is still positive on the Iraqi outlook, saying overall resources projects in Iraq will not be affected by the Baghdad decision.
Kim Jung-gwan, energy and resources director-general of the Ministry of Knowledge Economy, said the MOU was initially requested by the Iraqi side, and there will be ``no problem in Korea's oil and gas exploration business in Iraq.''
``A negotiating team will be soon headed for Baghdad to further discuss cooperation with Iraqi officials,'' he added.
Kim also dismissed speculation that the disqualification was to do with the Kurdistan deal.
``It appears Baghdad ruled out SK Energy from the deal because the company didn't meet the required standard of daily production of over 200,000 barrels,'' he said.
hckim@koreatimes.co.kr
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