Korea's 1st US investment project stalled over unclear terms

Korea’s first project under its $350 billion investment commitment to the U.S. appears to be locked in a stalemate, as the two sides remain at odds over details of the terms, even after a gas-fired power plant in Texas has emerged as the likely first investment.

During a ceremony in Washington, D.C., Thursday (local time), Industry Minister Kim Jung-kwan told reporters that an official announcement is expected within this month regarding talks over the first investment project. He added, “There are no particularly major issues, but several domestic procedures need to be completed before the process can be finalized.”

Kim made the visit two weeks after discussing the first investment project with Commerce Secretary Howard Lutnick in Washington. At that time, he said the talks had made “meaningful progress.” However, the government’s initial plan to announce the first project in late August or early September has been delayed.

The first project is expected to be a gas-fired combined-cycle power plant in Encinal, Texas, supplying electricity to nearby data centers. The project was initially estimated to cost about $19.8 billion and have a generation capacity of 6.3 gigawatts. Korea’s Samsung C&T, Hyundai E&C and Doosan Enerbility have been mentioned as potential builders and gas turbine suppliers for the project.

The plant emerged as a leading candidate because growing electricity demand driven by artificial intelligence (AI) could support stable returns through long-term power purchase agreements, with annual returns expected at around 5 percent. This potentially qualifies as a “commercially reasonable” investment under the official Korea-U.S. investment agreement.

However, Korean news outlets recently reported that Washington informed Seoul that the estimated investment cost could increase to $25 billion, more than 25 percent higher than earlier estimates.

According to government officials, the U.S. said the additional $5.2 billion is required because of issues such as securing water for the power plant, but it did not provide sufficient details on what additional facilities would be required or how the extra costs were calculated. The Korean government recently told the U.S. that there were insufficient grounds to determine whether the increase was necessary.

The ownership of the investment is also viewed as a point of contention. The agreement states that $150 billion out of $350 billion commitment is designated for the shipbuilding industry, while the remaining $200 billion is to be made through cash investments.

The agreement states that an umbrella special purpose vehicle (Investment SPV) will be established to manage the $200 billion investment, with the U.S. government or its designees managing and governing it.

While the agreement also states that SPVs for individual projects (Project SPVs) will be “wholly owned by the United States,” it does not clearly specify who will own the Investment SPV.

This leaves room for different interpretations over what constitutes U.S. ownership of the Investment SPV. Washington could limit ownership to the U.S. government or fully American entities, while Seoul may see room for Korean companies to participate through their U.S. subsidiaries.

“The fundamental point of contention appears to be whether investment projects can address questions over commercial reasonableness,” said Lee Tae-kyu, a senior research fellow at the Korea Economic Research Institute.

“If the projects are commercially reasonable, why has U.S. private capital not already flowed into it? Whether it is the ownership issue or the initial investment cost, if commercial returns are clearly assured, those issues should not become major points of contention between the two countries in the first place.”

He added that U.S. President Donald Trump’s remarks on the Alaska liquefied natural gas (LNG) project should also be viewed in the same context. During a press briefing at the White House, Wednesday, Trump said Korea, Japan and other countries are going to Alaska to “load up with oil and build pipelines.”

The Alaska LNG project involves transporting natural gas produced on Alaska’s North Slope through a pipeline stretching about 1,300 kilometers to Nikiski on the Kenai Peninsula in southern Alaska, where it would be liquefied and shipped to overseas markets.

Trump has repeatedly called on Korea to participate in the project, but questions have persisted over its commercial feasibility. The Korean government has also maintained that sufficient commercial returns must be secured before it can encourage domestic companies to invest.

“It seems that there is no unified opinion within Korea on the Alaska project,” Lee said. “Those who place greater weight on economic security argue that the project could help Korea build a stable long-term energy supply chain and therefore should not be judged solely on short-term returns. Others believe it would be difficult for the project to generate sufficient returns in the long term as well.

“With the official announcement of the first investment project approaching, it is important to set a desirable precedent because it will affect following projects,” he said. “The most important issue is whether commercial reasonableness can be secured. Even if the U.S. takes ownership, that would not necessarily be a problem if commercial returns are guaranteed.”