Seoul to invest $21.5b in energy

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Song Jung, FT Syndication Service
SEOUL: South Korea's public pension fund plans to invest $21.5bn in energy development projects over the next 10 years including the purchase of major stakes in overseas oil fields or the acquisition of a foreign oil company.
The plan was announced as the South Korean government, keen to secure stable energy supplies amid strong oil prices, steps up its efforts to develop foreign oilfields and other energy sources.
The state-run National Pension Service, the world's fifth-largest pension fund with $240bn under management, has agreed to make joint investments in overseas projects with three state-run energy companies - Korea Gas Corporation (Kogas), Korea National Oil Corporation (KNOC) and Korea Resources Corp.
The plan will make the NPS the country's largest financial investor in overseas energy development projects, giving financial support to South Korean energy firms competing with foreign rivals such as India's Oil and Natural Gas Corp and China's Sinopec to secure energy supplies.
"The pension fund's active participation in overseas energy development projects will add strength to the government and our companies struggling with a lack of fund in this global energy war," Kim Young-joo, South Korean commerce minister, said at the signing ceremony last Sunday.
The NPS said the plan would help it diversify its investment portfolio and boost returns as it faces a fund shortfall in coming decades because of its ageing population.
The fund will make investment decisions after reviewing proposals by its partners on a case-by-case basis, an NPS spokesman said. But the investments will be made mostly in oil or gas fields that are already in production to minimise risks.
Analysts criticised the plan, saying it could cause a conflict of interest as the NPS will be using public pensions to advance national interest. The government aims to increase the country's self-supply ratio of crude oil and gas to 28 per cent by 2016 from 3.2 per cent in 2006.
"The plan seems to have been influenced by political motives. There are few cases worldwide where pension funds directly invest in energy development," said Kang Sung-won, a researcher at Samsung Economic Research Institute.
"It is a huge amount of money. They are making risky bets in long-term projects with no guarantee of future profits," he said. "I am not sure if national interest will lead to higher returns for pensioners."