Where Did Tens of Trillions of Won Disappear? Successes, Failures, and Lessons Left Behind

I. Introduction: The Dream of a ‘Resource-Poor Nation’ and the Dawn of Resource Diplomacy

South Korea achieved remarkable economic growth as a manufacturing powerhouse, but behind this success lay a fundamental limitation: dependence on imports for over 96% of its energy and mineral resources, making it a ‘resource-poor nation.’ Each time raw material prices surged, the entire economy wobbled under this unstable structure. To overcome this, the Lee Myung-bak administration made the “stable securing of resources” a matter of national fate and launched an aggressive overseas resource development campaign under the banner of ‘resource diplomacy.’ This was not just about buying resources but directly participating in development to enhance supply stability.

The government set very specific goals. The self-development rate of oil and gas, which was only 4.2% in 2007, was targeted to rise to 18.1% during the administration and 30% by 2019, while the self-development rate for six strategic minerals was aimed to reach 50%. The president himself promoted the “Energy Silk Road” and toured resource-rich countries, while the prime minister was dubbed the “Resource Diplomacy Prime Minister” for leading the policy forefront. Even the Ministry of Foreign Affairs designated 73 overseas missions as energy hubs, making it a whole-of-government total effort.

At the forefront of policy execution were the Korea National Oil Corporation (KNOC), Korea Gas Corporation (KOGAS), and Korea Resources Corporation (KORES) (the three energy public enterprises). The government encouraged aggressive overseas mergers and acquisitions (M&A) to grow them into global majors and provided massive funding through policy financial institutions. Given soaring resource prices and a wave of resource nationalism at the time, this proactive securing strategy seemed rational and urgent.

However, structural problems existed. The policy was strongly pushed top-down by the highest decision-makers, putting enormous pressure on public enterprises to meet quantitative targets for ‘self-development rates.’ This political pressure led to skipping or distorting careful economic feasibility and risk assessments. Ultimately, a decision-making structure obsessed with speed and performance became the root cause of numerous failures that wasted tens of trillions of won in public funds and plunged public enterprises into insolvency. From here, we will deeply investigate how this dream was shattered through specific project cases.

II. The Three Energy Public Enterprises at the Forefront of Resource Diplomacy

The practical execution of resource diplomacy was carried out through the three energy public enterprises. They invested over 26 trillion won acquiring oil fields, mines, and resource development companies worldwide. Let’s examine the highlights and shadows of their major projects.

A. Korea National Oil Corporation (KNOC): The Light and Shadow of Aggressive M&A

KNOC was the core actor in resource diplomacy, leading the most aggressive M&A. It acquired overseas companies worth trillions of won in succession, growing in size, but the results were a dramatic mix of devastating failures and a few successes.

1. Acquisition of Canada’s Harvest Energy: A Symbol of Failure

The most emblematic failure of resource diplomacy is undoubtedly the acquisition of Canada’s Harvest Energy Trust. In 2009, KNOC spent about 4.1 trillion won to acquire Harvest and its refining subsidiary NARL. This deal was a textbook case of comprehensive failure from start to finish.

The biggest problem was the forced “bundling” contract that made KNOC take over the loss-making NARL refinery. Harvest insisted on selling the old, unprofitable NARL, reportedly acquired for 1 dollar, as a condition, and KNOC accepted without legal grounds. It was an irrational decision for an oil exploration and development company to enter the refining business.

More serious were the opaque acquisition process and poor economic evaluation. Merrill Lynch’s Seoul office, which advised on the investment, employed the son of Kim Baek-joon, a close aide to former President Lee Myung-bak, raising suspicions of undue influence in the advisory selection. Ultimately, the NARL refinery generated huge losses and was sold in 2014 for a mere 33.8 billion won, less than 3% of the investment. The Harvest acquisition caused KNOC to suffer an astronomical loss of about 7 trillion won, pushing the company into complete capital erosion.

2. Iraq Kurdish Oil Field: Political Risk and Dashed Expectations

If Harvest symbolizes economic misjudgment, the Iraq Kurdish oil field development is a prime example of reckless investment ignoring geopolitical risks. In 2008, KNOC signed a development contract directly with the separatist-leaning Kurdistan Regional Government (KRG), excluding Iraq’s central government. It was heavily promoted as the “first resource diplomacy project.”

However, this disregarded Iraqi sovereignty, provoking strong opposition from the central government, which responded with oil export bans and exclusion from bidding. Despite internal warnings, the Blue House pushed the contract for political gains. Ultimately, due to instability including the IS crisis, commercial production became impossible. About 1.3 trillion won was invested, but only around 10 billion won was recovered. The “first resource diplomacy project” became an irrecoverable bad debt.

3. Acquisition of UK’s Dana Petroleum: Success in Hostile M&A

Not all investments failed. In 2010, KNOC successfully acquired the UK North Sea oil developer Dana Petroleum for about 3.4 trillion won through Korea’s first hostile M&A. Despite opposition from Dana’s board, KNOC persuaded shareholders directly to gain control.

Initially, losses occurred due to falling oil prices, but as prices recovered, Dana became KNOC’s core high-quality asset, significantly contributing to KNOC’s record operating profit in 2022. This shows that acquiring assets in politically stable and transparently regulated advanced markets increases chances of success.

4. UAE Haliba Oil Field: A Late-Confirmed Success

The UAE Haliba oil field development is also considered a success. Commercial production began in 2019, marking the first case where a Korean company successfully completed exploration, development, and production in the Middle East. The total investment of about 383 billion won is expected to be fully recovered within 5–7 years, and the secured crude oil can be imported domestically or sold to third countries freely, contributing to energy security.

B. Korea Gas Corporation (KOGAS): Mixed Results

KOGAS also made large overseas investments, with dramatic successes and devastating failures.

1. Iraq Zubair Project: The Most Successful Investment

KOGAS’s Iraq Zubair oil field development is regarded as the most successful investment in resource diplomacy. In 2010, KOGAS joined a consortium led by Italy’s state energy company ENI.

The project exceeded expectations, fully recovering the total investment of about 2.7 trillion won by 2017. It continues to operate stably and generate steady profits. The key to success was participating as a minority shareholder in a consortium with experienced global majors, effectively dispersing technical and political risks.

2. Australia GLNG & Canada Horn River: The Backlash of the Shale Gas Boom

Conversely, the Australian GLNG project recorded impairment losses exceeding 1.27 trillion won due to prolonged low oil prices and production delays, marking it as a poor investment. The Canadian Horn River shale gas project, with about 1.1 billion USD invested in 2010, became economically unviable after the shale gas revolution caused gas prices to plummet, resulting in losses of hundreds of billions of won and effectively ending in failure. This is a textbook example of the risks of failing to anticipate structural market changes.

C. Korea Resources Corporation (KORES/KOMIR): The Tragedy of Reckless Investment

The Korea Resources Corporation (now Korea Mine Reclamation Corporation) left behind the most tragic failures in resource diplomacy and was eventually merged with other agencies.

1. Mexico Boleo Copper Mine: Comprehensive Failure and Sale Difficulties

Since 2008, KORES invested over 1.7 trillion won in Mexico’s Boleo copper mine. The project was plagued by poor due diligence, low ore grades, and technical problems, turning it into a chronic money-losing “cash cow.” Losses accumulated to 1.7 trillion won, and KORES fell into complete capital erosion. The government has tried to sell it for years but has failed to find buyers due to massive debt.

2. Madagascar Ambatovy Nickel Mine: From Liability to ‘Core Mineral’

Another large investment was Madagascar’s Ambatovy nickel mine. Initially criticized as a “second Boleo” due to nickel price drops and technical issues causing long-term losses, it turned profitable after 2022 thanks to soaring nickel prices—an essential material for electric vehicle batteries—and stabilized production. It is now re-evaluated as a core strategic asset for future industries, illustrating the importance of long-term perspective and patience in resource investment.

3. Panama Cobre Panama Copper Mine: From Success to International Dispute

KORES acquired a 10% stake in Panama’s Cobre Panama copper mine in 2009, which was long regarded as a success. After commercial production began in 2019, it generated stable profits and paid dividends worth hundreds of billions of won. However, at the end of 2023, large protests erupted by Panamanian citizens claiming environmental destruction and sovereignty violations. The Panama Supreme Court ruled the mine unconstitutional, leading to its closure and turning the project into an international dispute. The major shareholders and the Korea Mine Reclamation Corporation are currently pursuing international investment dispute settlement (ISDS) procedures against the Panamanian government, involving tens of trillions of won.

III. What the Accounting Books and Audit Reports Reveal

The most objective evidence of resource diplomacy’s success or failure comes from official reports by the Board of Audit and Inspection and the National Assembly. In 2015, the Board of Audit concluded in its “Overseas Resource Development Performance Analysis” report that despite massive investments concentrated during the Lee Myung-bak administration, the goal of ‘stable resource securing’ was not achieved. The actual resources brought into the country were minimal, and most investments were mere equity stakes.

The Board pointed to the collapse of internal control systems that failed to check departments that downplayed risks and distorted feasibility. A 2015 parliamentary investigation estimated losses of nearly 30 trillion won by the three energy public enterprises, while civic groups analyzed that resource diplomacy left public enterprises with 56 trillion won in debt.

Note: Investment and loss amounts may vary by report timing and institution; estimates are based on reliable sources.

This table clearly shows the complex legacy of resource diplomacy. While there are successes like Zubair and Dana, losses from Harvest and Boleo overwhelmingly overshadow the gains. Ambatovy and Cobre Panama illustrate that resource investments cannot be judged solely by short-term financial results. However, the undeniable fact is that the combined final score of all projects is a loss of tens of trillions of won.

IV. Who Is Responsible? Judicial Rulings and Political Controversies

As the national project involving tens of trillions of won in public funds was revealed as a total failure, public demand for accountability surged. However, investigations and court rulings resulted in a hollow outcome of ‘failure with no one held responsible.’

Prosecutors indicted former KNOC president Kang Young-won and former KORES president Kim Shin-jong on breach of trust charges. However, courts acquitted them all, citing the ‘business judgment rule,’ which states that losses alone do not prove breach of trust. The courts broadly recognized their decisions as ‘policy judgments’ aligned with government policy at the time.

The investigation shifted in 2015 due to the ‘Sung Wan-jong list’ scandal. Sung Wan-jong, former chairman of Kyungnam Enterprises under investigation for resource development favoritism, left a memo naming influential politicians before committing suicide. This shifted the focus from structural problems in resource diplomacy to allegations of political bribery.

The biggest criticism is that the investigation never reached the top decision-makers. Key figures dubbed the “resource diplomacy five”—including former President Lee Myung-bak and former lawmaker Lee Sang-deuk—were identified as the masterminds but mostly escaped proper investigation. Ultimately, the ‘upper echelon’ who planned and ordered the policy avoided prosecution, while public enterprise heads who executed orders were legally exonerated, creating a bizarre situation where no one took legal responsibility for tens of trillions of won in losses.

V. Conclusion: The Legacy of Resource Diplomacy and Lessons for the Future

Lee Myung-bak’s resource diplomacy began with the grand ambition to overcome the fate of a ‘resource-poor nation,’ but over a decade later, its legacy is a complex mix of success, failure, luck, and misjudgment. This costly experience offers important lessons for future national resource strategies.

On one hand, there are devastating failures like Harvest and Boleo; on the other, successful cases like Zubair and Dana. Ambatovy and Cobre Panama highlight the inherent uncertainty and long-term nature of resource investments. Liabilities can become core assets, and top successes can suddenly become international disputes.

From this experience, South Korea must learn the following lessons for future resource development policies:

• Respect processes, not politics: National resource development must not be a tool for short-term political goals. All investments should be based on transparent and rigorous verification procedures independent of political pressure.
• Redefine risk: A multidimensional approach including not only financial risk but also geopolitical, market changes, social, and environmental risks is essential.
• Choose wise partnerships over solo runs: In early stages lacking experience, participating in consortia with global majors is an effective risk management strategy.
• Establish new evaluation criteria for long-term strategic assets: Beyond immediate profits and losses, a new performance management system is needed to comprehensively assess future industrial changes and national security value.
• Strengthen accountability systems: The recurrence of massive losses without anyone held accountable must be prevented. Clear legal and institutional mechanisms to hold both policy makers and executors responsible are necessary.

In conclusion, Lee Myung-bak’s resource diplomacy is significant for directly confronting the challenge of a ‘resource-poor nation,’ but its execution was marked by haste, opacity, and ignorance of risks. The resulting massive debt and deep social distrust remain a costly lesson that must be remembered when undertaking large-scale national projects in the future.