Korea Electric Power Corporation and Korea Hydro & Nuclear Power Co. (KHNP) are locked in a commercial dispute worth about 1.4 trillion won. It began with Barakah, the first export project for a Korean nuclear power plant in the United Arab Emirates (UAE). KEPCO placed the order and KHNP built it, but design changes and construction delays led to additional expense. After talks over who should bear this expense fell apart, KHNP filed for arbitration against KEPCO, saying, "Pay 1.4 trillion won."
But the commercial arbitration is being conducted in the United Kingdom, not Korea. KEPCO and KHNP are both our state-owned companies and have a parent-subsidiary relationship, so why has such an implausible situation arisen?
The government said this is "because the Barakah project contract includes a clause that commercial arbitration will be held in the United Kingdom." The contract was concluded among the UAE's Emirates Nuclear Energy Corporation (ENEC), KEPCO and KHNP. It is said to include a clause to the effect that "if commercial arbitration is conducted, it will follow U.K. law at the London Court of International Arbitration (LCIA)."
As a result, KEPCO and KHNP ended up conducting commercial arbitration in the United Kingdom. The two companies each retained a law firm, and related expense is expected to reach at least 36.8 billion won. Since KEPCO owns 100% of KHNP's equity, the outcome will effectively be an internal settlement regardless of the result, yet substantial time and resources will be consumed.
Accordingly, the Ministry of Trade, Industry and Resources, which oversees nuclear plant export projects, is seeking to bring the KEPCO-KHNP arbitration case home. Minister Kim Jung-kwan of the Ministry of Trade and Industry (MOTI) said during a public institution briefing on the 8th, "The public will never accept (the situation of conducting commercial arbitration in the United Kingdom)," adding, "The arbitration case should be moved to the Korea Commercial Arbitration Board (KCAB)."
However, KEPCO and KHNP have not made clear whether they will bring the arbitration case home. For more than 10 days, they have said only that it is "under internal review." The two companies were moved under the Ministry of Climate, Energy and Environment in Oct. last year and are no longer directly supervised by the Ministry of Trade and Industry (MOTI). But since the climate ministry is responsible only for domestic nuclear plant construction and operation policy, it does not get involved in disputes related to overseas nuclear projects. A government official said, "It is true we have no means to force a transfer of the arbitration," but added, "We will present an opinion that the two companies can follow."
In legal circles, some say, "Even if the KEPCO-KHNP arbitration case is brought home, the related expense will not decrease." That is because the two companies are likely to proceed with arbitration while keeping the law firms they have already retained. A legal expert specializing in international arbitration said, "The only effect would be that tens or hundreds of millions of won in expense payable to the arbitration institution would go to a domestic body instead of a foreign one."