On the 10th, it was learned that the governments of Korea and the United States are discussing a plan to adjust the method for settling revenue from a $200 billion U.S.-focused investment project to align with Japan's approach, differing from the memorandum of understanding (MOU) agreed late last year.
According to the MOU, Korea was to settle revenue by bundling multiple projects, but the U.S. side requested settlement by individual project. This method has the advantage that losses from one project do not spill over to another, but if losses in a particular project persist, there is a problem that it may take too long to settle revenue or that there may be no revenue at all.
Under Korea's settlement method, even if the first project incurred a loss, settlement was possible if the second and third generated revenue. Because it could move up the settlement timeline, the government had said it was a "better negotiating outcome than Japan." However, as the investment outlay approaches, the United States has requested an adjustment. This has raised concerns that other safeguards specified in the MOU could also be broken at any time.
A senior government official said, "There is a way to manage all projects by bundling them entirely, and there is a way to transfer revenue from highly profitable individual projects to some loss-making projects; we are discussing several options."
◇ Agreed to invest $200 billion, but U.S. seeks additional investment
Earlier, when announcing the MOU with the United States in Nov. last year, the government said it had negotiated better than Japan in three major respects: ▲ risk-pooling through an umbrella special purpose vehicle (SPV) ▲ annual investment disbursements capped at $2 million ▲ setting the interest rate higher than Japan's. Among these, the first safeguard, touted as the biggest achievement, has been shaken just before investment execution.
The government insists it will hold the line on the "annual $2 million disbursement cap," but as the total project size may grow beyond $20 million, it has become difficult to be sure this safeguard will be upheld.
The investment size for the Encinal gas combined-cycle power plant project in Texas and the construction of eight nuclear power plants, which the government is reviewing as the first and second projects, reaches $140 billion. That already amounts to 70% of the total investment. In addition, the U.S. side has reportedly proposed the Alaska LNG development project, and if the investment materializes, the total investment size could exceed $200 billion.
◇ Is the interest rate definitely higher than Japan's? MOU only specifies "premium up to 30 bp"
The government also said "the repayment interest rate on the investment funds is higher for Korea than for Japan," but some note that the MOU provisions are somewhat unclear. According to the MOU and the special act on U.S.-focused investment, the repayment interest rate is the yield on 20-year U.S. Government Bonds at the time of investment plus a premium agreed by the two countries. Regarding the premium, the MOU states it "cannot exceed the value obtained by adding 30 bp to the investment premium under similar MOUs the United States has with other countries."
On this wording, the government said, "It means a rate 30 bp higher than the premium agreed between the United States and Japan." However, an analysis suggests that, based on the MOU provision, it means up to 30 bp can be added, and it is hard to interpret it as requiring that 30 bp must be added.