▲ The Minister of Trade, Industry and Energy and the Minister for Trade attend a parliamentary report on U.S. investment.
Evaluations indicate that the government has secured a key achievement of establishing an "investment safety net" following intense negotiations with the United States.
The Ministry of Trade, Industry and Energy announced today (October 1) that the investment structure and investor protection safeguards agreed upon in the memorandum of understanding (MOU) signed by South Korea and the U.S. late last year will be reflected in the actual special purpose vehicle (SPV) operation contract.
Accordingly, all South Korea-U.S. strategic investment projects will have a single umbrella investment special purpose vehicle (I-SPV) collectively manage funding and profit distribution for all projects.
Recently, contrary to the previous agreement, the U.S. demanded individual settlements for each project, but the government maintained the umbrella approach after arguing that there was a high risk of diminished recovery prospects for principal and interest.
The umbrella approach is a structure that allows the return rates of the overall investment to be protected using profits generated from other projects even if a loss occurs in a specific business.
Based on this umbrella investment structure, the government has also established a risk-pooling mechanism.
The existing MOU stipulated that profits would be split 50-50 only up to 20 years after the start of the business, after which the U.S. would take 90 percent and South Korea 10 percent, creating a structure where losses would be absorbed if principal and interest could not be fully recovered within 20 years.
Through these negotiations, the two countries agreed to maintain the 50-50 profit distribution until South Korea fully recovers the total principal and interest on the entire project investment, and that the U.S. side will only take 90 percent after the recovery of principal and interest is completed.
The Ministry of Trade, Industry and Energy emphasized that the 50-50 distribution ratio will be maintained not just until individual projects recover their principal and interest, but until the investment principal and interest for the entire project are fully recovered.
Minister of Trade, Industry and Energy Kim Jeong-gwan stated, "What we considered most important was how to recover the principal and interest," adding, "We stipulated that the distribution ratio cannot be handed over to the 1-to-9 structure favorable to the U.S. side until the entire business is bundled together and all principal and interest are recovered."
Investment safety devices not present in the existing MOU have also been established.
A new clause was added allowing both countries to consult and revise business plans and budgets if problems occur, such as a significant impairment of project profitability or construction costs exceeding estimates by more than 20 percent.
Minister Kim explained, "If profitability drops, a 50-50 distribution will not suffice, and we have secured the basis to renegotiate the profit distribution ratio itself by demanding 80 to 90 percent for our side."
Investment caps were also explicitly codified.
It was specified that even if projects are added or business costs increase, they cannot exceed the annual 20 billion dollars and total 200 billion dollars stipulated in the MOU, thereby blocking the possibility of additional capital injection.
Regarding the investment cap, Minister Kim stated, "We made it clear to the U.S. side that the 200 billion dollar limit cannot be exceeded."
(Photo: Yonhap News)
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