Seoul and Washington haggle over terms of $200 billion investment pledge

Seoul and Washington are locked in last-minute negotiations over the commercial viability of a $200 billion investment package ahead of an official announcement expected within the week.

President Lee Jae Myung recently said Seoul is "revisiting the terms" as there are parts that are “not easy to agree to,” emphasizing that "Korea only pursues projects that make commercial sense."

By Lee's definition, a project is commercially viable if the revenue Korea is expected to receive over its lifetime covers the full principal and interest on the investment. Korean negotiators are reportedly seeking to write an annual cap of $20 billion into the contract, along with safeguards in case profits are not distributed as promised.

Washington, however, is said to be urging Seoul to begin investing first and assess commercial viability later, local reports suggested, likely reflecting U.S. President Donald Trump's desire to conclude the deal before the midterm elections.

"We are in close consultation with the United States, but finding common ground is taking time," said an official at the Ministry of Trade, Industry and Resources. "We will do our utmost to the end of the negotiations in the national interest."

The leading candidate for the first project is a $22.3 billion gas-fired power plant in Encinal, Texas, intended to supply electricity to nearby data centers. But the project has yet to secure enough buyers willing to commit to purchasing its power over the long term. 

The plant would have a capacity of 6.5 gigawatts, with about two gigawatts from gas turbines and 4.5 gigawatts from combined-cycle units. 

How many contracts Korean companies would win in the project may also be up for dispute. The bilateral memorandum includes provisions supporting Korean participation in design, procurement, construction and equipment supply, but it does not automatically guarantee contracts.

Nuclear cooperation is expected to follow as the next investment, with the central question being how large a stake Korea will take in Westinghouse, a Pennsylvania-based nuclear company.

Washington has proposed that Korea buy a share of Westinghouse as part of the cooperation, while Seoul has offered to acquire roughly 15 to 20 percent, along with a board seat that would give it a voice in the company's decisions, according to multiple local reports. 

The stake matters because Westinghouse collects annual royalties from the Korea Electric Power Corporation and Korea Hydro & Nuclear Power and restricts their overseas exports.

Reports suggest that the United States has been reluctant to grant a board seat, and the two sides may settle near 7 percent, a level at which Seoul would probably find it difficult to place a director on the board.

On the Alaska liquefied natural gas project, Korea is merely considering participating. 

Under the tariff agreement reached last year, Washington lowered the duties on Korean goods to 15 percent from 25 percent in exchange for $350 billion in Korean investments. 

Of that, $150 billion is earmarked for shipbuilding and $200 billion for strategic sectors, invested at up to $20 billion a year, with projects chosen on commercial viability. Profits would be split evenly until the investment principal and interest are recovered, after which the United States would take 90 percent.

A National Assembly committee is expected to be briefed by the government about the investment details in a closed-door session at 9:30 a.m. on Tuesday. Then, Korea and the United States are expected to sign the memorandum on Wednesday.

Lee set off on a trip to the United States and Mexico on Monday that runs through Sunday, during which he is expected to hold separate meetings with the leaders of the United States, Australia and other countries.

BY SARAH CHEA   [[email protected]]