South Korean construction firms hit hard by Iran sanctions

A general view shows a bridge under construction on the Han river in Seoul. Korean overseas contruction orders have been hit by sanctions against Iran. (AFP)
Updated 08 November 2018
0

South Korean construction firms hit hard by Iran sanctions

  • Seoul imports about 12m barrels per month of oil from Iran.
  • Contractors feel impact of sanctions on overseas orders.

SEOUL: South Korea may have won an exemption from the US to continue Iranian oil imports, but major construction companies here are still reeling from the renewed American sanctions against Tehran.
Hyundai Engineering & Construction (E&C), a business arm of Hyundai Group, announced on Oct. 29 that it had scrapped a deal with Iran’s Ahdaf Investment Co. to build a petroleum refining facility in Iran.
The deal was worth $520 million — about 15 percent of the $3.4 billion construction project led by Hyundai Engineering consortium. Hyundai Engineering is an infrastructure unit owned by Hyundai Motor Group.
“We had no choice but to cancel the deal,” Yum Dong-yeon, a spokesman for Hyundai E&C, told Arab News. “We’re just sorry to lose the deal, and it is difficult now to anticipate if and when we will be able to be engaged in Iran businesses again.”
The remaining project led by Hyundai Engineering is expected to be nullified.
“It’s impossible now to carry out the deal, as a grace period of the preliminary contract has already expired,” a Hyundai Engineering public affairs official said, asking not to be named.
SK Engineering & Construction (E&C) has also been hit by the renewal of US sanctions against Iran. The firm, affiliated with South Korea’s third largest conglomerate SK Group, signed a $1.6 billion preliminary contract last year to upgrade a refinery in Tabriz, some 600 kilometers northwest of Tehran.
The firm also bagged a $3.6 billion contract to build and operate new power plants in Iran under a joint project with Turkey’s UNIT International. The contract is Iran’s largest private energy project, to produce combined generation capacity of 5,000 megawatts.
“We have yet to enter main contracts with Iranian counterparts, so we haven’t suffered any financial loss at the moment,” said Yeom Suk-bae, a senior communications manager at SK E&C. “However, it’s a setback obviously to our plan to make inroads into Iran, a new and growing market in the Middle East.”
Daelim Industrial is also one of the South Korean construction firms that have canceled projects in Iran. The company revoked a $2 billion deal in June with an Iranian oil refining company.
Kim Jong-gook, head of the Middle East and Africa business bureau at the International Contractors Association of Korea, painted a grim picture of South Korean construction projects in Iran in the long-term.
“South Korean construction firms have already been affected by the feud between the United States and Iran before the sanctions come into force,” Kim said.
The restored US sanctions, focused on banning any financial transaction with Iran, would hinder South Korean firms from going ahead with any contract with Tehran, he said.
“For South Korean construction companies, Iran is regarded as a new market with great potential,” Kim said. “As Iran’s oil exports are to be reduced in the aftermath of the restored US sanctions, energy corporations of the Middle East nation will likely suffer the shortage of foreign exchange, which will lead to the shrinkage of their construction projects.”
Oil refineries and petrochemical firms in South Korea breathed a sigh of relief about the “temporary waiver” for Iranian oil imports, but braced for risks down the road.
As one of the eight countries exempted from the US sanctions, South Korea is allowed to buy Iranian oil over the next six months on the condition that the imports volume should be reduced significantly. Any payment must be made through a bilateral Korean won currency account.
The South Korean government did not disclose the scale of reduction in Iranian oil imports, but oil refinery industry sources estimate that they are allowed to import about 4 million barrels per month, more than half of last year’s imports volume. South Korea imported an average of 12 million barrels per month of crude and condensate from Iran last year, according to the state-run Korea National Oil Corp.
South Korea in particular is a large buyer of Iranian condensate, a super light form of crude oil used by its large petrochemical industry. Of the Iranian oil imported last year, condensate accounted for some 70 percent.
“We’re trying to diversify sources of oil imports in the wake of Iran sanctions, but it’s not so easy to find alternatives for condensate,” an official of SK Innovation, the largest petrochemical company in South Korea, said on condition of anonymity.
Amid a sharp drop in imports from Iran, Qatar has emerged as the biggest export of condensate to South Korea, according to the Korea Petroleum Association. Qatar accounted for slightly more than 80 percent of South Korean condensate imports in September, with other countries such as Nigeria, Norway and Libya being considered as alternative sources.
The South Korean government is seeking to come up with measures to minimize the impact of the US sanctions on Iran.
“We’ll keep discussing with the United States and Iran over measures related to the sanctions and their effects on the Korean industry,” said Kim Jang-hee, head of the Ministry of Trade, Industry and Energy’s Americas Division.


Palestinians in financial crisis after Israel, US moves

Updated 22 March 2019
0

Palestinians in financial crisis after Israel, US moves

  • A Ramallah-based economics professor said the Palestinian economy more generally, remain totally controlled by and reliant on Israel
  • Israeli-Palestinian peace efforts have been at a standstill since 2014

RAMALLAH, Palestinian Territories: The Palestinian Authority faces a suffocating financial crisis after deep US aid cuts and an Israeli move to withhold tax transfers, sparking fears for the stability of the West Bank.
The authority, headed by President Mahmud Abbas, announced a package of emergency measures on March 10, including halving the salaries of many civil servants.
The United States has cut more than $500 million in Palestinian aid in the last year, though only a fraction of that went directly to the PA.
The PA has decided to refuse what little US aid remains on offer for fear of civil suits under new legislation passed by Congress.
Israel has also announced it intends to deduct around $10 million a month in taxes it collects for the PA in a dispute over payments to the families of prisoners in Israeli jails.
In response, Abbas has refused to receive any funds at all, labelling the Israeli reductions theft.
That will leave his government with a monthly shortfall of around $190 million for the length of the crisis.
The money makes up more than 50 percent of the PA’s monthly revenues, with other funds coming from local taxes and foreign aid.

While the impact of the cuts is still being assessed, analysts fear it could affect the stability of the occupied West Bank.
“If the economic situation remains so difficult and the PA is unable to pay salaries and provide services, in addition to continuing (Israeli) settlement expansion it will lead to an explosion,” political analyst Jihad Harb said.
Abbas cut off relations with the US administration after President Donald Trump declared the disputed city of Jerusalem Israel’s capital in December 2017.
The right-wing Israeli government, strongly backed by the US, has since sought to squeeze Abbas.
After a deadly anti-Israeli attack last month, Prime Minister Benjamin Netanyahu said he would withhold $138 million (123 million euros) in Palestinian revenues over the course of a year.
Israel collects around $190 million a month in customs duties levied on goods destined for Palestinian markets that transit through its ports, and then transfers the money to the PA.
Israel said the amount it intended to withhold was equal to what is paid by the PA to the families of prisoners, or prisoners themselves, jailed for attacks on Israelis last year.
Many Palestinians view prisoners and those killed while carrying out attacks as heroes of the fight against Israeli occupation.
Israel says the payments encourage further violence.
Abbas recently accused Netanyahu’s government of causing a “crippling economic crisis in the Palestinian Authority.”
The PA also said in January it would refuse all further US government aid for fear of lawsuits under new US legislation targeting alleged support for “terrorism.”

Finance Minister Shukri Bishara announced earlier this month he had been forced to “adopt an emergency budget that includes restricted austerity measures.”
Government employees paid over 2,000 shekels ($555) will receive only half their salaries until further notice.
Prisoner payments would continue in full, Bishara added.
Nasser Abdel Karim, a Ramallah-based economics professor, told AFP the PA, and the Palestinian economy more generally, remain totally controlled by and reliant on Israel.
The PA undertook similar financial measures in 2012 when Israel withheld taxes over Palestinian efforts to gain international recognition at the United Nations.
Abdel Karim said such crises are “repeated and disappear according to the development of the relationship between the Palestinian Authority and Israel or the countries that support (the PA).”
Israel occupied the Gaza Strip and the West Bank, including now annexed east Jerusalem in the Six-Day War of 1967 and Abbas’s government has only limited autonomy in West Bank towns and cities.
“The problem is the lack of cash,” economic journalist Jafar Sadaqa told AFP.
He said that while the PA had faced financial crises before, “this time is different because it comes as a cumulative result of political decisions taken by the United States.”
Abbas appointed longtime ally Mohammad Shtayyeh as prime minister on March 10 to head a new government to oversee the crisis.
Abdel Karim believes the crisis could worsen after an Israeli general election next month “if a more right-wing Israeli government wins.”
Netanyahu’s outgoing government is already regarded as the most right-wing in Israel’s history but on April 9 parties even further to the right have a realistic chance of winning seats in parliament for the first time.
Israeli-Palestinian peace efforts have been at a standstill since 2014, when a drive for a deal by the administration of President Barack Obama collapsed in the face of persistent Israeli settlement expansion in the West Bank.