Negotiations for a $200 billion strategic investment between South Korea and the United States are facing significant delays. The announcement of the first investment project, initially expected in mid-September, has been postponed as discussions focus on ensuring 'commercial viability' to secure investment recovery and prevent losses.
According to relevant government departments and political circles, the National Assembly is set to receive a confidential report from the government on U.S. investments on the 22nd. The Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy will report on the progress of negotiations to their respective committees.
Previously, there was strong consideration for signing a memorandum of understanding (MOU) between South Korea and the U.S. the day after the government reported the investment project to the National Assembly on the 17th. However, the schedule for both the report and project announcement has been delayed due to unresolved discussions regarding specific investment conditions with the U.S.
The first project under consideration involves constructing a gas-fired combined cycle power plant in Encinada, Texas, with a capacity of over 6 GW. The total project cost is estimated at approximately $22.3 billion. Other potential projects include the construction of large nuclear power plants in the U.S., investment in Westinghouse, and the development of liquefied natural gas (LNG) in Alaska.
Analysts suggest that the key variable in the final negotiations will be how much 'commercial viability' can be secured rather than the selection of projects. President Yoon Suk Yeol mentioned at a press conference on the 18th that while there is a near agreement on the investment negotiations, there are still challenging aspects that require further discussion. He emphasized the need to structure projects that benefit the national interests of both countries.
This implies that a viable business structure must be established to ensure the recovery of the investment, taking precedence over the scale of investment or political and diplomatic necessities. The government is reportedly focusing on incorporating various safeguards into the agreement to guarantee investment recovery.
For the Texas combined cycle power plant, long-term power purchase agreements (PPAs) and participation from South Korean companies are key issues. Without securing reliable demand sources for the electricity produced over an extended period, it will be challenging to ensure cash flow over decades.
Investment in Westinghouse is also complicated. The South Korean side has reportedly sought around 20% equity and participation on the board to secure substantial voting rights. In contrast, the U.S. side prefers minority equity participation of 5-10% without voting rights, highlighting a clear divergence in positions.
Additionally, the proposed umbrella special purpose company (SPC) to manage the profits and losses of various investment projects is also a contentious point. The South Korean side is seeking a structure that allows for the recovery of investments from profits generated by other projects if one project underperforms. However, the U.S. side appears hesitant about some of these conditions.
Particularly, the Texas combined cycle power plant is likely to set a benchmark for future U.S. investments. Given the substantial capital involved, the ability to reliably recover the principal and profits over the long term is crucial. Profit projections will depend on long-term electricity sale prices, demand from AI data centers, financing costs, and the extent of safeguards such as PPAs.
The government is also reportedly coordinating with the U.S. to exclude certain projects from the investment list that lack commercial viability. Projects such as the Louisiana LNG export terminal, carbon capture initiatives, and spent nuclear fuel recycling may be omitted from this agreement.
Ultimately, the focus of future negotiations is expected to shift from the total investment amount of $200 billion to securing a structure that ensures stable recovery of the principal and guarantees substantial participation of South Korean companies in the projects. If South Korea and the U.S. can find common ground on safeguards, subsequent projects, including nuclear power plants, may be developed sequentially, starting with the Encinada power plant. Conversely, ongoing disagreements over 'commercial viability' could further delay the announcement of U.S. investments.
* This article has been translated by AI.
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