POSCO Daewoo, LG struggle in Middle East
POSCO Daewoo, LG International and other domestic trading firms have been struggling to push forward their business projects in the Middle East amid rising geopolitical tensions there.
Korean companies are eager to carry on joint projects with their Middle Eastern counterparts to secure new sources of income overseas, but Saudi Arabia and other nations have shown a lukewarm attitude toward doing business with them.
POSCO Daewoo, headed by CEO Kim Young-sang, said Monday it has decided to stop a $1 billion project with the Saudi Arabian government to build an automotive plant in the Arab nation, citing the halfhearted response from the Saudis. The completed plant would have been capable of producing 150,000 cars annually.
In June 2014, the trading arm of steelmaker POSCO signed a memorandum of understanding under which POSCO Daewoo had a 15 percent stake in the plan, while Saudi sovereign wealth fund Public Investment Fund (PIF) had 35 percent and a consortium of private Saudi firms, the remaining 50 percent.
In June last year, the Saudi government established Saudi Holding Company, which took over 85 percent from PIF and the consortium, to take the lead in the plant project.
But the plan has largely been put on the backburner as the Arab nation is reluctant to invest, according to POSCO Daewoo.
“It’s been more than three years since we signed the MOU but nothing more has been done to make the project happen,” a company official said. “We really wanted to make it happen, but in the end we had no other choice but to stop it, so we disbanded the team overseeing the Saudi plan.”
The official said the Saudi government has been paying little attention to the Daewoo plan because it is focusing on other big development projects.
LG International, the trading arm of LG Group, is also having a hard time pushing for a plan to produce electric vehicles (EVs) and build charging infrastructure in Iran.
In May last year when former President Park Geun-hye visited the Middle Eastern nation, the company signed an agreement, which is more legally binding than an MOU, with Iran Khodro, the country’s largest carmaker, to jointly manufacture 60,000 EVs annually by 2023.
LG Electronics, LG Chem and other group affiliates plan to supply motors, batteries and other components, and construct charging stations and other infrastructure. Khodro would then assemble the EVs in Iran.
Both sides had initially planned to finalize the deal by the end of 2016, but haven’t been able to do so because of mounting tension between Iran and the United States since Donald Trump became U.S. president in January.
Shiite-majority Iran is also facing problems with Saudi Arabia and other Sunni Muslim nations in the region, making it more difficult for LG International, headed by CEO Song Chi-ho, to maneuver.
“It has been taking longer than we initially expected to sign an official contract with Khodro,” a company official said. “Despite increasingly uncertain geopolitical conditions in the Middle East, we are positive the project will soon get back on track. We believe Iran wants to do business with us.”