Chapter 4. A Strategy to Secure Materials in Response to Energy Transition
B. Establishment of a Management System for the Recycling of Spent Products
2019 60 14
2020 159 38
2021 440 104
2022 1,099 261
2023 2,355 559
2024 4,831 1,147
2025 8,321 1,976
2026 17,426 4,139
2027 29,508 7,008
2028 51,500 12,231
2029 78,981 18,758
Source: Jihae Cho (2017) p.73.
Clean Air Conservation Act
Article 58(Operation, etc., of Low-Emission Motor Vehicles)
⑤In the event that an owner intends to cancel the registration of his/her motor vehicle for the purposes of scrapping, exporting, etc., the vehicle and/or its parts, he/she shall return the following devices, parts, etc., to the head of the relevant local government, as prescribed by Ordinance of the Ministry of Environment: Note that this does not apply to cases in which the registration of the motor vehicle is canceled for the export of electric vehicles pursuant to Article 2(3) of the Act on the Promotion of Development and Distribution of Environment-Friendly Automobiles:
1. 1. Installed or replaced exhaust gas reduction devices;
2. 2. Converted or replaced low-emission engines;
3. 3. Batteries and other devices and/or parts of the motor vehicles as prescribed by Ordinance of the Ministry of Environment that are subsidized for expenses under paragraph (3) ((excludes motor vehicles that use natural gas fuels that are subsidized for expenses under paragraph (3) 1, 4 or 6)).
4) Financial support methods for the development of mineral materials (finances, tax credits etc.) Currently, domestic businesses are only able to secure resources by directly procuring mineral resources from overseas. Besides stockpiling to prepare against short-term risks and using recycling as an alternative to natural resources, the most representative strategy to acquire resources is resources development, through which countries gain direct access to resources in other countries.
With the increasing demand for mineral materials, Korean businesses, led by large conglomerates, are going abroad not only to directly purchase mineral materials but also to actively engage in the development of mineral resources.
Table 4-12. Investment Activities by Korean Businesses for Mineral Materials
Company Alliance/Investment
Partner Description
Lithium
Samsung
SDI Posco - Selected Lithium Project (Mejillones) of Chile, CORFO
LG
Chem Nemaska Lithium
- Plans to build a 30,000 ton/year lithium production facility in Saemangeum, Korea - Contract signed to supply 7,000 tons of lithium hydroxide/year for 5 years (July 2018)
Posco Pilbara Minerals
- Acquired a 4.75% stake in the Australian mining development company, Philippe (Feb. 2018) - Signed along-term supply contract for up to 240,000 tons of lithium concentrate/ year
Cobalt
SK Inno. Australian Mines Ltd.
- Signed along-term contract with Australian AM on Cobalt, Lithium (Feb. 2018)
- Supply 12,000 tons of cobalt sulfate and 60,000 tons of nickel sulfate through the Sconi Project in Queensland, Australia
LG Inc. CobaltBlue - Invested $6 million in Australia’s Cobalt Thackaringa Project
Samsung
C&T Somika SPRL
- Reviewing equity purchase of a company with cobalt recycling technology
- Reviewing long-term contracts received from Congo and cobalt miners
Source: Presented by KPMG at the 2018 Battery Conference.
Although large conglomerates are using their financial prowess to invest in overseas resource development
companies, Korea’s small-and-medium enterprises (SMEs) with a demand for mineral materials remain exposed to supply risks. The Korean government has recognized the supply risks faced by domestic businesses with little experience and/or capital investment in overseas resources development projects and is sharing development risks with these businesses, while at the same time operating a loan system and a special taxation system as a means of offering financial assistance. The loan system consists of general loans and Success Repayable Loans. This latter type of loan is a risk-sharing loan system in which a lesser loan amount must be repaid in the case of failure, and up to 4% of the profits must be paid in the case of business success.
In order to utilize the aforementioned loan system, the business item must first be included on the list of items eligible for loans. The items for which loans are available for overseas minerals resources development are strategic concentrates and six rare metals. These concentrates and metals include bituminous coal, uranium, iron, bronze, zinc, nickel, chrome, manganese, lithium, rare earth elements, tangent and molybdenum. This list does not currently include silicon metal, but should be amended so that this important resource is included. Cobalt is also excluded from the list, but given that it is a byproduct of bronze and nickel mines, it may be viewed as already being on the list. Lithium is included on the list as a rare concentrate but should be granted additional “points,”
such as those awarded to strategic concentrates, so that related projects can have a greater advantage when applying for loans.
Table 4-13. Loan System for Mineral Resources Development Projects Eligible for Loans Lending Rate Cap Lending Period
General Loans
Survey (exploration)
Up to 60% of relevant project costs (“operational funds” refer to one cycle of working capital), but the aggregation of the ratio of additional points, as listed below
* Additional points ratio
① Resources cooperation projects with a resources endowed country (development tasks and post-management tasks, among other things, through a summit diplomacy and resources cooperation council) or the joint launch of a project on energy or industrial infrastructure: 10%p
②Cases in which the mineral is a strategic concentrate: 5%p
③Cases in which the borrower is the actual user: 5%p
※However, the additional points ratio cannot be applied to the technical, service projects, and development funds loan system
- Up to 15 years
(With a grace period of up to 5 years)
※However, the cap for operating capital is up to 5 years (with a grace period of up to 2 years)
Development and production
Technical service projects&
Development capital loan projects
Success Repayable Loans
Survey (exploration)
- Up to 15 years(including a grace period, as outlined below)
However, loan periods can be extended with the consent of the Minister of Industry and Resources, if necessary, for the repayment of the loan principal and interest
- The grace period shall last until the day before the launch of commercial production
Investment Risk Security
- Up to 100% of the investment risk assurance
- Within 5 years (grace period of up to 5 years)
- However, loan periods can be extended every 5 years (includes extension of the grace period) with the consent of the Minister of Industry and Resources, if necessary, for the extension of the project.
Source: KORES, Overseas Mineral Resources Development Capital Loans and Management Regulations (March 31, 2017).
However, unless the government has the funds needed to provide sufficient loans to businesses, special taxation may be a more realistic approach. The following tax support policies are typically adopted to provide support to businesses for overseas mineral materials development and acquisition: tax deduction for overseas resources development equipment, corporate tax rate reduction for dividend income for overseas resources development investments, and tax deduction for investments in overseas resources development.
In 1982, the Korean government adopted a tax support policy that reduced corporate taxes on the dividend income of companies engaged in overseas minerals resources development. This policy was adopted to promote minerals resources development and recorded the highest results of all such systems/policies. However, this policy was discontinued in 2015. As such, special taxation for businesses involved in overseas minerals resources development has all but disappeared. However, special taxation for the acquisition of mineral materials is imperative. Acquiring mineral materials may become more feasible for companies if the government adopts a special taxation policy that reduces the income tax on new domestic sales, excluding self-consumption, through the development of mineral materials.
Table 4-14. Special Taxation Policies for Minerals Resources Development Special
Taxation Credit Implementation period Tax Reduction Method Expected effect (Article 25)
Tax deduction for overseas resources development equipment investment
2005–2019 (to be
discontinued as of December 31, 2019)
1% of the amount invested in facilities for industrial and safety policies at overseas resources development facilities by Korean companies (mid-size companies 3% and SMEs 7%)
Promotion of investments in operational rights development projects by reducing the financial burden of investing in costly production equipment
(Article 22) Reduction of corporate tax on dividend income for overseas resources development and investment
1982–2015
Exemption of corporate taxes exclusively for taxes exempted by resource-owner countries for dividend income on overseas resources development projects
Most OECD countries, including Japan, offer tax exemptions on dividend income (establishment of conditions to compete with foreign competitors) as a result of the principle of taxation on the source at the place of origin
(Article 104 (15))
Tax deduction for overseas resources development
1908- 2013
3% deduction of relevant investment amount from corporate tax/income tax in the case that an overseas resources developer makes an investment to acquire mining rights and mining lease
Mitigate burden on capital for new investments and increase investment profit rate to promote investment
Source: http://www.law.go.kr, accessed on September 8, 2018.