[Changing Landscape of Overseas Construction ⑤] Central Asia Urban Development & Australian ESS Promising... "30 Years of Operation Possible After 3 Years of Construction"

A New Formula for Winning Overseas Construction Contracts

Kim Yoonduk, Minister of Land, Infrastructure and Transport, met with James Danly, Deputy Secretary of Energy, in Washington D.C., USA on January 5th (local time). Ministry of Land, Infrastructure and Transport

As government-to-government (G2G) cooperation becomes increasingly important in securing U.S. infrastructure contracts, domestic companies have responded positively, noting that public investment can help ease the burden of entering the local market. An executive at a major construction company, who attended the Ministry of Land, Infrastructure and Transport’s closed-door briefing on U.S. government-led construction projects, stated immediately after the event, "In the U.S. market, there are quite a few projects that require massive capital investments from the early design stage, only to be canceled later," adding, "If the public sector invests and provides guarantees, it will reduce the burden of entering the market." A representative from a general trading company said, "With government-to-government agreements in place, working-level negotiations move quickly," and added, "The strong will for support from the U.S. government makes now the optimum time to enter the market."

The United States has long been considered a challenging market for Korean companies to penetrate on their own due to its large capital requirements and strict local regulations. However, there have been tangible achievements, such as the U.S. side inviting Minister Kim Yoonduk of the Ministry of Land, Infrastructure and Transport to participate in energy infrastructure projects during his visit in January, and the signing of a memorandum of understanding (MOU) in July for participation in the Nevada lithium·boron plant project. Assessments indicate that a new business model—where the government wins the contract and companies participate—is beginning to take root.

Over Ten Projects Worth Trillions of Won Announced Simultaneously

According to the construction industry on the 10th, South Korea and the U.S. have discussed more than ten projects through high-level talks. Each project is a mega-scale infrastructure deal, amounting to trillions of won. These include the Willow Rock Energy Storage Facility in California for 2 billion dollars (about 2.7 trillion won), a potassium chloride plant in Michigan for 1.9 billion dollars (about 2.56 trillion won), an ammonia plant in Washington for 1.5 billion dollars (about 2 trillion won), a urea plant in Nebraska for 1.2 billion dollars (about 1.62 trillion won), and a synthetic graphite plant in Tennessee (project cost undisclosed), among others. Several other undisclosed projects with budgets ranging from hundreds of millions to billions of dollars are also queued up.

The U.S. government has also announced support measures to encourage Korean participation. The Department of Energy provides conditional approvals for large-scale loans to assist with financing. Up to 150 million dollars in grants are available under the Department of Agriculture's Fertilizer Production Expansion (FIELDS) program. Since grants do not require repayment, they can help reduce the capital burden for project participants. By adopting standardized designs and modular package approaches, a single participation can pave the way for Korean companies to establish long-term partnerships for follow-up projects. Stable cash generation is also ensured through power purchase agreements (PPA) and long-term fertilizer purchase contracts.

The Korea Overseas Infrastructure & Urban Development Corporation (KIND) is responsible for investing in shares of these projects and linking them to domestic corporate participation. The Ministry of Land, Infrastructure and Transport and KIND plan to collect proposals and preferred areas of involvement from the companies attending the briefing and arrange individual meetings with project owners. Subsequently, after signing non-disclosure agreements, a "Team Korea" will be formed for each project. KIND plans to conduct on-site due diligence and investment reviews from either the end of this year or the first half of next year to decide on investments.

The U.S. Offers Capital and Technology, Korea Finds New Business Opportunities—Both Stand to Gain

This cooperation reflects the mutual interests of both countries. The United States requires massive capital, technology, and equipment to expand domestic production facilities and reduce reliance on overseas supply chains, particularly from China. Attracting Korean companies enables the U.S. to rapidly expand factories and infrastructure. Meanwhile, Korean companies gain experience and securing new business in a U.S. market that once posed high entry barriers. It is a mutually beneficial arrangement. The trust built through high-level intergovernmental cooperation has also contributed significantly to aligning these interests.

The investment development projects proposed by the United States differ from traditional lump-sum contracts in that participants invest in equity and share in the profits after completion. Organizations such as KIND invest in equity directly or through funds created for special purpose companies (SPCs) established for these projects. In this process, KIND supports domestic companies to take charge of construction or equipment supply.

Project expenses are raised through shareholder equity and loans from financial institutions. For example, in a project with total costs of 5 trillion won and a shareholder investment ratio of 20–30%, shareholders such as KIND would contribute 1–1.5 trillion won. The remaining 3.5–4 trillion won would be borrowed from financial institutions. The SPC uses these funds to contract comprehensive engineering, procurement, and construction (EPC) firms for the work. After completion, income generated from operating the facilities or selling products is distributed to investors in the form of dividends. Investors recover their investment and earn profits either through long-term dividends or by selling their shares.

The goal of the government and KIND is to turn public investment into business opportunities for domestic companies. When deciding on investments, KIND uses the strategy of only investing equity if domestic companies are allocated a share of the work, taking on a role more akin to deal facilitation than mere financial investment. This approach was already applied by KIND in the floating liquefied natural gas (FLNG) project in Louisiana, United States, in June this year. The public sector—including KIND (70 million dollars), the Green Fund (30 million dollars), and Korea Ocean Business Corporation (50 million dollars)—jointly invested a total of 150 million dollars, enabling Samsung Heavy Industries to secure a 2.8 billion dollar (approximately 4 trillion won) EPC contract.

Expansion into Middle East Power Generation·Desalination ... Seeking Investment in Central Asia and Australia

The proportion of public-private partnership (PPP) projects is also growing in the Middle East, traditionally a stronghold for orders won by domestic construction companies. Major countries such as Saudi Arabia are increasingly placing PPP orders in power generation, desalination, transportation, and urban development. In particular, power generation and desalination projects often involve long-term purchase agreements for electricity or water based on government credit. Power plant projects in the Middle East are considered high-profit, with internal rates of return (IRR) reaching 8.2–9% over 30 years. Samsung C&T and Doosan Enerbility are currently active participants in major Middle Eastern projects. KIND plans to expand investment in the region, focusing on power generation, desalination, and energy infrastructure.

The Korean government is also seeking new investment opportunities in emerging markets. In Central Asia, it is promoting plans to identify large urban development projects and facilitate equity participation by domestic companies. In Australia, it is reviewing opportunities to enter the solar power market combined with energy storage systems (ESS). Korean companies like GS E&C are also exploring participation in investment development projects, beyond just construction, in new markets across Southeast Asia.

Experts advise that companies should begin preparing for direct project equity investments in earnest. Son Taehong, Head of Construction Technology and Management Research at the Korea Institute of Construction Industry, said, "Even if construction is completed in about three years, investment development projects require operation for 20 to 30 years," adding, "Professional managers, who are evaluated based on annual order achievements, often cannot easily decide on long-term investments." He went on to say, "Companies should build dedicated teams and organizations and shift their management strategies to align with long-term investment."

This content was produced with the assistance of AI translation services.