Identifier
Created
Classification
Origin
09ABUDHABI1177
2009-12-28 13:20:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Abu Dhabi
Cable title:
KOREAN COMPETITION RAISES CONCERNS
how-toVZCZCXYZ0001 RR RUEHWEB DE RUEHAD #1177/01 3621320 ZNR UUUUU ZZH R 281320Z DEC 09 FM AMEMBASSY ABU DHABI TO RUEHC/SECSTATE WASHDC 0077 INFO GULF COOPERATION COUNCIL COLLECTIVE RHEBAAA/DEPT OF ENERGY WASHINGTON DC RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASHINGTON DC RUCPDOC/DEPT OF COMMERCE WASHINGTON DC RUEHUL/AMEMBASSY SEOUL 0004
UNCLAS ABU DHABI 001177
SENSITIVE
SIPDIS
DEPARTMENT FOR ISN/NESS, EEB/CBA AND NEA/ARP
STATE PLEASE PASS USTR (MOWREY, BUNTIN)
NSC FOR JOST
COMMERCE FOR ITA AND ADVOCACY CENTER
E.O. 12958: N/A
TAGS: ECON ENRG KNNP PGOV EINV
SUBJECT: KOREAN COMPETITION RAISES CONCERNS
REF: ABU DHABI 1173
UNCLAS ABU DHABI 001177
SENSITIVE
SIPDIS
DEPARTMENT FOR ISN/NESS, EEB/CBA AND NEA/ARP
STATE PLEASE PASS USTR (MOWREY, BUNTIN)
NSC FOR JOST
COMMERCE FOR ITA AND ADVOCACY CENTER
E.O. 12958: N/A
TAGS: ECON ENRG KNNP PGOV EINV
SUBJECT: KOREAN COMPETITION RAISES CONCERNS
REF: ABU DHABI 1173
1. (SBU) Summary: KEPCO's success in Abu Dhabi's USD 20 billion
nuclear tender (reftel) is the latest - and highest value - example
of Korea's growing commercial success in the UAE. UAE officials
report Korean technical and commercial advantages, particularly in
engineering, procurement and construction (EPC) contracts, are
consistently beating American competitors. U.S. firms complain
that Korean prices are so low that it raises the possibility firms
are benefitting from some form of government subsidy. We have
encouraged U.S. companies to provide additional details to support
these allegations. End Summary.
2. (SBU) On December 27, Korean President Lee Myung-bak and Abu
Dhabi Crown Prince Sheikh Khalifa bin Zayed witnessed the signing
of a USD 20 billion contract between Korean Power Company (KEPCO)
and Emirates Nuclear Energy Corporation (ENEC) to build and operate
two nuclear power plants in Western Abu Dhabi (reftel). This
landmark deal is only one example of growing UAE-Korean commercial
and financial ties. Two way trade jumped in 2008 to exceed USD 25
billion, with Korean and UAE exports both growing over fifty
percent. South Korea sells the UAE (its largest trading partner in
the Middle East) cars and consumer electronics, while the Abu Dhabi
is Korea's largest source of oil and gas. Abu Dhabi National Oil
Company (ADNOC) officials told visiting Energy Deputy Secretary
Poneman and Ambassador Olson in early December that U.S. EPC firms
were being priced out of the market (septel). Despite ADNOC's
desire to partner with American companies, Korean companies are
increasingly competitive and some U.S. firms are no longer bidding
on ADNOC contracts.
3. (SBU) U.S. firms tell EmbOffs the Korean competition is growing,
particularly in industries where Korean firms were once not even
invited to compete. One American executive separately told DepSec
Poneman and Ambassador Olson in early December that Korean firms
"are back with a vengeance." He estimated USD 12-15 billion in UAE
contracts have been awarded to Korean companies in the recent past.
Another executive from an American engineering firm noted that
Korean bids are routinely 15-20 percent lower than American firms.
While admitting that labor and material costs may be lower, many
U.S. reps opined that only government subsidies could result in
prices that low. U.S. companies partially blame UAE officials for
awarding contracts to the lowest bidder without fully considering
the expertise, proven technology and partnerships U.S. companies
bring to the table. Emboffs have encouraged U.S. firms to provide
any details they may have about Korean government support.
4. (SBU) Korean diplomats here are actively seeking to boost trade
and investment ties. While Korean firms have reportedly invested
almost USD 380 million in the UAE, UAE investment in Korea has yet
to take off. In November 2009, the Korean Investment Corporation
and the Abu Dhabi Investment Authority signed an MOU to expand
cooperation. Senior Abu Dhabi officials regularly visit Korea,
both to promote existing energy business and to look for new
opportunities.
5. (SBU) This desire to expand ties was demonstrated by the
Economic Cooperation Agreement the UAE signed with Korea on the
margins of the nuclear contract. In the agreement, both parties
agreed to seek ways to expand economic cooperation in the fields of
nuclear and renewable energy, shipbuilding, information
communications technology and human resource development, including
education. South Korea is likely to seek to maximize these
opportunities, further expanding and diversifying Korea's role in
the UAE economy.
6. (SBU) Comment: UAE officials tell us they are convinced Korean
firms are as technically qualified as their U.S. competitors,
leaving them no choice to award contracts to cheaper Korean firms.
US firms counter that the UAE system does not fully evaluate the
value content of American proposals, which may be costlier but
offer superior technology and better performance in the long haul.
UAE officials reply that they simply cannot justify spending more
just to demonstrate their commitment to partnerships with the USG
and U.S. private sector. In addition to the cost savings and the
trade balance such contracts bring to the UAE-Korean relationship,
South Korea is an interesting economic model for the UAE (the
chaebol system, in particular, seems familiar to both Abu Dhabi and
Dubai, who have attempted to build similar world-class, government
backed conglomerates). As the Emirates seek to diversify their
economy to develop hi-tech manufacturing and promote employment,
the UAE's economic ties with Korea are only likely to continue to
grow. End Comment.
OLSON
SENSITIVE
SIPDIS
DEPARTMENT FOR ISN/NESS, EEB/CBA AND NEA/ARP
STATE PLEASE PASS USTR (MOWREY, BUNTIN)
NSC FOR JOST
COMMERCE FOR ITA AND ADVOCACY CENTER
E.O. 12958: N/A
TAGS: ECON ENRG KNNP PGOV EINV
SUBJECT: KOREAN COMPETITION RAISES CONCERNS
REF: ABU DHABI 1173
1. (SBU) Summary: KEPCO's success in Abu Dhabi's USD 20 billion
nuclear tender (reftel) is the latest - and highest value - example
of Korea's growing commercial success in the UAE. UAE officials
report Korean technical and commercial advantages, particularly in
engineering, procurement and construction (EPC) contracts, are
consistently beating American competitors. U.S. firms complain
that Korean prices are so low that it raises the possibility firms
are benefitting from some form of government subsidy. We have
encouraged U.S. companies to provide additional details to support
these allegations. End Summary.
2. (SBU) On December 27, Korean President Lee Myung-bak and Abu
Dhabi Crown Prince Sheikh Khalifa bin Zayed witnessed the signing
of a USD 20 billion contract between Korean Power Company (KEPCO)
and Emirates Nuclear Energy Corporation (ENEC) to build and operate
two nuclear power plants in Western Abu Dhabi (reftel). This
landmark deal is only one example of growing UAE-Korean commercial
and financial ties. Two way trade jumped in 2008 to exceed USD 25
billion, with Korean and UAE exports both growing over fifty
percent. South Korea sells the UAE (its largest trading partner in
the Middle East) cars and consumer electronics, while the Abu Dhabi
is Korea's largest source of oil and gas. Abu Dhabi National Oil
Company (ADNOC) officials told visiting Energy Deputy Secretary
Poneman and Ambassador Olson in early December that U.S. EPC firms
were being priced out of the market (septel). Despite ADNOC's
desire to partner with American companies, Korean companies are
increasingly competitive and some U.S. firms are no longer bidding
on ADNOC contracts.
3. (SBU) U.S. firms tell EmbOffs the Korean competition is growing,
particularly in industries where Korean firms were once not even
invited to compete. One American executive separately told DepSec
Poneman and Ambassador Olson in early December that Korean firms
"are back with a vengeance." He estimated USD 12-15 billion in UAE
contracts have been awarded to Korean companies in the recent past.
Another executive from an American engineering firm noted that
Korean bids are routinely 15-20 percent lower than American firms.
While admitting that labor and material costs may be lower, many
U.S. reps opined that only government subsidies could result in
prices that low. U.S. companies partially blame UAE officials for
awarding contracts to the lowest bidder without fully considering
the expertise, proven technology and partnerships U.S. companies
bring to the table. Emboffs have encouraged U.S. firms to provide
any details they may have about Korean government support.
4. (SBU) Korean diplomats here are actively seeking to boost trade
and investment ties. While Korean firms have reportedly invested
almost USD 380 million in the UAE, UAE investment in Korea has yet
to take off. In November 2009, the Korean Investment Corporation
and the Abu Dhabi Investment Authority signed an MOU to expand
cooperation. Senior Abu Dhabi officials regularly visit Korea,
both to promote existing energy business and to look for new
opportunities.
5. (SBU) This desire to expand ties was demonstrated by the
Economic Cooperation Agreement the UAE signed with Korea on the
margins of the nuclear contract. In the agreement, both parties
agreed to seek ways to expand economic cooperation in the fields of
nuclear and renewable energy, shipbuilding, information
communications technology and human resource development, including
education. South Korea is likely to seek to maximize these
opportunities, further expanding and diversifying Korea's role in
the UAE economy.
6. (SBU) Comment: UAE officials tell us they are convinced Korean
firms are as technically qualified as their U.S. competitors,
leaving them no choice to award contracts to cheaper Korean firms.
US firms counter that the UAE system does not fully evaluate the
value content of American proposals, which may be costlier but
offer superior technology and better performance in the long haul.
UAE officials reply that they simply cannot justify spending more
just to demonstrate their commitment to partnerships with the USG
and U.S. private sector. In addition to the cost savings and the
trade balance such contracts bring to the UAE-Korean relationship,
South Korea is an interesting economic model for the UAE (the
chaebol system, in particular, seems familiar to both Abu Dhabi and
Dubai, who have attempted to build similar world-class, government
backed conglomerates). As the Emirates seek to diversify their
economy to develop hi-tech manufacturing and promote employment,
the UAE's economic ties with Korea are only likely to continue to
grow. End Comment.
OLSON