DEMARCHE DELIVERED FOR IRAN SANCTIONS ACT:

C O N F I D E N T I A L SEOUL 001653

SIPDIS

EEB/ESC/TFS FOR CBACKEMEYER

E.O. 12958: DECL: 10/20/2019
TAGS: ENGR EPET ETTC IR PREL KS
SUBJECT: DEMARCHE DELIVERED FOR IRAN SANCTIONS ACT:
REPORTED SOUTH KOREAN COMPANY INVOLVEMENT IN IRANIAN GAS
DEAL

REF: STATE 107425

Classified By: DCM Mark Tokola for Reasons 1.4 (b/d)


1. (C) On October 20, the DCM delivered reftel demarche to
Deputy Minister of Foreign Affairs Lee Yong-joon. The DCM
told Deputy Minister Lee the reported USD 1.4 billion energy
deal signed by Iran with the South Korean firm GS Engineering
and Construction (GS E & C) raised concerns under the Iran
Sanctions Act (ISA). The DCM said Congress was considering
legislation that could expand the transactions covered by the
ISA, and further, the GS E & C deal could undermine the P-5
plus 1 proposal to offer enhanced economic and energy
engagement as an inducement for Iranian compliance.
Accordingly, the DCM asked that the ROKG urge GS E & C to
reconsider going forward with this contract and discourage
other South Korean firms from engaging in new activities in
Iran at this time.


2. (C) Deputy Minister Lee said the ROKG's policy was to
comply with all laws and resolutions applicable to Iran,
including the ISA. The ROKG has also urged Korean companies
not to engage in business with Iran that would contravene
applicable laws, and has also ceased export financing to
Iran, which has posed a significant hurdle to companies doing
business there. However, said Deputy Minister Lee, the GS E
& C contract does not violate the ISA because the type of
engineering, procurement, and construction (EPC) contract at
issue is not considered an "investment" under the ISA.
Rather, such turn-key construction is considered a "service,"
which is specifically excluded from the definition of
"investment." The Deputy Minister pointed out that numerous
European companies bid on the contract, and other European
companies, including Technimont from Italy, were currently
engaged in similar EPC contracts to work in the Iranian oil
fields. In fact, Korea is just "a small potato" in the Iran
oil business. GS E & C, he emphasized, would not be
responsible for the development of natural gas resources in
Iran. Addressing the issue of a possible expansion of the
ISA in Congress, Deputy Minister Lee said it would be absurd
for the ROKG to instruct companies to act on the basis of
laws that could be passed in the future. In these
circumstances, if the Korean companies did not take the
contracts, Spanish, Italian or other European countries
would.


3. (C) The DCM reiterated that, although all the facts are
not yet known, one could reasonably conclude the GS E & C
transaction would directly and significantly contribute to
the enhancement of Iran's ability to develop petroleum
resources in violation of the ISA. Even if the contract does
fall within one of the ISA's exceptions, it would be
important to think beyond purely commercial concerns and
consider the general context of negotiations with Iran as
well.
STEPHENS