With its population approaching 46 million, a land area of merely 99,268 square kilometers and rapid industrialization, Korea has had inherent problems in preserving its environment. The rapid pace of urbanization over the past three decades has further aggravated the nation’s deteriorating environmental situation. In recent years, Korea also has been faced with growing pressure to conform to more demanding international standards for environmental protection. Further, Koreans are becoming more conscious of environmental issues and their demand for a better environment is increasing.
Korea has made great strides toward economic recovery since the onset of the financial crisis in December, 1997. After stabilizing its foreign exchange reserves, the Korean Government (ROKG) then set a comprehensive strategy to restructure almost every sector of the economy, with priority placed first on swift and prudent reform of the financial and corporate sectors. As a result of ongoing restructuring efforts and supporting economic policy re-adjustments, analysts are hopeful that the Korean economy will grow by about two percent year-over-year in 1999. To stimulate the domestic engineering and construction industries, the ROKG will lift in 1999 various regulations or institutional barriers which have discouraged the construction of environmental infrastructure. These measure will include activation of financing through interest rate cuts, provision of tax incentives, encouragement of investment, and privatization of facilities.
For environmental projects, Korean engineering and construction companies are in serious competition to win government procurement projects, especially for large-scale work such as construction of sewage treatment plants and municipal drinking water treatment plants. Of additional interest to U.S. exporters, is the fact that, as the Korean conglomerates (chaebols) restructure and re-focus, technology transfer, especially from the U.S., will be extremely important. Domestic environmental companies will continue to need the latest technology, much of which can come from the U.S., in order to move up the value-added chain.
For U.S. technology equipment suppliers, good market opportunities lie in related areas including: ozone generator, nitrogen phosphorus removal technology, fine bubble diffuser, oil skimmer, heavy metal recovery equipment and water reuse system. Although government procurement is open to foreign companies, in practice, it may be more effective for U.S. companies to team up with local partners.
This report provides market information about the country’s demand for environmental products and services to be used in wastewater and drinking water treatment projects. Korea’s various environmental challenges present opportunities for export, investment and collaboration for U.S. environmental companies.
A. MARKET HIGHLIGHTS AND BEST PROSPECTS
Although it has been nearly ten years since the Korean government initiated a concerted effort to clean up the environment, many problems, particularly regarding water pollution, still run rampant. Studies of Korea’s four largest rivers, the Han River, Nakdong River, Keum River, and Youngsan River, show that while some progress has been made, the results are only marginal compared to the continual problems that exist in the main waterways. Part of the problem regarding Korea’s water pollution lies with the nation’s annual precipitation. From 1995 to the present, the nation has only received 65 – 80 % of its historic annual precipitation. Further exacerbating the water shortage problem is the fact that precipitation is very seasonal in Korea, which creates occasions when the level of water in the rivers is very low. Due to the low level of water, the river loses its natural ability to clean itself of harmful pollutants negating any gains made in eliminating water pollutants. The Ministry of Environment (MOE) recently announced a plan to clean up the four major river basins in Korea: the Han River, the Keum River, the Youngsan River, and the Nakdong River. According to its clean-up plan, MOE aims to improve the nation’s water quality by 2001 from the current level 3 or level 4 to level 2, a water grade indicating “good enough to be used as a drinking water source”. The ROKG has established a special committee under the direction of the prime minister to effectively carry out this project at the inter-ministerial level. The ROKG plans to expand a total budget of USD five billion by 2005 for the “four river basin” project.
Nakdong River Clean-Up:
The Nakdong River Basin is the source of drinking water for the people in Pusan and Taegu, where 30% of the entire Korean population resides. However, because of rapid population growth and industrialization in the region since the 1960s, the river has been polluted to the extent that it is no longer suited as a drinking water source, and no improvement is in sight in the near future. One of the issues of most concern to the region’s population is the Wuicheon Industry Complex, which was initially proposed in 1989 to be established at the upper stream of the Nakdong River. The project, aimed at reviving the economy of Taegu, is severely opposed by Pusan, located downstream of the river. The existing Taegu Dye Industry Complex also has contributed to the degradation of the Keumho River which is one of the main branches of the Nakdong River. Taegu metropolitan government’s plan to improve water quality comprises these goals:
Construction of sewage treatment facilities: W 62.8 billion (USD 52.3 million);
Construction of advanced treatment facilities at existing sewage treatment plants for the Nakdong River and its tributaries: W 137.2 billion (USD 114.3 million);
Replacement of aging sewage lines: W 112.7 billion (USD 93.9 million); and
Excavation of the river’s tributary: W 17 billion (USD 14 million).
Youngsan River Clean-Up:
The Youngsan River is a prime example of how water droughts have caused worsening river pollution. Out of the four rivers, the Youngsan River is by far the smallest in watershed, or volume of water in the river, as well as in length at 136 kilometers. Furthermore, the river’s current has been greatly reduced due to four reservoirs located on the river. Water pollution in the Youngsan River is further heightened by the Kwangju-chon, a major tributary of the Youngsan River, which is extremely polluted from industrial and domestic wastewater from Kwangju, located in southwestern Korea. Cholla Province, where Kwangju is located, plans to construct a total of 37 sewage treatmet facilities by 2005.
Han River and Paldang Reservoir:
The country’s marginal success in water pollution prevention can also be attributed to the lack of strict regulations enacted by the Korean government. Further, because many Korean agencies have overlapping responsibilities vis-à-vis water pollution, bureaucracy and management inefficiency have slowed efforts to produce effective regulations on wastewater pollution. For example, the area surrounding the Paldang Reservoir, a major source of water for residents in Seoul and adjacent Kyonggi Province, has seen a large increase in the number of restaurants, inns, hotels, and factories. As a result of this increase in tourist and manufacturing facilities, biological oxygen demand (BOD) deteriorated to 2.0 ppm (parts per million) in February of this year from 1.0 ppm in 1990 resulting in drastically compromised water quality. BOD is a method used to measure the oxygen required to break down organic material in water. Higher organic loads require larger amounts of oxygen and may reduce the amount of oxygen available for fish and aquatic life below acceptable levels. Realizing the devastating effect hotels, restaurants, and factories have had on water quality, the Ministry of Environment (MOE) banned in 1990 any further construction near the Paldang reservoir.
Despite current economic difficulties, the Korean government is determined to improve the quality of the nation’s potable water. Recognizing the severity of the poor water conditions that exist at the Paldang Reservoir, the government has budgeted 184 billion won (USD 152 million at W 1200=USD 1) for the clean-up of the Paldang reservoir through 2005. To further alleviate pollution problems, MOE plans to increase the current 71% sewage treatment rate to 85% through 2005 by building more sewage processing plants and reducing the allowable amount of household and industrial wastewater produced in the area.
To fulfill environmental requirements placed on Korea by its OECD commitments, MOE’s Water Policy Division recently announced that it is planning to invest W 23 trillion (USD 26 billion) to improve water quality through 2005. Realizing that current treatment facilities are antiquated and unable to treat the rising increase of pollutants discharged daily, the government plans to spend the bulk of the allocated budget on new treatment facilities. The plan also specifies environmental spending goals in six fields:
Construction of sewage treatment facilities: W 12 trillion (USD 10 billion);
Construction of new sewage lines: W 8 trillion (USD 7 billion);
Construction of sewage treatment facilities in rural areas: W 888 billion (USD 739 billion);
Construction of night soil treatment facilities from livestock farms: W 506 billion (USD 422 million);
Construction of wastewater treatment facilities from livestock farms: W 472 billion (USD 388 million); and
Construction of industrial wastewater treatment plants especially in local industrial complexes: W 561 billion (USD 467).
With such large expenditures to improve water quality, the government hopes that Koreans will begin to trust the quality of the country’s potable water. According to a recent Seoul metropolitan government survey, only 4.6 percent of Seoulites drink water straight from the tap. MOE acknowledges that part of their aversion may be attributed to the aging pipelines connecting the purification plants with households. The aging pipelines are said to be leaking water very badly in some areas, while also attracting unwanted pollutants like metal rust and harmful bacteria. To remedy this problem and boost public confidence in the water, officials plan on replacing 19,700 km of aging pipelines in Korea by 2001.
Keum River Clean-Up:
Located in the south-central part of Korea, the Keum River is the tap water source for the Taejun metropolitan area and the cities of Kongju and Puyo. Since the early 1970’s, the Keum River has seen significant pollution due to the fast development of resort areas, population growth and industrialization. MOE plans to invest USD 1.9 billion to improve the water quality to level 2 of the River by 2005.
The plan also specifies environmental spending goals in four fields:
Construction of sewage treatment facilities: 25 plants (1,881,000 ton/day);
Construction of night soil treatment facilities: 18 Plants (820 ton/day);
Construction of wastewater treatment facilities from livestock farms: 7 plants (1,360 ton/day); and
Construction of industrial wastewater treatment plants: 10 plants (111,100 ton/day).
Korean environmental market demand decreased considerably in 1998 due to the local economic crisis and consequently reduced government budget for environmental projects. In the first half of this year, total environmental imports decreased by 40 percent due to the won devaluation. Local manufacturers offering medium-tech environmental equipment and services supplied the remaining market demand.
However, despite the country’s current economic difficulties, the ROKG has publicly stated it will continue to invest in the nation’s commitment to environmental clean-up and protection. It is expected that the Korean environmental market will spring back in 1999 after successful large-scale corporate restructuring and introduction of new government policies to induce foreign capital flow into the Korean market.
Local manufacturers supply a major portion of Korea’s rapidly growing market, with imports accounting for less than 40 percent of the total market. However, as a result of increased regulations and greater recognition of the necessity to invest in environmental protection, industry experts expect demand will grow for more sophisticated equipment.
Investment Plan for Wastewater Treatment Facilities along the Four River Clean-up Project by 2005
Number of facilities Total
Total 199 $ 8.8 Bil.
Han River 54 $ 1.9 Bil.
Nakdong River 48 $ 3.5 Bil.
Keum River 60 $ 1.9 Bil.
Youngsan River 37 $ 1.5 Bil.
As part of the four major river clean-up projects, MOE plans to focus on the construction throughout the country of additional sewage treatment facilities with USD 2.8 billion. These projects will enhance the nation’s sewage treatment ratio from 56 percent to 80 percent by 2005.
MOE’s Construction Plans for Sewage Treatment Plants
Total 1999 2000 - 2005
Capacity 13,595 1,514 12,081
(1,000 cubic meter/day)
Number of plants 197 29 168
Privatization of environmental infrastructure
Due to Korea’s current economic downturn, private sector environmental projects are barely moving forward. However, the country still is in dire need of public environmental infrastructure improvement now delayed due to financing difficulties. To resolve this problem, the ROKG is accelerating the privatization of environmental infrastructure projects which it has had in the planning stages, some dating back to 1995. The ROKG expects to attract active participation from both domestic and foreign environmental companies and, thereby, potential opportunities exist for U.S. environmental firms to participate as a major player in these projects.
Through its proposed privatization of environmental infrastructure projects, the ROKG intends to achieve several goals. As management liability will be divested to private companies, local governments can thereby strengthen their supervisory capacity. Participation of private companies also will gradually reduce the financial burdens of central and local governments and, at the same time, accelerate the completion of infrastructure projects. Additionally, privatization will naturally promote the reform of local governments’ current ineffective management systems and also will trim excess payrolls. Furthermore, privatization of government-led environmental projects will actively introduce the latest environmental technologies and services to Korea, which will consequently enhance the country’s technical competency and result in better competitiveness in the international environmental market.
Among the various environmental sectors, MOE has announced that the major targets of its privatization plan are: sewage treatment, industrial wastewater treatment, and night soil treatment including waste treatment.
These various projects will be divided into two groups according to their importance to the population’s overall health and well-being:
--Group I: facilities for public service (drinking water facilities, sewage treatment, and municipal solid waste treatment); and
--Group II: facilities other than Group I facilities (industrial wastewater treatment, night soil treatment, agricultural waste treatment, and municipal solid waste recycling).
According to MOE, Group I facilities will be established primarily through the Build-Transfer-Operate (BTO) system, and will eventually be returned to the Korean government. However, the ROKG also is looking into different ways, such as Build-Own-Transfer (BOT) or Build-Lease-Transfer (BLT) methods, to attract a greater variety of participation options for private companies. Group II facilities are to be built and operated (Build-Own-Operate) exclusively by private companies.
B. COMPETITIVE SITUATION
Surface water provides 94 percent of Korea’s water supply. However, because of rapid industrialization and urbanization over the last 25 years, many rivers have dried up and others have become severely polluted, making water unfit either as drinking water or for industrial use. The ROKG has established a special committee under the direction of the prime minister to address this problem at the inter-ministerial level. The committee has at its disposal an investment budget of USD 8.8 billion to be expended by 2005.
Of this total amount, the ROKG plans to spend USD 2.8 billion to construct 197 sewage treatment facilities, increasing the nation’s overall sewage treatment from 56 percent to 80 percent by 2005. According to industry sources, Korea’s total wastewater market was USD 609 million in 1999.
Although Korea is determined to clean up its river basins to serve industrial and drinking water purposes, many Korean environmental companies still lack the core technology to build large-capacity advanced facilities. Their capability in architectural design, engineering and other technical services also is considered insufficient for large projects due to their lack of experience. To fill the technology gap, Korean companies are importing advanced technologies and core equipment under licensing arrangements. For U.S. technology equipment suppliers, good market opportunities lie in the water and wastewater treatment sector.
In Korea, almost all municipal wastewater and water treatment projects have been awarded to large local environmental engineering and construction companies, many of which are affiliated with large conglomerates, or chaebols, such as Hyundai, Samsung, Sunkyoung, Ssangyong, Halla and Lotte. As noted above, these contractors rely on foreign technologies for engineering services and supply of key technologies. In order to localize the latest technologies and products, government and industry are stepping up their joint research and development efforts.
In evaluation of bids, in addition to technical competence, international reputation and reliability, price is a very important factor in the government procurement process for municipal projects. Product specifications are determined by the responsible organization, such as the state–run Environmental Management Corporation.
C. MARKET ACCESS
The most of import duty rates for pollution control equipment are 8 percent on a CIF basis. The Korean government has an annual import duty reduction plan which will bring the rate down to approximately 6 percent by 2000. This cut is aimed at helping local equipment manufacturing industries provide their plants with effective pollution control equipment.
Water pollution control equipment requires high levels of precision, reliability, and maintenance. Therefore, technical features, pre-sales consultation, training and after-sales service, as well as price, are the prime factors associated with purchasing decisions for water pollution control equipment. In addition, U.S. service engineers should make periodic visits to Korea to discuss operational problems as well as improvements or modifications required in the equipment. If the decision is made to enter the market using an agent, it is important to choose a reliable and competent firm which possess the requisite technical capabilities and the necessary government and industry contact.
Pollution control equipment is either sold directly by the manufacturer to the end user or through a sales agent. The ROKG purchases equipment through the Supply Administration Republic of Korea (SAROK) which issues international public bids for national and local water pollution control projects. Engineers and designers are usually in a position to influence selection of specific products, and U.S. firms should engage Korean representatives who can provide full market information and effective sales support. It is also useful for prospective suppliers to work with environmental firms who will specify equipment for major projects.
In the Korean business community, local suppliers are typically paid for their product or service through a 90-day or 120-day promissory note, whereas imports are usually reimbursed on a letter of credit (L/C) basis. As there is virtually little competitive pressure from local suppliers for the latest type of wastewater product and technology, such a deferred payment practice would not affect a U.S. supplier’s competitive position. Payment by government buyers is made through cash installments, including an initial commitment payment and installments paid as the project progresses.
1. Government agencies and quasi-government institutes
Ministry of Environment (MOE)
Government Complex II
1, Choongang-dong, Kwacheon-si, Kyongki-do, 427-760 Korea
Contact: Mr. Lee, In Soo, Director General, International Cooperation Division
Supply Administration Republic of Korea (SAROK)
520-3 Banpo-dong, Socho-ku, Seoul 137-756 Korea
Contact: Mr. Kim, Jin-Won, Director General, Procurement Bureau
Seoul Metropolitan Government
38, Seosomun-dong, Chung-ku, Seoul, 100-110 Korea
Contact: Mr. Do, Myung Jung, Assistant Mayor for Environmental Management
Environmental Management Corporation (EMC)
4-15, Nonhyun-dong, Kangnam-ku, Seoul, Korea
Contact: Dr. Kim, Jong Suk, Executive Director
National Institute of Environmental Research (NIER)
280-17, Bulkwang-dong, Eunpyong-ku, Seoul, Korea
Contact: Dr. Han, Ki Bong, Water Quality Div.
2. Trade Associations
Korea Environment Industry Association
#4 Pungjeon Bldg., 11-3, Jeong-dong, Jung-gu, Seoul, Korea
Contact: Mr. Cho, Il Sung, Secretary General
Korea Environmental Preservation Association (KEPA)
Seoul CCI Bldg., 497-66, Tapshimni-5-dong, Dongdaemun-ku,
Phone: 82-2-2249-5265 Ext. 3
Contact: Mr. Kim, Sang Ha, President
Association of Foreign Trading Agents of Korea (AFTAK)
Dongjin Bldg. 218 Hankangro-2-ka, Yongsan-ku
Seoul, 140-012, Korea
Contact: Mr. Lee, Chae Mu, Manager, Trade Promotion Dept.
3. Major Trade Publications
Bulletin of Korea Environmental Preservation Association (monthly)
Publisher: Korea Environmental Preservation Association (KEPA)
Seoul CCI Bldg., 497-66 Tapshimni-5-dong, Dongdaemun-ku,
Bulletin of Korea Pollution Control Association (monthly)
Korea Pollution Control Association
Poongjun Bldg., 11-3, Jung-dong, Choong-ku, Seoul, Korea
Journal of Environmental Hi-Technology (monthly)
Publisher: Environment Management Institute
1125-3, Kuro-dong, Kuro-ku, Seoul, Korea
For U.S. suppliers of environmental technology and products, one of the most effective promotional tools is participating in a trade show. Each year, several trade shows are held for both foreign and domestic environment industries at the Convention & Exhibition Center (COEX) in Seoul including:
ENVEX ’99 – The 21st International Exhibition on Environmental Technologies ’99 (featuring CS Korea’s U.S. Pavilion)
The International Exhibition on Environmental Technologies (ENVEX) is one of the biggest environmental trade shows in Korea, whose the Korean environment market, expansion parallels the growth of. In spite of Korea's current difficulties, the ROKG has publicly stated it will continue to invest in the nation's commitment to environmental clean-up and protection. U.S. exhibitors at ENVEX '98 fully demonstrated the potential of American manufacturers using cutting-edge technology. Therefore, U.S.-AEP/Korea and the Commercial Service Korea will support leading U.S. firms active in the field of environmental technologies and products through our U.S. Pavilion at ENVEX '99. At ENVEX ’99 we also will organize a virtual trade show at ENVEX ‘99 to promote U.S. exports through presentation of graphic materials and technical specifications of a company’s product.
Details regarding ENVEX ’99:
Booth construction & exhibit installation: June 8 to 10, 1999
Exhibition period: June 11 to 14, 1999 (Opening hours: 10:00 to
Venue: Pacific Hall, Convention & Exhibition Center (COEX)
Total Exhibition Area:9,558m2
Korea Resources and Reutilization Corporation (KORECO)
Korea Environmental Preservation Association (KEPA)
U.S. Pavilion organized and sponsored by:
The Commercial Service Korea, American Embassy, Seoul
Phone: 82-2-734-6558, 82-2-737-5492
ENVIRO ‘99 – Seoul International Environmental Industry
ENVIRO is another large environmental trade show organized by the Joong-ang Ilbo, one of the major newspapers in Korea. This trade show also can be an effective vehicle for the promotion of pollution control equipment.
Details regarding ENVIRO ’99:
Dates: November 20 – November 23, 1999 (10:00 – 17:00
Venue: Pacific Hall, COEX, Seoul, Korea
Total Exhibition Area: 7,716 m2
Organized by: The Joong-ang Ilbo (a national daily
Sponsored by: Ministry of Environment
Seoul Metropolitan Government