VZCZCXYZ0001
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 
 
¶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