South Korean Firms Face 1 Trillion Won Refinery Loss
Construction companies face massive payment shortfalls and deposit risks while navigating complex international contract disputes.
Updated on Oct. 23, 2026 in Oil and Gas
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Four South Korean construction companies are seeking 625.4 billion won in unpaid fees for the $6.8 billion Karbala Refinery project in Iraq. The firms also face the potential loss of a 420.2 billion won performance deposit amid disputes over project defects and tax compliance.
Why it matters
The payment dispute complicates international infrastructure delivery, as the project owner has demanded 834.8 billion won in compensation for defects. This standoff underscores the operational risks of large-scale cross-border contracts, where political instability and shifting local requirements can halt cash flow.
Four construction firms are currently missing 625.4 billion won in payments, with an additional 420.2 billion won deposit at risk. The total project value stands at 6.8 billion dollars for the refinery facility, which was completed and transferred in December 2023.
The players
SCOP
An Iraqi state-owned entity responsible for oil projects and infrastructure commissioning.
Lee Jae-gang
A lawmaker planning to push for government support regarding unpaid claims.
The details
Iraq has linked the payment freeze to 162 defects and outstanding tax documentation, requiring the builders to perform root-cause analyses or site shutdowns for 120 of these items. To rectify these issues, construction firms must secure new site access permits, visa approvals, and specific shutdown schedules. The dispute resolution process has stalled following leadership changes in the Iraqi oil ministry and the arrest of a vice minister.
Timeline
2016: Construction firms recovered partial payments through crude oil sales.
December 2023: Builders handed over the completed refinery facility to the Iraqi side.
April 2025: Iraq agreed to pay 33.5 billion won in fees.
May 2026: Negotiations to resolve the outstanding payment claims began.
October 27, 2026: Parliamentary audit on the unpaid construction claims is scheduled.
Market Landscape
This payment dispute reflects ongoing volatility in international construction projects, echoing the payment issues observed in 2016. It marks a significant departure from the stability needed for large-scale energy infrastructure development.
Operators managing large international projects should verify that contract language mandates cash-based settlements rather than commodity-based payment structures. Firms must also track how local regulatory shifts, such as new tax documentation requirements, impact their ability to secure final project payments.
The takeaway
Large-scale infrastructure projects remain vulnerable to political risk and shifting tax requirements long after the physical handover. Managers should maintain rigorous, documented defect registries and verify that all tax and permit requirements are signed off to prevent payment blockages.
What happens next
A parliamentary audit scheduled for October 27, 2026, will address the need for a government-wide support system regarding the unpaid claims.
Further reading
For broader trends in energy sector capital projects, visit the Oil and Gas section.
Source note: This article includes information reported by 조선일보.
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