South Korean leading trading firms Posco Daewoo Corp. and LG International Corp.’s plans to tap the auto market in Middle East hit a stumbling block amid lukewarm response from their Arabic counterparts.

According to industry sources on Tuesday, Posco Daewoo recently disbanded its auto project team that had taken part in a project to develop vehicles in Saudi Arabia three years after the Korean trading firm signed a memorandum of understanding (MoU) on the project with a local Saudi firm.

Under the MoU terms, Posco Daewoo with a 15 percent stake in the project had worked on the project worth nearly 1.2 billion won ($1.1 billion) since 2014 with Saudi Arabia’s sovereign wealth fund Public Investment Fund (PIF) holding a 35 percent stake and a local Saudi Arabian firm owning a 50 percent stake. They initially agreed to build an auto manufacturing base with an annual production capacity of 150,000 units in the Middle Eastern country.

But the project started to founder last year when state-run Saudi Arabia Holding Company took over 85 percent shares in the project. Since then, the Saudi government took tepid stance towards the project and re-examined the deal, which led the Korean firm to finally withdraw from the project, according to sources.

Another Korean trading firm LG International that has been pushing for a plan to manufacture electric vehicles and build EV charging infrastructure in Iran has also met challenges, according to the industry. The company signed an agreement with Iran’s state-owned industrial development company in May last year.

Under the initial agreement, LG International together with Iran`s largest automaker Iran Khodro would develop electric cars and build charging stations in the country with an aim to produce 60,000 units of electric vehicles by 2023. The companies had planned to finalize the terms by the end of last year, but there has been no progress on the deal until now, raising concerns that the agreement would soon fall out.

Despite the delay, LG International would proceed with the project as planned, said an unnamed LG International official.

By Kang Young-woon

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