South Korea: Legal Issues Related To The Acquisition Of Wind Turbine Installation Vessels In Korea

The acquisition of offshore wind turbine installation vessels has become a significant issue as the number of offshore wind power projects in Korea continues to grow.

As of the end of 2022, the cumulative installed capacity of onshore and offshore wind power in Korea reached 1,804 MW with 115 wind farms and 77 turbines. Korea's onshore capacity reached 1,657 MW (92%, 106 wind farms and 725 turbines), while offshore capacity recorded 146 MW (8%, 10 wind farms and 52 turbines). This accounts for 13.1% of the country's total new and renewable energy facility capacity, which stands at 13,746 MW.

Korea's installed wind power capacity has grown steadily during the last 5 years, with an average annual growth rate of 9.7%. The capacity has increased from 1,296 MW in 2018 to 1,487 MW in 2019, 1,641 MW in 2020, 1,709 MW in 2021, and reached 1,804 MW by the end of 2022.

While the majority of Korea's wind power farms are onshore, there has been a notable shift in the market trend with an increasing installation of offshore wind power farms. Regions that demonstrate this shift include Incheon (0.7 GW), Jeonbuk (2.4 GW), Jeonnam Shinan (8.2 GW), Jeju (0.6 GW), and Ulsan (6 GW). Currently, there are 73 offshore wind power projects (a total of 20.7 GW) with electric utility licenses. Jeonnam takes the lead with a total of 41 projects with a combined capacity of 11 GW, followed by Busan and Ulsan with 16 projects. Jeju has five projects, Gyeonggi and Incheon, Gyeongnam, and Jeonbuk have three projects, respectively, and Chungnam has two projects.

Although Korea is considered a second mover in the global offshore wind power market, its potential for offshore wind power surpasses other countries. However, despite being a marine powerhouse with the world's fourth-largest fleet reserves, Korea ironically lacks domestic shipowners who own offshore wind turbine installation vessels. This is why Korea is attracting attention from owners of offshore wind turbine installation vessels worldwide.

This article will explore the potential legal issues that may arise when establishing a business operating offshore wind turbine installation vessels in Korea.

1. The Cabotage Rule

Article 6 of the Ship Act of Korea stipulates that "Non-Korean ships shall not be permitted to call at closed ports of the Republic of Korea or to transport passengers or cargo between domestic ports. However, this rule shall not apply in any case as otherwise prescribed by another Act or treaty, in cases of avoiding a maritime accident or seizure, or in cases permitted by the Minister of Oceans and Fisheries."

This legal regulation in Korea is commonly referred to as the "Cabotage Rule." In international practice, the Cabotage Rule typically refers to the exclusive reservation of rights for domestic vessels to commercially transport cargo from one port to another within a country's territorial waters, excluding foreign vessels from these rights.

The purpose of the cabotage rules prescribed under the Ship Act is to protect domestic coastal cargo transportation services and prepare for the transportation of oil and other essential goods in emergency situations. Cabotage rules differ by country and are used to regulate transportation among domestic ports by foreign vessels. When establishing these rules, countries aim to balance their national interest with the principles of international law by creating policies that protect domestic vessels while also permitting foreign ships to enter and depart from international ports in accordance with a fundamental principle of international law: the freedom of navigation (or the freedom of the seas).

Accordingly, in principle, if an offshore wind turbine installation vessel is a foreign vessel, the shipowner cannot operate the vessel unless it changes the vessel's flag state to Korea, as prescribed under Article 6 of the Ship Act.

However, some exceptions permit foreign offshore wind turbine installation vessels to navigate between domestic ports in Korea after ship chartering. This is applicable if the vessel is subject to bareboat charter hire purchase, or if it is acknowledged that there are no domestic coastal vessels suitable for the transportation of the cargo that is intended to be transported and the vessel receives permission after deliberation by a deliberation committee.

Therefore, if a shipowner with a foreign vessel wishes to do business in Korea without changing the flag state, they will need to address the cabotage rule issue. This necessitates getting the right legal advice from an expert in Korean law.

2. Flag State Changes and the Registration of Coastal Cargo Transportation Service

To resolve the cabotage rule issue, shipowners of foreign offshore wind turbine installation vessels may choose to change the vessel's flag state. In such cases, the shipowner must both change the vessel's flag state and register as a coastal cargo transportation service provider with the Minister of Oceans and Fisheries of the Republic of Korea.

To begin the process of changing the flag state of an offshore wind turbine installation vessel to Korea, the shipowner must first designate a port of registry in Korea and apply for a gross tonnage measurement of the vessel to the administrator of a regional office of oceans and fisheries that has jurisdiction over the port of registry or their location (Article 7(1) of the Ship Act of Korea).

If the vessel is a sailing ship with a total tonnage of not less than 20 tons, the shipowner will have to first register the vessel with the district courts, the branch courts thereof, or the registries, which have jurisdiction over the ports of registry for the vessel (Article 8(1) of the Ship Act and Articles 2 and 4 of the Ship Registry Act). Afterwards, within 60 days from the date of the ship acquisition, the shipowner must apply for the registration of the vessel to the administrator of a regional office of oceans and fisheries that has jurisdiction over the port of registry as prescribed by the Ordinance of the Ministry of Oceans and Fisheries, and be issued a certificate of the vessel's nationality (Article 8(1) and (2) of the Ship Act).

Additionally, once the shipowner becomes an owner of a Korean vessel, it has to undergo a regular survey by the Ministry of Oceans and Fisheries for the ship's facilities and the load line pursuant to the Ordinance of the Ministry of Oceans and Fisheries and must be issued a ship survey certificate in which matters prescribed by the Ordinance of the Ministry of Oceans and Fisheries and survey records are described for the ship (Articles 8(1) and (2) of the Ship Safety Act).

Finally, as prescribed under Articles 24(1) and (3) of the Marine Transportation Act, the shipowner must also register its business as a coastal cargo transportation service with the Minister of Oceans and Fisheries when they submit the aforementioned certificate of the vessel's nationality, ship survey certificate, and business plans to the Minister of Oceans and Fisheries or the administrator of a regional office of oceans and fisheries.

In particular, if the gross tonnage of the offshore wind power specialized installation vessel exceeds 100 tons, the shipowner must submit a service plan where "the detailed items of the vessel to be used" and the "facilities necessary for the provision of the services" are written pursuant to Articles 16(1) and (3) of the Enforcement Rules of the Marine Transportation Act of Korea.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.