[Market Eye] SK hynix’s W122tr chip cluster project hits water dispute

SK hynix semiconductor factory in Icheon, Gyeonggi Province (Bloomberg/Yonhap)

SK hynix’s 121.7 trillion won ($93.8 billion) plan to create a semiconductor manufacturing cluster hits an unexpected hurdle, with the South Korean chipmaker giant seeing itself deny a request for water use from a city adjacent to the cluster location in Greater Seoul.

The city of Yeoju in Gyeonggi province is demanding greater compensation in exchange for allowing SK hynix to build underground pipes needed to transport huge amounts of water crucial for the production of next-generation chips in a brand new semiconductor manufacturing plant (fab) in Yongin, in the south of the country. Gyeonggi Province.

Yeoju Mayor Lee Choong-woo has refused to grant the go-ahead unless certain conditions are met, throwing SK hynix’s ambitious memory factory construction plans into a spiral of uncertainty.

SK hynix is ​​supposed to inaugurate the 4.15 million square meter site in September, but without reaching an agreement with the city of Yeoju on the water supply this month, the project is likely to be delayed, insiders warning that it could result in cost overruns.

The Yeoju Water Agreement remains the final hurdle SK Hynix has to clear in building the country’s first state-sponsored project. By June, three years after the government announced the plan, SK hynix had obtained all required government approvals and reached compensation agreements with landowners who would be affected by the pipeline and plant.

According to the current plan, the Yongin cluster is expected to consume up to 570,000 metric tons of fresh water per day. Chip manufacturing requires large volumes of ultrapure water to remove debris during the manufacturing process to prevent the chips from becoming contaminated.

SK aims to allocate about 300 billion won to build the pipeline through Yeoju, which is more than 30 kilometers from the location of the chip factory.

A spokesperson for the city of Yeoju said the plan affected the city as a whole, as the pipelines would hamper the planning of other infrastructure and industrial land development.

“(A new chip cluster project) requires (Yeoju) to make sacrifices,” Yeoju said in a statement on Thursday. “Yeoju is asking for a plan where all parties involved in the project can coexist, because Yeoju has long been subject to overlapping regulations, and Yongin’s water means an additional limit to Yeoju’s development.”

An aerial view of Yeoju Weir (Yeoju City)

An aerial view of Yeoju Weir (Yeoju City)

It comes after senior Industry Ministry officials and Yeoju Mayor Lee held talks on Tuesday aimed at resolving the water dispute. Lee proposed removing red tape for development plans involving a new industrial complex and nearby homes.

The Namhan River spans Yeoju, one of two freshwater branches that forms the Han River in Seoul. The river has been considered a major source of fresh water used for drinking water, agriculture, and industrial purposes, among others.

Over the past few decades, Yeoju has already supplied 110,000 tons of water to a nearby SK hynix chip factory in Icheon, as well as a combined 100,000 tons of water to HiteJinro and Oriental Brewery distilleries, according to Lee. Additionally, SK’s new liquefied natural gas power plant will require 20,000 tonnes of water to operate once construction is complete later this year.

Commercial and industrial land development in Yeoju has long been subject to regulations aimed at protecting natural resources and fresh water, while some land is also used for agriculture and military posts. These have prevented companies from establishing or expanding factories in Yeoju. The Yeoju city government has been conducting public consultation on the construction of the pipeline since December 2021. As of June, there were some 113,000 residents in Yeoju.

“Coexistence cannot be achieved through the sacrifice of a certain party,” Lee, who was elected mayor in June, said during a meeting with Gyeonggi Provincial Governor Kim Dong-yeon in July. . “SK hynix, the state and local government of Gyeonggi Province should not transport fresh water from Yeoju without developing a coexistence plan.”

According to industry sources, SK hynix has not yet received a renewed proposal from Yeoju regarding the development of the city. SK hynix declined to comment.

The standoff cast an uncertain outlook for the country’s first semiconductor manufacturing cluster, involving SK hynix and 50 semiconductor-related suppliers, all of which SK hynix said were set to leave later this year.

Should operation of the Yongin plant start by the end of the 2020s as planned, Yongin could become one of the main pillars of SK hynix’s Korean operations.

In addition to four Yongin factories primarily dedicated to next-generation memory semiconductor solutions, SK hynix operates DRAM production lines and a research center in Icheon, as well as NAND flash memory lines in Cheongju, South China. North Chungcheong Province.

But continued delays in building the Yongin plant seem to be becoming a headache for SK hynix’s plan to meet growing demand for memory solutions, seen as a crucial part of microchips.

SK hynix chairman Noh Jong-won said during a 2021 earnings call in January that SK hynix “should begin construction of the Yongin plant as soon as possible,” adding that the company hopes to start construction. new manufacturing operations in 2026.

The conflict between chip makers and the local community is nothing new in Korea, given the sheer amount of water, electricity and land needed to run a semiconductor factory.

It took Samsung Electronics five years to resolve a dispute over a 23-kilometer power cable linking Anseong, Gyeonggi Province, to a new semiconductor manufacturing plant in Pyeongtaek, Gyeonggi Province.

Landowners along a 1.5 kilometer long cable construction site asked Samsung to build a tunnel and bury the cable underneath, citing safety concerns. Samsung and the landowners were able to reach a compromise after Samsung agreed to pay an additional 75 billion won to change the plan.

Such conflicts have received renewed attention as the country has sought to focus its policy on semiconductor chips. Korea’s own version of the chip law went into effect on Thursday, while lawmakers drafted the new bill to bolster support for the chip-making industry, including plans to triple appropriations for the chip industry. tax on companies investing in chip-making infrastructure.

During lawmakers’ presentation of the new bill to government officials on Monday, lawmakers singled out the Yeoju water dispute as an example of how the lack of whole-of-government efforts is hampering the growth of local industry. chip manufacturing.

“A donor falls victim (to a limitation on land development), while a taker relishes the boost of the local economy, so local governments involved in the issue should consult each other,” Rep. Kim said. Yeung-shik of the ruling People Power Party celebrates on Mondays.

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