South Korea’s Board of Audit and Inspection has called on the National Pension Service (NPS) to perform more thorough analysis before making foreign infrastructure investment decisions, after a poor outcome from a U.S. energy stake.

The audit agency noted in its inspection report, released on July 30, that the state pension fund’s decision to invest in a Texas-based combined heat and power plant back in 2014 was made without an adequate analysis of the region and industry.

NPS acquired 19.6% of the 833-megawatt plant for $81 million in February 2014 by investing in a foreign infrastructure fund that owns 61%, and plans to hold its stake until 2023, according to the report. The pension fund made the investment decision after concluding that the state’s power supply was not sufficient and after taking account of the high barriers to entry into the industry, which are due to strict environmental regulations.

But the investment had posted a negative return of 0.8% by the end of 2018, far less than the pension fund’s targeted return of 11%. The accumulated revenue from the asset during the period from April 2014 to December 2018 was $13.04 million,  compared with the NPS’ expectation of $18.32 million.

“The pension scheme’s poor analysis on the outlook for the sector resulted in power supply capacity in the state being underestimated,” the report said.

Environmental regulations in Texas limit the entry of coal-fired power plants, but this did not benefit NPS because it was offset by an increase in the state’s installed electricity capacity from renewable sources such as wind power, the report explained. It also pointed out that the pension fund had overestimated future revenues from the asset, resulting from its poor prediction of prices for natural gas, which is a fuel used by the power plant.

“The chairman of the National Pension Service should pay extra attention to the fund’s investment in foreign infrastructure projects in the future so that analysis is done more thoroughly and properly on industries and markets related to the target assets,” the report said. (Reporting by Ho-joung Ryu)