Energy supply in the DPRK’s SEZs

September 11th, 2014

The Nautilus Institute has published an interesting paper on energy infrastructure in the DPRK’s initial four special economic zones: Rason, Hwanggumphyong, Kaesong, Kaesong, and Kumgang.

Here is the publication information and  a link:

“Supplying Energy Needs for the DPRK’s Special Economic Zones and Special Administrative Regions: Electricity Infrastructure Requirements”
Nautilus Institute
Roger Cavazos & David von Hippel
2014-8-19

Here is the introduction:

The Democratic Peoples’ Republic of Korea (DPRK) uses special economic zones as a mechanism for engaging in commercial activity with other nations without substantially converting its economy to a market model; earning hard currency while reducing some of the social and political risks associated with a broader opening of the DPRK economy. The DPRK recently announced its intent to increase the number of Special Designated Zones, including Special Economic Zones (SEZ) and Special Administrative Regions (SAR) in the country by fourteen.[1] In most cases, these Special Designated Zones (we will use “Special Zone”, or “SZ”,as the generic term in this Working Paper to apply to Special Designated Zones) will require energy supply (and demand) infrastructure that is now missing, or insufficient, at all existing and proposed Special Zone sites. Even though past is not prologue—and the mechanisms for supplying energy needs to new SZs may be different than those used in the past, this paper seeks to briefly describe already existing Special Zones in terms of their present energy requirements. Present requirements provide rough estimates of the energy requirements of the newly proposed zones. Specifically we examine: the Rason Special Economic Zone and Special Administrative Region, the Hwanggumphyong Special Economic Zone, the Wihwado Special Economic Zone, the Kumgang Mountain Tourist Area, and finally, the Kaesong Industrial Zone. These specially designated zones ideally contribute to economic development in North Korea as well as provide economic benefits to the Chinese and Russian provinces bordering North Korea. Chinese plans to resuscitate and/or invigorate the economies of their three Northeast provinces bordering North Korea would certainly be moved forward by trade with a richer North Korea and access to strategic North Korean ports just across the border. Although this paper does not cover Russian plans, the motivations for Russian investments in North Korean SZs are likely similar—the desire to boost the economies of the areas of the Russian Far East that adjoin the DPRK, and to improve access to markets in Asia.

There is a limited but growing amount of information available to understand how these Special Zones are defined by North Korean policy, how they are currently faring in terms of economic performance, and what future zones will likely require in terms of energy usage. There is also a growing body of rules and regulations by which North Korea and China plan to govern these zones. Except for the Kaesong industrial complex, it appears that all these zones are significantly short on the energy infrastructure necessary to supply their modest current demands, let alone any future projected demands. North Korea’s decision to declare several such zones in North Korea’s interior may possibly indicate a desire to stitch together North Korea’s electrical transmission and distribution networks which are currently more a patchwork of regional grids rather than a unified national grid. Previous Special Zones have always been on or near North Korea’s periphery. Because previous zones were located on the DPRK’s frontiers, they were largely able to “plug in” to already developed electricity transmission and distribution systems on the other side of the border (in China, Russia or South Korea). While we present no specific calculations here, the cost to renew the DPRK’s entire transmission and distribution (T&D) system will certainly cost billions to tens of billions of dollars which could consume on the order of 10 percent or more of North Korea’s GDP for 5 to 10 years, assuming, as estimated by Republic of Korea (ROK) sources, that North Korea’s GDP is in the neighborhood of 40 billion dollars. The costs of T&D renewal are thus well beyond anything North Korea is likely to be able to afford to do in the short-term on anything but a piecemeal basis.

Despite gaps in our knowledge of how Special Zones in the DPRK have formed and operate or will operate, there is a substantial amount of information available from English, Chinese and Korean-language sources describing the basic plans for investment and the businesses that North Korean, Chinese, and in some cases Russian partners hope to develop in some Special Economic Zones. What is missing from the plans for which information is available, however, are detailedplans for building the energy infrastructure required to support the amount of economic activity (in factories, ports, hotels, workers quarters, and other elements of the SZs) envisioned. The electricity infrastructure required to support the economic plans is modest by most industrial standards. The existing infrastructure in most of the SZs, however, is grossly inadequate, and thus will require significant international investment to allow the SZs to operate as planned.

Investing in SZ infrastructure is likely to be more complex than a typical industrial investment. Sources of investment funds for SZ infrastructure could include businesses from a number of nations, and/or government or multilateral funds. Each potential lender/investor will have its own criteria for deciding on whether a given investment is reasonable or too risky. In theory, involving a number of different actors from different nations in DPRK SZ infrastructure investments would help to diversify the risk borne by any given company or nation, and to create a broader constituency for working with North Koreans using business practices that comply with international law and standards. In part, a broader constituency of coordinated investors could also help to discourage the “rent-seeking” by officials that is often a part of projects in the DPRK (and in many other countries). Because the amount of infrastructure-building required is high, there is significant potential for illegal rent-seeking, that is, for example, for DPRK authorities to inflate the price of “surveys” or permits, or the cost of securing import rights for equipment needed for the SZs, in order to gain personally from the transaction.

Working conditions in SZs will be another area of concern for investors and for foreign firms seeking to operate facilities in new or existing SZs. Anecdotal reports suggest that industrial facilities in general in the DPRK tend to operate with limited evident concern for worker safety. In the absence of pressure from investing companies, it is also likely that working conditions will remain poor and dangerous, as there does not appear to be a significant set of DPRK regulations related to industrial safety. Nor, for that matter, does there appear to be a well-established and well-funded government body dedicated to establishing, monitoring and enforcing industrial safety regulations.

This paper describes several of the Special Zones now operating in or in the advanced planning process in the DPRK, together with what is known about plans for their development. For each, it provides a description of the likely energy requirements, based on what can be determined regarding planned activities at each site, and examines adjoining energy infrastructure to identify probable degrees of energy shortfalls that foreign investors, working with DPRK counterparts, will need to overcome. Some of issues and policies that policymakers inside and outside of the DPRK will need to consider in order to arrange for the financing and construction of the requisite infrastructure to operate the SZs.

You can download the PDF here.

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DPRK fun: Guess how many members of the women’s team are civilians

September 11th, 2014

DPRK-national-team-2014

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US federal court rules against DPRK

September 11th, 2014

In July 2014 a US federal court found the DPRK guilty of proliferating weapons and providing training to Hezbollah.

Here is the ruling (PDF).

 

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Competition rises among factories and department stores in North Korea: Delivery services now available

September 5th, 2014

Institute for Far Easter Studies (IFES)
2014-9-4

It appears that some factories and department stores in North Korea have begun to implement a delivery service in response to customer demand. This new customer-oriented service seems to have arisen out of the Kim Jong Un regime’s goal of increasing autonomy and competition among businesses.

According to the newest issue of “Choguk” [Joguk] (“Motherland”, September 2014), a media outlet associated with the General Association of Korean Residents in Japan, North Korea’s representative state-run department store Pyongyang Department Store No. 1 has been making efforts to diversify the services offered to its customers. The article specifically revealed a personal delivery service, saying, “Salespersons have responded to the public’s requests and have begun to deliver ordered products to sell directly to customers at their doorsteps.”

Salespersons from Pyongyang Department Store No. 1 have also been travelling to power plants, mining sites, textile mills, farms and other worksites to sell products directly to workers and farmers. Other businesses, such as the Potong River Shoe Factory, have also been diversifying customer services. For example, employees now visit customers’ homes to measure shoe size and satisfy other requests they may have when placing an order for shoes.

The Daedong River Passenger Transport Company in Pyongyang is currently offering a taxi dispatching service to customers who call in and request a pickup. Similar to the workings of South Korea’s taxi service, North Koreans may simply dial “186” to be connected to the closest dispatch office, which then sends out a taxi to pick up the customer.

On the other hand, North Korea has recognized the problem of the low-quality products and poor construction work and has emphasized that efforts must be made to remedy these areas. In the most recent issue of the quarterly academic journal, Kyongje Yongu [Economic Research] (2014, Issue 3), one article points out problems in the poor quality of North Korean-made products and construction, saying, “Neglect in quality growth is an outdated attitude.”

Specifically, the article mentions the problem of promising completion of construction according to deadlines: “Technical regulations and construction methods are disregarded when projects are rushed to be finished by their completion date, which is often decided in advance to coincide with a holiday or anniversary.

Currently, North Korea has undertaken large-scale construction operations to finish the Kim Chaek University of Technology’s faculty apartments, the Pyongyang Orphanage and Nursery, the North Pyongan Chongchon River Power Plant and other projects spanning various fields. The goal is to complete these projects concurrently with the anniversary of the foundation of the Worker’s Party of Korea (October 10).

At construction sites around North Korea, it appears that all available resources are being mobilized to engage in a so-called “speed battle” with these construction deadlines. The side effect of this huge emphasis on speed has resulted in many instances of poor construction, like the collapse of the 23-floor apartment building in Pyongyang’s Ansan-1-dong back in May.

The article also points out, “Despite attempting to work toward self-sustainability, there are events where lower quality, alternative products are being used below the material requirements that are leading to lowered quality work.” Furthermore, the article emphasizes, “Production and circulation of faulty products or products which cause harm to the health or lifestyle of the people must be stopped.”

It has also been reported that corruption is taking place at factories and construction sites, with party officials or intermediary managers amassing riches by siphoning off materials and pocketing the money. This leads to further problems in product quality and defectiveness.

Due to the issues of poor construction and product quality, the article points out, “There are many areas in our material economic life that fall behind the global trend,” but “if the quality of products and buildings are improved, the need to consider products from other countries will wane.”

In order to solve these problems, the article suggests implementing product standardization and specialization and encourages research in industrial design.

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Rodong Sinmun calls for strengthening the cabinet in economic matters

September 5th, 2014

UPDATE 1 (2014-9-11): IFES reports: North Korea emphasizes innovation using “economic management in our style” approach

North Korea has announced that the nation’s economic management problem will be solved through their “own style,” once again stressing the superiority of the Socialist self-reliant economic model and reiterating the need to construct a strong and prosperous nation.

A September 3, 2014 editorial in the Rodong Sinmun argues the importance of economic management and leadership, saying that it must be improved to meet the demands of the North Korean economy, which has reached a new turning point in its development.

“Economic Management System in Our Style” is North Korea’s new approach to economic principles originally stemming from Kim Il Sung and Kim Jong Il. The editorial emphasizes that it is a project that will bring real results and continuous development.

Furthermore, the editorial argues that economic management and leadership must be carried out according to objective economic law and scientific reason in order to ensure the greatest possible economic practicality.

The article also emphasizes the role of scientific technology, saying that “Research and development must be actively promoted in all areas and all aspects of the people’s economy. New scientific technology must be integrated into production in order to renovate the economy and meet the demands of the new generation.”

The editorial also calls for conservation of national human and material resources as much as possible, as fundamental problems in building a strong economic nation and improving the life of the people, including the lack of adequate power and food, have yet to be solved.

The roles of economic advising agencies and their workers were emphasized as being especially important. The editorial stresses that these economic advisers must become aware of the deep responsibility they hold, and must work to achieve real results in improving the country’s economic management.

Finally, the role of the Cabinet was also emphasized as the commander of the economy. Specifically, the editorial calls for the strengthening of the Cabinet-centered system, in which the Cabinet should oversee all economic institutions and sectors and create policies accordingly. In addition, the Cabinet’s role to guide companies with scientific business and corporate strategies is emphasized so that they may actively engage in creative business activities.

North Korea has been rolling out economic improvement measures since early 2012, starting with the agriculture sector. Since then, an “independent profit system” has also been introduced in various factories and businesses where managers are allowed more autonomy in managing operations, but are ultimately responsible for the business’s productivity.

Beginning this year, the “business know-how” concept was applied to various farms and factories, and increased profits reportedly have begun to see their way back into the hands of the workers. The workers, whose job performance has increased due to the rise in profits, are seen as the driving force of North Korea’s economic development.
ORIGINAL POST (2014-9-5): Thanks to Choson Exchange for spotting this one. According to Rodong Sinmun (2014-9-4):

Giving Full Play to Advantages and Might of Self-surpporting Economy

It is necessary to settle the issue of economic management by Korean style in order to fully demonstrate the advantages and might of the Juche-oriented socialist self-supporting economy and win the final victory in the drive for building a thriving nation.

The establishment of Korean-style economic management method is, in essence, the work to apply, carry forward and develop the principle and methods of economic management indicated by President Kim Il Sung and leader Kim Jong Il as required by the present times.

It is necessary to hold fast to the socialist principle in improving the economic management.

It is essential to ensure the maximum economic profitability by guiding and managing economy according to the objective laws of economy and scientific reason.

In order to improve the economic management it is important to raise the responsibility and role of the economy guidance institutions and officials.

It is possible to successfully achieve economic development only by working out a scientific economy development strategy, enlisting the natural resources and all potentials of the country to the maximum, ensuring a steady growth of production and keeping the overall balance of economy.

The Cabinet is the economy command of the country.

It is necessary to strengthen the Cabinet responsibility system, system centering on the Cabinet, concentrate all the economic fields and overall economic work on the Cabinet and take measures under the supervision of the Cabinet.

The editorial calls for improving the economic management as required by the developing reality and intended by the party and thus giving fuller play to the advantages of Korean-style socialism and bring about a fresh turn in the building of a thriving nation.

Here is a PDF of the web page should the URL go bad.

It is worth noting briefly that this is what we have seen recently in recent consolidation of the JVIC, SEDC, and Ministry of Foreign Trade into the Ministry of External Economic Affairs.

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DPRK announces second session of 13th Supreme People’s Assembly

September 4th, 2014

According to KCNA:

DPRK Supreme People’s Assembly to Be Convened

Pyongyang, September 5 (KCNA) — The Second Session of the 13th Supreme People’s Assembly of the Democratic People’s Republic of Korea will be held in Pyongyang on September 25, Juche 103 (2014).

A relevant decision of the Presidium of the Supreme People’s Assembly was promulgated on Sept. 4.

Information on the first session of the 13th SPA can be found here.

Information on the election of the 13th SPA can be found here.

Here is what the Daily NK has to say:

It is the norm for the SPA to convene each spring to carry out the core responsibilities of ratifying personnel changes and hearing budgetary reports. Two of the more noteworthy results of the meeting in April this year were then-Director of the KPA General Political Department Choe Ryong Hae being made a deputy in the National Defense Commission, and Ri Su Yong being handed the foreign affairs portfolio. Ri, a seasoned diplomat, is scheduled to speak to the UN General Assembly later this month.

Conversely, second sessions do not occur every year as a matter of course; rather, they are convened when necessary for the accomplishment of Workers’ Party objectives. One such session convened on September 25th, 2012, for instance, resulted in wide-ranging changes to the state education system, most notably the addition of a 12th year of mandatory schooling.

As a result, attention is set to focus on personnel shifts and the possibility of major policy announcements.

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DPRK rice imports from China increase

August 25th, 2014

According to Yonhap:

North Korea bought US$7.02 million worth of rice from the neighboring country last month, up 115 percent from $3.27 million a year earlier, according to Chinese trade data from the Seoul-based Korea International Trade Association.

The amount also represents an on-month increase of 53 percent from $4.57 million.

The sudden increase in imports comes amid reports that the price of rice has risen sharply in the North.

According to the South Korean online newspaper DailyNK on Aug. 12, rice cost 5,800 won per kilogram in Pyongyang, up 1,550 won from the middle of July.

Read the full story here:
N. Korea’s imports of Chinese rice more than double
Yonhap
2014-8-25

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DPRK curtailing family visits to China

August 25th, 2014

According to the Daily NK:

The number of North Korean residents permitted to visit relatives in China is down significantly from last year’s statistics during the same period. Yet another attempt to regain control, this move is another attempt by the paranoid leadership to block exchanges with the outside world and the plethora of information available there.

A source in China reported to Daily NK on August 22, “In August, there are usually no large events taking place in North Korea, so it’s usually easier for people to visit family members in China then; this year though, that doesn’t seem to be happening.” He went on to explain the reasoning behind the decline, “There is testimony that the North Korean authorities are actively curtailing the number of those going to China for this purpose.”

North Korean residents traversing the border to visit family members in China began in 2000, just after the period of the famine, referred to as the “Arduous March.” As the authorities could no longer provide regular food rations to the people, it resorted to dispatching them to “go abroad and seek help.” Naturally, China presented as the simplest option.

The currency reform on November 30, 2009 sought to curb inflation and monetary overhang but resulted in the inverse, hyperinflation. Residents took to seeking out their brethren in China for assistance to cope with the additional financial hardship. The outcome of the 100:1 redenomination fostered increased mistrust in the authorities by residents as well as mass panic on the ground; most watched helplessly as hard-earned savings were reduced to worthless bits of paper.

The situation this year is vastly different, the source explained. This month has seen daily averages of five North Korean travelers pass through Dandong Customs House, a sharp decline from the 50-100 individuals who moved through on a given day in past years, an indication that the North Korean authorities have drastically reduced visas permitting these visitations.

A similar dip in numbers arose shortly after events commemorating the anniversary of Kim Il Sung’s birth on April 15th, 2014; the daily average of North Koreans advancing through Dandong Customs House was approximately 10 people. This is the busiest time of year in North Korea, as rice-planting season runs from May to June and the entire population is mobilized to work on farms, explaining the decline in those headed to China.

“There are some North Koreans who are still going to China, but most of them are involved in business or trading; general residents are nowhere to be seen. Compared to the annual crowds pouring out after ‘Victory Day,’ [July 27th celebrations marking the signing of the Korean War Armistice signed in 1953, perceived as a victory in the North] this is quite unusual,” he said.

The source interpreted this not as an anomaly, but rather as a measure instigated by a regime gaining confidence in its economic status. This year did see record breaking trade activity between China and North Korea and the relative stabilization of market prices in the North. Rather than seeking help abroad, the North Korean authorities are trying to solve these matters domestically; with concurrent attempts to cultivate a better image internationally.

Most notably, residents’ exposure to outside information in China has given the authorities new pause in their willingness to send them abroad; potential economic gains in China are not worth North Koreans breaking away from state ideology.

“In the past, people only had to offer up the proper amount in bribes to the State Security Department to get them to overlook activities by Christians or others entrenched in ideas acquired on the outside, but now it’s certain they would get caught,” he explained. Now that the authorities are aware of the effects, they are ratcheting up their efforts to stem them, “There are so many who don’t return these days that the authorities fear even bigger problems will arise if they allow people to go [to China].”

“The stringent controls placed on border security and outside phone calls are so much more severe since Kim Jong Eun came to power. The latest in this series of attempts at mind control is to do away with any chance for North Koreans to meet freely with relatives in China,” he concluded.

The upcoming September 9th holiday, which marks the founding date of the state, and the day the Chosun Workers’ Party was founded, October 10th, are both expected to yield even fewer able to enter China to visit family members. While there is always the possibility for the North Korean authorities to expand permission again after the events end, the downward trend is expected to continue.

Read the full story here:
NK Authorities Slash China Visits
Daily NK
Lee Sang Yong
2014-08-25

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North Korea increases production of consumer goods according to consumer demands and preferences

August 25th, 2014

Institute for Far Eastern Studies (IFES)
2014-8-25

Due to the strengthening of capitalism and competition in North Korean society, it appears that the status of consumers has risen considerably.

In the North Korean economy — which has clung to a supply-oriented, planned economic model — it is extremely rare to see production change in response to consumer demands and preferences.

The Rodong Sinmun, the official newspaper of the Central Committee of the Workers’ Party of Korea, published an editorial on August 3, 2014, calling for the “Brisk Opening of the August Third Consumer Goods Production Movement.” This editorial encourages the public by assuring that the consumer products will be made according to the needs and demands of the people.

“A socialist society cannot think about the production of consumer goods that are above the reaches of the people,” the editorial emphasizes, and that “the peoples’ demands and interests are [the Party’s] absolute top priority, and it is the noble duty of the Party to create these desired consumer goods for the people to enjoy.”

Through the use of various media, North Korea has propagandized the “consumer-focused” policy, claiming to have spurred competition and the increase in quality of products and services throughout the nation.

Joguk (Motherland), a media outlet of the pro-North Korean General Association of Korean Residents in Japan, published an article in their August 2014 issue entitled, “The Standard of Competition Is Determined by the People.” The article emphasizes production tailored to consumer demands, saying that “Product evaluation is something which can be done only by those who demand and directly use the product; it can only be done by the general public.”

The article further states that “Products popular among the general public and used by the masses are evaluated accordingly for their high quality.” It also mentions the cosmetic brands “Eunhasu” and “Pomhyanggi” as examples.

In a July 30, 2014 article, the Choson Sinbo introduced the Potong River Shoe Factory, which is responsible for the production of popular products such as the so-called “kill heel” high-heeled shoes, wedge-heeled shoes, and pointed stilettos. By working together with a department store and periodically reviewing customers’ feedback, the Potong River Shoe Factory can produce shoes to cater to shoppers’ preferences.

This method of setting the focus on consumer evaluation can also be found in North Korea’s education system.

On August 7, 2014, the Rodong Sinmun introduced the “bottom-up evaluation” system at Kim Jong Suk Middle School. This process, touted as one of the successes of educational reform, allows students to evaluate their teachers once per semester. By creating competition among educators, this system is expected to have effects all across the nation.

These types of changes are said to have close relations to the Kim Jong Un regime’s policy focusing on light industry, which also accounts for the improvement of standards of living for the people.

It appears that unlike the heavy chemical industry previously emphasized by the Kim Il Sung and Kim Jong Il regimes, light industry must consider not only production amounts, but the quality of the products as well. This inevitably leads to the emphasis being put on consumer product reviews.

Through consumer reviews, competition arises and productivity is increased, leading to the production of consumer goods with higher added value. Despite being called a “Socialist Competition,” in reality this system may not be so different from capitalism.

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DPRK oil imports from China in 2014 (UPDATED)

August 23rd, 2014

UPDATE 6 (2014-8-23): For what it is worth, China recorded zero oil exports to North Korea in July. According to Yonhap:

According to the Chinese data analyzed by the Beijing unit of the Korea Trade and Investment Promotion Agency, there were no shipments of crude oil from China to North Korea from January to July.

Diplomatic sources with knowledge of the matter cautioned against reading too much into the official trade figures because China has been providing crude oil to North Korea in the form of grant aid and such shipments have not been recorded on paper.

In the first seven months of this year, China’s exports to North Korea rose 1.8 percent from a year ago to US$1.95 billion, while imports fell 4.3 percent to $1.57 billion, according to the data.

UPDATE 5 (2014-8-4): The Hankyoreh weighs in on Chinese oil exports to the DPRK:

However, there are also other experts who counter that suspending the supply of crude oil ought not to be read as a sign of deteriorating relations between North Korea and China. They say that, while the statistics read zero, the supply of crude oil is actually continuing. In fact, the price of gasoline and other petroleum products in North Korea remains stable, reports have indicated.

Radio Free Asia reported that gasoline was selling recently for around 10 to 11 won per kilogram at North Korea’s markets, around the same as the 11 won price from 2012. The price of diesel also remained steady at 6 to 7 won, the broadcaster said.

The South Korean government believes that while China may have reduced its crude oil exports, it is continuing to supply North Korea with oil as a form of aid. “China has been supplying North Korea with 500,000 tons in trade, along with a similar amount of free oil. It appears to be providing North Korea with enough crude oil to prevent problems from occurring in North Korean society,” said a senior Ministry of Unification official on condition of anonymity.

But many experts believe that relations between North Korea and China are not in such a bad state that China would shut off the supply of crude oil. “Relations between North Korea and China are not normal, but they should not be seen as especially bad, either. From the viewpoint of a superpower, China appears to be steadily observing North Korea’s behavior, without grief or joy,” said Lee Hui-ok, professor at Sungkyunkwan University.

Indeed, aside from interaction between senior officials, other sectors appear to be operating normally without any major disturbances. Trade between North Korea and China in the first half of the year remained at levels similar to 2013. Chinese exports to the North from January to May of this year were US$1.27 billion, down slightly from US$1.33 billion last year. But a big rebound in June brought the first half figures up to US$1.58 billion, nearly the same as the US$1.59 billion posted last year.

In the area of tourism, China also appeared to be taking a more aggressive attitude in the first half of the year than in 2013, running new tourism programs using bicycles and trains, reports said. In the area of personnel exchange, working-level contact is continuing, despite the lack of meetings between senior officials.

“There are virtually no senior political officials from North Korea visiting China. However, technical and economic officials continue to visit China for inspections and training,” said an official at the South Korean embassy in China, on condition of anonymity.

“It is dangerous to read too much into the temporary fluctuations and the sluggish mood recently affecting relations between North Korea and China. That would be a false diagnosis of their relationship,” said Lee Nam-ju, professor at Sungkonghoe University.

“Since North Korea and China understand each other, it does not appear likely that their relations will be suddenly damaged,” Lee said.

UPDATE 4 (2014-7-14): NK News reports on Chinese petrol exports to the DPRK:

China has increased deliveries of oil products to North Korea during the first five months of 2014 according to the latest Chinese customs data, which also confirms the widely reported halt in crude oil shipments.

However, data from the Chinese General Administration of Customs shows that the oil-products being delivered to North Korea only cover a fraction of the supplies of crude once shipped, with total deliveries falling by over 60 percent.

Experts were unsure over whether this constituted a warning from Beijing in response to North Korea’s regional provocations or whether the slow-down was due to the DPRK’s aging refineries. Crude oil must be refined into petroleum products such as fuel oil, diesel and aviation fuel before being used.

In total, China exported more than 88,000 tons of refined products to the DPRK between January and May 2014, with more than half of the growth caused by spikes in gasoline and kerosene shipments. Gasoline, is primarily used as a fuel for motor vehicles, while kerosene is used to power jet engines and as a heating fuel in North East Asia.

“[This] is somewhat over half of the recorded exports from China to the DPRK in 2010, and somewhat over a quarter of the net petroleum products imports that we estimated for the DPRK from all nations in 2010.  So there may be a real shift in petroleum products exports going on,” David Von Hippel a Senior Associate at the Nautilus Institute for Security and Sustainability told NK News.

Kerosene, used as an aviation fuel, saw the sharpest spike in exports increasing by 5131% when compared to the same period last year. The North Koreans imported more than a hundred thousand barrels, mostly in one bulk shipment in March, amidst news published in early July by Reuters that the DPRK was looking to restart domestic flights.

Gasoline exports also rose by 84% to approximately 280 thousand barrels when compared to the  January – May period in 2013.

DPRK imports of diesel rose to 63,000 barrels and mark the first time China has exported the petroleum product since 2011, although no data is available before this point. The exports remain at a low level however, representing only a few percent of total DPRK yearly usage.

China also upped exports of Butane by 28%, which is used primarily as fuel gas or in gasoline blending. “[Butane] is more likely used as an input to bottled gas (for example, liquefied petroleum gas, LPG), which is, we have heard, increasingly used for cooking in urban households that can afford it in the DPRK.” Von Hippel told NK News.

UPDATE 3 (2014-5-24): This Daily NK article further highlights why we should be skeptical of official reports of the DPRK’s oil imports from China:

Daily NK has confirmed that China is currently supplying oil to North Korea through a pipeline running between the two. Though there have been cases where Beijing has suspended such shipments in response to North Korean intransigence, particularly over nuclear issues, but this has not happened recently.

On April 10th, Daily NK visited an oil storage and pipeline facility in Dandong. There, our team interviewed Chinese Ministry of Public Security officials guarding the facility, which is owned by a subsidiary of China National Petroleum Corporation, or CNPC.

When asked about oil assistance to North Korea, one of the officers acknowledged, “We are continuously supplying oil (to North Korea),” but “cannot say how much we send each month or how much remains as of now.”

Oil deliveries to be transferred to North Korea are received at this facility from a larger nearby facility, Basan, and then are shipped to a partner storage facility at Baekma in Pihyun Couunty, North Pyongan Province. The pipeline is 11km long.

According to sources, these deliveries are not recorded in Chinese customs data, or in foreign trade statistics. The oil from the pipeline is rather characterized as de facto aid, either in the form of low interest loans or free of charge.

This is why, on April 24th, Korean agency KOTRA released a figure of ‘zero’ for oil exports from China to North Korea for the first quarter of 2014, basing it on Chinese customs data. The data says zero for commercial transfers; however, supplies in the form of aid and assistance may not have stopped at all.

In this regard, a diplomatic source said, “China has the ability to stop the oil supplies whenever they want, but they’ve never done so for a long period of time.” He went on, “Above all, China places as much importance on security as North Korea places on nuclearization, and it doesn’t want to see disorder in the North Korean regime. This explains why China keeps providing this assistance.”

Meanwhile, Chinese trade statistics show that 520,000 tons of oil was exported to North Korea every year from 2009 to 2012. Mostly small North Korean tankers shipped this oil.

UPDATE 2 (2014-5-26): The DPRK officially did not import any oil from China as of April 2014. According to Yonhap:

China sold no crude oil to North Korea in the first four months of this year, data compiled by South Korea’s government trade agency showed Monday, in an unusual four-month absence of oil shipments amid the North’s threats of a nuclear test.

The Beijing unit of the South’s Korea Trade and Investment Promotion Agency (KOTRA) said in a report, citing data from China’s customs authorities, that there were no oil shipments from China to North Korea from January to April this year.

A four-month absence of oil shipments from China to North Korea was also reported in 2009, when the North conducted its second nuclear test.

However, a diplomatic source in Beijing cautioned against reading too much into the official trade figures.

“The Chinese side has provided crude oil to North Korea in the form of grant aid, which is not recorded on paper,” the source said on condition of anonymity.

North Korea also appears to have been trying to diversify its source of oil imports, through countries such as Russia, the source said.

UPDATE 1 (2014-4-24): DPRK official imports from China in Q1 of 2014: zero.

According to Yonhap:

China did not export any crude oil to North Korea in the first three months of this year, data compiled by South Korea’s government trade agency showed Thursday, in an unprecedented three-month absence of oil shipments amid North Korea’s threats of a nuclear test.

Monthly shipments of crude oil from China to North Korea were absent in February, June and July last year, but it was the first time that China apparently stopped exports of crude oil to North Korea for three consecutive months.

The Beijing unit of the South’s Korea Trade and Investment Promotion Agency (KOTRA) said in a report, citing data it collected from China’s customs authorities, that there were no oil shipments from China to North Korea from January to March this year.

“To my knowledge, it is the first time that China did not export crude oil to North Korea for three consecutive months and that would impact the North Korean economy,” a diplomat at the South Korean Embassy in Beijing said on the condition of anonymity.

Also worth highlighting from the report:

China’s total trade with North Korea fell 2.83 percent to US$1.27 billion in the January-March period, compared with the same period a year ago, according to the KOTRA report.

Additional information:

1. DPRK – China trade statistics following the Jang Song-thaek purge.

2. DPRK – China trade at all time high in 2013.

3. DPRK diversifying energy sources.

4. DPRK does not import any oil from China in January 2014.

Read the full Yonhap story here:
China didn’t export crude oil to N. Korea in Q1
Yonhap
2014-4-24

ORIGINAL POST (2014-3-10): DPRK oil imports from China in January 2014: Zero!

According to Yonhap:

North Korea did not import any crude oil from China in January, marking the first absence of monthly deliveries from China in five months, a Seoul government report showed Monday.

It was not immediately clear whether the January absence of crude shipments to North Korea from China was linked to Beijing’s growing frustration with Pyongyang over its nuclear program, but it followed the execution of the once-powerful uncle of North Korean leader Kim Jong-un last December.

Last year, monthly shipments of crude oil from China to North Korea were absent in the months of February, June and July. However, annual shipments of crude oil to North Korea from China rose 11.2 percent on-year to 578,000 tons in 2013.

Read the full story here:
No crude import from China to N. Korea in Jan.: report
Yonhap
2014-3-10

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