North Korean Economy Watch

The Russians have begun upgrading a 54km railway line that, when completed, will connect Khasan, on the Russian border, with the North Korean port cities (and special economic zone) Rajin and Songbon (aka Rason).  The railway line needs to be upgraded because the Russians use a different gauge than the North Koreans.

According to the Donga Ilbo (where the above picture originates as well):

The project will […] cost [] 195 million U.S. dollars, 72 million dollars of which will be shouldered by Moscow. 

The Defense-Technology Blog quotes the project’s price at US$207 million, the difference probably the result of exchange rate calculations.  Additionally:

Eurasia’s largest transcontinental railroad of over 10,000 km will be established as a result.  Cargo transshipment from Asia to Europe along the route will take 14 days, while sea freight shipping takes 45 days. The completion of just the first stage of the project will make it possible to attract up to 100,000 containers annually to the Trans-Siberian railroad, a spokesman for Far Eastern Railways said.

As reported (here, here, and here) I believe this deal, which gives the Russians 49 years of rental control over the rail line, is strategically important to the Russians for numerous reasons:

1. The Russians are happy to have a Pacific port that does not freeze in the winter.  This will open up year-round trade opportunities for Russia’s far east. 

2. Bringing the Rason port under Russian “administration” puts Russia in a position to profit from linking South Korea’s economy to Europe (the DPRK will also indirectly benefit no doubt).  This could be accomplished by putting South Korean cargo in Russian ships which could be unloaded in Rason and carted across Siberia into Europe, significantly reducing the time (and cost) required to put South Korean goods on European shelves.

3. As reported earlier (here and here), South Korea is interested in Russian energy resources, specifically oil and natural gas.  Ideally, pipelines could be build from Russia to South Korea (via the DPRK).  Until this pipe dream (pun alert) is a reality, however, the Rajin port will serve as an effective transit hub between the two countries.

4.  Investment in significant economic assets within the DPRK will solidify Russia’s position (vis-a-vis China?) as a permanent player in political and economic developments on the Korean peninsula. 

As an interesting aside, Yonhap reports that the North Korea just replaced the Minister of Railways:

Jon Kil-su, a career transportation official, has been named North Korea’s new railways minister, according to the country’s official media seen here on Sunday.

Jon, who headed the transportation ministry’s transportation command bureau, has been promoted to replace Kim Yong-sam as the top railways official in the North’s government, the report said. The outgoing minister had served in the post since 1998.

Read more below:
North Korea-Russia Railway Reconnection
Donga Ilbo
10/7/2008

Russia, North Korea break ground on rail link project
(NSI News Source Info)
10/6/2008

N Korea has replaced its railways minister: report
Yonhap
10/5/2008

This entry was posted on Monday, October 6th, 2008 at 10:52 pm and is filed under Energy, Natural Gas, Oil, Railways, Russia, Sea shipping, South Korea, Transportation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.