North Korean Economy Watch

Post 36 (2012-1-27): Yonahp reports from anonymous sources that despite the death of Kim Jong-il, the DPRK leadership is still interested in pursuing the pipeline. According to the article:

Top North Korean officials have vowed to move ahead with an ambitious project to build a pipeline through their isolated country to ship Siberian gas to South Korea.

The North Korean officials reaffirmed their commitment to Russia following the death last month of their former leader Kim Jong-il, according to a diplomatic source in Moscow, without identifying the North Korean officials.

Post 35 (2011-11-17): According to RIA Novosti, the DPRK looks to reap $100 million per year in transit fees:

North Korea will get $100 million annually if it becomes a transit country for Russian gas supplies to South Korea, the Russian president’s envoy to the Far East said on Thursday.

In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.

“It [$100 million] would be a huge sum for a country with annual gross product of $10 billion. Moreover, the country would have to make no big effort to get it,” Presidential plenipotentiary envoy to the Russian Far East Victor Ishayev said.

Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.

Supplies of Russian gas to South Korea are expected to be started in 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.

Post 34 (2011-11-16): According to the Daily NK, Russia has agreed to guarantee deliveries of gas via the pipeline:

Responding to fears over the possible risks that may come with the proposed three-way gas pipeline from Russia to South Korea via the North, Russian Ambassador to the Republic of Korea Konstantin Vnukov reaffirmed again on Tuesday that Moscow is ready to shoulder that burden.

Delivering the keynote address at a forum held by the Korean Council for Reconciliation and Cooperation in central Seoul, Ambassador Vnukov asserted that Russia is in a position to “guarantee the risks arising from the North Korea pipeline.”

The ambassador’s words mirror an earlier pledge given by President Dimitry Medvedev during a summit meeting with President Lee Myung Bak in St. Petersburg on November 2nd, in which the Russian president revealed that his country would be willing to assume responsibility for the security risks associated with the project.

Vnukov also reaffirmed the benefits of the project for South Korea, saying, “Russian natural gas is coming into South Korea at the moment, but if imports were to be brought in via a pipeline, the cost would fall by 20-30%.”

He further noted that there is already a gas pipeline network in Russia stretching as far as the Russia-North Korea border region, meaning that “practical discussion about this can be had,” although he noted that it would require greater tripartite cooperation.

“Russia is pushing forward with joint projects including not only the gas pipeline but also the railways project,” he concluded, “These projects offer benefits to all of the North, the South and Russia, and help with the security of the Korean Peninsula and the normalization of inter-Korean dialogue.”

Post 33 (2011-11-4): According to the Donga Ilbo, the ROK is planning to offer the DPRK a natural gas power plant (rather than cash) in return for pipeline transit rights. The article reports:

South Korea plans to build a natural gas power plant in North Korea in return for the latter letting a gas pipeline linking the South and Russia pass through North Korean territory, a source said Thursday.

According to the source from the ruling Grand National Party of South Korea, if the pipeline goes through the North, the South is considering building a power plant rather than offering cash that Pyongyang could misuse.

“North Korea has no reason to reject this offer considering its dire power shortages,” the source said.

South Korean President Lee Myung-bak agreed with Russian leader Dmitry Medvedev to closely cooperate to ensure success of the pipeline, so debate has risen in Seoul on how to compensate Pyongyang. Certain voices warn that if Seoul pays between 100 million U.S. dollars and 200 million dollars in cash, Pyongyang might use the money to expand its nuclear and military facilities.

Without transparency in the North`s use of the funds, others say, South Korea and the U.S. could even argue over the pipeline project in addition to conservatives in Seoul.

“The key issues in the pipeline project are safety and the passage fee,” told Won Hee-ryong, a member of the ruling party`s supreme council, at a party meeting. “Public consensus is necessary since public opinion will be divided if Russia gives the money paid by the South to the North in cash.”

Therefore, Seoul and Moscow will likely include specific details on the proposed power plant in the North when they sign a contract for the pipeline and gas supply. Seoul`s plan is to pay cash to Moscow for the pipeline, while the latter will use part of the money to build a natural gas plant in the North.

The South would then provide part of the natural gas from Russia to the North, which would use the gas to generate power.

The source said it was in the same vein that Medvedev promised that Russia will take complete responsibility for the risks of the pipeline going through North Korea.

Two points: First, this plan seems to be taking the proposal to route gas to the DPRK through South Korea seriously. See the map below for more details, but the bottom line of the proposal is that if Pyongyang carries through with a course of action that leads to the disruption of gas supplies, Pyongyang itself would pay a direct economic price for their behavior.  The offer to build a gas power plant, in this sense, can be seen as an effort to coax North Korea into an economic game in which it faces a strong economic incentive to control its future behavior.

Secondly, every country’s budget is fungible. Offering to build a power plant instead of cash might reduce the quantity of funds the DPRK devotes to activities the international community considers undesirable, however, it will not zero them out.  If the South Koreans and Russians build and maintain a power plant int he DPRK, this will free up significant resources in the DPRK budget for other activities, some of which may be considered unacceptable by its neighbors.

Post 32 (2011-11-3): The Korea Herald also reports on the Medvedev-Lee talks in St. Petersburg:

The two leaders agreed that once the security problem was dealt with, they could consider supplying surplus electricity as well as gas from the Russian Far East to South Korea via the North, Choe said.

A tentative agreement reached between Korea Gas Corp. and Russia’s Gazprom calls for starting the construction of a pipeline through North Korea in 2013 in order to begin gas supply in 2017.

The two state-funded companies agreed on the roadmap in September, Nikolai Dubik, head of Gazprom’s legal department, said at the Korea-Russia Dialogue forum in St. Petersburg Wednesday.

The roadmap calls for the completion of commercial negotiations on the basic conditions related to the pipeline gas project by January and the signing of a deal between January and April.

The two sides will then draft the gas pipeline route between March next year and September 2013, start the construction right away and complete it by December 2016 to begin supply in January 2017, Dubik said.

Chief executives Choo Kang-soo of KOGAS and Alexey Miller of Gazprom signed on to the plan in September during Choo’s visit to Moscow.

Alexander Medvedev, head of Gazprom’s export, said in an international management forum in Tokyo late last month that his staff were in talks with their Korean counterpart on the main conditions related to the gas supply.

He said they plan to complete the discussions by January and sign a basic agreement in mid-2012.

Lee said intensifying Korea-Russia cooperation in Siberia and the Russian Far East region was highly encouraging for the future of the two countries as well as Northeast Asia in a speech at the closing ceremony of the Korea-Russia Dialogue forum earlier Wednesday.

“I visited Siberia and the Russian Far East a number of times when I was a businessman, confirmed the infinite potential of the region with my own eyes and have sought bilateral economic cooperation since,” Lee said at the second annual KRD forum in St. Petersburg.

Post 31 (2011-11-2): The Korea Times reports on the Medvedev-Lee summit in St. Petersburg:

President Lee Myung-bak and Russian President Dmitry Medvedev agreed Wednesday to work closely together to push a pipeline project to send Russian gas to South Korea via North Korea.

During a summit here, Lee and Medvedev shared the view that the three sides involved will benefit if the project goes ahead.

Russia could send as much as 10 billion cubic meters of gas to South Korea a year if the trans-Korea pipeline is built.

South Korea could purchase quality Russian gas at a reasonable price — at nearly a 30 percent discount compared to current prices — while North Korea can earn an estimated $100 million a year in transit fees.

The gas pipeline was on top of the agenda for the Lee-Medvedev summit.

Although they agreed on the benefits, Lee addressed the political risks of the project. He said he was concerned with the possibility of North Korea, which was responsible for two attacks last year, “playing games” with the pipeline.

If that problem is resolved, Lee said Seoul could consider cooperating with Moscow on sending electricity from the Russian Far East to South Korea through North Korea as well.

Although the two leaders shared the need for cooperation on the project, no concrete agreement signaling a development in the matter was announced after the talks.

The state-run Korea Gas Corporation signed an exploratory blueprint with its Russian counterpart Gazprom in September.

Russia has been talking with North Korea over the pipeline project after Medvedev and North Korean leader Kim Jong-il agreed to construct the gas pipeline during a summit held in Sakhalin in August.

In an interview with French daily Le Figaro, Lee said the three sides involved may be able to sit down together some time in the future to discuss the trilateral project.

“But there are several conditions that need to be met before this happens,” he said.

Post 30 (2011-11-2): The Korea Times reports that South Korean officials are downplaying the importance of the roadmap:

South Korean officials on Wednesday downplayed the significance of a roadmap it had agreed with Russia to build a massive gas pipeline linking the two countries via North Korea, saying the project still has a long way to go.

On Tuesday, a senior Russian official said the two countries hope to start construction of the transnational gas pipeline in 2013 and transport Siberian gas through the connection in 2017.

The timeline was part of a memorandum of understanding South Korea’s state-run gas firm Korea Gas Corp. signed in September with its Russian counterpart Gazprom on the project, said Nikolai Dubik, chief of Gazprom’s legal department.

On Wednesday, South Korean officials downplayed the plan’s significance, saying it is not legally binding and little more than wishful hopes for now. They stressed the two sides have not made any progress since September, and that any meaningful progress can come only after Russia and North Korea agree on pipeline transit fees.

“There has been no progress since the MOU in September,” a government official said on condition of anonymity. “Russia has not yet made any commercial proposals to us, such as gas prices or terms of construction. Once proposals are made, we have to hold negotiations.”

The ambitious project, which has been discussed for about 20 years but never materialized due in part to security tensions, gained momentum after North Korean leader Kim Jong-il expressed his willingness to permit the envisioned pipeline to go through the nation during summit talks with Medvedev in August.

South Korean President Lee Myung-bak and Russian President Dmitry Medvedev were expected to discuss the project during summit talks in Russia’s second-largest city of Saint Petersburg Wednesday, along with efforts to end Pyongyang’s nuclear ambitions.

“I doubt today’s summit will produce any specific results (about the pipeline),” the government official said.

The project has drawn keen media attention because it could help reduce tensions on the divided peninsula. Lee has also said that the project is workable as it would benefit all parties involved.

But in an interview with the French newspaper Le Figaro published Tuesday, Lee also said there is a long way to go before the project comes to fruition.

“There will be a point in time where the South, the North and Russia hold three-way discussions,” Lee said in the interview. “But before reaching that stage, a lot of conditions must be fulfilled. Discussions on the gas pipeline project could proceed swiftly, or not. It is difficult to predict for now.”

Post 29 (2011-10-24): The Korea Economic Institute and the National Committee on North Korea co-hosted a presentation with Georgy Toloraya on the current dynamics of North Korea – Russia relations and how their diplomatic efforts affect approaches to solving important issues involving North Korea. You can watch the presentation here.

Post 28 (2011-10-24): Russia, South Korea discuss gas pipeline. According to RIA Novosti:

A Russian delegation has left for Seoul for a meeting of the intergovernmental commission on gas supplies to South Korea and construction of a pipeline via North Korea, a source in the Russian Energy Ministry said on Monday.

“A meeting of the intergovernmental commission will be held tomorrow. A large Gazprom delegation has set off there and I hope they will reach an agreement,” the source said.

The source said that three-party negotiations would start only after all necessary agreements with South Korea were concluded. “We are looking forward to holding tripartite talks,” the source said.

In August, President Dmitry Medvedev said after talks with his North Korean counterpart Kim Jong-il that the parties had reached an agreement to draw up a project to build a gas pipeline to South Korea. The pipeline will cost an estimated $6 billion.

Alexander Medvedev, Gazprom deputy board chairman, said the expected volume of Russian gas exports to South Korea was raised to 12 billion cubic meters from 10 bcm.

Supplies of Russian gas to South Korea are expected to be started n 2017. Gazprom currently supplies up to 1.5 million tons of liquefied natural gas to South Korea annually.

Post 27 (2011-10-5): Stephan Haggard links to a fantastic report (in the Korean Yonhap) which offers an economic solution to the DPRK’s credible commitment problem with regards to pipeline contract enforcement: build the pipeline to Pyongyang via South Korea.

In this scheme (above left), if Pyongyang cuts off the gas in the pipeline, Pyongyang can be cut off as well. This is basically a form of bonding (insuring) the investment in the absence of a credible third party contract enforcer.

Haggard offers the following information from the Korean report:

South Korean demand will always be larger than North Korean demand, creating asymmetries in bargaining power. But this scheme requies that North Korea have some skin in the game beyond simply collecting transit fees. This idea creates a classic—and beneficial–mutual hostage situation: “you hold me up, I hold you up.”

Kwon’s cost estimate for the project–$2.2 billion—is slightly lower than what Kogas’ Russian subsidiary (Kogas Vostok) has estimated ($2.5 billion). But the project would increase Russia’s share of the South Korean market from 6 to nearly 30 percent. While the Kogas Vostok official stated that the pipeline option is more efficient than either compressed or liquefied natural gas (CNG or LNG), he also admitted that the pipeline involved “unavoidable” political risks.

(more…)

Andrei Lankov writes in the Korea Times:

In 2010, the volume of trade between these two countries was merely $110 million. As international trade goes, this volume is tiny. By comparison, in the same year North Korea’s trade with China was around $3.4 billion, some 30 times larger than its trade with Russia.

The reason for this inactivity is quite simple: Russian companies have no interest in dealing with North Korea. In the Soviet era, trade flourished because it was subsidized due to geopolitical concerns of Moscow. Currently, when it comes to pure economic considerations, North Korea has almost nothing to offer the new Russian economy.

North Korea has only two resources that can be sold on the international market. First, it has deposits of minerals (coal, iron ore). Second, it has a relatively large quantity of cheap labor ― or to put things in a less cynically capitalist way, there are millions of North Koreans willing to work for $10 a month.

But Russian companies are decisively uninterested in North Korean minerals. These mines may be attractive to resource-hungry China, but not to Russia, which has the riches of Siberia at its disposal. The chronic political instability in which North Korea is immersed is another reason which lessens Russian interest in North Korean minerals.

Cheap labor is more attractive, and indeed Russia has continuously used North Korean labor since 1967 but not in the North itself. Some Chinese companies began to outsource to North Korea, and built small factories there, in order to take advantage of the obscenely low local wages. This approach is not very attractive to Russia, since it is not a major player in producing winter parkas, wool hoods, or running shoes. Russian companies prefer to use North Korean workers inside Russia itself.

These workers are sent to Russia by the North Korean authorities and can be described as indentured labor. Their families are hostages who can be punished if a worker does something improper and the workers are also expected to ‘donate’ a significant part of their wages to the state. Despite these harsh conditions, one should not forget that these jobs are among the best paid regular jobs in the country. North Koreans compete for opportunities to become indentured laborers in Russia.

That said, the scale of these ventures is rather limited, as is the demand for cheap labor in the Russian Far East (the only part of Russia where the use of North Korean laborers really makes practical sense).

Aside from this, North Korea has something else to offer – its geographical location. This country blocks all land routes to the prosperous South. Russia has much interest in the South Korean market, especially when it comes to the sale of natural resources. Impeding this is the existence of North Korea, and the continued strained relations between the two Korean states, making sales of Russian commodities rather difficult.

So it is not incidental that the two most important potential projects are a railway and a gas pipeline. Both projects can hardly be described as “economic cooperation” between North Korea and Russia, since neither has much to do with the North Korean economy itself. North Korea, in these cases, is present merely as a space to be traversed. It would be no different if it were a dessert or jungle. Russia is willing to pay North Korea for facilitating Russia’s economic link with the South, and that is all.

So it is not surprising that an agreement on the pipeline construction was signed after the Russian-North Korean summit. This project is indeed acceptable to the North, since it will mean easy money for transit, it is favorable to Russia, and it will be good for the general situation since it will bind Russia, North and South Korea closer.

Yet, a word of caution is necessary. In spite of all official statements, we should not expect large-scale construction work to begin in the near future. The political risks remain huge, so it is likely that Russian companies will not rush headlong into the project. The recent agreement should rather be seen as a declaration of intent. In all probability, the trans-Korean pipeline and trans-Korean railway will be built eventually. But the completion of these important initiatives will probably take many, many years.

Read the full story here:
Russia-N. Korea Trade
Korea Times
Andrei Lankov
2011-9-25

Institute for Far Eastern Studies (IFES)
2011-9-7

An article entitled, “Joint energy project on the agenda” was featured in the KCNA on August 31, which elaborated on the agreement reached between the DPRK and Russia on August 24 for the construction of a gas pipeline. The joint project is also inclusive of South Korea.

The KCNA said in the article, “The three countries have explored various options in transporting gas and have reached a consensus on building a gas pipeline running through North Korea will be the most cost-effective option.”

It also stressed this project will be beneficial for all three parties. In addition, Russia was commended as the major world power in natural gas and oil reserves and production and stressed Russia is turning its attention to expanding the energy sector.

When the Sakhalin – Komsomolsk – Khabarovsk pipeline that began construction in 2009 is completed, it will be equipped to provide enough gas not only domestically but across the Pacific-Asia region, producing a capacity of 30 billion cubic meters of gas per year.

The news also covered the specific plans of the Russian government to expand its energy supply; to boost the exports of oil and gas from three to thirty percent and five to twenty-five percent respectively, until the year 2020.

Therefore, the inter-Korean gas pipeline construction between the DPRK and Russia will be a vital project for Russia.

On August 30, the ROK’s Grand National Party (GNP) chairman Hong Jun-pyo declared, “The trilateral negotiation will be expected to take place sometime in November on the inter-Korean gas pipeline project.”

Hong also stated, “The ROK-Russia and the DPRK-Russia bilateral agreements have already been reached. Once the three parties meet to sign the tripartite agreement, the project will soon take off.” He also added, “President Lee Myung-bak has quietly pushed forward with the gas pipeline project since he first took office and it will be his major accomplishment.”

After the bilateral summit was held between the two leaders of Russia and the DPRK on August 24, the two nations have consented to establish a special commission to work cooperatively on the gas transit project running through the territories of North Korea to South Korea.

UPDATE 12 (2011-8-31): The North Koreans have made a short documentary of Kim Jong-il’s trip to Russia.  I have uploaded it to YouTube in three parts: Part 1, Part 2, Part 3.  The North Koreans published footage of Kim’s trip through China on the evening news (2011-8-30: Part 1, part 2, part 3) and in a separate documentary (2011-9-8: Part 1, part 2, part 3).

UPDATE 11 (2011-8-29): When Kim Jong-il returned to Pyongyang his trip was hailed as a success. A banquet was held for him and he attended a performance of the State Merited Chorus.  According to Yonhap:

North Korean leader Kim Jong-il attended a banquet held to congratulate him on his “successful” recent visits to Russia and China, the North’s state media said Monday.

The banquet was hosted by the Central Military Commission of the ruling Workers’ Party and the National Defense Commission, according to a brief dispatch by the Korean Central News Agency (KCNA), monitored in Seoul. It did not mention where or when the event took place.

KCNA has a little more on the banquet here and the chorus here.

Afterwards, Kim Jong-il returned to his never-ending work for the people. Just as he did following his previous trip to China, Kim visited the construction site of the Huichon Power Station.

UPDATE 10 (2011-8-27): According to Yonhap, Kim Jong-il’s train has crossed back into the DPRK.  Given the information provided, it appears that Kim entered the DPRK via the railroad crossing at Manpo (Manpho, 만포).  See the bridge in Google Maps here. According to Yonhap:

North Korean leader Kim Jong-il returned home by train Saturday, wrapping up a week-long trip to Russia and China, during which he discussed the resumption of stalled six-party talks on his country’s nuclear ambitions.

Kim’s special train was seen crossing into North Korea via the Chinese border city of Jian around 5 p.m. local time (6 p.m. Korean time). The train had left the northeastern Chinese city of Daqing on Friday evening and made a stop in the city of Tonghua on Saturday morning.

According to KCNA, Kim Jong-un and Kim Kyong-hui were there to welcome him.  Kim Jong-un played the same role on Kim’s previous trip to China in May.

UPDATE 9 (2011-8-26): While Kim travels in Russia and China, Yonhap reports a KCNA announcement that the DPRK and Russia signed a protocol calling for economic cooperation between the two countries.  According to the article:

A Russian economic delegation, led by Minister of Regional Development Viktor Basargin, was in North Korea to sign “a protocol of the 5th Meeting of the DPRK (North Korea)-Russia Intergovernmental Committee for Cooperation in Trade, Economy, Science and Technology,” the North’s Korean Central News Agency (KCNA) said.

Trade Minister Ri Ryong-nam inked the protocol on behalf of North Korea, said the KCNA report, monitored in Seoul.

The report did not give any details of the protocol.

Also on Friday, the North’s premier, Choe Yong-rim, met with the Russian economic delegation at the Mansudae Assembly Hall in Pyongyang, the KCNA said in a separate report.

UPDATE 8 (2011-8-26): Xinhua reports on Kim’s activities in China. According to the article:

Top leader of the Democratic People’s Republic of Korea (DPRK) Kim Jong Il visited northeast China’s Heilongjiang Province on Friday at the company of Chinese State Councilor Dai Bingguo.

…

During his stay in Heilongjiang, Kim visited the cities of Qiqihar and Daqing. In Qiqihar, Kim toured Qier Machine Tool Group Co., a large state-owned enterprise, and Mengniu Dairy, a leading Chinese dairy producer. In Daqing, he toured an urban planning exhibition hall and a residential district.

“I’ve seen new changes every time I came here,” he said. He wished that China would smoothly realize the goals set in its 12th Five-year Plan under the leadership of the CPC.

KCNA has a rather long (erm…detailed) update on Kim’s visit to China. Here is the report for August 25th:

He passed through the Inner Mongolian Autonomous Region of China on August 25.

He arrived in Manzhouli of the region, the border railway station, that afternoon.

When the train pulled in the railway station, he was warmly greeted by Wang Jiarui, Sheng Guangzu, Hu Chunhua, secretary of the Inner Mongolian Autonomous Regional Party Committee, Fu Taizeng, secretary general of the autonomous regional party committee, Luo Zhihu, secretary of the Hulun Buir City Party Committee, the mayor of Hulun Buir City, the secretary of the Manzhouli City Party Committee and other central and regional senior officials of China.

He exchanged cordial greetings with the senior officials present to greet him and had a talk with them.

Wang Jiarui said he was specially dispatched to conduct Kim Jong Il who is passing through Northeast China in the whole period of his visit upon the authorization of the collective leadership of China including Hu Jintao. He paid highest tribute to Kim Jong Il for having made a great contribution to boosting the friendship among countries and accomplishing the human cause of independence through his energetic external activities.

Kim Jong Il thanked Wang Jiarui and other senior central and local officials and people for their warm reception.

He, conducted by senior party and government officials of the autonomous region, toured Hailar District, Hulun Buir City of the region.

Commanding a bird’s-eye view of the night scenery, he got familiar with the history and culture of the region and the achievements made by its people in construction.

The Inner Mongolian Autonomous Regional Committee of the CPC gave a grand banquet in honor of Kim Jong Il visiting the region.

When he appeared in the banquet hall, women of the Mongolian tribe of the autonomous region presented him with a blue silk towel and liquor according to the customs peculiar to the nation, warmly welcoming him.

Hu Chunhua said that today they welcomed Kim Jong Il to the vast steppe where President Kim Il Sung was accorded enthusiastic welcome several times long ago, thereby seeing the desire of the party, the government and the people of the autonomous region come true at last.

Hu Chunhua noted that the traditional Sino-DPRK friendship will remain ever-green like the vast steppe along with history, expressing firm belief that the friendly Korean people would make fresh success in the efforts to improve the standard of people’s living and build a prosperous and powerful nation.

A specially prepared art performance was given in honor of Kim Jong Il.

The performers clearly reflected the boundless respect and reverence of the government and the people of the region for Kim Jong Il visiting China again for the development of the Sino-DPRK friendship.

Kim Jong Il conveyed a floral basket to the performers in congratulation of their successful performance and had a photo taken with them.

He was presented with a gift by Hu Chunhua on behalf of the party committee of the autonomous region.

He expressed thanks for the warm reception and cordial hospitality accorded him by the party, government and people of the Inner Mongolian Autonomous Region. He hoped the people of the region would achieve a fresh victory in their struggle for the prosperity and development of the country under the leadership of the CPC.

Here is the KCNA report for August 26th:

Kim Jong Il passed through Heilongjiang Province of China on August 26.

He arrived in Qiqihar City, Heilongjiang Province that morning.

When the train pulled in Qiqihar Railway Station, he was warmly greeted by Ji Bingxuan, secretary of the Heilongjiang Provincial Party Committee, Wang Xiankui, governor of Heilongjiang Province, the secretary of the Qiqihar City Party Committee, the mayor of Qiqihar City and other senior party and government officials of the province and the city.

He exchanged warm greetings with the senior officials present to greet him and had a talk with them.

Ji Bingxuan said it is great honor and pride to welcome again to their place Kim Jong Il on a long foreign tour for friendship among countries and warmly welcomed him on behalf of the party, the government and the people of Heilongjiang Province.

Kim Jong Il visited the Qiqihar Machine Tool Group Co. No. 2 that day.

After being briefed on its history by a senior official of the group, he went round several production processes to acquaint himself with its production, technological development and management in detail.

Then he visited the Qiqihar Branch Company of the Mengniu Dairy.

He went round the general control room, milk tank, packing shop and the products on display and wished the company greater progress in its work for the improvement of the standard of people’s diet and welfare.

Kim Jong Il also visited Daqing City that day.

He visited the urban planning exhibition hall in Daqing City and was briefed on the urban construction and long-term plan. Then he went round the housing construction district, a large bridge, Lake Liming Bridge now under construction and other places in the province.

The provincial party committee gave a banquet that evening in honor of Kim Jong Il visiting the province.

He was present at the banquet on invitation.

Ji Bingxuan said that the historic visit paid by Kim Jong Il to Heilongjiang Province again after the lapse of the three months is a striking demonstration of the Sino-DPRK friendship growing stronger day by day, adding that the provincial party, government and people would join the Korean people in playing a greater role in inheriting and developing the Sino-DPRK friendship generation after generation.

A special art performance was given in welcome of Kim Jong Il.

The performers successfully represented the excitement and joy of the Chinese people at welcoming again Kim Jong Il to meaningful Northeast China.

Kim Jong Il conveyed a floral basket to the artistes in congratulation of their successful performance.

He was presented with a gift by the provincial party and people’s government that day in welcome of him visiting the province.

He expressed thanks for the warm reception and cordial hospitality accorded to him by the party, government and people of Heilongjiang Province. He hoped the people of the province would achieve a fresh victory in their struggle for the prosperity and development of the country under the leadership of the CPC.

Here is the KCNA report for August 27th:

He arrived in Tonghua City, Jilin Province that morning.

When the train pulled in Tonghua Railway Station, he was warmly greeted by Sun Zhengcai, secretary of the Jilin Provincial Party Committee, Wang Rulin, governor of Jilin Province, Liu Baowei, secretary of the Tonghua City Party Committee, Tian Yulin, mayor of Tonghua City, and other senior party and government officials of the province and the city.

He exchanged warm greetings with the officials present there to receive him and visited the Tonghua Wine Co. Ltd., conducted by them.

He recollected with deep emotion the noble footprints left by President Kim Il Sung who was absorbed in thinking and made inquiry for the sake of the country and its people only when visiting the company nearly half a century ago.

He went round various places including the wine depot, its exhibition hall to learn in detail about the history of the company and its production system, storage of products and its taste. He wished the company greater progress in its work for the well-being of the people.

The party and government of the province hosted a grand banquet in honor of Kim Jong Il visiting the province.

He was present there on invitation.

Sun Zhengcai said that it was particular privilege and honor for his province to receive Kim Jong Il, the great leader of the Korean people, three times in a little more than one year. He offered the highest regard and warm welcome to Kim Jong Il on behalf of the party, government and people of the province.

Noting that all the Chinese people including the people of the province are rejoiced as over their own over the successes made by the Korean people recently in their efforts to significantly commemorate the centenary of birth of Kim Il Sung, Sun Zhengcai expressed expectation and belief that the Korean people would surely win a shining victory in the drive for building a prosperous and powerful socialist nation under the leadership of the Workers’ Party of Korea headed by Kim Jong Il.

Sun noted that the party, government and people of the province would join the Korean people in playing a bigger role in inheriting and developing the Sino-DPRK friendship generation after generation.

An art performance was given in welcome of Kim Jong Il.

The performance replete with the warm feelings of the DPRK-China friendship was acclaimed by the audience.

He was presented with a gift by the provincial party and people’s government that day in welcome of his visit to the province.

He expressed thanks for the warm reception and cordial hospitality accorded to him by the party, government and people of Jilin Province. He wished them a fresh success in their efforts for the prosperity of the country and the well-being of its people under the leadership of the CPC.

He wrapped up his 8 000 km odd-long trip to the Far East and the Siberian regions of Russia and Northeast China and left for the homeland that day.

Before his departure, he exchanged warm farewell greetings with central leading officials including Wang Jiarui and Sheng Guangzu who conducted him with sincerity in the whole period of his visit and leading officials of the party and government of the province and the city including Sun Zhengcai and Wang Rulin.

When the train started from the border station, central and local leading officials of China warmly sent him off, waving their hands for a long while.

Passing through several cities and regions of China, he acquainted himself with construction projects, ideas and feelings, politics, economy, history, culture, etc. of the Chinese people more deeply and conducted unremitting and energetic external activities, making another great contribution to the development of the DPRK-China friendship.

UPDATE 7 (2011-8-25/26): According to Voice of America, Kim Jong-il has left Russia and is returning to the DPRK via China.  His train crossed the Russia-China border at Zabaikalsk (Забайкальск, See in Google Maps here). Yonhap reports that on the Chinese side of the border Kim’s Train was greeted in Manzhouli by senior Chinese Communist Party envoy Wang Jiarui and other officials. Kim attended a banquet and arts performance before heading to nearby Hulunbeier (See in Google Maps here).

UPDATE 6 (2011-8-24): Kim Jong-il meets with Medvedev at Sosnovyy Bor east of Ulan-Ude (Сосновый бор, See in Google Maps here). The topics discussed are linked below:

According to the Los Angeles Times:

Medvedev ordered a commission to evaluate the parameters of laying a gas pipe through North Korea, according to the president’s statement posted on the Kremlin website. The pipe would stretch for more than 1,100 km, 700 of which would run through North Korea and would pump 10 billion cubic meters of gas annually.

The two leaders also discussed a plan for Russia to extend power lines into North Korea to sell electricity from facilities like the Bureya hydroelectric plant. Before arriving to meet Medvedev, Kim visited the Bureya plant, where he swam in a pool filled with water from Lake Baikal. Afterward, the North Korean strongman was treated to such local cuisine as meat dumplings and fish prepared over an open fire, press reports said.

Accoridng to UPI:

North Korea is willing to return to the six-party talks and to consider a moratorium on nuclear testing, Russian President Dmitry Medvedev said Wednesday.

Medvedev and North Korean leader Kim Jong Il met in Sosnovy Bor, a garrison town in the Russian Republic of Buryatia in South Siberia, RIA Novosti reported.

Natalia Timakova, a spokeswoman for Medvedev, said Kim was prepared to resume nuclear talks without any preconditions. The talks were suspended two years ago, and Russia and China have said they are prepared to return to the table immediately while the United States, Japan and South Korea want North Korea to show good faith first.

Kim also agreed to allow Gazprom, the state-owned Russian natural gas company, to build a pipeline to South Korea through his country. The two leaders also discussed North Korea’s outstanding debt to the former Soviet Union and possible food aid from Russia.

RIA Novosti said some reports estimate the project could bring about $100 million a year in much-needed hard currency to Pyongyang.

“We’ve ordered our government bodies to establish a special commission … to outline the details of bilateral cooperation on gas transit through the territory of North Korea and the joining of South Korea to the project,” Medvedev was quoted as saying.

The Russian leader said technical work on the pipeline would start soon.

South Korea is one of the largest buyers of natural gas, with imports of liquefied natural gas from Russia alone totaling 1.5 million tons last year, South Korea’s Yonhap news agency reported. The report said North Korea reacted favorably to the project during the visit of Gazprom officials.

Accoridng to Bloomberg:

North Korea owes Russia $11 billion of debt that dates back to the Soviet period and the two countries have resumed talks to restructure the Asian state’s liabilities, Deputy Finance Minister Sergei Storchak said.

Russia hasn’t lent money to North Korea since the collapse of the Soviet Union in 1991 because the communist state hasn’t settled its debt, Storchak told reporters at a military base near Ulan-Ude, a Siberian city close to the border with Mongolia. North Korea also has yet to recognize Russia as the successor to the Soviet Union, he said.

Russian President Dmitry Medvedev agreed on a joint approach to debt restructuring with North Korean leader Kim Jong Il at their meeting near Ulan-Ude today, said a Kremlin official, who declined to be identified in line with government policy. Russia and North Korea restarted talks on the issue a month and a half ago after a long pause, the official said.

The resumption of negotiations is seen as a breakthrough by the Russian delegation attending today’s meeting, according to the official.

According to RIA Novosti, the DPRK is interested in renting farm land in Eastern Siberia.

According to UPI, the Russians and the DPRK plan to increase naval cooperation.

According to the Choson Ilbo, the North Koreans might have been interested in acquiring Russian aircraft.

Andrei Lankov is skeptical any of the economic projects will become operational.

Aidan Foster-Carter believes the pipeline will be built.

UPDATE 5 (2011-8-22): Kim arrives in Ulan-Ude (Улан-Удэ), and tours Lake Baikal and an aircraft factory. See the Ulan-Ude train station in Google Maps here. See Lake Baikal on Google Maps here. See the Ulan-Ude Aviation Plant in Google Maps here. According to a video later released by the DPRK, Kim Jong-il also visited the Lenin-head statue at the seat Ulan Ude’s government (See in Google Maps here) and the “Mega Titan” super market (мега титан, See in Google Maps here).  Though the visit to the aircraft factory is never mentioned in KCTV coverage of the visit, the Choson Ilbo reports that the DPRK’s air force chief, Gen. Ri Pyong-chol (리병철), was also on the trip–leading to speculation that the DPRK air force was shopping for new aircraft.

According to the AP:

Kim took a two-hour Baikal tour on a yacht guarded by two North Korean boats, the Inform Polis Online website reported quoting eye-witness accounts. The water in Baikal is ice-cold even in summertime, so Kim had to take a swim onshore — in a pool filled with Baikal water. The speaker of Buryatia’s legislature joined Kim in the swim, the news website reported.

On the shore, the North Korean leader was treated to traditional Buryat food including meat dumplings and Baikal fish prepared over an open fire.

Later on Tuesday, Kim went back to Ulan-Ude to visit a major aircraft factory, which among other things produces Sukhoi attack planes, the ITAR-Tass news agency reported from the plant.

…

The North Korean leader’s visit is shrouded in mystery. A few people managed to take photos of Kim at his previous stop on Sunday, but heavy police cordons kept the media and onlookers in Ulan-Ude away from the train station and the adjacent square.

Anna Ogorodnik, a photographer from Ulan-Ude, told the Associated Press by phone that nearby streets were full of riot police. The station square looked clean and deserted after authorities had tugged away cars and local buses.

The windows of the station building overlooking the tracks were plastered with sheets of paper and station employees had been ordered to stay indoors, Ogorodnik said.

The photographer said she had been detained after trying to take pictures. She was released after she had presented her journalist ID.

The station square remains cordoned off and Kim’s train is still at the station, Ogorodnik said.

It is Kim’s first visit to his country’s Cold War ally in nine years.

Russian military officials arrived in the North Korean capital on Monday for a five-day visit. The Russian Defense Ministry said the talks will focus on the renewal of military cooperation between the countries, possible joint exercises “of a humanitarian nature” and an exchange of friendly visits by Russian and North Korean ships, ITAR-Tass reported from Pyongyang.

UPDATE 4 (2011-8-23): Writing in the Asia Times, Sunny Lee offers some political context of the trip as well as offering an estimated sum the DPRK can expect to earn if it agrees to the pipeline deal:

Cash-strapped North Korea, committed to staging a great national display of prosperity next year to mark the 100th anniversary of Kim Il-sung’s birthday, is likely to welcome any such deal. If realized, it could expect to earn more than US$500 million a year in handling charges over the gas pipeline alone. Russia is also interested in linking the Trans-Siberian Railways to both Koreas, with the aim of reviving the Far Eastern region’s economy.

The Daily NK puts that number signficantly lower:

For North Korea, the gas pipeline could provide a stable income of approximately $100 million-$150 million. Compared to the Kaesong Industrial Complex, which requires more than 47,000 workers and earns North Korea just $50 million, it is a very attractive figure.

UPDATE 3 (2011-8-21): Kim Jong-il arrives in Russia’s Amur region (Bureya, Бурея) on Sunday August 21 and tours Bureiskaya Power Station. See the Bureya Train Station in Google Maps here. See the Bureiskaya Power Station in Google Maps here.  According to the AFP:

North Korea’s reclusive leader Kim Jong Il and his wife received a red carpet welcome Sunday in Russia’s Amur region where they toured a giant power station ahead of talks with President Dmitry Medvedev.

It was the second day of Kim’s week-long visit to the Russian Far East and Siberia, a rare trip out of his country battling isolation and hunger.

Earlier on Sunday his special armoured train arrived at the small Bureya station in the Amur region and smiling Russian women dressed in red national costumes offered the high-profile guest a loaf of bread and salt, in accordance with Russian tradition.

The 69-year-old leader looked serious and slightly tired as flag-waving locals greeted him at the station.

Sporting sunglasses and his trademark khaki-coloured military-style suit, Kim broke off a piece of bread as the Kremlin’s regional envoy Viktor Ishayev and a throng of local officials looked on.

“He is rather simple, seems to be a genial man,” gushed a young Russian woman in the national dress, speaking later in televised remarks.

After the short welcome ceremony Kim got into an armoured Mercedes, which he brought with him on the train, to visit a nearby hydro-power station.

He appeared to take a keen interest in the 2,000 megawatt-strong Bureiskaya power station as Ishayev and the local governor gave him a tour of the plant.

South Korea’s Yonhap news agency, citing pictures taken at the plant, said 47-year-old Kim Ok — a former secretary known as Kim’s fourth wife — was accompanying the leader on the journey.

At the power station — the largest in Russia’s Far East — Kim was treated to a spectacular show of the water being discharged into the river, a local law enforcement official said.

He watched the water release from the safety of a white tent pitched at the station, next to a table with snacks, pies and a watermelon, and was also shown a film about the plant translated into Korean, the official said.

“Inexhaustible is the strength of the Russian people who occupied Bureya nature,” the official Korean Central News Agency quoted Kim as saying in the visitor’s book.

A Russian official familiar with the matter told AFP Kim had planned to visit the station earlier in the summer when he had been expected to hold a bilateral summit with Medvedev in or near Vladivostok.

A Kremlin official was quoted as saying at that time that Kim had cancelled due to media leaks about the visit.

Yelena Vishnyakova, a spokeswoman for state-run RusHydro which operates the power plant, said her company was not currently holding any talks with North Korea about any possible construction of power stations.

While Kim toured the power station, his entourage cleaned and polished his armoured train parked at Bureya, a tiny economically depressed town near the city of Blagoveshchensk on Russia’s eastern fringes.

After returning from the station he continued his journey along the famed Trans-Siberian railway.

According to the Washington Post, the Russia has proposed selling surplus electricity produced by this power station to both North and South Korea.

The New York Times also covered the trip to the power station.

UPDATE 2 (2011-8-20): The Washington Post offers some political and economic context of the trip:

Kim’s trip, Pyongyang said, came at the invitation of Medvedev, whose government in recent weeks has pushed North Korea to cooperate on plans to connect a railway and a gas pipeline that would run from Russia through the divided Korean Peninsula.

North Korea has remained largely a no-go zone for massive foreign projects, with outside economic investment allowed only in special development zones. But if North Korea goes along with the gas pipeline project — in which Russian exporter Gazprom will annually send 10 billion cubic meters of gas to South Korea for three decades — it stands to collect handling fees. It would also allow the North a measure of influence in Seoul’s economy.

…

Some North Korea analysts say that Kim has grown wary of depending so heavily on China, particularly as North Korea prepares for the 100th anniversary next year of the birth of founder Kim Il Sung. The North has promised to build a strong and prosperous economy to mark the occasion, but such a display is largely at the mercy of foreign aid.

“North Korea has had no choice but to deepen its dependence on China, so they now need some counterbalance,” said Yun Duk-min, a professor at Seoul’s Institute of Foreign Affairs and National Security. “Kim Jong Il uses such tactics. This is using Russia to check Chinese influence.”

UPDATE 1 (2011-8-20): KCNA takes the unusual step of confirming KJI is out of the country (rather than waiting until he has returned). According to KCNA:

Kim Jong Il Passes through Khasan Railway Station, Russia
Pyongyang, August 20 (KCNA) — Kim Jong Il, general secretary of the Workers’ Party of Korea and chairman of the National Defence Commission of the DPRK, passed through Khasan, the border railway station of Russia this morning on his way to pay an unofficial visit to Siberia and the Far East Region of the Russian Federation at the invitation of Dmitri Anatoliyevich Medvedev, president of the Russian Federation.

He was greeted at Khasan Railway Station by Viktor Ishayev, presidential envoy to the Far East Region of the Russian Federation, who came to Khasan to conduct him.

He was also greeted by Sergey Darikin, governor of Maritime Territory, Valery Sukhinin, Russian ambassador to the DPRK, Irina Skorobogatova, deputy governor of Maritime Territory, and other senior officials of Moscow, maritime territory, city and district.

When the train pulled in the station, the senior officials got on the train and offered greetings to him.

Medvedev, who has paid deep attention to the Russia-DPRK friendship, dispatched them to greet Kim Jong Il, Viktor Ishayev and other senior officials said, warmly welcoming him to Russia upon the authorization of its President.

Kim Jong Il’s current visit to Russia will mark a historic occasion in putting the Russia-DPRK friendly and cooperative relations onto a fresher and higher stage, they noted.

He said he was very pleased to see for himself the achievements made by the diligent and resourceful Russian people through his current visit, thanking the senior officials of Moscow and local areas and people for warmly greeting him.

He was presented with a souvenir by Sergey Darikin on behalf of the Maritime Territorial Government and people.

After a while, he left for his destination amid send-off by senior officials of Russia.

Prior to it, he left the country to pay an unofficial visit to Siberia and the Far East Region of the Russian Federation.

He is accompanied by Kim Yong Chun, member of the Political Bureau of the WPK Central Committee and minister of the People’s Armed Forces, Kang Sok Ju, member of the Political Bureau of the WPK Central Committee and vice-premier of the Cabinet, Jang Song Thaek, alternate member of the Political Bureau of the WPK Central Committee and vice-chairman of the NDC, Kim Yang Gon, Pak To Chun and Thae Jong Su, alternate members of the Political Bureau and secretaries of the WPK Central Committee, Ju Kyu Chang, alternate member of the Political Bureau and department director of the WPK Central Committee, Pak Pong Ju, first vice department director of the WPK Central Committee, O Su Yong, chief secretary of the North Hamgyong Provincial Committee of the WPK, Kim Kye Gwan, first vice-minister of Foreign Affairs, Kim Yong Jae, DPRK ambassador to Russia, and Sim Kuk Ryong, consul general of the DPRK Consulate General in Nakhodka of Russia.

His visit to Russia, another event in achieving world peace and security and the human cause of independence, will mark a historic occasion in boosting the DPRK-Russia friendship given steady continuity generation after generation and putting strong impetus to the drive of all the servicepersons and people to build a thriving socialist nation.

ORIGINAL POST (2011-8-20): Kim Jong-il has made a “surprise” trip to Russia.  According to the AFP:

North Korea’s reclusive leader Kim Jong-Il on Saturday arrived in his armoured train in Russia and plans to meet President Dmitry Medvedev, the Kremlin said.

During the visit, his first since 2002, Kim is expected to meet with the Kremlin chief for talks in Siberia to discuss North Korea’s nuclear programme, bilateral economic projects and a worsening food crisis in the isolated state.

“A meeting between Russian President Dmitry Medvedev and Kim Jong-ll will be the main event of the visit,” the Kremlin said in a statement, saying Kim would also visit the Far Eastern and Siberian regions.

The Kremlin did not release further details but a local official in the Far East told AFP Kim’s train crossed the border earlier in the day.

…

Kim, who is known to dislike air travel due to security concerns, arrived in Khasan district after crossing the Tumangan river at 12 pm local time (0100 GMT), Naryzhny said.

He said he was unaware of the North Korean leader’s programme in Russia, adding he did not leave his train upon arrival.

____________

Additional Information:

1. Here is a post on recent DPRK-Russia exchanges leading up to the visit.

2. Here and here are recent stories on DPRK laborers in Russia.

Institute for Far Eastern Studies (IFES)
2011-8-24

Kim Jong Il’s visit to Moscow on August 20 is sparking interest for the future of economic cooperation between the two countries.

According to the KCNA, Russian President Dmitry Medvedev expressed interest to increase trilateral cooperation between the ROK-DPRK-Russia in the gas, energy, and railroad sectors. In the message sent from Medvedev to mark the 66th anniversary of independence from Japanese colonial rule, “plans to expand cooperation with the DPRK and the ROK in gas, energy, and railroad industry” were emphasized.

The cooperation projects are evaluated to have “great economic and political significance contributing to the stability in Northeast Asia and denuclearization of the Korean peninsula.”

In July 4, the KCNA reported that the delegates from the Russian energy giant Gazprom headed by Chairman Alekhsandr Ananenkov visited Pyongyang to discuss energy cooperation, although details of the visit was not elaborated. Ananenkov was reported to have met with North Korean officials in gas and oil industriesto discuss bilateral cooperation in these areas.

Russia has also expressed interest in linking gas pipelines to export natural gas to South Korea via inter-Korean railroad system.

A spokesperson of the foreign ministry of the DPRK reported on the recent visit from the vice-foreign minister and chief representative of Russia on Six-Party Talks, Aleksei Borodavkin, this past March. In the statement, the Russian government expressed concerns for improving inter-Korean relations and stressed prospects of the tripartite economic cooperation projects with North and South Korea including the construction of railways, gas pipeline, and a transmission line linking the three countries. The DPRK also expressed support for the upcoming economic cooperation projects.

In result, the main agenda in the bilateral economic cooperation between Russia and North Korea entails railway, gas pipeline, and transmission line construction.

President Lee Myung-bak has met with the Russian president Medvedev in September 2008 in Moscow. At the summit, the two presidents reached an agreement to pursue projects to export Russian PNG or pipeline natural gas to South Korea through a pipeline via North Korea from 2015.

Immediately following the summit, South Korea’s Korea Gas Corporation (KOGAS) and Russia’s Gazprom signed a memorandum of understanding (MOU) to jointly study the possibilities of constructing a long-distance pipeline running from Vladivostok. Under the contract, Russia will send at least 7.5 million tons of natural gas annually for a period of 30 years through a pipeline to South Korea via North Korea.

This joint study between ROK-Russia is expected to serve as a momentum in bringing diverse economic cooperation between North and South Korea as well.

While it is still premature to judge the long-term outlook for such trilateral economic cooperation, its effects are anticipated to contribute to stability and peace in the Northeast Asian region.

Additional Information: here is a summary of the recent Kim Jong-il — Medvedev summit.

Imports from North Korea: Existing Rules,Implications of the KORUS FTA, and the Kaesong Industrial Complex
Mark E. Manyin, Coordinator, Jeanne J. Grimmett, Vivian C. Jones, Dick K. Nanto, Michaela D. Platzer, Dianne E. Rennack
Congressional Research Service (CRS)
June 2, 2011

Download the PDF here.  This publication has been added to the list of previous CRS reports on the DPRK here.

________

Trade with China 1995-2009
Nathaniel Aden
Nautilus Institute
June 7, 2011

View the paper here.  A link to this paper has been added to the DPRK Economic Statistics Page. The Nautilus Insitute has also posted links to some very interesting presentations from the 2010 DPRK Energy and Minerals Working Group.

________

[Book] The Contemporary North Korean Politics: History, Ideology, and Power System (현대 북한의 정치: 역사, 이념, 권력체계)
Jong Song-Jang (정성장)
More information TBA, but see here and here (Korean).

________

[Book] Architekturführer Pjöngjang (German: Pyongyang Architecture Guide)
Philipp Meuser
Order here at Amazon. More here and here.

A new paper by David von Hippel, Scott Bruce, Peter Hayes is up at 38 North.  Here is the conclusion:

North Korea has demanded the inclusion of energy aid and development assistance in every agreement covering its nuclear weapons program because it cannot develop into a “strong and prosperous nation” without such help from the international community. The country’s energy infrastructure is decrepit, and until it is redeveloped, the country will remain stuck in survival mode. Energy imports from China keep the North afl oat while it sells its minerals assets for hard currency. Until the DPRK earns enough foreign exchange to diversify imports and to refurbish its refi neries, it has no alternative but to rely on China. This situation means that the United States and its partners must prepare to engage the North on energy issues to prevent confl ict, avoid the collapse of the North Korean regime, build transparency and gather real data on the DPRK economy, and develop communication channels with North Korea. Without convincing the DPRK that it can overcome its energy insecurity and achieve a sustainable energy economy, it is unlikely that Pyongyang will shift away from an economy that emphasizes exports of military hardware and illicit goods, cease its provocative behaviors, and take steps to assume productive relationships with the global community.

The DPRK’s small LWR and uranium enrichment programs present an additional challenge, but if managed correctly, are an opportunity for engagement on energy issues. Moreover, the immediate demonstration of good faith on both sides will be necessary to proceed with denuclearization. Since big ticket energy infrastructure projects will take some time to deliver, non-nuclear fast fuels and technical assistance will be more useful in the short-term. There are a number of options for energy sector engagement available, ranging from capacity-building in science, technology, law, and economics to assistance with implementation of energy effi ciency and renewable energy measures and refurbishing/replacing major energy infrastructure to connecting the DPRK with big regional energy grids. Though engagement should start small, it should also start soon in order to open doors, establish relationships, and create a foundation for the peaceful economic growth in the North necessary to sustain a thaw in the DPRK’s relations with the United States, its allies, and the international community.

You can read the full piece at 38 North here (PDF).

According to Yonhap:

South Korea’s new ambassador to Russia said on Wednesday that he is committed to implementing the envisioned South Korea-North Korea-Russia natural gas pipeline.

South Korean President Lee Myung-bak and Russian President Dmitry Medvedev agreed at their 2008 summit in Moscow to cooperate on building a tripartite gas pipeline involving North Korea. But the agreement has yet to be realized, as Pyongyang has failed to respond amid chilly inter-Korean relations.

Ambassador Lee Youn-ho, who accompanied President Lee on the Russian trip in his capacity as knowledge economy minister, said that the three-nation gas pipeline project, if realized, will be very meaningful “economically and politically.”

“If the South Korea-Russia gas pipeline can pass through North Korea, it can be linked to the construction of electric power and railway networks (in North Korea),” said Ambassador Lee.

Lee then called for significant improvement of ties between South Korea and Russia, claiming the two are now more ready and fit than ever to forge a relationship that will be mutually beneficial.

You can read past posts about the Russia-Korea gas pipeline here. 

Read the full article here:
Seoul’s new envoy to Russia vows to speed up gas pipeline project
Yonhap
Byun Duk-kun
2/10/2010

Last year we reported on an effort to bring Russian natural gas to South Korea via a pipeline that could either go through North Korea or across the East Sea (aka Sea of Japan).  If the pipeline was to cross the DPRK, they stood to gain by leasing the land for the pipeline.

According to news this week, the plan has been indefinitely shelved.   According to the story:

Plans to import Russian natural gas through a North Korean pipeline have been shelved due to strained inter-Korean relations, the head of South Korea’s state-run energy company said Tuesday.

Korea Gas Corp (KOGAS) (KSE:36460) president Choo Kang-soo said unless North Korea specifically asks for the pipeline to be built on its soil, Seoul will not pursue the piped natural gas (PNG) project but opt to import liquefied natural gas (LNG) directly from Russia by ship.

“An understanding has recently been reached with Russian partners on this issue,” the chief executive said, adding that recent developments like the nuclear standoff raised the importance of creating a “controllable schedule” for getting the gas on time.

He pointed out that the inability to control cross-border issues has made the PNG plan less viable.

Under a blueprint announced in 2008, Seoul said it wanted to import 7.5 million tons of Russian gas starting in 2015 to ensure a steady supply of fuel. Seoul had previously relied heavily on imports from Southeast Asian countries, which have since hiked up prices.

The deal, valued at more than US$100 million, called for a pipeline running from Russia’s far east to South Korea through North Korea.

Choo hinted that because Russia is eying both the Japanese and Chinese markets, it also prefers to transform its natural gas into LNG for overseas sales.

KOGAS, meanwhile, said that the total amount of fuel that will be imported from Russia will equal 20 per cent of South Korea’s projected natural gas needs in 2015. In 2007, the country bought 7.8 million tons of gas for home use alone, with more being spent on power generation and various fuel needs.

Russia has an estimated 38 billion tons of natural gas and announced plans to spend US$28 billion to link the Krasnoyarsk, Irkutsk, Yakutsk and Sakhalin gas fields into a unified gas supply system that can facilitate exports.

Statistically speaking, natural resource exports are bad news for good governance and economic development.  This is because resource-dependent governments never need to develop the policies and institutions necessary to promote sustained entrepreneurship in the private economy from which they can extract tax revenue. Since non-democratic countries are supposed to love natural resource exports because they essentially translate into free hard currency, I am surprised the DPRK could not set politics aside and cash in on this deal.

Also, what does this say about Russia’s relationship with the DPRK?

Read the full story here:
S Korean plan to import Russian natural gas via N Korea on hold
TradingMarkets.com
9/29/2009

In the last round of six party talks, the media focused on North Korea’s deteriorating relationships with Seoul and Tokyo and the DPRK’s reluctance to agree to a credible nuclear verification protocol.  When the talks failed to produce any forward momentum, it looked like energy aid was to be suspended:

After the meeting, U.S. State Department spokesman Sean McCormack said that Japan, Russia, China, the United States and South Korea had allegedly agreed that fuel would not be shipped until progress was made on specific steps to verify Pyongyang’s nuclear activities. (RIA Novosti)

Russia, however, disputes this claim—but likely for for its own economically rational reasons.  Russia has been very strategic in its relations with Pyongang—focusing on securing a stake in the Rajin Songbon port and leaning on Pyongyang to allow construction of a natural gas pipeline to South Korea.  As a result, they have refused to suspend their portion of energy aid:

Russia plans to complete fuel deliveries to North Korea as part of a denuclearization deal, the head of the Russian delegation at six-party talks on Korea’s nuclear problem said on Sunday.

“We expect that we’ll be able to supply our entire quota of 200,000 metric tons in the near future,” Russian Deputy Foreign Minister and chief North Korea negotiator Alexei Borodavkin said. (RIA Novosti)

and…

[...]Russian Deputy Foreign Minister and chief North Korea negotiator Alexei Borodavkin, who said his country will proceed with a third batch of 50,000 metric tons of fuel oil this month in accordance with previous six-party talks agreements. (UPI)

Despite ending energy assistance, the US maintains it will continue food assistance:

North Korea will receive 21,000 metric tons of U.S. food aid this month as part of an assistance agreement, the State Department said.

“Our humanitarian program will continue,” spokesman Sean McCormacktold reporters in Washington yesterday. The aid will be delivered at the end of December, he said.

The U.S. in May agreed to resume food assistance to North Korea in a deal that will see the communist state receive 500,000 metric tons during the 12 months starting in June. The U.S. has so far provided 143,000 metric tons of aid, McCormack said. (Bloomberg)

Read more here:
Russia to complete fuel supplies to North Korea – envoy
RIA Novosti
14/12/2008

Korea Gas Seeks Stakes in Australia, Oman, PNG Fields, CEO Says
Bloomberg
Shinhye Kang
12/11/2008

Russia to make N. Korea fuel shipment
UPI
12/14/2008

North Korea to Get 21,000 Tons of Food Aid From U.S. This Month
Boomberg
Kevin Cho
12/2/2008