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

Instutie for Far Easter Studies (IFES)
NK Brief No. 08-9-30-1
9/30/2008

North Korea is accelerating projects to repair and upgrade power plants throughout the country in order to resolve its electrical shortage problems. According to the (North) Korean Central Broadcasting Station on September 25, oil pressure regulators on generators 1 and 2 at the Soopoong Power Plant on the Yalu River were replaced with more efficient digital regulators in order to increase power production capabilities. The broadcasters also announced on the 22nd that the Number 3 Boiler at the East Pyongyang Steam Power Plant, which supplies electricity to the Pyongyang area, is undergoing a major overhaul, just as its Number 1 Boiler did in July.

A ‘February 17 Shock Troop’ of scientists and technicians from Kim Il Sung University, Kim Chaek University of Technology, Pyongyang Machinery College, Han Duk Su Pyongyang Technical College, Pyongyang Computer College, and the Ham Heung Su College of Locomotive Power has been dispatched to the East Pyongyang plant and are working on overhauling and updating the equipment there.

The Pyongyang Steam Power Plant, in the Pyongchun neighborhood of Pyongyang, is also undergoing major upgrades in preparation for winter, with boilers Number 2 and 7 overhauled and back on-line and Number 4 Boiler’s overhaul in its final stage. Electrical facilities on the Boojeon River, Jangja River, Daedong River, and Nam River, as well as the Taechun, Seodusu, and Samsu Power Plants, are all undergoing upgrades on power generation equipment and water flow systems.

North Korea is also pushing forward with the building of new power production facilities at the Yesung River Power Plant, Wonsan Centennial Power Plant, Urang Power Plant, Youngwon Power Plant, Geumya River Power Plant, Baekdu Mountain Military-first Centennial Power Plant, and the Geumjin River Guchang Power Plant. Cabinet officials from the government’s construction bureau have been dispatched to each location in order to ensure the early completion, while legislation supporting the construction of small and mid-sized power plants is also being pushed.

As North Korea celebrates the 60th anniversary of its founding, it is emphasizing economic development, and to this end, has completed construction of the Number 1 Generator at the Yesung River Centennial Power Plant, the Sungchun Power Plant, and the first stage of construction at the Wonsan Centennial Power Plant. In the 2008 New Year’s Joint Editorial, the government promoted the construction of large-scale hydroelectric facilities as well as small and mid-size power plants, along with modernization of existing power production equipment, in order to increase electrical production.

The most authoritative map of North Korea on Google Earth
Download it here

This map covers North Korea’s agriculture, aviation, cultural locations, markets, manufacturing facilities, railroad, energy infrastructure, politics, sports venues, military establishments, religious facilities, leisure destinations, and national parks. It is continually expanding and undergoing revisions. This is the eleventh version.

Additions include: Mt. Paegun’s Ryonghung Temple and resort homes, Pyongyang’s Chongryu Restaurant, Swiss Development Agency (former UNDP office), Iranian Embassy, White Tiger Art Studio, KITC Store, Kumgangsan Store, Pyongyang Fried Chicken Restaurant, Kilju’s Pulp Factory (Paper), Kim Chaek Steel Mill, Chongjin Munitions Factory, Poogin Coal Mine, Ryongwun-ri cooperative farm, Thonggun Pavilion (Uiju), Chinju Temple (Yongbyon), Kim il Sung Revolutionary Museum (Pyongsong), Hamhung Zoo, Rajin electrified perimeter fence, Pyongsong market (North Korea’s largest), Sakju Recreation Center, Hoeryong Maternity Hospital, Sariwon Suwon reservoir (alleged site of US massacre), Sinpyong Resting Place, 700 Ridges Pavilion, Academy of Science, Hamhung Museum of the Revolutionary Activities of Comrade Kim Il Sung, South Hamgyong House of Culture, Hamhung Royal Villa, Pork Chop Hill, and Pyongyang’s Olympic torch route. Additional thanks go to Martyn Williams for expanding the electricity grid, particularly in Samjiyon, and various others who have contributed time improving this project since its launch.

Disclaimer: I cannot vouch for the authenticity of many locations since I have not seen or been to them, but great efforts have been made to check for authenticity. These efforts include pouring over books, maps, conducting interviews, and keeping up with other peoples’ discoveries. In many cases, I have posted sources, though not for all. This is a thorough compilation of lots of material, but I will leave it up to the reader to make up their own minds as to what they see. I cannot catch everything and I welcome contributions.  Additionally, this file is getting large and may take some time to load.

Despite tensions between North and South Korean this year, South Korea is still delivering promised energy aid to the North:

Under a six-nation accord signed last year, South Korea has started delivering energy assistance to North Korea.

This week’s shipment included 600 tons of round steel bars.

Seoul has so far provided assistance worth 124,000 tons of heavy fuel oil.

Read the full story here:
South Korea supplies the North with energy
Birmingham Star
08/08/08 

From Dr. Leonid Petrov in the Asia Times:

Russia cooperation with North Korea
Since the early 2000s, overall relations between Russia and the DPRK have been improving. The DPRK’s importation of refined oil from Russia saw its first increase in 2002-2003 (from $20 million to $96 million) and was caused by the beginning of the US-DPRK nuclear confrontation and the subsequent demise of the international Korean Peninsula Energy Development Organization project that was to construct a light water reactor nuclear power plant in North Korea.

During 2004-2005, petroleum trade between Russia and North Korea grew from $105 million to $172.3 million. Until the six-party talks produced their first results, in the list of Russia’s exports to the DPRK, oil products dominated at 63%. Rampant corruption in both countries also let a trickle of Russian oil to be smuggled to North Korea unaccounted for.

In 2006, Russia was the DPRK’s third-largest trading partner after China and South Korea and absorbed 9% of the total $3.18 billion spent by the North on imports (approximately $286 million). The Kremlin’s approval of international sanctions against the former communist ally was accompanied by the curtailment of trade with the North. At the time of North Korea’s nuclear test in October 2006, Russia’s trade statistics showed that exports of petroleum had dropped 91.1% compared to the same period of the previous year.

The pragmatic mood in bilateral relations prevails, and these days Russia delivers oil and food to North Korea only in accordance with its obligations associated with progress at the six-party talks. This year, Russia has already delivered 100,000 tonnes of fuel oil to the DPRK in two batches and, according to Russian Deputy Foreign Minister Alexei Borodavkin, a top Russian envoy to the six-party talks, will deliver another 100,000 tonnes by October 2008. In June, the Russian government announced it would provide 2,860 tonnes of flour to the DPRK. According to an official KCNA news agency report, this food aid arrived at the border city of Sinuiju in the DPRK’s northern Pyongan province in early July.

Recently, for the first time in the post-Soviet era, North Korea saw a major Russian investment. In the city of Pyeongseong, the Russian auto plant KamAZ opened its first assembly line, specializing in the production of medium-size trucks named “Taebaeksan-96″. Although less than 50 trucks were assembled in 2007, this cooperation became an important milestone in the development of bilateral relations. While the project doesn’t violate United Nations sanctions on North Korea, it shows Moscow’s drive to expand its influence in the country. Ironically, the more trucks assembled the heavier North Korea’s dependence on imported fuel, engine oils and other petrochemical products.

The importance of the DPRK’s Rajin-Seonbong special economic zone to Russia’s national interests continues to grow. The state-run monopoly OAO Russian Railways is currently upgrading its railway connections with North Korea in Khasan-Tumangang, investing at least 1.75 billion roubles (US$72 million) into this project, and plans to participate in an ambitious plan to rebuild a trans-Korean railway. By connecting Rajin (and the rest of northern Korea) to its Trans-Siberian railroad, Russia hopes to benefit form the transit of South Korean and Japanese cargo which could be sent via its territory to Central Asian and European markets. Pyongyang seems to endorse these plans and other Russian initiatives, but does not commit any financial resources.

Eighty percent of overall bilateral economic trade between Russia and North Korea consists of cooperation, barter and investment-in-kind between the regional areas. The most active Russian regions trading with the DPRK are Eastern Siberia and the Far East. Maritime province (Primorsky Krai) itself exports to North Korea more than $4 million worth of refined oil per year. There are no oil fields in Maritime province and oil has to be borrowed through a chain of federal bureaucratic structures from the oil-rich areas of Eastern Siberia. Instead of money, the local governments agree to receive the labor of North Korean workers.

North Korean laborers in Siberia and the Far East were common under the Soviet system and they are still visibly present. In 2004, the Russian Federal Immigration Service issued 14,000 visas for foreign laborers, of whom North Koreans numbered 3,320 in 2005 and 5,000 in 2006. Since the DPRK has no other way to pay in goods or services, its government started paying for oil imported from Russia by dispatching thousands of laborers at zero cost. Following strong demand from local companies, just in 2006 regional authorities of Primorsky Krai agreed to issue an extra 5,000 working visas to North Koreans. This openness is contrary to local government policy that normally restricts the entry of labor from China.

DPRK citizens are sent to Russia to work as woodcutters and builders but some have also managed to find work in the agricultural and marine industry. Through the presence of these laborers, Russia has enjoyed a partial repayment of the DPRK’s post-Soviet debt through North Korean workers being contracted to work in mines and lumber mills in Russia’s Far East.

The wages they are able to make in Russia are far greater than what they would make at home. However, the foreign worker quota is set not by provincial governments but by Moscow, which often tries to put a stop to these programs due to the complexity of the matter. Part of this opposition stems from the fact that the North Korean workers in Russia still fall under DPRK laws and, therefore, are subject to intrusive supervision.

Among the most difficult but negotiable issues in the way of Russia-North Korea cooperation remains the problem of external debt. During the Soviet era, the DPRK incurred a debt of approximately $8 billion, which Pyongyang still owes to Moscow but cannot repay. This debt remains a stumbling block in most negotiations on new aid and development programs. However, this debt can potentially make trilateral Russian-Korean relations closer and stronger.

In January 1991, soon after the opening of diplomatic relations with South Korea, Moscow received $3 billion from Seoul in the form of a three-year loan. The collapse of the Soviet Union left this loan largely unpaid. The new Russian government in the 1990s provided South Korea with armaments worth $150 million to be counted as payment in kind for the remaining debt. In 2003, after bilateral negotiations on this issue were completed, part of this Russian debt was canceled and the remainder was rescheduled to be paid over the next 23 years.

Taking into account its own debts to the South, Russia could easily write off a significant portion of North Korean debt. To resolve this question, a certain agreement between all three parties is needed. To engage in a mutual and reciprocal round of debt cancelation, Russia might choose to see the North and the South as one country. Such an agreement would have unblocked the road for broader cooperation between Russia and the two Koreas, and simplified Russia’s energy cooperation with China and Japan.

The full article is worth reading here:
Russia is key to North Korea’s plight
Asia Times
Leonid Petrov
7/24/2008

According to Yonhap:

Russia will deliver another 100,000 tons of fuel oil to North Korea by October as a reward for the country’s shutdown of its nuclear power facilities, Itar-Tass news agency reported Wednesday, quoting a top Russian envoy to the six-party nuclear talks.

North Korea has been promised energy aid equivalent to a million tons of heavy fuel oil as part of economic and political rewards for declaring all its nuclear programs and disabling its main nuclear plants under a six-party deal on ending the North’s nuclear activities.

“We’ve fulfilled our promises — delivered 100,000 tons of fuel oil in two batches by the middle of the year,” Russian Deputy Foreign Minister Alexei Borodavkin was quoted as telling journalists in Beijing Wednesday. “We are preparing to fulfil our obligations further and send another 100,000 tons by October,” he said.

Read the full article here:
Russia to send more fuel oil to N.K. by October: report
Yonhap
7/9/2008

According to Michael Rank in the Telegraph: 

North Korea is planning to recycle waste that is so polluted other countries refuse to handle it.

Through a Chinese-language website (lik here) the country is seeking supplies of plastic and electronic waste which “can be processed in [a North Korean port] but which other countries and territories are restricted from dealing in”, reflecting the country’s dire economic plight and its scant regard for international norms.

Isolated and desperately poor, North Korea is a beginner so far as toxic waste is concerned, although in 1996 it signed a deal with Taiwan to dispose of its nuclear waste from atomic power plants.

South Korea reacted furiously to the deal and Taiwan was eventually forced to back down and cancel the agreement.

North Korea also offered to recycle the North Sea Brent Spar oil storage platform, which Royal Dutch Shell had proposed dumping in the deep Atlantic in 1995.

This caused an environmental furore, with Greenpeace claiming that the structure was full of oil and burying it at sea would result in serious pollution.

An enterprising young North Korean official in London unexpectedly offered to come to the rescue, suggesting that his country could dispose of the structure, saving Shell and the British government from further embarrassment.

The offer was turned down as Shell didn’t want to be seen turning to a regime as dubious as North Korea, but Greenpeace’s own reputation took a serious knock when it was forced to admit that it had enormously over-estimated the amount of oil remaining in Brent Spar’s storage tanks.

North Korea’s waste recycling plans are part of a much bigger, £5 million ($10 million) project to enlarge a port on its west coast and develop it into an export base including a duty-free zone.

“There are no limits, any business taking advantage of [North] Korea’s low labour costs for intensive processing is welcome,” the website states.

Although the port is not named, it is almost certainly Nampo, which is close to the capital and is the largest harbour on North Korea’s west coast. The development covers 30,000 square metres (320,000 square feet) and is “expandable”.

The port currently accepts vessels of up to 10,000 tonnes but the plan is to increase this to 50,000 tonnes.

The project is pitched at Chinese companies, and interested parties are asked to contact a firm in the Chinese city of Dandong on the North Korean border.

A deal with China would help to counterbalance a recent agreement with state-owned Russian Railways to build a £50 million ($100million) container terminal on North Korea’s east coast as part of a £1.5 billion ($3 billion) plan to create a rail corridor linking South Korea with Europe via North Korea and Russia.

Russian Railways wants to turn the port of Rajin into a hub capable of handling 320,000 containers a year for shipment from South Korea to Europe.

Russia and China have fought bitterly over rights to refurbish Rajin. A few years ago China appeared to have won out when a 50-year deal was announced with the Chinese border city of Hunchun, but this came to nought and Russia was the ultimate winner in the battle to revitalise the north-eastern port and ultimately link it with Europe.

Update: Chinese language website (source) here. 

To read the full story click here:
North Korea in bid to recycle toxic waste
Telegraph
Michael Rank
6/30/2008

From the Nautilus Institute (presentations at bottom):

Background
Energy insecurity is a critical dimension of the North Korean (DPRK) nuclear challenge, both in its making, and in its reversal. One of the Six-Party Talks working groups, the Economy and Energy Working Group, is largely devoted to this topic, and energy assistance will play an important role in the process of denuclearization of the DPRK. Nautilus Institute maintains a unique database and set of quantitative and qualitative analytic tools to evaluate and track the DPRK’s energy economy, and has maintained working relations with North Korean scientists and technical personnel from the energy sector for more than a decade. With this capacity, Nautilus has provided a stream of policy analyses and briefings at their request to US, ROK and other officials on the DPRK’s energy needs, its likely negotiating postures and demands, and possible negotiable options. The need for such expertise in support of the Six-Party Talks is increasing.

This project ensures that the underlying data and technical analysis available at Nautilus is as up-to-date as possible, and that analysis and policy advice are available when needed by US and other officials.
The Second DPRK Energy Experts’ Working Group (2008) served to provide information and views from key experts in the field to inform the Nautilus DPRK energy sector analysis update. Experts in attendance at the meeting provided both pertinent, recent data and special insights that are being used to help to make the database as reflective as possible of actual conditions in the DPRK. This in turn provides crucial input to the analysis needed to help to inform the parties to the 6-Party talks regarding possible approaches to DPRK energy sector redevelopment.

In addition, the DPRK Energy Experts Study Group Meeting served, as did the first Meeting, as an opportunity for experts on the DPRK to exchange views on the appropriate “next steps” in DPRK energy sector redevelopment. Key outcomes of this discussion are being reflected in the updated DPRK Energy Sector Analysis. In the process of discussions, the experts in attendance helped to further develop and elaborate-as well as providing input on the prospects for-the activities and means by which the various parties concerned with Korean peninsula affairs might engage and work with the DPRK to help resolve both the DPRK’s energy problems, and, in so doing, begin to address and ameliorate the regional and global insecurities of which the DPRK’s energy problems are a key part. In particular, through the focus of the second day of the meeting on Building Energy Efficiency, progress was made on consideration of possible benefits from and approaches to improving the effectiveness of energy use in the crucial DPRK buildings sector.

The Second DPRK Energy Experts Study Group Meeting convened by Nautilus and its partners will was attended by experts in a variety of areas related to energy supply and demand in the DPRK-including electricity, coal and other minerals, the DPRK economy as a whole, trade into and from the DPRK, and the DPRK’s rural household and agricultural sectors, and energy use in buildings in general in the DPRK and elsewhere (the primary topic of the second day of the Meeting)-to review and discuss the results of existing and newly-commissioned research, and to provide insights from their own experience and their own research. A total of approximately 15 experts on the DPRK and on matters related to DPRK issues attended the Meeting, not including an additional 15 experts, representatives from the organizations partnering to fund and organize the meeting (Nautilus, Tsinghua University, USDOE), including observers from bilateral aid agencies associated with a number of countries, from international organizations, from the business sector, and others, who also lent their expertise to the workshop. On the second day of the workshop, supported by funding from a private foundation, a five-member delegation from the DPRK also attended the meeting, providing presentations and insights of their own on energy use in DPRK buildings, and on related energy sector problems and plans in the DPRK.

Presentations:
Presentation: North Korea’s Mineral Resources and Inter-Korean Cooperation
By Woo-jin Chung

Presentation: Nautilus Institute’s Analysis of the DPRK Energy Sector and DPRK Energy Paths: Update
By David von Hippel

Presentation: Analysis on DPRK Power Sector Data & Interconnection Option
By Yoon Jae-young

Presentation: DPRK Energy and Energy-Related Trade with China: Trends Since 2005
By Nate Aden

North Korea is intensively planting trees across the country to provide badly needed oil from their berries.

According to Yonhap:

The North, which suffers from a chronic oil shortage, has created Tetradium tree forests covering tens of thousands of hectares in several regions near the western and eastern coasts during the national tree-planting season, according to the North’s Korean Central News Agency (KCNA).

Some provincial administrations have set up offices to help residents properly understand the economic value of the trees and how to grow them, it added.

Fully mature Tetradium trees, also known as Evodia or Bee Bee trees, can each produce 7-10 kilograms of small berries composed of 38 percent oil. North Koreans use the oil, traditionally used as lamp oil, to make cooking oil, drugs and soaps, according to the KCNA.

Read the full article here:
N. Korea planting trees for fruit oil
Yonhap
4/30/2008

Institute for Far Eastern Studies (IFES)
NK Bfrief No. 08-3-13-1
3/13/2008

International fuel and food prices are skyrocketing, while the cost of Chinese goods continues to rise, so that this so-called ‘triple-threat’ is sending shockwaves through the North Korean economy. In this year’s New Year’s Joint Editorial, North Korea championed the banner of a ‘strong and prosperous nation’, and declared that this year would focus on the economy, however this ‘triple-threat’ will likely make it extremely difficult for the North to meet its policy goals.

With oil prices peaking at over 110 USD per barrel, if these high oil prices continue, North Korea, which imports crude and refined oil from China, Russia and other countries, will face a growing import burden. In accordance with the February 13th agreement reached through six-party talks, South Korea, the United States and others will provide some heavy fuel oil, and the agreement stipulated the amount of oil to be delivered, rather than the value, so this will not be affected by rising prices. However, this oil does not cover all of the North’s needs, and as for the remaining portion, either the amount imported will have to be reduced, or the North will have no choice but to invest considerably more in fuel. In addition, as a large portion of North Korea’s oil is imported from China, Pyongyang’s trade deficit with its neighbor will also grow.

According to the Korea Trade Investment Promotion Agency (KOTRA), North Korea imported 523,000 tons of crude oil from China in 2005, 524,000 tons in 2006, and 523,000 tons last year, each year accounting for approximately 25 percent of total oil imports. North Korea’s trade deficit with China has shown a steadily growing trend, reaching 212,330,000 USD in 2004, 588,210,000 USD in 2005, and 764,170,000 USD in 2006. With grain prices also skyrocketing, and North Korea depending largely on China and Thailand for rice and other grain imports, the burden on the North’s economy is growing, and this is one factor in the instability of domestic prices in the DPRK.

According to the Chinese Customs Bureau, North Korea imported 81,041 tons of rice and 53,888 tons of corn last year, increases of 109.9 percent and 37.4 percent, respectively. North Korea’s corn, rice and oil imports from China are subject to market price controls, so that rising international prices directly affect the North’s cost burden. Last year, the price of Chinese goods rose 4.8 percent, recording the largest jump in ten years, and this trend extends to a wide variety of goods. 80 percent of disposable goods in North Korea are produced in China, and rising Chinese prices are directly reflected in North Korean import costs, which is passed on to DPRK citizens.

As North Korea emphasizes the building of its economy, it appears unlikely that residents will feel any direct effects of Pyongyang’s promise to prioritize the stability of its citizens’ livelihoods.