North Korean Economy Watch

Yonhap
7/29/2007

South Korea on Sunday sent 22,590 tons of heavy fuel oil to North Korea, its last oil shipment to the communist neighbor under the first stage of a landmark nuclear disarmament deal.

Under a Feb. 13 deal signed with five other regional powers, North Korea agreed to shut down its nuclear reactor in Yongbyon in return for 50,000 tons of heavy fuel oil aid from South Korea.

The oil shipment, the fifth of its kind, left this southeast port at 1 a.m. and is to arrive at Sonbong Port in northeastern North Korea at 7 a.m. on Monday, South Korean officials said.

North Korea shut down the Yongbyon reactor after South Korea sent the first shipment on July 12. The February deal also calls for North Korea to disclose and disable all its nuclear programs in return for an additional 950,000 tons of oil or equivalent aid.

The six nations — the two Koreas, the U.S., China, Russia and Japan — met in Beijing earlier this month but the talks ended without setting a date to meet again.

NY Times
CHOE SANG-HUN
7/13/2007

A South Korean ship loaded with 6,200 tons of heavy fuel oil left for North Korea on Thursday under an agreement intended to end the North’s nuclear program.

The United Nations’ chief nuclear inspector said the North was expected to begin shutting down its main nuclear facilities early next week, after four and a half years of operation, during which time enough plutonium was thought to have been produced to make several atomic bombs.

The ship is expected to arrive at Sonbong, a port in northeastern North Korea, on Saturday, the same day a team of inspectors from the United Nations International Atomic Energy Agency is scheduled to arrive in the North to monitor and verify the shutdown.

Mohamed ElBaradei, the director general of the atomic agency, told reporters in Seoul that shutting down five nuclear facilities in Yongbyon, 62 miles north of Pyongyang, the capital, would not be difficult and should be completed “within maybe a month or so.” His agency and North Korea have already agreed on the procedures.

The shutdown would be significant because it would halt the North’s only declared program for producing fuel that can be used in nuclear weapons. The five facilities to be frozen in Yongbyon, including the country’s sole operating nuclear reactor and a radiochemical laboratory, can yield more than 13 pounds of plutonium a year, enough for one atomic bomb, according to experts.

But the steps to be taken after the initial freeze of the nuclear program remain “very much open questions,” Dr. ElBaradei said. Those include whether North Korea will provide the agency with a complete inventory of its nuclear materials, and when it might return to the Nuclear Nonproliferation Treaty.

“It’s going to be a very long process,” he said. “It’s going to be a complicated process. How smoothly the rest of the operation will go very much depends on how progress will be made in six-party talks.”

Chief envoys to the six-nation nuclear talks will meet in Beijing next Wednesday and Thursday, the Chinese Foreign Ministry said. The envoys, gathering for the first talks since March, were expected to discuss moves beyond the reactor shutdown.

North Korea agreed to shut down its Yongbyon facilities in a February agreement with the United States, South Korea, China, Russia and Japan. The deal called for shipping 50,000 tons of fuel oil to North Korea, and South Korea volunteered.

It plans to complete shipping the oil by early August, starting with the installment on Thursday.

North Korea indicated last week that it would undertake the long-delayed shutdown after the first shipment arrived.

When United Nations inspectors return to Yongbyon, they will face the same problems they had faced there before they were expelled in late 2002. They will put in seals, install cameras and leave monitors to ensure that the facilities remain shut. But they will not be allowed to collect samples or access North Korean data, much less travel around the country, to determine how much nuclear material North Korea has produced in Yongbyon or elsewhere.

The five-megawatt reactor in Yongbyon began operating in the mid-1980s. When suspicions about North Korea’s nuclear activities emerged in the early 1990s, a key dispute was how much plutonium had been produced at Yongbyon until then — 90 grams, about 3 ounces, as North Korea reported to the I.A.E.A., or up to 10 kilograms, about 22 pounds, as the agency suspected.

The dispute has never been resolved, although North Korea agreed to suspend operations at Yongbyon in an agreement with the United States in 1994. The accord collapsed in late 2002, when North Korea expelled the United Nations inspectors and restarted the Yongbyon operation.

North Korea has since claimed to have taken spent fuel unloaded from the reactor and reprocessed it into plutonium. Last October, it conducted its first nuclear test.

“It remains an unanswered question: how much plutonium has North Korea so far produced?” said Lee Un-chul, a nuclear scientist at Seoul National University. “North Korea won’t easily give up its operational data.”

Yonhap
Sohn Suk-joo
7/10/2007

South Korea has signed a contract with a local refinery to provide heavy fuel oil to North Korea for shipment next week as part of a multilateral aid-for-disarmament deal, the Unification Ministry said Tuesday.

The contract comes on the heels of international nuclear watchdog monitors preparing for entry into the North next week for verification of the North’s shutdown of its nuclear facilities. Reports also said China is planning to host a fresh round of six-party talks on the North’s denuclearization next Wednesday.

“On Monday, the government signed a contract with SK Energy to provide 50,000 tons of heavy fuel oil to North Korea valued at 22.2 billion won (US$22 million),” Unification Ministry spokesman Kim Nam-sik said. The contract includes transportation fees and insurance premiums.

The first shipment of 6,200 tons will be sent to North Korea next Thursday as part of a six-party deal calling for the communist state to take steps to denuclearize in exchange for economic rewards and other incentives.

The date of delivery, originally set for July 14, has been advanced as North Korea is moving to shut down its main nuclear reactor under the Feb. 13 agreement with South Korea, the United States, China, Japan and Russia. The five regional players have engaged North Korea in the six-party nuclear disarmament talks since 2003.

With the earlier than expected oil delivery, South Korea expects that North Korea will accelerate its process of shutting down its nuclear reactor at Yongbyon, about 90 kilometers north of Pyongyang.

North Korea is entitled to one million tons of heavy fuel oil as a reward for a series of steps to shut down and disable its key nuclear facilities. South Korea is responsible for the first shipment of 50,000 tons.

In late June, working-level officials from the two Koreas agreed on the shipping arrangements. The South Korean portion of the aid should be sent within two weeks. The remaining 950,000 tons, to be split equally between the five parties involved in the six-way talks, will be given when the North takes further steps to disarm.

The cost of the aid is to be shouldered equally by the other nations in the six-party talks. But Japan has vowed not to provide any assistance to the North until the decades-old issue of Japanese citizens abducted by Pyongyang is resolved.

Implementation of the February deal had been delayed pending resolution of a banking dispute over US$25 million of the North’s funds that were frozen in a Macau bank. The issue was resolved in June after the money was transferred to Pyongyang with the help of the U.S. and Russian central banks.

Yonhap
4/20/2007

South Korea sustained a loss of some US$3 million on Friday as its contract for fuel oil aid to North Korea expired, the Unification Ministry said.

South Korea had planned to send 50,000 tons of heavy fuel oil to the North unless the communist country missed last Saturday’s deadline for taking initial steps toward its nuclear dismantlement under a landmark deal signed in February.

“The contract between the procurement authorities and GS Caltex expired today. The exact amount of penalty money is not clear, but it will amount to some 3.6 billion won given the cost of loading and storage,” the ministry said in a statement.

On Feb. 13, North Korea pledged to shut down its main nuclear reactor and allow U.N. inspectors back into the country within 60 days. In return, North Korea would receive aid equal to 50,000 tons of heavy fuel oil from South Korea.

North Korea could receive another 950,000 tons in fuel aid if it disables the reactor irreversibly and declares a list of all nuclear programs to the International Atomic Energy Agency. The cost of the aid will be equitably distributed among the other countries in the six-nation talks.

But the North failed to shut down and seal its nuclear facilities by last Saturday, saying it would take first steps toward nuclear dismantlement as soon as it confirms the release of its funds frozen in a Macau bank since September 2005.

Macau’s financial authorities unblocked the North’s US$25 million in Banco Delta Asia, but the North has neither withdrawn the funds nor said when it will start implementing the initial steps.

“The contract was signed with an eye on the Saturday deadline and the IAEA’s nuclear inspection, but the unexpected Banco Delta Asia issue delayed the implementation of the agreement, costing us the penalty,” a ministry official said, asking to remain anonymous.

The official added that a new contract for heavy fuel oil will be made in consideration of the progress in the six-nation talks, involving the two Koreas, the United States, China, Japan and Russia.

Reuters
4/2/2007

South Korea’s second-largest refiner, GS Caltex, was picked as the supplier of fuel oil promised to North Korea in return for shutting down a plutonium-producing reactor by April 14, a company source said on Monday.

“Yes, we will supply fuel oil if North Korea shuts down the reactor,” the source said.

GS Caltex plans to skip fuel oil exports in April to divert 50,000 tonnes to state-run Korea Electric Power Corp. (KEPCO) , which has been tasked by Seoul to send the fuel to North Korea and is now building up the stocks, the source said.

But the source added that the supplies appeared uncertain at the moment as talks on North Korea’s nuclear programme ended abruptly last month, derailed by the issue of funds frozen in a Macau bank.

Pyongyang avoided discussing a February deal to shut its main nuclear reactor by mid-April, demanding that $25 million at Macau’s Banco Delta Asia first be transferred to a bank in Beijing.

The White House insisted Pyongyang must live up to the deal it struck for taking steps toward nuclear disarmament in exchange for energy aid and security pledges.       

U.S. Treasury officials and North Korean diplomats have since met last week to work out the transfer of funds frozen in the Macau bank and smooth the way for the resumption of disarmament talks.

Under the February accord, North Korea will get an additional 950,000 tonnes of fuel oil from the six-party participating countries after getting 50,000 tonnes from South Korea once it permanently disables the plutonium factory at Yongbyon and reveals all its nuclear-related materials and programmes.

The 950,000 tonnes will be divided among the countries involved in the six-party talks, but industry sources say South Korea is likely to supply the most, citing geographical reasons.

They said GS Caltex, a 50:50 joint venture between South Korea’s GS Holdings Corp. and U.S major Chevron Corp. , was likely to supply high-sulphur fuel oil to the North. But the company official declined to confirm this.

All five of South Korean refiners had exported less volumes in March in anticipation of winning the bid for the contract. They exported about 40 percent less fuel oil versus a year ago, Reuters estimates showed. 

Korea Herald
3/20/2007

‘Pyongyang pledges to use funds for education, humanitarian purposes’

The United States and North Korea have resolved a dispute over $25 million in frozen North Korean funds, clearing the way for progress in dismantling the North’s nuclear programs, U.S. officials said Monday.

The U.S. nuclear envoy, Christopher Hill, said six-party talks – which resumed Monday – could now “move on to the next problem, of which there are many.”

U.S. Deputy Assistant Treasury Secretary Daniel Glaser said the funds would be transferred into a North Korean account at the Bank of China in Beijing to be used for education and humanitarian purposes. Glaser said Pyongyang had proposed the arrangement.

The funds, some of which U.S. authorities suspect may be linked to counterfeiting or money laundering by cash-starved North Korea, had held up progress in nuclear disarmament talks.

“North Korea has pledged … that these funds will be used solely for the betterment of the North Korean people,” Glaser said.

“We believe this resolves the issue of the DPRK-related frozen funds,” Glaser said using the acronym for North Korea’s formal name, the Democratic People’s Republic of Korea.

Under last month’s deal, North Korea – which conducted its first atomic test in October last year – would get badly needed energy aid and diplomatic concessions in return for shutting down its nuclear programs.

North Korea was given 60 days from the signing of the agreement to close its main nuclear reactor at Yongbyon and allow International Atomic Energy Agency (IAEA) inspectors back into the country to supervise.

In return, North Korea would initially receive 50,000 tons of heavy fuel for energy.

The impoverished state would eventually receive 1 million tons of heavy fuel or equivalent energy aid if it permanently disbanded its atomic weapons program.

Hill said he now expected the initial provisions of the February accord to be implemented on schedule.

“We look forward to that process continuing in the next 30 days, so that we will have the shutdown of the Yongbyon facility and the sealing of it and the monitoring of it by IAEA personnel,” he said.

Hill also insisted that the United States had achieved its goals in taking action against North Korea for money laundering and counterfeiting, despite allowing the $25 million to go back to Pyongyang.

“What this means is that the North Koreans understood our concerns (and were) prepared to cooperate with us to make sure the money is used appropriately,” he said.

South Korea, which has already said it will provide the initial batch of 50,000 tons of fuel oil, welcomed Monday’s development.

“Since the issue has been resolved, there will be no big obstacles… during the initial 60-day stage for disabling North Korea’s nuclear facilities,” chief South Korean envoy Chun Yung-woo told reporters.

Japan’s chief envoy, Kenichiro Sasae, expressed similar optimism but cautioned that the focus should remain on the much tougher task of permanently putting an end to North Korea’s nuclear program.

“What is important is that this is not the end… we must work by holding a broad view, a long-term view. We must not be caught up on day-to-day movement,” Sasae said.

Yonhap
2/26/2007

South Korea has earmarked 20 billion won (US$21.3 million) to provide 50,000 tons of heavy fuel oil to North Korea as part of a recent nuclear agreement in which the North agreed to take the initial steps toward nuclear disarmament, the Unification Ministry said Monday.

“The government embarked on internal preparations to provide 50,000 tons of heavy fuel oil for North Korea in accordance with the six-nation agreement,” said Yang Chang-seok, spokesperson for the ministry.

He said the oil shipment will cost an estimated 20 billion won, including delivery expenses, adding that the details will be worked out during the upcoming meeting of a working group on energy aid.

Earlier in the day, the ministry made the announcement to a panel of the National Assembly on unification and foreign affairs, after the decision was approved by the state-run committee of inter-Korean exchange and cooperation.

“The government will commission the Public Procurement Service to choose a local oil refinery for the project. It will cost about $350 per metric ton, and incidental charges of delivery will constitute about 20 percent,” Yang told reporters.

On Feb. 13, North Korea agreed to shut down its nuclear facilities and eventually dismantle them in exchange for energy aid and other benefits. The United States also agreed to discuss normalizing relations with the communist nation.

Under the deal, North Korea will receive initial aid equal to 50,000 tons of heavy fuel oil for shutting down and sealing its main nuclear reactor and related facilities at Yongbyon, 80 kilometers north of Pyongyang, within 60 days. International Atomic Energy Agency inspectors will determine whether the North carries out the steps properly.

The communist nation can eventually receive another 950,000 tons in heavy fuel oil or equivalent aid if it disables the reactor irreversibly and declares that it has ended all nuclear programs. The cost of aid will be equitably distributed among the five other countries in the six-party talks, which are South Korea, the U.S., Japan, China and Russia.

The agreement also calls for the establishment of five working groups, one of which is to address the normalization of Washington-Pyongyang diplomatic relations. The groups are to convene within 30 days of the Feb. 13 accord.

NY Times
David E. Sanger

It is hard to imagine that either George W. Bush or Kim Jong-il would have agreed even a year ago to the kind of deal they have now approved. The pact, announced Tuesday, would stop, seal and ultimately disable North Korea’s nuclear facilities, as part of a grand bargain that the administration has previously shunned as overly generous to a repressive country — especially one that has not yet said when or if it will give up its nuclear arsenal.

But in the past few months, the world has changed for both Mr. Bush and Mr. Kim, two men who have made clear how deeply they detest each other. Both are beset by huge problems, and both needed some kind of breakthrough.

For Mr. Bush, bogged down in Iraq, his authority undercut by the November elections, any chance to show progress in peacefully disarming a country that detonated a nuclear test just four months ago could no longer be passed up. As one senior administration official said over the weekend, the prospect that Mr. Bush might leave Iraq, Iran, Afghanistan and North Korea more dangerous places than he found them “can’t be very appealing.”

Still, the accord came under fast criticism from right and left that it was both too little and too late.

For years, Mr. Bush’s administration has been paralyzed by an ideological war, between those who wanted to bring down North Korea and those who thought it was worth one more try to lure the country out of isolation. In embracing this deal, Mr. Bush sided with those who have counseled engagement, notably his secretary of state, Condoleezza Rice, and her chief negotiator, Christopher R. Hill. Mr. Bush took the leap in the hope that in a few months, he will be able to declare that North Korea can no longer produce fuel for new nuclear weapons, even if it has not yet turned over its old ones.

For Mr. Kim, the nuclear explosion — more of a fizzle — that he set off in the mountains not far from the Chinese border in October turned out to be a strategic mistake. The Chinese, who spent six decades protecting the Kim family dynasty, responded by cutting off his military aid, and helping Washington crack down on the banks that financed the Cognac-and-Mercedes lifestyle of the North Korean leadership.

“As a political statement, their test was a red flare for everyone,” said Robert Gallucci, who under President Clinton was the chief negotiator of the 1994 agreement with North Korea, which collapsed four years ago. “It gave President Bush and the Chinese some leverage.”

Mr. Gallucci and other nuclear experts agree that the hardest bargaining with world’s most reclusive, often paranoid, government remains ahead.

Over the next year, under the pact, the North must not only disable its nuclear reactors and reprocessing facilities, it must lead inspectors to its weapons and a suspected second nuclear weapons program. And to get to the next phase of the agreement, the one that gives “disarmament” meaning, North Korea will have to be persuaded to give away the country’s crown jewels: the weapons that make the world pay attention to it.

But before the administration faces off against Mr. Kim in Pyongyang, it will have to confront the many critics of the deal here at home. As the White House took credit on Tuesday for what it called a “first step,” it found itself pilloried by conservatives who attacked the administration for folding in negotiations with a charter member of what Mr. Bush called the “axis of evil,” and for replicating key elements of Mr. Clinton’s agreement with North Korea.

At the same time, Mr. Bush’s advisers were being confronted by barbs from veterans of the Clinton administration, who argued that the same deal struck Tuesday had been within reach several years and a half-dozen weapons ago, had only Mr. Bush chosen to negotiate with the North rather than fixate on upending its government.

In fact, elements of the new decision closely resemble the Clinton deal, called the Agreed Framework. As it did in that accord, the North agrees to “freeze” its operations at Yongbyon, its main nuclear facility, and to allow inspections there. And like that agreement, the new one envisions the North’s ultimately giving up all of its nuclear material.

In two respects, however, the new accord is different: North Korea does not receive the incentives the West has offered — in this case, about a year’s supply of heavy fuel oil and other aid — until it “disables” its equipment at Yongbyon and declares where it has hidden its bombs, nuclear fuel and other nuclear facilities. And the deal is not only with Washington, but with Beijing, Moscow, Seoul and Tokyo.

“We’re building a set of relationships,” Ms. Rice argued Tuesday, saying that the deal would not have been possible if she and President Bush had not been able to swing the Chinese over to their side. Mr. Bush has told colleagues that he believes the turning point came in his own blunt conversations with President Hu Jintao of China, in which, the American president has said, he explained in stark terms that a nuclear North Korea was more China’s problem than America’s.

But the administration was clearly taken aback on Tuesday by the harshness of the critique from the right, led by its recently departed United Nations ambassador, John R. Bolton, who charged that the deal “undercuts the sanctions resolution” against the North that he pushed through the Security Council four months ago.

Democrats, in contrast, were caught between enjoying watching Mr. Bush change course and declaring that the agreement amounted to disarmament-lite. “It gives the illusion of moving more rapidly to disarmament, but it doesn’t really require anything to happen in the second phase,” said Joel Wit, who was the coordinator of the 1994 agreement.

The Bush administration is counting on the lure of future benefits to the North — fuel oil, the peace treaty ending the Korean War it has long craved, an end to other sanctions — to force Mr. Kim to disclose where his nuclear weapons and fuel are stored.

Mr. Bush’s big worry now is that Mr. Kim is playing the administration for time. Many experts think he is betting that by the time the first big deliveries of oil and aid are depleted, America will be distracted by a presidential election.

But Mr. Bush could also end up with a diplomatic triumph, one he needs desperately. To get there, he appears to have changed course. Asked in 2004 about North Korea, he said, “I don’t think you give timelines to dictators and tyrants.”

Now he appears to have concluded that sometimes the United States has to negotiate with dictators and odious rulers, because the other options — military force, sanctions or watching an unpredictable nation gain a nuclear arsenal — seem even worse.

Korea Times
Park Song-wu
2/11/2007

South Korea is thinking of chairing a working group for energy aid to North Korea as the United States is trying to differentiate this round of the six-party talks from a 1994 process, a Seoul official said on Sunday.

But Seoul has a firm position that all parties should jointly pay the “tax” for peace, he said.

“Denuclearization will benefit all parties, so the burdens should be shared jointly,” he said. “But we are thinking of taking the lead in the working group for energy aid, considering the circumstances of the other parties.”

He did not elaborate. But Tokyo is not expected to raise its hand to chair the working group, considering the Japanese anger over the North’s abduction of its nationals in the past.

Russia prefers forgiving the North’s debts instead of providing it with energy.

China, host of the multilateral dialogue, is already playing the most important role of chairing the six-party meeting.

What the United States apparently has in mind, and consented to by all parties, is the necessity to differentiate the result of these on-going negotiations from the 1994 Agreed Framework.

Since it was signed by Robert Gallucci and Kang Sok-ju in Geneva on October 21, 1994, Washington provided 500,000 tons of heavy oil annually to Pyongyang over the following seven years.

But the North’s promise to freeze its graphite-moderated reactors in return for two light-water reactors was not obeyed, causing the Bush administration to criticize the deal as a diplomatic failure of his predecessor, Bill Clinton. After that, U.S. diplomats even avoided meeting their North Korean counterparts bilaterally.

The U.S. policy, however, has recently reached a turning point.

“The Bush administration may have been driven to greater negotiating flexibility by a need to achieve a foreign policy victory to compensate for declining public support for the Iraq war and the loss of the Republican leadership of Congress,” Bruce Klingner, a senior research fellow for the Heritage Foundation said in a recent article.

But one thing that has not changed is the U.S. hope of not repeating the “mistake” it made with the Geneva agreement.

From 1994 to 2002, Pyongyang received 3.56 million tons of heavy oil, equivalent to $500 million, from the now-defunct Korean Peninsula Energy Development Organization (KEDO), and the United States shouldered the largest share of $347 million.

To shake off that bad memory, Washington wants to use the term “shut down” instead of “freezing” and even wants to avoid providing fuel oil to the North, reportedly citing the possibility that it can be used for military purposes.

So the talks have dragged on. And, to make things worse, the North Koreans are demanding a lot.

Japan’s Kyodo news agency reported that North Korea had demanded 2 million tons of heavy oil or 2 million kilowatts of electricity in exchange for taking the initial steps towards denuclearization.

Christopher Hill, the top U.S. envoy, expressed hope on Sunday that such technical issues could be discussed at working group meetings. On the same day, the Seoul official hinted that South Korea will chair the working group.

Joong Ang Daily
11/17/2006

China has not cut off oil supplies to North Korea, nor will it stop oil and food assistance to its ally as a means of exerting political pressure, Chinese officials were quoted as telling a group of U.S. scholars.

The Americans in the group also said Wednesday that Chinese officials seemed to have a different understanding from the North Koreans about how U.S. financial sanctions would be dealt with at the next round of six-nation talks.

The Chinese reportedly said they were “surprised” that Pyongyang had told the group it expected those sanctions to be lifted.

Siegfried Hecker, a visiting professor at Stanford University, said he asked Chinese foreign ministry officials if Beijing had cut off heavy fuel oil to North Korea as reported.

“The answer was that China did not cut off heavy fuel oil to North Korea. That’s the direct answer that we received,” he said at a news conference.

Mr. Hecker was part of a four-member delegation that was in Pyongyang Oct. 31-Nov. 4. He is a former director of the Los Alamos National Laboratory, a U.S. nuclear weapons center, and has visited North Korea three times.

The other members of the team were Jack Pritchard, former U.S. point man on North Korea policy and now head of the Korea Economic Institute in Washington, D.C.; Robert Carlin, a former North Korea analyst now at the Korean Peninsula Energy Development Organization; and John Lewis, a Stanford University professor.

There was speculation that Beijing had ended the fuel aid to the North in September, when Pyongyang showed signs of preparing for its first nuclear test. The aid suspension was believed to be China’s way of pressing its ally to forgo the test.

Mr. Hecker said Chinese officials were clear that Beijing did not and would not stop fuel and food donations, arguing that North Korea would only “grow stronger” if pressured.

The team arrived in North Korea on the day the communist regime, after a year’s boycott, agreed to return to the six-nation nuclear talks that also involve South Korea, the United States, China, Russia and Japan.

Pyongyang left the table to protest punitive measures taken by the U.S. Treasury against Macao’s Banco Delta Asia for allegedly laundering money for the North.

North Korean officials told the American visitors that they expected discussions and a conclusion of the sanctions issue at the next six-party talks, according to Mr. Pritchard.

But Chinese officials, when told of Pyongyang’s position, “expressed some surprise,” Mr. Hecker said.

“They indicated, obviously, differences of opinion as to what was agreed on,” he said.