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North Korean energy trade with China

Tuesday, August 1st, 2006

Nautilus Institute
Nathaniel Aden
August 2006

Paper here: Nautilus-Aden.pdf
web link here

Abstract: China is North Korea’s largest international trading partner. Since 1995, energy and fuels have dominated bilateral trade between allies. North Korea is a net importer of Chinese crude oil and oil products; however, it became a net exporter of electricity and coal to China in 2003. Whereas North Korean coal and electricity exports are sold at sub-market “friendship prices,” Chinese coal and oil products have been sold to North Korea at premium prices. Over the past ten years, North Korea’s imports have become increasingly energy-intensive, while exports have become more labor-intensive. Chinese customs data suggest that Beijing is taking a pragmatic, market-oriented approach to trade with its reclusive neighbor, while the increasingly asymmetrical energy embodiment of bilateral trade may reflect dilapidation of North Korea’s non-military industries.

Bullet Points:
1. In 2005, bilateral trade with the PRC accounted for 39% of North Korean international trade by value.

2. North Korean trade data are compiled by partner-country Customs Bureaus, the United Nations, and the Internaitonal Monetary fund (IMF). China and South Korea provide the best “mirror” statistics. Customs data do not include aid shipments, official development assistance, direct government transfers, foreign direct investment, services, remittances, barter trade, smuggling, illicit trade, trade in military equipment.

3. The DPRK has spent an increasing amount of money on diminishing quantities of energy imports, particularly Chinese crude. The decline of energy import volumes in the face of increasing overall imports and trade may reflect demand sensitivity to increased international market prices and/or North Korea’s lack of hard currency with which to purchase imported energy and fuels.

4. The DPRK has significant, ongoing refining capabilities.

5. Between 1985 and 2002, the DPRK domestic coal production has declined from 37.5 million tons to 21.9 million tons. Nonetheless, North Korea increased its export quantity to 2% of total domestic production since 2002.

6. Starting in May 2005, North Korea has been an uninterrupted monthly electricity exporter. Hydropower may account for much of the DPRKs surplus electric power.

7. Energy prices reflect the pragmatic, market-oriented character of China’s economic relationship with North Korea. North Korea may be providing China coal at subsidized prices, below those of China’s other trading partners.

8. North Korea coal export prices show an awareness of market prices starting in 2002.

9. The DPRK has consistently paid premium prices for Chinese oil product exports over the last ten years.

10. Aside from politically-determined prices, several conditions could explain this: 1. Real factors (transport costs, demand, goegraphy) 2. Pyongyang’s insulation from market realities 3. No DPRK leverage.

11. In 2005, North Korea imported $2omillion worht of trucks, $2 million worth of cars, $1 million of tractors. The transport sector has not grown significantly since 1995.

12. Shift of DPRK trade towards energy-intensive imports and labor-intensive exports suggests deterioration of non-military industry.

Posted in China, Coal, Dams/hydro, Electricity, Energy, International trade, Natural Gas, Nautilus Institute, Nuclear, Oil, Wind | Comments Closed

Russia secretly offered North Korea nuclear technology

Sunday, July 9th, 2006

From the Daily Telegraph, via NKZone:

Russia is facing criticism after secretly offering to sell North Korea technology that could help the rogue state to protect its nuclear stockpiles and safeguard weapons secrets from international scrutiny.

Russian officials touted the equipment at an IT exhibition in Pyongyang a fortnight ago – just days before the Communist state caused international alarm by launching a salvo of short and long-range missiles into the Sea of Japan.

In what appear to have been unguarded comments, Aleksei Grigoriev, the deputy director of Russia’s Federal Information Technologies Agency, told a reporter that North Korea planned to buy equipment for the safe storage and transportation of nuclear materials, developed by a Russian government-controlled defence company.

The company, Atlas, also received interest from the North Koreans in their security systems and encryption technology – which were kept from display at the exhibition for security reasons.

In remarks made to the Russian Itar-Tass news agency – hastily retracted after publication – Mr Grigoriev said that the main aim of the June 28 exhibition was “establishing contacts with the Korean side and discussing future co-operation”. Last week Russia, along with China, opposed a draft UN Security Council resolution, proposed by Japan and backed by America, that would bar missile-related financial and technology transactions with North Korea because of the missile tests.

As tensions over the missile tests mounted, the US government yesterday deployed its USS Mustin, equipped with so-called Aegis missile-tracking technology that is geared towards tracking and shooting down enemy missiles, to Yokosuka, home port to the US Navy’s 7th Fleet.

On Friday, George W Bush called for the issue of the missile tests to be put before the Security Council. He said he wanted to make clear to Kim Jong Il, the North Korean leader, “with more than one voice” that the rest of the world condemned Wednesday’s launches.

Sources close to the proposed sale of the equipment – which would have civil and military uses – said that it was evidence of Russia’s secret support for its Soviet-era ally, which was once a bulwark against Chinese influence in the Far East. It was reported that the North Korean military interest in the exhibition stemmed from the dual purpose of many of the products and technologies on display.

After the show, which led to plans for further meetings between the Russian and North Korean delegations, Mr Grigoriev said Pyongyang’s primary interest in buying the equipment was to combat the “threat posed by international terrorism”. However, the Russian embassy in Pyongyang immediately denied the report, claiming that it was “disinformation”. Mr Grigoriev subsequently denied ever having spoken to the journalist concerned.

Disclosures of a possible deal are at odds with official Russian policy towards North Korea’s nuclear programme. On June 22, North Korea’s ambassador to Russia, Park Yi Joon, was summoned to the foreign ministry in Moscow and informed that -Russia “strongly objects to any actions that can negatively influence regional stability and worsen nuclear crisis on the Korean Peninsula”.

There was also some anger domestically at Russia’s opposition to the UN sanctions resolution. Although the Russian foreign ministry expressed anger that Moscow had not been notified of the launches, it went no further than issuing an anodyne statement expressing concern that the tests endangered Pacific Ocean shipping and “violated the commonly accepted world practice of giving a warning”.

Western experts were not surprised that the two countries might be discussing sensitive military deals.

Nicholas Eberstadt, a North Korea expert at the American Enterprise Institute, a think tank in Washington, said that Russian policy towards North Korea had long been influenced by the desire to restore its Cold War-era influence.

“Russia often seems more ambitious to restore that influence than to play a positive role in international affairs,” he said. “We’ve got no reason to doubt that Moscow is playing a double game with North Korea. It’s not entirely surprising considering Vladimir Putin himself came up with the harebrained suggestion some years ago that Moscow, as a protector and provider for the North Korean regime, launch a North Korean satellite.”

Mr Eberstadt suggested that any controversial business deals would be politically costly for the Kremlin. “If Moscow wishes to be on the record as the sole defender and apologist for the world’s remaining revisionist and nuclear-proliferating regimes, then it would be interesting to see how its European friends would react.”

Posted in Military, Nuclear, Russia | Comments Closed

KEDO chief resignes

Monday, June 19th, 2006

Korea Times
Seo Dong-shin
6/19/2006

Chang Sun-sup, who has been on the forefront of the multinational project to build two light water reactors (LWRs) in North Korea for the past decade, Monday resigned as administrator of the Office of Planning for the Light Water Reactor (LWR) Project at South Korea’s Unification Ministry.

His resignation follows the official termination of the decade-long Korean Peninsula Energy Development Organization (KEDO) project and an agreement to liquidate it by South Korea, the United States, Japan, and the European Union (EU) earlier this month.

Allegations of North Korea’s covert pursuit of highly enriched uranium in 2002 put the KEDO project on repeated suspensions before its official termination three weeks ago.

Chang, 71, was the oldest public servant in the South Korean government. He began his career in 1963 at the Ministry of Foreign Affairs and Trade, and was ambassador to Denmark and France before heading the LWR project in 1996.

Highly respected for his language and diplomatic skills, Chang reached retirement age in 1999, but retained his Unification Ministry post.

Posted in Foreign direct investment, Nuclear | Comments Closed

It’s official, KEDO is finished

Friday, June 2nd, 2006

Korea Herald
Lee Joo-hee
6/2/2006

An international consortium yesterday announced the termination of a technically defunct nuclear reactor project in North Korea.

The Korean Peninsula Energy Development Organization said it will also seek compensation from Pyongyang for the dissolution of the costly light-water reactor project in Geumpo.

“KEDO requires payment from the DPRK for financial losses in connection with the light-water reactor project, and any issues between KEDO and the DPRK in this regard should be settled in accordance with KEDO’s agreement with the DPRK,” the statement said. DPRK stands for Democratic People’s Republic of Korea, North Korea’s official name.

South Korea, the United States, Japan and the European Union created KEDO in 1994 after an agreement between Washington and Pyongyang to build a light-water reactor in the energy-stricken state in return for the North’s suspension of any nuclear activities. The construction began in Aug. 1997.

But the project was halted in 2002 when the United States accused North Korea of a clandestine nuclear weapons program using uranium.

The participating countries, most of which now belong to the current six-party talks, agreed last year that the KEDO project was defunct.

All the materials that were being built outside North Korea for the reactor will be handed over to South Korea’s Korea Electric Power Corporation, the main contractor for the project.

The materials, including a nuclear reactor, turbine generator and other supporting tools, are reportedly worth 830 million won.

KEPCO will in turn bear some 150 million to 200 million won in compensation that must be given out to other smaller contractors involved with the project, the Unification Ministry here said.

KEPCO will also be liberated from any other legal or political responsibilities that could follow the termination of KEDO by bearing the compensation costs, it said.

North Korea, in the meantime, will be required to return all the other assets related to the light-water reactor.

The entire termination will likely take about a year, the ministry said.

South Korea has been taking the initiative in the $1.56 billion project. Seoul put up nearly $1.14 billion, while Japan provided $407 million and the EU $18 million. The United States was in charge of providing heavy fuel oil.

All the South Korean and American workers who were staying in the construction site for maintenance returned home in January this year.

After the invalidation of the 1994 agreement between Washington and Pyongyang, multilateral negotiations convened in 2003 under Chinese mediation.

After years of deadlock, the six nations finally agreed on the joint statement of principles last September.

Based on the new agreement, five of the six members are to give unspecified aid to the North in return for a complete dismantlement of nuclear programs.

The implementation of the agreement, however, faces many hurdles as North Korea has since refused to join the next round of negotiations, citing the United States’ hostile policies.

Joong Ang Daily
6/2/2006

The death knell sounded on Wednesday in New York for a once-ambitious project to build two nuclear power plants in North Korea.

The board of the Korean Peninsula Energy Development Organization officially abandoned the project, citing a lack of cooperation by North Korea.

A statement from the organization complained of a “continued and extended failure” by Pyongyang to cooperate in international efforts to end its nuclear weapons programs.

In Seoul, a Unification Ministry official said that the board of the organization, an international consortium overseen by the governments of Korea, Japan, the United States and the European Union, had also agreed to formulas on how to liquidate the assets of the organization. Because Seoul committed to shoulder the bulk of the costs of the nuclear power project, its termination, government officials fear, could leave it open to criticism for a waste of taxpayer money.

To try to head off that criticism, the ministry official emphasized that even though Korea would shoulder the remaining outstanding costs of winding up the project, it would also take title to all the equipment that had been manufactured for the project but not yet shipped to the North. He said the value of that equipment was estimated at about $800 million. In total, he added, the Korean government has paid $1.1 billion of the $1.5 billion that has been spent on the project throughout its life; its remaining obligation in wind-up costs, he said, would be about $200 million.

The project was conceived in 1994 as an effort to cool tensions between the United States and North Korea over the latter’s nuclear programs, which Washington believed were focused on developing nuclear weapons. Pyongyang agreed to freeze those programs in return for two power reactors and a supply of fuel oil that would continue until the reactors came on line. The agreement began to unravel in late 2002, when Washington accused Pyongyang of secretly developing a nuclear weapons program using uranium.Work on the project was suspended in November 2003, and North Korea ordered a KEDO caretaker force out of the site last January.

A bid by Seoul to divide the termination costs among other KEDO members apparently failed. Seoul had tried to keep the project alive for as long as possible in hopes that the infrastructure at the nuclear site could be used in some sort of new arrangements with North Korea.

The statement by the KEDO board also reportedly demanded – certainly without any expectation of success – that North Korea compensate the organization for its financial losses.

As the KEDO nuclear project shriveled, a new effort to strip North Korea of its nuclear weapons emerged, the “six-party talks” among the Koreas, China, Japan, Russia and the United States, to try to find a formula to end the North’s nuclear ambitions. Those talks have also floundered. Yesterday, Pyongyang invited Christopher Hill, the U.S. negotiator at those talks, to visit Pyongyang to discuss efforts to revive them, saying his visit would be a sign of Washington’s political will to implement an agreement in principle last September that Pyongyang would abandon its nuclear efforts in return for development aid and diplomatic recognition.

A senior Korean official said he doubted Mr. Hill would go, adding that Pyongyang would have to make some sort of gesture of its serious intent in order to tempt Washington into agreeing to such bilateral contacts.

Posted in Energy, Foreign direct investment, KEDO, Nuclear | Comments Closed

Reflections on Kedo

Thursday, June 1st, 2006

Joong Ang Daily
6/1/2007

The Korean Peninsula Energy Development Organization, or KEDO, announced yesterday that the project to build light water reactors at Sinpo, North Korea, has been scrapped. The infiltration of a North Korean submarine into Gangneung, South Korea, in 1996 and the firing of a Daepodong missile in 1998 were all incidents that cast a shadow on the project. In particular, the admission in 2002 by North Korea that it was working on a nuclear program using enriched uranium was the final straw in the Bush administration’s decision to halt a project that it was already skeptical about. In response, the North withdrew from the Nuclear Proliferation Treaty in 2003 and went on to declare in 2005 that it possessed nuclear weapons. Such developments led to today’s situation.

The confrontation between North Korea and the United States does give us something to think about. While agreeing with us on the denuclearization of the Korean Peninsula, the North secretly hung on to developing nuclear weapons. In response, in 1994, we cooperated with the United States but were not even allowed into the negotiations yet we still agreed to cover 70 percent of the cost of the light water reactor project. That may have been inevitable, because South Korea was the country most threatened. Nevertheless, it is debatable whether the negotiations in which Seoul paid the bills but had no say in the matter were the best method. This is an issue that the government needs to ponder seriously.

It has also become clear that the changes in U.S. foreign policy with a new administration are too much for us to deal with. Even though we threw away $1.1 billion, a solution to the North Korean nuclear problem seems to be even further away, Washington continues to cling stubbornly to its new policies.

So the administration should think about what it has learned from this experience and how it should use that knowledge. One good example is the announcement by Seoul last year that it would provide 2 million kilowatts of electricity to the North even before figuring out what the North’s answer would be.

The announcement was billed as an “important proposal,” but the North has turned a blind eye to it and says it wants a light water reactor. With an astronomical amount of tax money already having disappeared, isn’t offering to provide electricity to the North another burden? Whether it’s North Korea or the United States, others have an ability to think strategically and look into their opponents’ minds. Why not us?

Posted in Foreign direct investment, International trade, KEDO, Nuclear, South Korea | Comments Closed

All about DPRK energy…

Wednesday, February 1st, 2006

A report issued by the Department of Energy: dprkenergy.pdf

Posted in Coal, Dams/hydro, Electricity, Energy, Gasoline, Natural Gas, Nuclear, Oil, Wind | Comments Closed

North Korea’s capitalist manifesto

Thursday, September 22nd, 2005

Christian Science Monitor
9/22/2005

A predictable master of surprise, North Korea stunned the world Monday by agreeing to give up its nuclear weapons program. But to seal the deal by pinning down the difficult details, it’s necessary to ask what’s really motivating the hermit nation.

North Korea won’t make it easy for itself in fulfilling this pact. Within 24 hours after the “consensus statement” was inked by North Korea and five other governments (US, China, Japan, Russia, South Korea), the North – contrary to the agreement – proclaimed it would abandon its nuclear program only after it’s been given a new light-water reactor for producing electricity. That could mean it would be able to keep producing nuclear weapons for years. The North will also probably resist on-the-ground verification of its nuclear program – and the few bombs presumably already produced; the regime of Kim Jong Il hardly lets foreigners run around freely.

The US and China, as erstwhile partners in trying to denuke North Korea, must keep reminding Mr. Kim why he needs – and probably wants – to live up to this agreement, and quickly: His Stalinist command economy, which has been closed to the world for half a century, faces collapse and possibly another famine like the one in the mid-1990s, when some 2 million people died.

Kim, who titles himself Dear Leader, appears to know his own political survival is on the line. In 2001, he was invited to China and saw how that communist regime has been able to stay in power while allowing a market economy to thrive. The next year he freed up prices and wages, and loosened many government controls over businesses and individuals.

Local farmers markets have since sprung up, and small service shops are appearing in cities. Last year, a new dictionary was issued, and for the first time it contained the phrase “market economy” (which is a communist way of saying capitalism).

But the reforms were done badly. The nation now has spiraling inflation. Its economy has contracted for the past three years. Great gaps in wealth are appearing, even as North Korea’s economy remains a fraction of the size of South Korea’s. The 70 percent of the population that still relies on government food has seen their rations greatly reduced.

Last spring, the reform-minded prime minister, Pak Pong-ju, visited China and was spirited to Shanghai, where he saw the missing element for North Korea’s economy: foreign investment and an influx of hard currency. He went back and told bureaucracy to learn about foreign markets and trade. The universities began to teach market basics, such as supply and demand.

But to improve its shaky experiment in capitalism, North Korea needs to stop scaring away potential foreign investors with its nuclear belligerence and abandon its long-held ideology of juche, or self-reliance. Both steps are risky for a dictator who has blinded his people to the world around them.

The Bush administration has probably bought into China’s strategy of dangling economic benefits before Kim to get him to denuclearize. Withholding those benefits will be necessary if further talks falter.

Once bitten, though, the capitalist apple may be too tempting for Dear Leader.

Posted in 2002 Economic reforms, Economic reform, Education, Energy, General markets (FMR: Farmers Market), Nuclear | Comments Closed

Overview of DPRK economic reform efforts

Tuesday, April 12th, 2005

The BBC offers a summary of economic conditions in the DPRK:

The focus of the international community’s alarm over North Korea is the isolated nation’s nuclear arsenal, and its refusal to talk about it.

An aspect that is sometimes overlooked is the dire state of its economy, and yet this could be at the heart of the nuclear crisis.

The regime, with few allies in the world, cannot appeal to the sort of humanitarian emotions that African or South Asian nations have in the past.

To ensure the flow of food and oil, it must have a bargaining chip, and its nuclear arsenal is that chip.

Therefore Pyongyang’s diplomatic bluster is inextricably linked to its need to keep what remains of its economy propped up by donations.

North Korea has recently attempted limited reforms to its economy, but these have not been comprehensive or well-enough planned to work.

Pushed into reform

North Korea became an independent state in 1953, and has operated a rigid centrally planned, or “command” economy based on that developed by Stalin in the USSR.

Industry and agriculture are planned on a five-year basis, all farms are collectivised, volume is praised over value and most foods and goods are rationed.

This model initially allowed for rapid industrialisation and rebuilding, but it failed to deliver sustainable growth or raise living standards.

The economy began to collapse, and by the mid-1990s the country was in a state of famine. The industrial base and the agricultural sector have been in decline ever since. Beijing, North Korea’s only real ally, decided to act in October 2001 with an economics lesson for North Korean leader Kim Jong-il.

He was shown round a GM plant and a hi-tech factory in Shanghai, and received a lecture about the benefits of Chinese-style reform.

The Chinese were effectively telling Mr Kim that it was time for change – and that they were fed up with the growing number of refugees fleeing over the Chinese border, and increasing demands for aid.

Mr Kim realised he needed to keep China close, and in June 2002 announced a series of economic reforms.

Pyongyang partially ended rationing and reformed the wages and pricing system.

Retail prices shot up – rice by 55,000%, corn 5,000%, electricity 143% and public transport fares 2,000% – but average wages increased by just 1,818% – from 110 won to 2,000 won (US$22) per month.

It also allowed private farmers’ markets to expand – to provide more goods for the consumers this monetary liberalisation had created.

Another major plank of the reforms was the new investment zone in Sinuiju – and another one in Kaesong, agreed as part of Kim Dae-jung’s Sunshine Policy.

These investment zones used foreign investment to create new economic ventures.

But neither the wage and pricing reform, nor the investment zones, have worked.

Scarce resources

The government had hoped that inflation created by the reforms, if kept under control, would “kick-start” the economy.

But this theory assumed there was a mass of underutilised resources waiting to be kick-started. Twenty-five years of decline meant that these resources were now scarce.

More food found its way into the farmers’ markets, but at prices ordinary people could not afford.

This effective legitimisation of private farming and smuggling across the border from China only succeeded in increasing the availability of goods to the elite – those whose wages were protected or had access to foreign currency.

As for the economic zones, Sinuiju’s position, opposite China’s flourishing economic zone in Dandong, annoyed Beijing.

It consequently arrested the Chinese businessman hired to run Sinuiju, imprisoning him for 18 years for tax evasion and effectively ending the project.

Kaesong survives but all the ventures are foreign-owned, with little benefit, therefore, for North Korea.

By the end of 2002, economic growth was estimated at just 1.2% at best, with the average citizen’s purchasing power severely eroded.

For most ordinary North Koreans, the end result of the reforms was further impoverishment and the eroding of any savings they may have been able to build up.

So, in light of the reforms’ failure, North Korea’s alleged announcement in October 2002 that its country was pursuing an enriched uranium programme could be interpreted as a return to its old bargaining tactics.

The international community responded to the announcement by setting up six-party talks in August 2003.

But the diplomacy is failing because North Korea, with no allies but the increasingly exasperated Chinese, and little prospect of economic revitalisation, needs to ensure a continued drip feed of aid.

That means a hard bargaining process, and Mr Kim has one bargaining chip – his nuclear bombs.

Already twice, as far as we know, Beijing has managed by persuasion, and perhaps a little economic pressure, to get Pyongyang back to the table after talks have stalled.

Now Beijing is trying again. Perhaps what Pyongyang wants most is a serious package of economic aid from China.

China may provide it to get the talking started again.

But the price Beijing will need to demand is that Pyongyang restarts economic reform in earnest, and moves away from the continual brink of collapse that forces it to make desperate diplomatic gambles such as the current crisis.

As for the economy today, it has to all intents and purposes collapsed.

The reforms were limited, and benefited just the elite of the country rather than ordinary people.

The basic structure remains in place and continues to erode the economy.

However, as long as the regime can keep the country isolated, it can survive on this drip-feed indefinitely.

The endgame is simple – regime survival. It is a long-term strategy using diplomatic belligerence and military threat to secure enough aid to maintain power and isolation.

The regime may survive, and may under pressure begin another round of tentative reform, but it seems unlikely that life will improve for ordinary North Koreans any time soon.

Read the full story here:
Economy root to N Korea crisis
BBC
Paul French
2005-4-12

Posted in 1990s Famine, 2002 Economic reforms, Economic reform, Fiscal & monetary policy, General markets (FMR: Farmers Market), International Aid, Kaesong Industrial Complex (KIC), Nuclear, Political economy, Price liberalization, Sinuiju Special Administrative Region | Comments Closed

Two energy plans for North Korea

Tuesday, February 3rd, 2004

From the New York Times:

North Korea is desperately short of energy, and agreed in 1994 to halt its nuclear weapons program in exchange for help from its capitalist neighbors and the United States in building nuclear power plants. But work at the site was halted on Dec. 1 because the United States said North Korea had violated the 1994 agreement by pursuing nuclear weapons anyway. On Friday, the State Department said the civilian nuclear power program had “no future.” In retaliation, North Korea is holding hostage the construction equipment at the site belonging to contractors from South Korea, which has sunk almost $1 billion into the project.

With the civilian nuclear power program off the table, North Korea needs another plan for expanding its energy supply, and its neighbors need a way to break the diplomatic stalemate. On Monday, at a regional energy forum here, energy executives from Russia and the United States outlined two proposals. Both ideas – a 235-mile electric power line from Vladivostok and a 1,500-mile natural gas pipeline from Sakhalin – highlight Russia’s future as an energy exporter to Northeast Asia. Just as Canadian power fuels much of the United States, so the hydroelectric resources of the Russian Far East seem destined to flow south to China, Japan and the Koreas.

“Everyone wants a nonnuclear solution” to North Korea’s energy proablem, said John B. Fetter, an American consultant who traveled here from Philadelphia to present the $3 billion natural gas pipeline project proposed by the KoRus Gas Company, a consortium of American, Russian and South Korean owners.

The project calls for a pipe to be laid from the vast gas deposits off Sakhalin Island, southwest through Russian territory to North Korea and, probably, on to Seoul, South Korea’s capital, as well. Mr. Fetter said gas could flow through it as soon as 2008.

By then, it is hoped, at least one reliable customer for the gas will have emerged in North Korea, a nation notorious for rewriting rules after the fact and for failing to pay its bills. If the pipeline is built all the way through to South Korea, it would reach a nation of 47 million whose appetite for energy is growing rapidly. Oil consumption has quadrupled since 1980, and South Korea is now the world’s fourth- largest oil importer, after the United States, Japan and China. Analysts expect demand for gas to increase by 50 percent in the next 10 years.

For North Korea, though, an electric transmission line promises faster, cheaper relief.

For just $180 million or so, a 500-kilovolt line could be built in four years, according to Victor N. Minakov, general director of Vostokenergo, a subsidiary of Russia’s state electric utility, United Energy Systems.

The timetables for both projects are ambitious, and financing them could pose problems, industry experts said. But both projects reflect the future importance of the Russian Far East as an energy supplier to Asia, according to Alexei M. Mastepanov, deputy director of Gazprom, the Russian gas monopoly.

North Korea’s energy needs are critical. It depended for decades on tankers full of oil delivered at subsidized “friendship prices” by China and Russia, but both its patrons began charging market prices in the early 1990’s, and North Korea has yet to recover from the blow.

Shortages of energy crippled North Korea’s industry, and much of the country regressed to a 19th-century existence of candlelight and wood stoves. In rural areas, many trucks are run with gas generators fueled by wood or charcoal, as in Europe during World War II when gasoline was scarce.

North Korean officials support both the gas-pipeline proposal and the power line proposal, but have no money to pay for them, according to people attending the conference who had recently been to Pyongyang, the North Korean capital.

Posted in Energy, Nuclear | Comments Closed

Economic ills shape crisis

Tuesday, April 22nd, 2003

From the BBC:

North Korea’s economy has been in the doldrums for more than a decade. Perhaps as many as a million people perished in a famine during the 1990s, and the food situation inside the country remains precarious today.

There are two hypotheses about why a country facing such problems has pursued nuclear weapons.

1. Its nuclear programme is merely a bargaining chip to be traded away to extract political and economic concessions from the US – a kind of atomic “trick or treat”.

2. The North Koreans regard nuclear weapons as an end in themselves – a military deterrent and the ultimate guarantor of the regime’s survival.

North Korea’s foreign ministry said as much on 18 April when it declared, “The Iraqi war teaches a lesson that in order to prevent war and defend the security of a country and the sovereignty of a nation, it is necessary to have a powerful deterrent force only.”

Yet even from this perspective, there is an intriguing economic angle.

If a nuclear North Korea were to foreswear aggression toward South Korea, then its huge conventional forces would be redundant.

Its million-man army, an albatross around the economy’s neck, could be demobilised.

In fact, before the nuclear crisis erupted last October, North Korea floated trial balloons regarding the possibility of such a demobilisation.

But if the North’s army is to be demobilised, those troops have to have jobs to go to.

Last July, the government announced a package of policy changes designed to revitalise the economy.

These included marketisation, the promotion of special economic zones, and a diplomatic opening toward Japan, which the North hoped would pay billions of dollars in post-colonial claims and aid.

However, the rapprochement with Tokyo has stalled, and the expected capital infusion has not materialised.

The consensus of outside observers is that, so far, the reforms have largely failed to deliver.

Indeed, some of the policy changes, such as the creation of massive inflation and the demand that North Koreans surrender their holdings of dollars, could be interpreted as an attempt to re-assert state influence rather than reform the system.

Last month, Pyongyang introduced a new financial instrument it called a bond, though it is more like a lottery ticket. A mass campaign encouraging citizens to purchase these bonds suggests that politics, not personal finance, is the main selling point.

To make matters worse, the oil flow through a pipeline from China on which North Korea depends was interrupted earlier this month for several days.

The official explanation was that mechanical failure, not diplomatic arm-twisting, was the cause.

In sum, the economic situation remains dire.

However, both China and South Korea have indicated that while they want to see a negotiated resolution [to the nuclear issue], they are unwilling to embargo North Korea in the way the US envisions.

This reluctance to sanction Pyongyang undercuts the credibility of the US threat to isolate North Korea.

The Bush administration’s own rhetoric also calls into question its willingness to promote North Korea’s constructive integration into the global community.

Marcus Noland is a senior fellow at the Institute for International Economics, and author of Avoiding the Apocalypse: The Future of the Two Koreas.

Posted in 1990s Famine, 2002 Economic reforms, Economic reform, Finance, Fiscal & monetary policy, Ministry of foreign Affairs, Nuclear, Oil, Political economy, Special Economic Zones (Established before 2013) | Comments Closed

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