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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

ROK suspends electricity transmission capacity expansion to Kaesong

Monday, July 24th, 2006

Say that title five times fast. From Yonhap:

KEPCO postpones construction of transmission tower in N. Korea indefinitely

Korea Electric Power Corp. (KEPCO), South Korea’s state-run electricity monopoly, has postponed its plan to construct a transmission tower in an inter-Korean industrial park in North Korea indefinitely amid rising tension on the peninsula in the aftermath of the North’s missile launches, the chief of the company said Monday.

“Since the inter-Korean relationship hit a deadlock due to a string of negative factors, such as North Korea’s missile firing, we have decided to put off a groundbreaking ceremony that had been slated for Friday to mark the construction of the transmission tower in the Kaesong industrial complex,” KEPCO’s Chairman & CEO Han Joon-ho said in a meeting with reporters in Seoul.

KEPCO had planned to build a transmission tower capable of sending 100,000 kilowatts of electricity from the South to the industrial park, located just across the demilitarized zone that separates the two Koreas.

The company currently transmits 15,000 kilowatts of electricity via 23 telegraph polls for more than 13 South Korean companies operating there.

The South Korean-built complex is a product of a historic inter-Korean summit in 2000 which set off a series of cross-border projects. About a dozen South Korean garment and other labor-intensive plants are currently in operation in the complex.

KEPCO’s announcement comes amid escalating tension between the two countries, triggered by the North’s missile launches on July 5.

Last week, North Korea withdrew all of its government officials from a joint dialogue office in Kaesong, cutting off the last direct channel for communication with Seoul.

Posted in Electricity, Foreign direct investment, Kaesong Industrial Complex (KIC), South Korea | 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

Russia to trade DPRK electricity for natural resources

Tuesday, July 4th, 2006

In the old days, the DPRK nurtured its independence by alternating its allegiance between China and Russia, playing the big boys off each other. Today, China clearly holds more influence in the DPRK in terms of trade and direct political influence. In fact, China and the DPRK are involved in several hydro-power projects on the Yalu river. Perhaps energy subsidies are a way for Russia to regain a foothold in the DPRK and protect its direct link to Pyongyang and potential land links to Seoul.

On an economic note, this kind of behavior is typically called “dumping” in the west and it is not allowed under WTO rules. But both parties are clearly better off if the deal goes through. This should tell us something about our Anti-dumping trade rules in the west as well.

But this is all just silly speculation on my part. Here is the article from the Joong Ang:

July 04, 2006
KHABAROVSK, Russia ― Russia has been in discussions with North Korea to supply it with surplus electricity, Russian officials at a state-owned electric power company recently told the JoongAng Ilbo. In return, North Korea would provide Russia with natural resources.

“We have been discussing exporting surplus electricity from the far eastern district of the country to North Korea,” Victor Minakov, president of Vostokenergo, the far eastern branch of the United Energy System of Russia, said in an interview last week in Khabarovsk.

“The fastest and most efficient way to resolve North Korea’s electricity problem is to supply electricity from Russia,” Mr. Minakov said.

According to Mr. Minakov, negotiations have been delayed because Russia initially asked North Korea to pay cash for the electricity, and then asked it to cover the expenses for building power transmission lines, neither of which the North could afford.

However, the negotiations resumed after Pyongyang offered to pay for the electricity with natural mineral resources. “Representatives from the Russian energy company will visit Pyongyang at the end of this month for further discussions on detailed matters,” Mr. Minakov said.

The far eastern area of Russia, reportedly has around 300,000 kilowatts of surplus electricity, and the government plans to further improve productivity there by building more power plants. Russia and North Korea has been negotiating on the supply of electricity since 2001.

Russia plans to build a 370-kilometer (229-mile) power transmission line between Vladivostok, Russia, and Chongjin, North Korea, to supply 300,000 to 500,000 kilowatts of electricity. Building power transmission lines and converters would take three years, and cost at least $200 million.

“It costs much less to supply electricity from Russia to North Korea than from South Korea to the North or through the programs of the Korean Peninsula Energy Development Organization,” Pavel Korovko, vice president of Vostokenergo, said on June 27 at a seminar in Khabarovsk.

The Korean Peninsula Energy Development Organization was dissolved recently after failing to build light water reactors in North Korea under the terms of a 1994 agreement between North Korea and the United States.

Posted in Electricity, Energy, Foreign direct investment, International trade, Russia | 1 Comment »

China And North Korea To Build Hydroelectric Dam

Thursday, June 29th, 2006

From Industry Week:

June 29, 2006 — China and North Korea have signed an agreement to build a hydroelectric dam on the Yalu river which borders the two nations, state media reported June 28. The deal was signed on Tuesday in Pyongyang between China’s Changchuan Hydroelectric Power Co. Ltd. of Jilin province and North Korea’s electric power and coal industry ministry.

China will fund the 350 million yuan (US$43.75 million) Wenyue Hydroelectric Project, while the infrastructure will be built in North Korea. The dam will have a capacity of 40,000 kilowatts although the electricity will be used in North Korea where power supplies are far more scarce.

Construction on the dam is expected to begin in September and will be completed in three years. The Chinese side will provide equipment for the dam.

Under the agreement the North Korean side will repay the investment on the dam to the Chinese side from proceeds from electricity sales.

Posted in China, Dams/hydro, Foreign direct investment | Comments Closed

Pyongyang hosts 9th Internaitonal Trade Fair (ITF)

Monday, June 26th, 2006

From Korea is One:

9th Pyongyang Spring International Trade Fair
15th – 18th May 2006.

Optimism alive despite political tensions
European business group in Pyongyang sees N.K. as an attrative FDI destination.
By Chris Gelken

With political tensions over North Korea’s reported plans to test fire a ballistic missile dominating the headlines in recent weeks, any positive news regarding the North has tended to be pushed to the sidelines. The recent launch of a U.K.-based investment fund directed at North Korea suggests that beneath the tensions, there is still optimism in business circles that political problems can be resolved, and North Korea can become an attractive and profitable destination for foreign direct investment.

One such businessman is Felix Abt, the president of the European Business Association based in Pyongyang. In this email interview with The Korea Herald, Abt said he is confident that North Korea-based businesses will, as they have with previous crises, weather this latest political storm.

Q: What was your initial reaction to news of regulatory approval for the Chosun Fund?

A: Since it is perfectly legal for a British company to do business with the DPRK, it was not a surprise that the British authorities gave regulatory approval. However, the U.S. government will continue putting pressure on foreign banks and other companies to dissuade them from doing legitimate business with the DPRK, or with Iran for that matter.

The Times of London recently ran an article with the title “U.S. pressure threatens U.K. firms in Iran.” [1] Of course, economic and psychological warfare is an old U.S. tactic. Given the size of the U.S. economy relative to that of who they consider the enemy, it is unlike a military war. It is usually relatively painless, risk free and, of course, much less costly.

Q: Have any representatives of the fund been in contact with EBA?

A: I don’t think that the fund has been in touch with any of our members here in the DPRK yet, presumably because they have been concentrating all their energies on getting their regulatory approvals. Perhaps they will now begin contacting us.

Q: It is early days, but how do you think this could change the business environment in Pyongyang, and change the perceptions of investors around the world about doing business with the North?

A: When I worked in Vietnam in the nineties, that country decided to become a “strong and prosperous nation” by transforming it into what it called “a socialist market economy.” I then witnessed the arrival of a number of funds, some of which did extremely well in line with the ensuing economic success story of that country.

Vietnam vigorously embarked, like other Asian tigers before, on massively attracting foreign direct investment and strongly promoting exports. In addition, it overhauled and streamlined its fledgling state sector and allowed and stimulated the private sector to become a formidable economic growth locomotive.

The DPRK’s objective is to become a strong and prosperous socialist nation, too, and introducing and promoting more market elements would have the same effect as in Vietnam.

Moreover, a fast growing, flourishing economy would naturally attract more investment and, in addition, give the DPRK a much stronger negotiating position with the South when the question of a common market or reunificiation comes up.

Q: The fund has already identified natural resources and power supply as its parallel thrusts. How many of your members are involved in these sectors and could directly or indirectly benefit from investment from the fund?

A: The DPRK’s huge competitive advantage is natural resources, some of which may even offer the basis for the development of new competitive industries. Power supply and logistics are crucial for the development of these resources. So it makes sense that the Chosun fund or any other fund gets involved in these areas. Some of us represent companies involved in these business fields and would certainly look forward to cooperating with the Chosun fund. Sharing capital input and risks with a fund will enable companies to invest into more projects or enlarge existing ones.

Q: The fund is confident there will be no banking problems regarding bringing investment into N.K. or repatriating profits? How are EBA members dealing with the current banking problems?

A: Bringing investment into the DPRK or repatriating profits is, of course, possible. With many banks, under U.S. pressure, refusing money transfers, it needs quite some creativity and extra efforts to overcome these important obstacles. DPRK companies as well as foreign businesses active in the DPRK are, however, confident that the current storms, like many before, will be weathered, too.

Q: And finally, while it has been reported that the fund’s executives have broad experience in emerging markets, including North Korea, as a businessman with “his boots on the ground” in Pyongyang, do you have any advice or suggestions that you would like to make to the fund?

A: As the professionals they claim to be, they do not need my advice. I would wish them good luck and the necessary empathy and sensitivity for political matters which would mean, for example, that the capital for their fund should first and foremost come out of countries with which the DPRK has diplomatic relations.

Posted in Energy, European Business Association, International trade | 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

Oil in the DPRK’s waters

Tuesday, June 6th, 2006

Hat tip to the Korea Liberator:

China and North Korea announce joint efforts to extract oil from the Yellow Sea. According to Yahoo News:

Tuesday June 6, 12:07 PM
China and North Korea have agreed to explore jointly for oil in the Yellow Sea that borders both countries, the Chinese foreign ministry said.

‘China and North Korea have agreed on the joint development of oil resources in the border sea and signed a joint development agreement between governments,’ ministry spokesman Liu Jianchao told journalists.

Liu gave no further details other than to say the two nations will continue work on the details of the arrangements.

Another foreign ministry official later confirmed the area to be jointly developed will be in the Yellow Sea.

The announcement came as North Korean Foreign Minister Paek Nam-Sun ended an eight-day visit to China today, a trip that Liu described as ‘successful’ while giving away few other details.

According to a report issued in December by the Washington-based Center for International Policy, North Korea has already laid claim to three northernmost Yellow Sea basins thought to hold oil.

The North Koreans had discovered up to 3 bln tons of recoverable oil and gas reserves in the Yellow Sea off its coast, the center said, citing a report by Chinese authors in the Marine Geology Letters journal.

China’s foreign ministry gave few details about Paek’s visit to China, other than to say he met Chinese Premier Wen Jiabao and Foreign Minister Li Zhaoxing.

But how much reserves does the DPRK have? According to the Center for International Policy’s Asia Program,

One-third of 15 exploratory wells have shown oil, and Pyongyang may be sitting on information about larger deposits.

“North Korea has found on the continental shelf of the West Bay basin an area containing 3bn tonnes (21.9bn barrels) of oil and gas reserves,” Li Yandong and Mo Jie wrote in a 2002 issue of journal Marine Geology Letters.

North Korea says these are recoverable reserves pinpointed by its own scientists, said a Chinese expert with knowledge of the situation, who declined to be named.

Even a more modest estimate of 1.2bn barrels reported by Busuph Park, an expert in North Korea’s offshore efforts, would meet centuries of current consumption, although some academics say the peninsula has almost no commercial oil.

At the North Korean embassy in Beijing, an official dismissed with a laugh reports of up to 9bn tonnes of reserves and said the country was still investigating.

Additionally, the story points out the the British company Aminex has committed to building North Korea’s oil industry. Chief Executive Brian Hall told Reuters, “We have involved their people and are training them, so we are trying to build ourselves into the framework of things.”

“They can take a very long time to do things, we have quite a high degree of frustration sometimes. You have to be prepared to tough it out… but the prize is worth persevering for.”

UK oil firm strides into N Korea
BBC
9/20/2004

Anglo-Irish oil company Aminex has signed a 20-year deal to develop North Korea’s oil industry.

Aminex said it would provide technical assistance to North Korea. In addition, it will be permitted to explore and drill throughout the secretive country.

Should Aminex strike oil, it will get royalties on any of its own production, as well as being entitled to earnings from wells drilled by other firms.

Aminex believes its prospects of striking oil in North Korea are good.

“We all dream of making a big discovery,” chief executive Brian Hall told BBC News Online. “And if you don’t put yourself in a position where the possibilities are high, you will never do it.”

A number of potential sites are close to some of China’s most productive oil fields, he said. Announcing the contract, Aminex called North Korea as “highly prospective”.

Patience rewarded

The company, which is listed on the London and Dublin stock markets, reckons that a lack of resources has so far restricted progress in prospecting for oil the East Asian country.

North Korea “has an existing petroleum industry and several wells have been drilled onshore and offshore over a 25 year period, resulting in limited discoveries of oil,” Mr Hall.

Aminex has been looking at opportunities in North Korea since its first visit there in 2001.

It signed a deal with North Korean officials on 30 June 2004 in Pyongyang but postponed an announcement “because of a number of outstanding issues that have now been resolved”.

Mr Hall said he hoped that developing the oil industry might help to thaw international relations, which have become frosty in recent months amid concerns about the country’s nuclear programme.

“At present, relations between North Korea and the outside world are strained but the important relationship with South Korea appears to be improving and commercial co-operation is on the increase,” said Mr Hall.

“An expanding energy industry may possibly help to build bridges between North Korea and the outside world.”

Tough environment

North Korea is one of the world’s most secretive countries, and among the poorest.

Millions of are thought to have died during the famine of the late 1990s. More recently, North Korean officials have made tentative steps towards economic reforms similar to those implemented by China, one of its few allies. But tensions over the country’s nuclear programme remain a stumbling block to investment.

Aminex has existing operations in the US, Russia and Tanzania.

Posted in Aminex, EU, Foreign direct investment, International trade, Oil | 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

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