North Korean Economy Watch

From the BBC:

N Korea talks ‘unlikely’ at Asean

Hopes are fading that an Asean summit in Malaysia can kick-start negotiations on the North Korean nuclear stand-off.

Ministers from all six nations involved in talks on the North’s nuclear aims will be at the meeting later this week, but officials say progress is unlikely.

But the Malaysian hosts say North Korea has already signalled its unwillingness to restart the stalled talks this week, and a senior Chinese official told reporters that Beijing sees no reason for the other five countries involved to meet if North Korea refuses to participate.

From Yonhap: (7/26/2006)

U.S. formally asks N. Korea to attend six-way meeting in Malaysia: sources
By Lee Chi-dong

The United States has formally asked North Korea to join it in a six-way gathering with South Korea, China, Russia, and Japan on the sidelines of this week’s Asian regional security forum, diplomatic sources said Wednesday.

The request was delivered through Pyongyang’s mission to the United Nations in New York earlier this week, they added.

But it is unclear whether North Korea will accept the offer, with the U.S. ruling out any bilateral talks with the communist state outside of a six-way format.

The North’s intention is expected to be made public when its foreign minister Paek Nam-sun arrives here on Thursday afternoon to attend the ASEAN Regional Forum.

From the BBC: (7/25/2006)

Asean concerned at N Korea test

South East Asian nations have expressed concern over North Korea’s missile tests and urged a return to talks on its nuclear programme. The tests could affect regional peace and stability, the statement said.  The appeal came in a joint statement issued after a meeting of Asean foreign ministers in the Malaysian capital, Kuala Lumpur.

Foreign ministers from the 10 countries which make up Asean (the Association of South East Asian Nations) are holding talks in Malaysia until the weekend.  They will be joined later in the week by participants from other Asian nations for the Asean Regional Forum.  US Secretary of State Condoleezza Rice is expected to attend the conference on Thursday. Officials say North Korean Foreign Minister Paek Nam-sun will also take part.  Representatives from the other four nations participating in talks with North Korea – China, Russia, South Korea and Japan – will also be present, raising the possibility of informal talks on the nuclear issue.

But it is not clear whether North Korea will agree. South Korean Foreign Minister Ban Ki-moon said he had proposed a meeting with his North counterpart, but received no confirmation of it.

In the joint statement, Asean urged the six dialogue partners to “utilise their presence during the ARF to promote the resumption of the talks”.

From the Korea Times:

A group of North Korean officials will receive training on multilateral diplomacy and market economy in Switzerland this summer, a Swiss research institute said Tuesday.

The North Koreans, whose number was not immediately known, are slated to enroll for the training from Aug. 21 to Sept. 22 at the Geneva-based Center for Applied Studies in International Negotiations, center officials said.

The Swiss think-tank, founded in 1979, has been running a short-term training course for North Korean officials every year since 1997. Its program is financed by the Swiss Agency for Development and Cooperation, a governmental body which last year earmarked 5 million franc ($3.1 million) to help North Korea.

In 2004, 14 North Korean officials benefited from the center’s program.

During their stay in Switzerland, they visited the European Union, headquartered in the Brussels, Belgium, and met with members of the European Parliament in Strasbourg, France.

Joong Ang Daily
Kim Hyung-soo
7/6/2006
 
However concerned politicians may be about North Korea’s missile test, many Korean companies that deal with the reclusive state are saying it has had minimal impact on business. So far.

Hyundai Asan, which does much of its business in North Korea ― including the Mount Kumgang tour and operating the Kaesong industrial complex ― said it was business as usual. Hyundai Asan said only 50 people canceled their trip to Mount Kumgang yesterday, while 700 people went as planned.

“As the government has already mentioned, private businesses are not subject to restrictions because of the North Korean missile problem,” a Hyundai Asan official said.

The South Korean company stressed that although it has faced problems in the past because of developments in the North, its businesses there have never been forced to stop.

“Business in North Korea should be consistently maintained, as it could be a solution that could solve the strained relationship between the two Koreas,” the official said.

Hyundai Asan said they were more concerned that the North’s recent actions could end up reducing the number of tourists in summer, the high season for travelers.

ShinWon, which manufacturers clothing at Kaesong industrial complex, said the plants there were operating as usual.

“The only difference was that our headquarters in Seoul called to ask what the atmosphere was like in Kaesong,” said a South Korean ShinWon worker at Kaesong.

Despite the firms’ apparent sangfroid, experts were quick to point out the possible long-term consequences. “[The launch] could reduce the credibility of the Korean economy and affect foreign investments,” said an official at the Korea Chamber of Commerce and Industry. “The future of economic cooperation between the two Koreas has become more uncertain.”

“Poor security is the economy’s biggest negative factor,” said Lee Dong-eung at the Korea Employers Federation. “At times like this society needs to remain calm and unified.”

Though many foreign investors who visited Kaesong last month stressed that politics and business should be kept separate, it remains to be seen how the missile launch will affect foreign sentiment toward the industrial complex. 

Their web page is here, but it looks like they have not updated it in a while.

According to their website,

[KBC is]  among the first to identify the opportunities that North Korea could offer to enterprising companies. As a result, KBC clients benefit from our considerable experience and well-established contacts with this hard-working and largely industrial nation which finds itself on the threshold of fuller integration with the world economy. We believe the significant economic changes that have started to unfold will create major business opportunities for foreign companies with the right strategy.

In the DPRK market, we work with (and for) our customers to secure business and investment opportunities, manage relations, provide effective business solutions and oversee the process of entering the North Korean market.

Specifically, they offer a newsletter.  The sample issue they have displayed is quite old, so I am not sure if it is still published.

They also promote business delegations (with golf) and trade exhibitions, such as the Pyongyang International Trade Fair (PITF),  and the International Technology and Infrastructure Exhibition in Pyongyang

And on the implementation side, Korea Business Consultants offers a full range of financial, legal and transportation services, including:

• Project finance, legal advice and analysis of tax and investment laws of the DPRK.
  Investment seminars to attract inward investment: planned for 2002 – with DPRK support and involvement.
• Participation in DPRK’s expanding and regular Trade Fairs and Exhibitions.
  Trading partners to facilitate the trade of commodities/metals and a full range of other DPRK goods.
• Network of partners in London, Luxembourg, Hong Kong, Seoul, Shanghai, Singapore, Switzerland, Seattle and Toronto.

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.

It is called the Pyongyang International Technology and Infrastructure Exhibition (PITIE).  I am not sure that is the most productive acronym, and it is not to be confused with the Pyongyang International Trade Fair

Korea Times
EU Promotes Pyongyang Trade Fair
Jan Jettel, Staff Reporter

Despite mounting international tensions surrounding North Korea’s nuclear arms program, preparations for an international trade fair in Pyongyang later this year have shifted into high gear.

The Pyongyang International Technology and Infrastructure Exhibition is scheduled from Oct, 31 to Nov. 3 in the Kimjongilia exhibition hall in Pyongyang. The exhibition is mainly for companies from the manufacturing sector.

The last exhibition in 2002 had 70 participating companies, representing 10 different countries. The project is heavily promoted by the European Union Chamber of Commerce in Korea (EUCCK).

“The objective of the EUCCK in participating in such an exhibition is to demonstrate to the local visitors that there is an alternative to cheap quality Chinese products,’’ said Jean-Jacques Grauhar, chairman of the EUCCK North Korea Committee, in a Korea Times interview.

Grauhar at the same time admitted the political delicacy of the exhibition. “Obviously the current nuclear crisis is not favorable for this exhibition. The U.S. is also exercising pressure on some European companies to limit their contacts with North Korea, in line with their strategy to isolate the country,’’ he said.

Europe, however, will not bend to U.S. pressure, according to Grauhar. “Twenty-three out of 25 EU member states have full-fledged diplomatic relations with North Korea, some of them even have embassies in Pyongyang. The EU’s engagement policy of North Korea still prevails, and this exhibition can be considered an important part of it.’’

Peter Bialas of Messe Munich International, the Germany-based company that organizes the fair, called the U.S. stance on North Korea “completely hypocritical. How can the U.S. demand a change in North Korea and at the same time block all interactions of North Korea with the outside world that might or might not bring about such change?’’ he asked.

Bialas and Grauhar agreed that while head offices of multinational companies have expressed their concerns about the exhibition, their branches in Korea do not feel disturbed by the crisis as they are more familiar with the whole policy environment on the Korean peninsula.

Bialas also said that German companies showed a particular interest in the exhibition because “experience in dealing with East Germany has shown them that companies can successfully do business with one another even if they operate in countries with different political systems. In the end it’s about business, not politics,’’ he added.

However, there will be no American companies taking part in the fair. ‘’There are no legal restrictions prohibiting American companies from visiting North Korea, however, given the current political climate with a missile on the launch pad, I don’t think US firms would be interested in visiting at this time.

“If North Korea were to remove the missile and return to the six-party talks and it appeared there would be some predictability in their actions, I believe there might be some interest. But at the present time, I am afraid I don’t see much hope,’’ said Tami Overby, president of AMCHAM, the American Chamber of Commerce in Korea.

Local businesses were also skeptical about the fair. “In principle, North Korea and particularly the Kaesong Complex would be very interesting for us, but the political climate is just too unstable at the moment for us to consider investment there,’’ said the CEO of a German multinational company in Seoul on condition of anonymity. He added that “the situation would probably be better if the U.S. stopped bullying North Korea and interfering on the Korean peninsula.’’

This comes at a time when the two Koreas are trying to improve relations. Recently, a group of ambassadors visited the Kaesong Industrial Complex in North Korea to attract investment in the project.

Earlier this month, the 12th round of Inter-Korean Economic Cooperation Promotion Committee met on Cheju Island to discuss South Korean economic aid to the North.

This was the key-note address By Nigel Cowie from an information meeting hosted by the European Business Association, Pyongyang, May 4th, 2006.

Introduction
My name is Nigel Cowie, I’m GM of DCB, and I’d like to take this opportunity to address with you the recent financial allegations and actions against the DPRK by the US Treasury. Where they have acted against specific companies, I can’t make any comment, except perhaps that we have not seen any evidence of any wrongdoing by them, because I don’t know anything about those cases, but I can tell you what they mean in the case of our bank and the budding legitimate foreign business community in the DPRK which we serve.

May I quickly first say a few words of introduction about me and about Daedong Credit Bank, our customers and their activities, before moving on to the US financial allegations and measures; and then address the use of cash in the DPRK, as this is important with regard to the financial allegations, then address the allegations themselves.

Daedong Credit Bank
Daedong Credit Bank is a majority foreign-owned, and foreign-managed joint venture commercial bank, providing standard, high street banking services in foreign currency to foreign-owned or invested commercial business customers—current accounts, remittances, foreign exchange and lending. Most of our customers are importing goods. These may be the consumer goods on sale in the hard currency shops, or larger scale commodities, mainly food related; also raw materials, in the case of the joint venture companies. A very few are exporting, mainly perishable goods like seafood and agricultural products, where they need to receive payment before goods arrive. However, we are not allowed to operate accounts for state-owned companies, and since these are the ones handling high value exports like minerals, most of our remittance business consists of outward remittances to pay for imports.

Financial Measures
On 15 September last year, the US Treasury announced the designation of Banco Delta Asia, Macau, as a “primary money laundering concern” in connection with transactions for DPRK customers, and proposed steps to deny the bank access to the US financial system. BDA immediately suspended all transactions with its DPRK customers and shortly thereafter voluntarily handed over management to the Macau Monetary Authority. The balances of these customers were transferred into special suspense accounts pending the outcome of various audit and other investigations. These investigations have now been completed, although the results have not been made public, and it is still not clear if and when the balances will be released.

Subsequently, other overseas banks closed the accounts of their DPRK bank customers, after receiving warnings from the US Treasury.

When we asked them, one of our correspondent banks explained that “This was an across-the-board policy decision due to external developments/factors, as you may be aware of, where present or future requirements may preclude us from our ability to service the accounts in an efficient manner.”

However, US Treasury Department Under Secretary Stuart Levey is quoted in Newsweek last week as saying that as more business people and governments learn about the risks of dealing with the DPRK, the campaign will have a “snowballing-avalanche effect.”

In this regard, he would appear to be true. We have heard from foreign customers conducting legitimate business here, who have been told by their bankers overseas to stop receiving remittances from the DPRK, otherwise their accounts will be closed.

Cash—a Key Point
Now, the way most of these customers get paid by local buyers is in cash. They bring the cash to the bank, we check the cash for counterfeits and credit it to their accounts with us. Then at the end of the month or whenever, we remit the funds out to their suppliers overseas. But because they are mainly importing, we tend to accumulate cash here in Pyongyang, and sometimes have to physically deliver it to banks overseas. There is nothing in any way tainted with this cash, and it is not counterfeit, it represents funds from legitimate business activities by legitimate customers, and the only reason it comes in cash is because of the peculiar circumstances in the DPRK.

An expert compares counterfeit and genuine bills
Irrespective of whether or not any illegal activities went on, other banks in the DPRK will have the same problem, whereby they have to make cash deposits overseas.

We have the most updated equipment, as well as highly experienced cashiers, for detecting counterfeit notes. While we do come cross them, they are not that common. And, contrary to many perceptions, it is possible to detect the so-called “supernotes.”

All the banks in the DPRK, so far as I am aware, view counterfeit notes as a nuisance, as, just like anywhere else, people have to have confidence in the cash they are handling. When the “supernotes‚ first appeared, our staff worked closely with those of Daesong bank and the Foreign Trade Bank to find ways of detecting them.

Banco Delta Asia
DPRK banks have, as the Treasury announcement correctly observed, been using Banco Delta Asia for decades. One of the reasons for that is because they were prepared to provide banking services to DPRK customers, but also because they accepted cash transactions.

Mongolia story
One further incident occurred specifically to us, which I would like to relate, and you can draw your own conclusions.

At the end of last year, we opened new accounts with Golomt Bank of Mongolia, in Ulaanbaatar. We discussed in detail with them procedures for handling cash transactions in a legally correct manner, as well as providing them with a copy of our anti-money laundering procedure manual, a manual that, incidentally had been accepted by our other correspondent banks.

On 21 February, our designated couriers transported a cash deposit to Mongolia, consisting of USD1 million and JPY20 million; the couriers were met, as previously agreed, by Golomt Bank officials together with local police at Ulaanbaatar International Airport. However, the couriers were then detained by Mongolian intelligence agents who took them, and the cash, to the Bank of Mongolia (central bank); the couriers were accused of importing counterfeit currency.

DCB’s couriers were detained outside the Bank of Mongolia for most of the night, whilst the intelligence agents claimed to be checking the authenticity of the cash. The next day they alleged that USD61,700 was suspected to be counterfeit; the alleged fakes were sent, together with two additional notes randomly taken from each remaining USD10,000 bundle of cash, for further examination at an unspecified location.

On 22 February the Mongolian press carried false reports, based on a leak, to the effect that “North Korean diplomats had been intercepted smuggling USD1 million and JPY200 million (not JPY20 million) into Mongolia”. These reports were subsequently carried by international news agencies.

Our Treasurer was dispatched to Mongolia, where he was subsequently joined by me, to protest this action and demand the return of the funds.

On 7 March, after holding the cash for 14 days claiming they were still checking it, the intelligence officials in a meeting with us finally conceded that all the notes were genuine; the cash was released. The money was deposited with the Golomt Bank of Mongolia on 9 March, as had originally been intended.

By the way, I would like to add that this is not a complaint against the Mongolian authorities. All the meetings I attended were most cordial, and I had the impression that all the officials I met were just trying to do their job. At the final meeting with Mongolian intelligence, they appeared rather embarrassed that they had been given incorrect information.

Effects of these Moves on DCB
Once again, I can only speak for DCB, and don’t know what Banco Delta Asia was doing with other customers. For our part, we are only conducting legitimate business, but have nonetheless been seriously affected by these measures. A large amount of our, and our customers‚ money—not just in USD, but in all currencies—has effectively been seized, with no indication of when they’ll give it back to us.

This makes it more difficult to manage the bank’s working capital, as well as that of those customers whose money was frozen. It has subsequently resulted in a sharp fall in turnover—more than 50%, I estimate—as customers’ own working capital is tied up, and they are reluctant to continue using the banking system in case something like this happens again.

It has also obliged us to expend great efforts to find new bank accounts, and make our side of the story heard to protect our and our customers‚ business. It has also greatly increased the cost of operations as the banking transactions have become more complicated.

So, there is a clear effect on legitimate business. I can’t speak about the illegitimate business, because we don’t have any, but I would imagine that anyone conducting illegal business could find a way around this, because they don’t have to comply with internally instituted procedures like we do. For example, I was approached by someone overseas offering to take cash deposits of any size we like, and have it re-sent on to wherever we want in consignments of less than $10,000 so that they are not spotted by overseas banks’ money laundering detection procedures. I declined this offer because we are not about that sort of banking.

Which brings me to the point that there is a danger of legitimate businesses being squeezed into routes that are more normally used by real criminals, and the result of these actions against banks doing business with the DPRK being that criminal activities go underground and harder to trace, and legitimate businesses either give up, or end up appearing suspicious by being forced to use clandestine methods.

Suggestion
We and other EBA members are trying to make an infrastructure for normalizing economic relations with outside world, this not helping.

During a March 7 interview with Arms Control Today, Michael Green, until recently President George W. Bush’s National Security Council senior director for Asian affairs, stated that The United States will continue to take action against illegal North Korean activities regardless of the six- party talks’ status. But he added that Washington thinks such measures complement the talks by forcing Pyongyang to turn to legitimate economic activities for revenue.

Our point is that that may be impossible.

The US Treasury department’s full report on Banco Delta Asia, as reproduced in the Federal Register (20 September 2005) states that “It is difficult to determine the extent to which Banco Delta Asia is used for legitimate purposes. Although Banco Delta Asia likely engages in some legitimate activity, the [Treasury] Secretary believes that any legitimate use of Banco Delta Asia is significantly outweighed by its use to promote or facilitate money laundering and other financial crimes.

I would far rather get everything out in the open, reporting full details of all our transactions to any monitoring authorities that need to know, that way there is nothing to hide, all parties are satisfied, and everything is legal, open, transparent and respectable.

I am quite sure that the other DPRK banks would be willing to do the same. Indeed, at a meeting on 7 March between US Treasury officials and the DPRK’s deputy Director-General for North America, Mr Li Gun, Mr Li proposed that the DPRK be allowed to open a USD bank account with a US bank—something we also would support.

This is a slightly abbreviated text of the original talk, posted at Japan Focus on May 6, 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.

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.

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?