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Jang Song-thaek visits China

Thursday, August 23rd, 2012

UPDATE 13 (2012-8-23): The Institute for Far Eastern Studies reports on Jang’s visit to China:

Jang Song Thaek’s Visit to China: Outcomes and Limitations
Jang Song Thaek, vice chairman of National Defence Commission of North Korea recently visited China and is raising many speculations about the outcome of the visit.

From August 13, Jang led 50 North Korean delegations to China, including high ranking officials such as Ri Kwang Gun, the chairman of the joint venture investment committee, Ri Su Yong, the former chairman of the same committee, and Kim Hyung-jun, deputy foreign minister. Together with the Chinese officials, Jang visited Rajin-Sonbong (Rason) special economic zone, and Hwanggumpyong and Wiwha Islands, and discussed the issues of expanding economic cooperation with China.

Jang attended a meeting with China’s Minister of Commerce Chen Deming, titled the Third Meeting of the DPRK-China Joint Steering Committee for the Development of Hwanggumpyong and Rason Districts. In addition to the meeting, Jang visited Jilin and Liaoning Provinces, asking for China’s active assistance and investment in these areas.

Jang also met with Wang Jiarui, head of the International Department of the Communist Party of China (CPC) Central Committee, President Hu Jintao and Premier Wen Jiaobao in Beijing to discuss the future economic cooperation between the two nations and to request for China’s further economic assistance.

North Korea was successful in obtaining positive response from China, promising to help the economic development of North Korea. China has agreed to provide electricity and other necessary infrastructures, including roads and communication network, to push forward with the joint development of Hwanggumpyong and Rason.

However, it is still unclear whether Jang’s visit to China will lead to actual revitalization of bilateral economic cooperation. Chinese companies are still cautious about investing in North Korea with its inadequate infrastructures and legal framework and volatile political situations posing as risks to their investments. Other than labor force export, natural resources development and agricultural and fishery product trades, there is yet to be other model for successful economic cooperation.

Chinese companies consistently argued investment in North Korea can be viable only under the condition that government guarantees or other safety mechanisms are provided to protect the investments of the Chinese companies.

However, in the recent agreement signed by Jang Song Thaek and Chen Deming, two sides have agreed to abide by the principle of development cooperation, to be “led by the governments, based on enterprises, and to achieve mutual benefit and win-win through market operation.” Thus, Chinese government has expressed its intentions to not provide government guarantees for the investments and North Korea has not put forth appropriate policy to soothe the apprehensions of the investors.

Moreover, there are more hurdles to be overcome in Rason and Hwanggumpyong development. Although China gains access to the East Sea through Rason, serving as an important logistics and manufacturing hub in the Northeast Asia reaching South Korea, Russia, and Japan, still no major investment is seen in the area due to the poor industrial infrastructures and basic industries.

Hwanggumpyong and Wihwa Islands are also faced with challenges of its own. Geographically it sits in close proximity to Dandong, in the Chinese territory and while North Korea is pursuing for joint development in the area, China is still passive in the development of this area. This area also frequently fall victim to severe flooding, costly in repairs and maintenance.

China is likely to continue to support North Korea’s economic revitalization efforts and the security of its regime. For North Korea, direct aid is limited and economic cooperation is the most effective option for economic recovery but until it fully accepts the international norm and open up to the outside world, it will be difficult to achieve full economic revitalization.

UPDATE 12 (2012-8-22): Marcus Noland comments on the visit and the agreement here.

UPDATE 11 (2012-8-20): The Choson Ilbo reports that Jang received no official support from Beijing as a result of the visit:

Jang left without receiving any pledges of material support from Beijing, a high-ranking government official here said on Sunday.

Asked about a reported request for US$1 billion in loans from China, the official said, “I have yet to hear of any economic support from China to North Korea, whether it involves $1 billion or $1 dollar. China stressed market principles to Jang.”

UPDATE 10 (2012-8-18): The Hankyoreh reports on a number of investment deals that were inked between the DPRK and Chinese enterprises:

The success of the zones’ development is crucial for North Korea in its current push for economic reforms and improvements to living conditions. This accords with Beijing’s strategy of leading Pyongyang into a gradual normalization through reforms and openness, with an eye to eventually resolving its nuclear program issue.

Another positive signal for Pyongyang is the string of Rason investment declarations by large Chinese corporations following Jang’s visit.

The Yatai Group, a major construction and real estate conglomerate, signed a contract with the Rason people’s committee to develop a construction materials complex in the city. On Friday, the large state-owned Ludi Group announced it would also be investing in Rason. Its director, Zhang Yuliang, announced in an interview with the People’s Daily website people.com.cn that his company would be taking on the construction of basic facilities at Rason, including a power grid.

UPDATE 9 (2012-8-18): Xinhua reports on Wen’s meeting with Jang:

Jang is in China for the third meeting of the joint steering committee for developing and managing the Rason Economic and Trade Zone and the Hwanggumphyong and Wihwa Islands Economic Zone.

Wen said both sides should give priority in developing and managing the zones as well as implement the consensus reached by the joint steering committee.

The premier said the two governments should strengthen the leadership and planning of the cooperation on the zones, improving laws and regulations; encourage relevant regions for active participation with close coordination; and let the market play its role creating favorable conditions for land and tax.

He called on the committee to encourage businesses to invest in the zones and help enterprises solve their problems, and improve customs and quality inspection services to help with bilateral cooperation.

UPDATE 8 (2012-8-18): Reuters reports on Jang’s visit with Wen Jiabao.

Premier Wen Jiabao encouraged North Korea to allow “market mechanisms” help revamp its economy, state media said on Saturday, and laid down other pre-conditions as China tries to wean its impoverished ally off its dependence on Chinese aid.

…

As well as allowing freer rein to market forces, the Chinese premier also recommended Pyongyang encourage economic growth by improving laws and regulations, encouraging business investment and reforming its customs services.

China’s President Hu Jintao also met Jang in a clear show of support for the North and its new leadership. Jang is seen as the driving force behind reforms that the isolated and destitute North is believed to be trying and for which it desperately needs Chinese backing.

…

So far North Korea has received around $300 million in non-financial direct investment from about 100 Chinese companies, mainly in the food, medicine, electronics, mining, light industry, chemicals and textile sectors.

China’s exports to North Korea rose 20.6 percent last year to $2.28 billion from 2010, while imports plunged 81.4 percent to $147.4 million, according to Chinese customs figures.

Those numbers are dwarfed by trade with South Korea, China’s third-largest trading partner.

UPDATE 7 (2012-8-17):

Hu Jintao Receives DPRK Delegation
Beijing, August 17 (KCNA correspondent) — President Hu Jintao, general secretary of the C.C., the Communist Party of China, met the delegation of the DPRK-China Joint Guidance Committee led by Department Director of the C.C., the Workers’ Party of Korea Jang Song Thaek who paid a courtesy call on him at the Great Hall of the People in Beijing on Friday. The delegation took part in the third meeting of the DPRK-China Joint Guidance Committee for the joint development and management of the Rason Economic Trade Zone and Hwanggumphyong and Wihwado Economic Zones.

Jang Song Thaek conveyed greetings of the dear respected Kim Jong Un to Hu Jintao.

Expressing deep thanks for this, Hu Jintao requested Jang Song Thaek to convey his warm greetings and sincere congratulations to Kim Jong Un.

Hu Jintao, on behalf of the party, government and people of China, expressed sincere sympathy and consolation over the recent flood that hit the DPRK, causing huge damage.

He hoped that the Korean people would eradicate the aftermath of the disaster and bring the living of the people in the afflicted areas to normal as soon as possible under the leadership of First Secretary Kim Jong Un.

Noting that China and the DPRK are friendly neighbors linked by the same mountain and rivers, he said that the policy of the Chinese party and government to attach importance to and develop the China-DPRK friendship from the strategic viewpoint and on long-term basis would remain unchanged in the future, too.

He expressed his willingness to strengthen the high-ranking visits, cooperation in various fields and the exchange of views on international and regional problems and upgrade the bilateral relations to a new level as agreed by both sides.

He was rejoiced over the fact that the development of the two economic zones has entered a practical phase thanks to the common efforts, wishing that a good example of economic cooperation would be set.

The Chinese party and government support the Korean comrades following the road of development suited to their actual conditions and wish them greater success in their efforts to build a thriving nation under the leadership of First Secretary Kim Jong Un, he said.

The talk proceeded in a comradely and friendly atmosphere.

Present there were members of the DPRK-China Joint Guidance Committee, Ji Jae Ryong, DPRK ambassador to China, Chen Deming, minister of Commerce of China, Wang Jiarui, head of the International Liaison Department of the C.C., the CPC, Zhang Ping, head of the National Development and Reform Committee, Shi Xuren, minister of Finance, Wang Min, secretary of the Liaoning Provincial Committee of the CPC, Sun Zhengcai, secretary of the Jilin Provincial Committee of the CPC, Zhang Zhijun, executive vice-minister of Foreign Affairs, Chen Jian, vice-minister of Commerce, and Liu Hongcai, Chinese ambassador to the DPRK.

UPDATE 6 (2012-8-16): Xinhua reports on the visit:

The Rason Economic and Trade Zone will focus on the development of raw materials, equipment, high-tech products, light industry, the service sector and modern agriculture, the MOC said after the meeting.

It will gradually become an advanced manufacturing base, as well as an international logistics center and regional tourism center for northeast Asia.

The Hwanggumphyong and Wihwa Islands Economic Zone will focus on the development of the information industry, tourism, modern agriculture and garment manufacturing, the ministry said.

The DPRK passed and promulgated the Law for the Rason Economic and Trade Zone and Law for the Hwanggumphyong and Wihwa Islands Economic Zone in December 2011, Shen said.

“Construction on the two economic zones has entered the stage of introducing enterprises to invest in the zones,” he said.

The two sides will continue to make joint efforts to make laws and regulations, make detailed preferential policies, improve construction planning inside the zones and attract companies to invest in the zones.

“Both sides will make full use of their respective advantages and build the zones into models of China-DPRK economic and trade cooperation and platforms for economic and trade cooperation with the rest of the world,” Shen said.

The MOC said Tuesday that China and the DPRK will continue to follow the principle of “government-guided, enterprise-based, market-oriented and mutually beneficial” cooperation in developing the two economic zones.

The meeting was jointly presided over by Minister of Commerce Chen Deming and Jang Song Taek, chief of the central administrative department of the Korean Workers’ Party.

UPDATE 5 (2012-8-16):

Chinese Officials Vow to Make All Efforts to Implement DPRK-China Agreed Points
Pyongyang, August 16 (KCNA) — The delegation of the DPRK-China Joint Guidance Committee sojourned in Jilin and Liaoning Provinces, China on Tuesday and Wednesday.

Department Director of the Central Committee of the Workers’ Party of Korea Jang Song Thaek, head of the delegation of the DPRK-China Joint Guidance Committee, met and had friendly talks with Sun Zhengcai, secretary of the Jilin Provincial Committee of the Communist Party of China, in Changchun City and Wang Min, secretary of the Liaoning Provincial Committee of the CPC, in Shenyang.

Sun Zhengcai extended congratulations to the successful third meeting of the above-said committee.

He said that Jilin Province is a significant place featured by historic relics on President Kim Il Sung and leader Kim Jong Il, recollecting with deep emotion the days when he was received by Kim Jong Il who visited the province in 2010.

The Jilin Provincial Committee of the Communist Party of China and the Jilin Provincial People’s Government will make efforts to implement the points agreed at the third meeting of the China-DPRK Joint Guidance Committee, he concluded.

Wang Min said he was pleased with the achievements made by the Korean people in building a thriving socialist nation under the leadership of the dear respected Kim Jong Un.

He underscored the need to contribute to boosting the traditional Sino-DPRK friendly relations provided by the leaders of the elder generations of the two countries by stepping up the joint development of the Hwanggumphyong and Wihwado Economic Zones.

UPDATE 4 (2012-8-15): The Associated Press reports on the meetings:

The ministry said the two sides signed a number of cooperation agreements related to their development of the two special economic zones: Rason on the Korean Peninsula’s northern tip and Hwanggumphyong, an island in the Yalu River that marks their border to the southwest.

It said plans for Rason would see it becoming a manufacturing base, logistics center and tourism hub, though the new agreements were still primarily focused on basic infrastructure, such as a plan to transmit electricity directly to the zone overland from China.

The Hwanggumphyong zone will focus on information technology, tourism, agriculture and garment manufacturing, it said.

Rason has recently begun to develop thanks to Chinese infrastructure projects, but Hwanggumphyong has languished since ground was broken last year.

The China Daily said in an editorial Wednesday that Chinese investment in the zones would help North Korea’s battered economy and improve stability on the Korean peninsula.

“The DPRK is in urgent need of capital to help revitalize its waning economy,” the paper said. “It can be expected that as a result of the agreements, Chinese investment in the special economic zones of the DPRK will increase rapidly.”

It noted that bilateral trade last year was $5.7 billion, up from $3.5 billion in 2010.

UPDATE 3 (2012-8-14): Ri Chol was among the group of DPRK leaders traveling to Beijing.

UPDATE 2 (2012-8-14): The Daily NK reports on Jang’s trip to China:

The level of popular interest in Jang’s visit is a reflection of two things: first, his relative importance in the North Korean power structure, and second, the fact that he is the highest North Korean official to visit Beijing since the official launch of the Kim Jong Eun regime late last year. Both these facts serve to make it highly likely that the remit of the trip extends quite a long way past the economic agenda cited by KCNA, presumably to encompass political and military concerns as well.

According to one diplomatic source in Seoul, “Kim Jong Eun quite possibly assumes that China harbors some anxiety about his newly launched system. Jang will probably explain the recent purging of former Chief-of-Staff Lee Young Ho, since this only made China more concerned.”

Sohn Gwang Joo, a senior researcher with the Gyeonggi Research Institute, went further, declaring, “The main reason behind Jang’s trip to China is to emphasize that ‘Chosun-China friendship transcends generations’, and that without the political, economic and military support that comes from that friendship, the Kim Jong Eun system cannot be maintained.”

“When Jang Sung Taek meets with high-level cadres including Xi Jinping, the two will discuss the issue of a bilateral summit,” Sohn added, noting the likelihood that such a summit is likely to occur after China’s own leadership transition in October.

Lee Tae Hwan, a researcher with the Sejong Institute, noted also that there is certainly more to the visit than KCNA made public, explaining, “There are a bunch of people who can solve economic problems like those at Rasun, Hwanggeumpyong and Wihwa Island, it doesn’t have to be someone as influential as Jang Sung Taek.”

“Therefore, Jang’s trip to China is not a working-level visit. He is raising the level of bilateral communication.”

UPDATE 1 (2012-8-14):

Third Meeting of DPRK-China Joint Guidance Committee Held
Beijing, August 14 (KCNA) — The third meeting of the DPRK-China Joint Guidance Committee for the joint development and management of the Rason Economic Trade Zone and Hwanggumphyong and Wihwado Economic Zones was held in Beijing on Tuesday.

Present there were members of the delegation of the DPRK-China Joint Guidance Committee led by its DPRK side Chairman Jang Song Thaek who is department director of the Central Committee of the Workers’ Party of Korea and Ji Jae Ryong, DPRK Ambassador to China.

Also present there were members of the delegation of the China-DPRK Joint Guidance Committee led by its Chinese side Chairman Chen Deming, minister of Commerce of China and Liu Hongcai, Chinese Ambassador to the DPRK.

The meeting reviewed the work done for developing them since the second meeting of the joint guidance committee.

In the Rason Economic Trade Zone, a master plan for developing the zone was mapped out, reconstruction of ports and railways made brisk headway, the project for reconstructing Rajin-Wonjong highway is nearing its completion and a work has made brisk headway in various fields including tourism and agricultural cooperation and measurement for the transmission of electricity from China was finished.

In the Hwanggumphyong Economic Zone, favorable preconditions were created for substantially starting the development project including the fixing of the spot for border passage according to the drafted detailed plan.

The meeting stressed the need to quickly start the Wihwado Zone development and show the world the will of both sides for the development of both zones.

At the meeting, both sides appreciated as the successes made since the second meeting the amendment, enactment and announcement of the law on the two economic zones, the agreement of development plans, the establishment of management committee, the work of various panels of the joint guidance committee, the training of management officials of the two economic zones, the promotion of already started projects, the border passage and positive progress in tele-communication cooperation through the joint efforts of the two governments.

Both sides reaffirmed that it plays an important role in consolidating and developing the traditional relations of DPRK-China friendship to invariably implement the historic agreement on the joint development and management of the two economic zones reached between the top leaders of the two countries in line with mutual interests.

Both sides said in unison that to develop the two economic zones of weighty significance in boosting exchange and cooperation in all fields between the two countries, developing economy and achieving regional stability and prosperity is in line with the common interests of the two peoples.

They agreed upon a series of matters of jointly pushing forward the top priority processes in creating environment favorable for investment in the two economic zones to meet international standard and mutual interests.

They agreed to make sure that the two governments support and encourage local governments and enterprises push forward this work now that all the matters related to the development of the two economic zones were agreed upon and have reached the phase of implementation. They also agreed to positively promote the development of the Wihwado zone.

They agreed to hold the fourth meeting of the Joint Guidance Committee in Pyongyang in the first half of 2013.

Minutes of the third meeting and the Agreement on Economic and Technological Cooperation between the Governments of the DPRK and the PRC were signed by Jang Song Thaek and Chen Deming.

A ceremony of declaring the establishment of the Management Committee of the Rason Economic Trade Zone and the Hwanggumphyong Economic Zone took place and relevant documents including The Basic Agreement on Investment in Port and Industrial District of the Rason Economic Trade Zone, A MOU on setting up the Management Committee of the Hwanggumphyong Economic Zone for Joint Development and Management between the North Phyongan Provincial People’s Committee of the DPRK and the Liaoning Provincial People’s Government of the PRC and A MOU on Designing Processes for Basic Facilities in the Hwanggumphyong Economic Zone for the Joint Development and Management between the North Phyongan Provincial People’s Committee of the DPRK and the Liaoning Provincial People’s Government of the PRC were signed during the meeting.

The Chinese Ministry of Commerce gave a reception in connection with the successful third meeting that day.

ORIGINAL POST (2012-8-13): According to KCNA:

DPRK Delegation Leaves for China
Pyongyang, August 13 (KCNA) — A delegation of the DPRK-China Joint Guidance Committee Monday left here for Beijing, China to take part in the third meeting of the committee.

It was headed by its DPRK side Chairman Jang Song Thaek who is a department director of the Central Committee of the Workers’ Party of Korea.

The meeting is reportedly to discuss the joint development and joint management of Rason Economic Trade Zone and Hwanggumphyong and Wihwado Economic Zone.

Posted in China, Computing/IT, Construction, DPRK-China Joint Guidance Committee, Economic reform, Foreign direct investment, Hwanggumphyong and Wihwado Economic Zones (Sinuiju), Joint Ventures, Rason Economic and Trade Zone (Rajin-Sonbong), Special Economic Zones (Established before 2013) | Comments Closed

KoryoLink update (sort of)

Friday, August 17th, 2012

It is getting harder to know specific information about the DPRK’s mobile phone network…such as how many subscribers have signed up or how revenues/profits are doing.

In December 2011 Orascom Telecom finalized a demerger and the KoryoLink portfolio (the DPRK’s 3G mobile phone network) was transferred to a new holding company, Orascom Telecom Media and Technology Holding S.A.E. (OTMT).

According to the Orascom Q1 2012 shareholder report (p15):

Under the terms of the VimpelCom transaction, VimpelCom, Weather II and OTH agreed on a demerger plan (the Demerger”) pursuant to which the Company‟s investments in certain telecom, media and technology assets (the “SpinOff Assets”), which were not intended to form part of the VimpelCom business going forward, would be transferred to a new company, Orascom Telecom Media and Technology Holding S.A.E. (“OTMT”). The Demerger was performed in accordance with the guidelines of the Egyptian Financial Supervisory Authority and in particular decree no. 124 of 2010 and was completed in December 2011. The split of OTH shares by the way of the Demerger resulted in OTH shareholders holding the same percentage interest in OTMT as they held in the Company. The Demerger plan was initially approved in a shareholders meeting dated 14 April 2011 and subsequently on 23 October 2011. Approval from the Egyptian Financial Supervisory Authority was received in December 2011.

As a result of the Demerger, during November and December 2011, ownership of the following Spin-Off Assets was transferred from the Company to OTMT:

[…]

75% ownership in CHEO Technology Joint Venture Company, together with all other assets and businesses located in
North Korea;

95% ownership in Orabank NK;

[…]

Other than the reference above, the Q1 report does not mention KoryoLink or even the DPRK. As you would expect, KoryoLink is not mentioned in Orascom’s Q2 2012 Shareholder Report either.

OTMT (the new holding company) has a web page, however it contains remarkably little information. Here is what it has to say about KoryoLink:

Koryolink

A joint venture between OTH [Orascom Telecom Holdings] and the state-owned KPTC [Korea Post and Telecommunications Company] and included as part of the assets held by OTMT following the demerger. OTMT holds, a 75% stake in [Cheo Technology Joint Venture Company] with KPTC. The company is North Korea’s only 3G Mobile operator. By June 2011, Koryolink’s network covered more than 75% of North Korea’s population (estimated at 24.5 million).

Being the first company of its kind and scale in North Korea, koryolink established many precedents; a first of its kind call center to provide customer service; a launch announcement in major newspapers and on radio despite almost non-existent marketing and advertising industries; and the implementation of a koryolink advertising billboard, the first of its kind in Pyongyang.

KPTC is the “Korea Post and Telecommunications Company” which is nominally controlled by the DPRK’s Ministry of Post and Telecommunications.

This OTMT page shows five financial reports for the year, however, only one of them is in English (an audit by Deloitte in June 2012). All the other reports are in Arabic. The audit report includes aggregate financial information from “CHEO Technology (KoryoLink)”; however, it does not contain any detailed company information. Hopefully this will change in the future.

The OTMT web page does not mention OraBank at all. According to this organization chart, however, it appears to be held by a separate holding company under the OTMT umbrella, the Oracap Holding Co./Oracap Far East Ltd. I have not been able to find out much more than that.

Additional information welcome.

Posted in Cell phones, CHEO Technology Joint Venture Company, Communications, Egypt, Foreign direct investment, Ministry of Post and Telecommunications, Ora Bank, Orascom Telecom Holding | Comments Closed

DPRK mining investment woes (Xiyang – 西洋集團)

Friday, August 17th, 2012

Pictured above: the signing of the contract between Xiyang Group and Ri Seong-kyu (리성교). Image source here.

UPDATE 6 (2012-9-17): Andrei Lankov writes a good summary of events.

UPDATE 5 (2012-9-7): The Global Times (PR China) reports on the Xiyang affair:

Wu Xisheng, vice general manager of the Xiyang Group, told the Global Times Thursday that the company’s partner in North Korea was an enterprise affiliated with the Korean Workers’ Party, instead of what the country called a private entity.

Wu also said Xiyang is one of dozens of Chinese companies who have been cheated by North Korea.

Hu Chenpei, a diplomat with the business section of the Chinese embassy in Pyongyang, told the Global Times that it is “an isolated case of business disputes,” adding that both sides of the story are true.

“We have been in contact with related departments in North Korea, hoping the two sides could iron out their disputes through rational discussions,” said Hu.

However, Wu insisted that the North should repay their losses or the group will reveal further details about “how Pyongyang cheated it.”

When contacted by the Global Times, a diplomat with North Korea’s embassy in Beijing said he had never heard of the Xiyang Group and refused to comment.

The North Korean spokesperson also said his government will continue improving its investment environment to further draw international investment, and protect the legitimate rights and interests of international investors who follow the principles of mutual respect, equality and mutual benefit as well as observing laws.

Liu Ming, a researcher with the Shanghai Academy of Social Sciences, said the disputes have dealt a blow to Chinese enterprises’ confidence in North Korea.

UPDATE 4 (2012-9-5): In a Reuters article, Xiyang responds to the KCNA statement:

Xiyang told Reuters in an interview after the North’s statement that it had been “cheated” and it lambasted Beijing’s policy of propping up North Korea’s unreformed regime which it said that it was done for geo-political reasons.

“It (Xiyang) has carried out only 50 percent of its investment obligations though almost four years have passed since the contract took effect,” KCNA quoted a spokesman for North Korea’s Commission for Joint Venture and Investment as saying.

Xiyang refused to curb its criticism of North Korea when it spoke to Reuters, suggesting that Beijing was doing little to help companies that ran afoul of what it viewed as arbitrary rulings by North Korean officials.

“This isn’t just about us – it is about all companies investing in North Korea,” Wu Xisheng, vice general manager of Xiyang told Reuters.

“They just don’t have the conditions for foreigners to invest. They say they welcome investment but they don’t have the legal or social foundations.”

UPDATE 3 (2012-9-5): KCNA has issued an official comment on the xian affair:

Media Should Maintain Impartiality in Report about DPRK

Pyongyang, September 5 (KCNA) — A spokesman for the DPRK Commission for Joint Venture and Investment on September 5 issued the following statement:

The Xiyang Group of the Haicheng City, Liaoning Province of China on August 2 posted on its Internet website an article criticizing the DPRK over the disputes that cropped up between the Group and the Korean Ryongbong Corporation in the course of implementing a joint venture contract for the development of magnetite concentrated ore.

After the article was published, some media echoed it before and after the report about the results of the third meeting of the DPRK-China Guidance Committee for developing two economic zones was made public.

They added their own analyses to the article posted by the Group. They even aired what the anti-DPRK hostile forces reported in the past to malignantly slander the inviolable social system and policy of the DPRK.

Generally, it is international usage and commercial ethics to settle disputes that occurred in the course of economic relations in line with the relevant arbitration item of the contract.

But the media have kicked off massive propaganda campaign, defying international usage and commercial order. This cannot be interpreted otherwise than an act of fanning up the dishonest forces in their moves to drive a wedge between the two countries in their economic cooperation and chill the atmosphere for investment.

As far as the procedures for the signing and implementation of the contract between the DPRK Ryongbong Corporation and the Steel Co. Ltd., of the Group and the bilateral disputes are concerned, the Group is also to blame for the abrogation of the contract. In the light of the process of implementing the obligations under the contract, the Group is chiefly to blame from the legal point of view.

It has carried out only 50 percent of its investment obligations though almost four years have past since the contract took effect.

So the two contracting parties again sat together only in vain over the timeline for the completion of the first-phase investment and commissioning.

As for 16 provisions which the Group set forth as the major issue of the disputes, it is the legal obligation of the Group related to the contract to implement them according to the mutual contract in which both sides agreed on the article that “two sides sign it on the basis of the DPRK Law on Joint Venture”.

As regards the dealing of sales price of trial products, the Group insisted on its self-opinionated proposal for settling its debts within the boundary of China, in disregard of the procedures in price dealing pursuant to the relevant financial management norms.

Media should comply with the standards for fairness and objectivity, create an atmosphere helpful to settling the disputes between the two contracting parties and refrain from an act that can be misused by the hostile forces for their vicious propaganda.

We will in the future, too, improve and round off the investment environment to further expand the international investment relations to meet the demand of the developing times and the lawful requirement of the international investment relations under the condition that the security of the country is guaranteed by dint of Songun. We will also ensure the legitimate rights and interests of all investors willing to develop international investment relations on the principles of mutual respects, equality, reciprocity and law-observance.

UPDATE 2 (2012-8-17): Michael Rank sent over the photos below which the Xiyang Group published (source here). I had a Korean friend (thx Angela) look over these and give me an idea of what they say:

This appears to be the DPRK business license or registration. It claims that the Korea Ryongbong Ryonhap Company (조선령봉련합회사) and the Chinese Soyang Jipdan Corporation (중국서양집단공사사) “merged” to form the Yangbong Hapyong Company (양봉합영회사). The new firm is made up of 1,000 local employees and two foreigners. The investment terms also appear to be denominated in Euros.

This image appears to be the cover sheet to the agreement between the two firms. The cover sheet states that this agreement has been approved at the highest levels and that both firms agree to be bound by its terms.

UPDATE 1 (2012-8-15): Michael Rank has followed up on the Xiyang Group story in the Asia Times:

China likes to claim that its relations with North Korea are “as close and lips and teeth” but those teeth are infected with a poisonous abscess so far as one Chinese company is concerned.

In an extraordinary attack, a Chinese mining company has accused the North Koreans of tearing up a multi-million-dollar deal, intimidating its staff, imposing outrageous extra charges and cutting off its power and water, as well as of corruption and demanding prostitutes whenever their North Korean counterparts visited China.

“Xiyang Group’s investment in North Korea was a nightmare, and we were taking our lives in our hands when we entered the tiger’s lair,” the company says.

Xiyang Group, based in the northeastern province of Liaoning, says it was the biggest single Chinese investor in North Korea, having in 2011 signed a 240 million yuan (US$38 million) deal to form a joint venture iron mine that was to produce 500,000 tonnes of iron powder a year.

A few months after the contract was signed, the North Koreans made a series of extraordinary demands that led to the Chinese walking out in fury and to launching what must surely be the fiercest public attack they have ever made on their supposed close ally. [1]

The company aims much of its invective at a particular North Korean official, who, it says, is “the leader of the criminal gang who deceived Xiyang, this great plotter and fraudster …” The official, Ri Seong-kyu, was the North Korean side’s faren, or legal representative, in the deal and he is blamed for everything that went wrong.

When negotiations began in 2006 the plan was for the Chinese company to take a 75% stake in the venture, but it turned out that North Korean policy stipulated that a foreign firm could own no more than a 70% stake in a natural resources company such as a mine.

Xiyang says Ri, “violating the North Korean national investment law”, nevertheless signed a joint venture contract in which the Chinese side took a 75% stake, “forging an investment certification document in order to gain Xiyang’s confidence”.

He later told the Chinese company that the document was null and void because of the stipulation that the North Korean side must have at least a 30% stake, but Xiyang did not realise his deception until September 2011.

Xiyang says it first became interested in investing in North Korea in 2005 in response to the Chinese government’s call for Chinese companies to “venture out” and invest abroad, “but we had heard that North Koreans do not keep to their word, national laws are not strong and it is easy to be cheated, so we were extremely cautious in our investigations.”

It also notes the secrecy that pervades business dealings in North Korea, which prevented Xiyang from sending ore samples back to China for testing, but despite all this the company “took the great risk of investing”.

“North Korea’s system of doing business is [based on] government departments’ secrecy in relation to foreigners, and they do not allow foreigners to visit government departments to do business,” the online report complains.

It says there were “all kinds of unimaginable serious problems” in reaching an agreement, but after years of negotiations production finally began in April 2011. However, the North Koreans unilaterally annulled the agreement last February, when they “used violent methods” against Xiyang staff, cutting off their water, electricity and communications and smashing the windows of their living quarters.

At 2am on March 3, a group of 20 armed police and security officials led by a North Korean company official woke up the sleeping Chinese and told them the North Korean premier had annulled the deal and they were to leave the country immediately.

Ten senior Xiyang employees, who seem to have been the only ones remaining in North Korea out of over 100 originally sent, were “treated as enemies”, put on a bus and deported via the border city of Sinuiju.

The statement includes a highly personal attack on Ri, who, it says, has a huge paunch and is “North Korea’s number one fat man”, weighing 108 kilograms. “Everybody knows North Korea is suffering grain shortages and ordinary people do not have enough to eat, so North Koreans are quite thin but Ri Seong-kyu’s unusual fatness fully reveals what a luxurious life he leads … When people like Ri Seong-kyu go to China they let down their country and themselves and make all kinds of demands, for money, gifts, food, drink, girls …”

Xiyang said it had paid over US$800,000 in kickbacks to corrupt North Korean officials, including $80,0000 for a Hummer for Ri in 2008 and $100,000 in 2009 for a construction project in which he was involved in South Hwanghae province. In addition, Ri and his cronies would demand gifts of laptops, cellphones and vast amounts of booze, and to be provided with masseuses.

“Sometimes the Chinese would not provide any girls, so they would get them themselves and put it on their room bill,” expecting Xiyang to pay for all their personal expenses, bringing the bill to over 200,000 yuan per person.

This was not all – they would demand a receipt for their expenses that had been paid for by Xiyang, so they could claim the same costs when they returned to North Korea, according to the Xiyang statement.

Xiyang officials, on the other hand, had to pay all their own expenses in North Korea, were only allowed to eat in certain restaurants and were followed 24 hours a day by security officials. Even when Ri invited the president of Xiyang to his home, his host charged $2,000 for the privilege.

The report says the crunch came in September 2011 when the North Koreans made 16 demands that violated the terms of the contract, including a 4-10% sales levy, a one euro (US$0.17) per square metre per year rent charge, a hike in electricity prices and a charge of one euro per cubic metre of sea water consumed.

They also banned the company from releasing waste water, or even clean water, into the sea, which “amounted to the North Koreans forcibly halting production”.

The most serious act by the North Koreans was a ban on sales, the document states, which was clearly aimed at ensuring an end to the joint venture. “Ri Seong-kyu claimed all these [regulations] were included in North Korea’s national joint venture law, and we could not sell the 30,000 tonnes of iron powder that had been produced. In these circumstances, if Xiyang had carried on investing and manufacturing [in North Korea], we would have been the biggest fools in the world.”

Many of Xiyang’s complaints will sound all too familiar to anyone who has visited North Korea. The document tells how Xiyang staff were at first banned from buying food in so-called free markets. After much pleading the authorities finally agreed to this, but each person had to be accompanied by two minders and the route had to be approved by the security police.

Although the mine was only 500 meters from the sea, staff were banned from taking strolls along the shore.

Quite why the North Koreans acted with such prejudice against Xiyang isn’t clear, but part of the reason may lie in the location of the mine. It is in Ongjin county on the west coast, a highly sensitive area ever since this small peninsula ended up in North Korea after the Korean war even though it lies below the 38th Parallel. (It is also close to the port of Haeju, from where the iron was to have been exported).

The Chinese government may wish to dismiss this as a spat between a little known Chinese company and a single corrupt North Korean official, but it has brought into the open the deep suspicion that exists between the two countries.

The Chinese have long felt unable to trust the North Koreans with their xenophobic, quasi-Maoist personality cult, while the North Koreans are equally suspicious of the emerging superpower on their doorstep eagerly eyeing the smaller country’s natural resources.

Change may now be in the air, and the more open leadership style of North Korea’s young Kim Jong-eun has sparked speculation of economic reform and a fresh approach to foreign investment in his country, but horror stories such as this may indicate Kim’s style may be just that – all style and no substance.

ORIGINAL POST (2012-8-10): JVIC is the DPRK’s Joint Venture Investment Committee. You can read previous posts about the JVIC here.

According to Yonhap:

North Korea has recently signed a deal with China to jointly develop three mines in the North, a North Korean investment firm said Thursday, as the cash-strapped country steps up attempts to earn hard currency from overseas.

A Beijing unit of North Korea’s Committee of Investment and Joint Venture struck the joint development deal with a Chinese international trading company in Beijing on June 9, according to the unit’s Chinese-language Web site.

“The China firm’s president and his parties conducted field inspections into one (North Korean) gold mine and two iron ore mines and confirmed the investment and development scheme,” the Web site said. “Facility building is now well underway for the project,” it said.

Details on the terms of the deal were not provided.

Experts said the deal is the first foreign investment deal announced by the Beijing unit, which is run by the Committee of Investment and Joint Venture in charge of luring overseas capital and investment into the North.

The joint North-China mining venture also illustrates growing exports of underground resources from the North to China, its closest ally and a major source of foreign currency.

Exports of mineral resources to China reached 8,420,000 tons during the first nine months of 2011, growing sharply from the annual volume of 4,799,000 tons in 2010 and 2,480,000 tons for the whole of 2008.

Although Yonhap does not report the Chinese company’s identity, the IBTimes reports that it is named “Baoyuanhengchang”. According to the article:

Baoyuanhengchang confirmed the plans to develop the mines, as per its pronouncement, noting both parties had conducted field inspections.

“Facility building is already underway and everything is going as planned,” it said. No details of the terms, however, were provided.

The pronouncement has been considered a milestone as this was the first time that North Korea publicly announced its efforts in enlisting foreign investors to help develop its potentially vast mineral wealth, Arirang News reported.

I have yet to determine in which specific projects Baoyuanhengchang is investing.

The two most high-profile Chinese mining investments in the DPRK remain the Hyesan Youth Copper Mine (US$860 million, it now holds a 51% ownership) and the Musan Mine (50year lease). The original Musan deal may have fallen through, however, and could possibly be one of the deals included in the Baoyuanhengchang agreement.

However, a warning to the Chinese investors can be found below. According to the Donga Ilbo:

A Chinese conglomerate that tried to advance into the North Korean mining industry has been forced out of the Stalinist country due to contract cancellations.

Calling its past five-year investment in the North “a nightmare,” Xiyang Group has filed for arbitration with the Chinese government.

Based in Liaoning, China, the group said Wednesday that it had set up a joint venture with North Korea in March 2007 to build a plant there that extracts iron from ore. Of the paid-in capital of 47.52 million U.S. dollars, the company put up 75 percent of the amount in cash and North Korea 25 percent for land and mine exploration and also managerial rights for 30 years.

Xiyang company invested 37.14 million dollars, the biggest investment for a Chinese private company in North Korea. Pyongyang approved the incorporation in April 2007.

With a target of 500,000 tons of ore dressing per year, Xiyang sent about 100 workers to North Korea and produced 30,000 tons in April last year. In September last year, however, Pyongyang requested modification of 16 items on the contract including a demand of 4-10 percent of sales of products for using raw materials; 1.24 dollars for every square meter of land leased, and 17 cents per cubic meter of sea water for industrial use.

Xiyang said the demands were not included in the original contract, which was ratified by the North Korean parliament in October 2009.

The conglomerate refused modification of the contract, prompting Pyongyang to suspend the effectuation of the contract and cancel corporate establishment Feb. 7. North Korea also suspended power, water and communication supply at the plant.

Xiyang said that on March 3, North Korean police and 20 security guards went to where the Chinese workers were staying and forced them to ride a bus to deport them outside the Chinese border.

The group said the North requested modification of the contract to steal the ore dressing facility that the country lacked in capital and technology to introduce.

A Xiyang source said, “When our company was established in 2007, North Korea had a law restricting a foreign company`s stake in a joint venture to now more than 70 percent. But the North said the law will be revised soon and requested a 75-percent stake. Eventually, this was a drag.”

“Not only North Korean authorities but also the North Korean company we established ties with had a high-end attitude, including a request for money in U.S. dollars.”

Xiyang Group explained the violation of the contract and put it on the Internet to complain of the injustice. Its complaint is titled “Nightmare in North Korea Investment.”

So the North Koreans are violating a contract which was ratified by the Supreme Peoples’ Assembly? That does not inspire confidence.

Via Choson Exchange, here is a link to Xiyang’s official statement. You can read it in English via Google Translate here. In case the web site is taken down, I have created a PDF of it which you can see here.

It is not really worth the time speculating on the politics behind the scenes. The Daily NK, however, points out that the KPA’s privileges with respect to mineral exports are being curtailed.

In 2007 Xiyang set up the Sohae Joint Venture Company to work the Ongjin Iron Mine (Google Earth coordinates: 37.960294°, 125.368651°) and the Xiyang Paekgumsan Joint Venture (aka Soyang Paekgumsan Joint Venture Co.) to work in haevy industry and construction. Although the story does not mention it, I believe the problems are at the Ongjin Mine. I am unsure of the status of the Paekgumsan Joint Venture.

Posted in Gold, Iron Ore, Joint Venture Investment Committee (JVIC), Mining/Minerals, Supreme Peoples Assembly | 2 Comments »

Changsong County held up as economic example (again)…

Sunday, August 12th, 2012

Pictured above (Google Earth) is Changsong Town in North Pyongan Province.

There has been a lot of talk about economic reform in the DPRK in recent weeks (see here). One of the aspects of these reforms has been greater local/regional control over economic policies and outcomes.

On August 9, the Daily NK reported that Changsong is “again being put forward as a model for the spontaneous economic development of regional cities and counties as the regime works to foster a different mindset prior to impending economic changes”. According to the article:

On the 8th, Rodong Shinmun published an editorial entitled, ‘Let Our Country Be Prosperous in the Spirit of the Changsung Joint Session’ in an edition that also featured seven other related articles. The articles served as a timely reminder of the joint session of central cadres, their provincial counterparts and economic sector officials held on August 7th and 8th in Changsung County.

[…]

Utilizing the history lesson, Rodong Shinmun emphasized, “The fundamental essence of the Changsung Joint Session was increasing the role of the county in developing regional industry and agricultural accounting, and enhanced the people’s lives by the strength of our household itself.”

It went on, “In every city and district, we must resolve to decisively raise the productivity of our land to solve issues of food insecurity, and must thoroughly implement the Party’s agricultural revolution.”

On days prior, Rodong Shinmun, KCNA and other state-run media outlets also reported in various forms the idea that ‘all the counties in the country are going to follow the example of Changsung County.’ For example, on the 7th it introduced a new food processing plant in Changsung County itself.

Analyzing these moves, Kwon Tae Jin, a researcher with the Korea Rural Economic Institute told Daily NK, “When it comes to the agricultural sector, the county is at the center of everything. This is a way of passing the center’s role to the regions at a time when the center (the Ministry of Agriculture) cannot play its role properly.”

“The purpose of emphasizing the responsibility of the Cabinet and the counties at the same time is to readjust the system,” Kwon added, while the head of North Korea Strategy Center, Kim Kwang In added, “Since the center cannot do what it needs to, they want the regions to deal with survival.”

The move is also intended to raise the likelihood of the 6.28 Policy succeeding. In Kim’s words, “The regime is pushing regional self-reliance prior to the announcement of the new policy.”

I have previously written about the “Changsong Joint Conference” here.

Interestingly, this narrative paints the 6.28 policy as an effort to decentralize economic production because Pyongyang can no longer afford the old policies, yet for propaganda purposes, it is being portrayed as the continuation of a movement personally launched by Kim Il-sung 50 years ago!

Changsong has indeed seen a lot of recent construction. According to KCNA (2012-8-4):

County, Model in Local Economic Development

Pyongyang, August 4 (KCNA) — Changsong County, North Phyongan Province of the DPRK, has become a model in the development of local economy in the new century. Great changes have taken place in all aspects of production and construction in a matter of little over one year.

Local industrial factories have been placed on a modern and scientific basis to lay a firm foundation for reenergizing production and improving the standard of people’s living. The county seat has taken on a new appearance to suit the specific features of a county.

President Kim Il Sung provided field guidance of devotion to the county, once known as remote mountainous county, more than a hundred times in his lifetime with a noble intention to turn it into a model to be followed by all other counties.

There began a new history of mountains of treasures in the county under his care. As a result, the Changsong joint meeting of local party and economic officials was held in the county in August 1962.

Leader Kim Jong Il made sure that the spirit of the joint meeting was fully displayed generation after generation. He gave an instruction to the county to raise a new torch for effecting a dramatic turn in the local industry in November 2010.

The dear respected Marshal Kim Jong Un has led a drive to face-lift the county as required by the building of a thriving nation so that the year 2012, the 50th anniversary of the joint meeting, may shine as a proud year and a year of new changes in the development of local industry.

All local industrial establishments in the county have undergone dramatic changes as required by the new century in a matter of little over one year.

All production processes at the foodstuff factory ranging from feeding of raw materials to packing and forwarding have been automated and its overall processes sterilized to ensure high quality and hygienic safety of products.

Its textile mill has installed new type machines. Technological updating has made brisk headway at all industrial establishments in the county including paper, furniture and chemical and daily necessities factories.

There has sprung up a new food processing factory. All its processes computerized, the factory mass-produces processed meat and vegetables, varieties of soft drink, and confectionary.

A garment factory with big capacity has been built to meet the county’s need for school uniforms and solve the issue of clothing by itself.

The appearance of the county has changed beyond recognition.

The county erected a mosaic depicting the portraits of the smiling peerlessly great persons. The Changsong revolutionary museum and the county hall of culture have been successfully renovated as centers for the education in the revolutionary history and people’s cultural and emotional life.

The Changsong Restaurant and a noodle restaurant built with Korean style roofs in the center of the county seat add to the beautiful landscape of the township.

There sprang up the Undok Health Complex with all welfare and service facilities, a children’s hall, kindergarten and nursery.

The library, county people’s hospital, sanatorium, commercial and catering network, public buildings and dwelling houses have also been renovated as required by the new century.

A great success has been made in the land management.

The eye-opening changes in the county promise a socialist land of bliss where all varieties of consumer goods are mass-produced at the local industrial factories and the people enjoy happiness in their modern houses.

On 2012-8-7, the KCTV evening news broadcast images of some of the new construction:

And on August 8, KCNA reported that Choe Yong-rim visited the town:

Senior DPRK Party and State Officials Visit Changsong County

Pyongyang, August 8 (KCNA) — Senior party and state officials including Choe Yong Rim and officials of party, ministries, national institutions and local party, power and economic bodies visited various places of Changsong County, North Phyongan Province on Wednesday on the occasion of the 50th anniversary of the Changsong joint conference of local party and economic officials.

Changsong County is associated with the leadership feats of President Kim Il Sung and leader Kim Jong Il who opened up a wide road of developing local economy and improving the people’s living standard by increasing the role of county as a regional base.

The participants laid bunches of flowers before the newly erected mosaic depicting portraits of smiling Kim Il Sung and Kim Jong Il and made bows to them.

At the Changsong Revolutionary Museum, they looked round historic relics showing the efforts made by the President and Kim Jong Il who ushered in a new history of mountains of treasures, while giving field guidance to the county.

They also went to local industrial factories in Changsong including Foodstuff Factory, Foodstuff Processing Factory, Furniture Factory, Paper Mill, Jute Bag Factory and Okpho Stockbreeding Farm.

They enjoyed a performance given by the art group of the county at its cultural hall.

Posted in 6.28 Policy on Agriculture (June 28), Agriculture, Economic reform, Ministry of Agriculture | Comments Closed

North Korea presents favorable conditions to foreign investors

Monday, July 30th, 2012

Institute for Far Eastern Studies (IFES)
2012-7-27

The Beijing branch of the Joint Venture and Investment Committee of North Korea (JVIC), called the Choson Investment Office, announced on July 18 of various preferential conditions to foreign investors and employment conditions on its website.

The Choson Investment Office opened its doors this year and is the only overseas branch of the JVIC, in charge not only of securing foreign capital but cultural and science and technology exchanges and cooperation.

The website posted an article titled, “Problems Investors Face,” which provided useful information for foreign investors in a question and answer format.

In the article, the employment conditions for workers were included. The minimum monthly wage for workers in North Korea was set at 30 euros or about 42,000 KRW. In addition, foreign companies must pay 7 euros to each employee separately as social insurance. Overtime pay also needs to be paid and at the event of work related injuries or illness, the company is responsible for handling the situation with its board of directors.

In comparison, the minimum monthly wage for North Korean employees in the Kaesong Industrial Complex (KIC) is 110 USD or about 125,000 KRW.

As for preferential tax policies, foreign-capital companies that are not joint venture are exempt from certain taxes including tariffs on exports and resource tax for the development of mines.

North Korea will bear the land use tax, which is 1 euro per square meter, and China and other foreign investors will have no restriction for mining the underground resources.

The income tax rate for the foreign capital companies was specified at 25 percent and business tax between 2 to 10 percent will be collected from transportation, power, commerce, trade, finance, insurance, tourism, advertisement, hotel and entertainment industries.

Power is the main concern for most foreign companies and it will be provided at 0.053 euro per 1,000 kilowatt. The DPRK’s central trade guiding organ will oversee the setting of prices of goods while the trademark rights will belong to the company.

The DPRK’s Joint Venture and Investment Committee was expanded and reorganized in July 2010 from Joint Venture and Investment Bureau, with main activities centered around Hwanggumpyong Island and Rajin-Sonbong development.

The main agents for foreign currency earnings are the cabinet, military, JVIC, and Daepung International Investment Group*. Most of the trading companies are affiliated with one of the four groups.

In March, JVIC announced through the KCNA that “As the investment environment is favorably changing, joint venture and investment contracts are increasing. Investment interests from large companies are rising especially in our abundant rare-earth and underground resources as well as building railroads, roads, and power plants.”

*IFES and Choson Exchange previously discussed the merger of JVIC and “Daephung”

Posted in Electricity, Energy, Foreign direct investment, Joint Venture Investment Committee (JVIC), Joint Ventures, Korea Taepung International Investment Group (Daepung Investment Group), Labor conditions/wages | 1 Comment »

Pyongyang University of Science and Technology (PUST) update

Friday, July 20th, 2012

According to the Asahi Shimbun:

Currently 300 undergraduate and 70 graduate students are enrolled in the PUST’s three departments: electronic and computer engineering; international finance and management; and agriculture and life sciences. Thirty computers, with access to the Internet, are available for graduate students. At least some of those computers seem to be made by Chinese subsidiaries of South Korean electronics giants Samsung Electronics Co. and LG Electronics Inc., he said.

The goal of the university is to nurture personnel capable of working in the international community.

About 50 professors from Europe, the United States, Australia and elsewhere give lectures in English, with the content of the courses left to their discretion, Park said, and lectures on economics include finance, investment, insurance, equity and trade in Europe and the United States.

The students at PUST are selected from among those who have studied at least two years at the country’s top universities, including Kim Il Sung University and Kim Chaek University of Technology. Students live in a dormitory, and tuition and living expenses are free. Each student is given a monthly allowance of $10 (790 yen) in card form, which they can use to purchase daily commodities and school supplies at a campus store.

When a large number of the country’s students were recruited for construction work and other projects in preparation for the 100th anniversary in April of the birth of North Korea’s founder, Kim Il Sung, PUST students received special exemptions.

In September the university plans to send the first three students to study at a British university.

The story also reports “a business school in Pyongyang founded by a Swiss investor is proving popular among bureaucrats and corporate workers,” but I heard as recently as last week that this endeavor has not been operational for a few years.

Read previous articles on PUST here.

Read the full story here:
N. Korea opening up to education on capitalism
Asahi Shimbun
Akira Nakano
2012-7-20

Posted in Education, Pyongyang University of Science and Technology | Comments Closed

Coercion, control, surveillance, and punishment: An examination of the North Korean police state

Thursday, July 19th, 2012

Today The Committee for Human Rights in North Korea (HRNK) is releasing “Coercion, Control, Surveillance, and Punishment: An Examination of the North Korean Police State” (PDF) by Ken Gause.

Here is the table of contents:

Part I: The Internal Security Agencies
–State Security Department (SSD)
–Ministry of People’s Security (MPS)
–Military Security Command (MSC)
–Neighborhood Watch Units (In-min-ban)
–Ad Hoc Social Monitoring Organizations
Part II: What the Internal Security Agencies Do
–Surveillance of North Korea’s Citizens
–Investigation and Detention
–The Role of Internal Security Agencies in Trials
–The Role of the Internal Security Agencies in Prisons
Part III: History of the Internal Security Apparatus
–Formative Years (1945 and 1950)
–Purging the Enemies of the State (1950s and 1960s)
–Kimilsungism and the Monolithic Guidance System (1970–1980)
–Kim Jong-il as Heir Apparent (1980–1994)
–Intrigue Following Kim Il-sung’s Death (1994–1998)
–Kim Jong-il Regime
–Laying the Groundwork for Kim Jong-un’s Succession
–Kim Jong-un Regime
Conclusion
–Appendix I: Biographies of Key Internal Security Officials
–Appendix II: An Example of a North Korean Ministry of People’s Security Decree.180
–Appendix III: An Example of a North Korean Arrest Warrant

Additional Information:
1. Here is coverage in Yonhap

2. Here is coverage in the AFP

Posted in Ministry of People’s Security (Criminal Police), Ministry of State Security (MPSS, NSA, SSD), National Defense Commission | Comments Closed

Insurance in the DPRK

Thursday, July 12th, 2012

Jakub Rehor and Geoffrey See of Choson Exchange post interesting information on insurance in the DPRK:

According to the Choson Exchange:

In the planned, state-controlled economy of North Korea, familiar concepts (including insurance) acquire a very different meaning. In a market economy, insurance coverage indemnifies individuals or corporations for losses suffered due to natural disasters, accidents, sickness, or death. In North Korea, what is called “insurance” functions as a fundraiser for certain entities in the government.

There are two kinds of insurance products in North Korea, individual and enterprise insurance. Both are compulsory and are administered by KNIC (Korea National Insurance Corporation). Compulsory individual insurance is deducted automatically from salaries, and is used to fund the state-run healthcare system. Individuals cannot file claims under this insurance; all payments go into the healthcare system to cover its costs and to other state-directed uses. This individual insurance program was originally administered by Korea Central Bank, but parts of it were moved to KNIC where it formed a new department.

Individuals do not have the option of buying property or life insurance in DPRK. Only state-owned enterprises can use property insurance. Compulsory enterprise insurance covers property losses from all major perils (there is exclusion for war). There are no separate policies or riders for windstorm, earthquake, flooding, etc. Instead, policies specify coverage by type of property (animal insurance, machinery insurance, etc.)

Pricing is set without regard to individual risks and loss history. Rather, insurance operates on a pooled basis, with the goal of roughly matching premiums with claims and administration costs. There are no reserves and the state absorbs any losses or profits. As a result, KNIC has no incentive to care about profitability or correct pricing (and, presumably, service) for local insurance operations priced in North Korean won.

There is no independent regulatory authority in DPRK overseeing KNIC’s activities. In theory, the Central Bank and Finance Ministry should be involved, but in reality they don’t have the expertise or political backing. The only oversight of KNIC comes from the party which provides mainly political supervision.

Given the pooled nature of the compulsory policies and lack of risk-based pricing, KNIC acts mainly as an administrator, collecting premiums and disbursing payments. In this position it functions as a revenue generator for the government via two channels:

1. It fails to pay market replacement value of losses. Claims are settled at official government prices which do not reflect market reality.

2. It has been alleged that KNIC has been involved in reinsurance fraud. Media reports claim that European reinsurers write policies for KNIC which then submits false claims, or retains a portion of the claim settlement payments rather than passing it on to the insured.

The existing insurance arrangements in DPRK are clearly inadequate for the needs of foreign joint ventures operating in the Special Economic Zones. If North Korea hopes to attract foreign investment, it needs to modernize its insurance system to bring it into line with expectations of outside investors.

Posted in Central Bank, Finance, Fiscal & monetary policy, Insurance, Korea National Insurance Corporation | Comments Closed

122 ROK ships affected by GPS jamming

Thursday, May 31st, 2012

UPDATE 4 (2012-5-31): Three arrested in South Korea over GPS jamming. According to the Choson Ilbo:

Spies in South Korea were involved in North Korea’s recent jamming of GPS signals, police said Wednesday. The Seoul Metropolitan Police Agency said it booked or arrested three men on espionage charges of collecting confidential military information to help the North.

They include a businessman identified only by his surname Lee who was formerly a prisoner of war from North Korea, a Korean-New Zealander identified as Kim, and another man who formerly worked for a defense contractor.

Export of electronic jamming devices to some countries including the North is banned.

Lee and Kim, who are engaged in trade activities in Nampo, North Korea and New Zealand, are suspected of attempting to hand over GPS jamming devices and radar systems to Pyongyang at the direction of a North Korean agent.

Police say they have footage of their meeting with the agent and a statement from Kim saying he received an order from the North.

Read previous posts on this topic below:

(more…)

Posted in Arms shipment, Aviation, Illicit activities, Military, Ministry of Post and Telecommunications, Sea shipping, Transportation | 1 Comment »

On DPRK efforts to join UN carbon market

Thursday, May 31st, 2012

UPDATE 14 (2016-12-8): The Pyongyang Times reports on the CDM project:

Various CDM projects obtain CERs

The UN Framework Convention on Climate Change CDM Executive Board recently issued certified emission reductions for the DPRK’s clean development mechanism projects.

Today many countries make great efforts to reduce greenhouse gas emissions as part of the worldwide bid to prevent global warming, the root cause of climate change.

The DPRK also proactively joins in the international efforts.

It signed the Kyoto Protocol, which took effect in 2005, and joined the Paris agreement on climate change signed by 174 countries in August this year.

The agreement, adopted at the UN Conference on Climate Change in Paris in 2015, is aimed at reducing the world’s greenhouse gas emissions to the maximum so that the global average temperatine would not rise more than 2 degrees over that in the 1850s, the pre-industrialization period.

As a signatory to the Paris agreement, the DPRK has worked out 2024 and 2030 greenhouse gas reduction plans and pushed ahead with them.

In keeping with the trend when the sales of carbon dioxide emission rights have emerged as CDM and CDM activities are brisk in the world environmental protection market, a non-permanent CDM committee has been set up in the Cabinet and the General Bureau for Cooperation with International Organizations of the Ministry of External Economic Relations plays the role of its secretariat.

While coordinating all CDM project activities in the country, the secretariat also undertakes issuance of CERs for various CDM project activities on the basis of agreements on cooperation for the development of CDM projects with CER buyers, Topic Energo of the Czech Republic and Ohana LLP, Britain.

In the course of this, several projects were registered as CDM projects by the CDM Executive Board. They include Ryesonggang Youth Power Station units 3, 4 and 5, Hamhung Youth Power Station unit 1, Kumyagang Power Station unit 2, Paektusan Hero Youth Power Station unit 2 and package projects for “Treatment of waste water from chemical factories in the DPRK” and “Collection and use of methane gas from coal mines in the DPRK”.

The secretariat ensured that Paektusan Hero Youth Power Station unit 2 and Ryesonggang Youth Power Station unit 4 obtained CERS for the first time after receiving international certification for their power generation in May.

Their CERs issued amount to 15 800 and 27 807 tons respectively.

The secretariat now works to achieve international certification of other registered CDM projects.

By Jong Hwa Sun PT

UPDATE 13 (2014-11-28): The Ryesonggang Youth Power Station No.4 has been completed. According to KCNA:

New Power Station Goes Operational

Kumchon, November 27 (KCNA) — Ryesonggang Youth Power Station No. 4 went operational.

President Kim Il Sung indicated the orientation of building the power stations on the Ryesong River. Leader Kim Jong Il visited the construction sites several times, setting forth tasks and ways for the construction and bestowing loving care and benevolence on the builders.

Marshal Kim Jong Un appreciated the achievements of the people in North Hwanghae Province when he visited Ryesonggang Youth Power Station No. 1. He not only took measures for finishing the construction of Ryesonggang Youth Power Station No. 2 by the concerted efforts of the army and people but also led the construction of Ryesonggang Youth Power Station No. 4.

The completion of Ryesonggang Youth Power Station No. 4 is another success in implementing the behests of Kim Il Sung and Kim Jong Il to settle the acute shortage of electricity in the North Hwanghae Province by building power stations on the Ryesong River. It also helped lay a more solid foundation for developing economy and improving the living standard of the people in the province.

The completion ceremony took place on Thursday.

Present at the ceremony were Tong Jong Ho, minister of Construction and Building-Materials Industry, Pak Thae Dok, chief secretary of the North Hwanghae Provincial Committee of the Workers’ Party of Korea, and others.

Here is KCTV footage (7:21). Here is UNFCCC data.

UPDATE 12 (2012-12-13): Robert Winstanley-Chesters has some additional data here.

UPDATE 11 (2012-11-25): The DPRK has registered four more power plants with the UNFCCC CDM project.

1. Paekdusan Songun Youth Power Station No. 2 (백두산선군청년2호발전소)
Registered July 13, 2012

Pictured Above (Google Earth): The approximate location of the Paekdusan Songun Youth Power Station No. 2

The UNFCCC documents on the registration of the power plant can be seen here.

Total installed capacity of the project will be 14 MW, consisting of two sets of 7 MW hydropower turbines and associated generators.

According to the UN documents, the project is expected to be put into operation on January 1, 2014.

The organizations listed on the document are the Namgang Hydropower Construction Complex and Topič Energo s.r.o. (Czech Republic)

2. Ryesonggang Youth Power Station No. 4 (례성강청년4호발전소)
Registered July 20, 2012

Pictured Above (Google Earth): The approximate location of the Ryesonggang Youth Power Station No. 4.

The UNFCCC documents on the registration of the power plant can be seen here.

The installed capacity of the project is 10 MW, which consists of 4 sets of generating facilities with a capacity of 2.5 MW each. The project will generate the electricity energy of 40,030 MWh and supply 38,640 MWh to the WPG in a year.

According to the UN documents, the project is expected to be put into operation on December 1, 2012. This facility was last featured on the DPRK evening news on 2012-11-8. See the footage here.

The organizations listed on the document are the Kumchon Electric Power Company and Topič Energo s.r.o. (Czech Republic).

3. Ryesonggang Youth Power Station No. 5 (례성강청년5호발전소)
Registered August 22, 2012

Pictured Above (Google Earth): Construction work on the Ryesonggang Youth Power Station No. 5.

The UNFCCC documents on the registration of the power plant can be seen here.

The installed capacity of the project is 10 MW, which consists of 4 sets of generating facilities with a capacity of 2.5 MW each. The project will generate electric energy of 41,150 MWh and supply 40,616 MWh.

Organizations listed in the document include the Kangdong Hydro Power Construction Company and Topič Energo s.r.o. (Czech Republic).

According to the documents, the project is planned to be put into operation on May 1, 2012. The most recent Google Earth satellite imagery is dated Spetember 5, 2011 and the last time the project was featured on North Korean television was November 5, 2011. I am skeptical that the project was finished on time since the opening of the dam has yet to be announced publicly.

4. Ryesonggang Youth Power Station No. 3 (례성강청년3호발전소)
Registered October 23, 2012

Pictured Above (Google Earth): Construction work on the Ryesonggang Youth Power Station No. 3.

The UNFCCC documents on the registration of the power plant can be seen here.

The project with an installed capacity of 10 MW, 4 sets of generating facilities with a capacity of 2.5 MW
respectively. The project will generate the electricity energy of 42,800 MWh and supply the electricity of 41,310
MWh.

Organizations listed in the document include the Tosan Electric Power Company and Topič Energo s.r.o. (Czech Republic).

Though the plant is supposed to go into operation on July 1, 2012, the most recent Google Earth imagery from 2012-11-8 shows the plan remains uncompleted. The last time the plant was featured on North Korean television was 2011-6-25.

UPDATE 10 (2012-10-23): The DPRK has registered its second CDM project: Kumya Hydro Power Plant. (AKA Kumyagang Power Station No. 2, 금야강2호발전소)

Here is the official UN web page containing all of the technical information.

Here is a Google Earth satellite image featuring the dam and power station (39.552132°, 127.156062°):

The Hanns Seidel Foundation (Facebook page here) visited the site and took this photo:

KCTV footage dated 2014-9-16 shows a completed Kumya Hydro Power Plant (AKA Kumyagang Power Station No. 2). See the footage here.

UPDATE 9 (2012-8-16): The DPRK’s first CDM project registered: Hamhung Hydro Power Plant No. 1 (AKA Hamhung Youth Power Station No. 1)

Pictured above (date unknown): On Bing Maps (coordinates: 39.648086°, 127.269219°) we can see construction is underway

A valued reader notified me this morning that the DPRK’s first CDM project was registered in July: The Hamhung Hydro Power Plant No.1.

You can read more about the project on the UN web page here. As I understand it, the CER (the emissions rights) from the plant do not go directly to North Korea but to a Czech company who co-registered the project. It will become operational on January 1, 2013.

UPDATE 8 (2012-6-5): In addition to the seven power plants submitted for approval below, the DPRK is involved in several other “Programmes of Activities (POAs)“. You can see all the POAs by clicking here and selecting DPRK as “Host Country”.

Here is a summary:

1. Methane Utilization and Destruction Programme from Animal Waste Management System (AWMS) in DPR Korea

2. Methane Utilisation and Destruction Programme from Industrial Wastewater in DPR Korea

3. CarbonSoft Open Source PoA, LED Lighting Distribution: Emerging Markets

4. Coal Mine Methane Utilisation and Destruction Programme in DPR Korea

5. International water purification programme

6. CFL Lighting Scheme in Democratic People’s Republic of Korea (DPRK)

UPDATE 7 (2012-6-2): The creator of Nord Korea Info passed along the following information on the DPRK’s CDM projects:

1. Naenara, one of the DPRK’s official news outlets, has posted numerous CDM documents. You can see them here.

2. Information posted to the UNFCCC web page on specific CDM projects:

A. Kumya Hydropower Plant (AKA Kumyagang Power Staiton No. 2)
B. Ryesonggang Hydropower Plant No.3 (Comments) (AKA Ryesonggang Youth Power Station N. 3)
C. Ryesonggang Hydropower Plant No.4 (Comments) (AKA Ryesonggang Youth Power Station N. 4)
D. Ryesonggang Hydropower Plant No.5 (Comments) (AKA Ryesonggang Youth Power Station N. 5)
E. Paekdusan Songun Youth 14MW Hydropower Project No.2 (AKA Paektusan Songun Youth Power Station No. 2)
F. Wonsankunmin Hydropower Project No.1 (Comments) (AKA Wonsan Army People Power Station No. 1)
G. Hamhung Hydropower Plant No.1 (AKA Hamhung Youth Power Station No. 1)

No new information is available on the Hamhung 20MW Hydropower Plant No. 2 (AKA Hamhung Youth Power Station No. 2). So I am unsure what has happened to it.

UPDATE 6 (2012-5-31): Bloomberg Businessweek reports on the DPRK’s efforts to sell carbon credits:

[U]nder the terms of the [Kyoto] protocol, North Korea, as a developing country and a member of the United Nations, has the right to build clean energy projects that may apply for Certified Emission Reductions, or CERs, popularly known as carbon credits. The North Koreans can then sell them to a rich country or company that needs the credits to offset its own greenhouse gases. Dig into data from the UN’s Framework Convention on Climate Change, and you will find seven North Korean projects registered for carbon trading.

This is where Miroslav Blazek comes in. Blazek, director of Czech company Topic Energo, acts as a link between North Korea and potential carbon credit buyers. He says his experience as manager of a tractor factory in socialist-era Czechoslovakia is invaluable for doing business with the communist North Koreans. “I can work with them because I understand how their system works,” he says. “If I send an e-mail and still don’t have a reply in several days, I know it’s not because they didn’t see it but because it had to work its way through the chain of command. For me it’s like a trip down memory lane.”

North Korea is now building seven hydroelecrtric plants, which provide some of the cleanest energy going. Most can earn tradable carbon credits. Blazek says the North Koreans “jumped” at the opportunity to get into carbon trading: “They immediately grasped that this is a way to make money.” Korea’s seven dams may generate as many as 241,000 CERs a year, worth almost €1 million ($1.3 million). “The projects are already in a relatively advanced phase,” says Ondrej Bores, director of carbon advisory services at Virtuse Energy in Prague, who’s worked with Blazek on other deals.

Still, selling anything made in North Korea has its challenges. More than 30 potential buyers pulled out because of the U.S. embargo on trade with North Korea. Blazek finally struck a deal with a Chinese-controlled conglomerate that needs credits to offset emissions from facilities in Europe. He won’t name the company, citing a confidentiality clause.

The Prague Post also reported on this story.

UPDATE 5 (2012-2-14): I have been notified that the certification program is proceeding. From a reader:

There has been a statement by the 1718 committee (on sanctions) that CDM projects in NK do not violate UN rules.

[Seven] hydropower plants did get their validation and underwent a process of “clarifications and corrections” as foreseen by UN rules. After the final report (which might have been already issued or might be issued soon) they will go for final vote to the UNFCCC.

Currently, North Korea works on projects as diverse as methane gas from coal mines, bio-gas and electricity-saving light bulbs.

UPDATE 4 (2011-7-11): I just checked the UNFCCC web page, and it appears that in addition to the hydro power plants mentioned below, the North Koreans also submitted the “Energy Efficiency Improvement Project in Pyongyang Textile Factory” [sic] for carbon offsets on May 23, 2011. According to the UNFCCC web page, the project is in the portfolio of the Carbon-Trade Division, GBCIO, Ministry of Foreign Trade.

UPDATE 3 (2011-7-11): DPRK begins construction of Ryesonggang Power Stations 3 and 4

On June 25th the DPRK evening news featured footage of the construction of the Ryesonggang Youth Power Station No. 3 (례성강청년3호발전소). I have uploaded the footage to YouTube and you can see it here.

On June 28th the DPRK evening news featured footage of the construction of the Ryesonggang Youth Power Station No. 4 (례성강청년4호발전소). I have uploaded the footage to YouTube and you can see it here.

UPDATE 2 (2011-3-11): The DPRK has apparently registered eight power plants with the UNFCCC. According to Reuters:

North Korea has registered eight hydroelectric plants with the United Nations, and if approved, could allow the world’s most reclusive state to sell carbon offsets to earn precious hard currency.

These hydropower projects were registered with the United Nations Framework Convention on Climate Change (UNFCCC) for prior consideration in getting carbon credits, some of which have a capacity of 20 megawatts, the UNFCCC website showed.

Prior consideration is the first step for accreditation toward the U.N.’s Clean Development Mechanism that allows developing countries to earn tradeable carbon credits for emissions from clean-energy projects.

Bernhard Seliger, a messenger for North Korean officials on these projects, said the United Nations uploaded the information on Thursday after he submitted related forms on behalf of the North Korean government’s carbon trade division in late February.

“I have no idea when the U.N. makes a decision… North Korea has to finish the power plants, which up to now are only half-finished dams,” Seliger, Hanns Seidel Foundation’s representative in South Korea, told Reuters via email.

Analysts questioned the demand for carbon credits from North Korea, concerned the money might be siphoned off to nuclear arms or other military projects.

According to the UNFCCC web page (select Democratic People’s Republic of Korea in the “Host Party” box), these are the eight power stations that have been submitted for consideration:

Hamhung Hydropower Plant No.1 (AKA Hamhung Youth Power Station No. 1)
Hamhung 20MW Hydropower Plant No. 2 (AKA Hamhung Youth Power Station No. 2)
Kumya Hydropower Plant (AKA Kumyagang Power Station No. 2)
Paekdusan Songun Youth 14MW Hydropower Project No.2 (AKA Paektusan Songun Youth Power Station No. 2)
Ryesonggang Hydropower Project No. 3 (AKA Ryesonggang Youth Power Station N. 3)
Ryesonggang Hydropower Project No. 4 (AKA Ryesonggang Youth Power Station N. 4)
Ryesonggang Hydropower Project No. 5 (AKA Ryesonggang Youth Power Station N. 5)
Wonsangunmin 20MW Hydropower Project No. 1 (AKA Wonsan Army People Power Station No. 1)

And according to an email from the UNFCCC:

This list contains all the projects which have already started and for which a notification of CDM prior consideration has been submitted. This notification is necessary to prove that the incentive of the CDM was a decisive factor for taking up the project when a project has started before a project design document (PDD) has been published for global stakeholder consultation or a new methodology in connection with the project has been submitted. However, kindly note that these projects have not yet entered the CDM project cycle as lined out in the CDM rules, requirements and procedures, and to submission for registration has yet been made.

Further details on the CDM project cycle are available here: http://cdm.unfccc.int/Projects/diagram.html

UPDATE 1 (2011-3-8): According to the Guardian:

North Korea hopes to earn much-needed hard currency by selling UN-backed carbon offsets from a series of hydro-power projects, as the country faces sanctions over its nuclear weapons programme.

If approved and registered by the UN, these would be the first projects for North Korea under a scheme called the Clean Development Mechanism (CDM). This allows developing countries to earn tradeable carbon credits for emissions reductions from clean-energy projects.

Some analysts questioned the demand for carbon credits from North Korea, with fears the money might be siphoned off to nuclear arms or other military projects.

The government has asked the Hanns Seidel Foundation of Germany, which focuses on humanitarian issues, to act as a go-between by working with UN-approved verification agency TUV Nord.

According to Bernhard Seliger, the foundation’s representative in South Korea, North Korea is initially looking at trying to get approval for three hydro power plants of 7-8 megawatts (MW).

Seliger visited the three hydro-plant construction sites in the north-east corner of the country in January.

In a statement, TUV Nord confirmed the foundation had engaged their services.

“In this respect, TUV Nord intends to verify hydropower dams in North Korea once pre-registered with United Nations framework conventions on climate change [UNFCCC] via the Beijing branch of its Chinese subsidiary TUV Nord Guangzhou,” it said.

If registered, the plants could yield millions of euros over several years.

Beijing-based lawyer Tom Luckock, who specialises in projects that curb greenhouse gas emissions, estimated that an 8 MW hydro plant could yield about 23,000 UN offsets a year.

The offsets, called Certified Emissions Reductions (CERs), are generated from registered CDM projects, such as wind farms, that are rewarded for reducing greenhouse gas emissions.

The offsets currently trade at nearly €12 (£10) each and are bought by governments in rich nations that need to meet UN emissions reduction targets.

Europe is the biggest buyer, with large polluting firms allowed to buy the offsets to meet a portion of their emissions reduction targets under the EU’s emissions trading scheme.

“Finding ways to secure foreign currency is the priority for North Korea, which is linked to everything from food to raw material imports to boost reduced productivity,” said Cho Myung-chul, a senior researcher at the Korea Institute for International Economic Policy.

…

Seliger said North Korea, which signed the UN’s Kyoto Protocol climate pact in 2005, was also interested in biomass power generation projects under the CDM.

The UN-approved national agency that assesses and approves CDM projects in North Korea was not available for comment.

Questions remained on demand for North Korean CERs.

“Even if they open up, who in the world wants to pay for North Korea that is blamed for its nuclear weapons programme?” said Choi Soo-young, a senior researcher at the Korea Institute for National Unification.

Cho said the UN needed to prevent outside cash going into its nuclear development activities, while Luckock, of global law firm Norton Rose, said: “Their limited access to hard currency has to be a concern for buyers – the damages clauses will carry limited weight without some security there.”

Another challenge is that North Korea would have to make public its energy consumption and generation data and disclose information on the amount of energy linked to the hydro project.

“Annual inspection, constant measurement and energy flow posting on the [UNFCCC] website – all these things are new for North Korea,” Seliger said.

According to the AFP:

“We are talking about eight power plants, with the smallest size about 7.5 megawatts. These are not big projects but small or medium-sized projects,” Bernhard Seliger told AFP.

None has yet been completed, he said.

“I saw some (construction) sites in South Hamkyong province but that’s not all. There are other plants in other regions,” Seliger said, adding that some of the projects are led by the UN Development Programme.

The Hanns Seidel Foundation has been working since 2003 to build the North’s development capacity, and in 2008 organised a seminar on carbon trading for Pyongyang officials at their request.

The tradeable credits, called Certified Emissions Reductions, are awarded for approved clean-energy projects such as hydropower plants or wind farms.

Big polluters elsewhere in the world can buy them as part of their efforts to cut emissions.

Seliger said his foundation is helping the North to prepare for the auditing process required to join the UN carbon credit trading system known as the Clean Development Mechanism.

“One good thing about this project is that it is very transparent, involving monitoring and auditing on an annual basis… I think it is very good for North Korea to participate in such an international regime,” said Seliger.

An official at a South Korean state agency, the Korea Energy Management Corp, said registration would take at least a year or two and it was unclear how much the North would be able to earn if approved.

The official, who declined to be identified, said a typical eight-megawatt hydropower plant could yield about 19,500 carbon credits each year, each of which was currently traded at 12 euros in global markets.

This would amount to around $327,000 a year.

But some buyers may shun the communist state, given its history of nuclear and missile development which has led to international sanctions.

“Government buyers will certainly shy away from dealing with the North,” said Koo Jung-Han, a researcher at the Korea Institute of Finance.

“But private companies have few reasons not to buy credits from the North as long as it can offer a competitively low price. However, the big question is whether the North will be able to build the plants without outside financiers.”

Koo said that countries hoping to buy carbon credits from upcoming overseas projects often encourage investment in the ventures by their own finance companies.

“But what kind of financial companies will take a plunge in projects in such a volatile, politically risky country like North Korea?”

The North suffers persistent power shortages even in the showpiece capital Pyongyang.

Many rural areas receive power only during key agricultural seasons, and must rely for the rest of the year on alternative fuels, according to a recent policy paper published by the Nautilus Institute think-tank.

Here are the web pages for the Hanns Seidel Foundation and the UNFCCC Clean Development Mechanism (CDM) Program.

A reader writes in with the following comments:

I would like to share some comments on the potential CDM projects in north Korea as i have been working on this field for many years now.

Concerning existing hydro-power plants:
To be eligible as a CDM project, one of the first criteria is the additionality of the project. You have to prove (the rules are very strict) that the project would not have been launched without the consideration of the revenues from the reselling of the CERs. So the dams that have already been buit are not eligible.

Concerning hydro-power plants that are being implemented:
The first step of a CDM project is to notify to the UNFCCC secretariat and to Designated National Authority (in this case the Secretariat of the National Coordinating Committee of Democratic People’s Republic of Korea for Environment) that you are seeking to establish your project as a CDM project. Up to now, no such notification has been received by UNFCCC so it would be quite difficult for projects being implemented to ask for the CDM status (I mean nearly impossible).

Some facts concerning future hydro-power projects:
From the day you send the notification that you are seeking the CDM status to the day you are actually given the status, it takes in average 2 to 3 years (they would have to build the plants during this period). Then it can be at least another year before you receive the CERs. The price of 12 euro for a CER is for secondary market. The price for primary CER (directly sold by the producer) would be much less than 8 euro.

The figure of 20 000 CERs/year is completely unpredictable for the moment, here is a simplification of the calculation: One CER is equal to one tonne of CO2 equivalent that would be avoided by producing clean electricity. For example when you produce 1 MW electricity from coal, the process releases X tonnes of CO2 in the atmosphere but when you produce 1 MW from a hydropower plant, you do not release CO2. In order to calculate what the CDM project would be able to claim, we would have to know the CO2 emission factor of the North Korean grid and then multiply it by the amount of MWh produced by the CDM project. If most of the electricity produced these days in North Korea already comes from hydro-power plants, then the national emission factor will be low and the CDM project will not avoid a lot of CO2 emission (and so not earn a lot of €) Without the capacity of the future project and the national emission factor, it is impossible to estimate the amount of CERs the project could generate.

The CDM status seems quiet unrealistic to obtain for North Korean projects but other international agreements are discussed these days and their outcome may be more adapted.

ORIGINAL POST (2011-1-31): According to Radio Free Asia:

Nuclear-armed but cash-starved North Korea has expressed interest in joining the world carbon market in an apparent bid to earn precious hard currency and avoid international sanctions, an expert told RFA.

But the secretive Kim Jong Il regime has to disclose critical information, such as energy consumption data as well as methods by which it derives energy, to be eligible for funding under the United Nations’ Clean Development Mechanism (CDM), said the North Korea expert, speaking on condition of anonymity.

The CDM is aimed at encouraging companies or organizations in the developed world to invest in carbon dioxide emissions-saving projects in developing countries.

In return for funding and technology transfer, investors receive carbon credits, which can then either be traded on carbon markets or used to reduce their own emissions tally if they are subject to a domestic cap.

The Kyoto Protocol set emission caps for 38 countries through 2012, establishing the CDM as a worldwide carbon market. It is a cornerstone of the group’s efforts to tackle global warming.

The North Korea expert told RFA on Jan. 13 that Pyongyang intended to apply for funding via the CDM and that the regime might list its proposed hydro-electricity power projects under the U.N. mechanism.

UN refrains from comment

When contacted on the North Korea move, the U.N. Framework Convention on Climate Change (UNFCCC), the secretariat charged with implementing the global environmental treaty to stabilize greenhouse gas concentrations, said it would refrain from commenting on individual country projects.

The North Korea expert estimated that one ton of carbon dioxide would trade for about U.S. $26 dollars and if a hydro-electric power project was registered under the CDM, depending on the carbon credit bid price, about U.S. $1 million dollars could be earned annually.

A hydro project registered under the CDM would need to be evaluated by U.N. inspectors for it to qualify for carbon credits. Usually, it would be evaluated continuously for about 14 years.

Details, including the amount of energy linked to the hydro project and potential reduction of greenhouse gas emissions, would have to be submitted.

North Korea has been mostly reluctant to share information about its energy generation activities.

According to the expert, North Korea has recently displayed “great interest” in the possibility of operating hydro-electric power stations to alleviate its domestic energy shortages and to acquire “carbon credits” that it could, in turn, sell on the international carbon market.

Hard currency

As North Korea’s economic crisis worsens, Pyongyang is seeking ways to earn hard currency following a failed currency reform and due to sanctions imposed by the international community over its nuclear and missile developments and provocations targeting South Korea.

The interest in the CDM is likely to be part of this search.

The North Korea expert also said that earning hard currency through “carbon credits” would not be subject to sanctions imposed on Pyongyang under UN Security Council resolutions, and that any North Korea’s application for participation under the CDM “may stand a chance.”

“For North Korea, this could be an opportunity to earn hard currency without engaging in illegal armament sales, while operating an electric power station in transparent fashion, and accepting strict monitoring by the UN, and abiding by applicable international standards.”

The United States has been pressing China to use its influence to persuade North Korea regime to end recent provocations and return to disarmament talks involving the three countries and South Korea, Russia and Japan.

The six-party nuclear talks were last held in 2008. The impoverished North has been seeking a restart to the nuclear negotiations, which propose to reward its gradual nuclear disarmament with phased infusions of economic aid.

In a bid to renew dialogue and ease chances of conflict, South Korea recently proposed holding a preliminary meeting with North Korea on Feb. 11 to prepare for high-level defense talks. On Friday, the North suggested parliamentary talks between the two sides.

Read the full story here:
North Korea Eyes Carbon Market
Radio Free Asia
1/29/2011

Posted in Dams/hydro, Electricity, Energy, Environmental protection, Finance, Fiscal & monetary policy, Forestry, Google Earth, Hanns Seidel Foundation, International trade, Lumber, Ministry of Foreign Trade, UN, UN Security Council, UNFCC | Comments Closed

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