Russian 'Power Politics', North Korea and the Future of Northeast ...

Tag : Locomotive Spring

Russia’s energy holdings provide Moscow with powerfulleverage on the international stage, a status not seen since theend of the Cold War. Expectations about East Siberian energyreserves have risen especially after April 2006, when Russiastarted building the $12.5 billion Taishet-Skovorodino-Kozmino oilpipeline. A series of disputes over what route the pipeline wouldtake preceded the final decision. [8] Initially, China’sDaqing was considered as the destination for a shorter and cheaperprivate-owned pipeline. This plan was lobbied by the then powerfulYukos CEO, Mikhail Khordokovsky. However, the Kremlin and statebureaucracy promptly intervened, jailing the beleaguered oligarchand redirecting the pipeline to the Pacific coast of the RussianMaritime Province.

Russia’s primary goal is to develop its sparsely populatedFar Eastern region, which consists of nine territories that areextremely heterogeneous in political, social and economic terms.Each of the nine Far Eastern members of the Russian Federationessentially has its own political system, its own business elites,and enjoys a degree of autonomy, making the coordination of commongoals for the region very difficult. [9] Thus, development projectsthat would benefit such provinces are in Moscow’s interest.Still it was primarily the international policy factor that playedthe major role in influencing the final decision to direct the oilpipe on the Russian coast of the Pacific.

In a sideline meeting at the 2005 Asia-Pacific Economic Cooperation(APEC) forum in Busan, Russia’s President Vladimir Putin metwith then Japanese Prime Minister Koizumi Junichiro and officiallyoffered the Eastern Sea (Sea of Japan) as the destination for thepipeline in question. Koizumi reportedly reciprocated by sayingthat Japan would back Russia’s bid to join the World TradeOrganization (WTO). [10] In order to keep China happy, it wasdecided that the branch pipeline would extend from Skovorodino toDaqing. Although the pipeline's first stage (Taishet-Skovorodino)was due to be completed in 2008, a corruption scandal andenvironmental concerns postponed the estimated date of completionto 2009. [11] Construction of the 2,100 km-long second stage fromSkovorodino to the Pacific would start after the launch of thefirst stage and, therefore, cannot be commissioned before 2015 oreven 2017. In the meantime, oil will be delivered to consumers byrailway.

Russia’s natural resources have already become a crucialfactor for regional economic development. Along with access toSiberian oil, China and Japan are vying for Russian natural gas.Indeed, the mood at a September 2006 multinational energyconference in Seoul – “Toward Regional EnergyCooperation in Northeast Asia: Key Issues in the Development of Oiland Gas in Russia” – testifies to this. [12] Answeringa multitude of questions from Chinese, Japanese, and South Koreansregarding where exactly its gas would be going in East Asia,Gazprom Counselor Alexey Mastepanov did not stop repeating –"Gas must be produced only after it is sold.” Theproblem, however, remains in negotiating a suitable price, whichuntil now has stopped the construction of the new gas pipeline fromRussia and opens opportunities for competitors in Central Asia.[13]

Such a pragmatic approach to energy cooperation with neighboursalso suggests that any cooperation between Russia and North Koreawill be based on a purely economic factors. Deputy Director of theRussian Ministry of Industry and Energy Igor Scheulov confirmedthat Russia maintains regular contact with the DPRK concerningenergy cooperation at both the corporate and government levels. Alarge pipeline project was supposed to send natural gas from theKovyktinskoye field in Irkutsk province through China to SouthKorea. One of the routes under consideration would have gonethrough North Korea and it was envisaged that Pyongyang wouldreceive free natural gas in lieu of a pipeline transit fee. [14]

Nevertheless, despite enthusiasm for the idea, it seemed clear thatrunning a pipeline through an impoverished and rapidly nuclearizingNorth Korea was risky. Due to both cost and security concerns theDPRK was left out in the results of a November 2003 preliminaryfeasibility study conducted by Chinese, Russian and South Koreancompanies. Tentative agreement was reached on a pipeline route thatwould go from Irkutsk through China to the port of Dalian and underthe Yellow Sea (West Sea) to South Korea;s Pyeongtaek. North Koreawould be bypassed out of fear that Pyongyang might have too muchcontrol over the supply of gas to the South. [15]

When Gazprom took control over this project in 2005, it startedchanging the terms of the proposed deal. Reserving the gas fromKovykta for domestic use, the Russian side offered China and SouthKorea the natural gas from the still underdeveloped Chayandinskoyefield in Sakha. In that case the pipe route would pass throughKhabarovsk and Nakhodka, approaching the Korean Peninsula from theeast. Upon learning this news the South Korean Kogas Corporationrefused to sign the deal as it would have been much costlier and,ultimately, devoid of economic sense. The poor level of customerservice by the state-owned Gazprom and the low demand for liquefiednatural gas in South Korea (only 13 percent of energy consumption)were blamed for the failure of this project. [16]

The prospects for the export of Russian electric power to thecountries of Northeast Asia, as well, depend as much on politicalwill and stability in the region as on the state of NorthKorea’s power grid infrastructure. At present the Far-Easterndivision of the Russian government-controlled RAO Unified EnergySystem is considering several different projects, which are aimedat helping North and South Korea to satisfy their energy needs.According to one plan, Russia will direct electricity from theBureyskaya Hydropower Plant via the DPRK to the Republic of Korea(ROK). The high-voltage (500 kilovolt) electrical powertransmission lines can be fixed very high above the ground to makeillegal tapping into or interruption of electricity by the Northunlikely. Neither will South Korea be able to exert any pressureupon the DPRK: power allocated for the North will go along aseparate line because the electrical grids in the two Koreas aretechnologically different. Another plan suggests that Russia willbe able to provide 800 MW of electric power to North Korea in lieuof the energy promised by South Korea to that country.

Earlier projects, which would have connected the Russian energynetwork with the two Koreas, failed because South Korea did notwant to be in a position of dependency on oil or gas being pipedthrough the North. [17] The tense international atmospheresurrounding North Korea’s nuclear ambitions continues toadversely affect the prospects of Russian energy supply inNortheast Asia. Certainly, a trilateral agreement would be neededto realize this. In the meantime, RAO Unified Energy System isexploring the more stable markets of north-eastern China and Japan.

Russia - North Korea cooperation

Since the early 2000s, overall relations between Russia and theDPRK have been improving. The DPRK’s importation of refinedoil from Russia saw its first increase in 2002-2003 (from $20million to $96 million) and was caused by the beginning of US-DPRKnuclear confrontation and the subsequent demise of theinternational KEDO project. During 2004–2005, petroleum tradebetween Russia and North Korea grew from $105 million to $172.3million. Until the Six-Party Talks produced their first results,oil products dominated Russia’s exports to the DPRK with 63percent. The rampant corruption in both countries also let atrickle of Russian oil to be smuggled to North Korea. [18]

In 2006, Russia was the DPRK’s third largest trade partnerafter China and South Korea, accounting for 9 percent of the $3.18billion dollars spent by the North on imports (approx. $286million). The Kremlin’s approval of international sanctionsagainst the former communist ally was accompanied by curtailment oftrade with the North. At the time of North Korea’s nucleartest in October 2006, Russia’s statistics showed thatpetroleum exports had dropped 91.1 percent from the same period ofthe previous year.

The pragmatic mood in bilateral relations prevails, and these daysRussia delivers oil and food to North Korea only in accordance withits obligations associated with progress at the Six-Party Talks.This year, Russia has already delivered 100,000 tons of fuel oil tothe DPRK in two batches and, according to Russian Deputy ForeignMinister Alexei Borodavkin, a top Russian envoy to the Six-PartyTalks, will deliver another 100,000 tons by October 2008. [19] InJune 2008, the Russian government announced that it would provide2,860 tons of flour to the DPRK. According to the official KCNAnews agency report, this food aid arrived at the border city ofSinuiju in the DPRK's Northern Pyongang Province in early July2008. [20]

Recently, for the first time in the post-Soviet era, North Koreasaw a major Russian investment. In the city of Pyeongseong theRussian auto plant KamAZ opened its first assembly line,specialising in the production of medium-size trucks named“Taebaeksan-96”. Although less than 50 trucks wereassembled in 2007 this cooperation became an important milestone inthe development of bilateral relations. While the projectdoesn’t violate United Nations sanctions on North Korea, itshows Moscow’s drive to expand its influence in the country.Ironically, the more trucks assembled the heavier NorthKorea’s dependence on imported fuel, engine oils and otherpetrochemical products.

The importance of DPRK’s the Rajin-Seonbong Special EconomicZone to Russia’s national interests continues to grow. Thestate-run monopoly OAO Russian Railways is currently upgrading itsconnections with North Korea in Khasan-Tumangang, investing atleast 1.75 billion roubles ($72 million) in the project, and plansto participate in an ambitious plan to rebuild a trans-Koreanrailway. By connecting Rajin (and the rest of northern Korea) toits Trans-Siberian Railroad, Russia is hoping to benefit from thetransit of South Korean and Japanese cargo which could be sent viaits territory to Central Asian and European markets. Pyongyangseems to endorse these plans and other Russian initiatives but hasnot committed any financial resources. [21]

Eighty percent of the overall bilateral economic trade betweenRussia and North Korea consists of cooperation, barter andinvestment-in-kind between the regional areas. The most activeRussian regions trading with the DPRK are Eastern Siberia and theFar East. The Maritime Province (Primorsky Krai) itself exports toNorth Korea more than $4 million worth of refined oil per year.There are no oil fields in the Russian Maritime Province and oilhas to be obtained through a chain of federal bureaucraticstructures from the oil-rich areas of Eastern Siberia. Instead ofmoney, the local governments agree to receive the labour of NorthKorean workers.

North Korean labourers in Siberia and the Far East were commonunder the Soviet system and they are still visibly present. In2004, the Russian Federal Immigration Service issued 14,000 visasfor foreign labourers, of whom North Korean labourers in Russianumbered 3,320 in 2005 and 5,000 in 2006. Since the DPRK has noother way to pay in goods or services its government started payingfor oil imported from Russia by dispatching thousands of labourers.Following strong demand from local companies, in 2006 regionalauthorities of Primorsky Krai agreed to issue 5,000 more workingvisas to North Koreans. [22] This openness is in contrast to localgovernment policy that normally restricts the entry of labour fromChina.

DPRK citizens are sent to Russia work as woodcutters and buildersbut some have also found work in the agricultural and marineindustry. Russia has enjoyed a partial repayment of DPRK'spost-Soviet debt through North Korean workers being contracted towork in mines and lumber mills in Russia's Far East. [23] The wagesthey are able to make in Russia are far greater than what theywould make at home. However, the foreign worker quota is set not byprovincial governments but by Moscow that often tries to curb theseprograms due to the complexity of the matter, including the refugeeissue.

Among the most difficult but negotiable issues in the way ofRussia-North Korea cooperation is the problem of external debt.During the Soviet era the DPRK incurred a debt of approximately $8billion dollars, which Pyongyang still owes to Moscow but cannotrepay. This debt remains a stumbling block in most negotiations onthe new aid and development programs. However, this debt canpotentially make the trilateral Russian-Korean relations closer andstronger.

Back in January 1991, soon after the opening of diplomaticrelations with the Republic of Korea, Moscow received a $3 billionthree-year loan from Seoul. The collapse of the Soviet Union leftthis loan largely unpaid. The new Russian government in the 1990sprovided South Korea with armaments worth $150 million dollars tobe counted as payment-in-kind toward the debt. In 2003, afterbilateral negotiations on this issue were completed, part of thisRussian debt was cancelled and the remainder was rescheduled to bepaid over 23 years.

Taking into account its own debts to the South, Russia could easilywrite off a significant portion of North Korean debt. To resolvethis question a certain agreement between all three parties isneeded. To engage in a mutual and reciprocal round of debtcancellation, Russia might choose to see the North and the South asone country. Such an agreement would open the way to broadercooperation between Russia and the two Koreas, and simplifyRussia’s energy cooperation with China and Japan.

Conclusions

In the 1990s, the DPRK leadership must have hoped thatRussia’s assistance would help restore their economy as ithad in Soviet times. However, the new market economy in Russiaprovides little room for Soviet-type sponsorship, leaving NorthKorea in an energy and transportation crisis. [24] Lack of interestfrom the Russian private sector in cooperation with North Koreancompanies has compounded this difficult situation.

Available statistics reflecting bilateral trade in the 2000s stillshow the sluggishness of Russo-North Korean economic links. Barterand trade-in-kind continue to play important roles in bilateraltrade, while the possibility of workforce export remains vital forDPRK. The current system of exchange between North Korea and Russiais that the former exports labour and agricultural goods and thelatter exports electrical energy, oil, and raw materials.

As it was in the last century, rail remains a symbol ofRussia’s power in the region. By extending its transportationnetwork and pipeline infrastructure, Russia is trying to get backinto the grand game in Northeast Asia, which it was forced to leavewith the collapse of the Soviet Union. The only difference betweenthen and now is that the main motivating factor these days isprofit and economic reasoning, not ideological considerations.

For communist North Korea, whose reclusive leadership is boggeddown in cold-war mentality, this is a novel concept. This disparityin attitudes often creates misunderstanding and results in missedopportunities. Even the railway, which is Russia’s mostfeasible infrastructure project in North Korea, may be endangeredby the unpredictability of the leadership in Pyongyang. The risksare too high to start any other major capital investment without asignificant change in the regime’s attitude.

Indeed, the potential of a reformed North Korea in the newlyemerging map of economic interests could be surprisingly strong.The DPRK is located at the very centre of the world’s mostvibrant and dynamically developing region. By playing his cardsshrewdly, Kim Jong-il might create conditions for socio-economicrevitalisation of the North that will be a positive contribution tothe eventual unification of the Korean peninsula.

Moscow is learning lessons too. Russian strategists already realisethat North Korea might play an important role as a regionalbalancer if it managed to reconcile with its ideological enemiesand rivals. The contiguous powers would probably accept this aslong as the balancer is genuinely neutral and independent. Such apivotal role would perfectly satisfy the ambitious DPRK thatalready claims as a nuclear power.

However, in building regional security the potential of Russianinfluence on North Korea must not be exaggerated. In fact,Russia’s ability to project its economic power, especiallythrough oil and gas pipelines, would be greatly enhanced ifpolitical tensions between the two Koreas declined and they movedtoward unification. Cooperation between Russia, North and SouthKorea in oil, gas and railway construction and exploitationprojects can be a good start for reconciliation. No progress inRussian-DPRK relations is possible without close Russian-ROKcooperation.

The concept of three-party cooperation means the combination ofRussian energy and resources, North Korean territory and labour,and South Korean capital and technology. The objectives of thispolicy – to revive and modernise the North Korean economy, tocreate income sources, and to promote inter-Korean cooperation andeconomic ties of both Koreas with Russia – would lead to thecreation of an economically integrated system in Northeast Asia.

In this light, Russian-Korean relations can be seen as replete withopportunities that can benefit each of them. The newadministrations in the Kremlin and Seoul’s “BlueHouse”, together with a new generation of leaders inPyongyang, can radically change the political climate in theregion. A strengthening of economic relationships between the threecountries could contribute to the peaceful solution of the“Korean nuclear problem” and prepare the basis fordurable peace and prosperity in Northeast Asia.

Dr. Leonid Petrov, Research Associate, Research School of Pacificand Asian Studies, Australian National Universityleonid.petrov@anu.edu.au

He wrote this article for International Issues and Slovak Foreign Policy Affairs ,Vol. XVII, No.2, 2008. This slightly edited version is publishedat Japan Focus on July 29, 2008.

Notes

[1] The North Korean side insists on the principle of ‘actionfor action' as a basic requirement. ‘ DPRK Foreign Ministry Spokesman on Implementation of AgreementAdopted by Six-Party Talks ’, KCNA, 4 July 2008.

[2] Nicole Finnemann, ‘ Explosive Progress in the Six Party Talks: What’s Left To DoWhen It Is All Done? ’, Korea Economic Institute (1 July 2008).

[3] Woodrow Wilson International Centre for Scholars report ‘ World Oil and Grain Prices Up, DPRK Feels the Pinch ’.

[4] Maaike Okano-Heijmans, 'Games Nations Play: Politics, Diplomacyand the North Korean Nuclear Crisis', unpublished research paper,Australian National University (May 2008).

[5] Paul F. Hueper, ‘The Energy Locomotive’, in JanH,Kalicki and Eugene K.Lawson eds., Russian-Eurasian Renaissance?U.S. Trade and Investment in Russia and Eurasia, Woodrow WilsonCentre Press: Washington D.C., 2003, p.177.

[6] ‘Russians Mask Economy’s Weakness with Shopping,Building Frenzy’, Bloomberg (30 November 2006).

[7] CIA - The World Fact Book - Russia .

[8] Nodari Simonia, ‘Russian East Siberia and the Far East: ABasis for Co-operation with Northeast Asia’, Global Asia(September 2006); F. William Engdahl, ‘The Emerging RussianGiant: the U.S. Eurasia and Global Geopolitics’, Japan Focus(26 October 2006).

[9] Artyom Lukin, ‘Multilateral Cooperation in Northeast Asiaand Prospects for Regional Community’, conference “NewApproaches to Peace and Stability in Northeast Asia”, Moscow,26-28 May 2005.

[10] ‘The Case Against Summits’, The Economist (24November 2005).

[11] ‘ ТѬан