From the 31 Dec. 2014 edition of Korea Business News - KBN. To receive articles like this in your inbox, sign up for the newsletter here.
With the official end of the Kim Jong Il era, Asia watchers will be looking to Kim Jong Un to form distinct themes for his tenure and to see if he will take his country down a different path - one more focused on economic development. Any such changes are likely to be subtle, but this past year has seen some potential overtures to what they might be. Perhaps most notable is what we at KBC have dubbed Project T.R.A.C.K - 'The Russians Are Coming to Korea.'
Across the Eurasian land mass the development of the “Iron Silk Road” is coming along, and at the far Eastern end of that land mass lies the Korean peninsula with an energy hungry ROK at the terminus. With sanctions coming from the West, Russia is looking East for places to export its gas. On 20 November, Choe Ryong-hae, secretary of the Korean Worker’s Party and said to be the second highest authority in the DPRK, had meetings with Russian president Vladimir Putin and Foreign Minister Sergei Lavrov. Among the topics discussed was the continuation of projects agreed upon at a Russia-Korea summit held in Ulan Ude in August 2011.
That summit saw an agreement reached between Russia, the DPRK and the ROK to build a pipeline through the Korean peninsula to ship Russian gas to the ROK. The DPRK also signaled its willingness to go through with the Trans-Korean railway which would connect the peninsula to railways going across Russia and eventually Eurasia and into Europe. In September 2013 the first part of that project was completed with the opening of the Khasan-Rajin connection - a line between one of the DPRK’s most important economic centers into Russia.
Last November, a pilot shipment of 45,000 tons of Russian coal set off from the port of Rajin in the DPRK to Pohang port in the ROK, marking the first time a direct maritime route has connected the two ports. The trip was supervised by a group representing south Korean steel giant POSCO, Hyundai Merchant Marine Co., Korail Corp. and a Ministry of Unification official to determine the feasibility and profitability of the project. The ROK is expected to become substantially involved, which would fall in line with President Park Geun-hye’s “Eurasia Initiative” which she announced when Seoul hosted the Global Cooperation in the Era of Eurasia conference in October 2013.
“A new era must be opened by once again connecting Eurasia as a single continent. The severed logistics network needs to be linked to overcome the physical barriers that prevent exchange,” Park said at the conference. The Ministry of Unification announced numerous plans to invest in the DPRK in August 2014, perhaps most notably plans to repair and renovate the Kaesong-Pyongyang Expressway and the Kaesong-Sinuiju Railway. A connection from Incheon or Seoul to Kaesong and up to Sinuiju – the main rail link between the DPRK and China – would most likely lead to the ROK being connected by rail to the Trans-Siberian railroad into Europe. Such a vision is similar to ones espoused by Presidents Xi Jinping and Vladimir Putin, who also wish to see a revitalization and integration of a Eurasia-wide economic bloc.
The same consortium who oversaw the coal shipment are expected to purchase a stake in RasonKonTrans, a joint venture in charge of the Khasan-Rajin project. The JV is currently 70% Russian-held and 30% DPRK-held. The south Korean group said they are planning to buy 50% of the Russian holdings.
Russia-DPRK relations have seen relatively slow progress compared to other countries. So what’s different this time? For one, the Russian railway and pipeline projects engage both the DPRK and ROK, a factor missing in many past undertakings. Russia also recently forgave nearly all of the DPRK’s state debt, which amounted to over US$ 10 billion. For the ROK, this project gives them an opportunity to engage the north through business and not sanctions, as well as further President Park’s Eurasia Initiative. Finally, the DPRK could see handsome profits through tariffs on transport and goods going through their borders. It also offers opportunities to improve its business image. The three players’ interests seem to have lined up strongly this time, and the whole region could see a reduction in tensions and boost in trade as a result.
During Choe’s recent visit to Russia, he emphasized “expanding and developing the bilateral friendly and cooperative relations onto a higher stage” into the next year, and there is talk of a summit meeting between Kim Jong Un and Vladimir Putin in the works. The DPRK appears set to expand its opportunities and diversify its options, and a state visit to Russia before one to China would be the strongest indicator of that as China has traditionally been the DPRK’s biggest partner. Indeed, Russia is reported to have sent an invitation for Kim Jong Un to visit Russia in May during the 70th anniversary of Soviet victories over Nazi forces in World War II. “We are prepared for contact between the leaders of the two nations,” Foreign Minister Lavrov said in November.
Encouragingly, a letter has come to light in recent days from Kim Jong Un to former ROK first lady Lee Hee-ho. The letter was passed on by a visiting delegation from the south in which he expressed a desire for unification of the DPRK and ROK. Kim also sent a letter to Hyundai Group Chairwoman Hyun Jeong-un wishing her success in business. The letters were responses to their condolences on the third anniversary of Kim Jong Il’s death.
Given the above, the potential for relations to improve significantly and for projects to advance on track is well poised and open for future development.