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Wednesday, September 14, 2011     GET REAL

N. Korea bargains for multiple benefits
from its Siberian gas pipeline deal

By Lee Jong-Heon, special from

SEOUL — North Korea has asked for as much as $500 million a year — five times more than expected — in return for allowing an overland gas pipeline to pass through the destitute country from Russia’s Siberia to South Korea, a diplomatic source says.


Russian President Dmitry Medvedev and North Korean leader Kim Jong-Il meet at Ulan-Ude in Siberia on Aug. 24.     RIA Novosti/Dmitry Astakhov, Presidential Press Service via AP
The request was made when North Korean leader Kim Jong-Il met Russian President Dmitry Medvedev on Aug. 24 in the eastern Siberian city of Ulan-Ude, according to the source.

In response, Russia has called on Pyongyang to settle its $11 billion debt in an effort to lower demand of transit fees, the source said. The $11 billion North Korea still owes Russia is a leftover from the Soviet era. “The two sides would launch negotiations on pipeline transit fees and debt settlement,” he said.

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For the past seven years, Russia has consistently proposed a project to lay an overland gas pipeline in the North transporting Russian natural gas to South Korea, the source said.

A cross-border pipeline would make South Korea the biggest gas market for Russia, which has been seeking new gas outlets in Asia and the Far East to globalize its gas trade and reduce dependence on sluggish European energy markets. South Korea is the second-largest importer of liquefied natural gas (LNG) only after Japan, and the fifth biggest crude oil buyer.

But the North had previously remained reluctant to accept the Russian proposal.

“North Korea did not want to see a lot of natural gas going from Russia to South Korea,” the source said. “The North was also concerned that a massive gas deal between Seoul and Moscow could weaken its political ties with Russia, its former communist ally,” he said.

In a sudden turnaround in August, however, the North agreed to the transit of Siberian gas to South Korea across its territory.

At the Ulan-Ude summit, Kim and Medvedev agreed to set up a commission to work out details of the trans-Korean pipeline project.

The Russian leader, who traveled more than 5,600 km from Moscow to meet Kim Jong-Il in Siberia, said after the summit that progress towards a long stalled deal to build a pipeline from Siberia across North Korea to South Korea had been made.

Medvedev was supposed to meet Kim last June when the Russian leader travelled to the Siberian city of Vladivostok, but the planned summit was canceled by the North, citing “internal problems,” according to the source.

The Russian leader again flew to Siberia in August to meet Kim and strike the gas pipeline deal.

In September 2008, Russia agreed to sell 10 billion cubic meters of natural gas annually to South Korea for 30 years beginning 2015 for $90 billion. The two countries also agreed to push for the gas supply through a pipeline running through North Korea from gas fields in Yakutsk and Sakhalin near the border with the North, which can reduce delivery costs to one third of those delivered in the form of LNG.

“The North’s surprise acceptance of the pipeline project shows how desperate the North is to revive its tattered economy,” the source said.

“The North called for $500 million a year in transit fees while Russia and South Korea proposed $100 million,” he said. The figure is significant given the North’s exports that stood at $1 billion in 2009 and $1.5 billion in 2010.

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