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Design of Infrastructure Design of Infrastructure Development in North Korea: A Development in North Korea: A Practical ApproachPractical Approach
March 2008
Kim, Won Bae
KRIHS
2
1. 1. Rationale for Development Rationale for Development AssistanceAssistance To bring North Korea into dialogue so as to
seek a peaceful solution for nuclear problems To induce North Korea to reform by helping
the recovery of the North Korean economy To facilitate inter-Korean economic
cooperation and to build an integrated economy in the Korean peninsula
To promote regional economic cooperation and develop infrastructure networks in Northeast Asia
3
2. 2. Preconditions for Infrastructure Preconditions for Infrastructure AssistanceAssistance North Korea must give up its nuclear ambition
(the six-party-talks should render development assistance to North Korea)
North Korea embarks economic reforms and opening policy.
North Korea establishes genuine coexistence with South Korea.
North Korea, however, can maintain its polity and retains self-defense capability at least until 2020.
4
3. 3. The importance of infrastructure The importance of infrastructure in the North Korean economyin the North Korean economy Food, energy and transportation are three shortages Food shortage can be relieved through institutional
reform and other measures (UN and NGOs role would be significant here)
Energy shortage needs to be addressed quickly in order to make production activities normal
Transportation is essential for the development of the North Korean economy and it is critical for the integration of North Korea into the regional economy
5
3.1 Status of infrastructure in North Korea
Rail: Composed of east and west lines due to topography, 10 arterial railways Road: Composed of five axes, supplementing the rail system Ports: Underdeveloped and 8 major trade portsAirports: 33 airports but only one international airportEnergy: Dilapidated facilities with inefficienciesCommunication: Networks centered on Pyongyang, mostly manual exchange
system
Source: NSO. 2005. 「 Comparison of South and North Korea’s Socio-Economic Profile 」 .
Type S. Korea N. Korea South/ North ratio
Port capacity
53,278 3,690 14.4
Road & railRoad Rail Road Rail Road Rail
100,278 3,374 25,185 5,235 4.0 0.6
Generation capacity &
volume
Capacity
VolumeCapacit
yVolume
Capacity
Volume
5,996 3,421 777 206 7.7 16.6
(Units: 10,000 ton, Km , 10,000kW, 100 million kWh)
6
3.2 3.2 Assessment of Infrastructure in Assessment of Infrastructure in the Norththe North Huge gaps between the South and the North in
terms of quantity and quality of infrastructure Infrastructure stock value of NK is less than 1%
of SK according to our estimation On the whole, North Korea’s level approximates
South Korea’s mid 1970s This poses a great obstacle to the recovery of
the North Korean economy and to the construction of infrastructure networks in Northeast Asia
7
4. 4. Demand for InfrastructureDemand for Infrastructure
Three types of demandsType I: Bilateral exchanges such as SK-
NK and NK-ChinaType II: Transit trade such as China or
Russia using NK transport facilities to trade with third countries
Type III: Domestic demand
8
4.1 4.1 Demand AssessmentDemand Assessment
Demand Type I Type II Type III
Transport Existing in a few cross-border areas
Mainly in Rajin area
Not strong yet
Energy Existing in a few cross-border areas
Russia’s interest area
Badly needed for industrial production and daily life
Communication Existing in a few cross-border areas
Emerge in the long run
Needed in major cities
9
5. 5. Practical Approach to InfrastructurePractical Approach to Infrastructure
Collaborative approach is more effective Two or three-way collaboration first under the
six-party-talks framework and then multilateral collaboration
Encourage international consortium of public and/or private firms
International financial institutions’ support and private project financing when North Korea embarks on major reforms
10
5.1 Interests in Infrastructure 5.1 Interests in Infrastructure Development Assistance by CountryDevelopment Assistance by Country
Country Prerequisites Commitment Motivation
S. Korea Nuke, coexistence of S. & N. Korea
Already participating Peaceful coexistence
U. S.
Security issue, human rights, etc.
Conditional, indirect participation
Security & regional stability
China
Nuke
Already participating
Reg. Stability & influence
Japan
Nuke, missile, abduction
Conditional, part of compensation
Reg. Stability & econ. interests
Russia
Nuke
Very likely in rail & energy
Reg. stability and econ. interests
EU
Nuke, human rights
Conditional, likely thru a multilateral structure
Reg. Stability & econ. interests
IFI&UNNuke, international norms
Conditional, loans & special funds
Responsible member
11
5.2 5.2 Inter-Korean Projects in progressInter-Korean Projects in progress
Inter-Korean cooperation projects include rail and road connections at Gyeongui and Donghae lines, Kaesong industrial park, and Guemgangsan tourism area
- 2007 Inter-Korean Summit added a few more projects
Any further infrastructure investments in North Korea require strong economic justifications and national consensus in SK
12
5.2.1 Projects suggested by 2007 Inter-5.2.1 Projects suggested by 2007 Inter-Korean SummitKorean Summit
13
5.3 5.3 China-N. Korea ProjectsChina-N. Korea Projects under under discussiondiscussionRajin port developmentRajin-Hunchun roadNew bridge over the Aprok riverPyongyang thermo power plantMost of these projects are related to
China’s needs and some are packaged with natural resources development in NK
14
5.4 5.4 Russia-N. Korea ProjectsRussia-N. Korea Projects under under discussiondiscussion Khasan-Rajin rail renovation Oil delivery through rail and refining at
Sonbong Vladivostok-Chongjin electricity In the longer term, oil and natural gas
pipelines and TSR-TKR connection Most of these projects are related to Russia’s
interest in earning income by exporting oil, electricity and natural gas as well as by using its transport facilities in the RFE
15
5.5 5.5 Problems of Bilateral ApproachProblems of Bilateral Approach
Rent-seeking by Pyongyang regimeUnnecessary competition and
duplication of efforts by neighboring countries
Fragmented projects without coordination and loss of efficiency
Not conducive to forging regional cooperation in NEA
16
6. 6. Economic Justifications for Economic Justifications for Infrastructure Development Infrastructure Development In the short run, insufficient demand for
most projects except for a few small-scale cross-border transport projects
Benefit-cost ratio unlikely to exceed 1When NK embarks major economic
reforms and opening, BC ratio will increase due to the rise of inter- and intra-country demand for infrastructure
17
7. 7. Basic Directions for Infrastructure Basic Directions for Infrastructure BuildingBuilding Multilateral approach combined with bilateral
approach Demand-serving and yet considering the
supply-side effects Flexible approach taking into account of
larger issues and changing circumstances Matching with SK’s long-term territorial
development goals
18
7.1 7.1 Basic Design for Infrastructure Basic Design for Infrastructure
H-design composed of four corners (six later) and three transport axes (east, west, and horizontal) to lift up the North Korean economy and connect to the regional economies of NEA
Six pockets of growth points to push the economy forward
19
7.2 7.2 Phased ApproachPhased Approach
1st phase: four corners and partial connection with neighbors
2nd phase: completion of three axes and six growth points
3rd phase: completion of networks Timetable would be 2008-2012 for the 1st,
2013-2020 for the 2nd, 2021- for the 3rd phase. But this timetable may change depending on the conditions to be satisfied or not
20
7.3 7.3 Reasons for Phased ApproachReasons for Phased Approach
It is assumed that security issues will be resolved one way or another by 2012
2012 is the year of presidential election in S. Korea
Even small-scale projects takes minimum of 4-5 years to complete
2020 is the target year of S. Korea’s 4th territorial development plan
21
7.4 7.4 H-Design InfrastructureH-Design Infrastructure
1st stage
남포
신의주
원산
청진
라진
평양
서울
고성개성
금강산
단동
션양
옌지핫산
2nd stage
남포
신의주
원산
청진
라진
평양
고성개성
금강산
단동
션양
옌지핫산
함흥
강릉인천
부산
목포 광양
서울해주
서울
22
8. 8. Lifting up the Economy with Lifting up the Economy with Four CornersFour Corners Shinuiju, Kaesong, Guemgangsan, and
Rason are the four corners where cross-border exchanges have been occurring
These are natural anchor points to lift NK economy in the first stage and they have a special status
Neighboring countries have some interest in these areas
Bold measures are required to give them sufficient momentum
23
8.1 8.1 Reinventing the Four CornersReinventing the Four Corners
Shinuiju: gateway city to China Kaesong: international enterprise zone
(mostly for S Koreans now)Guemgangsan: international tourist
zone (mostly for S Koreans now)Rason: transit trade center
24
8.2 8.2 Two Additional Growth PointsTwo Additional Growth Points
Nampo: export-processing zone that will be turned into a hi-tech center (esp, environment technology)
Wonsan: a center of logistics and shipbuilding in the east sea rim as well as a hinterland city for Guemgang-Seorak international tourist zone
25
8.3 8.3 Assumptions in the H-designAssumptions in the H-design
Even if North Korea takes a bold switchover, its economy would not grow rapidly if major economic reforms are not taken. Furthermore, reforms may not guarantee a success
In this basic design, we assume the best possible scenario, i.e., a successful economic transition
t0 t6 t24
Successful reform
Failed reform
26
8.4 8.4 Corresponding industrial Corresponding industrial development in the Northdevelopment in the North Phases of industrial development in the North are
assumed to follow: Export of light industry goods, primary goods and
tourism and transit trade in the first phase (border cities)
Export of selected heavy industry goods with some technology, international logistics, and IT-related services in the second phase (coastal cities)
Export of intermediate goods with knowledge components and knowledge services in the third phase (large cities)
27
9. 9. Selecting Priority ProjectsSelecting Priority Projects
Given the variable constraints, e.g., political and financial, priority projects need to be identified
Priority projects should satisfy multiple purposes of infrastructure building
Selected projects should play a catalyst role for NEA infrastructure networks building
28
9.1 9.1 Selection Criteria for Priority Selection Criteria for Priority ProjectsProjects Revealed or potential demand (C1) Economic effects on the NK economy (C2) Geo-economic integration of the peninsula
(C3) Contributions to regional cooperation (C4) Ease of acceptance by NK (C5) Acceptability and willingness of assistance by
neighbors (C6) Possibility of financing (C7)
29
9.2 9.2 Priority Projects and AssessmentPriority Projects and Assessment
Projects Criteria
1st phase C1 C2 C3 C4 C5 C6 C7 Remarks
Gaesong industrial park (1st phase) H (type I) H H L H L M Under const.
Electricty to Gaesong H (type I) H H L H L M Under consideration
Electricty to Guemgangsan H (type I) H H L H L M Under consideration
Rajin port renovation H (type II) H L H H H H Intern. Consortium
Rajin-Wonjeongri road H (type II) H L H H H H Intern. Consortium
Rajin-Namyang rail renovation H (type II) H L H H H H Intern. Consortium
Khasan-Rajin rail renovation H (type II) M L H H H M Intern. Consortium
Sonbong oil refinery H (type I) H L M H H H NK-Russia
Dandong-Shinuiju new bridge H (type I) H L H H H H NK-China project
Shinuiju-Anju highway M (type I) M L H H M M 3 way cooperation
Shinuiju free zone H (type I & III) H L H H M M Intern. Consortium
Electricity from Dandong to Shinuiju M (type I & III) H L H H H M 3 way cooperation
Backbone communication facilities M (type I & III) H H L M L L NK-SK
H: high, M: medium, L: low
30
9.2 9.2 Priority Projects and AssessmentPriority Projects and Assessment
Projects Criteria
2nd phase
Gaesong-Pyongyang highway H (type I) H H H M L M NK-SK (+ IFIs)
Rajin-Pyonggang rail renovation H (type I & II) M H H H H M 3 way cooperation + IFIs
Seoul-Shinuiju rail renovation H (type I & II) M H H M H M 3 way cooperation + IFIs
Rajin-Wonsan road renovation H (type I & III) M H L M M M NK-SK (+ Japan?)
Oil pipeline from Nakhodka to Chongjin H (type II & III) M L H H H L multilateral cooperation
New power plants & distribution networks H (type III) H H L H M L multilateral cooperation
Vladistok-Chongjin electricty H (type III & II) H L H H H M 3-way cooperation
Nampo port expansion & high-tech zone H (type III) H M L H L H NK-SK (+ IFIs)
Wonsan port renovation & shipbuiling M (type I & III) H M L H L M NK-SK (+ Japan?)
Pyongyang-Wonsan highway M (type III) M M H H L M NK-SK (+ Japan?)
Gaesong international enterprise zone H (type I & III) H H L L M H Private firms
Guemgang-Seorak int. tourist zone M (type I & III) H H L M M M Intern. Consortium
Sockcho-Wonsan road M (type I & III) M H M M L M NK-SK
Mobile communication & data transmittal H (type III) H H H M H H multilateral cooperation
H: high, M: medium, L: low
31
9.2 9.2 Priority Projects (1Priority Projects (1stst Phase) Phase)
Infrastructure development in the nodal points Rajin- Hunchun/Khasan road Rajin-Khasan rail, Khasan-Rajin oil delivery
and Sungri petro-plant Rajin port renovation Dandong-Sinuiju new bridge & electricity Vladivostok-Cheongjin electricity Second stage Kaesong Industrial Park Anbyun Shipbuilding yard
32
9.3 9.3 Catalyst Projects Catalyst Projects For multi-party collaboration Ƹ Rajin-Khasan and Rajin-Tumen rail renovation
plus oil delivery, Rajin port renovation and industrial park (costing about $0.5 bil.)
Ƹ Sinuiju special zone, new bridge and expansion of electricity supply ($0.7 bil)
Inter-Korean projects Ƹ 2nd phase Kaesong industrial park ($0.5 bil),
Mt. Baekdu tourism, Anbyun shipbuilding, and mineral resources development
33
9.3.1 9.3.1 Tumen River AreaTumen River Area- Rail and road connections among China, NK, and Russia
-Rajin as a logistic hub for Tumen River area
- TRADP as a useful mechanism
34
9.3.2 Crude Oil Delivery thru 9.3.2 Crude Oil Delivery thru RailRail
- 56km rail renovation from Khasan to Rajin costing about $ 200 mil.
- Russia supplies crude oil and imports refined products
35
9.3.2 Sinuiju Special Zone 9.3.2 Sinuiju Special Zone
-Special zone, new bridge, and increased electricity supply from Soopoong dam
- costing about $700 mil.
36
10. 10. Investment Needs for Investment Needs for Infrastructure ConstructionInfrastructure Construction Estimates vary depending on assumptions,
ranges from $20 bil. to 700 bil. KRIHS study adopted two methods (ratio of
infrastructure stock over GNI and ICOR) Over 14 year period (2007-2020), estimates
for investment needs for infrastructure range between $18 - 42 bil. dollars (1.3 – 3 bil.per year)
37
10.1 10.1 Public Capital MobilizationPublic Capital Mobilization
$3 - 4 billion possible per year at least for 10 years if NK takes a bold switch-over policy
- SK: $1-2 billion - Japan: $1 billion - US: $ a few hundred million - Other six party members: $ a few hundred
million - EU and other countries: $ a few hundred million Compare with the costs of Iraq war
38
11. 11. Institutional Arrangements for Institutional Arrangements for Infrastructure ProjectsInfrastructure Projects Maximize the opportunities for collaboration with
neighboring countries (i.e., UNDP TRADP) “KIEDO” (Korean Peninsula Infrastructure & Economic
Dev. Org.) can be considered during the resolution process of security issues (in the first phase)
“Special trust fund” can be set up at the World Bank in the second stage to coordinate infrastructure and development assistance to NK
In the long run, ideas of NEADB or NEAIC can be considered for the NEA region including North Korea
Or international financial institutions can be utilized when North Korea meets the requirements
39
11.1 KIEDO Structure11.1 KIEDO Structure
KIEDO
ROK: Chair & Secretariat
IFIs & IOs
Private funds/firms
EU & other Countries
Industry & economy
Energy
Transport & comm
Environ-ment
Training
6 PT members
40
10.1 10.1 Institutional Arrangement for Institutional Arrangement for the 1the 1stst Phase Phase
Infra Infra building building in NKin NK
Private Firms/NGOs
KIEDO
Inter-Korean coopera-tion
Other bilateral dev. assistance
US
Japan
S. Korea
EU +
China & Russia
6-Party Talks
TRADP
41
10.2 10.2 Institutional Arrangement for the Institutional Arrangement for the transition between 2transition between 2ndnd and 3 and 3rdrd Phase Phase
Inter-Korean Coopera-tion
Japan’s ODA
Other bilateral dev. assistance
World Bank-led Consultative Group
Project financing
Special fund
KIEDOKIEDOInfra Infra building building in NKin NK
6-Party Talks
42
10.2 10.2 Institutional Arrangement for the Institutional Arrangement for the 3rd Stage3rd Stage
Inter-Korean Coopera-tion
Bilateral dev. assistance
Project financing
NEADB
NEAIDONEAIDOInfrastructInfrastructure ure building building in NK & in NK & NEANEA
NEA Security Organization
43
11. Remaining Issues11. Remaining Issues
Needs assessment reflecting NK’s reality and priorities
Synchronizing with NK’s economic reform and opening policy
Coordinating bilateral projectsSetting up a channel for establishing
KIEDO in the 6PT
44
Thank you for your attentionThank you for your attention
“Narrow path, thick brush and evening dew will not deter us as long
as we believe we are not wrong”
From Tao Yuanming