Infrastructure in North Korea

Infrastructure (산업기반시설/産業基盤施設) means the facilities and services necessary for an economy to function. It is usually called as social overhead capital (SOC, 사회간접자본시설/社會間接資本施設) such as roads, water supply, sewers, electrical grids, telecommunications, and so on. After a long period of Juche (주체) economy isolated from the outside world, the infrastructure in North Korea has been in the worst condition because of severe shortage of electricity and energy.

Though North Korean nuclear armament attempt ruined the project, the Korean Peninsula Energy Development Organization (KEDO) was constructing a light water reactor neclear power plant at Shinpo for the stable supply of electricity in great need in North Korea.

Recently China and Russia have leased parts of Rajin-Seonbong port, and hurried to build up such infrastructure as power plant, industrial road and railway connecting RaSeon port and the investor country - China or Russia.

Key words
infrastructure, SOC, highway, railway, power plant, gas pipeline

Current Situation
When the Six Party Talks in Beijing gave rise to a hope the North nuclear issue could be settled sooner or later, a huge amount of economic grant to the North seemed to be necessary. So far several suggestions have been made that a project financing would be useful to the North-South economic cooperation.

So it is necessary to study a feasible action plan for such a financing scheme, which requires the followings:
 * There should be long-term stable cash flows;
 * The project should function as a catalyst and reliable resources to further economic development; and
 * The North Korean technocrats could learn how to handle large-scale projects.

Project Financing wanted
In constructing SOC facilities, it is necessary to induce private capital including foreign funds as much as possible thus reducing the so-called Unification cost. One of the effective alternatives is project financing. But participants in project financing are really concerned about the North Korean involvement or intervention to hinder the infrastructure projects.

To mitigate Political Risks
What is in great need to mitigate such political risk might be the Pyongyang regime's ensurance of construction and operation of privately financed infrastructure facilities. Take an example of Trans-Korean pipeline construction. The independent multinational committee to monitor the transit of Russian gas through Ukraine must be a good precedent. Otherwise, the North Korean leadership must understand, if North Korea is not cooperative to such projects, it will bring substantial loss to North Korea.

To structure SPVs in North Korea
It is necessary to form SPVs to conduct project financing for the non- or limited recourse financing purpose. In North Korea, however, it is also inevitable for foreign investors to establish an equity joint venture (합영기업/合營企業) with North Korean partners subject to the relevant North Korean law, which might intervene or restrict the operations of such a special entity. Someday the Pyongyang regime may order the expropriation of the SOC-operating entities, or prohibit any remittance of revenues to other country.

Trans-Korean Railway
See Trans-Korean Railway.

Highways
Highway construction projects are believed to satisfy the above-mentioned conditions. Gaeseong-Shinuiju Highway, which will be named as a part of Asian Highway No.1 (AH1), would meet the logistic needs of manufacturers and merchants from South Korea and northern provinces of China as well.

The construction projects of North Korean highways could be supported by, at first, the North-South Cooperation Fund of South Korea, and next, the concerted efforts by the United States, European countries and supranational institutions like the World Bank and the Asian Development Bank.

We can find an effective example from the West and East German relations before the unification. In the 1970s, West Germany helped East Germany reconstruct the highways leading to West Berlin. The West German government paid to East Germany the aggregate toll money in advance, which was often used as collateral for future foreign borrowings of East Germany.

If this kind of financial scheme proves to be successful, the construction of such throughputs as pipelines and electric power lines could be financed in a similar way employing a project financing scheme.

Gas Pipelines
Recently there have been talks that South Korea may change the stalemate North-South Korean relationship by making a proposal to construct gas pipelines on the North Korean soil linking Russia and South Korea.

In this regard, Tripartite Summit will be possibly held among North and South Korea, and Russia in the near future to discuss the gas pipeline project.

See more
You can find further information about North Korea at:
 * UniKorea Information Center on North Korean
 * North Korean Law (statutes) Library
 * Yonhap News Agency
 * U.S. Department of State