Eyeing Pipeline, Russia Forgives North Korean Debt

– Eyeing Pipeline, Russia Forgives North Korean Debt (The Diplomat, April 23, 2014):

Russia’s Duma has voted to forgive 90 percent of North Korea’s Soviet-Era Debt.

On Friday Russia’s parliament voted to write off roughly 90 percent of North Korea’s debt as Moscow seeks to build a gas pipeline through the Hermit Kingdom.

This weekend Reuters reported that Russia’s Duma voted to write off roughly $10 billion worth of the debt that North Korea owes Moscow from the days of the Soviet Union. The vote ratified an agreement made in September 2012, after a meeting between then-President Dmitry Medvedev and then-North Korean leader Kim Jong-il in Siberia in the summer of 2011.

At the time the agreement was first announced, The Guardian reported, citing Russia’s Finance Minister Sergei Storchak, that Moscow would forgive “90% of the debt and reinvest $1bn as part of a debt-for-aid plan to develop energy, health care and educational projects in North Korea.” Russian experts hailed the agreement as a sign that North Korea’s leadership was looking to initiate market style reforms in the reclusive country.

The Reuters report from this weekend said the deal ratified by the Duma on Friday would leave North Korea with about $1.09 billion worth of debt to Russia. North Korea would pay off that amount in six-month installations over the next twenty years. It also summarized Storchak as saying that the money Pyongyang pays back would be reinvested into North Korea.

North Korea was a strong ally of the Soviet Union during the Cold War, and Russia has forgiven the debt incurred by other Soviet allies like Cuba. However, the decision to forgive Pyongyang’s Soviet-era debt is most likely geared toward trying to bolster Russia’s plans to build a gas pipeline from its Sakhalin Island fields to South Korea via the North. The pipeline, which would also be accompanied by a railway, would reportedly carry 10 billion cubic meters of gas to South Korea annually. The gas would come from Russia’s state-owned energy company, Gazprom.

Moscow has been pushing for the Korean gas pipeline and railway for years as part of its strategy to diversify its energy markets away from Europe and toward Asia. This general goal has gained new urgency in the wake of Russia’s clash with the West over the Ukraine and Crimea.

The plan got a boost from Seoul over the weekend when South Korea’s Unification Ministry announced on Sunday that it had approved a trip to Pyongyang by Choi Yeon-hye, the president and CEO of the Korea Railroad Corp. Choi will lead a South Korean delegation to the Organization for Co-Operation between Railways (OSJD) meeting in the North Korean capital scheduled for April 24-28. Chinese and Russian rail officials will also be at the meeting, according to South Korean media outlets.