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October 2002

North Korea

The Democratic Peoples Republic of Korea (North Korea) occupies a strategic location bordering China, South Korea, and Russia. In 1994, North Korea signed an agreement (the "Agreed Framework") sponsored by the United States, Japan, and South Korea to halt its graphite technology nuclear program in exchange for two light water nuclear reactors. In early October 2002, North Korea disclosed to U.S. officials that it had violated the terms of the Agreed Framework by pursuing a nuclear weapons program, and that North Korea considered the agreement nullified.

Note: Information contained in this report is the best available as of October 2002 and can change.

North Korea's economy, which remains under tight state control (collectivized agriculture and state-owned companies account for about 90% of all economic activity) grew by 3.7% in 2001, after growing 1.3% in 2000, according to estimates by South Korea's central bank. Strong increases in agricultural and mining output, both of which are major sectors of North Korea's economy, contributed to this growth. The GDP growth of the last three years followed a steady economic contraction from 1990 through 1998.

North Korea's communist ideology has been based on the concept of "juche," or self-reliance.  Severe economic problems have, however, forced the country to accept international food aid and embark on a series of limited market reforms. Famine in North Korea has reportedly killed hundreds of thousands of people over the last decade.  Several governments, including the United States, have provided funding to the United Nations' World Food Program (WFP) for emergency food aid to North Korea.

North Korea has permitted a small amount of foreign investment in recent years. Manufacturing plants of South Korean companies operating joint ventures in North Korea now generate over $100 million in annual revenue.

North Korean-South Korean Relations
From June 13th to 15th, 2000, the leaders of the two Koreas held their first summit meeting in Pyongyang. The summit led to a joint statement by the two leaders which supported, in general terms, the goal of eventual reunification of the two Korean states, reunification of families divided since the Korean War, and economic cooperation.  A planned followup visit to South Korea by North Korean leader Kim Jong-Il, however, has been repeatedly delayed. Developments in inter-Korean relations in 2002 have been mixed. A naval clash near the two countries maritime frontier in June 2002 heightened tensions, but progress has been made in some areas, such as the commencement of work in September 2002 on clearing parts of the Demilitarized Zone (DMZ) to facilitate possible road and rail links. It is unclear what effect the disclosure of the North's violations of the Agreed Framework will have on this work.

United States Economic Sanctions
The United States announced on June 19, 2000 that it was easing some of the economic sanctions which have been in place with North Korea under the Trading With the Enemy Act since the start of the Korean War in 1950.  Licenses are still required from the Treasury Department's Office of Foreign Assets Control (OFAC) for many transactions, and sales of military and "dual-use" items are still restricted. (See the OFAC Fact Sheet on North Korea Sanctions for more information.)  The designation of North Korea as a state supporter of terrorism by the United States also effectively precludes lending by international financial institutions such as the World Bank.

North Korea relies on two domestic sources of commercial energy -- coal and hydropower -- for most of its energy needs. In 2000, coal accounted for about 86% of primary energy consumption.

North Korea's electric generating capacity is split nearly evenly between coal-fired thermal plants and hydroelectric plants. In 2000, hydroelectric power plants generated about 67% of North Korea's electricity and thermal plants about 33%. The country's thermal generating capacity is underutilized due to a lack of fuels.  The country's total electricity consumption in 2000 was only 65% of what it had been in 1991, though it showed an increase of nearly 9% over the figure for 1999.

As a result of the electricity shortage, North Korea has resorted to a rationing system.  The country often experiences blackouts for extended periods of time, and power losses due to an antiquated transmission grid are high. Rainfall improved in 2001, but some hydroelectric facilities are believed to be out of operation due to flood damage from major flooding in 1996.

The prospect of South Korean help for North Korea's electricity shortage was discussed at the June 2000 summit meeting, and North Korea has since been seeking electricity from South Korea since then. A linkage between the electric grids of the two Koreas is one possibility, but it would be of limited immediate value due to the North's poor transmission infrastructure.  At present, South Korea has not agreed to supply the North with electricity from its own transmission grid. North Korea also has reportedly discussed the possibility of electricity aid with Russia.

Problems with the North Korean coal industry are closely related to the problem with electricity supply. Coal-fired power plants have been running well under capacity in recent years, due in part to problems with rail transportation of coal.

North Korea lacks domestic petroleum reserves, but the West Korea Bay may contain hydrocarbon reserves, as it is considered to be a geological extension of China's Bohai Bay. Sweden's Taurus Petroleum holds an oil exploration concession for two blocks, B and C, off the west coast of North Korea. Britain's Soco International holds the concession for Block A. Initial seismic surveys conducted by Taurus have identified possible oil-bearing geological structures. The two companies held separate discussions with South Korea's Korean National Oil Company (KNOC) and Hyundai about possibly forming a consortium for joint exploration of the areas, but no new activity has been reported in these concessions in the last year. Australia's Beach Petroleum also holds a concession for one block off the east coast of North Korea, which is considered less promising. 

In November 2001, the North Korean government awarded its first concession for an onshore block to Sovereign Ventures of Singapore, which covers an area in the Tachon-Rajin area near the Chinese border. In September 2002, the company reported that initial seismic survey results had indicated probable oil and natural gas deposits of modest size.

In the meantime, North Korea must import all of the oil it consumes. Oil accounts for about 6% of total North Korean primary energy consumption, and is mostly limited to non-substitutable uses such as motor gasoline, diesel, and jet fuel. With the exception of the heavy fuel oil which was being provided under the Agreed Framework, most petroleum is imported as crude oil and processed at domestic refineries. Under the 1994 "Agreed Framework," the United States had assumed responsibility for providing 500,000 metric tons (approximately 3.3 million barrels) of heavy fuel oil annually through Korean Peninsula Energy Development Organization (KEDO).

Natural Gas Transportation
South Korea has held discussions with China, Russia, and BP about the possibility of importing natural gas from Russia's huge Kovykta gas field near Irkutsk.  While China would be a major importer of gas through the pipeline, the project could be made more economical by adding a link to South Korea, which currently gets the vast majority of its natural gas by tanker as liquefied natural gas (LNG). North Korea is one possible route for the pipeline link to South Korea, and would be less costly than the subsea alternative.

Prior to 1994, North Korea's nuclear program had been a major concern for regional security, since its graphite reactor technology produced fissionable plutonium which can be used in nuclear weapons. North Korea withdrew from the Nuclear Non-Proliferation Treaty in 1993.

Under the Agreed Framework negotiated with the United States in 1994, North Korea had agreed to freeze its nuclear program in exchange for two new pressurized light-water reactors (which are considered less capable of producing weapons-grade plutonium) and 500,000 metric tons per year (about 3.3 million barrels) of heavy fuel oil to meet its energy needs until the first new reactor becomes operational. KEDO, an international consortium led by the U.S. government (with South Korea, Japan, the European Union, and others), was established to implement the agreement. The European Union joined KEDO in September 1997.

Japan signed a contract in May 1999 committing to provide its $1 billion contribution to KEDO to fund the new light-water reactors, an action which had been delayed by North Korea's missile test in August 1998. The project was expected to cost a total of $4.6 billion, with South Korea providing the greatest share of funding at $3.2 billion. The United States and the European Union also had pledged to contribute funds.

Construction of the light water reactors was to be performed under a turnkey contract with KEPCO, which was awarded in December 1999. Initial site preparation work had begun, and the concrete foundation at the site was laid in August 2002. Training of North Korean technicians who were to operate the reactors had begun in June 2002. The project had faced many delays, and the completion date for the first reactor has been pushed back to at least 2008, from an original completion date of 2003. One hurdle the project had faced was the issue of indemnity for potential liabilities created by the plant.  General Electric had originally been chosen to supply the generators, but pulled out of the project when the issue was not resolved to its satisfaction.  In January 2001, it was announced that a consortium of Japanese firms, led by Hitachi and Toshiba, would supply the generators.

With the North Korean admission in early October 2002, according to press reports, of its violations of the Agreed Framework by pursuing a program to enrich uranium for nuclear weapons, the light water reactor project is currently stalled.

Head of State: Kim Jong Il (Chairman, National Defense Commission)
Independence: September 9, 1948
Population (2002E): 22.2 million
Location/Size: Eastern Asia/120,540 sq. kilometers (46,800 sq. miles), about the size of Pennsylvania
Major Cities: Pyongyang (capital), Hamhung, Chongjin
Language: Korean
Ethnic Groups: Korean
Religions: Buddhism, Christianity, Chundo Kyo
Defense (6/98): Army, (923,000); Air Force, (85,000); Navy, (46,000); security/border troops, (115,000); workers' and peasants' militia (Red Guard), 3.8 million

Currency: 100 Chon = 1 Won
Official Exchange Rate (10/02): US$1 = 2.20 Won
Gross Domestic Product (2001E): $15.5 billion
Real GDP Growth Rate (2001E): 3.7% (Central Bank of South Korea estimate)
External Debt (1996E): $12 billion (much of this debt currently is in default)
Merchandise Exports (2001E): $700 million
Merchandise Imports (2001E): $1.6 billion
Major Import Products: Petroleum, grain, coking coal, machinery and equipment, and consumer goods
Major Export Products: Minerals, metallurgical products, agricultural and fishery products, manufactured goods (including armaments)
Trading Partners: China, Japan, Russia, Germany, Singapore, South Korea, Hong Kong

Minister of the Power Industry: Yi Chi-chan
Minister of the Atomic Energy: Choe Hak-Kun
Minister of the Coal Industry: Kim Ki Kyong
Oil and Natural Gas Production/Proven Reserves: None
Oil Consumption (2000E): 80,000 barrels per day (bbl/d) - all imported
Crude Oil Refining Capacity (1/1/02E): 71,000 bbl/d
Recoverable Coal Reserves (12/31/99): 661 million short tons
Coal Production (2000E): 101.4 million short tons
Coal Consumption (2000E): 103.6 million short tons
Electric Generating Capacity (1/1/00E): 9.5 gigawatts (about 53% hydropower)
Electricity Generation (2000E): 33.4 billion kilowatthours
Major Ports: Chongjin, Hamhung, Nampo

Minister of Land & Environment Protection: II-Son Chang
Total Energy Consumption (2000E): 2.8 quadrillion Btu* (0.7% of world total energy consumption)
Energy-Related Carbon Emissions (2000E): 66.1 million metric tons of carbon (1.0% of world total carbon emissions)
Per Capita Energy Consumption (2000E): 127.8 million Btu (vs U.S. value of 351.0 million Btu)
Per Capita Carbon Emissions (2000E): 3.0 metric tons of carbon (vs U.S. value of 5.6 metric tons of carbon)
Energy Intensity (1997E): 71,200 Btu/$1990 (vs U.S. value of 13,900 Btu/$1990)**
Carbon Intensity (1997E): 1.7 metric tons of carbon/thousand $1990 (vs U.S. value of 0.22 metric tons/thousand $1990)**
Sectoral Share of Energy Consumption (1998E): Industrial (70.9%), Transportation (28.7%), Residential (0.4%), Commercial (0.0%)
Sectoral Share of Carbon Emissions (1998E): Industrial (80.3%), Transportation (19.3%), Residential (0.4%), Commercial (0.0%)
Fuel Share of Energy Consumption (2000E): Coal (85.8%), Oil (5.9%), Natural Gas (0.0%)
Fuel Share of Carbon Emissions (2000E): Coal (95.1%), Oil (4.9%), Natural Gas (0.0%)
Renewable Energy Consumption (1998E): 249.5 trillion Btu* (7% decrease from 1997)
Status in Climate Change Negotiations: Non-Annex I country under the United Nations Framework Convention on Climate Change (ratified December 5th, 1994). Not a signatory to the Kyoto Protocol.
Major Environmental Issues: Localized air pollution attributable to inadequate industrial controls; water pollution; inadequate supplies of potable water.
Major International Environmental Agreements: A party to the Antarctic Treaty, Biodiversity, Climate Change, Environmental Modification, Ozone Layer Protection and Ship Pollution.   Has signed, but not ratified, the Antarctic-Environmental Protocol and Law of the Sea.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP based on EIA International Energy Annual 2000

Sources for this report include: The Bank of Korea (South Korea); Chosun Ilbo; CIA World Factbook 2002; Dow Jones News Wire service; DRI-WEFA Asia Economic Outlook; Economist Intelligence Unit ViewsWire; Energy Compass; Hart's Asian Petroleum News; Korea Herald; Korea Times; Lloyds List; Los Angeles Times; U.S. Energy Information Administration; U.S. Department of State; Reuters News Wire.

For more information on North Korea, please see these other sources on the EIA web site:
EIA - Country Information on North Korea

Links to other U.S. government sites:
CIA World Factbook - North Korea
U.S. Department of Energy - Office of Fossil Energy - North Korea
U.S. Treasury Department - Office of Foreign Assets Control
U.S. State Department - Background Notes - North Korea
U.S. State Department - Consular Information Sheet - North Korea
Library of Congress Country Study on North Korea

The following links are provided solely as a service to our customers, and therefore should not be construed as advocating or reflecting any position of the Energy Information Administration (EIA) or the United States Government. In addition, EIA does not guarantee the content or accuracy of any information presented in linked sites.

Korean Peninsula Energy Development Organization (KEDO)
North Korea WWW Virtual Library

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File last modified: October 21, 2002


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