North Korean military may siphon off fuel oil aid

Beijing/Seoul, Feb 14: Oil promised to North Korea under an energy-for-arms deal may be enough to keep its hobbled economy afloat for a year, but part of it will inevitably be diverted to the country's vast military machine, analysts say.

If donors trying to tempt the reclusive nation towards nuclear disarmament want to avoid an escalating fuel bill over what could be protracted negotiations, they should also use the aid to prod Pyongyang towards energy sector reform.

Under a deal reached at six-nation talks in Beijing yesterday, North Korea will receive 50,000 tonnes of heavy fuel oil or economic aid of equal value in return for taking steps to shut down its main nuclear reactor within 60 days.

A thick, dirty product best suited for burning in power plants and factories, fuel oil can't be put directly into fighter planes or tanks but could be used to boost military production.

''There is not much control over where it goes. Once you start trying to earmark it, the deal will fall apart, and I think there is really no doubt some of it will go to the military,'' said a Chinese energy expert with knowledge of China-North Korea energy ties.

North Korea would receive another 950,000 tonnes of fuel oil or equivalent aid when it takes further steps to disable its nuclear capabilities. This would be more than the total crude and oil products that Pyongyang got last year from its main supplier, China, and the expert warned that the figure could grow.

''The five countries may step into a black hole if we don't make it clear that even if you have energy needs we are not going to keep supplying indefinitely ... otherwise it will be 1 million tonnes this year, 3 million next year and 5 million after that,'' he said.

What the military does not requisition will help fire up dormant power plants, with winter electricity demand still strong because of shorter days and frigid weather that is gripping the country.

IDLE FACTORIES

In the streets of Pyongyang about a month ago, the few shops open after sunset lit candles for their customers, while large parts of the city were dark because street lights were off.

''The 1 million tonnes of fuel oil will be used for generating power and electricity since that is the most urgent issue to be resolved,'' said Kim Kyung-sool, an expert on the North's energy situation at South Korea's Energy Economics Institute.

North Korea has the potential to generate about 7,800 megawatts of power, but fuel shortages have cut output to nearly a third. The shortage has kept over two-thirds of its industrial facilities idle, according to estimates compiled in the South.

The Chinese expert said the infusion of energy aid was a chance to press the North toward deeper reforms.

''We need to emphasize how we can use this not just as a reward for good behaviour but as a way to tell North Korea it should reform its energy policy so they can be more self sufficient,'' he said.

The most basic change would be bringing in pricing based on consumption. Power users in Communist North Korea currently do not have meters but instead pay a set fee for their connection.

At present, Pyongyang gets all the crude to feed its one working refinery, and most of its oil products, from China.

Last year Beijing sold its neighbour 524,000 tonnes of crude oil and around another 120,000 tonnes of refined products, Chinese customs figures show.

If yesterday's accord does indeed lead to years of fuel aid, as the Chinese expert warned, the costs could stack up fast.

At current prices for oil similar to the medium sulphur specification North Korea received under a previous deal, 1 million tonnes would be worth 320 million dollars to 340 million dollars.

But because it requires a non-standard sulphur level, the oil would likely have to be specially blended and that, combined with relatively small shipment sizes, could push prices up further.

REUTERS

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