Energy Diplomacy
Image Credit: Russian Presidential Press and Information Office

Energy Diplomacy

 
 

Russia-South Korea relations appear to be reaching new heights. While Moscow and Seoul have been in talks concerning a $2.5 billion inter-Korean gas pipeline, a potentially even more lucrative venture has appeared. The project is a $30 billion undertaking by the Russian state-owned North Caucasus Resorts Company (NCRC).  The goal is to develop a sprawling system of five ski resorts, five modern seaside resorts, and health spas, spanning from the Black Sea to the Caspian Sea. This enormous project would include nearly 550 miles of ski routes, a railway system, and a transportation system connecting nine airports, two of which have yet to be constructed. And in all of this, South Korea has earned first dibs to provide the energy and delivery systems for this ambitious tourist mega cluster.

The first foreign investors—Korea Western Power (KOWEPO), a South Korean state-owned gas company and CHT Korea—announced last week a $1 billion investmentin energy production and delivery network for the Northern Caucasus resorts. According to the agreement, NCRC has a 50 percent stake in the joint venture, KOWEPO 40 percent, and CHT Korea 10 percent. The project features an impressive list of modern and eco-friendly components, including five coal-power and heating plants and energy supply system. Talks are currently underway to extend this energy network beyond the resorts and into neighboring republics, such as Dagestan and Ingushetia. All of this suggests an incredibly lucrative future for South Korea’s national energy company, especially as the 2014 Sochi Olympics, which is a major part of the NCRC project, looms.

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While many often accuse Moscow of diplomatic arm twisting, when it comes to its energy resources, in South Korea’s mind, Russia’s energy reserves have served as the foundation for an ongoing romance. Much can be said about the intense efforts made by the Kremlin to court South Korean investment in the Russian Far East (RFE)—a call that Seoul has happily heeded. Over the past year, regional governments in the RFE have held numerous meetings with representatives of South Korean businesses and its government to discuss regional development in areas such as infrastructure, agriculture, and transportation. In exchange, Russia has opened a vast energy market to South Korea, allowing Seoul to develop multiple LNG facilities in the RFE to better supply its energy-hungry economy.

But South Korea’s recent interest in Russia’s NCRC may point to a significant shift in Russo-South Korean relations. Up until now, energy cooperation between the two countries has been confined to local projects in the RFE, a region that Moscow is attempting to leverage into a larger stake in Asia-Pacific affairs. However, Seoul’s cooperation with Moscow in the development of another far-flung region rife with terrorism, violence, and instability, the North Caucasus, indicates growing maturation in Russia-South Korea relations.

As worries about securityand construction issues of the 2014 Sochi Olympics mount, South Korea’s initial $1 billion investment is not only a confidence measure for the NCRC project, but also for Moscow’s greater effort to stabilize this tumultuous region.

According to the NCRC website, Russia is currently considering including areas such as the coast of the Caspian Sea in Dagestan, the Stavropol Territory, and the Republic of Ingushetia as parts of the this tourist resort cluster. These are all notable areas of unrest, poverty, and instability. It’s clear that the billion dollar South Korean investment serves not only to prop up the resort project, but also local energy and unemployment needs. It’s reported that the energy project would single-handedly provide 20,000 jobs.

Furthermore, the chairman of the NCRC, Akhmed Bialov, has made no secret of the fact that South Korean investment would do much to help stabilize this region. According to the website: “The provision of a high-capacity, modern power generation network incorporating renewables and supplying both resorts and neighboring communities is a major step forward in our master plan to develop a region-wide, ecologically sustainable tourism industry to spur economic growth in the North Caucasus.”

While the resort cluster project of the North Caucasus is still far from being finished, its completion will pay both financial and political dividends for Russia and South Korea for years to come. And as long as Russia will continue to need foreign investments in these troubled areas, it appears South Korea will continue to be a closer partner. 

John K. Yi is an Alfa Fellow currently living in Moscow, Russia. He received his M.A. in Eurasian, Russian, and Eastern European Studies at Georgetown University, focusing on Russian foreign policy in East Asia and in the Six Party Talks.

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