A 'Pipe Dream?' Russia, North and South Korea's Gas Pipeline Quest  (Page 2 of 2)

Realistically, negotiations on the details of a specific pipeline plan that will succeed cannot be limited to Russia and the two Koreas alone.  There must also be meaningful economic reform in North Korea that includes both a rational energy development strategy, and improvements in economic contract management practices that are internationally acceptable.

As guarantors of South and North Korean security respectively, the U.S. and China have to be part of the negotiation process in order for any agreement to be politically viable and attractive to the private sector.  It is inconceivable that either would accept an end-run around their interests in regional security arrangements by Russia and the two Koreas, even if these parties could come closer to a pipeline deal that works for them financially.  While the Six Party process may be dead, a successor multilateral process for building consensus and support for a regional undertaking of such significance for regional stability and cooperation is required to achieve the political objective of shifting security mechanisms from reliance on military capabilities and deterrence to interdependencies of multiple kinds that create incentives for peaceful cooperation.

Bernhard Seliger of the Hanns Seidel Foundation, who has been actively working with North Korea on hydroelectric energy projects, argues that a gas pipeline project is still too risky a proposition. What North Korea needs is a learning curve experience in how to meet international standards of transparency and accountability. It also needs prior involvement in such a legal regime for its own self-interest without resorting to political games, requiring large investments, or impending on economic rationality with old-style greed for obtaining maximum foreign exchange.

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It may well be that precursor steps towards the pipeline project would enhance its ultimate potential for success.  One example is educational engagement to help the North Koreans understand the practical aspects of entering into binding long-term international agreements that involve commercial as well as governmental interests, and reasons for the need of others to have trust in reliable behavior in such ventures given the immense costs of unpredictability in long-term agreements.  Another possibility is to integrate planning for the pipeline project in a wider process of dialogue between North Korea and foreign partners on Pyongyang’s future economic development strategy.

In particular, such a future-oriented strategy would have to focus on a logical investment plan for the development of North Korea’s energy sector to support that strategy, and for the potential role for gas that might be drawn from the pipeline.

It will also be important to set a pipeline agreement in the context of developments in the global market for gas that will protect both South Korean and Russian longer-term financial interests if such an agreement will be viable for them.  This requires not just the participation of governments whose security and economic interests are at stake, but also the corporate participants whose commercial interests are crucial factors for any successful deal.  North Korea may not be ready for this type of dialogue and negotiation, but it is primarily the responsibility of North Korea to see its way to engaging with others in a business-like way to proceed in a meaningful way.

2013 may well provide an opportunity to test whether the two Koreas can realign their relationship in ways that will make the prospect of a gas pipeline deal more realistic to consider. But they cannot expect this will be possible without a very open and transparent process of engaging the interests of all concerned parties whose support will be needed for any deal to succeed.

Brad Babson is the Chair of the DPRK Economic Forum, U.S.-Korea Institute, Johns Hopkins School of Advanced International Studies.

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