The Presidents of South Korea and Russia met with each other in Seoul on November 13. The summit meeting resulted in a promise to further promote two-way economic cooperation in a wide variety of fields to ease the tension on the Korean peninsula. There, the former proposed the concept of the Eurasia Initiative, which is characterized by considering the Eurasia region as a single giant market and fostering multilateral growth in the region in an attempt to encourage the North to open itself up and set the stage for peaceful reunification between the two Koreas.
Another significant result of the meeting is the increased probability of a connection between the Trans-Siberian Railway (TSR) and Trans-Korean Railway (TKR), to go from Busan City to Europe via North Korea and Russia. The railway network is expected to be a catalyst for the Eurasia Initiative and the various types of economic cooperation to progress via its framework.
The latter, in the meantime, agreed to the South Korean government’s hard-line stance against the North’s nuclear programs, along with its North Korea policy called the Korean Peninsula Peace Process and Northeast Asia Peace and Cooperation Initiative. Given that Russia has had great influence with Pyongyang, the summit talks are likely to remain an important deterrent against North Korea down the road.
Eurasia Initiative Given Concrete Shape
During the talks, the two parties signed two agreements and no less than 15 MOUs for economic cooperation.
One of the most important of these is an MOU for the Rajin-Khasan Logistics Cooperation Project, led by a 70-30 joint venture between the national railway agency of Russia and Rajin Port of North Korea. The new MOU is going to open the door for South Korean companies such as POSCO for equity holding and management. The MOU covers different procedures concerning their participation in the repair and maintenance of the 54km long railroads between Rajin and Khasan, development of ports and terminals in Rajin, management of the intermodal logistics business, and other tasks.
POSCO and some other South Korean corporations will take part in it by acquiring approximately one-half of the Russian shares in the joint venture. Once it turns out to be successful, it is likely to be a benchmark model for additional future projects while fostering the openness of Pyongyang. Although it is no direct investment in North Korea, it is predicted to be a new tool to alleviate the tension between the two Koreas that has revolved around Mt. Kumgang tourism and the Kaesong Industrial Complex.
The two countries also concluded a shipbuilding industry MOU to work together in the design, construction, and financing of the Zvezda Shipyard, provision of order placement information, and other details. Based on the MOU, Russia is going to place at least 13 orders for LNG carrier construction on the condition of technological transfer so as to develop its shipbuilding industry, which signals a great opportunity for Korean shipbuilders. The deal was signed by Daewoo Shipbuilding and Marine Engineering and Rosneft.
In the energy infrastructure field, the construction of gas pipes via North Korea for the introduction of natural gas produced in Russia has been determined to be given a concrete shape over an extended period of time, allowing for conditions in the North and the economic feasibility of the undertaking. The project, once accelerated, is expected to contribute to the Korean government’s efforts for energy source diversification and the peace-building process on the peninsula.
Also, the Korea Electric Power Corporation (KEPCO) and its Russian counterpart FSK promised joint research on power grid connections, while LG CNS, Hevel and Avelar Solar concluded a three-party MOU to join forces in a project financing-based, 500MW photovoltaic power plant construction project to be completed by 2020. Worth approximately 1.8 trillion won (US$1.68 billion), the construction project will be key to dominating the global solar power market in advance, and increase their presence in the fast-growing future industry.
Groundwork Laid for Comprehensive Financial Cooperation
Diverse joint investment platforms were prepared through the summit meeting to buttress economic cooperation as well. For example, the Export-Import Bank of Korea and its peer VEB agreed to raise US$1 billion in development funds on a 50-50 basis for three years for infrastructure development and overseas business activities.
Likewise, the Korea Investment Corporation and the Russian Direct Investment Fund (RDIF) inked a similar US$500 million MOU, while the Export-Import Bank of Korea and Sberbank signed a long-term financing support MOU at US$1.5 billion in order to back up Korean companies’ plant, marine vessel, infrastructure, energy, and natural resources development. The MOUs are expected to reduce financial risk to facilitate their business in Russia. When it comes to the development of the North Pole Route, South Korean vessels are allowed to navigate in Russia’s territorial waters and continental shelf, and to use Russian ports and harbors.
Furthermore, the two governments agreed to the construction of the Korea-Russia Innovation Center to expand their cooperation in the advanced technology industry. The new facilities are planned to be engaged in the development of biotechnology and energy technology in the Skolkovo Complex in the vicinity of Moscow. The Ministry of Health and Welfare and the Russian Ministry of Health concluded another MOU for more systematic cooperation in the medical and healthcare fields. Under the circumstances, the bilateral cooperation is forecast to be expanded to new drug development, medical appliances manufacturing, and more.
At the same time, they agreed on the joint research for economic cooperation road map, expansion of sharing of economic development experiences, and further support for Korean companies doing business in Russia. Agreements were concluded for visa exemption for tourists and entrepreneurs who visit the other country for 60 days or less, and for the establishment of culture centers. They are going to foster collaboration on the environmental cooperation side as well as in the aerospace, military technology, and nuclear industries.