South Korean Builders Show Growing Interest in North Korean SOC Projects

Anticipation is growing for economic cooperation and development between South and North Korea as inter-Korean relationships began to thaw once again with the North Korea-US summit meeting scheduled to be held on June 12 as planned after twists and turns.

Experts believe that if economic cooperation between the two Koreas becomes concrete, the volume of infrastructure projects such as SOC projects and plant projects will amount to 289 trillion won.

The Korea Institute for National Unification estimated that the unification of South and North Korea would cost 831 trillion won, with 289 trillion won of it spent on building SOC. The Construction and Economy Research Institute of Korea forecast that 270 trillion won would be needed for the development of North Korean infrastructure for ten years. In addition, the Financial Services Commission and the Korea Research Institute for Human Settlements estimated that 150 trillion won and 94 trillion won would be needed for the development of infrastructure in North Korea, respectively.

According to reports released by the Construction and Economy Research Institute of Korea and the Korea Research Institute for Human Settlements, roads are considered to be in the worst conditions among social infrastructure in North Korea.

North Korea's total road extension is 26,644km, only 25% of that of South Korea (10,567,3km). North Korea’s highways are 729km long in total, which is equivalent to 17% of South Korea’s (4,139㎞).

In addition, North Korean ports have an unloading capacity of about 4,100 tons, which is only 0.04% compared with that of South Korean ports. It is said that the deterioration of port facilities sparks off a long delay of cargoes such as coal and iron ore.

About 98% of North Korea’s railroads were built during the Japanese colonial rule of Korea so they need repairing. In the case of the housing business, one million homes will require repair and improvement work over the next decade.

Only a little more than half of North Korean homes have flush toilets. Over 90% of North Korean homes are depending on coal and wood for heating.

Accordingly, the focus is on Hyundai Engineering and Construction (E&C) which had carried out 700 billion won worth of North Korean projects such as the North Korean Light Water Reactor project and the construction of the Geumgang Mountain Cultural Center since 1999.

"There are variables such as the summit meeting between North Korea and the United States, so we are not in the stage to draw up a specific business plan," a Hyundai E&C official said. "If economic cooperation between South and North Korea becomes a reality, Hyundai E&C will have no problem in moving forward with new projects by utilizing our rich experience."

Daewoo Engineering and Construction (E&C) also formed a TF team for such SOC projects. The company participated in the North Korean light water reactor project in 1990 along with Hyundai E&C, when Daewoo E&C was a construction arm of the Daewoo Group. Daewoo E&C is making a blueprint to build a tidal power plant in North Korea’s Hwanghae Province which has a big difference between the rise and fall of the tide by taking advantage of its experience in building Sihwa Tidal Power Plant in Ansan, South Korea.

In addition, Ee-Hwa Construction which engages in civil engineering and construction projects, and Nam Kwang Engineering, which operated a steel frame factory in the Gaesong Industrial Complex in North Korea, are drawing a lot of attention.

Among government-run corporations under the Ministry of Land, Infrastructure and Transport, Korea Land and Geospatial Informatix Corporation (LX) is preparing to build a North Korean land information database, and Korea Expressway Corporation is mapping out a business plan such as the construction of a highway in North Korea.

"It will take a long time for inter-Korean economic cooperation to take place after the summit meeting between North Korea and the US. It is still unclear whether the project will proceed smoothly based on past experiences," an industry official said

"Even if a project is carried out to arrive at the stage of beginning to construct an SOC facility, it is still highly likely that many various problems will occur unless North Korea gets rid of its chronic trust issues such as local labor productivity and payment after the completion of the project," the official added.