VZCZCXRO6257
RR RUEHCHI RUEHFK RUEHHM RUEHKSO RUEHLN RUEHNAG RUEHPB RUEHPOD RUEHYG
DE RUEHVK #0094/01 2350621
ZNR UUUUU ZZH
R 220621Z AUG 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1000
INFO RUCPDOC/USDOC WASHDC 0044
RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION
RUEHUL/AMEMBASSY SEOUL 0264
RUEHKO/AMEMBASSY TOKYO 0126
RUEHBJ/AMEMBASSY BEIJING 0279
RUEHVK/AMCONSUL VLADIVOSTOK 1085

UNCLAS SECTION 01 OF 03 VLADIVOSTOK 000094 
 
SENSITIVE 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON PREL ETRD RS
SUBJECT: RUSSIAN-NORTH KOREAN ECONOMIC COOPERATION: DISTANT TRAIN 
WHISTLE 
 
VLADIVOSTO 00000094  001.2 OF 003 
 
 
¶1.  (U) Summary.  Russian and North Korean officials have signed 
an agreement to renovate the railroad linking the two countries 
and to jointly develop the North Korean port of Najin to handle 
major container cargos.  The move, which has been anticipated 
for years, is seen as the first step in upgrading the entire 
Trans-Korean Railway (TKR) to allow for direct overland freight 
deliveries between South Korea and Europe.  Not everyone here is 
thrilled about the agreement, however.  Some are concerned that 
Najin, with its cheap labor and newer infrastructure, will draw 
business away from existing Russian Far East (RFE) ports, 
further isolating Pacific Russia from the rest of the country. 
They would prefer to see the government invest in modernizing 
existing RFE ports.  Given the economic uncertainties, some 
analysts assume that the real driving force behind the 
development of Najin and the TKR is political: that is, 
competition with China for influence in northeast Asia. 
Regardless of its motivations, the fact that announcements about 
Russian-Korean railway cooperation have over the years far 
outpaced actual construction, it does not seem likely that the 
TKR will be completed any time soon.  End summary. 
 
------------------------------------------- 
Russia and DPRK Agree to Cooperate on Railway, Port 
------------------------------------------- 
 
¶2.  (U) Longstanding plans to link the Trans-Korean Railway with 
the Russian Trans-Siberian Railway (TSR) came one step closer to 
reality in April with the signing of a memorandum of cooperation 
between President of Russian Railways (RZhD) Vladimir Yakunin 
and North Korean Minister of Railways Kim Young Sam.  The 
"Khasan-Najin" pilot project will include the renovation of 54 
kilometers of dual track between the Khasan railway station on 
the Russian border with North Korea and the North Korean port of 
Najin, as well as the construction of a jointly-operated 
container terminal at Najin.  According to Russian news agency 
deita.ru, a fiber optic cable will be installed along the 
Khasan-Najin railroad by TransteleKom Ltd and the North Korean 
Communication Ministry.  The railway will reportedly use digital 
equipment.  The joint venture between a subsidiary of RZhD (70 
percent) and the Port of Najin (30 percent) has been set up for 
a 49-year period and will be responsible for attracting other 
investment and finding contractors to complete the work. 
According to an RZhD spokesman quoted in the newspaper Gudok 
(owned by the railway), the track renovation and container 
terminal  construction at the port requires an initial 
investment from the Russian side of 200 million USD, while the 
North Koreans will provide a long-term lease on land and 
infrastructure along the Tumen River-Najin route.  Both sides 
agreed to simplify customs and border formalities between Khasan 
and the adjacent North Korean railway station at Tumangan to 
allow for efficient cargo transfers. 
 
¶3.  (U) At the moment, Najin is not equipped to handle container 
traffic and specializes in bulk cargoes - e.g., fertilizers, 
aluminum, and grain.  In late July, however, Gudok reported that 
preparations are underway to construct a container terminal at 
Najin capable of handling 400,000 TEUs (twenty-foot equivalent 
units) per year.  It is anticipated that the first stage, which 
will account for a quarter of the total capacity, will be 
finished in a year.  At the same time, Pier No. 3 at the port is 
currently being renovated to handle large vessels capable of 
carrying 1,000 containers.  The port is ultimately capable of 
handling up to 600-700,000 TEU in the future.  Meanwhile, the 
Vladivostok newspaper Zolotoy Rog reports that the railway 
renovation is expected to begin soon, and will most likely be 
handled by RZhD daughter company ZarubezhStroytekhnologiya Ltd. 
The railway will reportedly be constructed with dual-gauge track 
to accommodate both Standard Gauge (1435mm) trains, as well as 
1520mm Russian Broad Gauge trains. 
 
--------------------- 
Just the Tip of the Railway 
--------------------- 
 
¶4.  (U) The Khasan-Najin project is considered to be the first 
step in more ambitious plans to link South Korean ports by rail 
with markets in Russia and Europe.  According to experts, 
renovation of the entire 781-kilometer North Korean railroad to 
the South Korean border and construction of a modern logistics 
center for container cargo transit will require an initial 
investment of 2.5 billion USD.  In 2001, North Korean leader Kim 
Jong Il permitted Russian specialists to examine the condition 
of North Korea's railways.  According to their report, the 
majority of the 590 bridges and 165 tunnels in the system are in 
unsatisfactory condition; of these, 179 bridges and 42 tunnels 
 
VLADIVOSTO 00000094  002.2 OF 003 
 
 
are in urgent need of repair.  Consulate contacts who have 
traveled in North Korea add that frequent power outages are also 
a serious problem along the country's railroads, bringing trains 
to a halt a number of times over the course of their journeys. 
According to reports, the Russian experts had to use automobiles 
to inspect the rail lines because the frequent power outages and 
poor quality of the track made doing it by train impossible. 
Because of the poor conditions, trains traveling along the 
railway average only 15 to 30 kilometers per hour (9 - 18 mph). 
According to the Russian specialists, the only decent aspect of 
North Korea's railroads is the quality of the gravel used in the 
roadbeds.  After their inspection, the RZhD specialists 
estimated that it would take five years to restore the entire 
railroad.  (Note: Early last year, MFA First Secretary Maksim 
Volkov told congenoff that it would only take "a half year or 
so" to upgrade the Trans-Korean Railway.  End note.) 
 
---------------------------- 
Is Najin the Death Knell for RFE Ports? 
---------------------------- 
 
¶5.  (SBU) Access to southern ice-free ports, including those on 
the Korean peninsula, has been a dream of Russian Railways since 
the Soviet Union lost the use of Port Arthur (Lushun) to 
Japanese-administered Manchukuo (Manchuria) in the 
Russo-Japanese War.  (While the ports of Vladivostok and 
Vostochniy operate year-round, they may ice over in winter.) 
Nevertheless, many question the need to develop Najin. 
According to officials at Vostochniy, Russia's largest container 
port on the Pacific Coast, the port is operating well below 
capacity and is actively looking to expand its operations. 
Sources in Primorye say they are concerned that Najin, with its 
lower-paid workforce, cheaper service fees, and more efficient 
and modern infrastructure, will draw significant cargo away from 
the RFE's existing ports, serving, in turn, to further isolate 
the region from the rest of the country.  Some here wonder as 
well why the federal government would deliberately undercut one 
of its own central development goals - the modernization of the 
country's ports and shipping facilities - by developing a rival 
facility in another country. 
 
¶6.  (U) For their part, RZhD officials have stated that Najin 
will not compete with existing RFE ports because it will handle 
entirely different cargoes.  Proponents argue that connecting 
South Korea to Russia by rail will be beneficial for both Russia 
and East Asian exporters.  According to Ekho Planety magazine, 
delivering Asian cargo to Europe via the Trans-Siberian Railway 
will be over twice as quick and significantly less costly than 
sea routes, which currently account for 99% of Asian-European 
trade.  Ocean transit times average thirty to thirty-five days, 
versus ten to twelve days over the length of the TSR.  The cost 
of shipping a TEU overland is approximately 1,000 USD per 
container, compared to 850 USD by sea.  But according to Ekho 
Planety, shippers can realize savings of up to 300 USD per 
container because of the shorter transit times along the TSR. 
 
¶7.  (U) Exploiting the TSR for trans-Asian freight deliveries 
will benefit Russia as well.  According to reports, Russian 
Railways hopes to earn up to 3 billion USD annually from cargo 
traffic sent from South Korea via the refurbished Trans-Korean 
Railway into Russia.  Analysts say that betting on the new 
railway is risky, however, because of uncertainty regarding 
inter-Korean cooperation after this year's election of South 
Korean president Lee Myung-bak, who has taken a harder line 
toward the North.  Some Russian leaders to worry that the 
railway may be jeopardized. 
 
----------------------------------- 
Competing with China for Influence in DPRK 
----------------------------------- 
 
¶8.  (U) Some analysts say the real driving force behind the 
development of Najin and the Trans-Korean railway is competition 
with China for influence in northeast Asia.  China, which is 
prevented from direct access to the Sea of Japan by the 18-km 
border between Russia and North Korea, has been rapidly 
extending its transportation infrastructure in eastern Manchuria 
with an eye toward developing the Tumen River and North Korea as 
a major export route.  According to Russian analysts, Moscow is 
eager to get there first.  The stakes are high in part because 
China and Russia operate on different railway gauges -- the 
former on 1,435mm Standard Gauge and the latter on 1,520mm 
Russian Broad Gauge.  The country that manages to develop new 
rail lines in North Korea may be in a position to ensure that it 
has a privileged position there for years to come.  (At the 
 
VLADIVOSTO 00000094  003.2 OF 003 
 
 
moment, China may have a leg up, since North Korea's current 
dilapidated system is Standard Gauge.) 
 
----------------------------------------- 
The Local Angle: A Border Settlement Prays for Boom 
----------------------------------------- 
 
¶9.  (U) The 750 residents of the Russian border town of Khasan 
are reportedly among the most avid supporters of the planned 
upgrade of the TKR.  (Note: Khasan lies inside of a special 
Russian border zone, and all visitors must apply for a permit to 
enter.  End note.)  Like many small settlements in the RFE, 
unemployment in Khasan is high - at 40 percent.  Under current 
plans, Khasan will gain its own container terminal to be built 
on 30 hectares of land adjacent to the local railway station. 
At the moment, living quarters for railway workers and other 
officials are being constructed.  RZhD has also initiated 
construction of a five-dome Orthodox church, which dominates the 
skyline on the Russian-Chinese-Korean border along the banks of 
the Tyumen river.  Khasan Mayor Ivan Stepanov told local media 
that "it is only a matter of time" before a highway is also 
constructed through Khasan, providing motor vehicles access from 
Russia to "the whole of the Korean peninsula." 
 
------- 
Comment 
------- 
 
¶10.  (SBU) Enthusiasm for linking the Trans-Korean and 
Trans-Siberian railways is not shared by everyone in the RFE. 
Apart from the worry that the project will choke off the 
region's existing ports, it is not entirely clear that the 
development of Najin contributes to the overall goal of linking 
South Korea and Russia by land, since the very point of the 
railway is to obviate the need for transporting cargo by sea 
between the two countries.  However, given the many years that 
discussions about linking the Trans-Korean and Trans-Siberian 
railways have been going on without any physical progress, the 
latest agreement should not necessarily be taken as the final 
word that the project is ready to go.  Indeed, the fact that 
Primorye media have been almost silent on the railway since 
April's announcement may indicate that some obstacles remain. 
ARMBRUSTER