N. Korea’s Kim May Get Nuclear Talks Offer

North Korean leader Kim Jong Il will meet President Dmitry Medvedev this week in a visit that Russia hopes may spur talks on the Asian country’s nuclear weapons program and pave the way to energy and transport deals.

The two leaders will hold talks in the Siberian city of Ulan-Ude, on the border with Mongolia, according to Russian state television. The Kremlin last week announced the meeting without providing details. Kim, who crossed into Russia in an armored train on Aug. 20, is making his first trip since 2002 when he met then President Vladimir Putin in Vladivostok.

Russia is offering North Korea gas, electricity and railway projects to induce the communist regime to restart nuclear-non proliferation talks. The meeting with Medvedev aims to help end a three-year hiatus in six-party talks including China and the U.S. on dismantling North Korea’s weapons nuclear program and boost Russia’s global image as a mediator.

“Russia wants to come out with an initiative to resolve the Korean peninsula problem through massive economic cooperation with North and South Korea,” said Alexander Lukin, an Asia expert at the Moscow State Institute of International Relations. Total investment may exceed $100 billion, he said.

The Kim-Medvedev meeting comes after North Korea on Aug. 18 threatened to bolster its nuclear deterrent “both in quality and quantity” following the start of two-week military exercises by the U.S. and South Korea. The two countries remain technically at war after their 1950-1953 conflict ended in a cease-fire. North Korea’s attacks on the southern neighbor have kept relations tense.
Artillery Rounds

South Korea’s military on Aug. 10 said it fired three artillery rounds after hearing explosions coming from the North. The north fired a second round into waters near Yeonpyeong Island, which was the target of a deadly shelling in November, Yonhap News reported.

“Russia is trying to interest North Korea economically so that in the future you can discuss how it can be tied with the nuclear program is an interesting scheme to try and move it from a deadlock,” said Fyodor Lukyanov, an analyst at the Council on Foreign and Defense Policy in Moscow. “There should be some deal that will have both economic and political components.”
Gas Pipeline

Russia is in separate talks with companies from North Korea and South Korea to build a natural-gas pipeline to supply the fuel to both countries, Foreign Minister Sergei Lavrov said on Aug. 8. The corporations coming to an agreement would allow Moscow, Seoul and Pyongyang to provide political support for the pipeline project, he said. Russia may also build a power grid along the proposed pipeline route.

South Korean Foreign Minister Kim Sung Hwan on Aug. 12 said that North Korea would earn cash from transit revenue, while South Korea would get access to cheaper imports of gas.

Korea Gas Corp. (036460), the world’s biggest importer of liquefied natural gas, and Russian gas-export monopoly OAO Gazprom have been trying to identify a supply route since at least 2003, when they signed a cooperation accord. Other options include a costlier and technically more challenging undersea pipeline and liquefied or compressed natural-gas supplies.

State-run Korea Gas has said gas demand for the power industry will grow 7.2 percent a year to 2015. South Korea, which relies on imports for almost all of its energy needs, imported 32.6 million metric tons of LNG last year, compared with 25.8 million tons in 2009.
Asian Markets

Moscow-based Gazprom wants to diversify away from Europe to gain revenue from faster-growing Asian markets. The company plans to sign a so-called road map to supply South Korea by pipeline in the near future, it said on Aug. 5. Supplies may start in 2017, Gazprom has said.

Russia may supply 10 billion cubic meters of natural gas a year to South Korea, Interfax reported citing Lee Jong-kook, economy minister at the country’s embassy in Moscow.

The Russian pipeline may offer competition to the fuel South Korea this month agreed to import from Royal Dutch Shell Plc and Total SA for $84 billion, Russian Energy Minister Sergei Shmatko said in Moscow Aug. 18, adding that the cost of the pipeline hasn’t been calculated yet.

Russia has also proposed a railway project that would connect the Trans-Siberian Railway to South Korea via North Korea, opening up an “Iron Silk Road” that would cut shipping costs of South Korean companies to Europe.

Still, Russia should be realistic about its ability to wring concessions while advancing cooperation with North Korea, said Lukin of the Moscow State Institute of International Relations.

“You can’t conclude any agreements with this regime,” Lukin said. “They will restart their program even if somehow they announce today that they are ready to stop it.”

To contact the reporters on this story: Ilya Arkhipov in Moscow at iarkhipov@bloomberg.net Lyubov Pronina in Moscow at lpronina@bloomberg.net;

To contact the editor responsible for this story: Balazs Penz at bpenz@bloomberg.net

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