Korean Peninsula Energy Development Organization (KEDO)
July 14, 1998
I am very pleased to be here today to update you about KEDO's work and the progress of the light-water-reactor (LWR) project. Now is a good time to discuss this subject since there have been many developments regarding the Korean Peninsula in the past few months - developments that have helped place KEDO's efforts in context.
In his inaugural address in February, President Kim Dae Jung spoke of "reconciliation, exchanges, cooperation and non-aggression." He also spoke of the implementation of the 1991 North-South "non-nuclear declaration." These statements, as well as calls for family contacts, for cultural, economic and communication exchanges, and the decision to lift the ceiling on South Korean investment in the North, suggest that a spirit of hope and reconciliation might be in the air. The cattle run through Panmunjom last month by the Chairman of Hyundai, the proposal for a joint "unity" celebration, talks of joint sports teams and matches, resumption of the Military Armistice Commission (MAC) talks at the general officer level, initiation of the Four Party Talks in Geneva, and resumption of North-South talks are welcome signs from North Korea.
These statements, and more generally, President Kim's "sunshine" policy, which separates economics from politics, are a very welcome change from the past. They are also a far cry from the situation that existed in 1994. In fact, it is easy to forget that five years ago Pyongyang announced its intention to pull out of the Nuclear Non-proliferation Treaty and blocked inspections by the International Atomic Energy Agency, in the process heightening global fears that its nuclear program might have purposes other than electricity generation. As Don Oberdorfer illustrated in his recent book, The Two Koreas, in June 1994, war on the Korean Peninsula was not only a possibility, but also may have been much closer than most people realized.
I will not claim that KEDO is responsible for the change from war footing to calls for rapprochement, but I do believe that the Agreed Framework and KEDO, which was created to implement much of it, have been important parts of the process which has brought more stability to Northeast Asia and may help lead to reconciliation between the North and South. KEDO, while helping to defuse a very real security threat, has also been a classic confidence-building measure.
KEDO was founded in early 1995 by Japan, South Korea and the United States to fulfill commitments made under the October 1994 Agreed Framework. Today KEDO has 12 members, including the European Union (EU), which joined KEDO as an Executive Board member late last year, Australia, Argentina, Canada, Chile, Finland, Indonesia, New Zealand and Poland. The diversity among KEDO's members is a sign of growing international support for KEDO's work and a recognition of its accomplishments during the past three years.
While support for and membership in KEDO have grown, the KEDO Secretariat itself has remained relatively small. We now have 35 professional and support staff, primarily from the United States, ROK, Japan, and Europe. Structurally, the Secretariat is divided into six divisions: the Policy and DPRK Affairs Division; the Project Operations Division; the Nuclear Safety and Quality Assurance Division; the Legal Division; the Finance and Heavy Fuel Oil Division; and General Affairs (administrative). The Secretariat's small size and dedicated staff have created a relatively smooth operation that belies the difficulty inherent in bringing together driven, talented individuals from substantially different professional backgrounds and cultures.
It is fair to say that in its three years of operation KEDO has achieved greater success than most observers initially thought possible. This success has occurred on seve ral levels.
On the nuclear non-proliferation level, KEDO's success has ensured that North Korea has kept its commitments under the Agreed Framework. Pyongyang's suspect graphite-moderated reactors and related facilities have been frozen; the spent fuel rods from the five-megawatt reactor have been removed and the canning of those rods was virtually completed in April; and, the DPRK has remained a party to the NPT and has allowed the IAEA to monitor its nuclear facilities.
In addition to ensuring thus far these non-proliferation achievements, KEDO has also served an important diplomatic, or geopolitical, function. Through its daily work in New York, in negotiations with the DPRK, and at our Kumho site on North Korea's east coast, KEDO has provided a crucial link between Pyongyang and the outside world. Particularly during the occasional flare-ups that have occurred, KEDO has provided a forum for near constant contact and interaction with the North.
In addition to being a window to the world for North Korea, KEDO has provided opportunity for direct contact between South and North Koreans, on both a formal and informal level. Under KEDO's institutional umbrella, South Koreans at KEDO have directly negotiated agreements with North Koreans. At the negotiating table and in the field at the Kumho site, the learning curve from KEDO's interaction with the North has been steep and agreement has never been easy. But in slogging away through countless negotiating sessions, we have learned to work with each other and to listen to each other's concerns.
I should note that the interaction I just described is not limited only to members of the KEDO Secretariat or delegations from KEDO's Executive Board members. Under agreements arranged by KEDO, KEDO's South Korean contractors and subcontractors have directly negotiated and signed separate contracts with North Korean companies which will provide labor, goods, facilities or other services at the site.
Similarly, there has been considerable interaction between the more than two hundred South and North Korean workers at the site. It has been a remarkable aspect - and benefit -- of the project to see workers from the two Koreas, which remain technically at war, talking, sharing cigarettes and in general learning about each other for the first time. As the LWR project progresses, eventually thousands of South and North Koreans will work side by side jointly building the two light-water reactors.
It is also worth noting another success of KEDO. KEDO has provided important political benefits to each of its founding members. In a few short years, KEDO has become an important feature of the landscape on the Korean Peninsula and in Northeast Asia. It serves as an example of how a cooperative and targeted international diplomatic effort can lead to the resolution of regional security or political crises. KEDO has become an important mechanism for coordinating and harmonizing Japanese, South Korean, American, and now European interests and policies.
* * *
Let me turn for a moment to the actual work KEDO has undertaken at the negotiating table and on the ground.
First, let me address KEDO's track record at the negotiating table.
As you know, under the Agreed Framework, in exchange for Pyongyang's freezing and ultimately dismantling its graphite-moderated reactors and related facilities, KEDO will provide two proliferation-resistant 1,000 MW(e) light-water reactors and 500,000 tons of heavy fuel oil per year until the first reactor comes on stream.
In December 1995, KEDO concluded a Supply Agreement with the DPRK that serves as a roadmap for the project. It states, among other things, the project's scope, terms of repayment, and general terms and conditions under which KEDO, its prime contractor and subcontractors will operate at the site.
Since the Supply Agreement, KEDO has negotiated and signed six additional protocols, or agreements, with the DPRK. These protocols address issues such as:
KEDO's juridical status, and privileges and immunities in the DPRK; transportation routes to and from the DPRK; communications to and from the site; access to, use of and takeover of the site; the provision of DPRK labor, goods, facilities and other services; and, penalties in the event of nonpayment by the DPRK for the cost of the two reactors.
The protocols in many ways have proven perhaps more difficult than the Supply Agreement to conclude since they have addressed in detail sensitive issues unprecedented in nature for the North Korean regime.
In addition to the Supply Agreement and the protocols, just mentioned, KEDO and the DPRK have also concluded approximately two dozen detailed implementing agreements on issues such as: medical services; procedures for sea, land and air transportation; and, guidelines and principles for contracts to be signed between KEDO, its contractors or subcontractors and DPRK companies. Many of these agreements are different from protocols only in name. They, too, address very sensitive, unprecedented issues that have required creative thinking by both sides to resolve.
With respect to actual work on the ground, following conclusion of the necessary protocols and agreements, KEDO officially broke ground for site preparation last August at the Kumho site. For the groundbreaking ceremony, a large delegation, including diplomats from almost all KEDO member countries and 27 journalists from Japan, South Korea and the United States, traveled by boat directly from South Korea to a port near the site. These journalists broadcast live via satellite pictures of the ceremony around the world without any interference or censorship from the DPRK.
The 120 KEDO construction workers, technicians and engineers at the site, the overwhelming majority of whom are South Korean nationals, have now almost completed initial site preparation. Thousands of tons of equipment have been delivered to the site to build the necessary infrastructure for the nuclear reactors. A small village has been built from nothing. We now have housing facilities, a medical facility, roads, water services, electricity services; a restaurant for North and South Korean workers, recreational facilities, and other amenities. KEDO workers travel to the site by boat or chartered aircraft, enjoy access to direct dial phone lines and mail service to South Korea, watch CNN on satellite television, and enjoy consular projection, privileges and immunities similar to those accorded diplomats and other international organizations.
Shortly before the groundbreaking ceremony, KEDO opened a permanent branch office at the site. This office is staffed by a small core of professional diplomats from Japan, the US and the ROK who rotate out of North Korea on a regular basis. A few months after KEDO opened its branch office, a South Korean bank (the Korea Exchange Bank) also opened a branch office at the site to service the financial needs of workers living there.
We recently completed the second of four oceanographic surveys (using a South Korean ship) to evaluate the environmental impact of the LWR project, and this spring we inaug urated what will become regular cargo/passenger service between Sokc'ho, South Korea to Yangwha, the port near the Kumho site.
Before discussing the road ahead, let me point out that work at the site, while progressing very well, has not always been easy. The winter is cold, and, with only very limited exceptions, our workers are required to remain within the site boundaries. The situation in general is lonely, harsh and stressful. Also, as one might expect at any construction site, there have also been accidents and incidents, many typical of construction work. However, to date, KEDO and the DPRK have been able to work through these events without serious disruption to the project. It is a testament to the desire of both sides to keep their commitments under the Supply Agreement that KEDO and the DPRK have worked together pragmatically to resolve any differences and move forward with the project. * * *
I should start my discussion of the road ahead by stating clearly that the political achievements and work on the ground that have already been achieved would not have been possible without the strong political and financial support KEDO has received from its member countries and other contributors, particularly South Korea, Japan, the United States, and, more recently, the EU.
KEDO has an ambitious agenda for 1998. We would like to pursue agreements with North Korea on a range of issues, including:
a protocol on training for DPRK technicians who will operate and maintain the light-water reactors; a protocol on quality assurance and warranties; and, a protocol on the delivery schedule for the project (including the requirement that the DPRK will come into full compliance with its NPT and IAEA safeguards obligations before KEDO ships significant nuclear components to the site).
In addition to these protocols with the DPRK, KEDO intends to conclude later this year a turnkey contract with our prime contractor, the Korea Electric Power Corporation (KEPCO). The site preparation work now being performed by KEPCO (described earlier) is under a separate contract financed through South Korean Export-Import Bank loans worth approximately US$45 million. The turnkey contract will govern the rest of the project, including full-scale construction work.
It is no secret, of course, that KEDO faces serious financial challenges. KEDO began 1998 US$47 million in debt from the heavy fuel oil delivered to North Korea in 1997. Additionally, KEDO is committed to delivering 500,000 metric tons of oil in the current fuel-oil year (which runs from October to October). This commitment has cost US$65 million/year for the first two full years of the program (1996 and 1997), but may cost slightly less this year because of lower oil prices.
With respect to the LWR project, the Executive Board members agreed in November 1997 that the cost estimate for the project would be about US$5 billion. However, this cost is likely to drop to $4.5/4.6 billion because of the devaluation of the Korean won versus the US dollar.
The coded language for cost sharing has always been that South Korea would play a "central" role and Japan a "significant" role in the project. The Executive Board is meeting in New York later this week to continue discussions on how to translate this language into real financial commitments and money, and we are very close to reaching a final agreement. The financial crisis in Asia has certainly not been helpful, but South Korea and Japan have unequivocally reaffirmed their respective commitments.
My top priority has been to achieve a comprehensive resolution of financing issues for the LWR project and the supply of heavy fuel oil so that we can operate on a firm financial basis. This would be reassuring to all parties.
The Executive Board, particularly the United States, is also working to retire the debt that currently exists with respect to heavy fuel oil and to establish stable financing for the future. It would be myopic to say the least to jeopardize the non-proliferation accomplishments of KEDO by failing to provide funds for this relatively inexpensive component of the Agreed Framework. With financing for the light-water-reactor project and heavy fuel oil arranged, KEDO would be free to concentrate on concluding the turnkey contract and the remaining protocols, and moving ahead to construct the LWRs.
Despite the accomplishments of the Agreed Framework and KEDO, there are some clouds on the horizon. The DPRK criticism of the pace of the LWR project's progress; of the slow and erratic pace of provision of heavy fuel oil; and, in the US bilateral context, of the lifting of US economic sanctions against North Korea, has taken an increasingly worrisome tone. The recent acknowledgment by Pyongyang that it has sold missiles and would continue to do so could be interpreted as a threat or, conversely, as an offer to re-engage the U.S. and possibly negotiate a solution to the issue. Recent nuclear testing in India and Pakistan have also underscored the importance of KEDO and its objectives.
In and of itself, but particularly in the context of recent developments in Asia, especially in Northeast Asia, KEDO remains an important, even essential, element of Northeast Asian security. KEDO members have demonstrated this by their support for KEDO's mission and activities. It is imperative for the security interests we all share, that needed political and financial support continue to be provided.
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