A Silver Lining to Asia’s Financial Cloud

By Victor Gilinsky and Henry Sokolski
Washington Post, 19 January 1998

The South Korean financial crisis is about to undermine the nuclear deal the United States
struck
with North Korea back in 1994. The United States promised Pyongyang two large power reactors
worth $5 billion in exchange for a freeze and eventual dismantling of North Korea’s small
indigenous plutonium production reactors. North Korea had already violated the inspection
provisions of the Nonproliferation Treaty and looked like it might use its plutonium for bombs.
The two large reactors may have been an unsavory payoff, but the State Department fixed it so
South Korea would pay, with some help from Japan, and that deflected criticism in the United
States. Several months ago, the project broke ground. Now, suddenly, South Korea is broke, the
International Monetary Fund is nixing South Korean projects right and left, and the nuclear deal
with the North may have to go back to the drawing board.

That isn’t all bad. The twin-reactor deal never made much sense except on the symbolic level
—
for North Korea. The large reactors are much too big for the small North Korean electric grid. If
North Korea needs more electric generators, it hardly needs the most expensive ones that take the
longest to put on line and produce plutonium to boot. The new reactors, while harder for the
North to use for plutonium production, would produce more plutonium than the
small indigenous
ones they would replace. In fact, the new reactors, called “proliferation-resistant” by the State
Department, are essentially the same as those the State Department labeled a proliferation risk
when Russia talked of supplying them to Iran. Most important, under the 1994 deal, North Korea
doesn’t have to dismantle its plutonium production plants until the second of the two
U.S.-supplied reactors is ready. That could be in 10 years — or never — which will leave the
United States subject to blackmail indefinitely. It doesn’t hurt to have a financial excuse to rethink
the deal.

There never was any suggestion about the U.S. taxpayer picking up the tab, so that’s out. Or
should be. Administration officials swore up and down about this when they defended the original
deal before Congress. (It wouldn’t hurt to make sure the current South Korean bailout
contributions don’t contain a hidden pass-through for the nuclear deal.) The United States has
already borne the initial burden, paying more than $80 million so far to provide North Korea with
half a million tons of heavy fuel oil per year (doing so until the first reactor is built was part of the
very generous deal). The reactors were supposed to be paid for by South Korea — the country
whose national security was most immediately endangered, and which will inherit them if the
peninsula becomes one. But what if the South can’t pay?

President-elect Kim Dae-jung said [news story, Jan. 9] that in the current difficulties “Japan
and
the United States must contribute more.” He cannot afford to be subsidizing North Korean
nuclear reactors when he is under IMF pressure to cancel South Korean infrastructure projects
that won’t produce a short-term return. To add to the problems, the Korea Electric Power Corp.,
the prime contractor for the North Korean reactor project, is in deep financial trouble and cannot
put up any money. The Japanese are not going to pick up the tab, either. They haven’t even put
money for the reactors into their 1998 budget, as Japanese officials confirmed on Dec. 22, 1997.

Not South Korea, not the United States and not Japan — what then? We should change the
deal.
If the North needs electric generators, let us find the lowest-cost solution — by putting the project
out for bid. This is the way most countries go about building electric plants today. We will
undoubtedly get a non-nuclear result that will come in sooner and at a fraction of the current cost
— maybe something the South Koreans can still afford. And it wouldn’t hurt for North Korea to
get firsthand experience with markets and competition.

Getting the project done sooner would mean the North would have to dismantle its own
nuclear
facilities that much sooner, too. Pyongyang claims it is hanging on to its indigenous nuclear
facilities in case it needs to revive them if the new electrical capacity is not installed. Actually, the
North is using that option to blackmail the United States.

Of course, the diplomats will argue that North Korea would never agree to modifying the
agreement, that we got the best deal possible. Maybe. Time has passed, and the North Koreans
may realize shrewdly that if they want electric generators, this may be the only way to get them. If
they don’t go for an economically advantageous non-nuclear deal, then we know they are up to no
good, and we definitely should not trust them with reactors. It’s a self-answering proposition.

Victor Gilinsky is an energy consultant and a former U.S. Nuclear Regulatory
commissioner.
Henry Sokolski is executive director of the Nonproliferation Policy Education Center and was
deputy for nonproliferation policy in the Pentagon during the Bush
administration.