Chương 697: Chapter 697: Let’s Do It This Way
We all agreed on the construction of the oil and gas pipelines.
However, opinions diverged when it came to the usage fees.
"Our republic wants the same conditions as Ukraine,"
Jang Seong-taek insisted on mirroring the conditions under which Ukraine had agreed to the usage fees for the gas and oil pipelines passing through North Korea.
Medvedev's expression darkened at that demand.
"That's absurd. Do you know how much natural gas flows through Ukraine to Western European countries? And how long that pipeline is? The same conditions simply won't work."
As Medvedev said, the Ukraine gas pipeline played a crucial role for Russia.
Major Western European countries like Hungary, Austria, the Czech Republic, and Bulgaria imported about 80% of their Russian gas through the Ukraine gas pipeline.
On average, Russia supplied around 300 million cubic meters of natural gas to Europe daily, most of which was transported through Ukraine.
It's no wonder Europe fell into chaos when I once asked the Kremlin owner to cut off the gas pipelines.
For them, Russian natural gas was akin to a lifeline.
At the time, the justification for cutting off the gas was that Ukraine was charging excessively high usage fees.
"The gas pipelines installed in Ukraine measure over a thousand kilometers. Even if the pipeline connecting North Korea and South Korea were constructed densely, it wouldn't exceed five thousand kilometers. We cannot accept the same conditions for contracting."
The usage fee Russia paid to Ukraine exceeded seven hundred million dollars annually.
During the Soviet era, they used those long pipelines for free.
However, after the Soviet Union collapsed and Ukraine gained independence, it was only natural for Russia to feel that paying those transportation fees was a loss.
"I can't provide a pipeline usage fee. Instead, I'll supply gas to North Korea at half the price of the prevailing market rate."
North Korea wanted usage fees, while Russia held a firm stance against them.
Several rounds of discussions passed, but we just kept going in circles repeating the same points.
I decided to jump into the conversation between the two.
"Chairman of the State Affairs Commission, will North Korea bear the cost of the pipeline construction?"
At my question, Jang Seong-taek sealed his lips tight.
"All construction costs will be borne by Russia and Korea. However, honestly, excessive pricing for usage fees feels like greed to me. The reason I am pushing for the pipeline construction through North Korea is clear: it benefits North Korea as well. Even receiving natural gas at half the price instead of a usage fee would bring immense gains."
"But the land through which the pipeline will pass is essentially wasteland, isn't it? And someone has to maintain the pipeline continuously. We must receive usage fees."
Jang Seong-taek's argument held some weight. I glanced back and forth between the two as I spoke.
"Let's do it this way. Russia will cover the costs for the pipelines built in Russia, the North Korean government will pay for the pipeline passing through North Korea, and the South Korean government will shoulder the expenses of the pipelines constructed in South Korea. In return, I'll agree to cover maintenance costs under the guise of a usage fee."
"······Our republic currently lacks the capacity to cover such enormous construction costs."
Greed seems rampant here. Jang Seong-taek probably thought about building the pipeline for free.
"Chairman, it's better for North Korea to bear the construction costs in the long run. The initial investment may be significant, but over time, its value will be unparalleled. While it's the same for North Korea, Korea and Japan are importing natural gas at about 1.5 times the price compared to other countries receiving it through pipelines."
Natural gas can be classified into three major types based on storage methods.
The gas transported through pipelines is known as PNG, while LNG is gas that is rapidly cooled to a liquid state and supplied via ships, and CNG refers to gas supplied in a compressed state.
A prime example of PNG is the way Russia supplies natural gas to Europe.
Countries like Korea and Japan import LNG,
There's undoubtedly a difference in cost between supplying gas directly through pipelines and delivering liquefied natural gas after refined processing by ships.
"If the pipeline is constructed, costs can be significantly reduced. North Korea will receive gas at half the market price just because a pipeline passes through it. Stop fixating on immediate gains and look at the long term. For North Korea's future, constructing this pipeline is essential. If you continue insisting on excessive usage fees, we'll have no choice but to go with a route that bypasses North Korean land and use maritime routes instead."
The intention behind planning the pipeline through North Korea wasn't solely about reducing construction costs.
It was because the projects I would undertake in North Korea would leverage a lot of oil and natural gas.
However, if we contract with North Korea based on the same terms given to Ukraine, it would ultimately result in a loss in the long term.
In such a case, it might actually be better to push for gas pipeline construction via maritime routes, even if the construction costs are twice as high.
While Jang Seong-taek was deep in thought, I turned to Medvedev this time.
"Medvedev, please don't just flat-out reject it. Even if we construct the pipeline, you're well aware that maintenance costs will be a recurring expense. As chairman of Gazprom's board, you should know this well."
Medvedev nodded in agreement.
"I know maintenance costs will be incurred, but still, we cannot contract under the same conditions as Ukraine. The construction costs will be shouldered by both Russia and Korea. Ultimately, does that mean North Korea plans to sit back and watch while we shoulder all the expenses?"
Well, it's not entirely inaccurate. I nodded along, agreeing with his point.
"Medvedev, how much is the transportation fee Ukraine pays annually?"
"In cash, it's roughly between seven hundred million to eight hundred million dollars."
I couldn't help but exclaim in admiration. Eight hundred million dollars as mere rent.
"That's quite a hefty amount, more than I expected."
"It's not just that. Under the pretext of gas passage fees, we supply up to 17 billion cubic meters of gas annually. However, Ukraine receives gas at about a quarter of the market price, meaning their profit is in the hundreds of millions of dollars each year."
Ukraine's earnings from Russia consist of transportation fees and gas passage fees.
"That's basically a no-brainer. The pipelines laid down in Ukraine were mostly constructed during the Soviet era, right?"
"While some areas were built recently, the vast majority were indeed laid down during the Soviet era. After the collapse of the Soviet Union and Ukraine's independence, we have to pay for what we didn't owe before, and it drives us crazy. It's absolutely maddening."
If they're extorting hundreds of millions of dollars annually, I'd be furious too.
"Ukraine's biggest company is the state-owned gas company Naftogaz Ukraine. Their main income comes from the gas passage fees they earn from us."
Medvedev passionately continued.
"If we don't lay the pipeline, there will be no gas passage fees paid to other countries—our position is that we can supply gas at a lower price instead."
"Is it impossible to match the prices offered to Ukraine?"
Medvedev shook his head firmly.
"No, it's not possible. We plan to renegotiate with Ukraine soon to adjust the price of the natural gas we supply to about half the market rate. A quarter was too much. While we were friends during the Soviet era, now we're just another foreign country."
It's a shame, but even at half the price, it would still be fairly cheap.
As North Korea's economy grew, its energy needs would become indispensable.
The consumption of oil and energy would continually increase, and being able to import natural gas at half the market rate would ultimately represent a significant gain for the North Korean government.
"However, if you insist on charging gas passage fees and transportation fees, we'll have no choice but to supply it at the original price."
With those words, Medvedev fell silent.
I had heard both sides' stances. The two looked at me, waiting for me to mediate.
After contemplating for a moment, I stroked my chin and spoke.
"Then how about this? I'll cover all the construction costs, which amount to hundreds of millions of dollars. In return, Russia will allow us to sell the natural gas and crude oil we import to other countries, while North Korea agrees to forego gas passage fees and transportation fees. Moreover, we will handle maintenance ourselves."
The owner of the Kremlin had already promised me the exclusive rights to the pipeline crossing the Korean Peninsula.
Medvedev could not defy his decision.
"Russia agrees with Mr. Kim's proposal."
Even if East Asia is referred to as a market, its scale pales in comparison to Europe.
As for China, the largest market in East Asia, the pipeline construction between Russia and China was already underway, so it wasn't particularly relevant.
"Chairman Jang, what do you think?"
"Are we not only getting gas supplied at half price? Is there no other benefit?"
That was unlikely. The bigger North Korean market becomes, the more benefits I can get, so I was strategizing to dangle some carrots.
"The government should take the lead in establishing an industrial complex along the East Coast. It would be great if it focused on the petrochemical and steel industries. We will invest through our Dream High company."
"Are you suggesting we create a large-scale petrochemical complex?"
"Yes. Once upon a time, North Korea's petrochemical technology was renowned worldwide. While it has declined now, that expertise surely hasn't vanished. The technology transfer will come from Jungwoo Heavy Industries and Jungwoo Chemical for that. Do we really need to provide steel technology? North Korea's skills in the steel sector are some of the best. I believe they are still developing new technologies even now."
"······How did you know that?"
Jang Seong-taek's eyes widened. Not many knew about this fact, which was why he reacted so strongly.
He probably only learned about it after seizing power.
It was naturally memorable for me since it had been a huge issue repeatedly covered by the Korean media.
"Given all this talk about self-reliance, they couldn't rely solely on imported raw materials for steel production. Let's save that discussion for another time. For now, how about we indirectly share the benefits from the gas and oil pipelines running through?"
The petrochemical industry requires an immense amount of energy.
In fact, the decline of once-thriving North Korean heavy industry was ultimately due to chronic energy shortages.
"Are you saying you will invest…?"
"How about we establish a joint venture between North Korea's state-owned enterprises and Jungwoo Group? The shares would be 50.1% for the state-owned company and 49.9% for Jungwoo Group."
After a moment of contemplation, Jang Seong-taek nodded.
"Supply natural gas at half the market price and invest in the petrochemical complex on the East Coast via Jungwoo Group… That's agreeable. If those are the conditions, I will accept the agreement."
With Jang Seong-taek's approval, I smiled and summarized the agreement.
"Dream High will cover all construction costs for this gas and oil pipeline. Up until the maintenance costs are transferred to the Russian government and Gazprom, we will be solely responsible for them."
As I spoke continuously, I felt parched. I grabbed the water in front of me to quench my thirst and continued.
"Russia permits the resale of the crude oil and gas imported through that pipeline to other countries. North Korea will receive natural gas at half the market price, but the usage limits will be confined to domestic consumption. Is that correct?"
Both men nodded in unison.
"North Korea will build a petrochemical complex on the coastline where the pipeline passes, while Jungwoo Group will invest and transfer necessary technologies to that complex."
With that, it seemed like a satisfactory deal for both Russia and North Korea.
As expected, both men's faces brightened.
Having resolved a major issue, they were able to reach agreements effortlessly afterward.
"It seems almost settled now."
After roughly two more hours of discussions, we finally completed a draft of the agreement.
"What gets announced in the media won't be this, though."
Holding the draft of the agreement, we just needed to go through the process of having our respective governments revise the details before we could start laying the pipelines.
"I plan to return to Korea tomorrow, rest for a day, and then head to Japan right away. Do you have any other plans, Medvedev?"
"Not particularly. I'm thinking of returning to Moscow tomorrow."
Looking over at Jang Seong-taek, I asked.
"Chairman, do you have any plans for today?"
"No, I cleared my schedule today for this agreement."
"Then let's celebrate the conclusion of this agreement with a drink."
"Sounds good. I actually prepared some in advance."
Preparing in advance without knowing when it might end? Jang Seong-taek was clearly eager for this deal.
With a small chuckle, I stood up and playfully warned the two of them.
"Let's drink until we can't anymore. Don't even think about escaping until both of you collapse."
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