[Global NK Commentary] What is the Problem with North Korea's Energy Crisis?

[Editor's Note]

North Korean enterprises, which operate on state-supplied energy, are unable to function properly due to a significant decrease in energy supply resulting from the weakening of state functions. The prolonged energy shortage makes it difficult for the state's energy supply and demand system to operate, severely degrading the overall national functions. This is understood as a complex accumulation of various problems, including the state monopoly of production factors stemming from systemic characteristics, national capabilities, and military strategy, the absence of markets, limitations in policy functions, lack of capital and technology, and international isolation. The author argues that to resolve this, bold changes, including reforming the North Korean system and opening up markets, must be pursued. He adds that North Korea can find solutions by moving away from its state of international isolation, undergoing change, and utilizing external support.

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According to data released by the International Energy Agency (IEA), North Korea's per capita energy consumption in 2018 was 0.559 TOE (Ton of Oil Equivalent), which was only 29.7% of the global average, 41.4% of the non-OECD average, and 10.0% of South Korea's average for the same year. North Korea's per capita energy consumption was higher than the global average in 1980 and at the same level as the global average in 1990, but it has rapidly decreased since then. North Korea's per capita electricity consumption in 2018 was 509 kWh, which was only 15.6% of the global average, 22.6% of the non-OECD average, and 4.7% of South Korea's average. North Korea's per capita electricity consumption was also 39.0% higher than the non-OECD average in 1990, but it has continuously decreased since then.

While a few enterprises exceptionally possess coal mines and can self-supply coal, most North Korean enterprises operate on state-supplied energy. However, due to the weakening of state functions, the supply of all energy sources, including coal, oil, and electricity, has significantly decreased, leaving all enterprises in the industrial sector unable to operate properly. In the transportation sector, as private functions have expanded significantly in place of weakened state functions, irregularities in the public transportation management system and the energy supply and distribution structure have become widespread. The state's energy supply function to the household and commercial sectors has also significantly contracted, with the supply of fuel energy, excluding electricity, having been suspended since the early 1990s. Electricity supply to the household sector generally occurs for 3-5 hours a day in Pyongyang and 1-2 hours a day in other regions. For heating and cooking energy, households with income can purchase coal, firewood, etc., from the market, but most households face difficulties with heating even in winter and significant challenges in obtaining energy for cooking.

The prolonged energy shortage has severely distorted the energy supply and distribution structure established by relevant laws and systems, making it difficult for the state's energy supply and demand system to operate, thereby significantly degrading the overall national functions across industry, transportation, households/commerce, and public/other sectors. The North Korean authorities consistently emphasize the importance of the energy sector in their annual New Year's addresses and various state plans, and they are making diverse policy efforts, yet the energy crisis is not being resolved but rather shows a trend of worsening. What exactly are the intertwined problems within North Korea's energy sector? The identified problems can be broadly categorized into issues arising from systemic characteristics, issues related to national capabilities, and issues stemming from adherence to a military-first policy.

Problems arising from systemic characteristics include the state monopoly of production factors and the absence of markets. These stem from the socialist state system maintained by North Korea. Production factors such as land, labor, and capital are monopolized by the state, private ownership is restricted, and a system where private businesses cannot exist is in place. All energy enterprises, including coal mines and power plants, are state-owned, produce according to state targets, and their products are distributed by the state. Even when supply shortages become chronic due to the decline in state functions, institutional and policy flexibility to resolve them cannot be accepted due to the principles of the system. Energy enterprises like coal mines and power plants cannot recover costs through the sale of their products. This is a system where the Commercial Energy System, in which enterprises reproduce through business activities and consumers use energy goods and services by paying for them, is not permitted. Under such a system, reinvestment through business activities is fundamentally impossible, thus eliminating the conditions for enterprise growth and ultimately acting as a decisive factor blocking the inflow of external capital and technology.

Problems related to national capabilities include limitations in policy capacity, lack of capital, and lack of technology. The limitations in policy capacity are also related to the socialist system. Intuitive decision-making where power dictates take precedence over considerations of productivity or efficiency, the lack of acknowledgment of policy failures and policy revisions, and the absence of modern energy policy and planning functions due to production that does not consider the market and a lack of systemic thinking are institutionalized. The lack of capital and technology is also pointed out as a representative issue of national capabilities. Chronic underinvestment in energy infrastructure and supply facilities has accumulated, and most of the existing energy facilities were constructed with support from neighboring socialist countries such as the former Soviet Union and China, making technological self-reliance in the energy industry difficult. Since the cessation of external support, North Korea's energy industry appears to have significantly insufficient internal capacity to maintain or improve production conditions in terms of policy, capital, and technology.

Adherence to a military-first policy has invited international isolation and various sanctions, collapsing the conditions for external trade in the energy industry. In the international community, North Korea is isolated as a state sponsor of terrorism, a notorious human rights abuser, and a country in confrontation with the international community over its nuclear weapons and long-range missile development. It is subject to the Strategic Trade Control System, which controls the export of goods that can be used for military purposes or dual civilian-military use, and is subject to UN Security Council resolutions and bilateral sanctions from major countries triggered by repeated nuclear tests and long-range missile launches. In particular, UN Security Council Resolution 2371 (August 4, 2017) completely banned North Korea's coal exports, and Resolution 2397 (December 22, 2017) precisely targeted energy supply and demand by limiting North Korea's crude oil imports to 4 million barrels per year and refined oil imports to 500,000 barrels per year. North Korea is in a situation where it can neither export nor import energy freely. Furthermore, recently, border closures to cope with COVID-19 have exacerbated its extreme isolation. This state of international isolation signifies a structural situation where even short-term improvements in energy supply and demand through energy trade are difficult to attempt.

In summary, North Korea's energy sector is characterized by a complex accumulation of various problems over a long period, stemming from systemic characteristics, national capabilities, and military strategy. These include the state monopoly of production factors, absence of markets, limitations in policy functions, lack of capital and technology, and international isolation. Consequently, the sector faces a structural situation that is very difficult to resolve or improve in the short, medium, or long term, with the absence of conditions for enterprise growth, inflow of capital and technology, production, and trade. Given the complexity of the problems, simple solutions are hard to propose. It is difficult to resolve solely through North Korea's internal capabilities; North Korea must also change and utilize external support. In the short term, normalization as a recognized state by the international community must proceed, and international sanctions must be lifted through forward-looking nuclear negotiations. In the medium to long term, bold changes, including system reform and market opening, must be pursued. The continuous inflow of Western systems, policy capabilities, capital, and technology is the only solution.■

■ Author: Kim Kyung-soolHonorary Senior Research Fellow at the Korea Energy Economics Institute and Adjunct Professor at the Graduate School of North Korean Studies, Kyungnam University. He also serves as a director of the Korea DMZ Council and the Korea DMZ Studies Association, and a member of the North Korea Research COP at POSCO Management Research Institute. He holds a Ph.D. in Economics from the Asian Institute of Technology, Thailand, specializing in Energy Economics and Planning. He has recently been involved in various research activities related to North Korea's energy sector, including the study on North Korean resource utilization for the realization of cooperation projects for the modernization of North Korea's energy industry (Korea Energy Economics Institute, 2020). Professor of North Korean Studies at Ewha Womans University. Holds a Ph.D. in Diplomacy from Seoul National University. Researched the ROK-US alliance and North Korea for 18 years at the Korea Institute for Defense Analyses. Served as a professor of International Studies at Handong Global University. Currently a policy advisor to the Ministry of Foreign Affairs. His main research areas are the ROK-US alliance, North Korean diplomacy and military affairs, and Northeast Asian international relations.

■ Responsible for and Edited by: Min Ji-yoon EAI Director of External Cooperation

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