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BACKGROUND
North Korea maintains a communist system of government under the leadership of Kim Jong Il, the designated successor to Kim Il Sung (his father and North Korea's first and only president, who died in 1994). Kim Jong Il has been named General Secretary of the Workers Party of Korea and Supreme Commander of the Military, and is known within North Korea as "Great Leader." He is expected to assume the presidency by 1998, at which time he would become the first hereditary ruler in the history of communism.

Kim Jong Il has expressed his intention to continue his father's isolationist policy of "juche" (or self-reliance). Nevertheless, widespread famine following a series of floods, droughts, and typhoons since 1995 has forced the country to accept international food aid. The United Nations World Food Program is coordinating the distribution of donated food from the United States, China, Japan, South Korea, the European Union, and others. The famine has affected about 20 percent of the population, and continued assistance is anticipated. According to the United Nations, North Korea will be able to produce only about half the amount of food it needs to feed its population in 1997-1998, resulting in a food shortfall of 2-2.5 million tons.

With the exception of recent food aid, North Korea has been isolated since the 1950s from many Western countries, including the United States (which does not maintain diplomatic relations and has imposed economic sanctions on all but a limited number of excepted items). In addition, the collapse of communism in the former Soviet Union and Eastern Europe and a deterioration in North Korea's economic relations with China have disrupted socialist-style barter trade and North Korea's access to technology and economic aid. Industrial production is regularly interrupted by low inventories and critical energy shortages. The economy, which operates under tight state control (collectivized agriculture and state-owned companies account for about 90 percent of all economic activity), has contracted in real terms by an average of 4-5 percent annually during 1989-95. In June 1997, the Bank of Korea (in South Korea) estimated the economy declined by 3.7 percent in 1996.

The establishment in 1991 of a free trade zone (Rajin-Sonbong, near the northern borders with China and Russia) reflects North Korea's desire for some foreign participation in its economy. So far, however, investment has been primarily in the service sector ($333 million invested in 304 joint ventures by the end of 1996). Limited market-oriented reforms introduced in June 1997 could increase investor interest. Plans have also been announced for two more "bonded processing" or free trade zones (in Wonsan on the east coast and Nampo on the west coast). Among potential investors are 26 South Korean companies authorized to do business or invest in North Korea.

Despite its serious economic problems, North Korea continues to invest heavily in its military (about 1/4 to 1/3 of annual budget expenditures). The country remains technically at war with its neighbor, South Korea. The two countries, which never signed a formal peace treaty at the end of the Korean War, share the most heavily armed border in the world. An attempt to hold four-way talks among North Korea, South Korea, China, and the United States floundered in September 1997 on North Korea's insistence that the agenda include a discussion of the withdrawal of 37,000 U.S. troops from South Korea.

NUCLEAR ENERGY
North Korea's nuclear program is a major concern for security in the region, since its graphite technology has possible applications to nuclear weapons. North Korea withdrew from the Non-Proliferation Treaty in 1993, and has periodically refused to cooperate with International Atomic Energy Agency inspection programs. A 1997 deal to accept nuclear waste from Taiwan's state-owned electric power company has also raised suspicions.

In a 1994 framework agreement with the United States, North Korea agreed to freeze its nuclear program in exchange for two new pressurized light-water reactors (which are considered less capable of producing weapons-grade plutonium) and 500,000 metric tons per year of heavy fuel oil to meet its energy needs until the new reactors become operational. The Korean Peninsula Energy Development Organization (KEDO), an international consortium led by the U.S. government (with South Korea and Japan), was established to implement the agreement. The European Union joined KEDO in September 1997. The United States is also working with North Korea on the safe storage of spent nuclear fuel.

In December 1995, KEDO signed a $4.5 billion deal with North Korea for two 1,000-megawatt light-water reactors, planned for completion by 2003. In March 1996, KEDO named Korea Electric Power Company (KEPCO) -- South Korea's leading utility -- the main contractor for the project. In May 1996, the U.S. Department of Energy authorized the participation of two U.S. firms: ABB Combustion Engineering Nuclear Systems and Stone & Webster Engineering Corporation. Construction of the first phase of the project got underway in the village of Kumho on the northeast coast in August 1997.

PETROLEUM
North Korea lacks domestic petroleum reserves, but several areas, including Hamhung and Sinpo, are thought to contain commercial quantities of hydrocarbons. Future discoveries are possible with the start-up in July 1997 of exploration activities by Beach Petroleum (an Australian company).

Meanwhile, North Korea must import all of the oil it consumes. Oil accounts for about 7 percent of total primary energy consumption, and is largely limited to unsubstitutable uses such as motor gasoline, diesel, and jet fuel. With the exception of the heavy fuel oil being provided under the nuclear agreement cited above, most petroleum is imported as crude oil and processed at domestic refineries. Under the 1994 nuclear accord, the United States assumed financial responsibility for providing heavy fuel oil through KEDO, and Japan has also made financial contributions. From 1997 through 2003, deliveries are expected to total 300,000 metric tons annually.

North Korea's refineries have not been significantly upgraded, so they have difficulty meeting a demand slate that is about 75 percent transport fuels and heating oil. In April 1997, the Stanton Group (a U.S. company) announced plans to invest $13 million to reopen a refinery in the Rajin-Sonbong Free Trade Zone. The project would be the first joint venture between North Korea and a U.S. firm.

DOMESTIC ENERGY RESOURCES
North Korea relies on two domestic sources of energy -- coal and hydropower -- for most of its energy needs. In 1995, coal accounted for 81 percent of primary energy consumption and hydropower about 11 percent. Net imports represented only about 3 percent of coal consumption.

North Korea's electric generating capacity is split nearly evenly between coal-fired thermal plants and hydroelectric plants. In 1995, hydroelectric power plants generated about 65 percent of North Korea's electricity and coal-fired thermal plants about 35 percent.

COUNTRY OVERVIEW
Head of State: Kim Jong Il (formal succession to the presidency has not taken place)
Independence: September 9, 1948
Population (7/97E): 22 million
Location/Size: Eastern Asia/120,540 sq. kilometers (46,800 sq. miles), about the size of Pennsylvania
Major Cities: Pyongyang (capital), Hamhung, Chongjin
Language: Korean
Ethnic Groups: Korean
Religions: Buddhism, Christianity, Chundo Kyo
Defense (6/96): Army, 923,000; Air Force, 85,000; Navy, 46,000; security/border troops, 115,000; workers' and peasants' militia (Red Guard), 3.8 million

ECONOMIC OVERVIEW
Currency: 100 Chon = 1 Won
Exchange Rate (12/96): US$1 = 2.15 Won
Gross Domestic Product (GDP-Purchasing Power Parity) (1995E): $21.5 billion
Real GDP Growth Rate (1995E): -5%
Inflation (1993E): 5%
External Debt (1993E): $10.3 billion
Exports (1995E): $590 million
Imports (1995E): $1.47 billion
Trade Deficit (1995E): $879 million
Major Import Products: Petroleum, grain, coking coal, machinery and equipment, and consumer goods
Major Export Products: Minerals, metallurgical products, agricultural and fishery products, manufactures
Trading Partners: China, Japan, Russia, Germany, Singapore, South Korea

ENERGY OVERVIEW
Minister of the Power Industry: Ri Ji Chan
Minister of the Coal Industry: Kim Ri Ryong
Oil and Natural Gas Production/Reserves: None
Oil Consumption (1996E): 70,000 barrels per day (b/d)
Crude Oil Refining Capacity (1/1/97): 71,000 b/d
Recoverable Coal Reserves (12/31/93): 661 million short tons
Coal Production (1996E): 81.0 million short tons
Coal Consumption (1996E): 83.4 million short tons
Coal Imports (1996E): 2.9 million short tons
Coal Exports (1996E): 0.4 million short tons
Electric Generating Capacity (1/1/96): 9.5 gigawatts (includes 5 gigawatts hydropower)
Electricity Generation (1996E): 34.0 billion kilowatthours (includes 22.0 billion kilowatthours hydropower)
Major Ports: Chongjin, Hamhung, Nampo

ENVIRONMENT OVERVIEW
Total Energy Consumption (1995E): 2.08 quadrillion Btu
Energy Consumption Per Capita (1995E): 86.8 million Btu (versus 345.9 million Btu in the United States)
Energy-Related Carbon Emissions (1995E): 49 million metric tons (0.8% of world carbon emissions)
Carbon Emissions Per Capita (1995E): 2.0 tons (vs. 5.4 tons in the United States)
Major Environmental Issues: Localized air pollution attributable to inadequate industrial controls; water pollution; inadequate supplies of potable water

Links to other sites:
1997 CIA World Factbook - North Korea
U.S. Department of Energy's Office of Fossil Energy's International section - North Korea

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File last modified: November 5, 1997

Contact:

Lowell Feld
lfeld@eia.doe.gov
Phone: (202)586-9502
Fax: (202)586-9753