Carpe oil: North Korean rich go into refinery business

Unification Media Group (UMG): As a result of North Korea’s continuous nuclear and missile provocations, the United Nations Security Council has adopted new resolutions that restrict coal and oil imports into the country. Due to these measures, product prices within the country are fluctuating, and vendors are looking for new opportunities to make money.

Stronger sanctions resolutions have passed the UN since March this year, with particular emphasis on oil and coal sales in and out of the country. Rice prices have gone up slightly, but have remained relatively stable. Currency exchange rates have not been strongly affected.

Oil prices, however, have shot upwards since March, causing a chain reaction on other market prices. North Korea’s nouveau riche – called the donju, or money masters – are seizing the opportunity to increase their profits. For more, we’ll be delving into the history and current state of refineries owned and operated by individuals with Reporter Seol Song Ah. 

Are the price fluctuations a result of the sanctions on oil and coal? 
Seol Song Ah (Seol): Yes. The coal reserves are plentiful. After North Korea dropped into its worst economic recession in the 1990s, the authorities used coal and mineral exports to increase revenue for the regime. From this point on, hundreds of foreign currency earning companies sprang up around the areas containing the coal and minerals. Natural resources were exported to China and foreign currency was brought in.

For twenty years, coal and mineral exports have occupied at least 50% of the North’s total trade volume. Just by looking at this statistic, it’s easy to see how important these sectors are. Because of the sanctions, the export market for these products has been partially restricted, and the prices have naturally declined.

Oil is quite the opposite. The North can’t export it, because of supply limitations, and the domestic market needs oil for all sorts of activities. If imports slow, the price will undoubtedly increase.
UMG: I’d think that the donju who were involved in this industry would be extremely concerned about this turn of events. How are they reacting?

Seol: Even if a war breaks out, the donju will be concerned about profits above all else. They are carefully tracking the current situation – rising oil prices and declining coal prices – and using it to make money. In a telephone call with Daily NK on September 21, an inside source from South Pyongan Province said, “When oil prices rise, crude oil sales are in their prime, so those with the money to do so are getting involved in the industry.”

Some business people with the capital to invest are pouring money into real estate, but others are buying up crude oil and processing it to make diesel for sale. This creates significant profit. “In terms of speed, those investing in real estate can see a profit on their investment in six months. Oil refining and sales, however, can net profits by the hour.”  

UMG: Can you explain about the process of processing crude oil and selling diesel?

Seol: Crude oil can be found at the source – the Baek Ma Oil Facility in North Pyongan Province, Pihyun County. The Chinese crude oil pipeline connects to this location, and it’s processed at the Bonghwa Chemical Factory. The national plan is to produce and supply gasoline, diesel, crude, and coal tar from this location. The black market is involved in the subsequent distribution, consisting of trains and vehicles that deliver all over the country.  

For instance, according to inside sources, the crude is brought to Pyongsong City and Sunchon City. That’s because there are many wealthy business people in these areas with the resources to buy the crude and process it for sale. They buy up dozens of tons of oil using US dollars.

Outside of this, middle level cadres at thermoelectric power plants can buy up 1 – 2 tons of oil for sale. The source also indicated that road repair companies receive a supply of coal tar from the authorities, and have been known to sell the excess on the black market.

UMG: These trends seem to reveal just how much liquidity the cadres have at their disposal.

Seol: Yes, that’s true. In South Pyongan Province, a ton of crude sells for US $400-600, while coal tar sells for about $100-200. These prices are sensitive to fluctuations in the cost of oil.

One ton of crude will yield 700 kilograms of diesel or 400 kilograms of coal tar. As late as February of this year, diesel produced at the factories was selling for KPW 4,000, which wasn’t a high enough price to support the factories, and many of them went under. However, starting in April, the price began jumping upwards in dramatic fashion, drawing more entrants into the industry.  

UMG: If private business people process and sell diesel, they have a lot to consider, including the possibility of expanding their facilities, and preparation for processing the crude, etc. How do they address these obstacles?

Seol: First of all, processing crude oil produces noxious fumes and pollutes the local area so it isn’t possible to do it in densely populated regions. A common practice is to rent space in a factory run by the authorities. Recently, the donju have been choosing agricultural regions as their production centers. If they deal with cadres and rent space in a rural facility, they pay much less.

If they choose to expand the facilities, they need to first install braziers to heat the crude. The use of fire bricks to construct the braziers allows the business people to create splint coal from crude or coal tar. After the sanctions took place, demand for fire bricks suddenly climbed, and they are now selling for KPW 1,600 per brick.  

Business people without the funds to purchase the special bricks substitute them with ordinary bricks, but this makes the process much harder.

In any case, coal is used to fuel the creation of diesel fuel. Right now the price of coal in South Pyongan Province is about US $15 per ton. Melting one ton of coal tar to produce diesel requires about two tons of coal to fuel the process.

UMG: I expect that sales must be brisk to justify such a complicated and expensive refinery process.

Seol: Gasoline in North Korea sells for different prices depending on the quality. The 95 grade, for example, is good for luxury cars, while 66 is suitable for trucks. Diesel is also divided up into classes, with some suitable for tractors, and other grades used for ventilation systems. There’s no premium grade like there is for gasoline, but there are still gradations.  

As the market price of oil rises, the lower quality diesel is being mixed with the higher quality refined diesel. This undesirable practice is being pursued by both businesses run by state trading companies and individual entrepreneurs. According to sources, the privately produced diesel is sold wholesale to ships operated by foreign currency earning companies and fisheries companies.

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