14.10.2018 Author: Konstantin Asmolov

North Korean Coal, Russian Vessels and the South Korean Scandal

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On October 2, the South Korean authorities released the Russian multipurpose cargo vessel Sevastopol which had been detained on September 29 in the port city of Busan.  The supposed reason for the detainment was the fact that, earlier this year, the US Ministry of Finance included the Gudzon Shipping company and its 6 vessels, including Sevastopol, in the sanction lists for their alleged involvement in bunkering oil products to North Korean vessels and other activities prohibited by the UN Security Council.

The US accused the company of ship-to-ship oil deliveries to Pyongyang, though the Sevastopol captain Roman Bykov assured that the vessel had never entered the North Korean territory or carried out any illegal activities. Moreover, the aforementioned vessel has no technical opportunity for ship-to-ship fuel transfer.

Detainment of the vessel with 12 Russian citizens onboard immediately provoked a strong reaction of Moscow since no explanation had been provided regarding the reason for the detainment.  The company only received a scan copy of a pdf document in Korean with no translation into either English or Russian with the water clerk’s explanation who surmised the incident had to do with the US sanctions.   The Russian Ministry of Foreign Affairs immediately contacted the South Korean authorities demanding that the ban be lifted; on October 1, Wu Yun Geun, the South Korean Ambassador to Russia, was summoned to the Ministry of Foreign Affairs to provide an explanation, and the ceremonial reception on the occasion of the South Korean national holiday held on the same day saw no VIP guests.

Eventually, the South Korean authorities claimed that they had released the Russian vessel and it could leave the port: no proof that the vessel had infringed the UN sanctions on North Korea had been found, thus Sevastopol was cleared of any accusations. De facto, the release of the vessel was carried out in the same strange manner as its detainment: the water clerk of the Busan port just sent a scan copy of the notification in Korean to the ship’s captain that sanctioned the release of the vessel. It is still unclear how the issue of the ship’s idle time will be resolved, its cost amounts to $ 5,000 per day.

The author of this article believes that this story is closely connected to another scandal that received a lot of coverage in South Korea 1 month earlier and also had to do with the fact that South Korean vessels were purchasing North Korean energy resources (this time, coal rather than oil) pretending the latter came from Russia.

Let us remind the reader that the UN Security Council Resolution No. 2371 prohibits importing a wide range of goods from North Korea, such as coal, iron, lead and seafood. Thus, by purchasing North Korean coal, South Korea actually infringes the UN Resolutions.

Furthermore, on May 24, 2010 (after the sinking of the ROKS Cheonan), Seoul imposed a ban on any trade with Pyongyang, so South Korean companies cannot import North Korean coal even if they ignore the UN Security Council Resolutions.

It all started on March 13, 2018 when the South Korean Ministry of Foreign Affairs refuted the suggestions made by the Japanese mass media that a South Korean vessel had unlawfully partaken in selling oil to North Korea.  The conservative newspaper Sankei Shimbun stated that a ship of the Japan Self-Defense Forces (JSDF) saw an oil tanker sailing under the South Korean flag approach a North Korean vessel in the East China Sea, the reason was most likely ship-to-ship oil transfer. Tokyo requested that Seoul investigate the issue described in these allegations, but, according to the representative of the Ministry who chose to remain anonymous, “the results of the investigation showed that there had been no ship-to-ship oil transfer.”

On July 18, the Voice of America radio station claimed that there had been instances of transporting North Korean coal to South Korea with the involvement of the Chinese dry cargo ships Sky Angel and Rich Glory. We already touched upon this story partially, but let us remind the reader: from July to September 2017, there were 6 instances of coal transportation from the North Korean ports of Wonsan and Chongjin to the Russian town of Kholmsk; from there, it was shipped to the South Korean ports of Pohang and Incheon at least twice.

After the Voice of America brought the message, the South Korean government initiated an investigation concerning privately owned coal importing companies, and, on July 19, Noh Kyu-duk, the South Korean Foreign Ministry representative, stated that the Ministry was considering initiating legal proceedings against the persons responsible for importing North Korean coal to the country.

At the same time, the topic resurfaced in the leaked report made by the UN experts. It was purported that the Chinese dry cargo ships Sky Angel and Rich Glory had been loaded with North Korean coal in the Russian town of Kholmsk and later, on October 2 and 11, arrived in the South Korean ports of Pohang and Incheon with 9,000 tons of coal onboard. On the whole, the 2 vessels repeatedly visited the South Korean ports: over the previous 9 months, Rich Glory entered the South Korean ports 16 times, however no action was taken by the South Korean authorities. Later, 3 more vessels fell under suspicion. According to the prosecutors, they had transported over 15,000 tons of coal supposedly produced in North Korea, to the South Korean ports of Pohang and Donghae, since last November.

Later, it turned out that the coal delivered by the ships had been used at the thermal power plants belonging to the Korea South-East Power Co (KOEN) energy company that had shipped coal from Russian ports twice via a trade company in Pohang, so the South Korean tax authorities initiated a checkup.

It turned out that KOEN had purchased 40,000 tons of the Russian anthracite coal from a Pohang company at a public auction. South Korean thermal power plants mainly use bituminous coal, however the Yeongdong TPP and the Donso TPP of the KOEN company use anthracite.

The South Korean customs authorities initiated an investigation of 9 counts of illicit import of North Korean coal, but, on August 8, when a checkup was made of the dry cargo ship Jin Long sailing under the Belizean flag that delivered 5,100 tons of coal to the port of Pohang, no infringement of the UN Security Council Resolutions was found. It was stated that the coal onboard the ship had been produced in Russia.

On August 9, the US Department of State announced that it was positive that Seoul fully complied with the sanctions on Pyongyang. According to the US Department of State spokesperson, South Korea is a reliable and loyal partner in implementing the UN Security Council Resolutions.   Heather Nauert expressed confidence in the South Korean government emphasising that, since Washington DC and Seoul had been partners and allies for a long time, the US trusted the results of the investigation carried out by the South Korean government.

However, on August 10 2018, the South Korean Customs published the results of the investigation revealing illicit import of North Korean minerals. The report indicated that, from April to October 2017, 3 South Korean companies had illegally imported 35,000 tons of North Korean coal and cast iron ingots to the tune of $ 5.89 m to South Korea. It was alleged that the raw materials had been transshipped in Russian ports, after which the documents certifying the goods origin had been forged: the quality certificates and certificates of origin were not found in the databases of the Russian Federation.

According to the Customs Office spokesperson, “in 7 cases out of 9 that we investigated, the coal shipped to our country had been of North Korean origin.” The coal shipments were disguised as Russian and the documents for the cargoes were formalised in full compliance with the established procedure, so there was no actual proof that the raw material had been of North Korean origin.

And this is in spite of the fact that, only on August 8, the South Korean mass media made positive statements that “analysis does not indicate the difference between the anthracite coal produced in North Korea and the one produced in Russia.”

As of August 11, the South Korean ports have been closed for 4 cargo ships that shipped coal from North Korea: Sky Angel, Rich Glory, Shining Rich and Jin Long (apparently, the following checkup revealed that the coal had not come from Russia after all).

The following iteration of the scandal had to do with the attempt to analyse the history of the KOEN company and the fact that the authorised capital of the company that shipped coal for the South Korean power plants on 9 occasions had amounted to only $ 50,000 and the company had been registered by 2 people unknown in the industry.

Rumours spread by conservative sources go even further and allege that the company shipped coking coal to North Korea (which is not produced in North Korea) in exchange for regular coal that was shipped to South Korea via Russian ports with Russian documents. The money was traced, it had been transferred to South Korea from Hong Kong.

It also turned out that the signal informing that the coal was North Korean, rather than Russian, had come from a ‘well-wisher’ and when the Customs authorities said that it could not have been true, it was the conservative opposition delegates who had certain information and, naturally, started an uproar.

In response to the request made by the delegates, the South Korean Foreign Ministry announced that the coal had been of Russian origin, but the opposition was not satisfied with the answer, after which it turned out that chemical composition analysis enabled to establish the origin of the coal and, on August 10, the Customs Office had to refute everything that had been said before. It would seem that the opposition delegates had originally possessed the expert findings to that effect.

Incidentally, the conservative opposition delegates found out that the North Korean coal had possibly been used for heating the National Security Council building which would give the whole thing a political implication.

Another thing is more interesting, however: the coal was sold at a price which is way lower than it is in Russia ($ 96 per ton against $ 110 – $ 130), however the buyers turned a blind eye to all the discrepancy. On the other hand, the profit received from the affair was not big enough for risking the consequences of infringing the UN sanctions. And the Russian border patrol, customs officials and port services would hardly have allowed some outright fake to pass through.

The scandal is still going on, the journalists of the famous JTBC channel went to Russia and the South Korean authorities are going to start legal action. However, to do that, the South Korean Foreign Ministry needs to send an official request to the Russian Federation that will check up on all the facts and provide a response in written form. The procedure will take 2 – 3 months time if the officials are willing.

And, to top it all, on August 22, the South Korean Foreign Ministry spokesperson gives an interview to the KBS radio station stating that the Sevastopol vessel was under suspicion of shipping oil to North Korea, moreover, it might be a case of indirect shipment often involving Chinese vessels.  In the meantime, the uproar concerning the coal ceases in the South Korean mass media, at least, for some time.

It would seem that this way the South Korean authorities tried to demonstrate their devotion to principle given the fact that their involvement in the coal scandal is still questionable. If the author of the article had an incline towards conspiracy theories, he would already be asking himself whether these were indeed coincidences, but his experience tells him that when one is willing to find a black cat in a dark room, one will find proof even if there is no cat at all.

However, the coal scandal is still far from over and we shall keep our audience informed of the further developments.

Konstantin Asmolov, PhD in History, Leading Research Fellow at the Center for Korean Studies of the Institute of Far Eastern Studies of the Russian Academy of Sciences, exclusively for the online magazine “New Eastern Outlook.”


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