ROKG, KOREAN COMPANIES REACHING OUT TO CENTRAL ASIA

C O N F I D E N T I A L SECTION 01 OF 04 SEOUL 000753 SIPDIS E.O. 12958: DECL: 05/08/2019 TAGS: PREL ECON EAID EAIR EINV ENRG EPET KS UZ KZ AF SUBJECT: ROKG, KOREAN COMPANIES REACHING OUT TO CENTRAL ASIA Classified By: A/DCM Joseph Yun. Reasons 1.4 (b/d). ¶1. (C) SUMMARY: ROK President Lee Myung-bak will be visiting Uzbekistan and Kazakhstan May 10-14. His meeting with Uzbek President Islam Karimov will be his third in 15 months, Ministry of Foreign Affairs and Trade (MOFAT) Eurasia Division Director Lim Soo-suk told Poloffs on May 7. Seoul is interested in cooperating on natural gas development projects in Uzbekistan while the latter wants to draw on Korea's economic know-how and investment. Korean Air Lines (KAL) has a ten-year agreement to help develop Navoi airport; President Lee does not plan on raising the issue of Navoi-Afghanistan cargo flights as the Uzbeks have already made their opposition very clear. In Kazakhstan, Lee would like to explore further energy development projects and meet with prominent ethnic Korean business leaders and parliament members. Like KAL, the engineering and construction multinational Samwhan sees potential for growth in the region and has gotten a foothold building roads in northern Afghanistan. End Summary. ¶2. (C) ROK Ministry of Foreign Affairs and Trade (MOFAT) Eurasia Division Director Lim Soo-suk and Uzbekistan Officer Wi Seok-yoon discussed Korea's growing involvement in Central Asia with Poloffs on May 7. Relations with Uzbekistan and Kazakhstan, home to a combined 280 thousand ethnic Koreans, were improving, especially promising in the areas of resource development cooperation and in cultural exchange. Former President Roh Moo-hyun and current President Lee Myung-bak had enjoyed good meetings with Uzbekistan President Islam Karimov, who has visited South Korea five times already. President Lee would meet with Karimov for the third time in 15 months during his trip to Uzbekistan and Kazakhstan May 10-14. The ROK's priority in its relationship with Uzbekistan was access to energy and natural resources, Lim said. In return, Uzbekistan expected Korean support for economic diversification. Having invested USD 1.1 billion in the country, South Korea is the largest Asian investor in Uzbekistan. The national Korea Gas Corporation is involved in natural gas development there. Another Korean natural gas entity would sign an MOU with Tashkent soon, though it had not done any exploratory drilling yet, according to Lim. -------------- KAL Development of Navoi Airport 
 -------------- ¶3. (C) Arguably the most significant Korean business venture in Uzbekistan, if not the entire region, is Korean Air Lines' (KAL) recent agreement to develop Navoi airport into a modern hub for Central Asian air traffic. The airline has entered a ten-year agreement, committing to provide personnel (six so far) and expertise to the airport. Uzbekistan is to provide funding to modernize airport infrastructure, the transportation network, and industry support capabilities. KAL will also lease cargo planes to Uzbekistan Airways, the first of which arrived in Tashkent April 20. President Karimov met with KAL Chairman Cho Yang-ho in Tashkent on April 23 to discuss further cooperation. Internal KAL PowerPoint slides on the airport project highlight Uzbekistan's energy resources and the region's growth potential. -------------- Karimov -- Another Park Chung-hee? -------------- ¶4. (C) KAL's involvement in building up Navoi is part of a broader vision for economic development held by President Karimov, a man reportedly impressed by the accomplishments of former Korean President Park Chung-hee (1961-1979) and the Korean model of development, Lim and Wi said. In addition to the airport, Karimov is interested in using Korean know-how and investment to get his other pet project -- a free economic zone (FEZ) he designated in December 2008 -- off the ground. One way he is trying to generate interest is by flying a chartered planeload of ROK businesspeople into Tashkent this June. SEOUL 00000753 002 OF 004 ¶5. (C) While Korea is willing to share the lessons of its economic development experience, Lim said, Uzbekistan's attempts to grow its economy are unfortunately hindered by a number of factors, including bureaucracy and corruption. Other impediments for businesses include a lack of foreign currency, difficulties transferring funds through banks -- it takes up to three months to exchange Uzbek som for Korean won -- and problems clearing customs. Korea has extended official development assistance grants and economic development cooperation fund loans to Uzbekistan, but with mixed results. Plans to help build a power distribution network, for example, had not worked out. -------------- -------------- Not Planning to Push for Navoi-Afghanistan Flights -------------- -------------- ¶6. (C) Poloffs passed to Director Lim a U.S. non-paper on the Northern Distribution Network (NDN),produced in response to ROK Deputy Foreign Minister Lee Yong-joon's offer to have President Lee convey a message from Washington to Tashkent during his visit to Uzbekistan. Regarding the U.S. request to raise the issue of Uzbekistan's continued withholding of permission for cargo flights from Navoi airport to Afghanistan, Lim said the ROKG understood the U.S. position and had explained to Uzbek officials that increased use of Navoi airport would be mutually beneficial, but thus far to no avail. Deputy Minister Lee had in fact requested a special meeting to discuss the issue with Uzbek Minister of Foreign Economic Affairs Elyor Ganiyev during a Tashkent trade delegation visit to Seoul in late April. Ganiyev raised two objections: 1) the threat from "Islamists" (i.e., the Taliban),and 2) the inconsistency of short-term cargo flights with Tashkent's long-term plans for developing Navoi as a commercial hub. Undeterred, Lee had taken up the matter again, but Deputy Foreign Minister for Asia-Pacific Anvar Solihbaev and the economic deputy minister had taken the same hard position. Given this unambiguous refusal, the ROKG had opted not to bring up the cargo flight issue again at the upcoming Tashkent summit. Director Lim said he would nevertheless convey the non-paper request and talking points to the Blue House. ¶7. (C) Director Lim offered mild criticism of both of Tashkent's reasons for denying permission for Navoi-Afghanistan flights. For one thing, the Uzbeks had evinced no concern about any perceived threat from the Taliban to land transport into Afghanistan. The fact of the matter was that the Taliban were not a problem in northern Afghanistan anyway, Lim said. The Korean transportation giant Hanjin in fact planned to begin road deliveries between Navoi and the Afghanistan border beginning in July. Road conditions were good; the company had completed a pilot project during which its vehicles covered the Navoi-to-Kabul distance in 24 hours. ¶8. (C) Regarding commercial plans for Navoi, Lim said they would require sustained political will. Korean Air Lines, which had negotiated exclusive rights to the airport as part of the contract it entered, viewed Navoi as a well-positioned transit point on the way to the Middle East, Europe and South Asia. Without more local industrial development, Lim commented, the airport would remain nothing more than that. However, Uzbek officials were "not aware of this reality." The whole airport project was "politically rather than commercially driven." ¶9. (C) Tashkent's plans for its free economic zone also betrayed the government's inexperience and lack of business expertise, Lim continued. The total FEZ area was 500 hectares, one part of which was carved out as a special zone for what the Uzbeks hoped would be about 50 Korean companies. ROK experts, however, estimated the FEZ would need to be 3,000 hectares in size with approximately 150 Korean companies in order to have a chance at succeeding. Asked if SEOUL 00000753 003 OF 004 that many companies would be interested, Lim said there were some signs that some were, citing 30 businesses that had signed MOUs with Uzbekistan. These tended to be enterprises willing to take high risks in hopes of reaping high returns. -------------- -------------- Samwhan Corporation Building Roads in Afghanistan -------------- -------------- ¶10. (C) A Korean multinational operating across the border in Afghanistan, the engineering and construction firm Samwhan Corporation is, like KAL, expanding its presence in Central Asia to position itself for anticipated future growth. Getting a foothold with its first two bids on northern Afghanistan road construction projects in 2003, Samwhan has since been awarded six more Afghanistan road projects, one of which is the USAID-funded Keshim-Faizabad road joint venture. The Asia Development Bank funds the remaining projects, the client for which is the Afghanistan Ministry of Public Works. Samwhan expects to have all of the projects completed and a total of 936 kilometers of road -- most of it part of the ring road in the northern part of the country -- built by ¶2011. The company has invested more than USD 53 million in heavy equipment and machinery and hired 1,833 personnel for the projects, including 552 security guards and 791 local employees. ¶11. (C) Samwhan Executive Managing Director Lee Kwan-young, Executive Director Choi Jae-wook (son of the company's owner),and Assistant Manager Baek Min-hong told Poloffs April 29 that they viewed the road building activity as an inroad to projects in other areas; the company was presently bidding on a ninth road project and had drawn up a conceptual plan for a railroad connecting Kabul with the Uzbekistan border. One of Samwhan's first Afghanistan projects, Choi explained, had been a road from Mazar-e-Sharif to the Uzbekistan border, but the company had no plans to improve the connecting road in Uzbekistan itself. The three company officials professed optimism that Afghanistan would eventually grow into a profitable market. A second Korean construction company, Krima, was involved in smaller projects in Afghanistan, too. -------------- As for Kazakhstan... -------------- ¶12. (C) In Kazakhstan, also, Korea was interested in cooperating on natural resource development projects and sharing its development and economic knowledge, Director Lim said. In fact, Kazakhstan was already one of Korea's largest sources of imported uranium, along with the U.S., Australia, and Russia. Korean enterprises were involved in oil field exploration. In total, Korea had invested more than USD 2.2 billion into the country. ¶13. (C) Professing interest in sharing Korean development experience, but not political influence, as a "close partner" with Central Asian countries, Director Lim said Korea had twice hosted the Korea-Central Asia Cooperation Forum, a week-long program bringing together Korean financial experts and Deputy Foreign Minister-level visitors from five Central Asian countries. Seoul would be the site of the third such forum later this year. ¶14. (C) President Lee's upcoming trip to the region would include state visits to Uzbekistan May 10-12 and Kazakhstan May 12-14. Approximately 30 Korean businesspeople would accompany Lee and his itinerary included a meeting in Kazakhstan with ethnic Koreans, many of whom were successful in business as well as in parliament. In addition to further facilitating cooperation in energy and natural resources, Seoul hoped the trip would further strengthen person-to-person and cultural ties. -------------- SEOUL 00000753 004 OF 004 Comment -------------- ¶15. (C) The ROK's steps toward more substantial relations with Central Asia appear to fit the resource diplomacy model espoused by President Lee Myung-bak. In exchange for building infrastructure and providing economic assistance, Korea gains access to energy and natural resources. To the extent it contributes to regional stability, economic growth, CIS resilience, and viable economic options to narcotics and extremism, this is good for the U.S. Korea's cooperation projects in Uzbekistan and Kazakhstan, while much more significant than only a few years ago, are still in a very early stage of development; many are merely conceptual. As Director Lim freely acknowledged, these plans may look good on paper, but a realistic view would be that they remain as yet modest steps toward improved economic development in these countries. STANTON