Russia writes off 90 per cent of North Korean debt, expected to build gas pipeline

Russia’s parliament has agreed to write off about $10 billion of North Korea’s Soviet-era debt, in a deal expected to facilitate the building of a gas pipeline to South Korea across the reclusive state.

According to Reuters, the State Duma lower house in Moscow on Friday ratified a 2012 agreement to excuse the bulk of North Korea’s debt.

It said the total debt stood at $10.96 billion as of September 17, 2012.

The rest of the debt – $1.09 billion – would be redeemed during the next 20 years, to be paid in equal instalments every six months.

The outstanding debt owed by North Korea will be managed by Russia’s state development bank, Vnesheconombank.

Russia’s deputy finance minister Sergei Storchak told Russian media that the money could be used to fund mutually beneficial projects in North Korea, including a proposed gas pipeline and a railway to South Korea.

The two Koreas remain technically at war and are separated by one of the world’s most militarised frontiers.

The North’s struggling communist economy is just 2 per cent of the size of South Korea’s.

Parts of the international community have been seeking to re-engage with North Korea amid hopes that the reclusive state’s government would seek ways to end years of isolation and poverty.

Russia has written off debts to a number of impoverished Soviet-era allies, including Cuba.

Russia’s state-owned top natural gas producer, Gazprom, has long planned to build a gas pipeline via North Korea to South Korea, with a view to shipping 10 billion cubic metres of gas annually.

Moscow has been trying to diversify its energy sales to Asia away from Europe, which, in turn, wants to cut its dependence on oil and gas from the erstwhile Cold War foe.

Russia also aims to reach a deal to supply gas to China, after a decade of talks, this May.