MONTREAL - South Korea President Lee Myung-bak returned home last week from a tour of Mongolia, Uzbekistan and Kazakhstan that helped to raise his country's profile and project its foreign economic diplomacy across Inner and Central Asia while significantly expanding Seoul's ties with the three countries.



In Ulan Bator, he signed a memorandum of understanding (MoU) with his Mongolian counterpart, Tsakhia Elbegdorj. The MoU foresees deepening cooperation in energy, including renewable energy; in the exploration and development of raw materials, including uranium and other minerals, notably rare earths; and in the electricity sector.

In addition, discussions were launched for South Korean

participation in Mongolian infrastructure and construction. With a trade turnover of US$230 million in 2010, South Korea is already Mongolia's fourth-most important trading partner.

Lee's visit to Ulan Bator was only a warm-up for the second leg of his trip, to Uzbekistan, where he signed with the country's President Islam Karimov economic deals worth $4.2 billion. The standout of the package was for the development of the Surgil gas field not far from the Aral Sea, including construction of a gas and chemicals plant.

This is the biggest price tag for an economic project agreed between the two countries since they established diplomatic relations two decades ago. Surgil is estimated to hold 130 billion cubic meters of gas. South Korean companies participating in the development include Samsung, Hyundai and others. Seoul will also export information technologies to Tashkent and seek to help modernize the latter's stock market system.

The economic agreements with Kazakhstan were double those with Uzbekistan. Two different $4 billion projects in particular were contracted. One is for the construction of two power plants in Balkhash, an industrial city on Lake Balkhash in the east of the country north of the capital Almaty, the other for a petrochemical complex in Atyrau onshore from the northern Caspian Sea, where resources from the massive offshore Kashagan development will arrive for processing and onward transmission.

The Balkhash project will involve a Korean consortium bringing together Korea Electric Power Corp with Samsung to build and operate two coal-fired thermal power plants, expected eventually to produce 7% of Kazakhstan's electricity. The need for a proper supporting organizational infrastructure provides an opportunity to introduce needed new strands into the institutional DNA that generates Kazakhstani bureaucracies.

This is incorporated in an intergovernmental agreement that will supersede any later changes to legal regimes within Kazakhstan itself, and also guarantee that Almaty will purchase the electricity for distribution.

The Atyrau project is destined to be Kazakhstan's first integrated gas-chemical complex; it actually got under way earlier this year in March, after the two sides agreed on the framework for the joint venture's governance and a separate MoU on its funding.

Under its terms South Korea's largest chemical company, LG Chem, will cooperate on a 50-50 basis with Kazakhstan Petrochemical Industries (KPI), itself 49% privately owned and 51% owned by a unit of the country's state oil and gas company KazMunaiGaz, which has over the past few years taken a larger role in directing the development of the offshore Kashagan deposit. Production at the petrochemical complex is scheduled to start in 2016.

The LG Chem-KPI joint venture is the second phase of the project for which, in its first phase already under way, the Chinese company Sinopec Engineering is executing building and construction projects worth around $2 billion. Two separate plants are foreseen that will, according to LG Chem, eventually produce 1,640,000 tons of ethylene and polyethylene per year, competing with Middle Eastern producers. The government, in Almaty is committed to investing $4.3 billion in the joint venture, of which a little more than two-thirds will be borrowed.

Another dozen and a half accords were signed in addition to these two flagship projects. Kazakhstan President Nursultan Nazarbaev personally sees South Korean participation as an important driver for the Central Asia country's industrial diversification. Not long after independence in the early 1990s, Nazarbaev invoked South Korea as a potential model for Kazakhstan's development. It is true that he also invoked Singapore and other Asian countries at different times, but the South Korean connection seems to have stayed.

It was a South Korean economist, Chan Young Bang, who drafted the original concept paper for Kazakhstan's privatization program in the early 1990s (although the final draft that was implemented contained elements totally foreign to Bang's concept). In January 1992, Bang also established the Kazakhstan Institute of Management, Economics, and Strategic Research (KIMEP), administratively subordinated to the Office of the President. He left in 1993 following an organizational struggle, but KIMEP remains a high-profile and internationally regarded Kazakhstani institution concerned mainly with training new specialists in the various technical economic skills.

At a Kazakhstani-Korean business forum, Deputy Prime Minister Asset Issekeshev is reported to have said, "After signing the agreements, South Korea will become number one investor in Kazakhstan within the process of industrialization of the country."
The forum brought together no fewer than 200 businessmen from Kazakhstan and 100 from South Korea, including the heads of Samsung but also Korean National Oil Corp, Hyundai, and other companies with a global profile.

Dr Robert M Cutler (http://www.robertcutler.org), educated at the Massachusetts Institute of Technology and The University of Michigan, has researched and taught at universities in the United States, Canada, France, Switzerland, and Russia. Now senior research fellow in the Institute of European, Russian and Eurasian Studies, Carleton University, Canada, he also consults privately in a variety of fields.

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