Sinp’o is a quiet coastal town on the edge of the Japan Sea in North Korea, almost two hours by helicopter from the capital Pyongyang. There is a beautiful swath of unspoiled beach, edged with bushes and shrubs typical of marine margins, and clusters of shabby houses and farms littered across the landscape.

Curious. After all, Sinp’o is supposed to be the site of the Kumho nuclear plants, two light-water reactors due to go into operation in 2003, otherwise known as the Korean Energy Development Organization project.

The eight-year KEDO project is seven years behind schedule and continuing to slow. The holdups have been political, financial and administrative.

In 1994 the world came closer to a nuclear war than at anytime since the Cuban missile crisis in 1962, or at least it did if we believe the KGB and the CIA. It certainly came close to war. Both security services informed their respective governments that the North Koreans had between one and five nuclear bombs made from diverting plutonium from their Russian designed graphite-moderated reactor at Yongbyon. Refusing to allow special inspections by the International Atomic Energy Authority, North Korea announced a suspension of its membership of the Nuclear Nonproliferation Treaty.

U.S. defense planners prepared for surgical strikes against the North and readied fighter jets in Okinawa for flight. North Korea threatened in retaliation to turn Seoul into a “sea of fire.” At the last minute, with little enthusiasm from the Clinton administration, former U.S. President Jimmy Carter intervened directly with North Korean leader Kim Il Sung to attempt to pull the world back from the brink. He succeeded.

After a series of negotiations, which resembled the worst face of medieval scholastic debate, a framework agreement was signed in 1994 that committed North Korea to stop work on its new reactor and close and seal the Yongbyon plant. In exchange, the United States agreed that it would put together a consortium that would build two light-water reactors incapable of being used to produce weapons-grade plutonium. In the interim they would annually supply 500,000 tons of heavy fuel oil to North Korea to compensate for the shortfall in energy supplies until the reactors were completed. When the plants were ready to come on line, the North Koreans would allow the requested inspections to establish whether plutonium had been diverted and allow the spent fuel to be exported for permanent storage. It was a perfect technological fix to a political crisis.

However the fix has become unstuck. First, the Americans brokered the deal expecting someone else to pick up the $4.5 billion tab. The South Koreans stumped up $3 billion, while the Japanese put up $1 billion. Other countries donated small change, the largest of which was $75 million from the European Union through the European Atomic Agency, leaving the project with a financial credibility gap of several hundred million dollars.

Worse followed. The U.S. was supposed to pay for the fuel oil, but the Republicans who controlled Congress refused. North Korean faith in U.S. good will suffered when the expected oil deliveries failed to materialize. In the end, the Euratom contribution was diverted to buy fuel oil.

The Japanese then applied the brakes politically after the North Koreans attempted, and failed, to launch a satellite on the tip of a three-stage rocket that overflew Japan. The Japanese public was furious and there were reports of violence against Koreans residing in Japan. The framework agreement, however, says no to nuclear power, not to rockets. North Korea needs to sell rockets for rice. A quarter of its exports over the past 10 years, worth $3.5 billion, have been missiles, and one in eight of the population still died from hunger. By bending to public opinion, the Japanese Diet set back the project by about 12 months.

The current problem centers on the North Koreans. In the framework agreement, they agreed to supply thousands of laborers at the fee of $100 a month. Having since discovered that South Korean laborers were being paid eight to 10 times that amount, they have now withdrawn all but 100 workers from the site. It looks like it could be a long standoff.

The final problem is the very nature of complex high-technology projects. They run late and costs escalate. KEDO shows all the signs of conforming exactly to type. Given past, current and future delays, it will be a surprise if the first LWR comes on line before 2010, and if the total cost is not at least double the initial $4.5 billion estimate.

That turns the financial credibility gap into a chasm. The South Koreans’ two-thirds share amounts to $6 billion, plus Japan’s $1 billion makes $7 billion, leaving a shortfall of $2 billion. This is not helped by the pathetic proposal by the European Council of Ministers to increase their contribution from the previous $75 million over five years to a beggarly $87.5 million for the next five. Nor is a Bush presidency or a Republican Congress likely to dig into its pockets for North Korea. They’d rather use Pyongyang as a scapegoat for funding National Missile Defense.

The KEDO project has its flaws. It’s a pity that those who will have to pay in the end didn’t have more control and more say. Yet once KEDO loses its credibility with North Korea, and once Pyongyang realizes that the completion date has begun to recede faster than the passage of time and the financial gap yawns, the nightmare will return. That is when North Korea will start to unpack its stored nuclear fuel and U.S. bombers will again be readied for action.

Nine billion dollars is a cheap price to pay to avoid the global economic, environmental and humanitarian tragedy that may be the alternative. Nietzsche said, “madness is rare in individuals, but common in parties, groups and organizations.” If you didn’t know better, you might have thought he drew those conclusions from a case study of the KEDO project.

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