By Ju-min Park and Jane Chung
SEOUL (Reuters) - North Korea's ruling family has long dreamed of a state-of-the-art rail system linking its major cities with each other and the wider world.
Now, North Korean leader Kim Jong Un is looking to capitalize on an easing in international tensions with his isolated regime to advance plans for a high-speed rail network to rival those in Europe and neighboring South Korea.
Kim has instructed officials to seek partnerships with countries such as South Korea and France, according to a South Korean broker with knowledge of the matter and a senior North Korean diplomat.
Engineers and consultants in South Korea say they are also drawing up plans for possible rail projects with the North.
Both Koreas see new railways as a key that could unlock regional trade and tourism, connecting the Korean peninsula with Russia, China and beyond.
The prospect has boosted shares in Hyundai Rotem (KS:064350) and other South Korean train and rail companies since the first inter-Korean summit in more than a decade in April.
But plans face numerous hurdles, not least wide-ranging sanctions on doing business in North Korea over its pursuit of nuclear weapons in defiance of the United Nations, and the country's unstable electricity infrastructure.
Officials in both Koreas hope rail projects might be exempt from U.N. sanctions under a provision allowing some "non-commercial public utility infrastructure".
FRENCH CONNECTION
A senior North Korean diplomat told the French senate in June the country would like to partner with France on railway construction, specifically naming Alstom (PA:ALSO), the maker of the iconic TGV bullet train, and French national railway operator SNCF, as potential partners.
"There are subjects and fields that aren’t impacted by sanctions," said Kim Yong Il, North Korea's chief delegate at UNESCO in Paris, according to a previously unreported transcript of his remarks.
South Korea adopted Alstom's technology for its KTX bullet trains introduced in 2004. The system is about six times faster than the North's aging rail networks.
But it's far from clear how infrastructure would be defined under the United Nations sanctions, and the French rail operators told Reuters they had no plans to team up with North Korea.
"Given the international context surrounding North Korea, such cooperation is not conceivable, which is what SNCF communicated," a spokeswoman said.
Alstom said it does not "maintain contact or discussions with any of the country's representatives".
The Dutch mission at the United Nations, which chairs the sanctions committee on North Korea, did not have immediate comment, while the North Korea mission did not return calls for comment.
LONG-HELD DREAM FOR KIM
A month before his death in 1994, Kim's grandfather and founding leader of North Korea, Kim Il Sung, said a railway connecting two Koreas, China and Russia could generate North Korea $1.5 billion annually from transporting commodities.
Kim Jong Un publicly expressed admiration for South Korea's railways during a summit in April. Kim told South Korean President Moon Jae-in that his sister and delegation were in awe of South Korea's bullet trains, which they traveled in to get to the Pyeongchang Olympics in February.
In May, foreign journalists took 12 hours to travel roughly 415 km (258 miles) by train to watch the demolition of North Korea's nuclear test site in Punggye-ri, averaging just 35 km/h. The same distance would take about 2.5 hours by South Korea's KTX.
A bullet train system in North Korea could take at least five years to build and cost up to $20 billion, according to experts and railway executives.
Seoul and Pyongyang have discussed trans-Korean rail networks since the first inter-Korean summit in 2000.
A December 2015 North Korean investment brochure, seen by Reuters, says Pyongyang aims to build an "international rapid transit railway" to promote its special economic zone in the western city of Sinuiju bordering China.
The plan included converting some of the rail line to the capital into a "high-speed railway system," according to the brochure.
In a statement carried by state media in 2015, Kim said a high-speed railway should be built between Pyongyang and a new international airport near the capital.
Kim also has more ambitious plans to build a high-speed railway linking Pyongyang to South Korea and China, a South Korean businessman said, citing North Korean officials charged with economic development.
"Kim is eyeing foreign currency earnings from ticket sales, and officials are pursuing a multinational consortium under his instruction," said the businessman, who asked not to be named due to sensitivity of the matter.
RISKY, BUT POTENTIAL MONEY-SPINNER
Seoul, too, has seen potential benefits from such a tie-up. In 2015, a state-run railway association estimated trans-Korean railways linking the peninsula to China and Russia could halve the time to transport freight, and generate substantial transit fees for the South.
"In the past, the inter-Korean rail project was simply linking disconnected lines but now it's about working on practical ways to modernize rails, operate them and create economic value," Ahn Byung-min, a member of the South Korea's presidential committee on economic cooperation with the North, told Reuters.
But a bullet train for the North has not been discussed in early talks with Pyongyang, Ahn said.
"Realistically, it will only come up later on the agenda because it involves a lot of money and complicated logistics."
South Korea is budgeting 504 billion won ($450 million) next year for cross-border economic projects such as the modernization of North Korea's roads and railways, up 46 percent from this year. It did not provide a breakdown for railways.
Seol Young-man, chief executive of Korea Engineering & Construction, told Reuters his firm is working on a high-speed railway and highway pitch for the South Korean government.
"We have to be prepared and ready to take initiative in competing against China and Russia in rebuilding North Korea's rails and working with Kim Jong Un on economic cooperation," Seol said.
A joint Chinese project to build hydro power stations in North Korea's border region, as well as Russia's rail project to transport Russian coal to a North Korean port have both received U.N. sanction exemptions.
But many risks remain in doing business with North Korea, including its secrecy and chronic power shortages, said Lee Chul, former president of South Korea's state-run railroad operator.
"For railroad cooperation between South and North Korea, we thought it would be really good to understand the North's railroad conditions," said Lee, who met North Korean officials in 2006 to discuss restoring inter-Korean railways. "But North Korea considered it almost like military secrets and wouldn't let us see."