By Rachel Lee



The government has cut off its financial support to the firms involved in the Rajin-Khasan project, a joint logistics project between the two Koreas and Russia, according to administration sources.



Last December, the government decided to provide a maximum of 100 billion won ($88 million) in low-interest loans to POSCO, Hyundai Merchant Marine and the Korea Railroad Corporation, all of which participated in the project aimed at transporting bituminous coal produced in western Siberia to South Korean firms through North Korea.



The decision to stop the support comes as such backing could violate a resolution that the United Nations Security Council is working on to impose tougher sanctions on North Korea in the aftermath of its recent nuclear test.



There is speculation that this could lead to the cancellation of the project.



"This is an indirect investment through Russia, but the government had no other choice but to suspend the financial support for now," an official said. "It's even tough for the Export-Import Bank of Korea to provide support directly through its own account."



The Park Geun-hye government sees the Rajin-Khasan project an integral part of its Eurasia initiative aimed at connecting roads and railways for the construction of a multi-purpose logistics networks among Eurasian nations.



Embarked on in 2008, Pyongyang and Moscow have been refurbishing a railway between the Russian border town of Khasan and the North's port city of Rajin.



In the United States, Congress passed legislation to step up sanctions against North Korea earlier this month, which included for the first time terms for a secondary boycott, which refers to sanctions not only of U.S. citizens and businesses but also foreign ones that do business with North Korea.



