17 May 2003 00:50
Wealth arrives in a gush for Russian outpost EYEWITNESS: SAKHALIN ISLAND:
A former Russian penal colony is an unlikely hotbed of pioneering business
deals. But Sakhalin Island, in Russia's far east, is experiencing the
start of an oil rush.
Global oil companies as well as entrepreneurs with small budgets and hastily
drawn up business plans, are scrambling for a slice of wealth from this small
island blessed with bountiful oil and gas reserves.
This week, a joint venture of Royal Dutch/Shell, the energy group, and Mitsui
and Mitsubishi of Japan approved a Dollars 10bn (Pounds 6.25bn) investment to
develop gas production in its Sakhalin 2 project.
ExxonMobil and a group of Russian, Indian and Japanese companies operating
another project - Sakhalin 1 - will invest about Dollars 12bn. BP, meanwhile,
is leading a third group that plans to drill its first exploratory well off
the coast of Sakhalin next year. Hot on their heels are construction,
engineering and other companies that provide the infrastructure and
logistical support, as well as hoteliers, restaurateurs and consultants eager
to advise foreigners entering Russian markets.
Until a decade ago the island was far removed from Moscow's attention
and was known mainly for its fish and its past as a gulag.
But the beginnings of a boom town are emerging in Yuzhno-Sakhalinsk, the
island's capital with a population of 163,000. Mingled with dilapidated
Soviet-era housing are offices, restaurants, clubs and casinos. Japanese cars
are sought-after status symbols.
A residential area to house the families of foreign oil workers near
Yuzhno-Sakhalinsk has created what looks like an American suburb and young
Yuzhno-Sakhalinsk residents boast of hiring helicopters to go to the
mountains for skiing.
Igor Fakhutdinov, the regional governor, cites better roads, transportation
and water facilities as some of the benefits the island has reaped.
"Dealing with the influx of money is a good problem," he says.
But while the incentives to invest are growing, the pitfalls are plentiful
too. Foreign investors complain of Russia's unstable tax system,
fast-changing laws and unreliable business practices. The experience of
Japanese investors in Sakhalin's Santa Resort hotel, built in 1993 as a
Russo-Japanese joint venture, is often cited as a deterrent. The Japanese
were ousted by the Russian investor. The dispute ended in court. Restrictions
on foreigners' movements are an added complication.
Jeffrey Valkar, director of the American business centre, advises companies:
"Remember the rule of three. It takes three attempts to achieve anything
here that would take one elsewhere." www.ft.com/energy
[FTI [The Financial Times]] |
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