#8 - JRL 7244
New York Times
June 29, 2003
A Boom From Oil Transforms a Russian Island
By JAMES BROOKE

YUZHNO-SAKHALINSK, Russia — "Sakhalin's 1st Escalator" proclaimed The Sakhalin Times, one of two new newsweeklies that fiercely compete for English-language readers here. Atop the front page, a photograph captured the shiny new symbol of affluence ferrying a shopper between floors at the steel and glass Megapolis shopping center.

In czarist days, this island on Russia's eastern edge was notorious as a place of political exile. In Soviet days, it was notorious as the base for the jet fighter that 20 years ago shot down a Korean passenger plane, KAL Flight 007. Now, Sakhalin is about to win fame as the world's newest oil boom town.

Along a potholed and dusty street here, the Rubin Hotel opened this spring, offering 34 suites at $200 a night. Two oil companies have booked all the rooms through 2005.

Plans for this summer include the city's first Indian restaurant, groundbreakings for two ski resorts and a telephone company offering 100,000 cellphone lines.

Recently, the city gained a direct air link to Moscow, and flights to Anchorage and Houston are planned.

The first flows of $22 billion in oil and gas investments — the largest foreign investment in Russian history — are starting to wash through here, part of a huge drive to turn this long-isolated island of 578,000 people into the Kuwait of northeastern Asia.

"What we will see here is what we saw in Aberdeen," predicted Jurgen Janzen, the Dutch operations manager for the Sakhalin Energy Investment Company and one of many veterans of Britain's North Sea boom who have migrated here to tap the energy treasures below the Sea of Okhotsk. "A town like this will grow tremendously."

Signs abound that this ugly duckling of the Russian Far East is starting to molt. Flashy new plumage is poking through the drab browns and grays of boxy apartment blocks from the 1960's. Along once quiet boulevards with names like Communist Prospect and Karl Marx Street, traffic to Zima Hills, Sakhalin Energy's American-style suburban housing compound, now snarls and slows, turning a 10-minute drive into a 30-minute stop-and-go commute.

Ramil A. Valitov, local director of Rosneft, a state energy company that owns 15 gas stations on Sakhalin, said gasoline consumption had increased seven times in five years. The island is now second in cars per capita in Russia after the Baltic enclave of Kaliningrad.

"It's a good problem to deal with too much money," Igor P. Farkhutdinov, governor of the Sakhalin region, said in an interview. "We have been preparing for many years to deal with the influx of money. We do not fear the large investments."

After a decade of talk about an oil boom, the real thing is shaking the city. "These are Moscow prices," Sergei V. Vostorgov, editor of The Sakhalin Times, grumbled, poking his finger at an advertisement asking $90,000 for an apartment that featured "hot water during heating season (October to June)." "Two years ago," he said, "that apartment would have gone for $30,000."

Mr. Vostorgov, who also runs the Sakhalin Travel Group, said the oil boom was ruining his foreign-oriented tour business by filling hotel rooms and stealing his guides.

"Hotels ask me to pay six months in advance," he continued, echoing a widespread complaint. "The problem with interpreters is that as soon as they get their diplomas, they go to work for oil companies."

Aleksandr L. Dashevsky, who recently stopped working with Mr. Vostorgov's travel business, said with a laugh that guiding salmon-fishing expeditions was fun, but that it did not bring in the big rubles.

"I am making more money as a consultant," he said. "Interpreters are impossible to find. These companies come in, they need a guy with a car, who can speak English, who knows how to get licenses from the government. I am charging $25 to $30 an hour. My time is limited."

Less than 100 miles north of Japan, the former Soviet Union's cold war enemy, this city was off limits to foreigners until 1990. Now, newspapers carry reports of the opening of Sakhalin's first international school, a visit by a British trade delegation and the opening of the first branch office of a Japanese bank since Soviet troops expelled Japan from the southern half of the Sakhalin after World War II.

Some Sakhaliners say the oil boom is passing them by, raising the cost of living — by 17 percent last year — without providing benefits. Oil company workers earn an average of $518 a month, compared with the islandwide average of $244.

"Our newspapers don't write about closing companies," said Natalya Gorbunova, an environmental worker for a foreign oil company. "While there are new jobs, there are also others closing."

Aleksandr Sorontin, an army driver who was drinking beer in the same railroad bar car, complained of his $165 a month pay, saying, "Very few people, only 10 percent, get jobs on these oil projects."

To spread the oil money, the government encourages labor-intensive construction projects like building bridges, rebuilding ports and paving airstrips and roads.

Technicians are drawing up plans to dig a five-mile rail tunnel under the Tatar Strait to link Sakhalin with the mainland. For now, passenger flights are Sakhalin's link to the outside world.

Tatyana Ruchkina, a 22-year-old interpreter for Exxon Mobil, increasingly dreads the trip home to Vladivostok, the largest city in eastern Russia. When she arrived here fresh from the university, her classmates teased her about trading the San Francisco of Russia for "a rock surrounded by fish and oil."

"Now people are learning that wages in Vladivostok are much lower than here," she said. "At first it was exciting, but now it is so tiresome. Everybody will ask me, `How do you get a job? Can you help me get a position in Sakhalin?' "