Asia Times: Remote Sakhalin Island thirsts for oil boom



	February 02, 1999	atimes.com

Central Asia / Siberia

Remote Sakhalin Island thirsts for oil boom
By Sergei Blagov

MOSCOW - Sakhalin Island has long evoked hopelessness, given its reputation as the worst place of exile for Tsarist-era prisoners, its many natural disasters and its harsh weather conditions.

But today Sakhalin, in Russia's Far East north of Japan, is one of the few parts of the country which despite the economic crisis has high hopes for prosperity. This is due to the island's untapped natural resources, not least of which is oil, and proximity to Asia-Pacific markets.

''The island desperately needs to attract and keep foreign investors as tax breaks today will boost the region's long-term income,'' Sakhalin governor Igor Farkhutdinov told IPS. ''Everything good for Sakhalin is good for Russia."

A century ago, the Russian writer Anton Chekhov wrote that all on the island - prisoners and their guardians - were keen to get out of that living hell.

These days, many of the island's 650,000 residents continue to flee this inhospitable area for better climes. Since the Soviet collapse in 1991, about 75,000 people have left Sakhalin.

Many people have fled in fear of earthquakes, such as the one in 1995 that destroyed the northern city of Neftegorsk and killed two-thirds of its 3,000 inhabitants.

But optimists, including Farkhutdinov, believe that at this time Sakhalin is probably the most promising region in Russia in terms of economic growth.

Sakhalin, a 960 km long island to the east of Khabarovsk, has huge deposits of oil and natural gas off its east coast.

The 20,000 sq km of the island's offshore shelf contain some 700 million tonnes of oil and condensate and 2.5 trillion cubic meters of natural gas. Some analysts say the oil and gas reserves east of Sakhalin could approach those of the North Sea.

Weather conditions in the Okhotsk Sea, east of Sakhalin, are far harsher than in the North Sea and the waters around the island are icebound six months a year. Still, efforts are underway to harness these resources.

Tapping the island's off-shore petroleum reserves will require investments of more than $25 billion, Farkhutdinov says.

The first oil is expected to start flowing in 1999 at Sakhalin- 2 project, where work is most advanced. The project is managed by Sakhalin Energy Investment Co Ltd, whose partners in a petroleum project include Marathon Oil and Shell.

The project involves building a 600-km pipeline between the Northeast oil fields and Yuzhno-Sakhalinsk in the south. If this goes ahead, natural gas produced in the Sakhalin region could be used to supply Japan.

Oil firms like Mobil and Texaco are involved in the Sakhalin-3 and Sakhalin-4 projects and hope to conclude their own deals in coming months.

Itochu Corp, Marubeni Corp, Japan Petroleum Exploration Co and Exxon Corp are said to be mulling a feasibility study for a natural gas pipeline between Japan and Sakhalin to be completed by 2005.

Farkhutdinov believes that ongoing oil projects would make Sakhalin more integrated with the Asia-Pacific. In fact, Russia's Far Eastern region is bound to be the first area to profit from the country's acceptance into the Asia-Pacific Economic Cooperation in November 1998.

These days, Japanese economic influence seems the most visible Asian link in Sakhalin. Japanese Toyotas and Nissans have replaced Soviet-era models, despite the inconvenience to people unused to right-hand drive vehicles.

Russia-Japan ties have warmed lately despite their row over the four southern Kuril islands, which lie east of Tokyo and only a few miles from Japan at their nearest point while Moscow is roughly 10,000 km to the west.

Japan's claim over the islands are the reason why Moscow and Tokyo never signed a peace treaty at the end of the Pacific War in 1945. The former Soviet Union seized the islands - known as the Northern Territories by Japan and the southern Kuril by Russia - in the war's closing days.

Tokyo had long been reluctant to develop ties with Moscow due to this dispute, or give aid or allow large-scale investment in Russia. But in July 1997, then Japanese premier Ryutaro Hashimoto proposed a plan to improve ties.

Moscow and Tokyo have vowed to reach a peace treaty ''within this century."

Ironically, the warming of ties puts the Kremlin in a tough spot. It finds itself caught between the rock of public opinion against any surrender of territory, and the hard place of Russia's need to attract foreign investment to its Far East.

On its own, Russia lacks the resources to develop the Kurils. In the past two years Moscow's modest annual grant to the islands averaged some 3 million dollars, but in late 1998 the money failed to come due to Russia's economic crisis.

Energy and other workers are owed several months' wages while the workers of fish processing plants have not been paid for two years now.

The situation is such that in case of a plebiscite, the some 14,000 Russians of the Southern Kuril Islands - four-fifths of whose food and consumer goods come from Japan - would probably vote for separation from the Russian Federation, says Vladimir Zema, chief administrator of the Southern Kuril district.

With the islands' economy in ruins - and Moscow unable to subsidise a remote outpost - Russians on two of the four disputed islands have signed petitions to lease their land to Japan for up to 99 years in exchange for economic aid.

Bizarre to many, the plan seems to be a minority opinion. But its supporters say a lease to a private Japanese firm would be viable. This would not need Moscow's approval, because regional officials are allowed to make lease arrangements directly with foreign investors.

Setting up a Southern Kurils special economic zone, administered from Moscow, is a more practical way to gradually mend rifts between Russia and Japan, Valery Zaitsev, director of the Centre for Japanese and Pacific Studies of the Russia Academy of Sciences, told IPS.

Zaitsev and his research team recently outlined a plan of special administration for the disputed islands, which would entail direct rule from Moscow over Southern Kurils and would be coordinated with the Japanese government, and Sakhalin and Hokkaido administrations.

But local authorities oppose the plan. ''Setting up a special economic zone of the four disputed islands amounts to a 'soft secession', and we will never accept that,'' said Farkhutdinov. The Sakhalin region is ''indivisible'', he pointed out.

Zaitsev claims Japanese officials privately welcome the idea, but Sakhalin's Russian administration bluntly refuses to discuss it. The reason, he says, is its fear of losing control over lucrative marine resources off the Kurils.

The present annual volume of trade - mostly illegal - in products like crab, salmon and caviar, in the Sakhalin and Kuril area amounts to 2 billion dollars, by Russian estimates.

(Inter Press Service)