Alaska partners look west

Russia 2000

Posted: Saturday, April 22, 2000

This may be the year that business opportunities for Alaskans blossom in the Russian Far East. But no one is willing to bet the farm.

The 1990s were fraught with frustration for Alaskans, including many Kenai Peninsula residents, seeking opportunities in the region. Political and economic instability, corruption and primitive infrastructure have stymied efforts to develop the region's rich resources and market potential, those familiar with the region said.

"We've been waiting 10 years," said Kenai Mayor John Williams.

Along with former Kenai Peninsula Borough Mayor Don Gilman, Williams made a landmark trip to Russia in 1991. Since then, the excitement has waned and, for many peninsula people, Russian projects have become what the mayor called "back-burner stuff."

But with a new government in power and higher oil prices lifting the national economy, Russia is attracting renewed interest.

Robin Zerbel, director of the World Trade Center office in Anchorage, said she has been getting an upsurge in calls about Russia recently. Nearly half her time is spent working on Russian projects.

"That's where we've had our best success," she said.

Alaskans are involved with Russian business ventures from the arctic villages of Chukhotka to the port of Vladivostok near the Korean and Chinese borders. The ventures include timber near Khabarovsk, fish processing on Sakhalin, mining near Magadan and tourism on the Kamchatka Peninsula.

Interest is increasingly focused, however, on the vast offshore oil reserves by Sakhalin Island, which many experts compare to Cook Inlet in the 1950s.

"It is going to mean jobs for Alaska. You have to understand, the projects are huge," said Jim Evans, branch manager at Air Liquide in North Kenai.

The first oil production from the new fields began in the summer of 1999.

"It is a good first start. But it is a far cry from a commercial operation," said Chuck Becker, director of the Alaska Export Assistance Center and adviser to the state's Alaska Sakhalin Working Group.

Sakhalin is a 650-mile-long island north of Japan, home to about 608,000 Russians. Nearly half live below the poverty line, according to the American Russian Center at the University of Alaska Anchorage.

Sakhalin's towns include Okha and Nogliki, the sister cities Kenai and Soldotna selected a decade ago.

The proposed drilling projects off the island's coast are expected to revolutionize the area's economy, which now depends on commercial fishing, timber harvest and depleted, shore-based oil and gas wells.

Figures from Becker's office suggest that more than $50 billion are likely to be invested in developing the Sakhalin fields in the coming decade.

The American Russian Center reported that U.S. investors already have put about $1 billion into the island's energy sector.

People involved with the Kenai Peninsula's sagging oil field service industry are looking to Sakhalin for their next boom.

"My personal feeling is, when it happens, it's going to happen incredibly fast," said Dennis Steffy, director of the University of Alaska's Soldotna-based Mining and Petroleum Training Service (MAPTS) and a member of the Alaska Sakhalin Working Group. "There will be a lot of opportunity for Alaska companies. I see a niche market for the next several years. People will have to be satisfied with slim pickings until it breaks loose."

Alaskans offer expertise in offshore drilling in extreme northern conditions and have a rapport with Russians in the Far East. Both peoples share a similar climate and history, an independent attitude and a distance from their national capitals that is more than geographic.

"They are as far from their capital as we are from Washington, D.C. That is why we are so simpatico. We don't like to be told what to do, and neither do they," Becker said.

A D.C. conference on Sakhalin in November highlighted the link. Lt. Gov. Fran Ulmer played a leading role, two of the three projects presented were from Alaskans, and the state's flag hung beside that of the Sakhalin region.

The Anchorage consulting firm Northern Economics is advising Sakhalin on development plans, and the Alaska Sakhalin Working Group is helping the Russians set up a Sakhalin Development Agency, due to begin operations this spring. It is modeled after the Alaska Industrial Development and Export Project. The third project was from Moscow.

"The dominance by Alaskans was almost embarrassing," Becker said.

Walter Bovich, a bilingual Homer fisher who supervised a Wards Cove joint venture cannery in Sakhalin in 1997 and 1998, had a parallel experience.

"They like us," he said. "We're unique in sort of a Jack London kind of way."

Alaskans like Russians as well, despite the frustrations of lawlessness, bureaucracy and grim living standards.

"They are a hardy people. I have a lot of respect for the common man," Evans said.

The Far East remains insulated from some of the instability and political saber-rattling that have scared off foreign investment in European Russia, Zerbel said.

Regional leaders retain a good working relationship with counterparts in Alaska.

Sakhalin has had a stable government for most of the past decade under the leadership of Gov. Igor Farkhutdinov.

Evans was on the island in September and reported improvements to transportation, food supplies and the mood.

The favorable trend persists, according to an eyewitness.

"The economy is getting better," said Dave Loran, region manager for Sakhalin Energy.

He used to work in Anchorage, but now is headquartered in Yuzhno-Sakhalinsk. Speaking from his office in Russia, he said his company has expanded from six employees when he arrived in Sakhalin in 1996 to more than 200 now.

People on the island are enthusiastic about the oil field development, he said.

"The Russian people like it," he said. "They just want us to go faster."



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