Conflict or Compromise?
Traditional natural resource use and oil exploitation
in northeastern Sakhalin/Noglikskii district
Emma Wilson
Local
Economy
In this period of
economic crisis, Noglikskii district has one of the healthiest local
budgets on Sakhalin, and like Okhinskii district, acts as a "donor" to
other districts, according to the old Soviet system. The relative
wealth of both these districts is due to regular payment of taxes by
the Sakhalin oil company Rosneft-Sakhalinmorneftegas. Likewise the
district ecological fund (made up of fines from industrial polluters)
is a "donor" fund, due to the amount of money collected from the main
industrial polluter, the oil industry. The oil and gas industry is
unquestionably the priority industry in both districts, especially
since the collapse of the timber industry. And in the same way as the
Soviet system in the past, the oil industry has created a dependency on
itself, while helping to destroy the traditional lands and livelihoods
of the indigenous populations.
Oil exploration began in northern Sakhalin at
the end of the 19th century with the arrival of business magnate
Grigorii Zotov from St. Petersburg, who at the same time set up a
series of fishing artels based on the north-west coast (Grant, 1995).
Industrial exploitation by the Russians started in 1925 when northern
Sakhalin was returned to the USSR by the Japanese. Since then in
Nogliki district alone, 15 reserves of oil and gas have been opened,
about 2,000 bore-holes drilled, and more than 25 million tonnes of oil
extracted (Znamia Truda, 3 April 1999). Virtually all the
drilling sites are situated on or close to the north-eastern bays and
coastal marshlands traditionally used for hunting, fishing and reindeer
herding.
Today the on-land
oil production is in decline, and there are no sectors of the economy
that could replace the oil industry, even partly, given today's
economic conditions. The multinationals have come into a region, and
particularly two local districts where the economy is heavily dependent
on taxes from the oil industry. Initially there were great hopes that
the off-shore developments would make up for the decline in on-shore
reserves through payments and job creation.
However, as the oil and gas reserves are
located in federal waters, Noglikskii district has no claim to any
payments for use of resources, though the reserves are located close
enough to devastate the local fishing economy in the event of an oil
spill. Furthermore, the Sakhalin offshore projects use the system of
"production sharing," which was developed on the basis of experience in
Third World countries, and does not ensure adequate benefits to local
communities. The Production Sharing Agreement (PSA) for the Sakhalin II
project was signed on 22 June 1994 between SEIC and the Russian side
(the Russian government and the Sakhalin regional administration).
According to this agreement, all the production goes first of all to
SEIC until the company has covered its investment costs. Only after the
project has then started to make 17.5% profit will the Russian side
start to receive its own share of the profits, which will be about 60%
(split between the Federation and Sakhalin region).
According the
PSAs, the Sakhalin projects have been freed from their federal tax
obligations, apart from the royalty (6%) and profit tax (32%). The
projects have likewise been freed from their regional taxes. The
decision to free the companies from local taxes has not yet been taken
by the Nogliki district assembly. Yuzhno-Sakhalinsk municipal
government has refused to free the companies from local taxes. While
the money saved from local and regional taxes will increase the total
profit of the projects and thus increase the amount of profit tax
collected, (a) this money will go to the regional and federal budgets,
not directly to local district budgets, and (b) the estimated loss to
the region as a whole will be $4,160 million US for Sakhalin I and $954
million US for Sakhalin II.*6
In theory, the lack of direct benefits from the
projects is compensated by the payment of "bonuses" at strategic points
in project development (total $45 million US), and through distribution
of finances from the Sakhalin Development Fund (total $100 million US).
The distribution of payments is decided by the regional administration
and the region assembly (duma). The only bonus payments that
Noglikskii district has so far received have been towards the
controversial gas-fired power station built close to Nogliki to feed
the south. This power station caused protest from local activists, due
its location close to local dachas and the political
significance of the project. The power station is fed by an old gas
pipeline that recently exploded under the extra pressure needed to
transport the necessary volume of gas.
As the Sakhalin II
project celebrated the first oil from Molikpaq in July 1999, the
Sakhalin region received the third payment to the Sakhalin Development
Fund ($20 million US). From the first of October 1999 SEIC will pay the
first instalment of compensation totalling approximately $160 million
for previous geological exploration work (50% to the federal, 50% to
the regional budget). The 6% royalty payments will also begin with the
start of production. At the same time SEIC is now claiming back VAT
that they have paid up to now in contradiction to their PS agreement.
This currently totals $23 million US and will be paid back out of the
federal and regional royalty payments (Sovetskii Sakhalin, 25
June, 1999).
Benefits to the local communities of Noglikskii
district could have been provided by the incoming worker population
(shopping in local shops, using local service industries, etc).
However, Exxon and SEIC have, for security reasons, built their own
camp outside of Nogliki to which access is strictly limited. The camp
has its own shop and is also self-sufficient in every other way.
Workers who come from abroad and elsewhere on Sakhalin arrive on the
train and are taken straight to the camp. Westerners sometimes visit
the centre of Nogliki, but tend to frequent one or two local bars and
the local hotel only. This considerably limits the amount of benefit to
the local community. What is more, as the oil companies are registered
in Yuzhno-Sakhalinsk, where they pay their taxes, Noglikskii district
receives no tax payments from the camp.
Local experts
consider that the Sakhalin projects have developed against the
interests of the local districts, although the original tender
agreements promised more local benefits (such as gasification of the
island, local processing, local jobs, etc.). In November 1997 the mayor
of Noglikskii district G. Susenko and the head of the district assembly
V. Sereda wrote a letter to governor Farkhutdinov and the head of the
regional assembly, B. Tretiak, expressing concern that profits from the
Sakhalin I and II projects will be directed towards Moscow and the
regional centre, rather than to the local districts Okhinskii and
Noglikskii that will bear the brunt of the ecological risk relating to
the projects (Znamia Truda, 22 November 1997).
However, almost two years later the same mayor
and head of the district assembly have still not been able to negotiate
a better deal for the local populations of Nogliki district, while the
tendency is for business opportunities provided by the oil developments
to be aggressively pursued by American companies. Recently a group of
Alaskan business people visited Nogliki to explore the possibilities of
setting up support service industries for the oil industry. The
district mayor's response was to the effect that there are sufficient
human resources locally to provide this kind of service, if given the
chance.
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