NAKHODKA LOOKS TO OIL AND GAS FOR GROWTH

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000100 SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EPET ENRG EINV ETRD ELTN ELAB EWWT PGOV PREL, SOCI, RS SUBJECT: NAKHODKA LOOKS TO OIL AND GAS FOR GROWTH VLADIVOSTO 00000100 001.2 OF 002 ¶1. (SBU) Summary: According to Nakhodka city officials, the financial crisis has not hurt the city's economic potential. Unemployment is low and the construction of oil and gas infrastructure, as well as housing for the expected influx of (mostly Russian) workers, is expected to increase Nakhodka's prosperity. The city hopes to provide oil and gas to Russia and other countries in Northeast Asia without damaging the environment. Much of this growth will be generated by Rosneft. Vostochniy Port, however, has suffered from the financial crisis and some companies have had to reduce staff by approximately 50 percent. Companies, however, remain optimistic and look forward to future growth. End summary. -------------- Despite the U.S., All Is Well -------------- ¶2. (SBU) In a September 24 conversation, First Deputy Mayor of Nakhodka Boris Gladkikh told us that, despite the world financial crisis (which started in the United States),Nakhodka has not lost its economic potential. He said the official unemployment rate is 1.2 percent (approximately 1,200 persons), or almost three times less than in Primorye in general (3.5 percent unemployment),but added there are 2,000 job vacancies. According to Gladkikh, most of Nakhodka's unemployed simply did not want to take up the positions available. "Engineers do not want to work as waiters," he said. The city's port and location along the Trans-Siberian Railroad meant that it would continue to serve as a transportation hub in the Russian Far East, Gladkikh said. -------------- Energy to Boost Nakhodka's Prosperity -------------- ¶3. (SBU) According to Gladkikh, Nakhodka plans to receive gas originating in Sakhalin once a pipeline running from Khabarovsk to Primorye is finished in 2012. This pipeline will provide Nakhodka and other cities a link to the undersea pipeline that runs from Sakhalin to Khabarovsk. ¶4. (SBU) Gladkikh also told us construction of facilities at Kozmino Bay near Nakhodka is proceeding according to plan, and the first stage of the Eastern Siberia-Pacific Ocean oil pipeline project, which will carry oil from Skovorodino to Kozmino Bay, is over 90 percent complete. After the first stage of construction, crude oil will be delivered from Skovorodino in Amurskaya Region to Kozmino Bay via railroad. From there, up to 15 million tons of crude oil per year will be shipped by tankers of up to 150 thousand ton deadweight. Gladkikh said the final agreement on this stage of the project would be signed on November 1 and the first tanker will deliver crude oil from Kozmino Bay to countries in North East Asia in December. By 2012 the Eastern Siberia-Pacific Ocean pipeline will be complete, and up to 30 million tons of crude oil will be delivered from Skovorodino to Kozmino Bay by pipeline (2,500 kilometers). -------------- Workers Come From All Over Russia -------------- ¶5. (SBU) Gladkikh said that income taxes from over 5,000 people working in Kozmino Bay provided extra revenue to the Nakhodka city budget. Only half of the workers there, however, are local. The rest came from places such as Moscow, Krasnoyarsk, Omsk, Khabarovsk, and Yuzhno-Sakhalinsk. Foreign workers have not taken part in construction projects at Kozmino, he said. -------------- Rosneft Betting on Nakhodka -------------- ¶6. (SBU) Gladkikh said Rosneft intended to process up to 20 million tons of crude oil for gasoline, kerosene, bitumen, and polyethylene at a refinery to be built in Nakhodka. When the first stage of construction is completed, the plant will process 10 million tons of oil. The second stage will double the refinery's processing capacity. Gladkikh mentioned that up to 25,000 people will construct the refinery. When the refinery is completed, 3,500 people will work there. He said the city of Nakhodka was ready to construct 3,000 apartments in 30 apartment buildings for the specialists who will work at the refinery, because Rosneft will finance the construction. ¶7. (SBU) Gladkikh said it was likely foreign specialists would be invited to work on the construction of refinery plant, VLADIVOSTO 00000100 002.2 OF 002 although the preference is for Russian workers and companies. He said there would likely be limit on foreign workers in order to give more opportunities for Russians. He added that foreign workers in Nakhodka are mostly from China (working in construction and agriculture),North Korea, and CIS countries such as Tajikistan, Turkmenistan, and Ukraine. -------------- Environmental Safety A Top Priority -------------- ¶8. (SBU) Gladkikh emphasized that environmental safety a top priority during the port construction. Green Peace and local environmentalists took part in public hearings devoted to construction in Kozmino Bay. The contractors listened to concerns of environmentalists in order to get public approval. -------------- Vostochniy Port -------------- ¶9. (SBU) Gladkikh said the financial crisis had reduced the amount of cargo going through the four Nakhodka ports. The main port, Vostochniy, saw a 50 percent decline of container deliveries from South Korea, Japan, China, and Australia in ¶2009. Approximately 16 million metric tons of coal is shipped through the coal terminal next to Vostochniy port each year. -------------- Vostochniy International Shipping Company -------------- ¶10. (SBU) On September 24 Chief Executive Officer of Vostochniy International Container Services (VICS) John Scourtis presented an overview of his company's operations and gave us a tour of Vostochniy Container Terminal. He told us the number of containers VICS shipped in 2008 fell 19 percent. From January to August 2009 business fell 63 percent, in part due to the sharp decline in shipments of electronics. As a result, VICS had to reduce staff by 50 percent; VICS currently employs 600 people. Scourtis forecasted that for 2009 VICS would move containers totaling 153,689 TEU, compared to 400,724 TEU in 2008. ¶11. (SBU) Scourtis said VICS was focused more on international cargo delivery because domestic routes, such as from Vladivostok to Magadan, are up to three times more expensive than some international routes such as from Vladivostok to Pusan. To attract more clients, VICS intended to offer discounts. ¶12. (SBU) VICS's main client, according to Scourtis, is the Far East Shipping Company (FESCO). He said FESCO accounted for approximately 75 percent of VICS's total cargo delivery. Despite recent hard times Scourtis said he was optimistic about VICS's future, and he hoped that by 2015 his company will see business return to 2007 levels. In fact, VICS plans to renovate its facilities and purchase new cranes from China to speed its operations. VICS may also invest money to further develop railroad infrastructure in the area. ARMBRUSTER