YAKUTSK: DISPATCH FROM COLDEST CITY IN THE WORLD

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000009 SIPDIS E.O. 12958: N/A TAGS: ECON EAIR ETRD RS SUBJECT: YAKUTSK: DISPATCH FROM COLDEST CITY IN THE WORLD VLADIVOSTO 00000009 001.2 OF 002 ¶1. Vladivostok Political/Economic Officer and FSN paid a mid-winter visit to Yakutsk and met with several officials of the Sakha Republic. Officials discussed economic and development plans for the area, including infrastructure development, possible areas of cooperation with United States businesses, and realization of the region's tourism potential. The negative 47C temperature during the visit highlighted the unique living conditions residents of the city -- known as one of the coldest on earth -- experience during the long winter months. While remote, there are plans for state-owned Yakutsk Air to begin a Yakutsk-Kamchatka route in order to connect with Vladavia's Kamchatka-Anchorage flights for "extreme tourists." "The Frost Tolerates You For Only a Few Minutes" ¶2. Yakutia -- more often called the Sakha Republic by locals -- during the winter is extremely cold. As one local informed Poloff, no one stays outside for longer than ten minutes -- "the frost will tolerate you for that long, and then he'll show you who's boss." Drivers keep their engines running all day and overnight for fear that theirs cars will fail to start again until the spring thaw. The resulting moisture from tail pipes hangs like a frozen fog for the whole winter, reducing visibility throughout the city to a few dozen meters and coating every surface with a thick layer of frost. Automobile owners insulate their vehicles by installing an additional layer of glass. ¶3. The financial crisis has yet to be felt significantly in Yakutia, which has an economy based mostly on natural resource extraction. Officials plan to diversify industrial output to include resource processing as part of its Republican Strategic Plan of Productive Forces Development by 2020. The Sakha Republic receives 82 percent of its budget from Moscow. The Republic is the only region in the Russian Far East to have experienced an increase in population during the past years. Though Sakha is an official language, ethnic Yakuts in the capital often speak Russian among themselves, and apart from in government buildings the written language is rarely used in public signage in the city. Transport the Main Problem ¶4. As with the rest of the Russian Far East, the lack of efficient transportation infrastructure remains an impediment to economic growth. The Sakha Republic is Russia's largest region with a total area of 1.2 million square miles, much of which sprawls across the Arctic Circle. With a population of 950,000 people -- 254,000 in Yakutsk -- the republic's population density of 0.79 per square mile is Russia's lowest. ¶5. According to Deputy Minister of Transportation Marianna Nikiforova, 90 percent of Yakutian settlements have no year-round transport connections. Transport expenses make up 35 percent of the cost of goods sold in Yakutsk, and even more in outlying areas. Average transport costs of goods from the city to other towns by auto is 8 rubles per kilometer and by air -- the only method available most of the year -- is 100 rubles per kilo. ¶6. There are few bridges in the region, and delivery of heavy cargo across rivers to outlying areas is possible only for a few months when rivers are fully frozen. The city is currently not connected by railway to the rest of Russia, though Nikiforova stated that if the new line joining the capital with the Trans-Siberian is completed as planned in 2016, the delivery cost of commodities into the republic will decline by over 25 percent. ¶7. Small aviation fulfills much of cargo and human transport demands though the aging regional fleet of Tupolevs is inefficient and fuel costs alone amount to 60 percent of the price of air transport. A one-way ticket from the capital to Tiksi on the Arctic coast costs 20,000 rubles, 1.7 times the average monthly salary. Fuel is delivered from the south to the capital only during the five months per year that barges can navigate the Lena River, and further delivery to the arctic areas is only possible two months a year. Tourism as Growth Industry? ¶8. Almost all official meetings included a reference to the nascent tourism industry in Yakutsk as a potential area for economic growth. The republic's vast wilderness would be very attractive to hunters and outdoor adventurers during the brief warm season. Winter travel, officials acknowledged, would need to be promoted as an 'extreme' niche market. ¶9. Sergey Neustroyev, the Deputy Minister of the Ministry of Foreign Economic Relations acknowledged that apart from the weather, the main problem is the lack of transportation possibilities and resulting high fares. Currently Yakutsk is VLADIVOSTO 00000009 002.2 OF 002 connected internationally only by once-weekly flights to Seoul and Harbin. Neustroyev stated that there are plans for state-owned Yakutsk Air to begin a Yakutsk-Kamchatka route in order to connect with Vladavia's Kamchatka-Anchorage flights. Hopes for a boost in 'extreme' tourism were raised when a French film team arrived to highlight Yakutsk in their four-part documentary "Extreme Cities." The documentary will be distributed in Europe. Fur and Silver as Economic Indicators ¶10. Silver remains a significant part of the economy for Yakutia, and much of the finished product is purchased locally. While jewelry is a non-essential item, fur remains a staple and essential item for the inhabitants of Yakutia and the main source of revenue for many villagers in remote areas. Poloff visited two local businesses related to these sectors to gauge to effect of the economic crisis on consumer spending in Yakutia. ¶11. The owner of a jewelry-manufacturing studio stated that business remains brisk, and that she has seen no recent drop in sales. The long line of Yakut women with disposable income purchasing items and the dozens of artisans and sales associates actively filling orders attested to that. The manager of a fur clothing manufacturing company also stated that business was doing well. Her company purchases furs from over 2,000 hunters from outlying regions and employs dozens of craftsmen to create shoes, hats, and coats. So far, neither company has plans to scale back operations. Few Ties with the US ¶12. There is very little trade with the United States, and no large-scale American investment. Neustroyev stated that exports from the Sakha Republic to the U.S. in 2007 amounted to USD 100,000 and consisted of mostly diamonds and jewelry. Statistics for the first half of 2008 show that amount will likely remain more or less unchanged. He said the Republic hopes to expand its sales of diamonds to the U.S. by encouraging local businessmen to open diamond stores there, and increasing participation in jewelry expos. He also stated that the Sakha republic would like to begin coal exports to the U.S. Neustroyev expressed the desire of the Republican Government to conduct presentations of the republic's investment potential to U.S. businesses and requested the Consulate's assistance in organizing such events in the US. ¶13. There are currently no major American companies conducting business in Yakutia. Minister of Industry Aleksey Golubenko told Poloff that the U.S. heavy machinery manufacturer Caterpillar had recently been in competition for a major contract to supply a local mining company, but lost the bid to Komatsu. He also pointed out the Canadian gold mining concern Barrick recently withdrew its investment from Yakutia. ¶11. Comment. Current conditions for the Sakha Republic appear positive -- the economic crisis is yet take significant hold and consumers continue to purchase goods as usual. Furthermore, unlike in the rest of the Russian Federation, the population is growing. The lack of infrastructure and the high cost of transportation continue to hinder significant development and economic diversification, however. ARMBRUSTER