YAKUTSK: DISPATCH FROM COLDEST CITY IN THE WORLD

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000009

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TAGS: ECON EAIR ETRD RS
SUBJECT: YAKUTSK: DISPATCH FROM COLDEST CITY IN THE WORLD

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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

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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