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Last Updated: Friday, 10 November 2006, 00:05 GMT
Murmansk's oil and metals bonanza
By Jorn Madslien
Business reporter, BBC News, Murmansk, Russia

Many buildings in Murmansk could do with a facelift

The potholed roads and the weather-beaten, crumbling, facades of many of Murmansk's buildings send a clear signal: a cash injection is desperately needed.

Years of neglect, particularly during the 1990s when the Russian economy imploded, sparked the departure of about a quarter of Murmansk's population.

Fortunately for those who stayed, the Arctic city is slowly waking up to the region's enormous economic potential and people are beginning to return.

These days, new blocks of flats are being built, old ones are being renovated and property prices are rising fast, according to Professor Oleg Alekseevitch Andreev of the Baltic Institute for Ecology, Politics and Law.

"Successful people are buying apartments for their children, while others save or take out 20-year loans as the mortgage system is gradually emerging in Russia," he says.

Rich oceans

Much of the growth has come about because of Murmansk's geographical location, sheltered in a fjord on the shores of the Barents Sea.

Ever more oil and gas is exported from arctic fields via Murmansk

The vast ocean stretches all the way to the frozen North Pole, and the waters are brimming with fish species, many of which are largely extinct in Europe's other oceans.

Across the world people are eagerly awaiting deliveries, mouths open, cash in hand, and the Russian fishing industry is keen to deliver.

Up to a quarter of the world's oil and gas reserves are also said to lie dormant in this Arctic wilderness, just waiting to be extracted and fed to the energy-hungry global markets.

As yet, none of the oil and gas has been extracted by the Russians, but huge reserves have been identified and several extraction projects are well underway, most notably the Shtokman field - the world's largest offshore gas field - and the Prirazlomnoye oil field south of Novaya Zemla.

"It is not only property prices that have risen and will rise in the future," adds oil industry executive Sergei Uvizjev of the exploration giant Arktikmorneftegazrazvedka.

"Murmansk is set to become Russia's version of the Arab states."

Growing exports

Already, Murmansk is strategically crucial as an export route for oil from Siberian and Arctic oil fields, since it is the only port on Russia's west coast that remains ice free throughout winter.

Murmansk wants to establish itself as Russia's gateway to the rest of the world

All through the year, small tankers arrive with oil cargoes from Archangel or from further east towards the Kara Sea. In winter, they are supported by giant, nuclear powered ice breakers.

In the Kola Bay, their cargo is reloaded into much larger supertankers that transport the oil to the world's markets.

"Murmansk is not far from Europe and the US, so I think our exports of oil and gas will go up year after year," says Vadim Ovchinnikov, director general of the Belokamenka oil terminal near Murmansk.

"Our ultimate objective is to establish Murmansk as our country's northern gateway, as a strategic economic facility that assists the trading of goods for the overall expansion of our economy."

Contributing to the growth has been the sharp rise in container exports, mostly metals from the Kola peninsula's many mines and smelting plants, or goods transported along the Karelian railway that stretches south across the peninsula.

Exports through the Murmansk region's ports rose almost 17% during the first nine months of this year to more than 13 million tonnes, while imports fell.

In short, the ports' role as earners of foreign currency and as contributors to Russia's trade balance is growing - albeit not as fast as Sergey Bebenin, director, Murmansk Marine Fishing Port, would like.

"The changes for the better are taking place, but rather slowly," he says, blaming red tape and regulatory uncertainty both in Russia and internationally.

Mixed blessing

Others question whether local people will actually benefit from the exuberance that is sweeping across the Murmansk region.

The Belokamenka has become a powerful symbol of Russia's oil and gas adventure

"I expect economic, financial and social growth for Murmansk and the Murmansk region," says Professor Andreev.

"But I don't believe the local government, which says that we will have a lot of new jobs."

True, there will be new jobs in the building and construction industry, and the mining and smelting sector is recruiting locally, he explains.

But, the best-paid jobs in the oil and gas industry will be filled by experts flying in from all over the world.

Meanwhile, many of Murmansk's highest-ranking bureaucrats currently working for the local government could well be poached by incoming energy giants such as Gazprom, Rosneft and Lukoil.

And unless these companies register subsidiaries locally, they will end up paying their taxes in Moscow rather than in the Murmansk region, which would mean locals not benefiting from their presence, he warns.

Murmansk's challenge will be to use the region's economic potential as a lever to improve the lot of its people, though without hampering growth.

It will be a tricky balancing act.

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