Page last updated at 00:01 GMT, Thursday, 27 November 2008

Siberian oil town hit by downturn

By Kiryl Sukhotski
Business editor, BBC Russian Service, Omsk

Siberian oil rig
Oil dominates the Siberian economy

The real Siberian winter hasn't come yet, yet the frost is starting to bite.

The same goes for the Russian economy.

Like the city of Omsk in the bright winter sunlight, reflected from the ice and the patches of snow, the future of the Russian economy looked bright and sunny just until very recently.

But just as a chilling wind from the river Irtysh can immediately send shivers down your spine, collapsing oil prices are bringing the crisis home.

Russia is an oil economy, and Omsk is an oil city.

It does not have large oil fields nearby, but there is a huge refinery - indeed, the biggest in Russia.

Ice hockey bonanza

It is here where oil is being transformed into the petrodollars that fuelled the Russian economic boom of the last eight years.

And you can see where the money has gone.

Ice rink, Omsk
Roman Abramovich built a fancy ice rink for the local hockey team

Omsk is famous for its ice hockey team. Some say it is the best place to watch ice hockey in Russia.

When the Omsk refinery was owned by Sibneft, an oil company controlled by Roman Abramovich, who also owns Chelsea football club, he spared no expense.

A huge and modern ice arena was built and fortunes were spent on star players.

The team brought Jaromir Jagr, an NHL star in the US, to Omsk and paid him millions.

At some point there was a talk of creating a rival ice hockey league that would overshadow the NHL in the near future.

But those ambitions were curbed when two years ago the state giant Gazprom took over Sibneft.

Roman Abramovich left and never looked back.

The local team is now clearly in trouble, losing again and again.

In their latest match on Sunday, they finally won - but over a hopeless outsider, and only on penalties.

Straight to Moscow

Oil profits from the refinery do not stay in Omsk now.

They go straight away to Gazprom in Moscow and St Petersburg.

Shop in Omsk
Small shops are suffering the downturn

That is why petrol is more expensive in Omsk than in Moscow, even though the refinery making that fuel is just a couple of kilometres away.

Expensive petrol in an oil city makes everything expensive.

At a local market, meat stalls vendors say the demand is weak.

"Anyone will tell you there's no trade, no money. I think everybody is affected by this now," one woman complains.

But the weak demand for meat means trouble for farmers.

"If you go to a village, they are all in debt. They took a lot of bank credits - so they bought fridges and TV sets. But now they are selling their last cows to pay the bank," says another vendor.

Christmas sales

A few minutes from the market lies the central department store.

Shopping mall, Omsk, Russia
People are looking for bargains in the local department store.

It is not a glitzy shopping mall, such as those the Muscovites have got used to in the recent years.

This one is a huge Soviet-style building, and locals are flocking in as the Christmas and New Year sales have already started.

But the talk of the crisis is everywhere.

One woman tells a story of how five of her colleagues have been sacked, so she's afraid about her own future.

She had wanted to take a loan to buy some furniture, but has now decided against it.

Yuri Stepanovich is a 72-year-old man still working in one of the factories.

"My salary payment is delayed, even though it was cut by 50%," he says.

"We're spending less now, of course. I've just been looking what presents I can buy for my three grandsons for the New Year. I'll have to buy them something."

His bag was empty as he did not buy anything in the store this time.

Expensive shops

But in spite of such hardship, you still can see the oil money here.

Omsk boutique
Fancy boutiques still sell upmarket goods in Lenin Street.

The central Lenin Street is lined up with expensive shops where you can buy a diamond necklace, a fur coat, or a Roberto Cavalli outfit.

There is a Porsche Cayenne and a BMW parked near the entrance to a restaurant where diners pay $40 for a fancy meal of sea bass fillet with lemon sauce on a bed of wild mushrooms.

But as most people in Omsk know, the petrodollars are not destined for their own families.

Next to the fancy shops there is a local food store where the best-selling product is a vodka called "Five Lakes", which costs $7 a bottle.

But with oil prices falling, salaries being cut and more redundancies underway, people here in Omsk are not giving up.

They hope the crisis will not last, things will get better, and their ice hockey team will start winning again some day.

BBC Russian Service business editor Kiryl Sukhotski is travelling across Russia trying to measure the impact the current financial crisis has on ordinary people.



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