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Last Updated: Wednesday, 24 September, 2003, 00:19 GMT 01:19 UK
Oil wealth flows past Russia's islanders

By Alan Quartly
BBC, Sakhalin

For Ludmila Ponomaryova the power cuts have started early this year.

It's only early autumn, but already the local electricity company has begun periodic blackouts.

Ludmila Ponomaryova
Ludmila Ponomaryova says local people don't see oil wealth
She can't understand what she pays her bills for and what she'll do once the winter freeze comes.

This is Sakhalin, the Russian island lying just to the north of Japan.

Ludmila lives in a shabby flat at the end of a long wooden barrack house that dates back to the 1930s. Locals disparagingly dub the district "Shanghai" - this is where Korean and Japanese factory workers lived when Sakhalin was under Tokyo's control.

The Russians regained power in the south of Sakhalin at the end of World War II.

Map showing Sakhalin's location

For people like Ludmila, time might as well have stood still.

Her central heating is a rusty old coal stove and her water pipes freeze over in winter.

Her two-ring electric cooker would be some kind of live-saver in cold weather - but the supplies from the coal-burning power stations are sporadic at best.

It wasn't supposed to be like this.

Sakhalin casino
Casinos are springing up in Sakhalin's capital
The Soviets started prospecting for oil and gas here 50 years ago. And now, since the collapse of communism, foreign companies have begun to throw billions of dollars at the 950 kilometre (600 mile) long island in the race to cash in on Sakhalin's oil and gas reserves.

Ludmila, 61, isn't impressed.

"We don't see the oil and gas. We can't even buy coal to keep warm. So us mortals, we're not counting on it."

The executives running Sakhalin's billion dollar oil business say change will come. Companies like Shell, Exxon and BP are at the forefront of projects to establish Sakhalin as the world's leading energy supplier.

Sakhalin Energy, a consortium led by Shell, was the first foreign company to get its oil and gas operation off the ground in the early 1990s. Since 1999 it has been pumping oil from its Molikpaq rig moored off the northeast coast of the island.

It's a kind of a history-setting project
Steve McVeigh
Oil executive
This year it announced the latest stage of its investment vision for the island.

A $10 billion expansion plan will see the construction of two more oil platforms, two 800km pipelines to transport oil and gas to the ice-free ports at the south of Sakhalin and a massive liquid natural gas plant.

Eyeing up the lucrative energy markets of Asia, the consortium's chief executive Steve McVeigh sees rich pickings.

"It's a kind of a history-setting project. Public estimates suggest as much as 50 billion barrels of oil in place and almost 200 trillion cubic feet of gas. That truly is a very large world-scale project," he says.

The immediate effect of such predictions on Sakhalin has brought at least cosmetic benefit.

Gennady Yemelyanov
People are leaving the fish industry for the oil and gas business
Gennady Yemelyanov
Fish-processing factory boss
As hundreds of foreign oil workers start moving to the island, the building of shiny new hotels, business centres and shopping malls is gathering pace. Hundreds of locals are employed in the oil business and service industries set up as a result.

In Yuzhno-Sakhalinsk, the capital, there are 12 casinos in a city of 200,000 - the surest sign in modern Russia of an overflow of new money.

But the promised oil bonanza will take a long time to trickle down to the ordinary people.

Already, changes are being noticed in the island's economy.

"The standard of living in Sakhalin is a lot lower than in the rest of Russia. Energy tariffs are some of the highest in the country. Average prices are 40 per cent more expensive than in central Russia. All of this hits the prosperity of Sakhalin," says Vladimir Yefremov, chairman of the local council.

The increase in the cost of living on the island, say critics of the energy projects, is directly linked to the arrival of the oilmen on the island. Local businessmen inflate prices to milk what they perceive as rich foreigners.

Sakhalin oil drilling
Hundreds of workers are now employed in oil industry
And traditional industries are next in line to feel the weight of the oil development.

Already hit by massive levels of poaching, the fishing industry is not looking forward to a rosy future.

Depending on seasonal salmon runs and the red caviar produced for their survival, Sakhalin's fishermen are concerned their business will soon lose out.

Gennady Yemelyanov, who runs one of Yuzhno-Sakhalinsk's fish processing factories is worried.

"People are leaving the fish industry for the oil and gas business," he says.

"There's more money in that industry. What can we do about that?"

'Environmental threats'

Environmental campaigners believe the impact of the energy projects on Sakhalin is not just economic.

NGOs like Pacific Environment accuse Sakhalin Energy of endangering the island's precious fish population by building its pipeline through hundreds of salmon-spawning rivers.

They say the company has ignored advice about the danger of earthquakes on the island and is not doing enough to protect the feeding grounds of grey whales - located perilously close to the main oil production areas.

The consortium denies the claims.

Back in "Shanghai" all these debates have little meaning to Ludmila. Her priority is to fill up her coal shed with enough fuel to get through the winter.

The oil magnates say $45 billion will eventually make its way to the coffers of the Russian Government.

"Maybe my grandchildren will see it eventually," sighs Ludmila.

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