White Sun of the Desert

Apologies for the lack of postings over the past couple of months, and the general decline of postings in general over the past year or so.  There are good reasons for it, mainly the nature of the job I held between May 2009 and my getting sacked a month ago, but also a general weariness with Sakhalin (which I alluded to here) which manifested itself in an inability to write anything.

On 1st March I demobilised from Sakhalin Island having lived there on a residential basis since 12th September 2006, a period of 3 years, 5 months, and 19 days.  I’d known people who had been there 8 years and more so I’d not broken any records, but given we only intended to be there for a year before the experience gained would enable me to easily get a super job somewhere more civilised (ha ha ha ha ha!), we did pretty well especially considering we only had a handful of proper holidays in that time, one of which was utterly ruined by machinations at work.  Certainly, upon leaving Sakhalin, I don’t think I could have used my time there any more fully.  It was a magnificent experience, the best part of which was the wonderful people I met, befriended, and will likely always know who number in the dozens, both Russians and expatriates.  I worked for three companies on Sakhalin, had five or six bosses who ranged from the best yet to the utterly incompetent, and the work itself was unmatched in terms of exposure, responsibility, and experience but enough to make even the sanest contemplate volunteering for internment in the local loony-bin.

I will miss Sakhalin like hell, even if I no longer find superheated steam coming out of my cold taps with mildy scolding water from the hot, the electricity supply remains constant without 330V coming through your apartment one day and destroying everything with a transformer or motor, and the lifts do not need to be inexplicably switched off across the whole region come ten o’clock.  I will miss it like hell because it was the place I enjoyed being more than any other, where I met friends and forged relationships I never want to lose, and – I should admit – made a shedload of money which allowed me to purchase outright the Phuket apartment in which I am now sitting.

I doubt I will ever return to Sakhalin, not for the foreseeable future at least.  There is a 20% chance of some work there next year, on site up in the north, but by that time I expect I will have moved on, as will almost everybody I know there, who themselves represent a dwindling fraction of those who I knew from the beginning.  Of the ones I left behind, all but two or three – and this includes the Russians – have concrete plans to leave within 1-2 years, most much sooner.  Should I go back, I might be disheartened by the fact that it has become a different place from the one I left, as surely as the place I left was unrecognisable from the one I arrived at in 2006.  I owe Sakhalin a lot.  I expect I will owe Sakhalin my career, hopefully future wealth, and a lifetime of friends.  There has been a downside, several of them even.  Life on Sakhalin takes its toll on people, but I’ll write a separate post on that later.

There will be many posts later.  I now have time, I am unemployed and sitting in an apartment with a wooden balcony which overlooks a fancy pool and the sun shines every day.  If there is a time and place to write blog posts in large numbers, this is it.  There are many stories to tell of Sakhalin, the work, the companies, the people I encountered, and stories involving all three at once.  I will tell the whole lot here, in all their gory details, soon enough.

This winter saw a lot of snow fall on Sakhalin, much more than I’d seen in the previous three winters (cue the old-timers popping up in the comments to take a deep breath on their pipes, lean closer into the fire, adopt a grandad voice, and begin the tale of the winter of 2003.  Or was it 2004?).  On my last full day in Sakhalin, I pulled a Russian’s car out of the snow with my much-admired Toyota 4wd.  I’d done this several times this winter, the unwritten rule being if you have a 4wd and somebody is stuck, you pull them out.  I don’t know why, but on this last occasion I felt quite good about myself.  Pulling some fellow out of the snow to shouts of spasibo seemed like a good note to go out on.

I’ll miss it like hell.

Last week’s Economist carried a lengthy briefing on the troubles of Toyota, one of which is identified as a drop in quality and reliability as they pursued headlong growth at all costs.  Apparently, several polls and reviews in the US and elsewhere have placed other cars ahead of Toyota in several areas, one being where they were allegedly always king: reliability.

Me, I’m not so sure.  Without a doubt Toyotas are reliable enough, probably more so than most other cars and certainly no worse than any, but I don’t think that tells the whole story about where their reputation comes from.  I once owned a 1974 lightweight Land Rover, half of which I rebuilt myself using basic tools, a Haynes manual, and the back of the thing as a workshop as it lay parked on the street in Manchester.  Land Rover had, and for the older models still has, a reputation for being reliable.  This may come as somewhat of a surprise to anyone who has actually owned one, because the damned things leak oil from brand new (I’m talking about Series III and earlier here, I don’t know if the newer ones were plagued with the same issues) because of daft designs and the use of paper gaskets between roughly machined surfaces, and bits were corroding, coming loose, and falling off all over the place.  It took an entire tube of instant gasket to stop the oil leaking from beneath the distributor mount (the distributor runs off the oil pump).  The brake cylinders on one side had seized completely.  The synchromesh was shot through and the gear teeth so worn it kept leaping out of 1st and 2nd gear.  Everything was corroding from the chassis to the thermostat housing to the aluminium panels at the point where they were cleverly held in place with a steel bolt.  The door seals were non-existent, so you drove it in wellies and ignored the big pools of water on the floor (this was not a problem on the passenger side where the huge hole in the footwell served as a handy drain).  The windscreen wipers worked if you fiddled with the earthing wire a little bit.  Land Rover enthusiasts are well aware of the enormous shortcomings of the early Land Rover design, and they all add the fun of driving one.  In fact, stuff ceasing to work as you’re rattling along the road is the fun of driving an old Land Rover!

Where was I?  That’s right.  The reputation Land Rover had for reliability came not from their infrequency of breaking down but the fact that any problem you encounter can be fixed on the spot with a very basic toolkit and some gaffer tape.  All you need is a few ring spanners, a decent hammer, some WD-40, and a monster 12″ screwdriver and you can be on your way again no matter what happened.  Oh, and don’t forget a couple of adjustable spanners.  For some unknown reason, 49% of Land Rover threads are metric, 49% Imperial, and the remainder being some completely unknown type with a hexagonal head no socket will fit and you wonder who the hell owned it before you and botched the job in such a manner.  Or maybe it came like this from the factory?  It took me to a very small, old fashioned engineering supply shop near Salford where a lady caked in layers of grease rummaged through boxes of random fittings to find the pinch bolt on the main gear selection rod; the local Land Rover supply shop were themselves at an utter loss.  So reliability in the sense of a Land Rover is a case of reliability in completing your journey, not in not breaking down at all.

Now Toyotas are not as easy to fix as an old Land Rover should something go wrong, but they do have a similar advantage.  Consider that when I lived in Dubai and was as close as I’ll ever get to a wide-boy phase I bought an 8-year old Mercedes CLK 320.  It looked lovely, nice long bonnet, leather seats, 3.2l flat six engine which although not great off the mark could get you from 70-100mph in a few seconds with remarkable ease, and drove beautifully.  Unfortunately, it gave me as much of a headache as my Land Rover.  Firstly, stuff started going wrong which should not have gone wrong in a German car.  Small stuff.  The back windscreen sunshield motor failed.  The air conditioning pump seized.  One of the electric ventilation flaps jammed, meaning cold air couldn’t blow through the central vents.  Then one of the coolant pipes burst and left me somewhere in Furjeirah having to come back to Dubai in the cab of a breakdown truck, which was very uncool.  So I took it in for a service.

And there the fun began.  Every garage told me the same thing: they could only do half of the work, because they can’t work on Mercedes and don’t have the parts.  Better take it to the main dealer.  The first thing the main dealer did was remove my arm and leg for the privilege of talking to him.  Then he charged me a small fortune to look at the car and tell me what was wrong with it.  Everything, it seemed.  Engine mounts, bushes, clips, all these tiny items which added up to a list as long as an arm which would have been bad enough in itself, but there was more to come.  Half the items on the list “were not in stock and we need to order them from Germany”.  Yes, Mercedes main dealer in Dubai, which probably enjoyed greater revenue than any other Mercedes dealer anywhere, had to order stuff from Germany to fix things which a routine service has highlighted.  Jesus wept.  I did, especially when I got the bill.

Contrast this with the experience of a Toyota owner in Dubai.  He has a problem.  He goes to any garage he likes, and a Romanian, Indian, or Armenian will tell him he’ll have a look, call him back the next day to say he needs x, y, and z which are all on the shelf behind him and he can fit the lot that afternoon.  No main dealer.  No specialist tools.  No hidden maintenance procedures.  No flying parts halfway round the world.  If you have a Toyota and something goes wrong, wherever you are in the world if there is a garage then they will be able to fix a Toyota and the parts will either be in stock or very close by.  And it is this as much as anything else from which Toyota’s reputation for reliability derives: it might break down, but you can get it back on the road quickly and cheaply.  Unless and until Toyota’s German and other competitors realise this, Toyota’s crown is not going to slip very far.

Needless to say, I have driven nothing but Toyotas since I arrived in Sakhalin.  What I drive now is a Surf, basically a car on a Hilux chassis, and it is the most popular 4×4 on the island (a place where few get accused of driving vehicles with unnecessary off-road capabilities).  Any problem, and it’s into the nearest garage where whoever comes out of the gloom and smoke takes one look and knows immediately what he’s dealing with.  This is Toyota’s real strength.

I expect some of you are wondering where I am, or indeed if I am still alive.  So first things first.  I am alive and well, and currently in Phuket, Thailand.  The resort town of Patong, to be exact.  I am here having taken the position of Project Manager on a $15bn development of the vast oil and gas reserves off the coast of Phuket.  Actually, I made the last bit up: I’m here on holiday.

My wife has been here for the past three months, we having reached a decision in August that she would go to Phuket to scope it out as a possible place to buy an apartment and use it as a base whilst I continue with a career gallivanting around daft locations in the oil and gas business.  I’d not been to Phuket before but had taken the opportunity to garner the opinions of the half of Sakhalin’s oil and gas workers who own property in and base themselves out of South East Asia. I discounted Malaysia and Indonesia on the grounds that they are Muslim countries, and frankly I had enough forced compliance with religious practices, internet censorship, and hypocritical moral codes of conduct when I was in the Middle East.  Besides, chicken sausages and turkey bacon is a poor substitute for the meat products of a well fed pig.  Bali could have been the exception, but my wife went there and found it packed full of Australian teenagers off their faces on drugs and everyone trying way too hard to be the coolest kid in school, and from her report it sounded like the Australian version of Magaluf.  No thanks.  I considered the Philippines, but only really knew Boracay which although a cracking place for a holiday is too small and underdeveloped to live on.  My first choice would have been Singapore, which I love despite the justified criticism that it is too sterile and organised (after 3 years in Sakhalin, bring it on!), but having checked my bank balance and found myself not to be a millionaire it was beyond my financial means. Vietnam I judged to be too underdeveloped, and besides, I need to get a visa every time I go there;  Cambodia and Laos were never a consideration despite the positive feedback from Gary Glitter, so Thailand was the country we went with.

Chang Mai in the north is a popular destination, mainly because it is cheap and nice, but it is nowhere near the sea and I wanted to be close to a beach.  Bangkok had certain appeal, mainly the abundance of good property, services, and job prospects for Yulia, but we didn’t want to be in a city all that much and again there is no decent beach nearby.  Pattaya (or nearby Jomtien) is hugely popular with expats and I’ve been there before, but in all honesty, although fun for a week or so, the place is a dump – think Blackpool in the tropics – and it seems to be a magnet for those on a sex holiday, a demand which is met by an abundant and obvious supply.  So we settled on Phuket which Yulia knew quite well having been there twice before, and came with the advantage of superb beaches, a reasonable level of development (Patong itself has a cinema and Carrefour, to name just two things, in a large centrally located shopping mall), and an international airport to which you can fly direct from Seoul, KL, Singapore, and a whole load of other places.  The drawbacks are that it is much more expensive than most of Thailand (although still miles cheaper than anywhere in the west) and the fact that it did get clobbered by the tsunami a few years back.  On balance, we decided this is the place to be and we are in the process of buying an apartment.

The grand plan is that Yulia will live here, for the intial six months learning Thai language in an extensive course which handily comes with an education visa eliminating the need for monthly visa runs.  After that, she’ll get a job either in real estate or hospitality where Russian speakers are in demand, the financial crisis seemingly only slowing and not stopping the stream of Russians turning up in various sunny resorts looking to offload cash.  I will stay in Sakhalin and possibly start rotating (i.e. 7 weeks on/3 weeks off) sometime  next year, and take my holidays in Phuket.

So what of Sakhalin and our life there?  Well, and this is related to Yulia’s move to Phuket, the place has changed.  When we arrived it was slap in the middle of the construction phase of two of the biggest and most complex oil and gas projects ever attempted, coming in at a total cost of over $30bn for the both of them.  The place was utter chaos, thousands upon thousands of foreigners of over 30 nationalities tripping over each other and the ever-changing Russian laws in their attempt to get the facilities built and the oil and gas flowing.  Money was flowing fast and free, established procedures as yet unwritten, and managers charged only with getting the job done come hell or high water.  And somehow we all got it done: oil and gas has been flowing from both projects for almost a year now, with few hiccups.  Sakhalin has transitioned from the chaotic construction phase to the more organised, orderly production and operations phase.  Gone are the amusing stories of 3km of 36″ pipeline “going missing” from a laydown area; expensive intelligent pigs smashing into a blind flange somebody has inadvertently left in a pipeline; people charging about in panic as a flare shoots up to 60ft in a tremendous roar because another part of the project blew down a section of pipeline without bothering to tell the chaps at the other end; a huge firewater tank being installed by a contractor who somewhat  implausibly thought nobody would notice the enormous dent in the side; construction contractors disappearing in the night (along with their advance payments) never to be seen again; tons upon tons of gravel and sand “going missing” on its way from Yuzhno-Sakhalinsk by train to the northern sites; designs being amended even as construction nears completion; tales of drunkeness and womanising amongst the workforce; and a feeling that you’ve entered an Alice in Wonderland world and none of it is quite real.

Which of course it wasn’t, and financial and operational reality had to arrive eventually, and after a few false alarms through 2007 and 2008, in spring 2009 it did.  With construction finished there was no need for thousands of men who could get a job done under ridiculous circumstances, because those circumstances were no longer the case.  It was no longer necessary to pay $1,000 per day and upwards to mercenary contractors, because their skills and numbers were not required any more.  Production and operations requires thoughtful, risk-averse, and somewhat plodding characters in stark contrast to the “lead me, follow me, or get out of my way” attitude which is essential for a complex construction job.  (Incidentally, for those in the know, I’m quoting Patton here not David Greer.  Silly though his email was for quoting Patton without attribution, the applicability of the words was sound enough.)  Making snap decisions on limited information, essentially judgement calls, are demanded of a construction manager; a manager in operations must first discuss at length and achieve a concensus before proceeding.

Of course, none of this is new to those who have been kicking around in the oil and gas business for years, but for me it is a distinction I have only recently come to appreciate.  And perhaps unsurprisingly for somebody whose hobby is spouting off on a public website, I have realised that I am far more suited to, and far more useful in, a greenfield construction environment than in operations and maintenance.  I suppose it all comes down to character, but whereas certain personal attributes served me well in unorthodox, challenging situations (e.g. plonked on a Russian ship at very short notice and expected to figure out a way of keeping semi-suicidal Russians alive whilst making sure  an ROV could be retrieved from beneath an ice sheet), they tend to get me into trouble in the more conventional areas of the industry.  Versatile and reliable I most certainly am, able to play a smart diplomatic game and keep my mouth shut I am not.  Incidentally, the bollockings I get in adult life are identical to the ones I got in school from the age of 5.  I can’t see that much is going to change, can you?

So as the construction teams left the island in 2008-09, so too did the wonderful array of characters that accompanied them, and a lot of my friends were amongst them.  To somebody who came here in the middle of the construction boom, Sakhalin is a shadow of its former self.  It’s not necessarily worse, but it is different in a way which I don’t prefer.  I have perhaps 6 or 7 good friends left here, most of whom will likely be leaving in 2010.  The project I am currently involved in is a good one, and I have a position which is as much as I could have hoped for under any circumstances, but over 3 years on Sakhalin and the changes that have gone on has made me tired, both physically and emotionally (which, incidentally, is the reason for the lack of blogging).  I have potentially another 1-2 years work on this project, but it is open to question how long I can stay without either going a bit bananas or getting myself sacked.  With a bit of luck, the regular holidays in Phuket will make things a lot easier and I can carry on until the project’s completion (or at least until they don’t need me any more and it’s a good point to hand over and back out with smiles all round).  My experience on Sakhalin, that I speak quite a bit of Russian these days, and my being resident on the island all mean I still have quite a bit to offer the project but I have made it clear to everybody that this will be my last job in Sakhalin.  To stay any longer would be a big mistake.

Hence the apartment in Phuket.  Even supposing I find myself jobless next year, sitting about applying for jobs in our own apartment in Phuket is something which can be done remarkably cheaply, thus taking away any pressure to find another position quickly.  The longer term plan is to get on board one of the huge Australian construction projects which are just kicking off, and are generating fears of enormous skills shortages as oil companies realise that playing good cricket and rugby and having barbecues a lot doesn’t translate into enhanced capabilities of project delivery.  Whether I take a rotational job in one of the remote sites or a residential position in an Australian city I don’t know, but even if we decide on the latter – assuming such an offer is made – another advantage of Phuket is that it is very popular and hence apartments easy to rent out both long or short term.

I’ll keep you informed.  Meanwhile, there is a deckchair on Patong beach which I intend to go and lie on.

April 2008:

Russian state-controlled giants Gazprom and Rosneft have been handed monopoly rights to all hydrocarbon developments on the Russian shelf, Natural resources Minister Yuri Trutnev has confirmed.

September 2009:

Russia will consider relaxing laws regulating foreign participation in offshore projects in a bid to attract investment from abroad, Natural Resources Minister Yuri Trutnev said.

…

“We will look into this issue (laws regarding foreign investment) first of all in relation to offshore exploration. We believe that state regulation creates many obstacles for exploration,” Trutnev told Reuters on the sidelines of an economic forum.

The minister also blamed state-controlled energy giants Rosneft and Gazprom , which are the only two players carrying out offshore exploration in Russia at the moment, for underinvestment.

Underinvestment?  Here’s what I said in April 2008 when the new law was announced:

Without a doubt, Russia will still attract inward invesment, enormous amounts of it, and much of this will be into its oil and gas sector. But this investment will come at an increased cost, be it in the form of upfront payments or reimbursable terms on major projects, higher interest rates from banks and financial institutions, or more stringent guarantees and performance criteria. At a time when Russia is going to be shopping around for $2.6 trillion of investment, it could probably have handled things better this last few years.

Perhaps Mr Trutnev has been reading this blog?  Or has economic reality just bitten?

Finally, after 3 years of trying, I am getting shot of Barclays bank who for the past 13 years have handled all my banking matters.  When I was in the UK they were fine, but when I transferred to their international banking in 2003, they have been nothing but useless since.  I wrote a post in April 2007 describing their shortcomings and the period since has seen a continuation of much the same sort of stuff. 

For example, when I was in Thailand in June I found my card had been blocked, despite my calling them to put a holiday marker on the account (this happens all the time).  When I called up what passes for customer services, they told me the card had been cancelled and a new one issued, supposedly on my request (which was nonsense).  Naturally, the new card hadn’t been sent to me due to Barclays not wishing to pay for a courier and instead preferring to hide behind unfounded security concerns as soon as the word “Russia” is heard.  So I was left drawing out cash on a credit card until I returned home, whereupon I was told that the woman on the phone had misinformed me and the card wasn’t cancelled and that it should now work (it did), which was 4 weeks before Barclays called and confirmed it had been cancelled due to a banking error.  Barclays would save time and money by informing their customers only when they haven’t made an error of some sort.

So it now looks as though I am transferring to RBS, the main reason being that they have a branch in Yuzhno-Sakhalinsk following their takeover of ABN-Amro.  I am a little suspicious of how much help this will be, especially when my experience of HSBC in Dubai cooperating with HSBC in the UK was less than impressive (oh, they’re nothing to do with us!), and every time I’ve gone into the local RBS branch here I’ve been greeted by a row of blank faces saying “ya ne znayu“, but I know the branch manager and he’s helped me out in the past, so I’m hoping it will be an improvement on Barclays.  It can’t be much worse.  So far, RBS say they can send cards to my address in Russia, which has always been the biggest problem (with HSBC too, I believe).  I’ll wait to see if this is true, but at the very least they should be able to send them to the branch.  Can’t they?

Anyway, to open an RBS offshore account I need to show them the last 6 months statements from my current account.  Unfortunately, Barclays typically cocked up my changing of address and have been sending all the statements for my GBP account to an old address; the statements for the USD account, which in theory shares the same address as the GBP account, have been reaching me fine.  RBS accept online printed records, but for some reason which indicates a level of uselessness impressive even for Barclays, their online banking system can only display the last 6 weeks of records.  That’s right, Barclays online banking cannot show you what happened in your account 2 months before.  So I rang up and asked them to send me the last 6 months statements.  Of course, this was not possible: according to Barclays it is illegal (which I doubt).  In fact, nothing is possible in Barclays, I don’t know why I bothered ringing them up in the first place.  Their motto should be “Sorry, we can’t do that!”

I was advised to go and visit a local branch and ask them to call an Isle of Man number so they can then fax my statements across.  Fortunately, I am in London for a couple of weeks, one of the main reasons being that I can finally change my bank having failed to do so from Sakhalin (this current experience is demonstrating as to why).  I asked the woman on the phone if she could contact the Aldgate branch of Barclays and fax them across and I could go and collect them.  Apparently she couldn’t, because the UK branches were “nothing to do with them” (perhaps she’s ex-HSBC!) and they have awful trouble getting through to them.  Ah, much better to let the customer negotiate such obstacles!

So I wandered down to the Aldgate branch and handed a youth in a turquoise tie the number he needed to call, which he did.  20 minutes later, he is still waiting to be connected.  It seems Barclays’ internal system is as crap as their external customer service desk.  Eventually somebody answered and after another 10 minutes, something arrived on the copier/fax machine across the room: 10 blank sheets of paper.  The blithering idiot on the Isle of Man had put them in the feeder the wrong way up.  There was nothing for it but for Turqouise Tie to call again, which meant another 20 minute wait for somebody to answer.  I asked him why he didn’t call her direct line, and he told me she doesn’t have one, and nor does anybody but the most senior people.  And he couldn’t email her because nobody has an email either, even branch managers.  That’s right: Barclays branch managers don’t have an email address!  No wonder they are so utterly useless at responding to and solving customer issues, they spend all day on the phone listening to tinny music waiting for somebody to pick up.  No wonder Barclays refuse to email me scanned copies of my statements, the clowns don’t have an email account to do so!  Eventually something with writing on came to the copier/fax: 10 poor quality sheets indicating in an appalling format my transactions over the past 6 months.  No, wait: from January ‘09 to July ‘09.  The woman who cannot load paper into a fax machine also cannot understand the meaning of “the last 6 months”.

And these idiots want to manage my financial affairs.  Let’s hope RBS is even marginally better.

It has now been just over two years since Gazprom assumed majority ownership of the Sakhalin II project, forcing Shell to concede its majority share whilst retaining operatorship and overall management of the development.

So what has changed since then?

Lots.  Firstly, almost all the non-Shell expatriate staff have been booted, leaving the organisation looking somewhat thin on the ground especially concerning project completion and maintenance.  Although to be fair, booting a whole load of expats out of Sakhalin Energy was something that should probably have happened in 2007.  Secondly, terms and conditions of employment have been squeezed to the point that there is very little overtime or training, which is having a big effect on the Russians.  And business class travel has been pretty much eradicated which, despite a review of the travel policy being sorely overdue, is probably not a smart move given where we live and what airports we must pass through to get here.  And it must be noted that it is open to question how much of the above is being driven by Gazprom or the Shell management who have been in charge since the beginning.  Ask the right people the right questions, and the fingers point to the latter.

Then last month Gazprom sent no less than 80 people to carry out an audit on Sakhalin Energy, the purpose of which was not clear but was subject to volumes of speculation by Russians and expats alike.  At one point, one of the senior Shell asset managers, a chap who I worked with on and off for 2 years but who never bothered to learn my name, asked one of the auditors how it was all going.

“You’re not paid to ask those sort of questions!” came the reply.

Ouch!  Welcome to your new masters, gentlemen.

I’m sat once again in the free wif-fi section of Incheon aiport having done another visa run to Malaysia.  This time I went via Bangkok and enjoyed an uneventful weekend in the heart of the nightclub district.

Uneventful because instead of rounding up a troupe of ladyboys and a sack of cocaine as planned I found a banjo for sale in a music shop and spent both nights in my room trying to play it: just as well most people in Bangkok hotels on a weekend don’t plan on sleeping. 

As usual, the Russian embassy in KL was as unpredictable as ever, charging me less than I thought they would and turning my visa around in a day rather than the 3 days it is supposed to take.  I’m wondering if Russian embassies are a franchise where the Kremlin sets the products and does the marketing and the local consul sets the prices within certain boundaries, a bit like MacDonalds.  That would explain why I got a free toy and a coupon for next time.

On the way back through my wife gave me the usual instructions, based on some dubious story or other about how she’d only just lost something whilst I’d been away, to buy cosmetics in the duty free.  My experience of buying cosmetics prior to about a year ago consisted in its entirety of buying underarm deodorant and shaving foam.  Even my after shave gets given to me as presents, no doubt by people who would prefer I’d bought soap while I was at it.  Now I am fast realising that buying cosmetics is like procuring machinery parts: all grades, numbers, and suffixes.  An example:

Guerlain PARURE – Compact Foundation, with Crystal Pearls, SPF20, PA++, nb. 12

Tell me that wasn’t dreamed up by a SAP technician!  The only differences being machinery parts are considerably cheaper than cosmetics, at least by weight, and the costs can be passed onto the end user.

UPDATE

Oh dear.  I was so busy blogging I missed my flight.  Dammit.  I’ll have to take tomorrow’s.

Upstream Online reports of a new development in the Russian oil and gas sector under the headline “Putin offers surprise deal to Shell”:

Russian Prime Minister Vladimir Putin moved again to ease his government’s clasp over the energy sector at the week-end, capping off a week of foreign energy deals with a surprise offer for Anglo-Dutch supermajor Shell.

Weaker oil prices, now half of what they were a year ago, have persuaded Russia to scale back its resource nationalism. Moscow now looks to be balancing the dogged protection of its energy wealth with the need to have foreigners invest in it.

This should come as a surprise to nobody.  Last November I suggested that the supermajors’ Russian prospects had improved as a result of the global economic crisis taking its toll on the ability of Gazprom and Rosneft to finance their development plans, and concluded the post with:

But the fact remains that somebody needs to fund Russia’s development plans, and western oil companies are not only well suited to do this, but also – despite all – eager to gain greater access to Russia’s gigantic reserves.  Might we see the Kremlin once again warm to BP, Shell, and Exxon as the financial crisis takes hold?

It appears that we are seeing just that.  The major question outstanding, with the Sakhalin 2 debacle fresh in their memories, is what form of guarantees will the likes of Shell be asking from the Russian government before investing billions into a new oil and gas development?  Expect to see either the western majors asking for internationally-held bank guarantees, or prepare for another round of blubbering and hurt feelings in five years time.

This is interesting, and will almost certainly get more so:

China has agreed to lend Russian oil companies $25 billion in return for supplies from huge new East Siberian oilfields that will power its economy for the next two decades, a source close to the talks said today.
Russia’s state oil champion Rosneft and pipeline monopoly Transneft signed a long-delayed deal to borrow the money from China Development Bank during talks in China, the source told Reuters.

…

Beijing has abundant cash that Moscow needs to access in the credit crunch as its government is running major deficits and some of its companies are finding it difficult to repay loans and borrow project finance on commercial markets.

…

“Rosneft and Transneft can’t borrow easily, so China steps in … with a lot of funds to lend because of China’s huge wealth funds,” said Leo Drollas, deputy director and chief economist at the Centre for Global Energy Studies.

“They have trillions of dollars of reserves and they’re saying ‘we’ll lend you this amount to develop the oil fields and the pipeline infrastructure needed’ and it will be paid for by deliveries of oil,” Drollas added.

In short, China has placed $25bn worth of expectation onto the shoulders of the Russian government.  If the oil flows as promised, it will be an agreement of great benefit to both parties.  But will Russia be able to deliver?

Maybe, but it might be tricky.  For starters, what any sum of money is supposed to get you in Russia invariably ends up being not enough.  Accept a bid of $20m and you end up spending $33m.  Budget a project at $10bn and the final cost comes in at $22bn.  Everyone in Russia knows that money does not go half as far as you think it does.  So where does it go?  Mostly navigating the myriad, often contradictory, laws, regulations, approvals processes, and bureaucracy which are deep rooted throughout Russia; rules which are changed arbitrarily and often, sometimes retroactively, and to top it all off, inconsistently applied.  Obtain MChS approval for the design of a building, build it as per design, and the same authority will refuse to grant you a fire safety certificate upon construction completion because the authorising individual has a completely different interpretation of the requirements than the bloke who approved the design.  Bring in a third party, and he’ll tell you they were both wrong.  Companies either spend millions on complying with Russian regulatory requirements, or they spend millions to avoid having to.  A handful of individuals get rich, projects cost twice as much as they should, Russia is all the poorer.

Of course, there is the possibility that this being a Russian-run project of significant national importance the usual regulatory and legal requirements will be waived and the project ram-rodded through to completion regardless.  But even this is doubtful.  Consider the two posts I wrote recently on doing business in Russia, particularly the second one where I list the 54 different bureaucratic hoops you have to jump through to get a warehouse built in Moscow.  An outsider would be forgiven for thinking these vast rules and regulations all stem from a single, monolithic government body which has complete control over the entire process, but the truth is that it is far more complicated.  Various government agencies and approvals bodies operate in quasi-independence from central government, and this is especially true in the provinces far from Moscow.  Often run as personal fiefdoms the agencies build, cherish, and protect the power and authority - and hence the revenue stream – that they enjoy.  As a result, they are often unwilling or unable to implement reforms or changes dictated from Moscow, and sometimes the applicable laws in the provinces are months and even years behind what the actual law is supposed to be.  Tales abound in the expat communities of the dozens or regulatory and state bodies which businesses must deal with implementing laws which differ from those which are officially in place.  Either deliberately or through poor management and communication, Moscow has only limited control over the dozens of provincial offices whose cooperation is essential to getting a project completed.

So in practice, even on a job which is considered priority for the government, the construction company – whether Russian or foreign – is faced with enormous delays and overspends as they try to negotiate through the approvals process at every point and turn.  It is true that the government could, and almost certainly will, intervene in certain areas to speed things up (for example, it is unlikely that the environmental consultation on the new gas pipeline being built from Sakhalin to Vladivostok by Gazprom was as lengthy and detailed as that for the foreign-led projects), but they cannot do so in every instance.  And even then their intervention might not speed things up.  A building contractor on Sakhalin told me that a recent law forbids any change orders on government construction projects: if something changes which causes a price increase, the entire job – even half complete – must be rebid.  So if a construction company arrives on site and find their piling estimate was too low due the the geotechnical survey being incomplete at the time of tender, the job gets stopped as they re-tender the entire project.  No doubt this law was brought in to try to mimise corruption on government projects, but if it is applied we can expect to see either 200% contingencies in bid prices or even simple projects dragging on for decades.  The sheer complexity of the laws and bureaucracy makes executing works in Russia much harder than it should be, and it is doubtful whether this has been fully considered – assuming it even could be quantified – when calculating what the Chinese $25bn is supposed to be buying.

In any case, we won’t have to wait too long to find out:

Also planned is a spur pipeline between China and Russia, which is part of the loan-for-oil agreement under which China will provide $25 billion to Russia’s Rosneft and Transneft in exchange for 300,000 bpd of oil imports from Russia for 20 years.

Russian Prime Minister Vladimir Putin said in early April that Transneft will finish laying the 67-kilometre East Siberia-Pacific Ocean oil pipeline from Skovorodino to the Chinese border within a few weeks, with work on the line expected to be complete in 2010 in time for crude to start flowing the following year.

The pipeline was originally due for completion last year but has been delayed due to political complexities and internal housekeeping issues with Russian suppliers.

What’s that?  Political complexities and internal housekeeping issues with Russian subcontactors?  That’s the diplomatic description of what I’ve just been talking about.  The Russians might want to consider the possible consequences of oil not arriving in China when it is supposed to after taking a $25bn loan to make sure that it does.

From Upstream Online: 

Russian gas giant Gazprom expects liquefied natural gas exports from Sakhalin-2 to exceed 5 million tonnes this year, up from the initial plan of 3 million, export boss Alexander Medvedev said.
Reuters quoted Medvedev telling a news conference that Sakhalin-2, which also involves Shell and Japan’s Mitsui and Mitsubishi, would reach target capacity of 9.6 million tonnes next year.

Expect this statement to be rapidly retracted in the coming months.