White Sun of the Desert

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.

The weather in Sakhalin is warming up nicely, the evenings are still getting longer, the bears are hungry and out in force…which means only one thing: camping season.

Camping in Sakhalin is worthwhile for several reasons.  Firstly, there is the scenery…

…which, if you choose the right spot, can include the sight of early salmon leaping a waterfall.  I never saw this when I camped as an army cadet in the Brecon Beacons.

Secondly, camping in Sakhalin involves driving 4WDs laden down with copius amounts of “kit” which is to be shown off shamelessly to your male companions.  Americans are welcome as they have a habit of bringing along eye-boggling amounts of kit purchased from the USA for a fraction of what it would cost you in Sakhalin, assuming you could even buy it here.  Hi-tec electronic gadgetry from Japan is also popular, at least with the blokes.  Upon arrival at the campsite, all kit is dragged from the cars, unpacked, and assembled willy-nilly around a huge fire which consumes a small forest worth of logs throughout the night.

Thirdly, camping in Sakhalin is forbidden unless all involved (Egyptians excluded) get totally hammered on beer, vodka, coffee mixed with Baileys and Glava, all three in succession, or anything else you fancy.  The drinking is interrupted for half an hour or so whilst everyone gathers around the barbecue and throws on pile after pile of meat, most of which goes uneaten because the Russian Army never showed up to eat its portion.  With everyone fed, the drinking continues and the singing begins.  Usually somebody talentless and tuneless gets out a guitar and does a fine job of keeping the bears at bay.  Once a suitable late hour has been reached, fetching firewood involves going more than a hundred metres into dark forest, and everyone is plastered, those brave souls with tents crawl (or in the case of the Americans, stroll and head for the east wing) into their nylon pods and fall into a drunken coma.  Those who lack a tent or are too chicken to use it cheat their way through the camping experience by sleeping in the back of their Toyotas.  Next time I’m gonna be leaving tin openers with pots of honey around the campsite.

Finally, camping in Sakhalin, like most seemingly mundane activities in Russia, often presents bizarre spectacles which would go sadly unseen were we to sit in dingy bars, crumbling apartments, or remain in the UK.  On our last camping trip a car inexplicably burst into flames on the opposite side of the valley, producing a column of thick smoke.  The bewildered occupants would normally have been rueing the loss of their car and contemplating how to get home again…   

…had their blazing chariot not set fire to the entire hillside, causing the driver and his passenger to attempt to stamp out the flames with their sneaker-clad feet.  As the picture below shows, they were not successful.  This made for a fine afternoon’s entertainment for those, i.e. us, watching from a comfortable distance.

But the fun wasn’t yet over!  Just as we were packing up to leave, for no apparent reason a minibus owned and operated by a Korean seaweed harvester opted to drive across a river rather than simply take the road, and unsurprisingly got stuck.  For our entertainment he rammed the opposite bank a few times without success, before his mate turned up in a jeep to winch him out.

All in all, a fine weekend camping in Sakhalin.  May those to come be as entertaining and bear-free.

A colleague forwarded this to me, sourced from here.  It describes the procedures, time, and cost to build a warehouse in Russia.

Data as of: January 2008
Estimated Warehouse Value: RUB 26,120,000
City: Moscow

54 different bureaucratic hurdles to overcome in order to build a warehouse.  And it should be noted that the costs listed are the official costs only, which the authority in question can legally charge.  Often before an authority will consider an application, the submitted documents must be checked and approved by a third party private company which is the only one the authority will recognise, and hence can charge what it likes.  I have seen these companies charge $30k for “pre-approving” what the governmental authority charges $200 for, and it is not difficult to understand where a big chunk of this additional fee ends up.  With so many authorities to satisfy the scope for corruption is enormous, and many of these approvals bodies have become industries in themselves offering lucrative careers involving little more than glossing over documents at ones leisure whilst accepting hefty backhanders either directly or via a third party company, which may or may not be owned by your brother.

This list should give you some idea of how difficult it is to build an LNG facility or an offshore platform in Russia.  Construction schedules in Russia are unlike anything you would experience in the west, which is made all the more difficult by the 4-month summer construction window (where groundworks are concerned) which exists in much of Russia including Sakhalin.  For the last part of 2008 I was involved with the construction of a two-storey office building, the type of which would be thrown up in six or eight weeks in the UK.  It took our Russian contractor over two years to complete, and still the building is not registered.  A good chunk of this time was spent sitting about waiting for various authorities to review documents, turn up for inspections, and stamp bits of paper.

If anyone wants to know why Russia remains poor despite a well educated population possessing impressive technical skills, looking at how long it takes to complete a simple construction project and what is involved is a good place to start looking.

Some of my long-time readers will remember the tale of my first ever visit to Russia back in February 2004, which involved a 3-day train journey from Moscow to Nizhnekamsk (or a town nearby, at least) in the Republic of Tatarstan.  On my return I published a lengthy account of my trip which remained online for a number of years before I thought it wise to take it down, a decision I have no intention of reversing.

Anyway, I recall being on the train crossing some godforsaken snowfield the size of Wales and a scruffy policeman coming into my carriage demanding to see my papers.  After handing them back to me he asked to look through my bags, and I remember him making me empty all my clothes onto the seat and explain the charger for my Canon digital camera.  Once I’d been told I could pack my stuff away, I asked him what he was looking for.  “Drugs, guns, bombs” came the answer.  I looked out the window where I couldn’t even see one of the collection of tumbledown wooden shacks which pass for Russian villages.  We hadn’t seen anything concrete in over an hour.  I asked him how long he had been doing his job, and he replied a number of years.  I asked him how many foreign tourists he had caught on a train in the middle of absolutely nowhere carrying drugs, guns, or bombs in their luggage.  Answer: none.

A rich seam of ludicrously pointless security checks runs right through Russia from the Baltic Sea to the Kamchatka Peninsular, and it does not bypass Sakhalin Island on its way.  I am currently working on a small building project of negligible significance to anyone outside the company who wants it done.  The location of the construction is on a flat piece of sand a couple of kilometres inland from Sakhalin’s east coast way up in the north of the island.  It is about as remote as remote can be.  It is a couple of hours by Landcruiser from the nearest railway station in Nogliki.  The nearest settlement of any kind is a half-hour drive away.  There is no structure or installation for miles and miles which does not form part of the facility which our construction is adding to.  A friend who worked there in 2005 said it was the closest he came to working on the moon.  I spent yesterday on the site, and it is as remote and desolate as anything Kuwait had to offer. 

The first part of the works involves carrying out a topographical survey, which is effectively a survey showing what hills, bumps, and structures are around the worksite.  It takes about 1-2 days to complete.  Before we can begin construction we must get approval from the authorities: fair enough.  The authorities insist we carry out a survey beforehand: also fair enough.  The authorities say the surveyors must be licensed: still fair enough.  The authorities demand that the results of the survey cannot be released to any foreign company without their first having been sent to the FSB for examination, which takes 30 days: WTF?!!  Yes, that’s right: no results of a survey of (from what I can gather) any kind taking place in Russia can be used by a foreign company without FSB approval, even if the survey is recording a few foot-high lumps of sand at the arse-end of Sakhalin Island a helicopter ride from the nearest sizeable town.

I suspect were I to ask the Sakhalin FSB chief how many nefarious plots hatched by foreign companies against Russian national interests had been foiled by the FSB taking a month to review construction survey results, the answer would be roughly similar, nay exactly the same, as the one my policeman friend gave me on the train to Nizhnekamsk.  Security, like so much else, rarely makes sense in Russia.

So, I’ve started my new job and it seems to be going well, aside from the fact that I am now expected to do some serious work.  I have gone from working for an oil company to working for an engineering services contractor, which is a bit like going from captain to cabin boy.  Oil companies do not make their money from utilising peoples’ time so generally their time management is appalling.  I have taken part in discussions involving a dozen people across multiple meetings dragging out over months on a matter worth only a few thousand dollars.  I’ve seen three departments together take a month to decide on the expenditure of a hundred dollars.  By contrast, engineering service contractors make their money by selling peoples’ time hence every minute must be accounted for, and very little is unproductive or wasted.  If I cannot demonstrate that every minute I have spent has gone towards the progress of a defined task, my boss is going to twist my ear and demand to know what I have been doing.  I seem to get along with my new boss thus far, but I am in no doubt that should he become displeased for any reason he will adopt the personality of a rottweiller that knows its about to be speyed. For the past week I have felt like somebody who has been eating Big Macs in front of the telly for a year and has woken one morning to find a bergen on his back, army boots on, and a sergeant major bellowing in his ear pointing towards a distant hill.  I’m sure I’ll be back to fighting fitness soon enough.

Anyway, a new company means a new visa and for that reason I am in Kuala Lumpur getting one sorted out.  As usual, the rules have all changed so I’m relying on the chaps who have done the same trip recently to brief me up on what to do.  The form you download from the Russian embassy’s website is the wrong one, and you get given a different one containing the exact same questions only in a slightly different layout.  The website and almost everybody you speak to says that there is a same-day service available, which there isn’t.  The embassy is open for visas on Mondays, Wednesdays, and Fridays both for document submission and collection, and so without a same-day service it means you have to wait a couple of days.  The price paid for this by my colleage a couple of weeks ago was 840RM.  Today, Monday, I handed in my documents, and was told they would be ready only on Thursday.  Everybody had told me that the consular section wasn’t open on Thursdays, including the sign on the wall outside.  But they insisted that it would be ready on Thursday and I should come then for collection.  I was told the price would be 840RM “or maybe more” about a minute before being charged 480RM.  This must be the first time in recorded history that anyone has paid less than the listed price for an official document in Russia.  I will go back on Thursday and see what I have been issued, and whether it will get me into Russia.

UPDATE

Visa obtained.  Now begins the journey back to Sakhalin…

Just when you thought the Russian visa application process couldn’t get any dafter, they go and stick another requirement on top of the myriad others.

Since I started working in Russia in September 2006, the immigration department has added to their original requirements an apostled, notarised copy of my degree certificate, a completed, signed contract of employment (before I can get a work visa!), a medical assessment which must be no older than 30 days (chest x-rays must be no older than 3 months; previously it was 6 months but the new machine in Yuzhno-Sakhalinsk’s city diagnostic centre must be paid for somehow), and an insistence that most nationalities must return to their home country to apply.  As a Brit I am fortunate that I can apply in Kuala Lumpar, because I can no longer go to Tokyo or Seoul as I did before.  Why one Russian embassy is able to process a work visa application whereby another cannot cannot be fathomed.  Americans and Australians have to return home, unless they can prove permanent residency elsewhere.

Then at the beginning of this year they decided that all applications had to come with a notarised translation of every page of your passport, including all visas and stamps therein.  I have a 48-page passport with stamps and visas from Kuwait, Oman, UAE, Qatar, Singapore, Indonesia, Thailand, Philippines, Cambodia, Vietnam, Korea, Japan, Kazakhstan, and Azerbaijan.  Some poor soul has to translate this lot at horrendous cost to my employer, then take the translation to a notary public.

Somebody probably thinks that employing people to do this sort of stuff is good for the economy.  Or they think that during this time of global economic crisis Russia has so much inward investment that they ought to make it more expensive.

Well, it appears that after knocking on a lot of doors and tapping on a lot of windows I’ve found myself another job.  This should keep me in Sakhalin for another year or so, or at least until the economic situation in the rest of the world improves and the executives of various oil companies stop panicking over $50 oil and get their projects moving.

I start on Monday.