Nice clothes, Emperor!

Yesterday I noticed the petrol tank in my car was down to a quarter of a tank, and thought I’d better fill it up.  So I went, at 11am, to do so.  Unfortunately, nobody seemed to sell any.  It had all frozen up, after a night of temperatures which were about -10, which by Russian standards is barbecue weather.  The petrol station I tried was owned and operated by a large and important company whose corporate colours are black and yellow.  For the sake of future business, I will say no more.  This petrol station had been revamped in the summer, complete with new underground storage tanks.  A month into a mild winter, and it was unable to dispense petrol before lunchtime, a pattern repeated in every other petrol station about town.

In addition, there is no diesel on the island.  The refinery which supplies Sakhalin is on the mainland (there is no refinery on Sakhalin), and apparently there was some kind of problem there with the net result being Sakhalin Island has no diesel.

Bear all this in mind next time you read about entire populations of Western European countries relying on Russia to heat their homes for the next twenty years.

A Dangerous Gamble?

Anyone who has been to Russia will have noticed that the newest, smartest, and often most substantial buildings in the country tend to be casinos.  I used to wonder where people got the money to gamble enough to support half a dozen casinos in a town, before I realised that by skipping on things like meals and other luxuries, it is quite possible to throw most of your wages down a slot.  Yuzhno-Sakhalinsk is no different from the rest of Russia in this regard, and probably features more casinos than other cities because of the large Korean population, who seem to have inherited their love of gambling from their brethren back in the old country.  I had visited a few casinos, not to gamble so much as a rouble, but because some of them operate 24-hours with a restaurant attached – perfect for getting a load of Korean food at 7:00am when you’ve just staggered from a nightclub into blinding daylight. 

Anyway, word on the street, or rather, what my wife heard in a club last night, was that Putin has brought in a new law which will outlaw casinos across Russia, limiting them to only a few cities.  I have no idea whether this is true or not, and if you are interested I suggest you keep an eye on blogs which are much better at covering political announcements eminating from the Kremlin than mine.  But one thing is certain, or so my wife tells me, and that is several of the casinos across the town have been shut down recently.  In yet more unsubstantiated, heard-at-the-smoking-area developments, the only casinos which will be allowed to remain open are those owned by the governor of Sakhalin, thus forcing all business into his arms.

I must stress, I have no idea if this is true or not, and I am idly speculating here without bothering to do any proper research.  But the casinos have closed for some reason, and others remain open for business.  I this is indeed what is going on, I cannot think this will be without consequences.  Russia’s rulers throughout history have reliably complained about the disobedience of the provinces, usually in reference to parts of Siberia, and the remoteness which allows them to ignore many of Moscow’s directives.  In some ways, Sakhalin Island is the same.  Hopelessly remote from Moscow, the residents have an island mentality, resistant to outside interference, especially from spoiled Muscovites who seek to lord it over those toughing it out in the far east.  Okay, I might be exaggerating the extent of this mentality, but it does exist.  Now the type of people who own and operate casinos in Yuzhno-Sakhalinsk are the type of people who own and operate casinos everywhere: not the type of people you’d want to be on the wrong side of.  They have grown pretty rich over the last few years as the island has been booming, and I can’t see them being very impressed with their source of income being shut off and directed elsewhere: be it to favoured cities in mainland Russia, or into the governor’s pockets.

Knocking out one or two of the most shady, wealthy businessmen in a strategicaly important yet remote town in far-eastern Russia might be done without too much noise.  But taking on a dozen of them at once might prove to be a dangerous gamble.  Assuming any of this is true, of course.

Approaching Economic Realities

Times are changing in Yuzhno-Sakhalinsk, and proof of this comes in the form of something I have never seen before in the town, and a few people I have spoken to on the subject say the same thing: a large banner in the centre of town advertising expatriate housing.  A year or two ago this would have been unheard of, and prices for expatriate housing just seemed to be spiralling eternally upward.  So what’s changed?  Firstly, Exxon have finished their main construction project.  Typically, it takes about 10%-20% of the number of people to operate and maintain a facility than to construct it.  There were also a lot of subcontractors involved in the construction, who have now packed up and left or downsized.  In addition, Exxon completed the construction of their new housing complex, meaning several dozen well-paid expats moved out of their apartments in town.

The process of demobilisation from the island of large numbers of foreign workers which Exxon has started marks the beginning of the end of the boom which Sakhalin has experienced for the last five years.  This process will gather pace and become a flood as the construction phase of the gigantic Sakhalin II project nears completion at the end of 2008.  Our company alone is looking to reduce its workforce on the island from about one thousand to fifty or sixty.  Almost every other contractor and subcontractor will be doing the same, many of whom will leave altogether.  It is highly likely that the number of foreigners working and living in Sakhalin in 2009 will have gone from the tens of thousands at the peak a year ago to just a few thousand.  This cannot fail to have an enormous effect on the local economy.

What is true for rented housing is true for office space.  The lease on our office is due to expire on 31st January 2008, and the landlord called me up last week gleefully telling me he would have to increase the rent if we wanted to renew.  He didn’t want to send me a proposal with the new rates, he said we should meet to discuss it.  No, he couldn’t come to my office, I should come to see him.  In an apartment somewhere.  No thanks, I said.  With that, he started shouting that plenty of other people want the office space and he’ll simply rent it to them.  I doubt it.  It took a morning of looking to find two suitable office spaces, in buildings newer than our current one, and for a cheaper rate.  We are paying well above market rate for out current office, largely because last year we were caught in a vice between workload and the expiry of our lease.  Not so this year.  We are about to take a better, cheaper office, and our current landlord can find some other mug to rent from him at 25% over market rate.  The availability of office space in Yuzhno-Sakhalinsk shot up when Exxon finally moved into their enormous new office building, freeing up whole floors all over the town.  And as the contracting companies downsize or leave, yet more becomes available.  Furthermore, one or two new office blocks have either recently been built or are due to be completed shortly.

Russians have never been too strong on economics ever since they spent 80 years pretending the laws of such didn’t apply to them.  Many of the residents of Yuzhno-Sakhalinsk are probably no better informed now.  The town witnessed an extraordinary boom as the giant oil and gas projects kicked off on the island, and the residents benefitted enormously in the form of salaries several times the national average, rental prices on a par with Moscow, and business opportunities in abundance.  A year or two ago, landlords could demand any price they wished for a property, suppliers of goods and services set out the rules and changed them at will, inviting any company who complained to go elsewhere, and if you were Russian and spoke a smattering of English you could get a well paid job, sit and do nothing, and move to a better job a month or so later.  In itself, none of this was a bad thing for Yuzhno-Sakhalinsk, in fact I think it was a very good thing.  But as any Russian should know, such excess brings with it a nasty hangover, and I don’t think anyone in the town is prepared for it – least of all our office landlord.  The mood amongst the local population is generally that the good times will last forever, and the economic power they had two years ago will last forever.  I can’t figure out if they are in denial, or they are simply blundering along in ignorance.

Take another example.   A year or two ago it was almost impossible to find a decent canditate for any position in a company.  Anyone who was any good at anything was employed already, and their employers made sure they kept them.  Those who did find themselves on the job market usually demonstrated why within a week of starting a new job.  That was then, this is now.  These days, CVs are starting to drop through our door, CVs of people with experience who have worked for foreign companies.  Two years ago, nobody had any experience and you had to take a chance that they’d turn out okay.  Nowadays, people come with experience, history, and a reference.  In the last four months, we have taken on two members of staff who have been demobilised from a construction project, have come with a good reference from their previous employers, and the expectations we had of them have largely been met.  Yuzhno-Sakhalinsk is a small town, and for years many of the local Russians seemed to think that reputation in the job market didn’t matter, as those were the days when being Russian and having a pulse almost guaranteed a job.   Employees used to stomp out of the door waving two fingers at the management, and start afresh in another company right away.  These days, I get phone calls from managers in other companies saying an ex-employee of mine has swung through the door applying for a job, and what did I think?  Some of the local Russians have been extremely smart in adapting to this shift in the balance of power, making sure that they build up a good reputation with an employer who then passes on his or her CV to a friend in another company with the recommendation they take the individual on.  Others are still stuck with the Soviet-like belief that they are entitled to a job under any terms they demand.

And yet another example.  The number of suppliers of goods and services has increased, and competition has entered the marketplace.  Nowadays, companies can demand to be treated like customers and not beggars, and supplier assessments are possible.  Suppliers can now be blacklisted, and are.  Three quotes can be obtained for most purchases, something which was nigh on impossible two years ago.

These patterns are only going to intensify and solidify until Yuzhno-Sakhalinsk becomes a normal market economy, where customers are treated as such and suppliers chase their business.  For many, the economic correction is going to be harsh: salaries will drop, no longer will they be able to depend on $30,000 per year income from renting out their apartment, and they will have to work to keep their jobs.  Any random group of Russians contains at least a few extremely smart and hard working individuals, and these will be the winners of the new reality.  But the days when everyone was a winner in Yuzhno-Sakhalinsk are quickly coming to an end.

Logos please, and more of them

The first topic of this post could be viewed as a footnote to this post, in which I mourn the lack of a decent supermarket in Yuzhno-Sakhalinsk.  Branded goods have come in for a lot of stick in the past few years, culminating in the book No Logo, the author of which seems to think it would be better if the world’s consumables were not produced by large multinationals and carrying brand names.  Critics of the book normally point to brands as being part of the system which guarantees, or at least attempts to uphold, the quality of a product. 

Yuzhno-Sakhalinsk would be a good place to put the two opposing theories to test.  Putting forth anecdotal evidence from my own experience, I have found that there are a few products in the supermarkets here in addition to the ones you would probably find on the moon, such as Coca-Cola.  When I am hunting through rows of tins and jars bearing the names of mysterious Russian manufacturers such as Favourite Garden or My Family, I am drawn to the few international brands such as Parmalat, Heinz, Nestle, and Green Giant.  Maybe there is a familiarity comfort factor at play here, but to be honest I’d never heard of Parmalat until they fell into financial trouble a few years back, and to my knowledge I’d never bought their products until I came here.  So I’m thinking my preference of goods coming with a label I have heard of and have seen abroad is because I believe these brands carry a stronger guarantee of quality than the brands I have never heard of. 

But that’s just me, and anecdotal evidence doesn’t say much.  What does say a lot is the premium people are prepared to pay for the internationally branded goods, which is usually 30%-50% higher than the locally branded goods.  If these items were to stay on the shelves for weeks, then it would be safe to say that the international brand is not worth premium being charged for it.  But as things are, the internationally branded goods tend to disappear pretty quickly, which is clear evidence that people are willing to pay considerably more for internationally branded goods than products carrying an unfamiliar brand name.  As an experiment, I’d like to see Naomi Klein put in a year in Yuzhno-Sakhalinsk and inspect her shopping basket every time she buys in some groceries.

Back to Moscow

The weekend before last I went to Moscow with a young Russian employee of mine*, to do what is sometimes known as “business development”.  The purpose of the trip was to meet representatives of Gazprom and Rosneft, and see if they were interested in the services we offer.

I had not been to Moscow properly since August 2004, and in the three and a half years that have passed I have noticed a huge change in the place.  Everything looks much newer, cleaner, smarter, and more modern.  Or maybe everywhere looks like this after 15 months in Yuzhno-Sakhalinsk.  Partly out of convenience, partly out of interest, I stayed in the Belgrad Hotel on Smolenskaya Ploschad’, where I stayed during my first ever trip to Moscow in February 2004.  The first change in the hotel was observed from my desk in Yuzhno-Sakhalinsk, which was the price: the rate had gone from $120 per night to $250 per night, for an unrefurbished room.  Yeah, knocking down the Moskva and the Rossiya and depriving central Moscow of a couple of thousand hotel rooms was a really smart idea.  The room itself hadn’t changed a bit from the one I stayed in almost four years ago: very narrow bed, inch-thick mattress, furniture which would interest a curator from a museum of Soviet interior styling, and TV which worked, but you had to adjust the aerial yourself to get a picture.  But it was warm, and there was plenty of hot water, and they had upgraded the towels so you could no longer watch yourself in the mirror as you dried your face.  They’d also decorated the front of the lifts with purple velvet padding, making it look as though you were entering a brothel instead of, erm, a high-class central Moscow sleeping establishment.  The service had improved greatly, I think I even spotted one of the staff smile for a fraction of a second, although they did the usual Russian hotel trick of closing the only hotel restaurant for a private party on a Saturday night and putting a notice on the door politely telling the guests to sod off and eat elsewhere.  Room service was available, cash only, and the bloke who brought it didn’t have any change.  Still, for $250 per night, who can complain?

So that was the hotel.  The rest of Moscow seemed to have followed suit in refurbishing itself, becoming more expensive, but still falling hopelessly short in areas.  Unlike four years ago, Moscow was obviously undergoing a building boom.  New buildings were either going up or had gone up everywhere, and most buildings looked as though they had been refurbished.  In many places it looked like any modern, western city.  Looking around Smolenskaya Ploschad’, there were far more places to eat than there used to be, but sadly the Italian place where I once got a decent pizza has now become a sushi restaurant.  The little window which sells the kebabs is still going though, and the McDonalds** over on the Starii Arbat is still doing a roaring trade and can provide you with a reliable breakfast, lunch, or dinner.  However, any such progress Moscow has seen was marred by the type of things which always have and always will hold Russia back: the woman behind the counter at the Domodedovo Express terminal deliberately short changed me, my friend had a load of stuff nicked from his check-in baggage, and there is still in place the idiotic requirement that all visitors must register their presence with the local authorities within three days of arrival.

The Moscow traffic has turned from very bad to unbelievably awful.  It took us three hours to get from Domodedovo airport to the hotel.  The entire city now seems to each own a car, and they all drive it at once.  Until you get on the Metro, where you find what is really the entire city all using it at the same time.  You walk from your hotel in a down jacket to stave off the cold (which is warm compared to Sakhalin), then find yourself crushed into a Metro packed with eleven million people generating enough heat to power half the city lights.  You want a cause for global warming?  Consider mass immigration into Moscow.  Sweating heavily, you get ejaculated onto the street at the exit doors, and instantly freeze.  Yet it’s not cold enough to freeze everything underfoot and keep the ground nice and clean like in Sakhalin, the city generates enough heat to melt the snow and provide four inches of brown, oily, slush to stand in.  I spoke to some friends about the Moscow commute, and 2 hours each way is the norm regardless of which mode of transport you take.  As a way of life, I don’t fancy it much.  I think I’ll stay on my small, frozen little island for a while yet.

*Of course, no trip from Sakhalin to Moscow would be complete for a local without him being lumbered with half a dozen bags belonging to friends and friends of friends containing Japanese imports and local delicacies to be passed to relatives in Moscow; and the return journey would not be complete without being lumbered with half a dozen orders for electronics and other items which can be bought at half the Sakhalin price in Moscow.  So it was this time. 

**Incidentally, McDonalds is so highly thought of in Sakhalin that a few people we know there asked us to bring back a few McDonalds meals for them.  At first I thought they were joking, but it turned out they genuinely wanted us to stick a load of McDonalds in the overhead locker for nine hours so they could reheat it and eat it on arrival.  Madness.