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National Agenda : Russia's Real 'Underground Economy' : The huge nation is the world's best overall repository of oil, gas, coal, gold, timber, diamonds. So why isn't it rich?

July 20, 1993|CAREY GOLDBERG | TIMES STAFF WRITER

SURGUT, Russia — The great Siberian swamp stretches as far as the eye can see. Countless blue cutouts of rivers and streams mix with the chartreuse grass of the frantic northern summer. Here and there, the silhouette of an oil pump, looking like a giant, black pecking bird, breaks the landscape. A massive torch rises where gas is being burnt off an oil well, flaring in the ever-light sky.

Translated onto the map on Nikolai Medvedev's office at the Surgut Oil and Gas Co.'s headquarters, western Siberia is a marsh four times the size of France, scattered with incursions by man but still holding fabulous untapped riches in its depths.

"This is a unique place," said Medvedev, geology chief at the giant state oil company. "It can be compared only to Saudi Arabia or the Middle East. In time, there will be no white spots on the map. It will all be covered in well sites."

And western Siberia, already well-pumped and explored, is only the beginning of Russia's immense natural wealth. With about one-eighth of the world's land surface, including the endless expanse of Siberia and the uncharted territories of the north, Russia remains the globe's richest overall repository of oil, gas, coal, gold, timber and diamonds.

It is the world's top exporter of natural gas and has nearly 40% of the world's reserves. Its oil output, even now, in the midst of a production slump, surpasses all producers except Saudi Arabia. It is a major producer of diamonds, and because its mines turn out such a large portion of gem-quality stones, it ranked first last year in the value of its diamond output--ahead of Botswana and South Africa.

In coal, Soviet reserves--lying mainly in Russia--were estimated to be enough to last 350 years. The Russian State Forest Fund controls a "green sea" of 2.87 billion acres, and Russia produces more timber than any other country in the world.

"Russia is based on the riches of Siberia," the 18th-Century Russian scientist and philosopher Mikhail Lomonosov wrote.

But in the midst of all this wealth, Russia also feels like one of the poorest countries in the world, swimming in debt and dooming nearly half its population to life below the poverty line on typical salaries equivalent to only $50 a month. If only--it would seem--it could learn to use its resources right, to turn its riches into production and income, it would prosper and no longer need to appeal for Western aid and credits.

With that aim--and the far more modest goal of just keeping the economy running--Russia's government is attempting painful, fundamental changes in how it extracts, processes and sells raw materials.

* It is turning old state monsters of oil and gas companies into something approaching corporations and struggling to introduce a real element of competition into prospecting and mining.

* To make the most of the fuel it does extract, it is also pushing for tough new curbs on consumption that would force greater efficiency on factories that use twice as much fuel as their U.S. counterparts to make the same product.

* It is also allowing foreign companies into sacred Mother Russia to a degree greater than ever before, courting desperately needed investment in failing oil wells. And the companies are coming--slowly, cautiously, but coming.

"You will need a number of things to settle a little more, but we're not far from the point when the trickle turns into a stream," said Anders Morland, Amoco's man in Moscow and a chairman of the Petroleum Advisory Forum, a council of foreign oil companies in Russia.

Western aid is coming as well, with President Clinton showing special enthusiasm for investing in Russian oil and gas and the Export-Import Bank recently approving a $2-billion loan for the Russian fuel industry. Last month, the World Bank approved its largest loan ever--$610 million--to help three Russian oil companies improve their output.

As Russia develops new approaches to exploiting its resources, however, it must still deal with the devastating legacy of 70 years of Soviet development-at-any-cost--oil fields ruined by careless work, giant torches flaring off millions of dollars in natural gas, over-cut forests, the dangerous coal mines.

And a more recent legacy compounds the problem: a drop-off in investment that, in the oil industry, has resulted in Russian production plummeting from 570 million tons in 1987 to 396 million tons in 1992. Coal production has dropped recently from 416 million to 328 million tons a year, officials say.

Much of the lumbering Soviet-era industry is so inefficient that economists have calculated that given current exchange rates, Russia's gross national product would actually rise if it simply sold all its raw materials abroad at world prices rather than producing anything from them itself--industry, in other words, is producing goods worth less than the sum of their parts.

Along with the burden of the old is the dislocation of the new.

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