Russian Oil Towns

That's black gold to these folks

SIBERIA: Economy shows its two faces

Arkady Ostrovsky visits the Siberian oil towns of Surgut and Nefteyugansk and finds radically different moods

Two oil towns face each other across the river Ob, which divides east from west Siberia. They look similar - grey and depressing monuments to Soviet industry built on the swamps of Taiga forests - but as harsh winter and harsher economic times tighten their grips, the mood in each is radically different.

In Surgut, on the east bank, a Siberian oilman dressed in Soviet-style grey suit and tinted glasses, dubbed the "general" by his employees, has built up the oil company that takes its name from the town and is considered the best managed in Russia. Surgutneftegas, is debt-free and analysts believe it should be proof against the storm of economic uncertainty that broke across Russia this summer.

Across the river in Nefteyugansk, people rail against a slick Muscovite banking tycoon dressed in a Marlboro Classics shirt who bought their company, Yuganskneftegas, and milked it for profit, impoverishing the town in the process. Queuing recently outside a bank for their wages, which they had not received in full for three months, Nefteyugansk workers complained bitterly about Mikhail Khodorkovsky, one of the new class of bankers, the so-called "oligarchs". Some counted themselves lucky to receive Rbs200 ($12.50) - or 10 per cent of the wages due three months earlier.

Alevtina Kosareva, 43, says she has been forced to exchange her sewing machine for vegetables. "He [Khodorkovsky] keeps us on a drip-feed so we do not starve and continue to work for him. Khodorkovsky simply laughs at us. He does not even think we are people . . . In the past, masters fed their slaves, but the new masters do not bother." In the past two years Yukos - the loss-making oil company that owns 51 per cent of voting shares in Yuganskneftegas - has reduced wages by 30 per cent, cut its drilling programme, and laid off about 15,000 people, reducing the workforce to 39,000. It has transferred the old Soviet social responsibilities to the municipal budget, in line with advice from western consultants.

But industry analysts fear Yukos's short-term approach is jeopardising the long-term interests of the oil giant. "Khodorkovsky has killed the goose which was laying golden eggs," says Ivan Mazalov, a senior analyst at the broker CentreInvest. Disgruntled investors claim Yukos milked money from Yuganskneftegas by using a mechanism known as transfer-pricing. Yuganskneftegas was obliged to sell all its oil at a fixed rouble rate to Yukos, which would then re-sell it at market prices and use the revenues as it saw fit.

The growing economic crisis has seen the pressure on Yuganskneftegas increase. Recently the company - the second largest in Russia in terms of oil production - had its telephones cut off because it had failed to pay its bills. With oil prices falling, and Yukos reluctant to pay taxes to the Nefteyugansk authorities, tension in the town has escalated. Roads have been neglected, nursery schools have closed and hospitals handle only emergencies. Four months ago, Vladimir Petukhov, the mayor and a vocal critic of the oil company, was shot dead. His funeral turned into a protest demonstration against Yukos, one witness said.

Residents of Nefteyugansk long to cross the river. According to Vladimir Nozhin, chief engineer of Yuganskneftegas, the company has lost 700 top specialists to Surgutneftegas following the recent wage cut, but now Surgut needs no more workers. Whereas it is hard to sell a one-bedroom flat in Nefteyugansk for Rbs60,000, the same flat in Surgut would cost Rbs 200,000.

Surgut may not be prosperous by western standards, but its oil company is one of the few in Russia where workers have benefited from market reforms and display no signs of nostalgia for the Communist era. "Nobody here wants to go back to the Soviet days, to deficits and empty shelves," says Oleg Plaksin, a drilling master at Surgutneftegas.

In Nefteyugansk, that seems to be exactly what is happening.

Imported products which once filled the shops have been replaced by old- fashioned glass jars filled with potato soup and preserved vegetables. "We took them off the shelves four years ago, but now we have nothing else to sell, so we put them back," said Olga, saleswoman at the proudly named Europa Tsentr (Europe Centre). Apart from its name, however, the shop is a spitting image of any Soviet supermarket.

"We have no sugar, no rice. God knows what we are going to eat in winter. There is no master in this town. We have the same resources as Surgut and look how we live," says Olga. Zoya Nikolaevna, a pensioner in Nefteyugansk, often goes to Surgut to buy food. "I was in Surgut last week, they have 30 kinds of sausage there. But here the shops are empty - just like in the Soviet days."

Surgut's comparative prosperity is partly due to the president of Surgutneftegas, Vladimir Bogdanov, who until recently was criticised as an old-style Soviet-era manager with xenophobic views. But his hands-on style management has paid off. Contrary to the advice of some western consultants, Mr Bogdanov continues to pay for schools and accommodation for his staff. In return he gets the loyalty of his workers, who have more faith in their management than in the central government.

"When you pay your workers and give them something to do they simply do not have time to talk about politics," says Andrei Atepayev, an energetic 38-year- old manager. "People start waving flags and slogans when they have nothing to do at work." Not only are workers at Surgutneftegas happier, the company is investing up to $1bn a year in production and exploration and has among the lowest counts of idle oil wells of any Russian company in the sector.

"We always counted money here and never splashed out on fast cars and lavish offices. We did only what was economically prudent and as a result we are still drilling new wells, while most of our competitors have almost stopped," says Mr Atepayev.

Surgutneftegas is not an island, however. The company's investment programme could be jeopardised by the collapse of the banking system - it has $1.5bn locked in various Russian banks crippled by the government's default on its debt. It has also had to cut 1,000 jobs from its total staff of 68,600. But such is the paradox of recent Russian history that it is Mr Bogdanov, a local "red" director, who has used his Russian know-how to build a profitable enterprise in which the workers are the most effective advocates of capitalist economy.

"Of course we can curse the government and complain about the crisis," says Tatyana Nikolaeva, who works at Surgutneftegas's nursery school, but "I always say to my staff - do not whine that it is dark in the room - turn on the light."