VZCZCXRO2302
RR RUEHLN RUEHYG
DE RUEHVK #0008/01 0280620
ZNR UUUUU ZZH
R 280620Z JAN 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 0875
INFO RUCNCIS/CIS COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHVK/AMCONSUL VLADIVOSTOK 0946

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000008 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL RS
SUBJECT: GOLD, GULAG AND GEOGRAPHY DEFINE MAGADAN 
 
VLADIVOSTO 00000008  001.2 OF 002 
 
 
¶1. (U)  Summary:  With a region half the size of Alaska and a 
population of only 170,000, the Magadan region has big 
challenges.  First is finding enough skilled labor to exploit 
the gold, silver and other mining riches of its vast territory. 
The mines operate year round, even when temperatures hit minus 
55 degrees Centigrade.  Another challenge is finding ways to 
diversify the economy.  Tourism, fishing, and now oil and gas 
are sectors that Magadan officials hope will provide more jobs 
and opportunities.  For now, gold is the key industry. 
Interestingly, at a refinery outside of Magadan, high tech 
equipment from the United States turns Russia's crown jewels 
into gold bars for shipment to Russian banks.  End Summary. 
 
EMPLOYMENT 
 
¶2. (U)  Consul General and Foreign Commercial Service Assistant 
met with Magadan Oblast Governor Nikolay Nikolayevich Dudov and 
other leading officials January 21 - January 24.  The closer to 
federal money, the more optimistic officials were about 
Magadan's prospects.  Officials reliant on local revenues were 
much more cautious about Magadan's prospects, with one official 
saying the region is "still in the Stone Age."  All officials 
agree that success in part rests on bringing Russians back and 
other workers in to improve the employment pool.  The city has 
made some infrastructure improvements, including building new 
indoor hockey and soccer facilities, and a new ski base is being 
constructed.  One hundred percent of the quota allowed for 
foreigner workers is used every year, but as with all quotas in 
the Far East, the numbers are determined as much by political 
considerations as by the needs of employers.  Also hampering 
employment is the fact that pensioners comprise forty percent of 
the population.  The Center for Civic Initiatives, formerly the 
American Resource Center, does promote business and youth 
programs to keep young people in the region, and has micro 
credit available for small businesses.  But even University 
officials admit that the region has to do a better job tailoring 
educational programs to available jobs. 
 
GOLD 
 
¶3. (U)  This year gold mining numbers fell somewhat, but Magadan 
still has investments in gold in the billions and some of the 
most lucrative mines in the world, excavating tons of gold every 
year.  Magadan's Polymetal, for example, is the world's number 
three gold producer.  American equipment is used in the 
extraction and refinery processing, with the high tech refining 
done almost exclusively with American equipment, from the ovens 
that melt the gold to be poured into bricks worth over $300,000, 
to the analyzers that measure the gold's purity.  Heavy 
equipment from Caterpillar is also used, but local businessmen 
complained bitterly that Caterpillar's "fifth generation" 
technology is too complicated and computerized and even more 
importantly is twenty percent more expensive than Komatsu. 
Mining officials like to split their fleet of heavy equipment 
between American and Japanese providers, to avoid letting either 
one have a monopoly, but Caterpillar is in danger of losing the 
market according to our contacts.  The mines operate year round, 
with workers filling shifts with 15 days on at the gold mine, 
and 15 days off in Magadan.  Despite the cold temperatures, we 
were told that the "people are tougher than equipment" and they 
tend to keep working, even when the equipment is breaking down. 
Workers at the gold and silver refinery are allowed to retire 
early because of the health dangers of working with the heavy 
metals and they are given special allowances. 
 
OIL AND GAS, RAILROADS AND TUNNELS 
 
¶4. (U)  Magadan has also been talked about as the future 
headquarters of international oil and gas companies, if drilling 
off the coast in the Sea of Okhotsk yields expected results. 
Another big ticket project is finally linking Magadan with the 
outside world by rail.  Magadan is linked to Yakutia by road, 
the so called "road of bones" built by GULAG prisoners, but 
there is no rail link yet.  That ambitious project may also be 
fulfilled as part of the Russian Far East development plan.  The 
city is supplied through the port, which operates year round 
thanks to ice breakers.  Even more ambitious is the idea that 
Russia's mineral riches could be sent to North American markets 
via a tunnel from the Far East to Alaska.  Officials put that in 
the category of a plan for their "grandchildren and great 
grandchildren." 
 
ALASKA LINKS 
 
¶5. (U)  Alaska has business, cultural and educational links with 
Magadan, most of which are much less active than during the 
heydays of the 1990's, but delegations continue to go back and 
forth despite the logistical challenges.  In the 90's there were 
flights from Anchorage to Kamchatka and Magadan.  The 
international airport is ready to handle all types of aircraft, 
but for now the revitalization of air links between the U.S. and 
 
VLADIVOSTO 00000008  002.2 OF 002 
 
 
RFE does not include a stop in Magadan, although American 
charters and the occasional Cessna do land at the airport. 
With Anchorage only a couple of hours away by plane, it is 
difficult for travelers to make arrangements to visit their 
neighbor, since it inevitably involves complicated itineraries 
through Vladivostok or Khabarovsk, Seoul, and Seattle. 
 
CITY ISSUES 
 
¶6. (U)  For the city, the number one challenge is housing.  City 
officials are also frustrated by the lack of a decent hotel and 
requested information on American hoteliers.  Officials also 
expressed interest in the FCS client "Snow Dragon" since they 
said their snow removal equipment is totally inadequate for the 
sub arctic region.  The city also sees a small role for tourism 
based on its grim history as the last link in the GULAG chain. 
The two million dollar "Mask of Sorrows" sits on a hill 
overlooking the city and a fine museum features artifacts from 
the GULAG days, including stories written by using knots in 
string when pen and paper were forbidden or unavailable.  City 
officials say tourists visit Alcatraz, why not Magadan? 
 
PORT AND SPECIAL ECONOMIC ZONE 
 
¶7. (U)  Magadan has a special economic zone with taxes charged 
on profits only and no import tax.   The zone is open to all who 
register.   The port is privately operated.  Port officials 
believe a line to the United States would be successful, given 
the American goods that make their way to Magadan via Pusan and 
Vladivostok.  As with the air links, there were shipping 
companies operating directly from the U.S. to Magadan in the 
1990's. 
 
NO KLONDIKE 
 
¶8. (U)  Comment:  Magadan's isolation presents real challenges, 
but the riches of the Kolyma region will continue to be tapped, 
hopefully with continuing involvement of American firms 
experienced in the mining sectors.  Magadan residents have warm 
feelings for Americans, especially their Alaskan neighbors, and 
the number of people who have been to the U.S., under SABIT 
programs, exchange programs, and even as tourists is surprising. 
 If one looks at the economic prospects in the long term, they 
are relatively bright.  Certainly better than the late 1990's 
when Alaska was sending much needed humanitarian aid.  But as 
one official put it: "There will be no Klondike in the next five 
years."  Just steady hard work, something the people of Magadan 
are very familiar with. 
ARMBRUSTER