VZCZCXRO6024
RR RUEHAG RUEHAST RUEHCHI RUEHDA RUEHDF RUEHDT RUEHFL RUEHHM RUEHIK
RUEHKW RUEHLA RUEHLN RUEHLZ RUEHNH RUEHNP RUEHPOD RUEHROV RUEHSK
RUEHSR RUEHYG
DE RUEHVK #0009/01 0400757
ZNR UUUUU ZZH
R 090757Z FEB 09
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1072
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUCNASE/ASEAN MEMBER COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1171

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000009 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EAIR ETRD RS
SUBJECT: YAKUTSK: DISPATCH FROM COLDEST CITY IN THE WORLD 
 
VLADIVOSTO 00000009  001.2 OF 002 
 
 
¶1.  Vladivostok Political/Economic Officer and FSN paid a 
mid-winter visit to Yakutsk and met with several officials of 
the Sakha Republic.  Officials discussed economic and 
development plans for the area, including infrastructure 
development, possible areas of cooperation with United States 
businesses, and realization of the region's tourism potential. 
The negative 47C temperature during the visit highlighted the 
unique living conditions residents of the city -- known as one 
of the coldest on earth -- experience during the long winter 
months.  While remote, there are plans for state-owned Yakutsk 
Air to begin a Yakutsk-Kamchatka route in order to connect with 
Vladavia's Kamchatka-Anchorage flights for "extreme tourists." 
 
"The Frost Tolerates You For Only a Few Minutes" 
 
¶2.  Yakutia -- more often called the Sakha Republic by locals -- 
during the winter is extremely cold.  As one local informed 
Poloff, no one stays outside for longer than ten minutes -- "the 
frost will tolerate you for that long, and then he'll show you 
who's boss."  Drivers keep their engines running all day and 
overnight for fear that theirs cars will fail to start again 
until the spring thaw.  The resulting moisture from tail pipes 
hangs like a frozen fog for the whole winter, reducing 
visibility throughout the city to a few dozen meters and coating 
every surface with a thick layer of frost.  Automobile owners 
insulate their vehicles by installing an additional layer of 
glass. 
 
¶3.  The financial crisis has yet to be felt significantly in 
Yakutia, which has an economy based mostly on natural resource 
extraction.  Officials plan to diversify industrial output to 
include resource processing as part of its Republican Strategic 
Plan of Productive Forces Development by 2020.  The Sakha 
Republic receives 82 percent of its budget from Moscow.  The 
Republic is the only region in the Russian Far East to have 
experienced an increase in population during the past years. 
Though Sakha is an official language, ethnic Yakuts in the 
capital often speak Russian among themselves, and apart from in 
government buildings the written language is rarely used in 
public signage in the city. 
 
Transport the Main Problem 
 
¶4.  As with the rest of the Russian Far East, the lack of 
efficient transportation infrastructure remains an impediment to 
economic growth.  The Sakha Republic is Russia's largest region 
with a total area of 1.2 million square miles, much of which 
sprawls across the Arctic Circle.  With a population of 950,000 
people -- 254,000 in Yakutsk -- the republic's population 
density of 0.79 per square mile is Russia's lowest. 
 
¶5.  According to Deputy Minister of Transportation Marianna 
Nikiforova, 90 percent of Yakutian settlements have no 
year-round transport connections.  Transport expenses make up 35 
percent of the cost of goods sold in Yakutsk, and even more in 
outlying areas.  Average transport costs of goods from the city 
to other towns by auto is 8 rubles per kilometer and by air -- 
the only method available most of the year -- is 100 rubles per 
kilo. 
 
¶6.  There are few bridges in the region, and delivery of heavy 
cargo across rivers to outlying areas is possible only for a few 
months when rivers are fully frozen.  The city is currently not 
connected by railway to the rest of Russia, though Nikiforova 
stated that if the new line joining the capital with the 
Trans-Siberian is completed as planned in 2016, the delivery 
cost of commodities into the republic will decline by over 25 
percent. 
 
¶7.  Small aviation fulfills much of cargo and human transport 
demands though the aging regional fleet of Tupolevs is 
inefficient and fuel costs alone amount to 60 percent of the 
price of air transport.  A one-way ticket from the capital to 
Tiksi on the Arctic coast costs 20,000 rubles, 1.7 times the 
average monthly salary.  Fuel is delivered from the south to the 
capital only during the five months per year that barges can 
navigate the Lena River, and further delivery to the arctic 
areas is only possible two months a year. 
 
Tourism as Growth Industry? 
 
¶8.  Almost all official meetings included a reference to the 
nascent tourism industry in Yakutsk as a potential area for 
economic growth.  The republic's vast wilderness would be very 
attractive to hunters and outdoor adventurers during the brief 
warm season.  Winter travel, officials acknowledged, would need 
to be promoted as an 'extreme' niche market. 
 
¶9.  Sergey Neustroyev, the Deputy Minister of the Ministry of 
Foreign Economic Relations acknowledged that apart from the 
weather, the main problem is the lack of transportation 
possibilities and resulting high fares.  Currently Yakutsk is 
 
VLADIVOSTO 00000009  002.2 OF 002 
 
 
connected internationally only by once-weekly flights to Seoul 
and Harbin.  Neustroyev stated that there are plans for 
state-owned Yakutsk Air to begin a Yakutsk-Kamchatka route in 
order to connect with Vladavia's Kamchatka-Anchorage flights. 
Hopes for a boost in 'extreme' tourism were raised when a French 
film team arrived to highlight Yakutsk in their four-part 
documentary "Extreme Cities."  The documentary will be 
distributed in Europe. 
 
Fur and Silver as Economic Indicators 
 
¶10.  Silver remains a significant part of the economy for 
Yakutia, and much of the finished product is purchased locally. 
While jewelry is a non-essential item, fur remains a staple and 
essential item for the inhabitants of Yakutia and the main 
source of revenue for many villagers in remote areas.  Poloff 
visited two local businesses related to these sectors to gauge 
to effect of the economic crisis on consumer spending in 
Yakutia. 
 
¶11.  The owner of a jewelry-manufacturing studio stated that 
business remains brisk, and that she has seen no recent drop in 
sales.  The long line of Yakut women with disposable income 
purchasing items and the dozens of artisans and sales associates 
actively filling orders attested to that.  The manager of a fur 
clothing manufacturing company also stated that business was 
doing well.  Her company purchases furs from over 2,000 hunters 
from outlying regions and employs dozens of craftsmen to create 
shoes, hats, and coats.  So far, neither company has plans to 
scale back operations. 
 
Few Ties with the US 
 
¶12.  There is very little trade with the United States, and no 
large-scale American investment.  Neustroyev stated that exports 
from the Sakha Republic to the U.S. in 2007 amounted to USD 
100,000 and consisted of mostly diamonds and jewelry. 
Statistics for the first half of 2008 show that amount will 
likely remain more or less unchanged.  He said the Republic 
hopes to expand its sales of diamonds to the U.S. by encouraging 
local businessmen to open diamond stores there, and increasing 
participation in jewelry expos.  He also stated that the Sakha 
republic would like to begin coal exports to the U.S. 
Neustroyev expressed the desire of the Republican Government to 
conduct presentations of the republic's investment potential to 
U.S. businesses and requested the Consulate's assistance in 
organizing such events in the US. 
 
¶13.  There are currently no major American companies conducting 
business in Yakutia.  Minister of Industry Aleksey Golubenko 
told Poloff that the U.S. heavy machinery manufacturer 
Caterpillar had recently been in competition for a major 
contract to supply a local mining company, but lost the bid to 
Komatsu.  He also pointed out the Canadian gold mining concern 
Barrick recently withdrew its investment from Yakutia. 
 
¶11.  Comment.  Current conditions for the Sakha Republic appear 
positive -- the economic crisis is yet take significant hold and 
consumers continue to purchase goods as usual.  Furthermore, 
unlike in the rest of the Russian Federation, the population is 
growing.  The lack of infrastructure and the high cost of 
transportation continue to hinder significant development and 
economic diversification, however. 
ARMBRUSTER