VZCZCXRO4951
RR RUEHCHI RUEHCN RUEHDBU RUEHFK RUEHGH RUEHHM RUEHIK RUEHKSO RUEHLN
RUEHNAG RUEHPB RUEHPOD RUEHSK RUEHSL RUEHVC RUEHYG
DE RUEHVK #0100/01 2690129
ZNR UUUUU ZZH
R 260129Z SEP 09
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 1213
INFO RUEHXD/MOSCOW POLITICAL COLLECTIVE
RUEHVK/AMCONSUL VLADIVOSTOK 1318
RUEHZU/ASIAN PACIFIC ECONOMIC COOPERATION COLLECTIVE
RUEHZG/NATO EU COLLECTIVE
RUEHOO/CHINA POSTS COLLECTIVE
RUCNCIS/CIS COLLECTIVE

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000100 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EPET ENRG EINV ETRD ELTN ELAB EWWT PGOV
PREL, SOCI, RS 
SUBJECT: NAKHODKA LOOKS TO OIL AND GAS FOR GROWTH 
 
VLADIVOSTO 00000100  001.2 OF 002 
 
 
¶1. (SBU) Summary:  According to Nakhodka city officials, the 
financial crisis has not hurt the city's economic potential. 
Unemployment is low and the construction of oil and gas 
infrastructure, as well as housing for the expected influx of 
(mostly Russian) workers, is expected to increase Nakhodka's 
prosperity.  The city hopes to provide oil and gas to Russia and 
other countries in Northeast Asia without damaging the 
environment.  Much of this growth will be generated by Rosneft. 
Vostochniy Port, however, has suffered from the financial crisis 
and some companies have had to reduce staff by approximately 50 
percent.  Companies, however, remain optimistic and look forward 
to future growth.  End summary. 
 
----------------------------- 
Despite the U.S., All Is Well 
----------------------------- 
 
¶2. (SBU) In a September 24 conversation, First Deputy Mayor of 
Nakhodka Boris Gladkikh told us that, despite the world 
financial crisis (which started in the United States), Nakhodka 
has not lost its economic potential.  He said the official 
unemployment rate is 1.2 percent (approximately 1,200 persons), 
or almost three times less than in Primorye in general (3.5 
percent unemployment), but added there are 2,000 job vacancies. 
According to Gladkikh, most of Nakhodka's unemployed simply did 
not want to take up the positions available.  "Engineers do not 
want to work as waiters," he said.  The city's port and location 
along the Trans-Siberian Railroad meant that it would continue 
to serve as a transportation hub in the Russian Far East, 
Gladkikh said. 
 
------------------------------------- 
Energy to Boost Nakhodka's Prosperity 
------------------------------------- 
 
¶3. (SBU) According to Gladkikh, Nakhodka plans to receive gas 
originating in Sakhalin once a pipeline running from Khabarovsk 
to Primorye is finished in 2012.  This pipeline will provide 
Nakhodka and other cities a link to the undersea pipeline that 
runs from Sakhalin to Khabarovsk. 
 
¶4. (SBU) Gladkikh also told us construction of facilities at 
Kozmino Bay near Nakhodka is proceeding according to plan, and 
the first stage of the Eastern Siberia-Pacific Ocean oil 
pipeline project, which will carry oil from Skovorodino to 
Kozmino Bay, is over 90 percent complete.  After the first stage 
of construction, crude oil will be delivered from Skovorodino in 
Amurskaya Region to Kozmino Bay via railroad.  From there, up to 
15 million tons of crude oil per year will be shipped by tankers 
of up to 150 thousand ton deadweight.  Gladkikh said the final 
agreement on this stage of the project would be signed on 
November 1 and the first tanker will deliver crude oil from 
Kozmino Bay to countries in North East Asia in December.  By 
2012 the Eastern Siberia-Pacific Ocean pipeline will be 
complete, and up to 30 million tons of crude oil will be 
delivered from Skovorodino to Kozmino Bay by pipeline (2,500 
kilometers). 
 
--------------------------------- 
Workers Come From All Over Russia 
--------------------------------- 
 
¶5. (SBU) Gladkikh said that income taxes from over 5,000 people 
working in Kozmino Bay provided extra revenue to the Nakhodka 
city budget.  Only half of the workers there, however, are 
local.  The rest came from places such as Moscow, Krasnoyarsk, 
Omsk, Khabarovsk, and Yuzhno-Sakhalinsk.  Foreign workers have 
not taken part in construction projects at Kozmino, he said. 
 
--------------------------- 
Rosneft Betting on Nakhodka 
--------------------------- 
 
¶6. (SBU) Gladkikh said Rosneft intended to process up to 20 
million tons of crude oil for gasoline, kerosene, bitumen, and 
polyethylene at a refinery to be built in Nakhodka.  When the 
first stage of construction is completed, the plant will process 
10 million tons of oil.  The second stage will double the 
refinery's processing capacity.  Gladkikh mentioned that up to 
25,000 people will construct the refinery.  When the refinery is 
completed, 3,500 people will work there.  He said the city of 
Nakhodka was ready to construct 3,000 apartments in 30 apartment 
buildings for the specialists who will work at the refinery, 
because Rosneft will finance the construction. 
 
¶7. (SBU) Gladkikh said it was likely foreign specialists would 
be invited to work on the construction of refinery plant, 
 
VLADIVOSTO 00000100  002.2 OF 002 
 
 
although the preference is for Russian workers and companies. 
He said there would likely be limit on foreign workers in order 
to give more opportunities for Russians.  He added that foreign 
workers in Nakhodka are mostly from China (working in 
construction and agriculture), North Korea, and CIS countries 
such as Tajikistan, Turkmenistan, and Ukraine. 
 
----------------------------------- 
Environmental Safety A Top Priority 
----------------------------------- 
 
¶8. (SBU) Gladkikh emphasized that environmental safety a top 
priority during the port construction.  Green Peace and local 
environmentalists took part in public hearings devoted to 
construction in Kozmino Bay.  The contractors listened to 
concerns of environmentalists in order to get public approval. 
 
--------------- 
Vostochniy Port 
--------------- 
 
¶9. (SBU) Gladkikh said the financial crisis had reduced the 
amount of cargo going through the four Nakhodka ports.  The main 
port, Vostochniy, saw a 50 percent decline of container 
deliveries from South Korea, Japan, China, and Australia in 
¶2009.  Approximately 16 million metric tons of coal is shipped 
through the coal terminal next to Vostochniy port each year. 
 
----------------------------------------- 
Vostochniy International Shipping Company 
----------------------------------------- 
 
¶10. (SBU) On September 24 Chief Executive Officer of Vostochniy 
International Container Services (VICS) John Scourtis presented 
an overview of his company's operations and gave us a tour of 
Vostochniy Container Terminal.  He told us the number of 
containers VICS shipped in 2008 fell 19 percent.  From January 
to August 2009 business fell 63 percent, in part due to the 
sharp decline in shipments of electronics.  As a result, VICS 
had to reduce staff by 50 percent; VICS currently employs 600 
people.  Scourtis forecasted that for 2009 VICS would move 
containers totaling 153,689 TEU, compared to 400,724 TEU in 2008. 
 
¶11. (SBU) Scourtis said VICS was focused more on international 
cargo delivery because domestic routes, such as from Vladivostok 
to Magadan, are up to three times more expensive than some 
international routes such as from Vladivostok to Pusan.  To 
attract more clients, VICS intended to offer discounts. 
 
¶12. (SBU) VICS's main client, according to Scourtis, is the Far 
East Shipping Company (FESCO).  He said FESCO accounted for 
approximately 75 percent of VICS's total cargo delivery. 
Despite recent hard times Scourtis said he was optimistic about 
VICS's future, and he hoped that by 2015 his company will see 
business return to 2007 levels.  In fact, VICS plans to renovate 
its facilities and purchase new cranes from China to speed its 
operations.  VICS may also invest money to further develop 
railroad infrastructure in the area. 
ARMBRUSTER