The Foreign Service Journal, April 2007

rights. Their property rights are conditional on good relations with federal and regional political offi- cials. Companies “invest” in good relations by meeting the informal demands of officials to spend money locally. Not only Russian compa- nies, but foreign companies as well, are expected to follow this model. Another factor that is going to drive up costs is the attempt to move the focus of oil and gas production away from West Siberia to new regions of East Siberia. West Siberia has huge amounts of oil that have yet to be developed. It is premature to shift investment from there to the east. Owing to the burden of extra cold and distance, costs now and for years to come will be higher in East Siberia than in West Siberia. Then, one needs to factor in the massive expense of building from scratch new infra- structure for production, transport and settlement in the virtually un- touched east. A further advantage of West Siberia is that it is more conducive to a pluralist, competitive — and therefore more cost-efficient — model of resource development. Because the basic infrastructure is already in place, West Siberia can accommodate a greater number of small operators in addition to the big companies. Small operators are suited for risk-taking and innovation. (Significantly, the U.S. has over 20,000 operating companies in its oil industry, and Canada has several thousand. Russia — which produces nearly twice as much crude oil as the U.S. — has only 150.) Development in East Siberia and the Russian Far East, in contrast, would require truly large-scale investments, big operators and heavy state involvement. To sum up: the Siberian challenge includes within it the challenges of managing resources and people. Russia needs to achieve efficient, clean and humane development of the resources located on this vast terri- tory. “Efficient” means to determine and implement an optimal current depletion rate and an optimal rate of investment for expanding the resource base for sus- tainable future growth. “Clean” entails policies that protect the sensitive environment of Siberia and the Far East. “Humane” requires decent treatment of peo- ple, Russia’s most precious asset. Those who wish to relocate to the west — whether now or later, when they retire — must be encouraged and assisted in doing so. Those — at least those of working age — who choose to remain or those who may move there need to be sure that Siberia is the place where they can be most productive. And, in return for their truly productive contributions, they deserve to be adequately compen- sated. The three challenges of space, resources and people interact. They must be addressed at the same time and with recognition of their interdependence. F O C U S 38 F O R E I G N S E R V I C E J O U R N A L / A P R I L 2 0 0 7 West Siberia has huge amounts of oil that have yet to be developed; it is premature to shift investment from there to the east. Figure 5 Figure 4