Oil, art and riches in a Siberian swamp

KHANTY-MANSIYSK, Russia, Oct. 31  — It’s not so grim anymore in the land Americans associate with harsh winters and political exile. While the rest of Russia is teetering, this city in the Siberian swamp seems to be rolling in rubles.

THE TRAPPINGS OF PROSPERITY are everywhere in Khanty-Mansiysk. A dozen construction cranes dot the downtown, bulldozers plow through old wooden huts to make way for apartment complexes and Toyota Land Cruisers navigate the still rutted but soon-to-be-repaired roads. Oil has turned Khanty-Mansiysk into a boomtown.

The benefits have more than trickled down to the city’s residents. Some have been moved out of their sagging houses and into newly constructed apartments — courtesy of the regional government. A new hospital has been built, as well as a new courthouse, a prosecutor’s office, medical college, even a log-cabin-style hotel on the edge of town for tax collectors.

In the city center is a year-old art, music and dance school for gifted children complete with 50 brand-new Steinway pianos and a museum sporting works of Russian masters bought up at the London auction houses of Sotheby’s and Christie’s.

“We used to have a very small town. We used to call it a log and timber town because that’s what everything was made of,” Tatiana Portova says over the din of heavy equipment passing her office. “Where those big buildings are, we used to collect berries,” says the 46-year-old life-long resident.

The windfall is all oil-related. Dozens of foreign and domestic oil companies have flocked to this city in western Siberia, 1,200 miles northeast of Moscow. And even as the price of oil plummeted last year and the ruble was devalued, dollar-denominated oil exports kept tax revenues in Khanty-Mansiysk — the capital of the region that is Russia’s richest oil patch — in far better shape than most of the country’s other struggling regions.

InsertArt(588886)Upward of 60 percent of the country’s oil comes from the Khanty-Mansiysk region, which is about the size of France but fits snugly into the middle of this immense country. Largely made up of tundra, which is frozen in the winter and swampy in the summer, the region has just 1.4 million people, only 1 percent of Russia’s overall population. That presumably leaves lots of spending money for the regional government.

“Up to 80 percent of our budget comes from oil and gas,” says Gov. Alexander Filipenko, who several years back embarked on a Siberian-style urban renewal program. One of his first moves was a road linking the city to the rest of Russia. Until then it had been accessible only by air or river or over the ice during the winter.

For years, the city had fallen into neglect. Its development during the early part of this century came largely from political prisoners who were exiled here beginning in czarist times. Even 1917 revolutionary luminaries such as Leon Trotsky did time here after the failed 1905 uprising. The repression continued under the Soviets, with the bloodiest episode occurring in 1937, when some 600 townspeople were executed and dumped behind a police barracks.

But the town’s and the region’s fortunes slowly began to change in the 1960s after significant reservoirs of oil were discovered and Soviet oil companies started moving in. The biggest changes occurred in the last nine years, however, following the collapse of the Soviet Union and the introduction of a regional budget under the control of Filipenko. The governor, who has been the top administrator of the region for almost 20 years, appears to have successfully remade himself from Soviet apparatchik to market economy maven.

Filipenko has pursued a fiscally conservative approach when it comes to foreign debt, barely accumulating any while many of his colleagues in Russia’s 88 other regions — even diamond-rich Yakutia and the city of Moscow — have defaulted on, delayed payments on or restructured their international loans. Of the 11 Russian regions that New York-based credit rating agency Moody’s Investors Service scrutinizes, only two have not defaulted, and all are rated as in danger of default as Russia’s overall economy contracted by about 5 percent last year and has recovered at less than a 1 percent pace in the first nine months of 1999.

“No debt is part of our very careful credit policy,” Filipenko says, drumming on the theme that his government is aggressively seeking to diversify its investments in the event oil revenues dry up. “You can’t use oil resources forever.”

With that in mind, Filipenko has embarked on a quixotic investment quest. Currently, he is building a world-class biathlon facility in time for the 2003 World Biathlon Championships to be held in Khanty-Mansiysk. The facility, with its own hotel and a $25 million price tag, is an investment in the region’s future, Filipenko says, though the practicality of attracting tourists to the Siberian tundra seems a bit questionable.

The art museum is another investment in the future, he says. It is chock-full of some 30 Russian icons from the 16th, 17th and 18th centuries and dozens of paintings from legendary Russian artists including Savrasov, Viktor Vasnetsov and Phillipe Maliavine. “All of a sudden it was not necessary to go to big cities to enjoy art,” Filipenko says “Beauty shouldn’t exist only in Paris or London, or in Moscow or in St. Petersburg.”

What’s more, he says, the art is part of a foundation for future generations — an insurance policy, so to speak, in the event the oil stops flowing. But then again, whether Russian law will permit the region to sell these national treasures on the international market in the event finances get tight is another story.

The foundation, modeled after similar trusts set up in Alaska and in some Arab oil-producing countries, is also seeking to invest in real estate and foreign markets for future returns. “That sounds to me a bit odd,” says Elisabeth Rudman, a Russian regional debt specialist for Moody’s in London. Atop her list of dangers for the region is the ripple effect of Moscow’s decisions. She recounts how the federal government’s default, the banking system collapse, the devaluation of the ruble and the political vacuum left by the cabinet shake-up a year ago sapped many regions of their vitality.

In the meantime, Khanty-Mansiysk’s arts school — where the museum is housed — has brought a cultural vitality to the city and has become a magnet for talent in the tundra. On a recent Friday evening, teachers from the school put on a performance of classical and folk music. On the following afternoon, the auditorium was packed for a uniquely Russian performance — part bodybuilding competition, part ballroom dancing, part student ballet.

“I like the city because it looks comfortable; so many trees and green grass,” says a piano instructor at the school as she methodically runs a 9-year-old through his exercises on one of the new Steinways. But, she adds, “I came here only because the facilities here are so brilliant. I have never seen such instruments anywhere except Moscow and St. Petersburg.”

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