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. Last Updated: 07/27/2016

Pulling Far North Out of The Cold

Its inhabitants are leaving in droves and its natives are facing extinction. Those that remain suffer from chronic unemployment, perennial power crises and dependence on a tenuous life-supporting supply line that snakes thousands of kilometers across some of the most extreme terrain on earth.

It's called the Russian North, and there is nobody in the federal government in charge of dealing with its problems.

Russia has created and liquidated its State Committee for Northern Territories several times over the last decade. And although Prime Minister Mikhail Kasyanov has vowed to recreate it — or something similar — he has yet to fulfill that promise.

"That's the kind of interest the [government] has in northern affairs," Artur Chelengarov, deputy head of the State Duma, recently told a European Business Club conference about the future of the North.

"The North is in a sorry state," said Chelengarov, one in a growing chorus of politicians, officials and businesspeople calling on the federal government to do something to stem the unfolding demographic disaster.

To regional leaders, the situation seems paradoxical, given the reform-minded government's top-down approach to governing and its emphasis on all things economic.

In fact, more than 60 percent of Russian territory is technically classified as being in the Far North — an area that contains half the world's palladium, a big part of its platinum and nearly all of Russia's oil, gas, gold, diamonds, aluminum and timber.

It includes 28 regions whose exports bring 70 percent of all hard currency flow into the country. It holds just 8 percent of the population, or 11.9 million people, but it supplies 20 percent of the national income and 35 percent of the gross domestic product.

Yet, for all the North's wealth — the European Bank for Reconstruction and Development says its natural resources are worth some $27 trillion — Northerners have never been able to subsist on their own, depending on government handouts instead.

But since the collapse of the Soviet system, which heavily subsidized the region, money has dried up, and deliveries of life-sustaining food, fuel and goods have become an annual struggle.

While state funding for fuel and food deliveries to remote northern villages is slowing growing, the 4.2 billion rubles ($152 million) allocated last winter provided little comfort. The money many regions get from the government is less than half of what they need for fuel alone, leaving nothing for food.

"It's a one-way street," said Alexei Okatov, deputy head of the republic of Komi, one of a few regions that finances itself and doesn't receive federal money.

"The federal government is not supporting our programs of development," said Okatov. Last year $586 million was invested in Komi, and the republic contributed 53 percent of its revenues to the federal budget, he said.

Like many political leaders of the North, the State Duma's committee on the problems of the North and Far East is seeking the support of Kasyanov's government for more than 100 development projects.

"But to implement them, the government's support is very much needed," said committee chairwoman Valentina Pivnenko.

The task of developing a region where 60,000 settlements do not have a single telephone line and where many areas are inaccessible for six months a year is a daunting one.

Sergei Bayov, deputy head of investment policy for the Economic Development and Trade Ministry, made it clear that the North would not be able to depend solely on Moscow. "We cannot support all the regions," he said.

In fact, Moscow has literally given up on some areas. Under a pilot project funded by the World Bank, thousands of people from remote, "unsalvageable" northern settlements are beginning to be relocated.

The initial phase of the project calls for the removal of some 20,000 thousand people from 8,000 households in Vorkuta in the Komi republic, the Susuman district in the Magadan region, and the city of Norilsk. Once residents have left, the plan is to raze their former homes because local budgets aren't big enough to subsidize heating, water and electricity for them.

With little help from the federal government expected in the near future, northern political leaders are banking on investments from abroad.

"Most of our financial support comes from foreign investors," said Viktor Miller, deputy governor of the Murmansk region.

It is clear, however, that foreign investment cannot possibly meet the needs of the North.

The northwest regions alone require at least $70 billion to modernize outdated production facilities, according to Valery Shlyamin, external affairs minister for the republic of Karelia and chairman of the Association of Northwest Regions.

The EBRD, the largest foreign investor in the country, has put more than $5 billion into the North over the last decade, according to the bank's deputy head for Russia, Jonathan Harfield. He said the EBRD plans to invest at least $250 million more in the North this year.

Harfield said that to achieve self-sustainability the North should not rely on raw materials alone and that more investments should be made in manufacturing.

But most of the money the EBRD plans to invest in the North this year is in oil extraction, not manufacturing.

One reason manufacturing in the North is not an attractive investment is that production costs are 20 percent to 30 percent higher than elsewhere in Russia — a fact that leads the government to doubt the economic viability of such projects.

"We are concerned about the effectiveness of these kinds of investments," Bayov said.

"Exactly, this is the key question," said Seppo Remes, vice president of Finnish energy giant Fortum's operations in the Commonwealth of Independent States and founder of the European Business Club.

"Russia has just 10 years of experience — that is the problem," Remes said.