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. Last Updated: 07/27/2016

Sakhalin Restricts Foreigners

NOGLIKI, Sakhalin Island -- As of last month, all foreigners and Russians from "the mainland" need written permits from both the police and border guards if they want to travel outside of Sakhalin's capital, Yuzhno-Sakhalinsk.

The restrictions were adopted, government officials say, to cut down on gangster activities surrounding the illegal export to Japan of about $1.3 billion worth of crab and seafood fished every year from waters around Sakhalin. The rules apply to border townships, essentially all of the island just north of Japan.

But the new permit system is shaping up as a clash between Russia's traditional love for controls and the demands of a free market.

Over the next decade, oil companies are expected to invest $21 billion here. By late May, thousands of construction workers are to fan out across the island, building bridges, repairing roads and paving airstrips.

"We had people detained getting off the train in Nogliki because they didn't have the permits," said Jurgen Janzen, an operations manager for Sakhalin Energy Investment Company Ltd., a multinational consortium that runs Russia's first offshore oil production platform near this city, a 14-hour train ride from the island's capital.

In June, the consortium, led by Shell Petroleum NV, is to decide on a $9 billion oil and gas investment. The investment would employ 13,000 construction workers building pipelines, platforms, and oil and gas terminals. If a foreign engineer wanted to drive to the coast to check on construction at his company's $2 billion liquefied natural gas plant, the company would have to apply for the two permits -- a three-day process. "We have had to hire people just to work on permits," said Julian Barnes, Sakhalin Energy's external affairs manager.

In coming weeks, signs are to go up marking city limits and areas where outsiders will need permits for travel outside of the capital.

This may pose a problem for the ExxonMobil Corp., leader of the other large energy consortium here. With a plan to invest $12 billion in Sakhalin over the next decade, ExxonMobil is building housing for upper-level income workers -- just outside the city limits. "Under the new rules, our engineers will need a propusk to go home after work," said Michael Allen, an American who works as Exxon's liaison with the regional government.

Sakhalin Governor Igor Farkhutdinov signed the permit decree in March. In an interview, he said he was simply carrying out legislation. "We worked out a proposal how to speed up these facilities," he said, referring to internal travel permits. "We are discussing these issues with the companies, and we hope these issues will be resolved."

But foreign businessmen interviewed here said they had seen no new flexibility. "A lot of expats are only getting three-month, single-entry visas," said Jeff Valkar, director of the American Business Center of Yuzhno-Sakhalinsk, an American-government funded program to promote foreign investment here. "The message that foreigners get here is, 'They don't want me to come because they won't give me a visa, because they won't give me a work permit, because they won't give me an internal pass.'"

With visa rules constantly changing, it is common to call an office here and find that the foreign manager has flown to Japan or South Korea on a forced visa renewal trip. "Can't talk!" Shaun Going, a Canadian contractor, blurted into his cellphone one recent Monday morning. "I just found out my visa expired tomorrow. I'm trying to get on the plane to Seoul."

While Sakhalin legislators have lobbied Moscow for years to turn their island into a free economic zone, the bureaucratic gantlet, much of it imposed by Moscow, keeps investors away. The new laws could dampen interest in a mid-July conference on investment opportunities in Sakhalin that is intended to bring representatives of 400 U.S. companies here.

"The big companies can handle this, but the little ones just say forget it," said William Dinty Miller, executive vice president of BP Sakhalin, about the permit requirements. "I'll bet you I have spent a couple of thousand of dollars on traveling out of the country to renew my visas. Then they can't understand why there is so little foreign investment in this country."

Locally, the new rules are seen as a hangover from Sakhalin's repressive history. Anton Chekhov exposed harsh labor camp conditions in his book "The Island of Sakhalin." From 1945 until 1990, Sakhalin was closed to foreign visitors.

Behind today's new controls, many foreigners say, is the hand of the Federal Security Service, or FSB.

"The FSB has been bugging the Sakhincenter, and now it is information overload, they just can't process all the information," an American diplomat in the region contended, referring to the main office building here for foreign businesses. "So they are just more up front about it."

Foreign businessmen say the real problem is Russia's attitude.

"In China, they want to encourage business," said Valkar, whose offices are in the Sakhincenter. "In Russia, they want to control it."