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Cablegate: Gold, Gulag and Geography Define Magadan

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RR RUEHLN RUEHYG
DE RUEHVK #0008/01 0280620
ZNR UUUUU ZZH
R 280620Z JAN 08
FM AMCONSUL VLADIVOSTOK
TO RUEHC/SECSTATE WASHDC 0875
INFO RUCNCIS/CIS COLLECTIVE
RHMFIUU/DEPT OF ENERGY WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHVK/AMCONSUL VLADIVOSTOK 0946

UNCLAS SECTION 01 OF 02 VLADIVOSTOK 000008

SIPDIS

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E.O. 12958: N/A
TAGS: ECON ETRD PREL RS
SUBJECT: GOLD, GULAG AND GEOGRAPHY DEFINE MAGADAN

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1. (U) Summary: With a region half the size of Alaska and a
population of only 170,000, the Magadan region has big
challenges. First is finding enough skilled labor to exploit
the gold, silver and other mining riches of its vast territory.
The mines operate year round, even when temperatures hit minus
55 degrees Centigrade. Another challenge is finding ways to
diversify the economy. Tourism, fishing, and now oil and gas
are sectors that Magadan officials hope will provide more jobs
and opportunities. For now, gold is the key industry.
Interestingly, at a refinery outside of Magadan, high tech
equipment from the United States turns Russia's crown jewels
into gold bars for shipment to Russian banks. End Summary.

EMPLOYMENT

2. (U) Consul General and Foreign Commercial Service Assistant
met with Magadan Oblast Governor Nikolay Nikolayevich Dudov and
other leading officials January 21 - January 24. The closer to
federal money, the more optimistic officials were about
Magadan's prospects. Officials reliant on local revenues were
much more cautious about Magadan's prospects, with one official
saying the region is "still in the Stone Age." All officials
agree that success in part rests on bringing Russians back and
other workers in to improve the employment pool. The city has
made some infrastructure improvements, including building new
indoor hockey and soccer facilities, and a new ski base is being
constructed. One hundred percent of the quota allowed for
foreigner workers is used every year, but as with all quotas in
the Far East, the numbers are determined as much by political
considerations as by the needs of employers. Also hampering
employment is the fact that pensioners comprise forty percent of
the population. The Center for Civic Initiatives, formerly the
American Resource Center, does promote business and youth
programs to keep young people in the region, and has micro
credit available for small businesses. But even University
officials admit that the region has to do a better job tailoring
educational programs to available jobs.

GOLD

3. (U) This year gold mining numbers fell somewhat, but Magadan
still has investments in gold in the billions and some of the
most lucrative mines in the world, excavating tons of gold every
year. Magadan's Polymetal, for example, is the world's number
three gold producer. American equipment is used in the
extraction and refinery processing, with the high tech refining
done almost exclusively with American equipment, from the ovens
that melt the gold to be poured into bricks worth over $300,000,
to the analyzers that measure the gold's purity. Heavy
equipment from Caterpillar is also used, but local businessmen
complained bitterly that Caterpillar's "fifth generation"
technology is too complicated and computerized and even more
importantly is twenty percent more expensive than Komatsu.
Mining officials like to split their fleet of heavy equipment
between American and Japanese providers, to avoid letting either
one have a monopoly, but Caterpillar is in danger of losing the
market according to our contacts. The mines operate year round,
with workers filling shifts with 15 days on at the gold mine,
and 15 days off in Magadan. Despite the cold temperatures, we
were told that the "people are tougher than equipment" and they
tend to keep working, even when the equipment is breaking down.
Workers at the gold and silver refinery are allowed to retire
early because of the health dangers of working with the heavy
metals and they are given special allowances.

OIL AND GAS, RAILROADS AND TUNNELS

4. (U) Magadan has also been talked about as the future
headquarters of international oil and gas companies, if drilling
off the coast in the Sea of Okhotsk yields expected results.
Another big ticket project is finally linking Magadan with the
outside world by rail. Magadan is linked to Yakutia by road,
the so called "road of bones" built by GULAG prisoners, but
there is no rail link yet. That ambitious project may also be
fulfilled as part of the Russian Far East development plan. The
city is supplied through the port, which operates year round
thanks to ice breakers. Even more ambitious is the idea that
Russia's mineral riches could be sent to North American markets
via a tunnel from the Far East to Alaska. Officials put that in
the category of a plan for their "grandchildren and great
grandchildren."

ALASKA LINKS

5. (U) Alaska has business, cultural and educational links with
Magadan, most of which are much less active than during the
heydays of the 1990's, but delegations continue to go back and
forth despite the logistical challenges. In the 90's there were
flights from Anchorage to Kamchatka and Magadan. The
international airport is ready to handle all types of aircraft,
but for now the revitalization of air links between the U.S. and

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RFE does not include a stop in Magadan, although American
charters and the occasional Cessna do land at the airport.
With Anchorage only a couple of hours away by plane, it is
difficult for travelers to make arrangements to visit their
neighbor, since it inevitably involves complicated itineraries
through Vladivostok or Khabarovsk, Seoul, and Seattle.

CITY ISSUES

6. (U) For the city, the number one challenge is housing. City
officials are also frustrated by the lack of a decent hotel and
requested information on American hoteliers. Officials also
expressed interest in the FCS client "Snow Dragon" since they
said their snow removal equipment is totally inadequate for the
sub arctic region. The city also sees a small role for tourism
based on its grim history as the last link in the GULAG chain.
The two million dollar "Mask of Sorrows" sits on a hill
overlooking the city and a fine museum features artifacts from
the GULAG days, including stories written by using knots in
string when pen and paper were forbidden or unavailable. City
officials say tourists visit Alcatraz, why not Magadan?

PORT AND SPECIAL ECONOMIC ZONE

7. (U) Magadan has a special economic zone with taxes charged
on profits only and no import tax. The zone is open to all who
register. The port is privately operated. Port officials
believe a line to the United States would be successful, given
the American goods that make their way to Magadan via Pusan and
Vladivostok. As with the air links, there were shipping
companies operating directly from the U.S. to Magadan in the
1990's.

NO KLONDIKE

8. (U) Comment: Magadan's isolation presents real challenges,
but the riches of the Kolyma region will continue to be tapped,
hopefully with continuing involvement of American firms
experienced in the mining sectors. Magadan residents have warm
feelings for Americans, especially their Alaskan neighbors, and
the number of people who have been to the U.S., under SABIT
programs, exchange programs, and even as tourists is surprising.
If one looks at the economic prospects in the long term, they
are relatively bright. Certainly better than the late 1990's
when Alaska was sending much needed humanitarian aid. But as
one official put it: "There will be no Klondike in the next five
years." Just steady hard work, something the people of Magadan
are very familiar with.
ARMBRUSTER

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