Quotes of the Day
The last stop on the railway running north from Moscow is Labytnangi, a small town just inside the Arctic Circle. The most reliable way to plow north from there across the great white emptiness is on a Russian-made TM-130 all-terrain vehicle, which drives on tank treads. "Just look around," yelled Vladimir Krivenko, a local railway boss riding shotgun on a recent icy afternoon as he ventured out to inspect work on rail tracks along the frozen tundra."Riches as far as the eye can see. Oil, gas, minerals. We've got the whole periodic table of elements in this ground."
To the untrained eye, the expanse of snow and ice that stretches to the horizon can seem like some prehistoric dreamscape. Its only inhabitants are nomadic deer herders, who still worship pagan gods, and whose flocks are terrorized by a species of giant weasel called a wolverine. But under the permafrost, this frozen tundra remains Russia's land of milk and honey, the source of much of its enormous wealth. The natural gas reserves in Russia's Arctic region, at the current levels of price and consumption, would generate enough fuel to feed Europe for around 75 years, with a total value of almost $17 trillion. More immediately, it will be tapped to foot the bill of campaign promises from the recent presidential race.
In the months before his reelection on March 4, President-elect Vladimir Putin made campaign promises worth more than $170 billion in social spending, according to Russia's biggest state-run lender, Sberbank. He promised to double the wages of doctors, policeman and college professors, triple stipends for many students, and boost the program of "maternal capital" that pays mothers to have more children. (This last provision was to help solve Russia's demographic crisis, which has seen the population drop by 5 million people since the fall of the Soviet Union.) Putin also promised to "completely re-arm" the military at a projected cost of $777 billion over the next decade and to build new housing for veterans. Those promises may have helped shoe-horn Putin back into the Kremlin, but such payouts — some of which began early this year, when Putin was still Prime Minister — have pushed the federal budget into its first deficit in a decade.
On Thursday, March 22, Putin convened a meeting of his government to figure out how Moscow will pay for all this. "We have to ask ourselves on whose dime will we reach these goals, and where will we get these financial resources, which are far from small?" he urged. None of his ministers had a very good answer, and Putin made the vague suggestion that cash could be raised by "increasing the efficiency" of government spending. But it's hard to come up with $170 billion through nips and tucks in the federal budget, so the real answer to Putin's question seemed to come the following day, March 23, when he called a meeting of Russia's oil and gas industrialists.
"Today the proven gas reserves in Russia are the biggest in the world," he reminded them. "Nobody has more than Russia." More than a quarter of Europe's gas comes from Russian fields, and after last year's nuclear disaster in Fukushima, Russia's biggest energy clients, particularly Germany, are shifting away from atomic power to natural gas. That means demand will likely stay high. So, Putin's orders to his energy men: Step up your drilling, particularly in regions like the Yamal Peninsula, the great energy frontier of Russia's frozen north. "In essence," Putin said, "we will turn Yamal into the new oil and gas province of Russia."
Thus Krivenko's rail work inspection near the base of the Yamal Peninsula, whose name in the language of the local Nenets tribes means "the end of the earth." His team was equipped with two huge pots of salted fish, about ten bottles of vodka to help keep warm, and a few mp3 players filled with shanson, Russian rock's equivalent of gangster rap. On the train platform at the end of the line, the idle wagons were loaded with pipeline parts for Gazprom, the natural gas monopoly that serves as the government's cash cow. Tax payments from this one company account for a quarter of the federal budget.
Out in the tundra, Krivenko met up with the crew of workers who make sure that equipment reaches its destination. Using an old locomotive whose face has the blades of a giant meat grinder, they clear the tracks of snowdrifts that would otherwise render the line impassable. "Things have been busy up here," says one of the engineers, Sergei Buslovsky, 31, lighting a cigarette. "We are busy mining so that Moscow can spend." The remark had a tone of bitterness common in the north. Resource-rich regions like Yamal are not given much say in Russia's centralized economy, and nearly all the earnings from their oil and gas fields are channeled back to Moscow.
Still, a fair amount of those earnings are reinvested in the north, and the region's biggest city, Salekhard, is a gleaming monument to Russia's conquest of the Arctic. Nearly all of it has been built in the last 20 years, its buildings painted in bright colors to help treat the depression brought on by eight months of winter a year. Average wages in the region are around 70,000 rubles ($2,300) per month, more than four times the average in poorer parts of the country and not bad even by Moscow's standards. Putin's election results in this province, the Yamalo-Nenets Autonomous District, are therefore no surprise: He won with 85% of the vote, compared to 64% nationwide.
But Putin's gamble on the wealth of places like Yamal is still a risky one, because he has no way to hedge it. The global prices of oil and gas are outside of Russia's control, and if they fall — as they did during the 1990s — so do the pillars of the national economy. The day after the elections, the global rating agency Fitch warned of a possible downgrade if Putin does not abandon some of his campaign promises or find a reliable way to pay for them. Charles Seville, the Fitch director who issued the message, says projects like Yamal are not the solution. "It's not necessarily a bonanza for the government budget," he says by phone from London.
Just to break even in 2012, Moscow needs oil prices to stay at $117 per barrel, roughly the average this year for Russian Urals crude. But when Putin's campaign promises are factored in, the federal budget would need an oil price between $140 and $150 per barrel just to break even over the next six years, says Natalia Novikova, an economist for Citibank in Moscow. "If Putin wants to spend an extra 1.5 trillion rubles per year, he needs the oil price to go up by $30 per barrel," she says. Unless a war breaks out in the Gulf, the chances of that are slim, so it seems inevitable that Putin will have abandon at least some of his social payouts. "More likely, if the prices fall, then the promises won't be kept," says Nadezhda Ivanova, director the Sberbank research center that calculated their cost.
Russian officials, less than a month after the vote, have begun admitting as much. When TIME asked Arkady Dvorkovich, the Kremlin's chief economic adviser, how the President-elect plans to make good on his promises, he hinted that many of them were just vague enough to ignore. "[Putin laid out] no clear mechanisms, no clear rules and conditions for realizing some of these initiatives, so there is a certain amount of flexibility. We can spend more or we can spend less," Dvorkovich says.
But spending less than he promised raises Putin's political risks, particularly among the voters to whom he promised wage hikes and benefits. In the March election, for the first time, Putin failed to win half of the popular vote in Moscow, where tens of thousands of people have started protesting against his rule. Even in Yamal, that discontent is palpable.
Buslovsky, the young railway engineer, says seven out of the ten men on his team voted for a rival candidate, the nationalist Vladimir Zhirinovsky, while the other three didn't care enough to make a choice. "It's an objective fact that things have gotten better under Putin. Wages have gotten more stable. There is work. But I don't know. I'm just tired of him. How long can you look at the same face on TV?"
The conversation cuts off when Buslovsky's boss approaches. Adjusting the brown mink hat on his head, Krivenko signals for the crew to head back toward the all-terrain vehicles and climbs into the cockpit himself. Riding back, Krivenko explains the humble role his region plays in Putin's politics. "The machinery of the state has to work in harmony," he says. "We're all one team. We have the same mission." And with the bills stacking up, that mission, more than ever, is to suck the wealth out of the ground.
- Simon Shuster / Labytnangi, Russia