The Russian Far East, located between the Pacific Ocean and East Siberia, contains a mixture of five oblasts, two okrugs, two krais, and one republic.
Each area has its own status within the Russian Federation, varying from ethnic autonomy and regional sovereignty to a form of colonialism.
Unfortunately, there are no analogies in the U.S. or Europe from which to compare these relationships. Worse yet, it is difficult for Western and Asian investors to understand the tangled relationships between local, regional, and federal administrations, creating unavoidable barriers to economic development.
There are basically four administrative units in the Russian Federation:
- Oblast. Roughly translated as "region," it is traditionally an administrative subdivision of the Russian Federation, fiscally linked to Moscow. The oblast typically holds very little control over its budget. There are oblasts and autonomous oblasts, both formed with regard to each region`s economic characteristics.
Autonomous oblasts are based on the special ethnic character of the area. The Yevreyskaya Autonomous Oblast, for example, situated within the Khabarovsky Krai, includes a high Jewish population. There are 49 oblasts in Russia.
- Okrug. This is a subordinate district of the oblast that provides an additional administrative tier between the oblast center and the local government. This level of administration facilitates policy implementation by transferring executive power to a local level. There are 10 okrugs in Russia.
- Krai. Roughly translated as "territory," a krai (pronounced "cry") is also an administrative subdivision of the Russian Federation, similar to an oblast with minimal economic independence from Moscow. These remote territories, however, are sparsely populated with little infrastructure. Some krais also contain ethnic subdivisions. There are six krais in Russia.
- Republic. A self-governing area with much greater control over its affairs than either oblasts or krais. Thus, unlike oblasts and krais, republics control their own budgets and are not obligated to turn over the majority of tax revenues to the Ministry of Finance (Moscow). There are 21 republics in Russia.
Prior to the 1990s, the Russian Far East totally depended on Moscow for economic subsidies, resource management, industrial development, and interregional trading ties.
Today, these ties are disintegrating, partly due to Moscow`s inability to provide economic subsidies, partly because President Yeltsin favors some decentralization, and partly because the regional governors, elected into office, are using the political machine of the State Duma (lower house) and Federation Council (upper house) to bring about change.1
A prime example includes Governor Eduard Rossel`s move in 1993 to create a Ural Republic, hoping to consolidate Tyumen oil, Sverdlovsk industry, and Kurgan agriculture into a single administrative unit.2 Although this move failed, it eventually led to the first Russian gubernatorial elections, held in Sverdlosk in August 1995.
Almost as important, Rossel successfully removed the oblast from the Ministry of Finance`s "highest donor" list, a treaty that allows Moscow to drain close to 75% of a region`s tax revenue raised on the territory, which is then reallocated elsewhere.2 Through political maneuvering, Rossel reduced Sverdlovsk`s tax burden to roughly 25%.
Additionally, in 1990, Tatarstan with its tremendous oil reserves and non-Russian population, became the first of the autonomous republics to adopt a declaration of sovereignty. Through a form of renegotiated integration, however, Russia in 1992 enticed Tatarstan back into the federation by offering state sovereignty and its own republican constitution.
In contrast, the Chechenskaya Republic (Chechnya), through armed resistance, severed its political and economic links with Moscow, in effect exiting the federation despite Russia`s lingering claim.
The growing power struggle between the regions and the Russian Federation continuously plays a hand in oil field deals. For example, in September 1997, the Nenetsky Autonomous Okrug annulled a tender Exxon Corp. won to develop the Khoreiver field in the Timan-Pechora basin (OGJ, Oct. 6, 1997, p. 37), despite Moscow`s approval.
Additionally, Governor Igor Pavlovich Farkhutdinov, of the Sakhalinskaya Oblast, strongly backed the Sakhalin-II consortium, which helped pave the way for the country`s first production sharing agreement and the first development of a Russian offshore field (see story, p. 44).
Fortunately, as the Russian Federation evolves from the command system to its own brand of democracy, the roles of federal, regional, and local governments will continuously change in the Russian Far East, possibly removing the destructive "captive" ties that impede economic development. By watching how the regional governments evolve, western oil companies may yet find the opportunities they are looking for.
- Chang, F.K., "The unraveling of Russia`s Far Eastern power," Orbis, Vol. 43, Issue 2, Spring 1999.
- Easter, G.M., "Redefining centre-regional relations in the Russian federation: Sverdlovsk oblast," Europe-Asia Studies, Vol. 49, Issue 4, June 1997, p. 617.