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Session: State Capitol, Room 111 Juneau, AK 99801-1182 Phone: (907) 465-4993 Fax: (907) 465-3872 Send E-Mail Interim: 716 W 4th, Suite 500 Anchorage, AK 99501-2133 Phone: (907) 269-0200 Fax: (907) 269-0204 |
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Senator Drue Pearce on November 15th during the 3rd Annual Sakhalin
Oil and Gas Conference |
On behalf of the legislature and the people of the State of Alaska, I would like to offer greetings to all the participants of this conference, most especially, to Governor Igor Farkhutdinov; Mrs. Galina Pavlova; and our other Russian friends here today.
I would personally like to thank Charlotte Hunt and Suzanne Jacob, of the IBC Global Conferences staff, for their professional support in assisting me with this presentation.
Sakhalin Oblast Duma Chairman, Boris N. Tretyak has granted me the honor of speaking on his behalf to this august gathering of Russian government and business officials and members of the international oil and gas industry attending this conference.
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Allow me to greet you on behalf of Sakhalin Oblast Duma at the Sakhalin Oil and Gas conference. When mankind enters the new millennium, international economical cooperation becomes very important. It is especially important for Sakhalin - the unique region with beautiful nature and vast natural resources. It is only thanks to joint efforts of Soviet (at that time) and Japanese geologists the large deposits of oil and gas were discovered on Sakhalin shelf. When interest in Sakhalin shelf turned into practical work we all found that there were no laws in place that would regulate the rights of companies, government and people and would guarantee mutual benefits for all project participants. We had to spend several years working extensively with the Federal Duma and the Government of the Russian Federation, the Oblast Duma to adopt the laws that would allow companies to produce oil, and would allow the government and the region administration to receive payments for natural resources. The most important thing that development brought was that our people received new, highly paid jobs. We were not alone doing this very responsible work. Alaska State Legislators became our reliable friends. They have invaluable experience in building relationships with federal authorities, oil companies, and local governments, in order to create favorable environment for business. All this experience is reflected in Alaska State laws. Many of the Alaska State Legislators who were developing these laws 10 - 15 years ago still have trust and support of the voters. We, the Sakhalin Oblast Duma and the Alaska State Legislature are united by the Agreement of Cooperation which we have signed in April of 1996. This is not just a formal document. This is a document that is really needed for our regions that are so similar. We have large territories and small population; we are equally distant from the capitals of our countries, and we are not always understood there. We have equally harsh climates and equally rich natural resources. Thanks to our friends from Alaska we have learned not only about their success but about their problems and mistakes, which were so expensive to correct. We have a unique opportunity to avoid these mistakes in our work. It is very important that our relations give confidence to both, Sakhalin and Alaska businesses, that legislatures of both regions support their activity. Respectable ladies and gentlemen! The very fact that I asked Drue Pearce, the President of Alaska Senate to read these words of welcome to you, confirms what I said earlier. I was planning to participate in this conference in person, but unfortunately my schedule and earlier engagements forced me to cancel my trip. From the bottom of my heart I wish you a successful Conference. I will be ready to meet in person with every one of you who is interested in Sakhalin region.
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Chairman Tretyak elegantly states the theme of my presentation in his introductory remarks. The story of Sakhalin's relationship with Alaska is a case of commonalties: common issues, common goals and common benefits. Twenty-five years of experience is all that separates us in our journey on the road that leads to the development of our oil and gas resources. Over those years Alaska has formed permanent ties with companies with a dedicated commitment to our state, like Arco, British Petroleum, Exxon, etc.
It is these relationships that Alaska has forged along this long road that will allow the people of Sakhalin to learn from our successes and avoid our mistakes as they find their own path.
As Chairman Tretyak identified in his letter, Sakhalin Island and Alaska share several common issues like geography, extreme weather conditions, indigenous populations and pre-existing industries that will be impacted by oil and gas development.
A quarter century ago, the discovery of a billion barrels of oil in Prudhoe Bay on Alaska's North Slope compelled the oil industry to push its technological limits to develop production facilities in the remote, arctic north. Oil companies operating in Alaska had to develop a new set of rules for operating in polar temperature and geographic extremes. Building pipelines, ice roads and other infrastructure in the dead of winter and waiting until the spring weather for the ice pack to recede in order to resume barging and shipping are just a few examples.
The discovery of a billion barrels of oil and 14 trillion cubic feet of natural gas off Sakhalin Island in the Russian Far East poses similar logistical problems. In addition, Sakhalin's production, unlike the majority of Alaska's, lies off the coast, buried in ice six months of the year.
Alaska and Sakhalin are also similar in that both regions are home to indigenous people who live thousands of miles from their respective countries population and production centers. Responsible development must factor in ways to benefit the infrastructures and economies of local communities. It also means that oil and gas development does not displace traditional and vital industries like commercial fishing.
But there is more to the similarities between Alaska and Sakhalin than the issues they face - partnering up with the oil industry means planning ahead and once again there is a commonality of goals for both regions. And in reaching these goals they must both rely on a positive plan of support from their respective national governments.
Sakhalin Island, like Alaska, must ensure that the developing oil and gas infrastructure and infusion of capital is spread to local communities as well. Local residents must be trained and assured that jobs are open to them.
In Alaska, developing local community infrastructures requires intelligent decision making to ensure an adequate income base through the use of royalties and corporate income taxes. This financial structuring in Alaska was secured through the wise promulgation of laws and regulations at the state and federal level.
The people of Sakhalin have realized as we in Alaska have realized that oil and gas are non-renewable resources. Plans must be made early on in the partnering with oil and gas producers for a day to come when those revenues are in decline. In Alaska, our government created the Permanent Fund - a savings account that is funded by oil revenues as a financial safety net to ensure that what the heavy infusion of oil and gas capital builds today will be sustained tomorrow. Simila legislation is proceeding in Sakhalin on the regional level.
A third commonality also exists between Alaska and Sakhalin. It is based on three Protocols, which commits our two regions to stay in contact, exchange official delegations and share relevant information.
This personal infrastructure between Alaska and Sakhalin began with the tireless efforts of four people I wish to recognize now.
Between 1992 and 1994, Ronda Thompson, who then served Alaska in the Governor's Office of International Trade, led seven trade missions to Sakhalin Island. Ronda's efforts were key in the formation of the Protocols in 1994. Governors Knowles of Alaska and Farkhutdinov have renewed the Protocol twice since then.
Another key figure was Tom Brooks. Tom was a former manager of Marathon Oil in Alaska and became Marathon's first Russian Manager in Sakhalin. Tom was instrumental in sending delegations of Sakhalin's government to Alaska to learn, first hand, about oil exploration and production in Alaska.
The third person in these crucial exchanges between our people is Dave Loran, a former engineer for Marathon in Alaska and current Sakhalin Region Manager for Sakhalin Energy Investment Company, Ltd. Dave came to Alaska to assist the Sakhalin government officials in their delegations to Alaska in the early 1990s.
The last person I wish to acknowledge is Alex Ponomarev. Alex is the translator who worked with all the delegations and who continues to work with Governor Farkhutdinov, the oil companies and government officials in both Sakhalin and Alaska.
Because of the efforts of these individuals, when the first Sakhalin Oblast Duma delegation visited Alaska in 1996, its members already possessed a vast degree of knowledge about the oil and gas industry in Alaska.
The focus of the Duma delegates visit was to understand the role of the state legislature in regulating and participating in the development of Alaska's oil and gas industry. They looked at everything from local hiring and oil royalty formulas to the creation of the Alaska Permanent Fund.
Capitalizing on common issues and goals and armed with Protocols committing our two unique regions to continuous dialogue and the exchange of delegations and information has led to concrete, common benefits for both Alaska and Sakhalin.
Alaska businesses like Arctic Camps, Lynden International, Natchiq and Veco to name but a few are having increased success in forming joint partnerships in developing the Sakhalin's oil fields.
The Sakhalin Alaska Working Group, through the State Department of Commerce, established in 1995, has proven to be a major force in projects like the Sakhalin Alaska College training Russian oilfield workers on Sakhalin projects. The Sakhalin Development Bank working with the Alaska Industry Development and Export Authority is working to develop funding for small and medium sized Russian businesses. Alaska and Sakhalin hospitals are teaming up to promote telemedicine on Sakhalin Island. The World Trade Center of Alaska has an ongoing commitment to lead small delegations to Sakhalin to find joint venture partners.
More than just businesses are teaming up. The Alaska State Legislature and the Sakhalin Oblast Duma maintain close communications with our joint businesses through the Majority Staff on International Trade Policy to identify and remove obstacles that might hinder business development between our two regions.
In closing, I have tried to emphasize the importance of Alaska's relationship with Sakhalin as a product of common interests, common goal and common causes. There is one more "commonality" that I need to mention because it pertains to continuing relations for both regions' common good.
In 1994, the Ad Hoc Working Group on U.S. West Coast - Russian Far East Economic Relations was formed. Under the auspices of the Business development committee of the U.S.-Russia Bilateral Commission, the Ad Hoc Working Group aims to create and develop proposals for joint cooperation in all sectors of industry.
The newly created Legislative Sector of the working group (of which I am the American co-chair) has, with its Russian counterparts, identified key issues which will require support and direction from the Russian Federal Government to attract foreign investment through legislation on the regional and federal level and to promote exchanges within the regional Dumas and west Coast Legislatures.
Your input on investment legislation, foreign economic zone and the newly proposed port authority project would be of tremendous assistance to us all as we strive to improve our economic climate.
I want to stress to all the conference attendees and the business and government institutions you represent to open up and maintain the lines of communication we have established on the local, regional and federal levels. As international investors and decision-makers, your input is extremely important to all of us.
Your successes will depend directly upon your willingness and ability to roll up your sleeves and delve into the personal, intricate aspects of working and living on Sakhalin. I hope you are up to the challenge.
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