Publication: Prism Volume: 2 Issue: 18

Yakutia: Autonomy and Diamonds

By Aleksandr Kasimov

The Republic of Sakha is the largest subject of the Russian Federationin terms of land area. It takes up more than 3,100,000 squarekilometers. It has a population of a little over one million.

The climate here is the most severe, not only in Russia, but inthe entire Northern Hemisphere, and incidentally, is much milderon the Arctic coast, where the average temperature is a balmy-20 Celsius (and reaches +4 in July). Further inland, the averagetemperature in January is -40, and often reaches -50, althoughit gets as warm as +18 in July. In Verkhoyansk, the coldest placein the Northern Hemisphere, the lowest recorded temperature is-64.

Ninety-nine percent of all Russia’s diamonds, 100 percent of itsantimony, half of its tin, and one-third of its gold are minedin this republic. Rich deposits of gold (according to geologists’estimates, the largest in Russia) and coal are found on its territory.The latter are so large that they could theoretically supply theneeds of the entire Far East. There are also oil and gas deposits.According to geologists’ estimates, deposits of all the knownprecious stones can be found here. The republic supplies abouta quarter of Russia’s valuable furs.

The main form of transportation here is by water, and after it,in descending order–by road and air. At the time the Baikal-AmurMainline was built, a branch line was laid down to Neryungri (thesouthernmost city in the republic), but that’s still 1,000 kilometersfrom Yakutsk.

Among the northernmost subjects of the Federation, Yakutia isdistinguished by its well-developed (by northern standards, ofcourse) agriculture–in Soviet times, a huge amount of money wasput into this. Not simply the traditional occupations of the northernpeoples–reindeer herding, but normal animal husbandry, and evengrowing plants (predominantly in the southern districts).

First Impressions

Yakutsk is located in the permafrost, which gives it a uniqueappearance. Apartment buildings are built on concrete piles (onlyin the center of the city are the buildings covered with decorativepanels). All the pipes and wires which are normally hidden undergroundare on the surface here — the city’s "guts" are outin the open for everyone to see, as the local population pungentlyputs it. Most of the cars here are insulated — the cracks betweenthe window glass and the frame are covered by insulation stripsor putty, and heaters are installed on the side windows — whichgives them a very unusual appearance. In this city, you can feelthat you are near the coldest place on earth, and even in Yakutskitself, the normal winter temperature is -40. And that makes thenumerous construction sites look all the more significant — itseems that the city is experiencing its "second birth."And if you look closer, you see that what is being built is, forthe most part, office buildings, prestigious structures, manyof which would do honor to Moscow. This year, a huge sports complex,with an open stadium, was built in the very center of the city;across from the government building, a new headquarters for theSakha Republic Committee on Precious Metals, Gems, and CurrencyResources is being built — it will include a world-class hotel(which already exists), a diamond exchange, and the Committee’sown offices. Most of this "prestigious" constructionis the work of foreign firms — Yugoslavs, Italians, Turks…

Politics as a Consequence of Economics

"Yakutia is a special case." This phrase can be heardfrom anyone who has heard anything about the region. But whatlies behind this formulation? First of all — money. There ispractically no politics here.

The gold-mining industry in Yakutia was started in 1923. Diamondsbegan to be mined in the 1960s. And both diamonds and preciousmetals were a sphere of special interest to the Soviet government.The gold and diamond mines were built according to a plan approvedin Moscow; this plan also stipulated the amount of gold and diamondsto be extracted, and the extent to which it was fulfilled wasabsolutely unknown to Yakutia’s leadership. Understandably, withthe coming of more "civilized" times, the leadershipof Yakutia wanted, not so much to participate in the businessas at least to know how much the republic got for the preciousstones and metals extracted on its territory. But this informationwas concealed, even from the leadership of the Yakutia oblastcommittee of the CPSU. Zoya Kornilova, now the State Duma deputyfrom Yakutia, calculated in 1989 that Yakutia received back fromthe center only four percent of the cost of the diamonds sentto Moscow. Granted, there are good reasons to doubt this figure:after all, this four percent was enough to build up all of therepublic’s industry and infrastructure, which the 20 percent therepublic officially has now is not enough to maintain.

According to some estimates, at the end of the 1980s, the YakutiaASSR brought $4 billion into the Soviet treasury every year (although,to be just, it must be noted that the average amount of diamondsextracted in Yakutia per year would command no more than $1.5billion at world prices).

The question of what the republic lost, and what it gained, fromdiamond and gold mining is very complicated, confusing, and wouldbe strictly "academic," were it not for the fact thatit remains the cornerstone, both of relations between Yakutiaand the center, and of internal economic policy. Yakutia’s leadership,for example, in saying that the republic is for strengtheningthe federation, constantly makes the argument that Yakutia nevereven raised the question of compensation for the many years ofextraction of diamonds and gold on its territory (thus, implicitlyarguing that the question can be posed in this way).

At the same time, there is the traditional lack of understandingbetween the two main groups of the population — "natives"(the Yakuts, for the most part) and the "newcomers."Native inhabitants were not offered "northern incentives."These were offered to persons who came to Yakutia from outside.Now, when these incentives no longer exist, and the diamond moneyis used to support the republic as a whole, many think that thelocal population has taken for itself the fruits of other people’slabor. The "locals," on the other hand, accuse the "newcomers"of caring for nothing but rubles and being unconcerned about therepublic.

As a rule, the northern peoples never tried to participate inthe exploitation of their territory’s natural wealth, and withthe coming of glasnost, simply demanded compensation forthe damage done to the environment.

The perception that the republic is being "plundered,"is becoming widespread, which is not surprising. Over the last30 years, according to the estimates of sociologists, about 4million people have come and gone from the republic — about fourtimes more than its total population. An enormous number of peoplewho have come here to earn money have made themselves prosperousby average Russian standards (it must be remembered that duringSoviet times, that salaries in Yakutia were four times what theywere in a "normal" region and that people who left forYakutia were paid nice bonuses). Thirty years of diamond miningand seventy years of gold mining have sharply worsened the ecologicalsituation here — both by the contamination of the water tablewith thallium salts, high in kimberlites and mercury, both ofwhich are used in gold mining, and by the consequences of 12 undergroundnuclear explosions, conducted for production purposes (duringthe Kraton-3 explosion, there was an accidental radiation leak.)

On September 27, 1990, the Supreme Soviet of the Yakutia ASSRadopted a Declaration of Sovereignty. In the beginning of August1991, the Presidium of the Supreme Soviet of Yakutia declaredall the enterprises in the republic to be its property. At thattime, the supply of diamonds and gold to the Ministry of Financeand Goskhran was stopped. All this was part of the struggleof the national regions against the center, a struggle which,to a significant degree, Boris Yeltsin relied on in his strugglefor power…

Some Remarks on the Role of the Individual in History

Mikhail Nikolaev, the president of Yakutia, was one of the firstto support Boris Yeltsin in his fight against the center. Andhe had a reason to support him. He could anticipate the big moneythat would come from the redistribution of state property. (Onemust remember that at the time, the autonomous republics werecounting on receiving union republic status and the union republicswere fighting for economic self-sufficiency.)

But that is only one side of the coin. In 1990, when Yeltsin,who was not yet president, was considered to be a fighter againstprivileges, he was greeted in Yakutia with special flair. Intuitively(or perhaps, not intuitively) Nikolaev found the right stringsto play to strike a responsive chord in Yeltsin’s heart, and whenthe time came to give out rewards, Yakutia was rewarded in fullmeasure. The diamond extraction industry immediately came underthe direct supervision of the Russian president, and not one primeminister has had access there, right up to the end of 1995.

In spite of the resistance of the Russian Committee on PreciousMetals and the "Rosalmazzoloto" corporation,which had a monopoly on the export of diamonds, the "AlmazyRossii-Sakha" joint stock corporation was created withthe majority of the shares in the hands of the republic and diamondmining industry and given the right to mine, classify, and selluncut diamonds.

In 1995, the company extracted $1.3 billion worth of diamonds,and shares first and second place in the world in the extractionof diamonds with the company "Debswana." Thecompany sells most of its gem-quality diamonds through the worldmonopoly De Beers. There are several other large structuresin the republic’s diamond complex, including the "Tuimaada-Diamond"corporation, which includes both the diamond-cutting plants alreadybuilt and new ones now under construction. In general, the republichas decided to support centralized financial-industrial structures.In June 1993, by a decree of the president of the Republic ofSakha (Yakutia), the "Sakhaalmazproinvest" financialcorporation was created, to "increase the republic’s financialpotential, and create effective mechanisms to solve socio-economicand ecological problems in the diamond-mining districts."

The Political-Economic Triangle

The Republic of Sakha’s political system looks like the kind ofpresidential republic typical in Russia today. The president isthe head of the republican government’s executive branch. Thevice-president is the republic’s prime minister.

The legislative organ — the bicameral State Legislative Assembly(Il Tumen) of the Republic of Sakha (Yakutia) — underthe president’s original plan, did not even have oversight functions.Later, after a great deal of effort, the deputies themselves wonthat right, and formed the Control Committee of the State Assembly.The upper house — the House of the Republic — is elected bysingle-mandate districts, "one from each ulus [raion]and city." This chamber is not always in session. The lowerhouse — the House of Representatives — which is elected fromterritorial districts "in a number equal to the deputiesof the House of the Republic," i.e., 21. It is permanentlyin session.

There is also a Constitutional Court of the Republic of Sakha.(Its activities were suspended by a presidential decree afterthe events of October 1993.)

The localities are governed by the representative organs of eachulus, city, town, or settlement. The local chiefs of administrationare also elected.

But the scheme described above is only a political "shell,"which obscures, rather than reflects, what is really going on.Neither the parliament nor the Constitutional Court have any realrights. Real power in the republic is exercised, not by politicalmethods at all, but mostly by economic means. A sort of "triangle"exists, which is made up of the president, the "AlmazyRossii-Sakha" company, and the Republic of Sakha’s Committeeon Precious Metals, Gems, and Currency Resources. The real distributionof authority and functions within this triangle is shrouded inmystery. It is necessary to point out here that the republic’svice president, Prime Minister Vyacheslav Shtyrov, is also thepresident of "Almazy Rossii-Sakha." The Committeeon Precious Metals occupies a clearly subordinate position inthe troika, but it is not known how "subordinate,"since the activities of this institution (most of all, its financialactivities) are almost completely concealed from the public.

The so-called "hard currency receipts" are the mostinteresting question. The Republic of Sakha’s budget in 1995 wasabout 7 trillion rubles. But this budget was made up of tax revenuesalone, plus about one trillion rubles of subsidies from the RussianFederation. The largest taxpayer, naturally, is "AlmazyRossii-Sakha." That company pays taxes from its own profits,though its activity is hardly exhausted by earning profit foritself, since the company is not completely private.

The republic’s hard currency reserves are made up of the proceedsfrom the sale of its diamonds and gold, and off-budget hard currencytransfers from the center. Article 70 of the Constitution of theRepublic of Sakha states that "the president of the republicis to guarantee the security of the diamond and hard currencyfunds, and the republic’s gold reserves," and "is incharge of the Presidential Fund." These two phrases makeup the entire basis in law for the republic’s hard currency, diamond,and gold funds.

Expenditures from the hard currency funds are the constant themeof claims made by deputies of the State Assembly. This fall, thepresident considered it necessary to "make an account"of his spending of this money before the deputies. The reportconsisted of assurances that everything was under strict presidentialcontrol, and that all the money was going to those who truly neededit.

The absence of any control whatsoever, however, gives rise toa mass of rumors. No concrete accusations have ever been madebut about half of the published collection of presidential decreesand orders consists of instructions to the Committee on PreciousMetals, Gems, and Currency Resources, to sell or transfer foreigncurrency. Each presidential trip is accompanied by lavish giftsfrom the Presidential Fund.

Nevertheless, observers note that in spite of the seeming concentrationof economic power in the hands of the president, things are actuallymuch more complicated. And that the president does not have allof the control levers over "Almazy Rossii-Sakha" inhis hands.

On "Budget Federalism"

From 1992 to 1994, the Republic of Sakha paid virtually no taxes.In 1992, the relationship between the federal and local budgetswas reexamined, and as a sort of "experiment," it wasdecided to stop "pumping money back and forth," andleave it in place and independently finance the federal programsin the republic. At that time, perhaps, Yakutia did not receivefederal subsidies. But when Boris Fedorov became minister of finance,the Ministry of Finance declared war on "non-taxpayers,"among which Yakutia was the undisputed leader. As a result ofthat long war, which has been continued by later finance ministers,the following scheme was worked out: the federal structures locatedon the republic’s territory would be financed by a portion ofthe federal funds left in the territory, and the rest of thatmoney would be transferred to the Ministry of Finance in the usualway, and would be transferred back to the republic again, in theusual way.

As paradoxical as it seems, in spite of the super-profits rakedin by "Almazy Rossii-Sakha," (which paid $700million in taxes to the republic in 1995, and in some experts’estimates, realized a 50 percent profit,) the republic’s economicsituation is worse than ever before. According to high-level governmentofficials, the diamond industry is the only one that is workingproperly; all the rest, including gold mining, are deteriorating.More than half of the republic’s internal financial transactionstoday are made up of loans made by one institution to another.

The Future

The future looks bleak. Critics of the present leadership canproduce a whole list of problems. The incumbant president, whocreated the present political-economic system, is accused of manysins, and the accusations are more serious than banal chargesof corruption. The very system in the republic gives rise to amultitude of questions.

Nikolaev has brought the personal, "smoke-filled room"character of his relations with Yeltsin down to the republicanlevel — the most important questions have long been decided herewithout the participation of the public. The system of distributingresources that he created will not stand up to criticism, andthere is not the slightest evidence of any desire to make it moreopen. Nikolaev still will not tolerate the creation of a moreor less well-developed representative branch of government, andthere is no hope that the present system provided for in the republic’sconstitution will evolve into one.

Nikolaev is also blamed for the excessive national orientationof Yakutia’s government. And although government officials denythat there is any so-called "Yakutization," they recognizethat there have been certain "exaggerations," whichare now being corrected, such as the fact that 69 percent of thegovernment in 1993 (according to the calculations of "nationally-oriented"scholar Ulyana Vinokurova) was made up of representatives of whatshe called "native peoples." One must keep in mind thatthe percentage of northern peoples (Evenks, Evens, Yukagirs, etc.)in the government is extremely low, and that therefore, almostall of this figure represents Yakuts, who make up 34 percent ofthe republic’s population.

And perhaps, the most important thing: there is virtually no positiveprogram for the republic’s development. There are no goals forthe development of society, and no strategic plan, other thanvague promises to increase the population’s prosperity and orientationtowards large state-run industries.

Objectively, at least, the republic is in a difficult position,from the point of view of development priorities. Understandably,the diamond industry will develop and bring in income, but thequestion which is occupying the minds of people from the centerwho have visited the republic recently is: how much income?

The publicist Uliana Vinogradova in 1994 suggested that Yakutiahold an international competition to find a new country insofaras Russia has used up its credit of trust with the Yakut peopleand in the early 1990’s, at a time when nationalist sentimentsin the region ran high, there were suggestions that Yakutia shouldbecome part of Japan, the U.S. or Korea. These sentiments havenow been largely forgotten as residents of Sakha, aware of theregion’s economic situation, realize that no foreign power islikely to be interested in annexing the territory.

Investment in the republic is also unlikely, even if you ignorethe political situation. There is not much oil there (in comparisonwith its neighbors), and it is understandable that investors wouldrather invest in Sakhalin, where there is much more oil and theconditions for extracting it are much more favorable. There isn’tmuch natural gas either, and although there are a number of countriesinterested (above all, South Korea) in Yakutian gas, this is alsoquite problematic. Hardly anybody in the world needs the republic’srich coal deposits, especially when climate is taken into account.Uranium and rare-earth metals are all here, but without an infrastructure,and with that climate… It is understandable that when you looktowards the 21st century, with the impending exhaustion of naturalresources, this is priceless wealth, but what can be done now?

According to purely formal indicators, Yakutia can be put in the"at-risk group" for separatist potential, if the Russianstate weakens further. A few years ago, the question of Yakutia’sreorientation towards the states of the Asia-Pacific region wasseriously discussed in the republic’s press. But now, it has becomeclear that there is no point even in talking about separation.And several factors play a defining role here.

The main factor, again, is money. The enormous financial resourcescirculating through the republic will only remain if Yakutia stayspart of Russia. If Chechnya, while formally breaking relationswith Moscow, can continue to pump out money, Yakutia has no suchpossibility. If Yakutia had to live off the income from its diamonds,it wouldn’t have enough even to support life there. That is oneof the paradoxes of the north — only if a northern territoryis part of a large and wealthy state is it possible to exploitits natural wealth profitably. But that’s not the point. Thereare even simpler calculations: the monthly salary fund in theRepublic of Sakha is equal to the annual budget of the neighboringrepublic of Buryatia (due to northern bonuses, high prices, and,correspondingly, high wages). And a huge number of people, bothin Moscow and Yakutsk, are fed by that stream of money. Well-knownRussian banks have been working in the republic for a long time– the leaders here are Inkombank and Tokobank. It is rumoredthat the enormous sums of Yakutian money are being diverted throughMoscow, which brings serious profits to Moscow structures (afterall, the ruble is worth more in Moscow than it is in Yakutsk).

Moreover, in recent times, the values of the native populationare perceptibly changing. Losing their connection with their traditionalculture and becoming urbanized, they are beginning to adopt theway of thinking of "newcomers" who came to Yakutia tomake money, and dream of moving on "to more decent places."After making decent money, a person will move to Moscow or somewhereelse, and this is in spite of the fact that Yakuts, until recently,were known for their unusual devotion to their homeland.

Or events may follow a scenario which has long ago been in effectin the neighboring territories. In the Magadan oblast, for example,half the able-bodied population in the last few years has leftthe region…

Translated by Mark Eckert