vlad.tribnet.com / Issue #166 / Business / Reading article...

A high-level expatriate oilman on Sakhalin recently told me that he can't understand why his project is meeting so much bureaucratic resistence. "Sakhalin and Russia need this investment so badly," he said, implying that the government ought to give his company greater latitude.

His wish list is long but not new: every one of the oil companies on Sakhalin would like exceptional treatment from customs, certification agencies, tax authorities, and government officials. And they have a point. Their projects are new to the island, and they all involve complicated financing and the importation of state-of-the-art technology.

Just to obtain Russian certification for an offshore drilling platform may take months and cost millions of dollars. The platform's internal technical documentation may not meet the needs of the inspecting agency, and in any case, thousands of pages may need to be translated.

If certification were the only bureaucratic hurdle, the problem might be manageable. But according to my acquaintance, the barriers are much more wide-ranging and multi-layered. There seem to be different interpretations of applicable regulations at every level of the government. And it is not always clear whether local or federal authorities have jurisdiction.

Are the costs of these barriers enough to ruin the economics of an oil project? Even if the Russian government agreed, could it compel its bureaucracies to loosen the reigns?

One problem is that many of the civil servants who could help overcome these barriers are bureaucrats who make very little money. Many local officials, and most of the general population of Sakhalin, for that matter, believe that their lives are not going to improve as a result of the impending oil projects -- at least not in the near future. Many people I have spoken to believe that the income generated by these projects will not be used by their government in a responsible way. The point is that while society as a whole may have a reason to want these oil projects to succeed, the average bureacrat probably doesn't have the incentive to do any creative problem solving just because "Russia needs the investment."

This argument is only part of the story, though. In my experience, there are a good many responsible people working in official capacities in the region. It is true that many of them struggle to eek out a living. Many undoubtedly resent foreign investors.

But there is a reason for the jobs these officials perform. Certification agencies are essential in a developing economy, where entrepreneurs have an incentive to hock everything from fake watches to dangerously undermaintained second-hand industrial equipment. The public health inspectors who check the oil platforms have a serious job to perform. The workers who will run these platforms have a right to know that they will not be exposed to dangerous doses of radiation or poisonous fumes, for example.

There are fair arguments on both sides, but I have too often heard the argument that Russians need to learn how to do business the foreign way. Foreign businesses must make a more active effort to understand the Russian way, too.