TOP INTERVIEWS Interview with Mr. ANATOLY ALEXEEVICH KHOLODIN Vice-Governor, Oil and Gas & Construction Administration of the Sakhalin Region   Yuzhno-Sakhalinsk, August 1, 2002 Read our exclusive Interview in Russian Sakhalin-1 and Sakhalin-2 projects are going ahead. Sakhalin-5 is just getting started, and so is Sakhalin-6. Do you think that this is a critical phase in the development of Sakhalin? Yes, it is a critical phase, because we are starting pilot projects that use the Production Sharing Agreement (PSA). This pilot project phase is causing other companies to work harder and to participate in other projects, and recently we have issued three more licenses for the Sakhalin shelf oil and gas fields. The Petrosakh company is starting the geological research on the borders of Sakhalin-6 field, while Rosneft and BP have received a license for two blocks of Sakhalin-5, and the Russian company TNK-Sakhalin (branch of Tyumen Oil) received the license for a part of Sakhalin-4 and Sakhalin-5 structures. The shelf projects were started in the early nineties. yet a few of them are only starting now, 12 years later. Do you think that it is the PSA and the whole bureaucratic process that has slowed things down? On the contrary, the PSA has not slowed down project development, it helped project implementation to take place much sooner. I believe that if geological studies had been done earlier, then these projects would have developed faster. These are international projects, and their development depends on the economic situation in the world. We are located in the Southeast Asia - and the development of this region affects our development since we depend on their consumption for our oil and gas products. Now that the infrastructure base of Sakhalin is being built, do you believe that things will go faster for Sakhalin-5, Sakhalin-6 and other projects? The next projects will develop faster since a stronger infrastructure on the island will be developed, because the existing infrastructure is very weak. They can employ the pipelines and the transportation system that are being built for the first projects, and therefore, future project will also be much cheaper for investors. In an article published last year, Governor Farkutdinov said that the export of liquefied gas is the most realistic plan, and it is much more promising than construction of a pipeline. Do you agree? For Sakhalin region, LNG is a more profitable option. First, because Sakhalin will have a high-technology facility like the future LNG plant, which will represent a constant source of revenues for the region. We should also consider revenues for the sea ports which will be received when ships come in to transport LNG. We will be able to provide stable employment for highly qualified specialists. There is a concern that Russian federal government is trying to limit profits that go back to Sakhalin Region? What are you doing as a vice governor to ensure that Sakhalin region receives the profits it deserves? We should all follow the PSA. According to our agreements, the Sakhalin Region Administration should receive their share of profits as a party to the agreement. There is no reason to be pessimistic: the PSA is an official document which clearly defines the responsibilities of each party, and what we will receive our revenues as agreed. Certain members of the Russian Duma and other politicians who don't agree with the PSA laws, but that is not a reason to break the law. What has been your role to market gas to Asian countries? Marketing is a responsibility of project operators. Our responsibility is to provide political support for them, and we have been successful and we regularly meet with people who occupy very high positions. A year ago I went to the LNG-13 conference in Seoul and have been honored to meet with the President of Korea. We discussed the Korean interest in oil and gas products. One of the reasons we have good relations with Korea is that there are many Korean people who live on Sakhalin. They are a very active part of the population; hard-working, great businessmen. I have also met with Mr. Kim, the President of KoGas who was here recently. You are also responsible for the construction sector in Sakhalin. What are the investment opportunities in this area? The construction sector is inseparable from any other economics sectors. Whenever oil and gas, forestry, coal and mining, hotels and services sectors are developing - the construction sector is developing along with them, and right now it is intensely successful. A good example is the Sphera company, which provides construction services and uses their own capital to finance construction projects. Presently they are building a new hotel, and they have they built the Zima Highlands ("the American Village") and a remarkable residential building where employees of large foreign companies live. Another area which is being developed is the production and supply of construction materials, such as construction blocks, sand, forestry derivatives and production of the reinforced concrete factories, for example. The Sakhalin region can produce construction material which can be used locally and regionally, and we are working with the construction department of the region to improve the quality of construction as well. How has your experience as the General Manager of Sakhalinpromstroy, Arcstroy and Sakhalinstroy help you in your position as Vice-Governor? The professionalism and economical knowledge that I obtained from working in those companies has been very helpful in my work. I had to communicate with numerous representatives of foreign companies, and we have been sending our employees to the United States and Japan for education. I have been lucky to go to the US for a month and a half, and during my business trip I visited more than a hundred companies. The oil and gas projects have been familiar to me since I was a student. I have a degree in hydraulic engineering, and in the "Sakhalinstroy" company, together with Mr. Belozerski, I participated in the Technical and Economical Feasibility study for Sakhalin's shelf projects when they were a part of the Soviet Union shelf development plan. In May 1997 you were appointed Vice Governor - how have the last 5 years been? Last year the approval of the Sakhalin-2 project was completed, which brought a great deal of satisfaction since it clearly indicated that these projects were really materializing. As we start working on the projects, we also start to see improvements in the infrastructure of Sakhalin. We may want more, but there are limitations. According to the PSA, it is required that project operators be responsible to implement certain infrastructure improvements. Although we thought about increasing this requirement, so far the system has worked; foreign companies are fulfilling their obligations very well and they have created the minimum infrastructure that is required for the projects, as we had planned initially. What would be your final message to investors interested in doing business in Sakhalin? Investors can feel very comfortable here, and I can assure them that they will have the support of the regional administration. We have, and will, always follow the principle of mutual interests. Note: WINNE cannot be held responsible for the content of unedited transcriptions.