Gigantic Project Gets Underway: Can Moribund Hokkaido Enterprises be Revived?

|Russia

Hokkaido enterprises poised at the starting line

It has been about a year since I contributed an article to ERINA’s opinion corner, which had become more a place to lament the reality of provincial cities and industries than a forum for writing about Russia. However, the flavor of this article is different.

On 30th January, the morning edition of the Hokkaido Shimbun Press reported that Nishimura Gumi, Inc. of Yubetsu-cho, in the north of Hokkaido, would enter the Sakhalin II project, which is one of the oil and natural gas development projects in northeastern Sakhalin that is being conducted by Sakhalin Energy Investment. The shareholders of the company are Royal Dutch Shell (55%), Mitsui & Co., Ltd. (25%) and Mitsubishi Corporation (20%), and Prime Minister Koizumi highlighted the project as an example of Japanese investment in Russia when he visited the country.

Following the conclusion of the production sharing agreement in 1994, the first oil shipment from Sakhalin II took place in 1997 and commercial production of crude oil is conducted during the summer months. However, construction work on the natural gas project was suspended for about a year, due to problems such as the difference of opinions between enterprises and the Russian government regarding the ownership of the pipeline and the fact that the end users have still not been decided. Nevertheless, there was a sudden spurt of activity at the beginning of this year. In Russia, since last year, people have spoken plausibly of the likelihood that the project would progress after Prime Minister Koizumi’s visit to Russia, and this has turned out to be the truth. In addition, according to certain news reports, there is hope for contracts with major Japanese users, including Tokyo Gas and Chubu Electric Power, and this seems to have been a trigger for the renewed activity.

Making use of one’s strong points in playing the game

The project in which Nishimura Gumi is participating is dredging work, the expense of which is being borne by Sakhalin Energy Investment. The dredging is taking place at Kholmsk (formerly Maoka) fishing port. It is not that large a job compared with the average harbor construction project in Hokkaido, costing about 900 million yen in total over three months and employing 60 workers.

However, in addition to expected total investment in excess of one trillion yen for the Sakhalin II project alone, if Sakhalin I and the subsequent Sakhalin III, IV and V are included, it could be a multi-trillion yen project. About five times this amount of construction work is needed at Kholmsk commercial port, which is adjacent to the fishing port where the current project is taking place. This project has great significance as a dry run for that.

Nishimura Gumi, the head office of which is in Yubetsu-cho, which has a population of 5,500, is one of Hokkaido’s main port and harbor construction companies and has a solid reputation for technological strength and foresight. With regard to this contract as well, there has been much praise to the effect that only this company could have managed to secure it.

According to newspaper reports, one of the reasons why Penta-Ocean Construction subcontracted the work out to a company in Hokkaido is the fact that it would have “experience of working in cold climates”. Some small-scale dredging work was done at Kholmsk port around the same time last year and apparently the company from Japan’s main island that participated in this had a hard time because of the cold weather and different equipment used. I would like to express my respect for Nishimura Gumi, which won the contract due to its superiority and PR activities targeting major construction companies. I have heard that some company insiders had reservations about undertaking work in the unfamiliar territory of Russia. Through the Hokkaido Business Center, which we have established in Sakhalin oblast, we would like to do our best to support this step forward.

There is invariably a ripple effect when one company makes a move. In addition to directly related enterprises, such as those involving tugboats and fuel, companies providing such services as translation, interpreting and labor procurement have already appeared. Above all, it would be wonderful if this became an opportunity for other companies to look once more at what they can do in the future.

The advantages of Hokkaido companies

Although an ability to work in and equipment suited to cold climates are a matter of course for Hokkaido companies, their experience is crucial to this project. Hokkaido certainly has an edge when it comes to such aspects as freezing work conditions, dealing with the thaw season and controlling equipment and materials, particularly heat sources, in cold climates. These are the things that have plagued enterprises in and residents of Hokkaido. I would like to think that the time has now come to make use of their experiences of overcoming these difficulties.

Furthermore, I have recently heard from a businessperson that not only companies in Hokkaido, but also those throughout Japan have an advantage. Apparently, it is not so much that Shell and Exxon are annoyed by the complications involved in approval and licensing in Russia as unable to understand them. Japanese companies are the only ones in the world that can patiently deal with such problems, because they unquestioningly handle complicated domestic authorization procedures on a daily basis. This, apparently, is the edge that Japanese companies have.

Of course, Hokkaido companies have many handicaps, including a lack of overseas business experience, price competitiveness and language issues. However, not only heavy snow and cold climates, but also the adverse effects of bureaucracy could afford them a competitive edge. One never knows what will turn out to be fortunate. Moving forward while viewing everything in a positive light may well open up the way ahead. It may be wishful thinking, but I hope that this is the case.

[Translated by ERINA]