Sak it to 'em.

• Author: Jones, Patricia
• Position: Alaska's oil-and-gas project

Missed the first pipeline or need another oil-backed boom? Alaska businesses are rushing to Russia to develop the next Arctic oil-and-gas project. But ... be aware of the Russian Bear. This one's not going to be easy.

YUZHNO-SAKHALINSK, SAKHALIN ISLAND - Perhaps he was gawking at the brand new, uncommonly clean tour bus carting around visiting Alaskans, or maybe he was just in a hurry. Regardless of the reason, the Russian man driving a regular-sized sedan did not swerve around a deep pothole as he left the top regional government building in this Russian Far East capital city.

The car's left front wheel dropped into the hole and refused to climb out of the street's pit. The man sat for a few minutes before his frustration took hold. But he found nothing in the car's trunk to get the vehicle out of a pothole.

Deferred maintenance takes on a new dimension in Yuzhno-Sakhalinsk, a city of about 160,000 located on the southern end of this remote Russian island just north of Japan. In sharp contrast to the region's cash-poor economy, rich oil and gas deposits a few miles off the island's east coast taunt locals with the prospect of an economic boom.

But like most of Russia, Sakhalin's resource-based economy is depressed, a result of the country's initiation into capitalism. Many of the local fisheries or timber-based industries, formerly dependent on government subsidies, have either declined dramatically or even shut down.

"Privatization and a weak tax base are the core of most economic problems," said Jane Miller-Floyd, consul general for the American Consulate in Vladivostok and the Russian Far East.

Lack of federal money passed down from Moscow also crimps local budgets. Little is spent to maintain infrastructure, so concrete block buildings crumble and roads deteriorate.

"Buildings in the city are literally falling down, and apartment buildings are dark and dismal - most Americans would not live in what they consider good housing (in Sakhalin)," said Alaska Senate President Mike Miller, a Republican businessman from North Pole, who visited the island in April.

While the northern part of the 600-mile-long island has previously produced oil from land-based deposits, those supplies are drying up. And the archaic equipment used to pull that resource from the ground hardly meets international standards for environmental protection.

Several years ago, exploration crews from a number of American-based oil companies traveled across the North Pacific to take a look at the off shore deposits. Exxon, Marathon, Mobil, Texaco and Shell all nibbled at the bait and are now fighting Russia's political and economic hazards, hoping to reel in billions of dollars of oil and gas.

Those American companies are looking for assistance from their prior Arctic partners, Alaskan-based oil field service companies knowledgeable and experienced in working in remote, harsh conditions found in Sakhalin's northern region.

A few Alaskan companies have already set up shop in Sakhalin, including Arctic Camps and Equipment, Peak Oilfield Service Co., and Lynden Inc., the parent company of 16 transportation-related firms.

They won't be alone for long.

Whether it's individuals suffering from declining North Slope work, business owners looking to expand or open an international branch or just some adventurers searching for another leading edge oil project-Sakhalin Island attracts them all. And this time around, Alaska's state government has the means and the clout to help promote oil-based economic development, even it it's in a foreign country 2,500 miles away from Anchorage.

Gov. Tony Knowles led a two-day trade mission to Sakhalin this spring. About 60 other state officials and Alaska business owners participated. Each paid $2,500 to hear the latest about the region's oil developments and to get a first-hand look at Sakhalin's business opportunities.

Reports from the oil companies were mixed. Two of the development consortiums hold production-sharing agreements from the Russian Federation, not an inconsiderable achievement when dealing with the cumbersome Russian bureaucracy. Yet representatives from all three development consortiums said they lack the confidence to invest the estimated $40 billion...