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The Moscow Times: Energy Projects Attracting Foreign Banks to Sakhalin

Thursday, March 2, 2006. Issue 3363. Page 7.
By Ikuko Kao
YUZHNO-SAKHALINSK — In the capital of Sakhalin Island, where European cars have always been a rare sight, at least five Mercedes-Benzes are now cruising the streets, according to Japanese banker Masahiro Tsushima.
The number of cars in Yuzhno-Sakhalinsk has soared in recent months, thanks to an oil and gas bonanza, Tsushima said.
His was the first foreign bank to set up shop there, but now he worries that the booming economy will attract bigger competitors.
“Especially, I have started noticing new, expensive cars,” Tsushima said in Yuzhno-Sakhalinsk, about a 90-minute flight north of Hokkaido, Japan's northernmost island.
Tsushima is the general manager of the local branch of Michinoku Bank, which handles retail accounts, car loans, mortgages and lending to small businesses.
Foreign investment is pouring into Sakhalin, home of one of the world's most ambitious energy developments. International oil companies, including Royal Dutch Shell and ExxonMobil, are spending billions of dollars to tap the island's vast reserves.

Shell's Sakhalin-2 project has been pumping crude oil since 1999 and plans to increase output next year. It is also on track to start commercial production of liquefied natural gas, or LNG, as early as in mid-2008.

ExxonMobil's Sakhalin-1 oil and gas field started pumping oil last October. It has not started building key gas facilities.
Average income in Sakhalin rose to about 13,800 rubles ($490) a month in 2004 from 11,000 rubles in the previous year, according to Sakhalin region data.
Michinoku Bank, ranked No. 88 by size in Japan, is based in northern Aomori prefecture, where the economy depends on apple farming and an aging fishing industry.
In 1999, the bank was looking to expand into a nearby overseas market. In 2002, Michinoku became the first foreign bank to operate in Yuzhno-Sakhalinsk, home to about 170,000 people.
Total deposits of Michinoku Bank's three branches in Russia increased to 2.9 billion yen ($25 million) in 2005 from 1.1 billion yen in 2002.
But Tsushima worries that the lure of oil and gas is attracting bigger rivals.
Dutch-based ABN Amro has had an office in Yuzhno-Sakhalinsk for several years, and industry sources said it plans to expand to handle more of Shell's accounts there.
“It has many different clients,” Carolien Pors, a spokeswoman for ABN Amro in Amsterdam, said of the bank's Sakhalin branch.
“I cannot comment on client relationships, but it is true that we will expand business, if possible, to serve our clients better.”
ABN Amro recently moved to a new office closer to Michinoku Bank's after hiring new officers.
Last summer, Bank of Tokyo-Mitsubishi — now merged into Mitsubishi UFJ Financial Group, the world's biggest bank — said it would set up an office in Moscow.
Exxon's Sakhalin-1 project may attract other businesses when it starts expanding construction, Japanese officers of Mitsui and Mitsubishi said.

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