Economy

Icy Russian Winter Ahead, As World's Priciest Pipeline Starts To Crack

Winter is long in Vladivostok
Winter is long in Vladivostok
Olga Filina

VLADIVOSTOK - Located in Russia’s frigid Far East, Vladivostok has long relied on coal power to heat the city through its long winters. A major new gas pipeline that was promised as a benefit for hosting the recent Asia-Pacific Economic Cooperation (APEC) summit was seen as a chance for the city to finally have a greener and cleaner form of energy.

“Our largest coal plant is in the city, so a lot of residents complained that they had to wipe a new layer of soot from their windowsills everyday,” explains Elvira Tirina, from the city’s press office. “People have been waiting for the changeover to gas for a long time, and they were happy to see the quick pace of construction.”

Now it looks like locals may have gotten excited for nothing. It turns out that this “gift,” according to experts, is likely to be a major headache. It is no more reliable then the other things built in record time in the run-up to the APEC summit – like the already-crumbling roads and buildings. More than 1,800 kilometers of pipeline were laid in less than three years , through central Russia, near the border of China,.

Billions for a “Soviet car”

The problems with the pipeline, which ended up costing nearly half a trillion rubles (around $20 billion) – making it the most expensive pipeline in the world – started in December 2011, just after the start of the project.

According to Gazprom Transgas Tomsk and Gazprom Interregional Novosibirsk, the two companies in charge of the project, the pipeline experiences regular hydraulic jams - in other words, water gets stuck in the pipes and freezes in cold temperatures, blocking the flow of gas. Transgas Tomsk says this is not unusual for a pipeline.

In January 2012, during standard water-clearing procedures, there had already been an incident where gas caught fire and fuel couldn’t be delivered to Vladivostok for four days. This prompted the government to demand an urgent evaluation of the pipeline. The special commission tasked with this evaluation had their findings referred to a special prosecutor.

At that time, the two companies responsible for the pipeline insisted that the cold weather was the only culprit. That made the most recent news even more disturbing: in the middle of November, Interregional Novosibirsk imposed reduced gas usage on its clients in Vladivostok because of freezing in parts of the pipe. The Russky Island, off the coast of Vladivostok, where the APEC summit was held, was left without gas altogether. Considering that this past November, temperatures in the region were actually warmer than usual, this supposed ‘freeze’ has caused a quiet panic among consumers.

“Since 2011, we have run into problems supplying gas to power plants in Vladivostok 15 times; the supply has been completely cut off five times,” explained Sergei Tolstogrusov, general director of the Vostok power plant. “In the winter, these problems can lead to emergency situations: The coal boilers running on coal only heat about a quarter of the homes in Vladivostok. Because of the problems we’ve had, we are considering delaying the transition to gas for those power plants.” In an emergency, the local power stations have fuel reserves – of heating oil. But in the winter, those reserves do not last longer than 10 days. After that, the city needs new deliveries. The city of Vladivostok has ordered a special study to find possible solutions in case of “surprises” from the gas pipe. The study found that if there were problems, the extra heating oil would not be delivered in time - and Vladivostok would have no heat. The average January temperature in Vladivostok is 10 degrees Fahrenheit.

In addition to this, the reserve heating oil is expensive – according to the Vostok power station, the unreliable gas deliveries have already cost the company 500 million rubles (around $16 million). The power company has already taken the pipeline operators to court over these losses. The pipeline operators, however, don’t seem to have broken a sweat.

When you buy a Soviet car, you have a breaking-in period,” Transgas Tomsk explained. “For the first 100 kilometers everything has to settle. That’s what is happening with the pipeline - the first year or two is breaking it in.”

Pipeline to nowhere

“There are really two versions of the problems with gas deliveries,” says Igor Yushok, the leading expert at the Fund of National Energy Security. “First of all, there are defects due to the rushed construction. The pipes were built in record time: The first excavations were in 2009, and by 2011 gas was flowing to Vladivostok. Secondly, there is the pipe’s under-capacity. The project was supposed to allow for transport of 6 billion cubic meters per year, but only 1.5 billion cubic meters are actually being transported. That basically means that the pipeline was not constructed in the same way that people thought it would be.”

The quick construction really is impressive, especially if you consider that the other pipeline built by Transgas Tomsk took eight years to build. That, and the fact that the other pipeline was only 320 kilometers long, while the Vladivostok pipeline is 1,800 kilometers long.

The pipeline is not going to be overwhelmed this winter. Vladivostok is only expected to use around one billion cubic meters of gas in all of 2013, and potential foreign pipeline customers haven’t manifested themselves, although they were talked about at the APEC summit. Gazprom had also talked about building a gas-liquefaction plant near Vladivostok by 2017, but at this point the pipeline, if it only caters for the region’s residents, is a financial loss for its builders.

Gas supplies, of course, are more ecological and open the door to modern technology,” explains Fedor Glushkov, president of the Consortium of Far-Eastern Businesses. “But businesses often think exclusively about money. In the short term the conversion to gas increases costs.

Russia’s attempt to help its image by showing off its use of natural gas at the APEC summit has already turned into a multi-million dollar loss and is threatening to leave residents in Vladivostok without heat in the winter. Of course, there are some residents of the Primorsky Krai, as Vladivostok’s region is called, that are not worried: for example, residents of the Frunsensky region, which includes Russky Island, where APEC’s summit was held.

They were never supplied with gas anyway. As the regional government explained, the only place in the whole region that was supplied with gas was the campus of the Far East Federal University, where APEC’s summit was held, and where people need special permission to enter. Interregional Novosibirsk confirmed, “We do not intend to supply gas to the residents on Russky Island in 2012.”

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Society

Debt Trap: Why South Korean Economics Explains Squid Game

Crunching the numbers of South Korea's personal and household debt offers a glimpse into what drives the win-or-die plot of the Netflix hit produced in the Asian country.

In the Netflix series, losers of the game face death

Yip Wing Sum

-Analysis-

SEOUL — The South Korean series Squid Game has become the most viewed series on Netflix, watched by over 111 million viewers and counting. It has also generated a wave of debate online and off about its provocative message about contemporary life.

The plot follows the story of a desperate man in debt, who receives a mysterious invitation to play a game in which the contestants gamble their lives on six childhood games, with the winner awarded a prize of 45.6 billion won ($38 million)... while the losers face death.


It's a plot that many have noted is not quite as surreal as it sounds, a reflection of the reality of Korean society today mired in personal debt.

Seoul housing prices top London and New York

In the polished streets of downtown Seoul, one sees endless cards and coupons advertising loans scattered on the ground. Since the outbreak of the pandemic, as the demand for loans in South Korea has exploded, lax lending policies have led to a rapid increase in personal debt.

According to the South Korean Central Bank's "Monetary Credit Policy Report," household debt reached 105% of GDP in the first quarter of this year, equivalent to approximately $1.5 trillion at the end of March, with a major share tied up in home mortgages.

Average home loans are equivalent to 270% of annual income.

One reason behind the debts is the soaring housing prices. In Seoul, home to nearly half of the country's population, housing prices are now among the highest in the world. The price to income ratio (PIR), which weighs the average price of a home to the average annual household income, is 12.04 in Seoul, compared to 8.4 in San Francisco, 8.2 in London and 5.4 in New York.

According to the Korea Real Estate Commission, 42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s. For those in their 30s, the average amount borrowed is equivalent to 270% of their annual income.

Playing the stock market

At the same time, the South Korean stock market is booming. The increased demand to buy stocks has led to an increase in other loans such as credit. The ratio for Korean shareholders conducting credit financing, i.e. borrowing from securities companies to secure stock holdings, had reached 21.4 trillion won ($17.7 billion), further increasing the indebtedness of households.

A 30-year-old Seoul office worker who bought stocks through various forms of borrowing was interviewed by Reuters this year, and said he was "very foolish not to take advantage of the rebound."

In addition to his 100 million won ($84,000) overdraft account, he also took out a 100 million won loan against his house in Seoul, and a 50 million won stock pledge. All of these demands on the stock market have further exacerbated the problem of household debt.

42.1% of all home purchases in January 2021 were by young Koreans in their 20s and 30s

Simon Shin/SOPA Images/ZUMA

Game of survival

In response to the accumulating financial risks, the Bank of Korea has restricted the release of loans and has announced its first interest rate hike in three years at the end of August.

But experts believe that even if banks cut loans or raise interest rates, those who need money will look for other ways to borrow, often turning to more costly institutions and mechanisms.

This all risks leading to what one can call a "debt trap," one loan piling on top of another. That brings us back to the plot of Squid Game, "Either you live or I do." South Korean society has turned into a game of survival.

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