An Arctic mining town faces the monocity dilemma

A quarter of a century after the Berlin Wall fell, in the collective imagination Siberia is still a gigantic unknown: a cold, remote and empty territory; a place of forced exile or one of world’s last natural resource frontiers. This is more or less the mental picture I had of Siberia when I set out for a course on Arctic extractive industries in Mirny, a diamond-mining city in the south-west of Sakha Republic.

I was struck as I flew in by the impressions that while Siberia is definitely vast and icy (temperatures ranged from -18° to -32° celsius), it was certainly not empty. Lines scarred the monochrome landscape: roads, power lines, pipelines or perhaps military infrastructure. And despite a low population density, the region is home to significant economic activity: in 2011, before the global downturn in many raw materials prices, an estimated two-thirds of the value of Russian exports was extracted east of the Urals.

Fall and rise of the monocities

As in other Arctic territories, extractive industries play a vital role in Siberia’s economy. The regional industrialized rapidly during the Soviet era, thanks to central economic planning and an extensive military-industrial complex. In this period appeared many monocities (monogoroda in the Russian language), settlements where everything – the economy, infrastructure and services, educational and health systems, as well as cultural and housing provision – depended on a single (usually extractive) industry; sometimes even a single factory.

With the fall of the Soviet system, and its complex production and distribution network, the trend reversed and the region quickly deindustrialized. Without government support – and, in some cases, cheap labour provided by a gulag camp – many monocities simply could not generate enough revenue to attract private investment. Incapable of competing with imports, their economic raison d’etre disappeared. Some of them became ghost towns, their inhabitants leaving to look for better opportunities elsewhere.

However, in the 2000s, some of the surviving monocities were offered a lifeline by a boom in global natural prices among other factors, strengthening a resource-based economic development model that came to prevail in Siberia (as in the whole of Russia). Mirny was one of them.

Mirny: a true monogorod

Mirny was founded in 1955 at the site of a rich kimberlite “pipe” named Mir (meaning “peace”). (Kimberlite, an igneous rock that can contain diamonds, often appears in vertical subterranean structures.) As the mine’s output grew, it supported the emergence of a new city, and supported the entire district’s economy. High international demand for diamonds – and continuous state support – ensured that Mirny prospered. The state diamond mining company, NPO Yakutalmaz, ran the city and provided services for Mirny’s population.

With the end of Soviet Union, NPO Yakutalmaz closed, and its assets were taken over by the new ALROSA group in 1992. Surprisingly little changed. Today, the city is still dominated and served by a diamond-mining company: ALROSA is a virtual monopoly, with, according to one source, 97% of Russian diamond production, and the largest diamond producer in the world, with 26% of global diamond production. And the company is still under de facto state control, with federal and local authorities together owning more than 75% of shares.

ALROSA owns and operates Mirny’s strategic infrastructure, such as the airport and the hydropower plant that provides energy to the district. It also operates an airline and an old collective farm, and accounts for the bulk of municipal revenues; both directly through the municipality’s shares in the company, and indirectly through the redistribution of earnings from extractive activities by the federal government.

Mirny city grew up to accommodate generations of mine workers and their families, and this too has not changed, even though fly-in fly-out terms (in which workers are flown in for short periods, rather than they and their families relocating) are becoming more common. To keep the city attractive, ALROSA offers high salaries by Russian standards, as well as additional benefits to compensate for the harsh living conditions.

Over the years, ALROSA and its predecessor have made substantial investments in social infrastructure and education, to ensure the availability of sufficient skilled labour. For instance, ALROSA built a sports centre and several kindergartens, and supports the Mirny Polytechnic Institute, as well as secondary technical schools. ALROSA maintains the Yakutniproalmaz Research and Design Institute, which provides the company with knowledge and technology to improve its operations. This institute monitors the well-being of the company’s workers (mainly in terms of salary levels and health), as well as the environmental impact of mining operations in the district.

When the diamonds run out

According to district chief Rishat Yuzmukhametov, in 2015 Mirny’s was the top district in the autonomous Sakha Republic in terms of economic output (accounting for 26% of Sakha’s gross regional product), of investment in fixed capital (12% of investments in the republic), profits of enterprises (43% of the republic’s total) and power generation (43% of the republic’s total output). It has the second-highest average number of workers in enterprises in Sakha Republic, at more than 340 000 people and the average salary is 63% higher than that of the republic as a whole.

However, there are signs that change is inevitable. A key concern is the receding kimberlite reserve. Mining operations have already been driven underground – where they are far more expensive – as the top of the pipe has been exhausted, and the end of economically viable mining is expected in 20–30 years). ALROSA’s profits from Mirny are bound to decrease, and with it the company’s will, and ability, to support the city. This could have catastrophic consequences for Mirny.

Mr Yuzmukhametov – himself a historian specialized in the diamond industry – argues that once the diamond bonanza is over, hydrocarbons will become the backbone of Mirny and the district’s economy. New reserves of oil and gas have been found nearby, and extraction has already started.

But can hydrocarbons really plug the gap left by diamond mining? Although the biggest Russian hydrocarbon companies are also state-controlled, the volatility of oil and gas prices will make infrastructure and social investments more difficult to maintain, and the sector is more likely to privilege fly-in fly-out employment.

Moreover, the global economy seems to be entering a new cycle in which the leading economies of the 2000s, especially China, are slowing down. This adds uncertainty to the future development of hydrocarbon industry in Siberia, which has relied on the Chinese market. Add to this the debates and policies around energy transitions in different parts of the world: in a world set to meet the Paris commitments, there might not be the demand for Mirny’s hydrocarbons.

Mirny faces the dilemma of many monocities around the Arctic: their future is utterly dependent on forces largely outside their control: markets, policies, geopolitics. There is a real possibility that once the diamonds are gone, Mirny might revert to the rough “base camp” it was in the 1950s and 1960s (albeit a more high-tech version). Diamonds might be forever, but Mirny’s future without them is far less certain.