Far East’s Sakhalinsk Going from Infamy to Industry : Soviets Roll Out Red Carpet for Island Investors

American and Japanese entrepreneurs are making deals in the desolate Soviet Far East, best known to outsiders as the area where border gunners shot down a Korean Airlines jumbo jet.

Most foreign investment in the resource-rich, lightly populated region is still in the start-up stage.

Moscow sees foreign trade and foreign investment as ways to boost the Soviet economy, although so far no large-scale foreign projects have been started in the Soviet sector of the booming Pacific Basin.

Nonetheless, enthusiasm abounds on both sides when the ideas mesh, and a small projects are envisioned for ventures ranging from sportfishing to seafood canning to volcano tours.

“The key factor is the (Soviet) desire to do business, and it’s there in spades,” W.K. Nichoson said after signing a preliminary pact to go into business with the district government in Yuzhno Sakhalinsk, capital of the island of Sakhalin and the remote Kuril Islands.

Nichoson, originally from Long Island, N.Y., but a longtime resident of Japan, accompanied a group of Tokyo-based journalists on a recent Soviet-arranged tour to Sakhalin, previously off limits to foreigners.

Jetliner Tragedy

Sakhalin became a household name worldwide six years ago, when the Soviets shot down a KAL 747 en route from the United States to South Korea. All 269 people aboard died in an incident that aggravated East-West tensions.

Sakhalin also was an area Nichoson knew 35 years ago when he was an electronics officer in the U.S. Air Force. He flew reconnaissance missions from Japan and dodged Soviet fighters based on Sakhalin, he said.

He has been in business in Japan since leaving the military, and started his own company, Asia Dynamics (Japan) Ltd., in 1969.

“I’ve been selling things in Tokyo for 30 years, and I’m tired of selling things in Tokyo,” said Nichoson, 58, explaining why he was exploring this new frontier.

The initial business Nichoson foresees is small--processing local wild berries for a health drink and canning high-quality seafood, both for export. He is pledging $500,000 to be half the capital of a joint-stock company, with local Soviet government enterprises putting up the rest in rubles.

Other Possibilities

But further down the line, he said, there were possibilities in tourism, plywood, dairy products and other exportable goods, and the venture would need “very large sums from Wall Street investment bankers.”

The Soviet Far East is terra incognita now to Wall Street, but since President Mikhail Gorbachev put the region on the perestroika course of economic restructuring, business tours have been trickling through.

Problems abound: the ruble isn’t convertible to foreign currency; it is hard to repatriate profits; roads, telephones and hotels are poor; Soviet products often don’t meet export standards.

Worst of all, the Soviets are new to business. But the Soviet Far East has such rich resources--fish, forests, minerals, oil, coal--that a growing number of foreign businessmen are exploring for profitable opportunities.

Some Japanese firms have embarked on deals, even though Tokyo does not want economic relations to expand before the resolution of the dispute over Kuril islands captured by Soviet troops in the last days of World War II.

Japan insists on the return of the islands, Moscow refuses, and the issue lies like a tall barricade between big Japanese investors and the Soviet desire to join the economic boom now enjoyed by many countries in the Far East.

Growing Cooperation

Nonetheless, small Japanese-Soviet operations include two fish-farming joint ventures on Sakhalin, the southern half of which was owned by Japan until 1945. A Japanese company is taking a 30-percent interest in a project to refurbish a hotel in Yuzhno Sakhalinsk and participate in management.

Yoichi Okada is running a Japanese restaurant as a joint venture with a Soviet enterprise in the Sakhalin port of Holmsk and says it’s already profitable.

The Kuchiro restaurant, in a nicely trimmed building with a giant red lantern outside, stands out in drab Holmsk like a peacock in a piggery. It draws 300 customers a day, Okada said.

A problem, he said, is how to take out his side’s 49 percent of the profits and convert them to Japanese yen. “There are ways to do it, maybe buy fish or go into further enterprises to export fish to Japan,” Okada said.

New Breed of Entrepreneurs

Perestroika seems to have unleashed a torrent of “new Soviet businessmen” on Sakhalin with sometimes eccentric ideas requiring foreign money, ties or technology. A geologist wanted to organize tours of the island’s volcanoes. An electronics specialist wanted to deal in computer technology.

Ilya Sukharev, a local television producer, is organizing a cooperative to export art. He said permission came in only three months. “I never imagined it could be done in such a short time,” he said. “It was a miracle.”

Two Sakhalin journalists, Vladimir Ardunov and Grigory Kireev, said their young company is embarking on a deal to develop a resort on an island in Vietnam and wants foreign expertise.

One way to exploit the area’s bountiful fish is with rod and reel, preferably wielded by a hard-currency-spending foreign anglers. To find out how to please them, the Soviets invited Fishing The West, of Milwaukie, Ore., to Sakhalin to try the rivers and give advice.

Kerry E. Brown of the company said the salmon fishing had been great, but accommodations and roads were poor. “The Russians want to do it right, but they’ve got a long way to go,” he said.