Next Step : A Diamond in the Rough : For decades, the Kremlin claimed the gems of Sakha. No more. And the republic stands to profit hugely.

In this remote Siberian city of diamonds, where billions of dollars’ worth of gems are mined, one passerby after another on the central square turned sadly away from Lydia Vorobova’s inviting packets of cookies and candies.

The goodies cost only 88 rubles a packet, 40 cents at current rates. But “that’s expensive for us,” Vorobova shrugged.

“It’s an illusion that we have amazing riches,” said Semyon Zelberg, deputy director of the Yakutalmaz diamond company that built Mirny around its diamond lode and remains its only reason for existence. “Aside from diamonds, everything here is unprofitable.”

That is not the only reason why the 40,000 Mirny residents do not live the luxurious lives of diamond moguls. Until this year, the vast riches of their eastern Siberian republic of Sakha--formerly known as Yakutia--were virtually all handed over to Moscow.

Gold, diamonds, oil, gas, coal and tin, gathered from gigantic permafrost badlands six times the size of France, all went to the Kremlin, which in turn would grudgingly allocate Yakutia the fuel and food it needed to continue digging and trucking away its treasures.

“They would say, ‘We feed you, you should be thankful,’ ” Leonid Gomershtadt, a production manager at Sakha’s state-run gold company, recalled.

All that is changing now. This year, Sakha won the right to keep large chunks of its riches--20% of the jewelry-quality diamonds it mines, all the industrial-quality diamonds and 11.5% of its gold.

“And this is only the beginning,” Sakha Foreign Minister Vitaly Artamonov said.

Suddenly, new vistas are opening before Sakha. Its endless tundra, where temperatures get down to 60 below zero, is home to only 1.1 million brave souls willing to put up with its roadless swamps and ice.

Their claims to their republic’s resources, with its 10% of the world’s diamonds and 30% of Russia’s gold, along with millions of barrels of untapped oil and trillions of cubic feet of natural gas, could conceivably make them among Russia’s richest citizens.

With the exact amount of gold and diamonds produced in Sakha still secret, officials would say only that the republic stands to get its hands on billions of dollars. Already, Western bankers and consultants, who have been making pilgrimages to the republic to offer President Mikhail Nikolayev their help in investing his windfall, are presented with a wish list of monumental proportions.

Nikolayev would like to sink Sakha’s coming wealth into everything from developing the lumber industry to bringing running water to parts of the capital, Yakutsk. He wants to extend gas pipelines to remote settlements, build factories to process food and add to the nearly nonexistent highway system.

With one of the lowest standards of living in Russia, Sakha has some catching up to do. The republic’s average salaries, fattened by bonuses that residents of the inhospitable north receive, is about triple Russia’s average, but food, housing and consumer supplies are often miserable.

In Mirny, many residents still live in the rickety old wooden houses built soon after the town was settled in the late 1950s. Without running water, they are forced to brave the brutal cold every time they go to the outhouse or pump water in winter.

Despite the coming influx of money, however, Sakha’s citizens know better than to expect to suddenly start living like royalty.

“Kuwait and Oman didn’t happen overnight,” Gomershtadt said. “They were putting their oil money into technology for a long time. And right now, Nikolayev still has to worry about getting through the winter without letting people get hungry or freeze.”

The president also has to worry about bringing in the Western technology and know-how that can help turn his republic around.

The remote republic does draw heavy interest from business people as varied as Australian diamond miners, South Korean corporate leaders and Nevada gold diggers. The newly created Ministry for Foreign Ties is kept maniacally busy playing host to one foreign delegation after another.

But marked caution, not gold-rush enthusiasm, typifies the foreigners’ approach, and Sakha officials also admit that they are not ready--and in some ways not eager--for a Western onslaught, even if it means a chance to get rich quick.

“We’re a northern people, we’re a people of a quiet life, and don’t want a boom,” Deputy Premier Yegor Yegorov said. “We want a normal, gradual development toward a better life.”

Western diamond industry officials also appear restrained about investment in Sakha, right up to the magnates of De Beers, the giant that controls the world’s diamond trade and its most productive mines in southern Africa.

“The distances here are vast,” said Gerard Ralfe, director of De Beers’ Central Selling Organization in London. “And the climate is such that it has to be something very special” to justify mining at 40 below zero in terrain with almost no roads.

With similar caution, Sakha is also not seeking at this point to take over its entire diamond industry from Russia. “At the present time,” Yegorov said, “if they gave us everything, we might not manage. The diamond industry is especially complex. . . . We might make big mistakes.”

There is also a psychological element that restrains Sakha. Only 37% of the republic’s residents are natives; the rest are mainly Russians and Ukrainians.

And even the natives, descendants of Turkic invaders of centuries ago, evince a quiet, moderate kind of nationalism, marked by deep pride but also by a 360-year-long tradition of being part of Russia. Native Sakha residents still refer to the republic interchangeably as Yakutia, its Russian name, and Sakha, its name in their Turkic mother tongue.

Although the republic declared its sovereignty two years ago, it has made no further moves toward full independence. “Unlike many republics,” says Foreign Minister Artamonov, , “we don’t look for confrontation with Moscow.”

For all that goodwill, however, Sakha is still clearly embroiled in an ongoing fight with Moscow over control of its wealth.

Control over diamonds has shifted from Moscow to a joint-stock society called Almaz-Rossia-Sakha, with Russia receiving only a minority share of the stock. But Russian officials and lawmakers still try to call the shots, even on such issues as whether Sakha will sell through De Beers.

Sakha has the powerful argument that the diamonds lie on its soil, in giant quarries like the one in Mirny, a hole nearly half a mile deep that looks as if it has been drilled out of the Earth by a giant screw, its bottom filled with sulfurous green water.

But Sakha is also aware of its special vulnerability.

“Everything here is imported, from needles to cement,” said Taisia Vecherina of Mirny. Imported from Russia, that is.

So, Russia gets the hard currency it so desperately needs by selling diamonds and gold from Sakha, and Sakha gets its sausage and bread in return.

Meanwhile, Sakha residents count the dollars that should be coming in and hope that they may at least start feeling prosperous by the end of the century.

“Come back in three years,” financial manager Galina Borisova said. “Maybe they’ll be giving out hundreds of dollars to each of us, the way Alaska once did with its oil money.”