Hardship is second nature for the residents of this Siberian enclave.
Winter sends the temperature plunging to 45 degrees below zero and drops the sun below the horizon for months at a time.
It was dictator Josef Stalin who established this arctic city and dispatched hundreds of thousands of political prisoners to extract the ore from mines so deep they seemed to run to the very center of the Earth.
Later, Norilsk became a notorious example of wasteful communist planning, a place in which the air and water were fouled with noxious chemicals that even now make breathing hazardous.
But today, the people of Norilsk face what many feel is their greatest challenge: the new world of capitalism.
Russia’s most powerful bank has bought the gargantuan mining and metallurgical complex that is the city’s main employer and plans to slash the company’s enormous work force and move more than a third of the city’s residents to the south.
The audacious plan illustrates a pivotal phase in Russia’s shaky transition to a free-market economy: whether the businessmen who have bought state enterprises at fire-sale prices have the management expertise to reshape those companies so they can be internationally competitive.
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At stake is not only the financial health of the companies but Russia’s long-deferred hopes for economic growth, already shaken by wild gyrations in the international capital markets.
“Norilsk will be changed completely,” boasted Vladimir Potanin, the 36-year-old head of Uneximbank, which has a controlling interest in Norilsk Nickel, as the metal complex is known.
Some experts remain dubious.
“These new bankers are deal makers,” said Anders Aslund, a former economic adviser to the Russian government and a senior associate at the Carnegie Endowment for International Peace. “They know something about finance, but they know very little about management.”
Lying on the remote Taimyr Peninsula, where Siberia meets the Kara Sea, Norilsk sits in a forbidding and isolated zone. When workers here talk about visiting the rest of Russia, they say they are going to the “continent,” as if Norilsk were not a sprawling city of 260,000 but an island separated by a frigid ocean.
This region contains more than a third of the world’s nickel reserves and two-fifths of the platinum-group metals. It also has significant amounts of cobalt and copper.
But many workers at Norilsk consider themselves little more than economic prisoners. Their savings were wiped out by the soaring inflation of the early 1990s even as the cost of food and transportation rose. That, plus the difficulty in finding new jobs, new housing and securing new residency permits have turned Norilsk from a springboard into a trap.
The elderly find it particularly hard to leave. They receive a higher pension for their long years of service only as long as they stay in Norilsk.
Their future now depends largely on whether the doddering Soviet-style metal complex can be run along capitalist principles and at what cost.
Even with the best of intentions, transforming Norilsk is a herculean task. Changing the mentality of the managers and the workers is a big part of the problem. During Soviet times, all that mattered was production. To produce as quickly as possible, metal was skimmed from the richest ore and much of the remaining metal content discarded as waste.
Foremen never asked themselves whether they could get by with fewer men, and many still find the idea of downsizing offensive and even unpatriotic. Some advanced technology was developed, but often little was spent to keep equipment up to date and reduce labor requirements.
“It is difficult to get used to the idea that labor is a commodity,” said Yuri Filippov, a longtime manager. “People do not like idea of hired labor. They think it means they are slaves.”
The Soviet system of state subsidies also encouraged the company to expand into unprofitable sidelines, such as construction and furniture making.
Two-thirds of the company’s workers are involved in these types of auxiliary enterprises, despite the fact that it is more cost-effective to import goods from the south.
There were also persistent reports of corruption: metal shipments at cut-rate prices to trading companies controlled by some of the managers.
Unable to meet all its obligations, the company acquired a massive backlog in back taxes and penalties.
But then Norilsk Nickel found itself with a new owner: Potanin, the tycoon who heads Russia’s most politically potent bank, Uneximbank, and a man who has proved himself to be a masterful empire builder.
He began his career at the Soviet Foreign Trade Ministry before going into banking after the end of Soviet power. When the Boris Yeltsin government needed cash, he pioneered a privatization plan under which banks lent the government money in return for control of choice state assets.
Uneximbank used this procedure to acquire a controlling interest in Norilsk Nickel in 1985. The final purchase price for all the company’s shares was $250 million, making Norilsk Nickel one of the biggest bargains in Russian privatization.
Potanin has taken some steps to tighten financial controls and get the company’s books in order.
The old communist-era managers are being replaced with younger ones who worship the bottom line. Non-essential enterprises, such as the ill-conceived furniture factory, are bring shut down.
In the meantime, Uneximbank has kept Norilsk afloat with $150 million in credits at 12 percent interest, said Lev Kuznetsov, the youthful first deputy general for finance who was installed by Uneximbank.
Although Norilsk Nickel lost some $260 million in 1996, financial analysts say the company can become very profitable if Potanin’s restructuring plan is carried out.
The toughest steps lie ahead. Potanin plans to reduce the 100,000-man work force at Norilsk Nickel’s main operating complex to some 65,000 over the next five to seven years.
To cut the crushing cost of maintaining Norilsk, 100,000 of the residents are to be transferred to the south.
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To update aging equipment, $1 billion is to be invested, much of which is to be raised form international investors and by issuing new Norilsk Nickel stock.
Still, critics say that Potanin’s plan is very vague and occasionally wishful.
For example, he is counting on World Bank help to subsidize the huge cost of relocating more than a third of Norilsk’s population. The World Bank says the Russian government has never asked it to undertake such a project and that it has no plans to do so.
The effort to raise $1 billion in funds for overhauling Norilsk Nickel has also been hurt by the capital flight from emerging markets, forcing the company to pare back a planned new stock issue.
Workers and middle managers say that Uneximbank has so far invested little new money to streamline production or maintain equipment.