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Norilsk is a region above the Arctic Circle in Northern Siberia on the Taimyr Peninsula. It is of significance because it contains about one third of the Earth's known reserves of nickel and about two fifths of its platinum. Additionally it has significant sources of copper and cobalt along with the nickel. The nickel alone, as a necessary component of stainless steel, made the development of Norilsk worthwhile. The problem for the recovery of these metals is that Norilsk is extremely cold, temperatures sometimes dropping to 45 degree below zero Fahrenheit. Because it is above the Arctic Circle there are months in the winter in which the sun is not seen. It is a difficult place to build anything or maintain industrial operations. The situation makes even more impressive the 16th century development of Mangazeya, which even farther north than Norilsk.
The serious exploration of the Norilsk region began in the 1920's. Under Stalin's First Five Year Plan the initial development efforts were under an agency of the Supreme Council of the National Economy, the Administration for Nonferous Metals and Gold. An expedition of 250 experts went to the region in 1930 and by 1933 there were 500 employees working at the development. At that time it was clear that more manpower would be needed and that it would be difficult and expensive to secure the needed manpower by inticing a labor force through premium wages. The Ministry of Heavy Industry wanted to be relieved of the responsibility of developing Norilsk. The authorities then transferred in 1935 the responsibility for development of Norilsk to the State Police, the NKVD, which would use prison labor as the main source of its labor force. Norilsk became another island in the GULAG Archipelago. Initially only the construction phase was to be carried out as a GULAG operation, but after the completion of construction Norilsk was kept under NKVD control. It became known as Norillag.
As the development of Norilsk proceded the metal deposits were found to be several times larger than what was initially known. The region also had good sources of coal for the smelting of the ores and heating.
The cost of the development of Norilsk escalated due to a mixture of factors: the underestimate of the cost initially, the expansion of the planned capacity as new deposits were discovered, and changes in the extent of refinement of the product to be carried out at Norilsk. Thus the cost was increased from 515 million rubles to about 1300 million rubles. The first few years were a great disappointment for the planners in Moscow as enormous resources were poured into the project with nothing much coming out. For them Norilsk was merely a construction project that was over budget and behind schedule.
Although the environmental conditions at Norilsk contributed to the difficulties there was a good deal of organizational failures. Some technical designs prepared by industry experts were not appropriate for Arctic conditions. The prisoners' was used wastefully. They were treated as a worthless commodity whose health and safety was of no concern. They had to carry out the most difficult tasks with primitive tools, such as excavating permafrost soil with only pickaxes. Prison laborers were assigned irrationally; old and sick workers were given heavy physical tasks while young, healthy but illiterate workers were assigned to the accounting department.
Eventually there was output. In 1943 Norilsk produced 4 thousand tons of refined nickel and in 1945 hit the target figure of ten thousand tons that was supposed to have been achieved in 1938. The reluctance of the Ministry of Heavy Industries to develop Norilsk indicates that the high cost of using free labor and the high risk of failure meant that probably the development of Norilsk was not economically justified at the time. Economic feasibility was achieved only by falsely reducing the cost through the use of forced labor.
In the 1990's in the privatization of Soviet industries Norilsk Nickel was acquired by Vladimir Potanin. He made this acquisition of assets valued at about a billion rubles for an investment in the hundreds of millions of rubles. He has been strongly criticized for this transaction, but he took an enterprise that was heavily in debt and about five months behind in the payment of wages and salaries and put it into sound financial condition within a year. His acquisition under the Loans-for-Shares program was in the nature of a long-shot bet. At the time it looked like the odds were about 20 to 1 that he would lose the amount he invested. Thanks to the Loans-for-Shares program the Communist Party was thwarted in its attempt to regain control of Russia. Norilsk Nickel became the private property of Vladimir Potanin instead of the de facto private property of its Red Director.
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