WHY FUSS ABOUT BANKRUPTCY OF DEFENSE PLANT IN CHAZHMA?

The yard in Chazhma, Primorsky Krai is run by the government but there are plans to privatize FGUPs (federal governmental unitary enterprises).

In that case, it becomes a tasty morsel with assets and land and, in this connection, some media send up trial balloons regarding possible appropriation of the plant through bankruptcy procedures.

The first thing that catches a visitor's eye in Chazhma Bay is two huge docks moored at the quay of the numbered plant 30 CRZ MO RF. But there are no ships in view in the harbor basin. "What is the source of your existence?" we asked plant director Igor Burmistrov.

- We have three sources of funding. First, governmental orders from the Navy for repair of warships; second, orders from the Atomic Energy Ministry for utilization of submarines, support to laid-up ships, and, thirdly, extra-budget sources. As a profit-and-loss entity, we have the right for production for civilian uses. The more civilian orders we have, the better for us. But it is not easy to attract civilian clients, because military plants have an image of areas with restricted access still persistent in the general public's mind.

Another problem is a far distance from major ports of Vladivostok and Nakhodka. Also, the ship repair market is very crowded with its segments captured and distributed a long time ago. If a shipowner repairs ships at the same yard for many years, it's hard to lure him away. To be attractive, we have to reduce profitability rate, overheads and work virtually in the red.

- Can any civilian client put his ship into your dock?

- Yes, it's that simple. In an effort to overcome the image of a hard-to-access military plant, we opened a marketing division in Vladivostok last year. Now we will seek for orders all over the Far East.

- What edges do you have over competitors?

- We have unique equipment, repair technologies, skilled specialists. We can compete with anybody in terms of quality.

We are aware that our neighbours are Korea and China, where yards repair quickly and require no advance payment with settlements made after fishing season. We cannot offer same conditions but already operate at no advance payment. As for civilian ships, we apply different rates.

- Does the yard operate at full capacity?

- Load was only at 27-28% in 2003. At the same time, many ships on the Pacific Fleet's books need regular repair but the problem is lack of funds. This is the potential reason for bankruptcy. We make debts to the budget and extra-budget funds from time to time, have to delay wages and owe payment for electric power.

- So, that's why talks about bankruptcy start repeatedly?

- Yes, this question arose repeatedly. The main reason is that the government delays payment for executed orders. We have received no governmental money from the Defense Ministry since October 2003, while continued working. We have issued invoices totaling nearly 12 million rubles. When money comes, we will start repaying debts.

The main funding source in the yard's plans for 2004 is governmental order, which increased in this year. We will earn the rest ourselves. In last year, our extra earnings amounted to 60 million rubles. Besides ship repair, we engaged in various activities, including timber and metal handling, production of consumer goods, rehabilitation of our in-house farm. Still, this is insufficient and we will continue facing a deficit in our yearly budget.

- Is there any way for a cardinal recovery from the system crisis?

- Yes, there is. But decisions should be made at higher levels. There is no detailed scenario for transformation of governmental unitary enterprises. It is expected that such a document will be ready by 2006.

Our yard may use several options for going public or transformation to a branch of another defense plant. There is an idea to join a future financial and industrial group based on Zvezda plant, with other numbered plants specialized in their disciplines. Our discipline is dock operations.

- Many media wrote earlier that there was a major investment programme regarding your yard.

- There is a lot of investment programmes. All of them are based on our two unique docks, repair quay with depths of 10-15 m, navigable channel, etc. The only disadvantage could be the lack of access by rail directly to the yard, the missing link being about 3 km long. But, it seems that there is a real chance to combine the interests of military and civilian production without conflict between them.

This programme has been proposed by an influential financial company from outside Primorsky Krai. The yard will provide part of its territory and continue being specialized in dock repair. The investment plan is to be approved by the Property Ministry and Defense Ministry in this year. I do not rule out that problems may arise in approval procedures. When a facility lies idling, nobody needs it, but when somebody wants it, owners show up immediately. If approvals obtained successfully, the investment plan will start working in 2005.

- What will the yard gain by this project?

- 30% of the project budget. I cannot divulge the sum but it's substantial. Money will be used for reconstruction of plant equipment, repair of docks, repayment of debts. Later, the yard will receive orders for project works. Payback period is 8 years.

- What happens if your yard falls under bankruptcy procedures?

- The yard's main value is the docks. Those who initiate our bankruptcy today are willing to earn on selling them. The rest will be abandoned and taken to pieces. Any such information is a blow on us. As soon as media published information about bankruptcy, we receive many telephone calls with offers to buy this or that. Such statements discourage clients and those having ships in our dock are anxious about their orders. - Nadezhda VORONTSOVA.

LUTEC WILL BE UP TO INTERNATIONAL STANDARDS IN TWO YEARS

Far Eastern Energy Managing Company (FEEMC) reviewed ZAO LuTEC's performance in 2003 and development prospects for 2004.

As spokesman for LuTEC informs, FEEMC director general Viktor Myasnik stated some internal management inefficiency against the overall positive background.

"With that positive potential in the beginning of LuTEC's operations, its production and financial performance could have been better, but the company lingered at the 2002 level rather expending than building up its starting capacity," Viktor Myasnik said. "The company should be restructured and prepared for harder free-market times. None of managers shall be sure of the future, if he does not share this standpoint."

"Our conclusions were understood correctly, and some people decided to resign. They are open pit mine director Yury Vasyanovich (former director general of Primorskugol) and his deputies. A new management team has been formed and put the task to bring LuTEC up to international efficiency standards within two years," Viktor Myasnik concluded. - Yulia PROKHOROVA.

WHY RUSSIAN SHIPS FLY FOREIGN FLAGS

A joint meeting of the collegiate board of the Transport Ministry and the State Duma's Committee on Energy, Transport and Communication discussed on 19 February issues of legislative support to establishing the Russian International Register of Shipping.

Committee vice chairman, State Duma member from Primorsky Krai Viktor Klyus, was among the speakers. Published below is a summary of his report.

"The maritime transport accounts for about 60% of the national foreign trade turnover, but only 5-6% of its is carried by ships under the Russian flag. Russia is losing its political status of a maritime power and, besides, mobilization capacity, which threatens national security. Reduction of national fleets leads to serious financial losses and may result in economic dependence on fleets or other states. In the meantime, maritime transport is the only means to support normal functions in some regions of Russia.

The fleet is getting old. Average age of ship carrying the Russian flag exceeded 20 years by 2000, with that of foreign fleets being less than 14 years. Cargo volume handled by Russian ships declined from 64 million tons in 1995 to 30 million in 1999, or more than halved.

The main causes of the critical position of Russian shipping companies are the lack of preferences for national carriers, antiquated tax and customs laws, unfavourable investment climate in Russia for new building.

Cargo preferences and cargo reserving for national carriers is a common international practice. For instance, USA reserves 100% of military and 50% of governmental cargoes for national carriers, which accounts for about 30% of maritime cargo turnover. France reserves about 70% of foreign trade oil deliveries and 40% of coal cargoes. Spain reserves oil, tobacco and cotton deliveries for national carriers. At the same time, no statutory laws in Russia secure transportation of strategic cargoes for national carriers nor there are any approved list of such cargoes.

Alterations and amendments should be made to effective federal laws to secure at least 50% of foreign trade strategic cargoes for national carriers. This includes oil and oil products, timber and wood materials, grain, steel and nonferrous metals, cargoes carried under Product Sharing Agreements, government-controlled export cargoes, for instance, military hardware.

Another of the reasons that have caused the crisis is a higher percentage of taxes in transport costs compared with foreign shipping companies. Tax deductions make up more than 80% of before-tax profit. Given capital intensiveness of maritime fleets, most significant taxes are VAT and property tax.

The effective Customs Code does not reflect specifics of transport of ships across the Russian customs border, which is contrary to internationally accepted practices and is to disadvantage of Russian shipowners. About 80% of ships is built at foreign yards, and Russian shipowners have to repair and maintain their fleets abroad, because there are no necessary equipment and technologies for spare parts replacement in Russia.

Customs payments for ships repaired abroad amount to 26.5% of repair costs. Imported spare parts, equipment and materials having no domestic analogs are treated by customs authorities as imported goods and subjected to customs taxes and levies.

162 ocean ships were built for Russian shipowners in 1992-2000, of which 90% was registered under foreign flags. This is because foreign lenders, willing to return their monies, make a requirement to register ships in foreign jurisdiction until loans are fully cleared off. To change this situation and ensure reproduction of the maritime transport industry's main assets, a mechanism of merchant fleet renovation acceptable to Russian shipowners should be established.

Most of the problems could be resolved through establishing the Russian International Register of Shipping. To date, about 20 countries have a second register of shipping. International registers of shipping are aimed to help shipowners cut high costs, improve competitiveness in the international charter market, prevent withdrawal of national fleets under convenient flags.

This will attract investments to maritime transport development based on up-to-date security schemes for new ship building, development of shipbuilding industries, metallurgy, ship repair, machine manufacturing and services.

The following actions will be needed to establish such a register: adopt a law on Russian International Register of Shipping, make amendments and alterations to the existing statutory laws, Merchant Marine Code of Russian Federation, laws "On Customs Tariff," "On Value Added Tax," "On Tax on Profit of Enterprises and Organizations," "On Tax on Corporate Property," set up a register administration and elaborate its legal status." - Yevgeny ITAROV.

PRIMORIANS EARNED LESS THAN SPENT IN JANUARY

Individual cash incomes in Primorsky Krai totaled 8.4 billion rubles in January (+29% on January 2003), says Primorsky Krai State Statistics Committee.

Real disposable incomes grew by 17.6%. Average per-capita cash income amounted to 4,010 rubles, with consumer spending at 3,374 rubles.

Individual cash expenses and savings reached 9.9 billion rubles in January, which was 1.5 billion rubles in excess of incomes. This difference can be explained by "cash-in-envelope" practices and other unofficial incomes not covered by state statistics. - Yulia PROKHOROVA.

MAGADAN OWES $92M IN GOLD TO GOVERNMENT

It turned 10 years in February since Magadan Oblast received a "golden loan" valued at $87 million for gold industry development.

The greater portion of that loan ($65 million) was injected in development of Kubaka golden ore deposit. To date, total debt including penalties and penalty interest has reached $92 million, with only about $42 million repaid to the federal budget. However, debt repayment process is ahead of the schedule set by the Finance Ministry and part of payments for 2005 has already been made. The regional administration also reached an agreement with the Finance Ministry to reschedule the remaining portion of the golden loan. - Yulia PROKHOROVA.

ASKOLD PLANT JOINED CONSORTIUM

Askold machinebuilding plant (Arseniev) became one of founders of Dalsudpromshelf consortium set up under Primorsky Krai administration's aegis.

By words of OAO Askold director general Pavel Bogdanovsky, who is member of the new consortium's board, membership in this organization will bring to Askold more active cooperation and partnership with the region's shipbuilders and ship repairers.

Askold sells its produce to Zvezda plant, shipbuilding and repairing yards in Primorsky Krai. The plant intends to build up its output by 15% in 2004, which means more intensive cooperation with shipbuilders. - Tatiana KUROCHKINA.

DALSVYAZ SELLS PRIMTELEFON

The board of OAO Dalsvyaz made a decision on 27 February to sell 50% in ZAO Primtelefon to Mobile TeleSystems for $31 million.

MTS, already having 50% in Primtelefon, will sell to Dalsvyaz the company Wireless Information Technologies holding a license for GSM-900 mobile phone services in four Russian regions: Tuva, Sakhalin, Chukotka and Kalmykia.

Dalsvyaz plans to use proceeds from this transaction for buying Acos, holding a license for Primorsky Krai, from RTK-Leasing and for developing mobile phone business. Another bidder for Primtelefon was Vympelcom with $4 million more but with no license holding companies.

It should be noted that all of Dalsvyaz' independent directors - Igor Repin, Vladimir Dudchenko and Mikhail Kobishchanov - voted against selling Primtelefon to MTS. - Kirill ARIADOV.

VCSP TO PAY DIVIDEND

Vladivostok Commercial Sea Port (VCSP) vice president Vyacheslav Pertsev announced net profits earned in 2003 at 270 million rubles.

By his words, dividend will be paid at same level as a year before, when dividend payments totaled 31,988,400 rubles (17.6% of net profit).

Vyacheslav Pertsev also declared that 225 million rubles will be directed to VCSP's investment programmes (compared with 180 million rubles in 2002).

"ZR" FILE: 19.98% in VCSP belongs to the State Property Ministry. ZAO Port-Active (controlled by port management) holds 27.36%, and about 30% is controlled by Magnitogorsky Metallurgical Combine through related structures. - Kirill ARIADOV.

"MEGAPHONE" NET TO BE LAUNCHED ON 10 MARCH

Commercial operation of MegaPhone's net in the Far East will start on 10 March, said Konstantin Andreyev, advertising manager of ZAO Mobicom-Khabarovsk's branch in Primorsky Krai.

By his words, the date of 2 March announced earlier was changed by MegaPhone because an enlarged session of the collegiate board of the Russian Federation Ministry of Communications and Informatization will be held on 2-4 March.

Two centres for express services to subscribers will open in Khabarovsk and Vladivostok on 10 March. About 150 MegaPhone dealer's outlets will start providing subscription services on the same day.

"ZR" FILE: OAO MegaPhone, an all-Russian GSM 900/1800 mobile phone operator, was established in May 2002 through a merger of North-Western GSM (St. Petersburg), Sonic-Duo (Moscow) and a number of regional GSM operators, including ZAO Mobicom-Khabarovsk. Major shareholders are OAO Telecominvest, OOO TsT-Mobile, TeliaSonera (Sweden). - Kirill ARIADOV.

VLADIVOSTOK MAY BECOME AIR TRANSPORT NODE

Aeroflot Russian Airlines intends to develop regional operations, declared its director general Valery Okulov at an informational forum on regional operations development in Nizhny Novgorod.

As he stressed, Aeroflot is currently considering different patterns for development of regional transport operations, depending on local specifics of each regional node.

By his words, Aeroflot places major emphasis on establishing transport nodes in Russian regions. Such potential nodes could be, in particular, Khabarovsk and Vladivostok. - Yevgeny ITAROV.

SMUGGLERS FROM GRODEKOVO VANISHED INTO THIN YEAR

The criminal investigation over smuggling activities in Grodekovo customs office covered up by its chief continues.

Late last week Ussuriisk city court decided to take into custody three more persons charged with smuggling in last December and put on international wanted file in January 2004.

As spokesman for Primorsky Krai Prosecutor's Office informed, court decided to take them into custody because they had committed a grave crime and escaped from prosecutors. - Yury ROGOV.