August/September 1999

PREPARING FOR THE YEAR 2000 IN RUSSIA

(continued on p. 4)

by Athan Koutsiouroumbas & Trevor Gunn

As 1999 draws to a close, Y2K remediation in the

former Soviet Union is an issue of major concern. U.S.

companies need to pay close attention to remediation efforts by government agencies and private industry in Russia. Although the problem is being addressed on many

fronts, U.S. companies should be proactive in working with

Russian counterparts to prepare systems for the year 2000.

Russia and the Millennium Bug

Russian Finance Minister Mikhail Kasyanov estimates

that the government will budget $187 million for Y2K

remediation, although some estimates of Russia’s potential remediation needs exceed that figure tenfold. The

Gartner Report, prepared by well-known IT consulting

firm, The Gartner Group, forecasts that Russia will experience severe Y2K disruptions. It predicts that utilities

will operate at 40 percent of capacity for the first two

months of 2000; transportation will be disrupted 80 percent of the time and telecommunications 50 percent of the

time for a three-month period; hospitals will deal with nothing but emergencies for at least two months; financial markets will be disrupted for 30 trading days; and banks will

be disrupted for 20 business days. However, there is reason to believe that there have been marked improvements

in Russia since the publication of this report.

Most Russian businesses are aware of the Y2K problem and realize that Y2K remediation is a necessity for

conducting trade. “Quite a few businesses have become

aware of it because there has been quite a bit of publicity.

There is also widespread skepticism, though, and a huge

amount of faith that they will be able to pull off some sort

of repair, if needed, when the time comes,” said William

McHenry, professor at the McDonough School of Business at Georgetown University. “I suspect a lot of Russian

firms have tested their PCs and, finding some that have

problems, have become a lot more serious.”

U.S. Efforts to Assist Russian Y2K Remediation

The U.S. Agency for International Development

(USAID), in conjunction with the Russian State Telecommunications Department (Goskomtelekom), has established 71 “Y2K Competency Centers” throughout Russia to provide Y2K consultation. Goskomtelekom has

also compiled a contact list of 164 Russian Y2K

remediators. Information on Competency Centers and

Russian Y2K remediators, as well as other official Russian Government Y2K documents, can be found at

www.y2kresourcecenter.ru/Library/Lib_main.htm.

Various U.S. companies are working in Russia to

remediate the Y2K problem. Relativity Technologies

Inc. (Cary, NC), a software developer, was awarded a

multimillion dollar contract with Russian systems integrator Lanit Holding to remediate Y2K in Russia. Lanit

Technologies also operates one of the Y2K Competency

Centers. The two companies will be working together in

both the private and public sectors. Their clients include

the Russian Federal Government, gas monopoly

Gazprom, and Aeroflot.

“Large companies like Gazprom have secured funding” to address Y2K issues, said Vivek Wadhwa, CEO

of Relativity Inc. “In St. Petersburg, the phone company

has tested its service and it will work fine. But, it does not

possess the resources to fix the billing system. So, if you’re

in Russia wishing somebody a Happy New Year over the

phone, you might end up receiving a multimillion ruble

phone bill.” However, small companies face a greater

challenge due to a lack of funds. To ensure that business

operates as effectively as possible, Wadhwa envisions

that most noncompliant offices will be fully staffed at the

time that the failure is expected to occur.

Published by the Business Information Service for the Newly Independent States (BISNIS)

U.S. Department of Commerce • International Trade Administration

BISNIS

BULLETIN
BISNIS BULLETIN - August/September 1999

2

BISNIS is an information center for U.S. companies doing business in the Newly Independent

States of the former Soviet Union. Operated by the Market Access and Compliance unit of

the International Trade Administration, BISNIS disseminates information in print form, electronically, and through consultations by its staff of trade specialists. For more information,

please contact:

202-482-4655 (phone)

202-482-2293 (fax)

bisnis@ita.doc.gov (email)

To call BISNIS toll free, dial

1-800-USA-TRAD (872-8723)

press 2 and then press 2 again

or visit the BISNIS Online website at

www.bisnis.doc.gov

BISNIS

The Business Information Service for the Newly Independent States

In This Issue

Y2K Remediation in Russia

Agribus. Progressing in Moldova

Cross-Border Credit Card Fraud

Russian Auto Market Prospects

Emerging Opps. in Slavutych

Armenia Business Assoc.

Tricks of the Trade: Opening an

Office in Moscow

Regional Corner: Sumgait,

Azerbaijan

Agency Spotlight

Trade Events Calendar

Articles by non-U.S. Government employees express the views of the authors and

should not be construed as a statement of U.S. Government policy.

Director

Anne Grey

Deputy Director

Trevor Gunn

Managing Editor

 Ellen S. House

Assistant Editors

 Juliana Kinal, Kelly Raftery

Contributors

R. Beason, M. Congdon, J. Costello, S.M. Crow,

P.H. de Leon, T. Gunn, A. Koutsiouroumbas,

M. Dash, D. Nowek, J. Robinson, Y. Schukin

A New Multilateral Bank for the Black Sea Region

by Philip H. de Leon

The United StatesAzerbaijan

Chamber of Commerce

presents

The USACC Third Annual

Conference and Exhibition

Azerbaijan in the 21st Century

Strategic, Political and

Commercial Priorities

October 2526, 1999

Renaissance Hotel

999 Ninth Street, NW

Washington, D.C.

His Excellency Artur Rasizade

 Prime Minister of Azerbaijan

Nadir Akhmedov

Minister of Communications

Ilham Aliyev, First Vice-President, SOCAR

Farhad Aliyev

Minister of Commerce

For more information, contact: USACC

Tel: (202) 898-0900 Fax: (202) 898-0015

Email: chamber@usacc.com

Website: www.usacc.com

On June 1, 1999, the Black Sea Trade and Development Bank (BSTDB), headquartered in Thessaloniki,

Greece, commenced operations. The main goal of the

bank is to accelerate development and cooperation

among its 11 shareholder countries—Albania, Armenia,

Azerbaijan, Bulgaria, Georgia, Greece, Moldova, Romania, Russia, Turkey, and Ukraine. The bank’s authorized

capital is SDR 1 billion (about $1.35 billion).

The BSTDB will provide financial and technical assistance to viable projects and trade activities. Eligible

projects, from both the public and private sectors of its

member countries, are required to facilitate trade and

investment activities, promote economic prosperity in

member countries, achieve economic development in the

region, and mobilize domestic and foreign capital. Priority will be given to telecommunications, manufacturing,

financial services, transportation, energy and natural resources, and agribusiness.

The BSTDB will offer loans of up to 35 percent of the

total project cost or will take equity participation not exceeding 33 percent of the total capital of an enterprise.

In the first years of operation of the bank, trade finance

that may support up to 100 percent of a transaction will

be available for the short term.

The BSTDB is interested in acting as a complementary source of financing and in attracting additional

sources of financing to the region.

For further information, contact the BSTDB at tel: +30 (31)

290-400; fax 221-796, 286-590; or email info@bstdb.gr,

or visit its Website at www.bstdb.gr.
BISNIS BULLETIN - August/September 1999

3

(continued on p. 4)

by John Costello & Rod Beason

Moldova, strategically located between western and eastern Europe, has the potential to be a key producer of agricultural products in the NIS. Currently, agriculture is the basis

of the Moldovan economy, comprising some 40 percent of

GDP. Agricultural production accounts for 75 percent of the

country’s total exports. Important Moldovan products are

apple juice, wine, sugar beets, and milk and dairy products.

Major economic, legal, and structural reforms are currently being implemented by the new government, but the

transition has presented new challenges for Moldovan agriculture. As a result of massive land privatization, a new set of

farmers and farmer groups are emerging debt free, but cash

and equipment poor. They now own their land, which can be

sold, mortgaged, leased, or passed to heirs. The distribution

system that formerly served the collective farm system has all

but disappeared, and a new one is still developing. Marketoriented reforms are making way for an emerging crop/livestock inputs sector. Participation in the restructuring of

Moldova’s agricultural and food processing systems represents a unique opportunity for U.S.-based agribusinesses.

USAID Assistance to Moldovan Agriculture

The U.S. Agency for International Development

(USAID) has played a major role in land reform in Moldova.

The USAID land project is assisting Moldova’s land

privatization effort by creating new landholding patterns resulting in new small-plot farmers, family farmers, farm associations, and farm cooperatives. Over half of Moldova’s former

state and collective farms have been privatized with the balance scheduled for privatization by the end of year 2000. Land

titles alone, however, will not assure the success of these new

private farmers. Farmers will need a credit system that will

provide capital through land mortgages and a marketing and

distribution system that can turn farmers’ produce into cash

in a reasonable period of time.

The Citizens Network for Foreign Affairs (CNFA),

through the USAID Agribusiness Partnership Program, began helping Moldova rebuild its agricultural system in 1996.

The program links private farmers, agribusinesses, and

agroprocessors to Western sources of inputs, technology,

credit, and output marketing by providing financial support

(up to $500,000) to new agribusinesses or joint ventures.

Through the program, CNFA has helped launch 11 new projects

in Moldova, including four with U.S.-based companies. Enterprises established include two joint-venture dairy plants, a

milk collection system for small-plot farmers, three farm service centers, a farm machinery dealership, a packaged fruit

juice marketing association, a walnut processing plant, a

model apple orchard, and a vegetable collection/marketing

association for small-plot farmers.

Addressing the Problem of Credit

Lack of credit is a serious and persistent problem for the

Moldovan agricultural sector. Currently, strong agribusinesses

can obtain bank guarantees and, in a few cases, credit for

working capital, but local banks impose tough conditions for

loans to agricultural enterprises often requiring excessive

collateral, complicated application documents, high interest

rates, and short-term repayment schedules. Without a reliable source of credit to purchase the necessary crop inputs

and modern farm machinery, Moldovan farmers are more at

risk from problems that affect crop quality and quantity. For

example, in 1997, the cereal grain harvest suffered because

of the lack of combines and subsequent rain damage to over

half of the crop. Grape production is dwindling in part because of the lack of phosphate fertilizers and other crop input products. Also, Moldovan companies do not have strong

marketing skills and operate with a chronic shortage of cash,

often moving goods through a complicated barter system.

Compounding these problems is the Russian financial

crisis that hit in August 1998. Not only did the value of

Moldova’s currency drop by half since last autumn, but the

traditional Russian market for Moldovan agricultural products collapsed. Cumulative inflation in 1998 was 18.3 percent, and the government forecast of 13-15 percent inflation

for 1999 is considered optimistic. To help weather the economic crisis, the Government of Moldova and international

donors are taking additional steps to assist Moldova’s private farmers, agribusinesses, and banks.

In 1998, the World Bank extended a $5 million credit

for a rural finance project to assist in developing credit mechanisms for private farmers and a $15.9 million credit for a

project to support the institutional framework for a land market. The European Bank for Reconstruction and Development and USAID are also implementing banking and finance

reform programs in cooperation with the Moldovan GovernAGRIBUSINESS PROGRESSING IN MOLDOVA

The Ambassadors Business Forum

Russia and the Newly Independent

States for the New Millenium

October 18, 1999

QVC Studio Park

West Chester, Pennsylvania

Coordinated by: the Pennsylvania-Russia

 Business Council (PRBC)

For more information,visit www.fita.org/prbc or

contact Val Kogan, PRBC, at 215-963-7079.
BISNIS BULLETIN - August/September 1999

4

(Y2K, continued from p. 1)

ment, the National Bank, and the country’s strongest private

banks. With farmers’ new ability to mortgage land, some

Moldovan banks are becoming more willing to lend to farmers and are even taking land mortgages as collateral for crop

input supplies. But, generally, banks are still reluctant and

progress will be slow.

Farm Service Centers Initiative

A new USAID/CNFA initiative is aimed at organizing

Farm Service Centers (FSC) in Moldova. Three centers are now

operational and another 15-20 centers are planned. Small

farmstores will be created in each village surrounding the FSC

to augment the distribution system. The system will supply

farmers and other customers with crop protection products,

fertilizers, fuel, seeds, machinery, technology, and commodity credit. Usually, payment for these goods and services is

made with harvested crops and requires FSC operators with

the expertise to monetize agricultural commodities.

As Moldova’s banking system evolves, it is envisioned that

a credit system will develop between the FSCs and farmers,

but current economic reality requires most transactions to be

barter. The prevalence of the barter payment system is one of

the primary reasons multinational input providers are reluctant to enter the Moldovan marketplace. The FSCs, which will

comprise a strong Moldovan company and a Western input or

machinery supplier, and will enjoy the support of the

Agribusiness Partnership Program, should yield positive results. The program continues to develop new projects for

Western investor consideration.

John Costello is President of CNFA and Rod Beason is CNFA

Country Director for Moldova.

To contact CNFA in Moldova, call +373 (2) 241-321, email

Beasor@cnfa.moldnet.md, or visit its website at www.cnfa.com.

(MOLDOVA, continued from p. 3)

1999 CIS & Eastern

Europe Business Forum

The University of Arizona in Tucson is pleased

to announce the sixth annual CIS and Eastern

Europe Business Forum to be held November

1214, 1999. The forum will provide an up-todate analysis of political, economic, and legal aspects of business ventures in the former Soviet

Union and Eastern Europe and will present case

studies of successful American businesses and

strategies for success.

For more information, call or fax Roza Simkhovich

at (520) 298-6599, or call or fax the University of

Arizona, Department of Russian and Slavic Languages, at (520) 626-4007.

The U.S. Department of Commerce offers free software,

called “Y2K: Managing the Challenge,” which can be obtained on the Internet at www.doc.gov/y2k. The CD-ROM,

which is available in both Russian and English, includes a

program that enables users to complete an inventory of assets

that may be susceptible to Y2K problems, gauge the criticality of business processes, develop contingency plans, and conduct remediation activities. It also contains a 10-minute discussion video, a software program for managing the Y2K

process, a self-assessment checklist, a contingency planning

template, a user guide, and hotlinks to many helpful Y2K

sites. U.S. companies should recommend this software to their

Russian partners.

Businesses Must Prepare

The best way for businesses operating in Russia to combat Y2K-related failure is, first, to verify their Y2K status.

“We have spent considerable effort internally in ensuring our

own hardware and software have been updated to comply with

Y2K requirements,” said Peter M. Cohn of Exxon Ventures,

CIS. A company then must work with Russian partners to

learn their plans for Y2K remediation. “We have also worked

with the banking institutions we are associated with in Russia to ensure they have implemented appropriate safeguards

to minimize exposure to potential Y2K-related problems. Specifically, we requested our banks to confirm to us in writing

that they indeed had met certain minimum standards regarding year 2000 compliance,” said Cohn.

Be direct with Russian counterparts. “The most effective

thing American firms may be able to do is to forestall the

situation by finding new suppliers, telling their Russian suppliers about it, and demanding information about Y2K compliance in exchange for not taking their business elsewhere,”

suggested Professor McHenry of Georgetown, whose report

on Russia’s Y2K readiness can be read at www.msb.edu/faculty/mchenryw/personal/pubs/cais.htm.

The Senate Special Committee on the Year 2000 Technology Problem has held numerous hearings on U.S. business community efforts to ensure Y2K remediation among

overseas affiliates, suppliers, and partners. Senate testimony

on Y2K can be accessed at www.senate.gov/~y2k.

For a nonexhaustive listing of companies able to assist with

Y2K remediation in Russia, visit BISNIS Online at

www.bisnis.doc.gov/bisnis/isa/isa.htm#Aisa.

Athan Koutsiouroumbas was an intern at BISNIS during the

summer of 1999. He is currently studying in Nizhny Novgorod.

Trevor Gunn is BISNIS’ Deputy Director. He can be contacted via email at Trevor_Gunn@ita.doc.gov or by telephone

at (202) 482-4656.

Special thanks to Richard Dickerson at the Department of

Commerce’s Office of Computers for contributing to this report.
BISNIS BULLETIN - August/September 1999

5

COMBATTING CROSS-BORDER CREDIT CARD FRAUD

by Derek Nowek

For a growing number of U.S. merchants and exporters,

credit card fraud is a serious concern in cross-border electronic commerce, particularly in transactions with the NIS.

Anecdotal evidence suggests that, over the past four years,

credit card fraud in international transactions originating in

Russia and Belarus has increasingly become a problem. In

1997, for example, America Online had to cut direct access

to its users in Russia because too many people were using

stolen or counterfeit credit card data to sign on for email and

Internet services. More recently, Belarus has originated a rash

of attempts to defraud U.S. vendors of computer systems, peripherals, and other high-tech components. In a February 1999

incident, for example, a Florida-based computer reseller

shipped $40,000 worth of computer parts to Belarus before

the credit card fraud was discovered.

Knowing how to spot credit card fraud and what precautions to take can significantly reduce a merchant’s exposure

and potential loss in international transactions originating

from the NIS region and, indeed, the entire world.

Technology’s Two-Way Street

With the latest technology at their disposal, credit card

crooks can counterfeit entire credit cards, along with their

magnetic strips, or use sophisticated programs to generate

mathematically correct credit card numbers that will register

as “valid” when run through an electronic swipe terminal.

They can also simply steal credit card data from unsuspecting cardholders.

Although the methods of credit card fraud in foreign sales

transactions can vary widely, the recent wave of fraud attempts targeting U.S. computer companies in Northern Virginia and California have much in common. All of the U.S.

merchants received an authentic-looking fax or email from a

company in Belarus requesting a quote on computer parts.

The company claimed to be a manufacturer or a retailer of

computers and components looking for U.S. suppliers that

could replace orders from financially stricken Russia. The

Belarus company was interested in large purchase orders with

volume discounts and fast deliveries. In further correspondence, U.S. merchants were often asked to underdeclare the

invoice value of the shipment to help the company offset high

import taxes. The Belarus company then provided up to 10

credit card numbers and requested the shipment be sent via

UPS or a similar carrier without the company’s name on the

invoice and without freight insurance.

Chris Slade, account manager at Boost Peripheral Systems (Sacramento, CA, www.boostsystems.com), received

such a purchase order. He became suspicious after two of the

four credit cards he was given were declined and the Belarus

company promptly sent a batch of new numbers. “I don’t want

to see any American companies getting ripped off, especially

ours,” said Slade, after eventually tracing the credit card information to a bank in Stockholm and discovered it was bogus.

Unfortunately, some merchants with no prior credit card

fraud experience believe they are in the clear when they key

in the numbers electronically and are given a transaction approval code. In fact, all the verification does is to check that

the number is valid and sufficient funds are available for the

purchase. However, under the rules of most credit card merchant account agreements, merchants bear the full cost of

fraudulent credit card transactions that take place via mail

order, the telephone, or the Internet.

How to Minimize Credit Card Fraud

U.S. companies can take a number of precautions to protect themselves from credit card fraud, especially in crossborder transactions. These precautions can range from simple,

do-it-yourself steps to validate each order, to sophisticated

antifraud software, to automated verification services offered

by specialized providers. The method or methods used should

depend on the company’s experience in foreign sales in the

NIS region, knowledge of the local market, and the number

and size of transactions.

Antifraud experts recommend taking the following steps for

each foreign sales order:

1. Examine the email address on the purchase order. If the

order came through a free email service provider, such as

hotmail.com, juno.com, and europe.com, consider declining the order. Experts agree that a high rate of credit card

fraud occurs through these anonymous, untraceable email

addresses. A convenient way to determine if an order

comes from a free email service is to substitute “www” in

front of the domain portion of the address and look up the

provider’s website. Another way to check for free email

services is to browse a list maintained by Antifraud.com

(www.antifraud.com/redflag.htm), an Internet-based service that helps companies protect themselves against

online credit card fraud.

2. Request the name and phone number of the bank that

issued the credit card, including the exact name of the

cardholder and the exact billing address.

3. Get the transaction approval code from your merchant

account vendor. Then, call the customer’s credit card bank

to verify the credit card data.

4. Call the cardholder to reconfirm the purchase order. Often, the telephone number on the otherwise authenticlooking purchase order will be bogus.

5. Pay extra attention to large orders with multiple credit card

numbers and different “bill to” and “ship to” addresses.

(continued on p. 8)
BISNIS BULLETIN - August/September 1999

6

(continued on p. 8)

Russia’s financial collapse in the fourth quarter of 1998

presents a unique, but fleeting, opportunity for U.S. automobile producers, suppliers, and distributors to gain a strategic

foothold in the NIS automotive market. The combination of

Russia’s desire to promote a strong automobile industry and

its auto industry’s need for modernization has prompted the

government to encourage foreign direct investment and partnerships with foreign firms to revitalize the sector .

The Russian Auto Market

By 2005, Russia is expected by some to become the

world’s largest auto market, with sales of over 15 million

vehicles per year. From 1991–98, the Russian automobile

market experienced 60 percent growth. Within four years,

the Russian Transport Ministry expects the number of cars to

increase from a current 90 per 1,000 persons to 300-400.

However, these predictions were made before the financial

crisis, which has significantly diminished the ranks of the

middle class. Many growth predictions still hold true; the

economic crash has simply shifted the time frame.

The NIS automobile industry is a window into the inefficiency of the Soviet past. Most Russian automobile manufacturers have been building the same model since their inception. For instance, AvtoVAZ’s Zhiguli (Lada) has scarcely

developed beyond its 1969 prototype. Russia’s largest

automaker, AvtoVAZ, required 450 labor-hours to produce an

automobile that is typically produced in western Europe in 28

labor-hours. The low level of efficiency at which Russian

automakers operated forced the government to support the

industry through everything from outright subsidies to joint

government-plant ownership. Major portions of the Russian

auto industry are 10-12 years behind other automakers. The

Russian Government estimates that nearly $2 billion in investment is required to make domestic auto manufacturers competitive with foreign producers. It is this technological deficiency that opens doors to foreign investors.

Since August 1998, production has increased sharply in

most Russian auto factories, including AvtoVAZ, GAZ, UAZ,

and Kamaz. In the face of the 1998 crisis, AvtoVAZ intends

to produce 657,000 cars this year, a 9 percent increase from

1998. Paradoxically, the post-August crisis has improved the

financial condition of many enterprises by improving their

position vis-a-vis imports and from a price perspective, making these vehicles more viable on the domestic market, as

well as more “exportable.”

Despite heavy competition among domestic manufacturers, Russian demand for automobiles still far exceeds supply. Only 2-3 percent of the population can afford luxury cars.

Nearly all car sales focus on the mid- to low-range of prices.

Most imported new cars are priced out of the market because

of high duties. Russian manufacturers’ only competition in

POST-CRISIS AUTO PROSPECTS IN RUSSIA

by Athan Koutsiouroumbas & Trevor Gunn

the mid- to low-range market are low-end foreign imports.

The price range for this market is $6,000-$10,000.

The current lack of available cash to purchase a new car

impels many consumers to “upgrade” their present car. Moreover, component parts like stereos and repair parts like knobs

are in high demand. A tremendous market exists for those

who can organize a system of distribution that operates under a reasonable amount of delivery time (2-3 weeks). The

import tariff rate for most auto parts is currently 5 percent,

low by some Russian standards.

Investment and Imports in the Russian Auto Market

U.S. automotive industry exports to Russia are down drastically as a result of the August crisis. During the first quarter (Q1) of 1999, U.S. motor vehicle exports to Russia totaled

some $16 million, down from $45 million in Q1 1998 and

$66.8 million in 1997. The bright spot in this category is

truck exports, which rose to $9.1 million in Q1 1999 from

$6.7 million during Q1 1998, but were still well below the

$15 million worth of exports in the same period of 1997.

Exports of auto parts during Q1 1999 were only $1.69 million, down from $5.4 million in Q1 1998 and $9.86 million

in Q1 1997. For example, U.S. exports of gear boxes, road

wheels, and bumpers have fallen by about 50 percent.

The list of companies capitalizing on Russian automotive market opportunities is extensive and includes:

 ̈ FIAT, which has formed a joint venture with GAZ, will

produce automobiles by February 2000 with an $850 million financing package from the EBRD.

 ̈ Lear Corp. (Southfield, MI), which has formed a joint

venture with FIAT, will produce seats for automobiles as

a result of the FIAT-GAZ joint venture.

 ̈ BMW and Land Rover, which have joined with Avtotor

(Kaliningrad), will build BMW cars and Land Rover

sport utility vehicles. Full production will begin in September. The plant intends to reach annual production of

10,000 cars by 2002.

 ̈ Renault, which has partnered with Avtoframos for car

production in the NIS. Renault is expected to invest over

$300 million in the project.

 ̈ Ford, which has reached an agreement with the Russian

Government to develop a vehicle manufacturing facility.

The first phase requires an investment of $150 million

with initial output of 25,000 vehicles and potential capacity of 100,000 vehicles. The plant is expected to be

come fully operational during the first half of 2001.

 ̈ GM, which signed an agreement with AvtoVAZ, will

produce cars beginning in 2002. The $200-million assembly line will have initial annual capacity of 35,000 cars.
BISNIS BULLETIN - August/September 1999

7

By Michael B. Congdon & Michele S. Dash

The Ukrainian Government’s plans to close the

Chornobyl nuclear power plant (ChNPP) next year will provide several commercial opportunities for U.S. firms to work

in the region surrounding the plant. The city of Slavutych

and the ChNPP, about 35 miles to the east of the city, occupy

a special niche in Ukraine, and the links between them are

strong. Slavutych was built immediately after the accident to

house the displaced work force of the ChNPP, and the plant

continues to be its main source of employment. Slavutych

has about 28,000 residents that have a wide range of engineering, construction, and scientific skills. It is also located

about an hour’s drive from Chernihiv, a city of over 300,000.

Opportunities for U.S. firms will come from grant funds

administered by the European Bank for Reconstruction and

Development (EBRD) for work at Chornobyl and from Ukrainian Government incentives.

The EBRD is administering G-7, other country, and private donor-financed technical work related to the closure of

Chornobyl. The contractors for this work are being selected

through a competitive process. In addition, the Ukrainian

Government, recognizing the need to attract greater foreign

investment into the region to offset losses from the closure of

Chornobyl, has designated Slavutych a special economic zone

and, along with the city administration, has targeted several

projects for foreign investment.

EBRD-Administered Projects

After the 1986 accident, Chornobyl workers hastily constructed a “shelter” to enclose the radioactive debris and fuel

from the destroyed Unit 4 reactor. The shelter structure has

been deteriorating, and in 1996, an international team of experts prepared a Shelter Implementation Program (SIP) to

place the shelter and its contents in an environmentally safe

condition. The G-7 nations selected

the EBRD to administer the estimated $760 million, 7.5 year

project, and the Chornobyl Shelter

Fund was established to collect and

manage funds for the project. To

date, the international community

has pledged nearly $400 million to

the project.

The contracts for the Chornobyl

Shelter Fund and for decommissioning work are open to U.S., European, Japanese, and other companies. Currently, several Western

companies are working on the shelter, and a three-party consortium

that includes the U.S. firms Bechtel

and Battelle Memorial Institute was awarded the SIP Project

Management Unit (PMU) contract. Morrison Knudsen has

been awarded a contract to define structural stabilization alternatives for the deteriorating shelter and General Atomics

(San Diego, CA) is the contractor performing fuel characterization and studying technologies for removal. Contract commitments for shelter activities are expected to grow to over

$160 million by mid-2000. Additional pledges are being sought

to support the estimated project completion by 2007.

The Ukrainian national nuclear energy generating company Energoatom intends to use the proceeds of the

Chornobyl Shelter Fund to purchase goods and work contracts during the next 12 months. These procurements are

directed at completing shelter roof stabilization work; completing early biddable projects, including conceptual design

studies, waste management studies, and upgrades to safety

and infrastructure; and launching the next phase of the SIP.

These specific procurements have been the subject of recent

information meetings hosted by the EBRD in Kyiv and London. More information on the procurements will be posted

on the EBRD website at www.ebrd.com. The SIP Project Management Unit will conduct the tendering process.

Investment Opportunities in Slavutych

The Ukrainian Government has designated the city of

Slavutych as a special economic zone through January 2010.

The zone, to be administered by the Ministry of Energy, provides for exemptions on payment of taxes and other fees on

imports, raw materials, tools, equipment, profits, and land

use. Exemptions are subject to certain criteria, including total number of employees, percentage of employees who are

former Chornobyl workers, and business volume. The administrators of the Slavutych special economic zone also

EMERGING OPPORTUNITIES IN SLAVUTYCH

(continued on p. 8)

Selected investment projects in Slavutych.

Project Description Project Cost 

(US$ millions)

No. of jobs 

created (est.)

Project Applicant

International freight hauling 42.5 

(incl. credit of 

$9.3 mln)

700 Auto. Transport 

Assoc. Slavutych 

(ATASS)

Athletic shoes manufacturing 14.00 1,200 Impulse, LLP

Food processing 1.43 80 CJSC Slavtex

Production of polymer-based 

abrasive tools & metal fixtures 1.00 100 CJSC Kopo

Laser microprocessing 

technologies development 0.25 8 CJSC Abris

Laser luminescent microscope 

manufacturing 0.17 17 CJSC Abris

Ceramic tiles manufacturing 10.60 250 PCE Eco-Sintez

Creation of a regional radio and 

telecommunications system 0.40 16

U.M. 

Communications
BISNIS BULLETIN - August/September 1999

8

KEY CONTACTS FOR SLAVUTYCH

EBRD in London

Gene R. Harris, Senior Commercial Officer

Tel: +44 (171) 588-4027/28, 338-7490

Fax: +44 (171) 588-4026, 338-6487

Email: HarrisG@EBRD.com

EBRD in Ukraine

Olexandr Slavis

Chernobyl Shelter Fund

Tel: +380 (44) 464-0132

Fax: +380 (44) 464-0813

Tenders

Paul Emch, Procurement Manager

SIP Project Management Unit

Tel: +380 (44) 792-8603

Fax: +380 (44) 792-8838

Slavutych-based Organizations

Valentina A. Darnopyh, Director,

Slavutych Business Development Agency

Tel: +380 (44) 792-6713

Tel/Fax: +380 (44) 792-7413

Evgeniy Garin

Slavutych Laboratory of International

 Research & Technology

Tel/Fax: +380 (44) 792-3016

will assist in organizing training and retraining programs

and in acquiring licenses and registrations.

Companies interested in taking advantage of special zone

status can choose from a variety of investment opportunities

identified by Slavutych entrepreneurs and administrators. In

addition, there is a multinational effort in Slavutych to develop

science-based industry. Two specialized labs have been created that provide U.S. firms with information management,

scientific research and user facilities, and technology development services. English language training has been provided

to many potential workers and continues aggressively.

Slavutych is eager to attract foreign investment and may

offer U.S. firms interesting opportunities in laser technology,

high-technology ventures, construction, and transportation.

The EBRD-administered Chornobyl projects will bring millions of dollars into the region.

Michael B. Congdon is a program manager with Pacific

Northwest National Laboratory (PNNL), which is operated

by Battelle for the U.S. Department of Energy.

Michele S. Dash is a program administrator with PNNL and

is stationed at the Department of Energy’s Office of International Nuclear Safety and Cooperation.

(FRAUD, continued from p. 5)

(RUSSIAN AUTO MARKET, continued from p. 6)

6. Insure the shipment with a freight forwarder or an independent insurance company and do not underdeclare the

invoice or shipment value.

7. Stay informed. A number of Internet-based resources are

available to help merchants spot credit card fraud.

“There is usually very little that law enforcement agencies can do for you in international fraud cases,” according

to Dr. Audri Lanford, an authority on Internet fraud and a

co-editor of Internet ScamBusters (www.scambusters.org),

a web-based newsletter and compendium of tips and resources

on Internet fraud issues. “The best way to reduce the risk of

credit card fraud is to implement sound verification procedures and stay up-to-date on the current scams,” she said.

In the end, if you suspect credit card fraud, insist on a

wire transfer payment before processing and shipping the

order. This is the only safe way to ensure you receive payment for your exported merchandise.

Derek Nowek covers customs for BISNIS in Washington, D.C.

In most deals, the federal and local governments play a

weighty role in negotiations. For instance, initial production

plans for the GAZ-FIAT partnership are tentative to their

submission to and approval by the Economics Ministry. The

government attempts to entice investment through various

types of duty exemptions with mixed success as companies

are unsure of how these may be utilized on a practical level.

Additionally, rent, labor, and other costs are below precrisis levels, making investment with Russian manufacturers

or foreign companies with ventures in Russia now even more

appealing. Many U.S. automotive components suppliers have

neglected original equipment manufacturer (OEM)-level dialogues with emerging Russian manufacturers—instead concentrating on major foreign manufacturers—thus bypassing

an important export and partnership opportunity. The next

year will afford a unique but time-sensitive (defined by tight

production timetables) window during which U.S. companies can start or accelerate dialogues with Russian and foreign manufacturers in Russia.

For further information on the Russian autom markets, visit

BISNIS Online at www.bisnis.doc.gov/bisnis/isa/isa.htm#Hisa

or contact Michael Nikoulichev, Foreign Commercial Service, Moscow, email: Michael.Nikoulichev@mail.doc.gov.

Athan Koutsiouroumbas was an intern at BISNIS during summer 1999. He is currently studying in Nizhny Novgorod.

Trevor Gunn is BISNIS’ Deputy Director. He can be contacted via email at Trevor_Gunn@ita.doc.gov or by telephone

at (202) 482-4656.

(SLAVUTYCH, continued from p. 7)
BISNIS BULLETIN - August/September 1999

9

Armenia’s transition to a market economy remains a work

in progress, but this is a good time for the U.S. business community to look at Armenia. Armenia has built an exceptional

track record on reform, which has brought considerable macroeconomic gains and helped establish a suitable framework

for a private-sector friendly environment.

Positive developments in Armenia include:

Ø Macroeconomic Stability. Cumulative inflation by the

end of 1996 was 5.7 percent, the lowest in the NIS; for

the first seven months of 1999, it was 0.9 percent. After

years of collapse, GDP grew by 5.4 percent in 1994 and

has continued in the positive range of 5-7 percent for

subsequent years. The fiscal deficit declined to 8.4 percent of GDP by 1996, down from 48 percent in 1993.

Ø Advanced Legal Framework. With the passage of the

new Civil Code in 1998 that includes fundamental commercial legislation and with other laws on contracts,

bankruptcy, and real property, Armenia has “one of the

very best legal frameworks in the region,” according to

the World Bank.

Ø Privatization. Almost 100 percent of arable land is privately owned, as is 80 percent of the housing stock.

Nearly 5,000 small businesses and over 1,100 medium

and large enterprises have been privatized to date.

Ø Banking. Modern laws (covering the Central Bank, banking, and bank insolvency) have been adopted. Loan-loss

provisioning has been introduced and enforced strongly.

Movement of funds is unrestricted.

The core of the government’s reform program has been

the stimulation of the private sector (75 percent of GDP growth

for 1998 came from the private sector) and the removal of

barriers to foreign investment. Armenian President Robert

Kocharian stated recently that “today capital knows no borders. At this important moment in Armenia’s history, the role

of foreign investment cannot be overestimated.”

Armenia offers attractive investment opportunities in

such areas as computer software engineering (the country has

an inexpensive, highly skilled labor pool); high-tech electronics, engineering, and assembly; chemical/biochemical

production (40 percent of the entire Soviet Union’s chemical

and electrical engineering output came from Armenia); consumer goods and light manufacturing (textiles, shoes, household goods); pharmaceuticals production; and agribusiness.

Today, Armenia continues to serve its historic function

as a crossroad linking Europe, Asia, and the Middle East,

which offers investors entry into regional markets well beyond the size of this small republic. A notable example of

Armenia’s attractions: In July 1999, General Motors announced plans to build an assembly plant in Armenia.

The USABIA

The United States–Armenia Business and Investment

Association (USABIA), a nonprofit trade organization established in 1998, works to promote business, trade, and investment ties between the United States and Armenia. With offices in Washington, D.C., and Yerevan, USABIA facilitates

economic development, networking, matchmaking, information exchange, trade missions, and cooperation between U.S.

and Armenian businesses and governmental entities—including advocacy in Washington and Yerevan on issues of importance to U.S. businesses.

USABIA has a formal agreement of cooperation with the

Armenian Government through the Armenian Development

Agency (ADA), which was established in 1998 to promote

an investment climate that attracts foreign capital and supports the Armenian Government’s open door trade and investment policy.

In June 1999, USABIA launched a website that features

information designed to facilitate commercial relations between the United States and Armenian business and investment communities by providing “guides” on doing business

in Armenia, investment opportunities, economic data and

analysis, travel tips, and links to pertinent resources.

In July 1999, USABIA and the Armenian Engineers and

Scientists of America, Inc. (AESA) announced the signing of

a memorandum of understanding to work together cooperatively with the aim of promoting critically needed economic

development in Armenia. The formal agreement outlines a

range of activities for mutual cooperation, including trade

missions, business forums, investment seminars, and the provision of technical assistance for purposes such as sector analyses, trade links, and matchmaking between Armenian and

U.S. entrepreneurs.

For more information about the activities and services of

USABIA, call (202) 342-2582, email info@usabia.org, or visit

www.usabia.org.

Sonia Medzadourian Crow is Executive Director of the U.S.–

Armenia Business and Investment Association (USABIA).

ITS A GOOD TIME TO LOOK AT ARMENIA

by Sonia Medzadourian Crow

NOTICE

BISNIS Online has a new

address: www.bisnis.doc.gov
BISNIS BULLETIN - August/September 1999

10

TRICKS OF THE TRADE

Tips for Opening an Office in Moscow

by Yevgeny Schukin

Although U.S. and other foreign companies have increasingly pursued business activities in Russia’s regions, Moscow continues to attract the lion’s share of foreign interest.

Moscow has a relative abundance of business services and

resources, extensive transport links with other regions and

countries, and a relatively strong consumer base among Russian markets. After the August 1998 ruble crisis, however,

many U.S. companies are uncertain as to the availability, quality, and cost of resources for opening an office in Moscow.

Finding Office Space

Office space is available at many business centers

throughout Moscow. Many major hotels also rent offices

within their buildings. In general, the more Westernized a

site, the more publicized, and the closer to the city center—

the higher the price. If budgets are limited, companies that

do not want or need a central, street-level location should

consider an office outside the city center.

According to Stiles & Riabokobylko, a real estate agency

operating in Moscow, office rents in Moscow have fallen by

30 percent since August 1998. Average prices for Westernstandard office space are as low as $500-$750 per square meter

per year. Occupancy is also down, making this a tenant’s market. To cope with the downturn, many Moscow landlords are

offering aggressive terms for renewals or new rental leases.

Moscow Labor Market

Russian unemployment is at an all-time peak, measuring an official 14.2 percent this past June. Many companies

have halved their staff to survive, and local employment agencies predict additional layoffs in the future. Meanwhile, wages

remain depressed in Moscow following the financial turmoil

of the past year. Benefits—training, office cars, cell phones—

have also been reduced. Ancor, a recruiting agency operating throughout Russia, reports the following as current

monthly, pre-tax salary rates in Moscow for a Western company seeking employees:

 ̈ Sales Manager (Key Account Manager):$1,600

 ̈ Executive/Personal Assistant: $500-$1,000

 ̈ Secretary/Receptionist: $300-$500

 ̈ Accountant: $900

 ̈ Systems Engineer: $1,000

A number of recruiting agencies, foreign and domestic,

are operating in the Moscow area that can help a company

find qualified staff. Many recruiting companies also provide

employment and consulting services on the labor market,

while some can even help out with payroll services.

Telephones, Cell Phones, and the Internet

Most foreign companies in Moscow contract with private digital overlay providers rather than with Russian cable

providers, such as Moscow City Telephone Network. A regular service package includes the installation fee, a monthly

payment, and a per-minute traffic fee. Installation fees vary

among companies, currently ranging from $450-850 per line.

An average monthly payment is $20-25 per line. European

Russia can be reached at an average rate of $0.25-0.50 per

minute, while long distance calls to the United States and

Western Europe cost about $1.60 per minute.

There are three major cellular phone operators in Moscow: BeeLine, Mobile Telephone Systems, and Moscow

Cellular Phone. These three companies offer a wide range

of service plans and fees, with minimum costs as much as

$20-25 a month. Operators give substantial preferences to

corporate clients, who may obtain a certain number of cell

phones and who pay no traffic fees within the same network.

Moscow now boasts some 25-30 Internet service providers. Most of them will provide the connection for free and

charge approximately $10-20 per month for a base tariff allowing up to 10 hours of on-line Internet connection, with

fees of $0.50-2 per each additional hour. Selected operators

offer unlimited access to the Internet for $40-50 a month.

Digital overlay phone providers offer Internet access for $500-

700 a month for corporate clients with 50 users or more.

Finding Banking Services

There were some 1,372 banks in Moscow in 1998, of

which 36 were banks with full or partial foreign ownership.

The financial crisis paralyzed Russia’s banking system,

prompting foreign companies to transfer their accounts to

banks with the highest credibility. U.S. banks in Moscow include Chase Manhattan, Citibank, Bank of America, Bank

of New York, and American Express Bank Ltd.

Worldwide VISA, MasterCard, and EuroCard credit

and debit cards are accepted by a limited number of Russian

banks. Following the crisis, the most reliable among Russian

banks accepting cards are state-owned Sberbank and

Vneshtorgbank, as well as Gazprombank and Moscow International Bank, and Bank of Moscow (authorized bank

of the Moscow city administration).

For more information on opening an office in Moscow, visit

BISNIS Online at www.bisnis.doc.gov/bisnis/country/

990716mos.htm.

Yevgeny Schukin is a BISNIS Representative in Moscow.
BISNIS BULLETIN - August/September 1999

11

AGENCY SPOTLIGHT

REGIONAL CORNER: Sumgait, Azerbaijan

United States–Kazakhstan Business Association—A new

U.S.–Kazakhstan Business Association has been formed and

is headquartered in Washington, DC. Its main goal is to promote the involvement of the U.S. private sector in trade and

investment in Kazakhstan. The association will work to foster a business and investment climate in which U.S. and

Kazakh companies operating in Kazakhstan can flourish.

For more information, contact:

William C. Veale, Executive Director

1200 G Street, NW, Suite 827

Washington, DC 20005

Tel: (202) 434-8791, Fax: (202) 638-3040

Multilateral Investment Guarantee Agency (MIGA)—

IPAnet/PrivatizationLink, an Internet-based information

service operated by MIGA, an arm of the World Bank, has

helped develop three more websites for NIS privatization agencies. New sites aimed at promoting foreign investment and

offering new business opportunities in NIS countries include:

 ̈ Belarus—www.president.gov.by/gosim/english/index.htm

 ̈ Kyrgyzstan—http://kyrgyzinvest.org

 ̈ Tajikistan—http://privatization.Tajikistan.com

Also, a list of Armenia enterprises up for privatization during

1998–2000, can be accessed by searching PrivatizationLink’s

DATABANK under “Armenia” at www.privatizationlink.com.

by Judith Robinson

Azerbaijan’s city of Sumgait was developed between 1948

and 1950 as a showcase Soviet industrial city. Located 35

km. north of the Azerbaijan capital of Baku, Sumgait’s 83,000

sq. km. were devoted to the metallurgy, chemical, petrochemical, and textile industries. The population stands at about

250,000, with over half below the age of 30 and with a very

high level of education. Available statistics, which show employment at about 72,000, fail to reflect the significant number of employees on involuntary furlough due to low levels of

capacity utilization in the city’s enterprises.

Today, this City of Tomorrow, as Sumgait was termed,

has become seriously polluted from its aluminum and steel

plants, its chemical processing facilities, and unstemmed,

untreated agricultural and municipal runoff. These significant environmental problems are barriers to the area’s human and economic development. At the same time, the problems have generated opportunities; environmental improvement in the region requires investment of resources and must

be coupled with industrial rehabilitation. The Azerbaijani

Government, in cooperation with international financial support and foreign investment entities, is working to improve

environmental conditions and ensure that development of

Azerbaijan’s oil and gas reserves will generate revenue and

support for other local industries, including those in Sumgait.

Investment opportunities in Sumgait are most promising in industries that serve Azerbaijan’s growing oil/gas industry: (1) in the metallurgy sector, several companies that

manufacture seamless steel pipes and ferrous and nonferrous

engineering components (such as Azerbaijan Tube and Pipe

Works, sister to Ukraine’s Seversky Pipe plant, which acts

through a holding company, Metallurgiya); and (2) in the

petrochemicals/chemicals industry, eight of the country’s 15

plants are located in Sumgait and manufacture polyethylene,

synthetic rubber, chemicals, and detergents. Additional opportunities exist in textiles and food processing.

Sumgait enjoys local availability of raw inputs: oil, minerals, fibers for textiles, and food crops for food processing.

Its location on the Caspian Sea is advantageous for regional

exports. There is also a growing domestic market for oil-related production and a domestic consumer goods and food

market that will grow as oil revenues create spending power.

Weaknesses include low levels of capacity utilization, legal

inadequacies and tax and regulatory constraints, a shortage

of management skills, a small domestic consumer goods

market, outdated technology and a lack of funds for new technologies and equipment, plus a high level of pollution.

As first steps toward addressing the environmental situation, Azerbaijan’s federal government and the Sumgait local government have shut down Sumgait’s worst offending

facilities, pending the installation of more efficient processes.

Plans are in place for upgrading and expanding the city’s

municipal wastewater treatment facilities. Sumgait has benefited from international assistance, some of it aimed at environmental management and coordinated economic rehabilitation. The World Bank, United Nations, the European Bank

for Reconstruction and Development, and the Islamic Development Bank have all been active in the area, as has the EU’s

TACIS program. An Azerbaijani Federal Committee for Ecology is in place to develop and carry out a coherent environmental policy countrywide, but is currently handicapped by

inadequate environmental laws and enforcement.

For more information on Azerbaijan, visit BISNIS Online at

www.bisnis.doc.gov/bisnis/country/caucasus.htm#Azerbaijan.

Judith Robinson covers Azerbaijan for BISNIS in Washington.
Sender ________________

U.S. DEPARTMENT OF COMMERCE

International Trade Administration

Washington, D.C. 20230

BISNIS - RRB

OFFICIAL BUSINESS

Penalty for Private Use, $300

FIRST-CLASS MAIL

PRE-SORTED

POSTAGE & FEES PAID

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PERMIT No. G-54

This notice is provided solely as an informational resource and does not constitute U.S. Department of Commerce endorsement of these events. For a more

complete listing of NIS trade events, visit BISNIS Online at www.bisnis.doc.gov/bisnis/leads/tradecal.htm. All information published in the BISNIS Bulletin

regarding trade events is subject to change without notice by the organizers of those events.

KIOGE ‘99 - Seventh

Kazakhstan Oil & Gas Conf.

Baku Telecom ‘99 Sept. 29–Oct. 2, 1999 Baku

Organized by:

Telephone:

Facsimile:

Email:

Website:

ITE Group

+44 (171) 286-9720

+44 (171) 286-0177

press@ite-exhibitions.com

www.ite-exhibitions.com

October 6–7, 1999

ITE Group

+44 (171) 286-9720

+44 (171) 286-0177

ingram@ite-exhibition.com

www.ite-exhibitions.com

Almaty

TRADE EVENTS CALENDAR

TbiU.lisi

TNT Productions Inc.

(703) 406-0010

(703) 406-8543

tntprod@dgs.dgsys.com

www.tntprod.com

Comtek Int’l, Inc. (USA)

(203) 834-1122

(203) 762-0773

internetcom@comtekexpo.com

www.comtekexpo.com/inetcom/inetcom.htm

2nd Annual Consumer/

FoodExpo Georgia

October 19–22, 1999

Internetcomm ‘99 October 5–8, 1999

Organized by:

Telephone:

Facsimile:

Email:

Website:

Moscow

Dont miss the

 7th annual

BISNIS Open House

to be held on

September 17, 1999

3:00-5:30pm

at

U.S. Department of Commerce

Herbert Hoover Building

Main Lobby

14th St. & Constitution Ave., NW

Washington, D.C. 20230

To RSVP,

 fax: (202) 482-2293,

email: bisnis@ita.doc.gov, or

visit BISNIS Online at

www.bisnis.doc.gov

 for more information.

Organized by:

Telephone:

Facsimile:

Email:

Website:

Organized by:

Telephone:

Facsimile:

Email:

Website: