June 1999

UPDATE FROM SAKHALIN:

OIL & GAS PROJECTS FLOW

(continued on p. 5) (continued on p. 4)

by Michael Allen and Elena Sabirova

Russia is about to make its initial foray into offshore

development in the icy Sea of Okhotsk, which geologists

believe could hold the huge gas and oil reserves needed by

booming Northeast Asian economies in the next century.

The jumping-off point is the northeast coast of Sakhalin

Island, and no less than five transnational consortia are in

various stages of the pioneering developments. These

multibillion-dollar projects are the engines expected to drive

opportunities for U.S. companies, not only in the oil and

gas industry, but in other areas that should develop as a

result of the tremendous amount of foreign investment in

the region.

Recently, the expected pace of development of Sakhalin

oil and gas projects has slowed as a result of both internal

and external factors—low oil prices, the financial crisis in

Russia, and the need for continued work on production

sharing agreement legislation. However, none of the major

players have been deterred enough to exit the region. Companies interested in getting involved should closely and

regularly monitor changes in development plans.

Leading Offshore Projects

The Sakhalin-2 project is the farthest down the development line, with first oil expected in July 1999. The operator, Sakhalin Energy Investment Co., Ltd. (Marathon, Mitsubishi, Mitsui, and Royal/Dutch Shell), was

the first to sign a production sharing agreement (PSA) with

the Russian Government, and the first to declare

commerciality on a Sakhalin shelf project.

Sakhalin-1 (Exxon, Japanese consortium Sodeco,

Rosneft, and Rosneft-Sakhalinmorneftegaz (SMNG))

signed a PSA not long after Sakhalin Energy. The two were

FRANCHISING IN RUSSIA 99

by Michael Amies

Although Russia has experienced serious economic

upheaval since August 1998, it is nevertheless a market

of 146 million people that has become increasingly aware

of, and hungry for, the range of products and services to

which the West has long been accustomed. As an alternative to heavy local investment and commitment of

resources in Russia, or to the random and relatively uncontrolled distribution of products through informal distribution agreements and licenses, franchising offers

unique advantages. Typically, the franchisor will make

necessary local investment, take on the role of distributor, and undertake to maintain the quality of goods or

services, or will permit a master franchisee to do so.

Franchising Gains Ground in Russia

Five years ago, only a handful of foreign franchises,

with one or two units, were open in Russia, and it was

hard to find a genuinely Russian franchisor. Today, more

than 30 U.S. franchises are operating some hundreds of

units, mainly in western Russia, including two Starlite

Diners in Moscow. Moreover, many hundreds of franchises have sprouted up in a variety of market sectors.

Although, as usual, fast food is the most prominent and

widespread of these sectors.

McDonald’s has dominated the fast-food sector here

as elsewhere, but in Russia and the NIS, these are corporate-owned restaurants rather than franchises. However, Western franchises and homegrown concepts are

rising up to challenge the omnipresent golden arches.

For example, Subway licensed its first Russian-owned

restaurant franchise in Moscow at the end of 1998. Russian competitors, such as Russkoe Bistro, which serves

Russian food in several fast-food style outlets, Patio

Pizza, and Rostik Chicken are beginning to franchise

units away from their home bases in Moscow.

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

U.S. Department of Commerce • International Trade Administration

BISNIS

BULLETIN
BISNIS BULLETIN - June 1999

2

New BISNIS

email/phone info.

Anne Grey 202-482-2299

anne_grey@ita.doc.gov

Trevor Gunn 202-482-4656

trevor_gunn@ita.doc.gov

Ellen House 202-482-2284

ellen_house@ita.doc.gov

Juliana Kinal 202-482-3729

juliana_kinal@ita.doc.gov

Philip de Leon 202-482-2109

philip_de_leon@ita.doc.gov

Joan Morgan 202-482-2709

joan_morgan@ita.doc.gov

Derek Nowek 202-482-4522

derek_nowek@ita.doc.gov

Kelly Raftery 202-482-4199

kelly_raftery@ita.doc.gov

Judith Robinson 202-482-2022

judith_robinson@ita.doc.gov

Karen Rubeiz 202-482-2047

karen_rubeiz@ita.doc.gov

Tanya Shuster 202-482-2036

tanya_shuster@ita.doc.gov

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-TRADe (872-8723)

press 2 and then press 2 again

or visit the BISNIS Online website at

www.mac.doc.gov/BISNIS

BISNIS

The Business Information Service for the Newly Independent States

In This Issue

Update on Sakhalin

Franchising in Russia ‘99

Georgia Inaugurates Caspian Oil

Terminal

TUSRIF Faces Banking Crisis

Tricks of the Trade: Russia

Changes Temporary Import Rules

Regional Corner:

 Primorsky Krai, Russia

Agency Spotlight

Trade Events Calendar

BISNIS Move

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

Kelly Raftery, Tanya Shuster

Contributors

Michael Allen, Michael Amies, Svetlana

Kuzmichenko, Joan Morgan, Derek Nowek,

Elena Sabirova, Yevgeny Schukin, Lisa Torch

Georgia Inaugurates Caspian Oil Terminal by Joan Morgan

A tanker full of Caspian Sea oil bound for Italy via

Ukraine left Georgia’s Black Sea port of Supsa on April 17,

1999, inaugurating the western route for early Caspian oil

from Azerbaijan. Georgian President Eduard Shevardnadze,

Azerbaijani President Heydar Aliyev, and Ukrainian President Leonid Kuchma were present to officially open the Supsa

oil terminal and mark the completion of repairs to the pipeline from Baku. Representing the United States were U.S.

Department of Commerce Counselor and NIS Ombudsman

Jan Kalicki and Special Advisor for Caspian Basin Energy

Development Richard Morningstar, who read a congratulatory statement from President Clinton. The presidents pushed

a ceremonial button to begin filling the tanker.

According to Azerbaijan International Operating Company (AIOC) President David Woodward, the success of the

pipeline should give confidence to other investors to come to

the region. Morningstar stated at the ceremony that the BakuSupsa pipeline may serve as “the cornerstone of an east-west

corridor that can promote economic cooperation and growth

among all the countries of the Caucasus and Central Asia.”

On the same day, a new ferry line connecting Poti, Georgia, to Odessa, Ukraine, was opened. The two events together

mark the beginning of the revitalization of the Great Silk

Road (the ancient trading route that caravans traveled through

the Central Asian and Caucasus regions to reach Europe)

and highlight the viability of an east-west transit corridor.

During a trip to Washington, D.C., in early April, Georgian Minister of Economy Vladimer Papava visited BISNIS’

office. Papava was optimistic about the significance of the

new Supsa terminal for the Georgian economy, stating that

“the opening of the terminal creates new possibilities” for

investment in Georgia.

Joan Morgan covers Georgia for BISNIS in Washington, D.C.
BISNIS BULLETIN - June 1999

3

The U.S. Russia Investment Fund, a U.S. Government-supported investment firm that makes equity capital, loans, and technical assistance available to private

businesses operating in Russia, has retailored its strategy

in the wake of the August 1998 Russian banking crisis.

The fund is in the process of reevaluating its Russian banking partners, adjusting its lending approach, and providing guidance to Russian businesses on how to weather

the crisis and emerge more fiscally responsible.

Immediately following the devaluation of the ruble

last August, the fund temporarily halted all of its lending

and investment programs, including the Bank Partner

Program, which works in conjunction with a consortium

of Russian banks to provide small business, microcredit,

auto, and mortgage loans in various Russian regions.

Adjusting Programs

The fund’s programs were reactivated in late October 1998. Over the past nine months, however, Fund management has closely monitored the financial condition of

the banks participating in the Bank Partner Program. Part

of this process was to assign banks to risk categories.

Based upon these rankings, loan portfolios were moved

out of troubled banks and were placed with more stable

banks. Recently, the fund has pursued a strategy to attract new bank partners. Three new banks joined the program as of March 1999—Bank of Moscow, NBD Bank

in Nizhny Novgorod, and the St. Petersburg Bank for

Reconstruction and Development. Negotiations are under way with several additional banks that have proven

stable following the crisis and that have long-term growth

potential. These banks include three in the Russian Far

East, two in Moscow, four in St. Petersburg, and one in

Yekaterinburg.

After an initial pilot program, the fund is launching a

mortgage-lending program with partner banks in Moscow, St. Petersburg, and Yuzhno-Sakhalinsk. FannieMae,

the largest originator of mortgage loans in the United

States, is working closely with the fund to develop a mortgage subsidiary in Russia.

In addition, the fund’s Direct Investment Program

plans to capitalize on the need for revitalizing Russia’s

financial sector following the crisis. The fund will deploy

capital in the banking, leasing, and mortgage industries

where there are promising opportunities to infuse Western knowledge and expertise. The fund will also continue

to selectively make direct equity investments in core inU.S. RUSSIA FUND ADJUSTS TO THE BANKING CRISIS

dustries where it can add the most value and minimize

risk, such as consumer products, packaging, food and

beverage, communications, broadcasting, and pharmaceuticals.

Crisis Support

As part of the fund’s response to the Russian economic crisis, it has launched a “Survival and Recovery

Guide for Small Business” on the Internet (www.tusrif.ru).

The guide benefits Russian companies that lack the capital and turnaround management skills to effectively maneuver through a fiscal crisis. The guide offers advice

and financial models covering cash management, cost

reduction, financial management, debt restructuring, payroll, tax and legal issues, and third-party relationships.

The fund also plans to co-host a corporate governance symposium geared toward both Russian and U.S.

businesses in autumn 1999 in Moscow. The conference

will cover such subjects as U.S. GAAP (generally accepted accounting principles), the roles of boards of directors, tax policy and reforms, and management issues.

For further information on the fund, visit its website at

www.tusrif.ru or call (212) 818-0444.

Lisa C. Torch is Director of Communications for the U.S.

Russia Investment Fund in New York, New York.

by Lisa C. Torch

PA RTICIPATE IN THE

1999 MOSCOW AIR SH OW !

The Office of Aerospace within the U.S. Department

of Commerce’s International Trade Administration is

sponsoring a booth for U.S. aerospace exporters at

the 1999 Moscow Air Show (MAKS’99) to be held

August 17–22. The 1997 show was attended by

500,000 people from 24 countries and more than 400

companies. The U.S. Aerospace Products Literature

Center (APLC) offers U.S. aerospace companies a

low-cost opportunity to gain exposure in new foreign

markets for the small fee of $550, plus shipping

expenses. Russia imported over $1.1 billion in U.S.

aerospace products in 1998, ranking 14th in the world

for U.S. exports.

For more information, contact

Sandra Yacura

U.S. Department of Commerce

Tel: 202-482-4230 Fax: 202-482-3113

Email: sandra_yacura@ita.doc.gov
BISNIS BULLETIN - June 1999

4

months. Both have been able to adjust to the recent difficulties and to carry on with development plans.

The message for franchisors looking at this market is

that dependence on imported supplies and equipment can

make them vulnerable. Franchises that are service oriented,

depending on technology transfer to their franchisees for success rather than the sale of goods, can more readily ride out

the crises.

As in all developing markets, the risks are high for the

pioneers. However, those who can establish themselves now

will gain a head start that will make it difficult for them to be

overtaken. There is an emerging middle class in Russia and

more than 50 cities with a population of over one million.

Each of these cities can support at least one unit of practically any franchise business one can name.

Franchising Potential in the NIS

Franchising has been slower to develop elsewhere in the

NIS than in Russia, but it is beginning to take hold in Ukraine

and interest is growing in Central Asia.

The Ukrainian market offers many opportunities for international franchising and no specific regulatory constraints

hinder the activity. However, the investment climate in

Ukraine has proved a major obstacle for franchisees. Western investments in Ukraine with franchising potential (e.g.,

McDonald’s, Coca-Cola) are currently corporately owned, and

very few Ukrainian businesses recognize the potential for franchising. Although successful examples of franchising projects

can be found—such as Baskin Robbins and Dunkin Donuts

in Kharkiv and Express Personnel Services in Kyiv, in general, franchising projects in fast food, photocopying, gas stations, and so forth are still rare.

Currently, U.S. franchisors have an extremely limited

presence in Central Asia. Central Asia watchers, however,

believe that the potential for such activity is there. The

(FRANCHISING, continued from p. 1)

Nonfast-food Successes

Xerox has successfully franchised its copy centers in several major Russian cities. AlphaGraphics, whose first store

in Moscow (opened in 1989) has consistently been one of its

highest volume stores in the world, now has three stores in

Moscow, one in St. Petersburg, and one in Novgorod Velikiy.

Express Personnel Services has been successful in building

a network of units serving this market with offices in nine

Russian cities across the country. Also, modern, Western-style

gas stations with small convenience stores are replacing the

roadside tankers that used to be the main sources of fuel.

Russian View of Franchising

Since 1997, franchising has been formally recognized by

Russian lawmakers as a legitimate way of doing business (an

important step in a country where people are mistrustful of

any activity that is not officially recognized), and the activity

has its own chapter in the revised Civil Code. Although

franchisors would like to see some clauses of this law changed,

it is generally a supportive measure. In addition, officially,

protection of trademarks, logos, and intellectual property is

available—all vital features if a franchisor is to establish a

unique and recognizable brand in Russia.

Support for Franchisors

As further evidence of the gathering strength of the franchise community, the Russian Franchise Association (RFA)

has been established (assisted in its early days by technical

assistance funded by the U.S. Agency for International Development (USAID) and, more recently, by the European

Union’s TACIS program). This organization has a formally

constituted board, a code of ethics for member franchisors,

and a well-equipped resource center in Moscow.

The RFA organized an international franchise conference in Moscow in April 1999. It also held three educational

workshops in March 1999 in Moscow, Novgorod, and Tula.

Each was attended by more than 40 government officials and

entrepreneurs, all eager to learn more about the concept and,

in many cases, ready and able to acquire franchise businesses.

Obstacles to Franchising

Major difficulties faced by would-be franchisors include

the fact that good retail space is hard to find and leases can be

difficult to acquire because of uncertainty about property ownership and a labyrinthine bureaucratic process. Also, regular

insurance is hard to come by and very expensive.

Another major problem is establishing dependable sources

of high-quality inputs. One of the effects of the economic

downturn and the resulting currency crisis was to make the

import of supplies and equipment a costly affair for

franchisors. The foresight of two well-known brands—

McDonald’s and Baskin Robbins—in establishing their own

supply sources in Russia has been well rewarded in recent

Franchising Terms Franchising Terms

Franchisor—an entity that has developed a business concept and brand image. It licenses a third

party (the “franchisee”) to operate the business under

that brand within a predetermined territory, in return

for a fee, or fees. The franchisor will normally continue

to support the franchisee with training, product

development, and marketing in return for an ongoing

fee, usually termed a “royalty,” or “management

service fee.”

Master Franchisee—effectively the same as a

franchisee, except that the territory granted is usually

much larger (can be a whole country or a group of

countries), and the master franchisee would have the

right to open multiple units or to sub-franchise within

the territory.

( continued on p. 5)
BISNIS BULLETIN - June 1999

5

(SAKHALIN, continued from p. 1)

poised to become pipeline partners until Exxon drilled a dry

hole in the Arkutun-Dagi offshore field in summer 1997, finding a much more complicated reserve structure than previously supposed. That, combined with better-than-expected 3-D

seismic results from the Chayvo field, has gradually changed

Sakhalin-1’s focus toward a longer term gas project. (Exxon

is expected to drill an appraisal well in Chayvo this summer

to confirm.)

This shift in focus changes offshore development dynamics radically because of the significant difference between the

two consortia in their approach to gas marketing. Sakhalin-2

shareholder Shell is a world leader in LNG (liquid natural

gas) and tanker technology, while Sakhalin-1 talks of sending gas by pipeline to north China and/or Japan’s West Coast.

The first project to find a willing gas buyer and sign a

long-term contract will clearly be in the lead on pipeline and

production infrastructure development. Exxon has already

announced formation of a company to do a feasibility study

of the Japan undersea pipeline option.

Mergers

The recent merger of Exxon and Mobil may provide

Sakhalin-1 with a new strategic ally: the Pegastar consortium (Mobil, Texaco, and Rosneft-SMNG), which will have

rights to the Kirin block of Sakhalin-3, an unexplored but

potentially enormous gas field. A bill granting Sakhalin-3

the right to conclude a PSA sailed through the Duma in April.

Mergers will play a role in the future of two other projects:

Sakhalin-4 (ARCO and Rosneft-SMNG) and Sakhalin-5

(BP-Amoco and Rosneft-SMNG). Despite high hopes for a

fast start, the Sakhalin-4 partners failed to agree on a joint

appraisal-drilling program for summer 1999. Sakhalin-5 is

still in the discussion stage. However, an agreed merger of

ARCO and BP-Amoco could change the situation.

Opportunities on Sakhalin

Despite shifts in strategy and slower development

timelines, there is sufficient activity in the region to warrant

a close look. Opportunities can be found directly in the oil

and gas industry, such as in oil/gas support services, drilling,

and camp catering. With virtually no infrastructure in place

on Sakhalin, engineering, construction, and a wide variety of

other services are also needed to support the Sakhalin projects

and the expatriate community. Additionally, as projects declare commerciality, they will begin making promised bonus

payments to the Sakhalin regional budget. These funds will

be used for much-needed infrastructure development.

 The Sakhalin oil and gas projects have committed to a

high level of Russian content in their development. Successful U.S. companies here have already discovered that joint

venturing with a Russian partner gives them an enormous

competitive advantage in gaining contracts and obtaining local permits. Experienced Russia hands (and the oil companies) know that the process of partnering, training, and proving a joint venture’s reliability takes time and commitment.

Some companies are partnering with Russian firms now to

seek work on infrastructure or other projects, if only to gain

experience and position themselves now for prequalification

on later oil and gas work, expected two and three years down

the road.

Sakhalin also boasts opportunities for U.S. companies in

the areas of fishing, fishing vessel leasing, fish processing;

timber and timber processing; and adventure tourism.

The American Business Center Yuzhno-Sakhalinsk (ABC)

assists U.S. companies in surveying the market for their product or service, identifies opportunities and key contacts, and

provides other business support services as the opportunity

develops into a contract or ongoing joint venture relationship. In Russia, contact the ABC by telephone at +7

(4242)72-71-24, or by email at abcsakh@fraec.org. In the

United States, call 206-443-1935 or write sghayem@fraec.org.

For more information on Sakhalin, visit BISNIS Online at

www.mac.doc.gov/bisnis/country/regions.html#FarEast.

Michael Allen in Director of the American Business Center

in Yuzhno-Sakhalinsk.

Elena Sabirova represents BISNIS in Yuzhno-Sakhalinsk, and

is collocated with the American Business Center.

(FRANCHISING, continued from p. 4)

Central Asian-American Enterprise Fund (CAAEF), which

provides both direct equity investments and loans to enterprises in the region, including start-up ventures, is seeking

to assist the development of franchising in the area. According to CAAEF President Don Nicholson, “The opportunities

for franchising in Central Asia are still unknown given the

lack or absence of any real experience. However, we see it as

having considerable potential and would welcome inquiries

from potential franchisers. Given the state of the market and

low wage levels, the potential will be greatest for those franchisees that provide very affordable goods and services, and

where the initial costs are not that high.”

For a lengthy report on Franchising in Russia, visit BISNIS

Online at www.mac.doc.gov/bisnis/isa/9707fran.htm.

For more information on the Russian Franchise Association,

contact Alexander Mailer, President, tel: +7 (095) 305-5877,

fax: 305-5850, or e-mail: franch@matrix.ru.

Michael Amies is Executive Vice President of Sibley International, an economic development consulting firm in Washington, D.C.
BISNIS BULLETIN - June 1999

6

TRICKS OF THE TRADE

Russia Changes Temporary Import Rules

by Yevgeny Schukin and Derek Nowek

TIPS FOR PLACING GOODS UNDER THE

TEMPORARY IMPORT REGIME IN RUSSIA

' Get permission from local customs authorities;

' Keep in mind that the period for temporary import

cannot exceed two years;

' Remember that upon the expiration period of the

temporary regime goods that have not been returned

must be declared for a different customs regime or

placed in a customs bonded warehouse; and

' Be aware that certain goods aren’t eligible for

temporary import status.

As of April 1999, Russian customs authorities issued a

new regulation limiting exemptions from customs duties and

taxes that local affiliates of foreign firms can claim when

temporarily importing office assets, such as equipment and

supplies, furniture, and motor vehicles. In the short run, some

U.S. small- and medium-size companies with representative

offices in Russia may find that the new provisions hinder

their business activities. Unfortunately, it is still unclear what

is the best way to dispose of office equipment no longer in

use, short of reexport or payment of customs duties. In the

medium to long term, however, U.S. companies may benefit

from more uniform and simplified customs procedures.

Since 1994, representative offices of foreign firms, banks,

and other organizations had a right to import duty free a limited number of products to be used exclusively for the needs

of those offices. As a rule, these items included quality office

equipment, computers, furniture, and cars that, at least for a

while, were not available for purchase locally. To be eligible

for tax exemptions, these items had to be imported under a

temporary import regime—that is, for a specific period of

time (typically a year or two), after which they had to be either taken out of the country or released for free circulation

upon payment of all import duties and taxes. In practice, however, companies could keep these assets on temporary import

status for a longer period of time.

In 1996, Russian customs added a regulation on the temporary importation of motor vehicles by representative offices that requires a deposit of the whole amount of customs

duties up front or monthly payments of 3 percent of the total

that would be paid if the vehicle were to be customs cleared.

The amount paid under this partial exemption was not refundable when the vehicle was reexported. Many companies

chose to pay the 3 percent of the total.

Practical Consequences of Recent Changes

The 1999 regulation repeals the full exemptions for temporary importation of goods brought in as of April 1, 1999.

Under the new rules, representative offices of foreign firms

importing office equipment, furniture, cars, and so forth temporarily must make monthly, nonrefundable payments equal

to 3 percent of the amount of taxes and duties that would

have been paid if the items were released for free circulation.

The importation period is also being limited to a maximum of two years, after which assets will have to be either

reexported or declared for free circulation. Russian customs

experts point out that goods imported under the old customs

regime and released for free circulation at the end of their

temporary import period will be assessed customs duties and

taxes based on their original customs value. In other words,

depreciation of the goods, including cars, will not be taken

into account since the estimation could only complicate the

process of redeclaration. The new rule also stipulates that the

customs value of goods will not be recalculated in terms of

dollars; if goods were declared in rubles, duties will apply to

the original ruble value. (Note that ruble devaluation just since

August 1998 has been fourfold.)

Companies unable to reexport goods because they were

stolen or lost might consider paying the required free circulation customs duties on the missing items or risk a fine for

not notifying customs when the items’ customs status changed.

According to customs regulations, the majority of goods

entering Russia today require some sort of certification (safety,

quality, conformity). Under the new regulation, when items

brought into the country before this certification was required

are transferred from the temporary import regime to the free

circulation regime, customs authorities will only require an

official letter from the representative office pledging that the

equipment will not be sold. New assets brought in today, however, will have to be certified before they can be customs

cleared, even if only for temporary import.

It is important that companies be aware of when their

temporary importation is coming to an end. Russian customs

officials are unlikely to provide prior notification that deadlines are approaching, and companies could be forced to pay

fines if they fail to change the temporary importation status

of their goods on time. Please note that the temporary import

rule changes apply only to items imported for use by legal

entities, rather than by individuals.

For more information on complying with new customs rules,

companies can contact their customs advisor or broker.

Yevgeny Schukin represents BISNIS in Moscow.

Derek Nowek covers transportation for BISNIS in Wash., D.C.
BISNIS BULLETIN - June 1999

7

AGENCY SPOTLIGHT

by Svetlana Kuzmichenko

Located seven time zones east of Moscow, Primorsky Krai

borders on China in the west, North Korea in the south, and

Japan in the east across the Sea of Japan. It occupies 165,000

square kilometers and has a population of about 2.3 million

people. The major cities of Primorsky Krai are Vladivostok,

the capital, with a population of over 700,000, Nakhodka

(162,000 people), and Ussuriisk (159,000).

Rich in natural resources, the Krai has reserves of coal

(2 billion tons), timber (1.7 billion cubic meters), boron, tungsten, fluoride, lead, zinc, gold, copper, nonferrous metals,

and fish.

Major Industries

Primorsky Krai is an active transportation area.

Vladivostok is the eastern terminus of the Trans-Siberian

railway. Transit of freight via sea, air, and rail between Pacific Asia, Europe, and the western and northern Russian

territories is one of the leading industries in the Krai. The

Krai has 14 large and small seaports, the most important of

which are Vostochny, Nakhodka, Vladivostok, and Zarubino.

Fishing and fish-processing is one of the most important

industries in Primorsky Krai, providing one-third of its budget income. Focused on deep-sea fishing, the Krai’s fishing

fleets catch two-thirds of all fish in the Russian Far East and

one-third of all fish in Russia. The most harvested species

are pollock, cod, salmon, halibut, herring, crab, and plaice.

Mining, the third main industry of Primorsky Krai, has

been in deep decline but is now recovering. Yaroslavsky GOK,

which used to produce 80 percent of the country’s feldspar in

Soviet times, is restarting production after several years of

idleness. Bor, the largest manufacturer of boron in Russia,

and Dalpolimetal, a manufacturer of zinc concentrate, are

increasing production after several years of sharp decline.

Two-thirds of the territory is covered by forest. A large

percentage of the Krai’s coniferous and deciduous timber reserves is exported to Japan and China in sawn logs. Recently,

increased export duties for logs have forced local timber companies to pursue value-added timber processing and focus on

the export of processed timber products.

The worst situation is in the local shipbuilding industry,

which used to be one of the leading industries in the region.

The largest shipbuilding and repair enterprises have experienced major declines in orders. Only the Nakhodka Ship

Building company is currently successful. Others are diversifying into different sectors, such as consumer goods production.

Foreign Trade and Investment

According to the Krai Administration, total foreign investment in 1997 was $260 million. Leading investors are

the United States, South Korea, Japan, Singapore, Switzerland, and Austria. Several hundred companies with foreign

investment from 20 countries are reportedly active in Primorsky

Krai. Most companies are involved in trade and services.

The Krai has founded a Foreign Investment Advisory

Council to enable foreign companies to meet with local officials to discuss ways to reduce obstacles to foreign business

activity. Among the U.S. companies represented or active in

the Krai are Coca-Cola, which has a factory in the region,

Caterpillar, CH2M Hill, IBM, Mars, West Coast Paper

Company, PriceWaterhouseCoopers, and Wrigley. The

Krai has already developed strong business relationships with

companies and organizations from the U.S. West Coast.

For a complete profile of Primorsky Krai, visit BISNIS Online

at www.mac.doc.gov/bisnis/country/regions.html#FarEast.

Svetlana Kuzmichenko represents BISNIS at the U.S.

Commercial Service in Vladivostok.

U.S. & Foreign Commercial Service-St. Petersburg—A

new, revised edition of the “Guide to Conducting Business in

St. Petersburg and Northwest Region of Russia” is now available for purchase at the American Business Center (ABC) in

St. Petersburg. The guide provides practical assistance to U.S.

companies interested in conducting business in St. Petersburg, Leningrad Oblast, Arkhangelsk Oblast, Murmansk

Oblast, Novgorod Oblast, Pskov Oblast, and the Karelian

Republic. The 109-page guide costs $35.

For more information, contact:

ABC St. Petersburg

Tel: +7 (812) 326-2570; Fax: +7 (812) 326-2571

Email: bcenter@mail.wplus.net

www.usia.gov/abtusia/posts/RS2/wwwhres59.html

U.S. Department of Commerce—The FY99 Market Development Cooperator Program (MDCP) is currently accepting

applications. MDCP is a competitive matching grants program that builds public/private partnerships by providing federal assistance to nonprofit export multipliers—states, trade

associations, chambers of commerce, world trade centers, and

other nonprofit industry groups. MDCP awards help to underwrite the start-up costs of new export marketing ventures.

Applications for 1999 awards are due on June 21, 1999.

For further information, contact:

Brad Hess, Manager, MDCP

Tel: (202) 482-2969; Email: brad_hess@ita.doc.gov

www.ita.doc.gov/industry/opcrm/mdcp.html

REGIONAL CORNER: Primorsky Krai, Russia
Penalty for Private Use, $300

Sender ________________

U.S. DEPARTMENT OF COMMERCE

International Trade Administration

Washington, D.C. 20230

BISNIS

OFFICIAL BUSINESS

FIRST-CLASS MAIL

PRE-SORTED

POSTAGE & FEES PAID

ITA/DOC

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.mac.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.

AviaEXPO-99

Moscow Intl. Oil & Gas

Exhibition (MIOGE ’99)

June 21–24, 1999 Moscow

Organized by:

Tel:

Fax:

Email:

Website:

ITE Group

+44 (171) 286-9720

+44 (171) 286-0177

press@ite-exhibitions.com

www.ite-exhibitions.com

 July 1999

Organized by:

Telephone:

Facsimile:

Email:

Sector:

Expo Bureau

+380 (44) 294-8543, 295-5186

+380 (44) 294-8502

postmaster@cpc.inec.kyiv.ua

Aviation technologies

Kyiv

TRADE EVENTS CALENDAR

BISNIS

HAS MOVED!

As of May 3, 1999, BISNIS joined

the new USA Trade Center.

Bishkek

Organized by: TNT Productions Inc.

Telephone: (703) 406-0010

Facsimile: (703) 406-8543

Email: tntprod@dgs.dgsys.com

Website: www.tntprod.com

LENEXPO

+7 (812) 217-2047

+7 (812) 355-1985

www.lenexpo.ru

Consumer/FoodExpo

Kyrgyzstan

September 7–10, 1999

Our mailing address is:

US Department of Commerce

USA Trade Center

Stop R-BISNIS

1401 Constitution Avenue, NW

Washington, DC 20230

Our physical location is:

BISNIS

USA Trade Center

The Ronald Reagan Building

Suite 800 (Mezzanine Level)

1300 Pennsylvania Avenue, NW

Washington, DC 20004

The Printing Industry June 25–29, 1999

Organized by:

Telephone:

Facsimile:

Website:

St. Petersburg