INVESTMENT OPPORTUNITY AND OVERVIEW

Enclosed please find a letter faxed to BISNIS on May 4, 1995 from the Director of the Krasnoyarsk Department for International and Foreign Economic Relations followed by a commercial overview of the Krasnoyarsk region by the U.S. and Foreign Commercial Service.

Note: Publication of this document in no way constitutes an endorsement by BISNIS or the U.S. Department of Commerce of the Kansk Tobacco Factory.

Dear Sirs,

The Krasnoyarsk Region's Department of International and Foreign Economic Relations, at the request of Kansk tobacco factory, is appealing to you for assistance in finding a foreign partner interested in investing in the Russian tobacco industry.

Kansk tobacco factory was founded in 1942 and still remains the only tobacco factory in the region of Eastern Siberia and the Russian Far East. The factory recently completed four product lines for filtered cigarettes (1990-1992), 2 "Shcoda" packaging lines, 2 German lines producing oval cigarettes and 2 lines producing cigarettes with a cardboard holder.

The capacity of the factory totals 3.4 billion cigarettes, amounting to more than 165 million packets per year. Meanwhile, the existing demand for these products determined by its low price averages 8-9 billion cigarettes per year.

In 1994 the factory was privatized. Its present ownership - JSK, the presonnel possesses 49% of shares and the state holds the remaining 51%.

Foreign investors are expected to introduce modern technologies, increase working capital, improve the quality of the products. In its turn, the factory can realize the part or the whole controlling block of shares.

Head of Department
V. V. Ovchinnikov

Please reply to our fax at #: 011-7-3912-22-44-83

31 MAR 95

FM AMEMBASSY MOSCOW

IMI: U.S. TRADE AND INVESTMENT DAY IN THE KRASNOYARSK TERRITORY

SUMMARY

1. ON FEBRUARY 23 AND 24, 1995, FCS MOSCOW HELD A U.S. TRADE AND INVESTMENT DAY IN THE KRASNOYARSK TERRITORY. THE EVENT WAS JOINTLY ORGANIZED BY FCS MOSCOW AND THE KRASNOYARSK TERRITORY ADMINISTRATION. IT HELPED FCS IDENTIFY A NUMBER OF PROMISING TRADE LEADS IN THE WOODWORKING AND PULP AND PAPER INDUSTRY SECTORS. END SUMMARY.

U.S. TRADE AND INVESTMENT DAY EVENTS

2. ON FEBRUARY 23, 1995, COMMERCIAL OFFICER STEFFENS AND FSN COMMERCIAL ASSISTANT SOSKIN MET WITH VLADIMIR BUTYLKIN, CHAIRMAN, FORESTRY AND WOODWORKING INDUSTRY COMMITTEE OF THE KRASNOYARSK TERRITORY ADMINISTRATION. THE SAME DAY THEY VISITED KRASNOYARSK PULP AND PAPER INTEGRATED MILL AND SPOKE WITH THE ENTERPRISE DEPUTY DIRECTOR BORIS AFANASYEV, AND LATER, THE KRASNOYARSK INDUSTRIAL BUILDING MATERIALS INTEGRATED WORKS (KISK). THE NEXT DAY, THERE WAS A MEETING WITH VLADIMIR OVCHINNIKOV, HEAD OF INTERNATIONAL AND FOREIGN ECONOMIC RELATIONS DEPARTMENT OF THE TERRITORY ADMINISTRATION. LATER THIS DAY, STEFFENS AND SOSKIN VISITED THE KLM RUSSIAN- BELGIAN JOINT VENTURE AND MEKRAN RUSSIAN-AMERICAN JOINT VENTURE.

OVERVIEW OF THE KRASNOYARSK TERRITORY ECONOMY

3. THE KRASNOYARSK TERRITORY IS RIGHT IN THE MIDDLE OF RUSSIA AT EQUAL DISTANCE FROM THE COUNTRY'S WESTERN GROUND BORDER AND PACIFIC COAST IN THE EAST. IT IS STRETCHED FROM CLOSE TO THE MONGOLIAN BORDER IN THE SOUTH UP TO THE ARCTIC OCEAN COAST. KRASNOYARSK LOCAL TIME IS SIX HOURS AHEAD OF CENTRAL EUROPEAN TIME. THE TERRITORY POPULATION EXCEEDS THREE MILLION AND IS RATHER SPARSE, IN THE NORTH ESPECIALLY.

4. THE KRASNOYARSK TERRITORY IS AMONG THE MOST INDUSTRIALLY DEVELOPED ADMINISTRATIVE UNITS OF THE RUSSIAN FEDERATION. IT IS RICH OF COAL, OIL AND GAS, FERROUS AND NON-FERROUS METAL ORES, AND TIMBER. AMONG HIGHLY DEVELOPED INDUSTRY SECTORS ARE FORESTRY AND WOOD PROCESSING, POWER GENERATING, METALLURGY, CHEMISTRY; WOODWORKING, CONSTRUCTION, AND AGRICULTURAL MACHINERY MANUFACTURING. THE TERRITORY AND THE CITY OF KRASNOYARSK IN PARTICULAR HAVE A HEAVY CONCENTRATION OF DEFENSE RELATED INDUSTRIES. KRASNOYARSK CITY HAS LONG BEEN CLOSED FOR FOREIGN VISITS, AND ONLY A COUPLE OF YEARS AGO THE RESTRICTION WAS LIFTED. MOST INDUSTRIAL FACILITIES ARE DENSELY LOCATED IN THE SOUTH AND CENTRAL PARTS OF THE TERRITORY WHILE NORTH REMAINS MUCH LESS DEVELOPED. THE KRASNOYARSK TERRITORY IS SELF-SUFFICIENT FOR FOODSTUFFS BUT NEEDS MODERN FOOD PROCESSING AND PACKAGING EQUIPMENT. THE TERRITORY ADMINISTRATION OFFICIALS CLAIM THAT INDUSTRIAL RECESSION AND UNEMPLOYMENT HAVE AFFECTED THE LOCAL ECONOMY TO A MUCH LESSER DEGREE THAN OTHER PARTS OF RUSSIA. THE KRASNOYARSK TERRITORY IS RATHER STABLE POLITICALLY, THERE ARE NO INTERETHNIC CONFLICTS.

5. THE KRASNOYARSK TERRITORY ADMINISTRATION SEEMS QUITE OPEN TO INTERNATIONAL ECONOMIC COOPERATION AND IS READY TO BENEFIT FROM THE HIGHER DEGREE OF INDEPENDENCE IT NOW ENJOYS COMPARED WITH THAT OF THE PREVIOUS LOCAL AUTHORITIES. FORMER CENTRAL CONTROL OVER THE TERRITORY ECONOMY HAS BROUGHT ABOUT SOMEWHAT LOPSIDED ECONOMIC DEVELOPMENT. RICH IN FOREST RESOURCES, THE TERRITORY HAS FEW PULP AND PAPER MILLS. THE TERRITORY GOVERNOR MR. VALERY ZUBOV, A FORMER UNIVERSITY PROFESSOR OF ECONOMICS, HAS RECENTLY BEEN IN THE UNITED STATES AT NATIONAL GOVERNOR'S ASSOCIATION INVITATION TO DISCUSS TRADE AND INVESTMENTS PROJECTS. A TERRITORY PRESENTATION AT THE UNIDO HEADQUARTERS IN VIENNA IS SCHEDULED FOR NEXT JUNE. A NUMBER OF PROJECTS N WOODWORKING AND FOOD PROCESSING ARE BEING PREPARED NOW FOR THE EVENT.

FOREIGN BUSINESS PRESENCE

6. FOREIGN ECONOMIC RELATIONS ARE ACTIVELY DEVELOPED BY BOTH THE TERRITORY ADMINISTRATION AND BUSINESS ENTERPRISES. THERE ARE ABOUT 200 JOINT VENTURE AND FOREIGN-OWNED COMPANIES IN THE KRASNOYARSK TERRITORY. MAJOR FACILITIES INCLUDE RUSSIAN-DUTCH BESOTRA JOINT VENTURE WHICH MANUFACTURES TRUCK TRAILERS AND REFRIGERATORS. THE KRASNOYARSK ELECTRICAL AND CHEMICAL INTEGRATED WORKS MANUFACTURES BASF BRAND AUDIO- AND VIDEO CASSETTES.

7. FOREIGN EQUIPMENT IS WIDELY SPREAD OVER THE LOCAL INDUSTRIAL FACILITIES INCLUDING NEWLY PRIVATIZED STATE ENTERPRISES. THE VISITED PULP AND PAPER MILL HAS FINNISH VYARTSILYA NEWSPRINT MACHINERY. KISK HAS GERMAN BIZON CO. EQUIPMENT.

8. THE CITY OF KRASNOYARSK HAS FEWER IMPORTED CONSUMER GOODS THAN MOSCOW OR ST.PETERSBURG. THERE ARE A FEW LARGE SHOPS MARKETING FOREIGN MERCHANDISE, AS WELL AS STREET KIOSKS.

CRIME SITUATION

1. THERE ARE NO VISIBLE SIGNS OF CRIME PROBLEMS IN THE CITY LIKE NUMEROUS MILITIA POSTS AND PATROLS. CO STEFFENS WALKED AROUND THE CITY IN THE EARLY MORNING BEFORE DAYLIGHT WITHOUT FEELING AT RISK. KRASNOYARSK SEEMS TO BE MUCH SAFER THAN MOSCOW. LOCAL ADMINISTRATION EMPLOYEES ADMIT THAT THE MAFIA IS THERE BUT CLAIM THE ABSENCE OF ETHNIC MAFIA GROUPS COMMONPLACE IN MOST OF THE CENTRAL RUSSIA.

FORESTRY AND WOODWORKING SECTORS

10. U.S. TRADE AND INVESTMENT DAY PROGRAM FOCUSED ON FORESTRY-RELATED BUNCH OF INDUSTRY SECTORS. FORESTS (PINE, CEDAR, SIBERIAN LARCH, BIRCH, AND ASPEN) COVER A GREATER PART OF LAND IN THE KRASNOYARSK TERRITORY. AGAIN, THEY ARE BEING DEVELOPED IN THE SOUTH AND CENTRAL PARTS OF THE TERRITORY FIRST AND TRANSPORTED BY RAILROADS EITHER WESTWARD TO CENTRAL RUSSIA FOR DOMESTIC CONSUMPTION AND EXPORT THROUGH THE BLACK SEA PORTS OR TO THE RUSSIA'S FAR EAST FOR EXPORT. ANOTHER EXPORT ROUTE IS BY THE YENISEY RIVER TO THE IGARKA TOWN PORT WHERE TIMBER IS LOADED TO OCEAN SHIPS. THE PRINCIPAL TIMBER EXPORT MARKET IS JAPAN. THE U.S. MARKET IS ACTIVELY EXPLORED TOO.

11. FORESTS IN THE NORTH OF THE TERRITORY WERE ACTIVELY DEVELOPED UNTIL 1986. GOVERNMENT FUNDING CUTBACKS SINCE THEN HAVE MADE FURTHER NORTHWARD DEVELOPMENT IMPOSSIBLE. A MAJOR FOREST INDUSTRY CENTER NOW IS THE TOWN OF LESOSIBIRSK, ABOUT 400 KILOMETERS NORTH AND WEST OF KRASNOYARSK.

12. TERRITORY ADMINISTRATION OFFICIALS SAID LOCAL TIMBER PROCESSING WAS THE KEY GOAL OF FURTHER SECTOR DEVELOPMENT. THE SKYROCKETING RISE OF TRANSPORTATION FEES IN RECENT YEARS MAKES FORESTRY GOODS FINAL PRICES MUCH HIGHER (FOUR-FOLD FOR ROUND TIMBER, THREE-FOLD FOR SAWN TIMBER, AND TWO-FOLD FOR DEEPER PROCESSED WOODEN PRODUCTS) AND REDUCES PRODUCER PROFITS. MOST LOCAL FORESTRY AND WOODWORKING ENTERPRISES WOULD WELCOME FOREIGN EQUIPMENT BUT ARE SHORT OF MONEY.

BEST EXPORT PROSPECTS

13. BASED ON A SHORT VISIT, FCS IDENTIFIED SEVERAL PROMISING EXPORT SECTORS. THESE INCLUDE:

-- FORESTRY HARVESTING AND TRANSPORTATION EQUIPMENT -- WOODWORKING EQUIPMENT -- PULP AND PAPER EQUIPMENT -- CONSTRUCTION AND ROAD EQUIPMENT -- SMALL BOILERS AND BOILER EQUIPMENT -- FOOD PROCESSING AND PACKAGING EQUIPMENT -- CONSUMER GOODS, INCLUDING HOME FURNISHING ARTICLES.

LOCAL BUSINESSES VISITED

14. KLM COMPANY MANUFACTURES VARIOUS TYPES OF SAWN TIMBER FOR EXPORTS TO JAPAN AND, IN SMALLER VOLUMES, TO HUNGARY. IT PREVIOUSLY RENTED PREMISES AT THE KISK BUT NOW HAS ALMOST COMPLETED CONSTRUCTION OF OWN WOODWORKING ENTERPRISE IN THE KRASNOYARSK CITY OUTSKIRTS. IT ALSO INCLUDES A BOILER, A WAREHOUSE, AND LOADING FACILITIES. MEKRAN'S PRINCIPAL BUSINESS IS WOODEN DOORS AND FRAMES MANUFACTURING AND MARKETING, IT HAS THREE RETAIL TRADE OUTLETS IN THE KRASNOYARSK CITY. BOTH HAVE FURTHER DEVELOPMENT PLANS INCLUDING FOREIGN INVESTMENTS AND EQUIPMENT PURCHASE. FCS MOSCOW WILL FOLLOW UP AND PROVIDE ADDITIONAL MATERIALS.

15.15. FORMER STATE ENTERPRISE EXECUTIVES' ATTITUDE IS MUCH COOLER. LITTLE ENTHUSIASM ABOUT U.S.- RUSSIAN COOPERATION PROSPECTS WAS DISPLAYED BY THE PULP AND PAPER MILL DEPUTY DIRECTOR WHO SEEMED HIGHLY DISCOURAGED BY PREVIOUS FOREIGN BUSINESS VISITS THAT BROUGHT NO TANGIBLE RESULTS. THIS ENTERPRISE LOOKS PROMISING NEVERTHELESS. IT HAS CLOSE TO A MONOPOLY POSITION IN EASTERN RUSSIA AS A NEWSPRINT SUPPLIER AND ALSO EXPORTS TO THE CIS CENTRAL ASIA COUNTRIES AND THE PR OF CHINA. KISK TOP EXECUTIVES NEGLECTED AMERICAN EMBASSY VISITORS WHO WERE MET AND ESCORTED BY THE FOREIGN ECONOMIC RELATIONS DEPARTMENT DEPUTY HEAD.

KEY CONTACTS

16. THE TERRITORY ADMINISTRATION:

VLADIMIR V. OVCHINNIKOV, HEAD, DEPARTMENT OF
  INTERNATIONAL AND FOREIGN ECONOMIC RELATIONS
110, MIRA PROSP.
660009 KRASNOYARSK, RUSSIA
PHONE: 7 (3912) 49-32-33
FAX: 7 (3912) 22-44-83
TELEX: 288152 KRISP SU
ALEXANDER I. KARLOV/MIKHAIL V. BERSHADSKY,
SENIOR EXPERTS
PHONE: 7 (3912) 49-32-21

17. BUSINESS:

KLM CO.
ANDREI B. KARPOV, CHAIRMAN OF THE BOARD/PRESIDENT
25A, PARIZHSKOY KOMMUNY ST.
660049 KRASNOYARSK, RUSSIA
PHONE/FAX: 7 (3912) 27-69-00
IN MOSCOW:
139, VOLGOGRADSKY PROSP.
109443 MOSCOW, RUSSIA
PHONE/FAX: 7 (095) 919-0391

MEKRAN WOODWORKING COMPANY
ALEXEI N. METELKIN, GENERAL DIRECTOR
15, KARATANOVA ST.
660049 KRASNOYARSK, RUSSIA
PHONE/FAX: 7 (3912) 23-08-58

KRASNOYARSK PULP AND PAPER INTEGRATED MILL
BORIS S. AFANASYEV, DEPUTY DIRECTOR
PHONE: 7 (3912) 33-47-64
FAX: 7 (3912) 33-38-40/47-64
TELEX: 288134 SVK SU

KRASNOYARSK INDUSTRIAL BUILDING MATERIALS
INTEGRATED WORKS (KISK)
VLADIMIR V. KHARLAMOV, GENERAL DIRECTOR
660002 KRASNOYARSK, RUSSIA
PHONE: 7 (3912) 24-60-42/14
FAX: 7 (3912) 24-60-42

18. LOCAL SERVICES:

AIRPORT
 PHONE: 7 (3912) 22-21-10/33-11

RAILWAY STATION
 PHONE: 7 (3912) 29-34-39/34

TAXI
 PHONE: 7 (3912) 22-45-10, 43-38-38
 
HOTELS

OKTYABRSKAYA
17, MIRA PROSP.
PHONE: 7 (3912) 27-75-08/19-16

OGNI YENISEYA
80, DUBROVINSKOGO ST.
PHONE: 7 (3912) 27-37-84/52-62
KRASNOYARSK
94, URITSKOGO ST.
PHONE: 27-39-36/34-07

SEVER
121, LENINA ST.
PHONE: 7 (3912) 22-42-87/41-14

TOURIST
2, MATROSOVA ST.
PHONE: 7 (3912) 36-18-10/57-03

BANKS

VOSTOK
19, KIROVA ST.
660017 KRASNOYARSK, RUSSIA
PHONE: 7 (3912) 22-40-13, 23-55-86
FAX: 7 (3912) 21-53-58

STROMKOMBANK
33, PARIZHSKOY KOMMUNY ST.
660049 KRASNOYARSK, RUSSIA
PHONE: 7 (3912) 23-73-84

YENISEY
23, KIROVA ST.
PHONE: 7 (3912) 27-05-55

MOSBUSINESSBANK
70, DUBROVINSKOGO ST.
PHONE: 7 (3912) 27-13-45

NIVA
7, MIRA PROSP.
PHONE: 7 (3912) 22-13-16/39

SIBBANK
144A, BOGRADA ST.
PHONE: 7 (3912) 21-30-50

SIBIRAVTOBANK
LA, ROBESPYERA ST.
PHONE: 7 (3912) 21-37-58

FINISTBANK
87, MIRA PROSP.
FAX: 7 (3912) 22-35-13/27-98
CHAMBER OF COMMERCE AND INDUSTRY OF CENTRAL
SIBERIA
26, KIROVA ST.
660049 KRASNOYARSK, RUSSIA
PHONE: 7 (3912) 23-78-23/79-33/96-13

THE KRASNOYARSK TERRITORY LAWYER ASSOCIATION
33, KIROVA ST.
PHONE: 7 (3912) 27-74-01, 22-28-26

LEGAL CONSULTING SERVICE

120, KARLA MARKSA ST.
PHONE: 7 (3912) 22-42-85/11-00

2G, VYSOTNAYA ST.
PHONE: 7 (3912) 25-41-43, 25-39-26

33, VAVILOVA ST.
PHONE: 7 (3912) 34-05-65

13, IZMAYLOVA ST.
PHONE: 7 (3912) 33-71-43

28, TELMANA ST.
PHONE: 7 (3912) 24-48-55/25-40