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Russia: Sanyo, Mitsi Deal Mires In Bureaucratic Muck

St. Petersburg, 20 August 1997 (RFE/RL) -- Bureaucratic tangles are delaying a $50 million project for Japan's Sanyo and Mitsui companies to help a St. Petersburg missile factory manufacture microwave ovens.

The two Japanese giants, the Export-Import Bank of Japan, and Impuls, a St. Petersburg factory that makes missile guidance systems, are eager to push ahead with plans to set up a new production line that would produce annually 300,000 cheap microwave ovens based on Sanyo's current models.

But a disagreement with Russian Customs that has dragged on for more than a year has held up the project. It's diminished St. Petersburg's reputation just as the Japanese are pondering major investments here. Traditionally conservative investors, the Japanese have been slow to move into Russia.

Alexander Morozov, an economist at the World Bank's Moscow office, points out that Japanese investors are more worried about economic and political stability than, say, European and American investors. He said that the Japanese are watching the Impuls affair as a test case.

Yasushige Okimoto, the second-ranking official at the Japanese Consulate, says Japan is taking a close look at St. Petersburg's high technology sector. He says that a factory producing digital telephone switchers -- part of a $6.1 million joint venture between the Japanese electronics firm NEC and the local company Telecominvest -- will open next month.

Okimoto says that the companies involved are seeking together to manage the Impuls issues and other Japanese investors are watching closely. If the deal succeeds, he says, it will improve chances for future cooperation. Okimoto says the deal has special qualities.

"It is unique that a military factory that produces missiles is now ready to produce microwave ovens for the population. This is an ideal conversion project and the Japanese government would like to support it," he says.

The Impuls project began in May 1995 when the Export-Import Bank of Japan signed an agreement with Impuls to cooperate on a conversion project worth $50 million. The bank lent Impuls-Elbit, a state-owned spinoff of Impuls created specifically for the purpose, $43 million. The company came up with $7 million. Sanyo signed on to provide microwave-making expertise, and Mitsui management and marketing expertise.

But the Russian State Customs Committee braked the deal to a halt when the first 100 containers full of equipment for an assembly line, provided by Sanyo, arrived in St. Petersburg. Customs demanded more than $4 million in import duties on the equipment. Impuls-Elbit backers, cited a February 1997 law that defers import duties for five years on material bought with foreign loans to develop Russian enterprises.

Customs officials, uncertain if the law applied, then asked for collateral to secure the payment of duties if the deferral were denied.

The Export-Import Bank of Japan is watching the matter nervously. Kazuyuki Arasawa, the Moscow representative of the bank, says its loan was disbursed more than a year ago and interest is accruing.

"If this issue isn't solved there will be major problems. Japanese companies will have a bad impression," said Arasawa.

He added that the sort of instability and unpredictable bureaucracy plaguing the Impuls-Elbit are exactly the things that have kept Japanese investors away in the past. Representatives of Mitsui & Co. are due to arrive in St. Petersburg next week to discuss the Impuls project's woes.