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Russia: Textile Industry Struggling To Stay Afloat

Ivanovo, Central Russia; 9 September 1997 (RFE/RL) - At the Krasny Profintern Textile Factory, a group of women sit around a table sipping tea during a mid-afternoon break, explaining that they have not been paid for six months.

Anya, a 35-year-old textile worker, said the situation is worse than after World War II. Her salary is about 230,000 rubles ($39) a month, when it arrives. She said she comes to work because there is nowhere else to go.

Like most textile mills in Russia's Ivanovo region northeast of Moscow, Krasny Profintern is working at about 20 percent of capacity. In several workshops, a handful of workers tend to automatic weaving machines rattling away cheesecloth destined for state hospitals. But most of the machines in this pre-revolutionary red-brick mill are idle, collecting dust.

Located in the town of Staraya Vichuga about 360 kilometers from Moscow, Krasny Profintern is typical of the 60 textile mills that dot the wooded countryside of the Ivanovo region. The only other source of employment for Staraya Vichuga's 6,000 residents is another cotton mill across town.

The collapse of the Russian textile industry has hit the Ivanovo region hard. The mills once employed 70 percent of the local workforce and churned out every third meter of cotton fabric produced in Russia. Now about 10 textile mills have been closed completely, production has plummeted and the unemployment and mortality rates are some of the highest in the country.

The main problem facing the mills is lack of cash to purchase raw cotton, the essential material to produce fabric. There is a certain degree of nostalgia in Ivanovo for the "good old days" when central planners ensured a steady supply of cheap cotton from the Central Asian republics. Following the break-up of the Soviet Union, barter deals were used but later phased out as Central Asian republics such as Uzbekistan and Kazakhstan began demanding hard currency in advance for cotton.

Without cash for raw materials and faced with competition from the surge in cheap foreign imports, Russia's textile production began to plummet, reaching an all-time low in 1996.

More than two-thirds of Ivanova's textile mills currently are operating at a loss, existing on tolling contracts with Russian and international trading firms. Under such deals, factories get a set amount of cotton which they use to produce fabric. Most of the finished product is used as payment to the trading firms for the cotton, while the factory tries to sell the rest on its own to cover production costs and wages.

On the other side of Staraya Vichuga, the Kracinets Textile Factory is working at about 60 percent of capacity, a rarity these days in the Ivanovo region. It has been operating almost solely on tolling contracts for the past two years, but this has only meant financial losses for the enterprise.

Valery Agalakov, the mill's general director, asked: "What else can we do? Through tolling contracts, we can pay our gas and electricity bills and cover at least part of workers' salaries."

But in the first half of 1997, textile production in Ivanovo jumped more than 30 percent compared to the same period last year, raising hopes that the industry may be experiencing a revival. The reason for the sudden increase in output was an unusual $40 million loan project to provide the mills with raw cotton on credit.

Known as the "English project," the deal called for the federal government to guarantee a loan through a commercial bank to ensure payment for the cotton. The British trading firm Meredith Jones agreed to ship 20,000 tons of cotton and accept payment a full six months later. Under the deal, the mills would be given time to produce and sell fabric before having to pay for the raw materials.

But the deal had its critics, partly because it took several months to get off the ground. Negotiations with the commercial banks took several months longer than expected. Finally in November, Menatep Bank agreed to provide the loan. The local press attacked the company for charging excessively high prices for the cotton. And they pointed to one irony of the deal: that the British company Meredith Jones was providing cotton from Uzbekistan, Ivanovo's steady Soviet-era supplier.

Vladimir Osipov, general director of the Kolobovskaya Textile Factory outside the city of Ivanovo, described the project as the "first blini," the Russian saying for something that is bound to be imperfect on the first try. He said the cotton had been expensive, delivery was delayed and the quality of the cotton was not always the best. But he said without it, his factory would have simply stood still.

Jean-Louis Simons, head of Meredith Jones' operations in Russia, dismissed the criticism, saying the company had shouldered the extra costs of storing the cotton during the delays. He also said his company had incurred the costs of paying up front for the Uzbek cotton. In the end, he said, the Ivanovo region benefited from the deal.

Now, however, most of the mills have used up the cotton, and many workers have been sent home until November, when a second "English project" is expected to start shipping cotton into the region. In August, the Ivanovo administration announced results of an open tender for a 250 billion ruble contract to ship another 23,000 tons of raw cotton to mills throughout the region. Meredith Jones was chosen once again as the supplier for the contract, which will be organized on terms similar to the previous deal.

It is unlikely that textile production in Ivanovo will ever return to the levels seen during the Soviet days, when millions of meters of fabric were churned out to dress a closed economy. Now the mills have to compete with cheap foreign imports. But many factories have been able to produce and sell fabric both in Russia and abroad with the help of a credit line, some cotton and the backing of the government.

Hopes are high that another infusion of cotton on credit will help some of the factories earn enough revenue to begin breaking even, and perhaps make a profit.