#12
Moscow Times
June 26, 2002
Vershbow Steps Into Investor Dispute
By Yevgenia Borisova
Staff Writer
VLADIMIR, Central Russia -- U.S. Ambassador to Russia Alexander Vershbow stepped into a two-year spat between an American company and its Russian partner Tuesday, saying such business disputes must be resolved to encourage U.S. investment.
Vershbow traveled to the Vladimir region 150 kilometers southeast of Moscow and met with regional leaders to "encourage a negotiated solution" to Sawyer Research Products' struggle to claim its $8.2 million investment in the once bankrupt Gus-Khrustalny quartz glass plant.
The visit marks the first time in recent memory that a U.S. ambassador has so directly interceded in a Russian business dispute. It falls in line with earlier statements by Vershbow that U.S. President George W. Bush's top priority in Russia is to boost business ties.
"One of the messages of the [U.S.-Russia] summit [in May] was to increase American investment substantially over the next few years. But each time an American investor has a problem like this, it discourages a 100 more potential investors," Vershbow said Tuesday.
He said the Gus-Khrustalny dispute has been discussed at different levels, "even at the highest level," and "is a frequent topic of conversation" between U.S. Secretary of Commerce Donald Evans and Economic Development and Trade Minister German Gref.
"But our efforts over the past year to resolve this particular dispute have made little progress, and I decided to come to the local scene and see whether I can help," he said.
The problems at Gus-Khrustalny began after Sawyer renovated and installed new equipment in the plant's single operation workshop, which it had leased in 1997. As production reached $3 million per year in 2000, Sawyer's local partner Very Pure Glass Quartz, with the backing of the local government, decided to take over the plant and won a court
ruling invalidating Sawyer's lease as being priced too low.
Since then, dozens of local and district courts have made contradictory ruling favoring both companies, and last June Sawyer representatives were barred from the plant.
"It is not for me to evaluate whether the deal was fair or unbalanced," Vershbow said at a news conference Tuesday. "Commercial parties have the responsibility of determining these questions.
But when one party has doubts about the contract it has already signed, the answer is not to turn around and invalidate the rights of the other party.
"That is the way we see the problem -- the rights of investors were violated," he said.
Vershbow spoke to reporters shortly after the meeting with Vladimir Veretennikov, the Vladimir region's deputy governor in charge of investment.
He said Veretennikov agreed that the dispute needed to be resolved through negotiations and the creation of a joint venture rather than through further fighting in the courts.
Veretennikov confirmed by telephone that "a peaceful solution" was preferable to the courts and said he expects to sit down soon with Vershbow, Sawyer and Very Pure Glass Quartz "and talk."
"The ambassador's function was very positive -- to mediate between the parties for an amicable solution. We will do everything to assist in finding such a solution," he said. "But the two companies are independent commercial entities, and everything will depend on finding an understanding between them."
It was not clear whether Very Pure Glass Quartz would agree to negotiations.
Vershbow paid a visit to the plant in the late afternoon.
Sawyer estimates its investment in repairs, new machinery and modernizing old equipment, training staff and know-how, amounted to $8.2 million.
Sources at Gus-Khrustalny say the plant has not faired well since Sawyer was squeezed out. Very Pure Glass Quartz promised to upgrade production to fetch higher sales prices on the Sawyer-purchased equipment shortly after taking over. But with Sawyer gone, the plant lost its key Japanese clients and the quality of its crystals suffered, the sources said on condition of anonymity.
"It is obvious that Sawyer's involvement in this investment made the difference, and its absence is now costing the Vladimir oblast jobs, international faith and also prestige," Vershbow said. "My understanding is that the Russian operator has steadily lost their share of the international market and the future of the company is now doubtful."
Vershbow said that leaving the case to the courts could take several years, and by that time the plant would be out of business.
"The conflict must be resolved in a matter of months," Sawyer President Gary Johnson said in a recent interview.
On Tuesday, he said: "By initiating a direct dialogue with local parties in Vladimir about economic development opportunities and a negotiated solution to the dispute at the quartz glass plant, Ambassador Vershbow has taken a critical step leading toward integrating this region of Russia into the international market."
Vershbow did not say Tuesday whether he would seek to intervene in other disputes involving U.S. investors.
He said that the quartz plant is one in "a long list of disputes involving American investors" that includes nine big conflicts and "quite a number of smaller conflicts." He mentioned only one of the other disputes by name, the ongoing court fight by Seattle-based Euro Asian Investment Holding over a $12 million investment in the Far East flour company Primorkhleboprodukt.
"This company won two arbitration courts worth $3.7 million, but they can't get the decision enforced," he said.
Vershbow said the U.S. Embassy has a standing committee with the Economic Development and Trade Ministry to discuss business disputes.
"The consequences [of the disputes] are that many American companies that are very fascinated with the possibilities of the Russian market are afraid to come and do business here to mutual advantage," he said.
Vershbow has compared the United States' investment of $6.3 billion in Russia to that of its investment in Costa Rica.
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