Siemen's Patience With Russia Wears Thin

With seven joint ventures in Russia, one in Ukraine and 500 employees, Siemens has big plans for Russia, including the modernization and construction of power plants and telecommunication networks. But so far, only one joint venture is actually operating, and trade with Russia has dropped 40 percent compared with last year.


Moscow representative Peter Schwegmann blames Russian red tape and bureaucratic greed, and said he may have to cut jobs here if business does not improve.


The frustrations of doing business in Russia are nothing new, but with a recession looming at home, Siemens and other German firms may not have the money to be patient for much longer. After investing more than any other Western country in Russia, German firms are thinking twice about investing again.


"The Russian side has to decide whether it wants to do business or cash in on high rents", he said. "If the costs remain this high, than we will be forced to fire employees". Schwegmann said he could not exclude closing some of the joint ventures if business is not made easier here.


A major discouragement for Siemens investments, Schwegmann said, is the requirement to convert 50 percent of hard currency earnings into rubles. Yeltsin recently even threatened to force conversion of all hard currency earnings into rubles, although officials recently said the move would be put off until sometime next year. "That does not make us too eager to invest", said Schwegmann. So far, Siemens has invested over $65 million in its joint ventures.


According to Schwegmann, high export taxes make it difficult for Russian firms to acquire the hard currency they need to buy Siemen's products. In Siemen's case, sales are further complicated by a requirement to deposit the entire proceeds of a deal into the bank before the customer even makes the purchase.


One telecommunications joint venture of Siemens, Schwegmann said, has been held up because the Russian government has dragged its feet on an oil export license for a barter transaction that would finance the project.


The chaotic laws and regulations are also a sore point for Schwegmann. Some tax rules are changed and applied retroactively, while interest payments that were supposed to be tax exempt turned out to be taxable for foreigners.


With Germany and much of the West inching toward a recession, Schwegmann said that Siemens does not have the money to just sit and wait for such obstacles to disappear. "We at Siemens have to economize. Moreover, as the Russian market has collapsed, we have to economize here even more", he said.


That makes the high costs of operating in Russia all the more frustrating. "The rent is ridiculous", Schwegmann said, "and then there is the value-added tax of 28 percent, which is ridiculous too".


"We foreigners are regarded as a milking cow that can be milked until it moos", Schwegmann said.


Now, he thinks, it is time to moo.


The eight joint ventures include one for maintenance of Siemens medical equipment and three others for the manufacture of telecommunications equipment. Siemens also has a joint venture with the Moskvich car factory for machines to automate production lines.


Much of these products can be used for Siemen's major plans in Russia: The modernization of Russia's power plants, both nuclear and conventional, as well as the building of new gas power plants to replace dangerously obsolete nuclear power plants.


Another of its joint ventures will produce gas turbines at the Leningrad Metal Factory in St. Petersburg using Siemens technology. The first gas turbine, for a power plant near St. Petersburg, will be paid for with electricity sent to Finland.