TITLE:                   KOMSOMOLSK-ON-AMUR REGIONAL OVERVIEW

SUBJECT COUNTRY(IES):    RUSSIA

POST OF ORIGIN:          RUSSIA

SERIES:                  INTERNATIONAL MARKET INSIGHT (IMI)

ITA INDUSTRY CODE:       ZEC

DATE OF REPORT (YYMMDD): 20000317

DELETION DATE (YYMMDD):  20010317

AUTHOR:                  ANDREY VASENYOV, BISNIS REPRESENTATIVE IN KHABAROVSKCCCCC

APPROVING OFFICER:       RICHARD STEFFENS, PRINCIPAL COMMERCIAL OFFICER, US&FCS

OFFICER'S TITLE:

NUMBER OF PAGES:         14

SUMMARY

A tough 5-hour drive from Khabarovsk, Komsomolsk-on-Amur is one
of the most inaccessible, least visited major cities in the
Russian Far East.  Though the city today is in a profound
economic slump, its aging defense and machine-building factories
are beginning to attract contracts to support the immense
off-shore oil and gas projects on nearby Sakhalin island.  In
two-day visit, PCO Steffens encountered a surprising innovative
and energetic local administration dedicating its energies to
high technology development.  This report summarizes recent
business developments in Komsomolsk-on-Amur and describes
commercial opportunities for U.S. companies.  A list of the key
contacts is provided at the end of the report. End summary.

OVERVIEW

Komsomolsk is a Soviet-era planned city with wide tree-lined
boulevards, set against the broad Amur River.  It is set in the
middle of vast, hilly forestland, and is miles away from any
settlements but small villages.  Few foreigners visit
Komsomolsk  before PCO's visit, the sole previous U.S.
diplomatic visit there was Consul General LeCocq's in 1994.

Komsomolsk-on-Amur was founded in 1932 as an industrial base for
the Soviet defense industry.  Its largest plants produced
aircraft and ocean-going vessels. With its population of 294,500
people, it is the third largest city in the Russian Far East
(RFE) after Vladivostok and Khabarovsk.  The city economy is
based on manufacturing, which accounts for 74 percent of the
total output and 38 percent of employment. In 1998 the city's
GDP was 7,452.2 million rubles (USD 677.5 million) or 36.5
percent higher than in the previous year. State-owned
enterprises accounted for 52.8 percent of the GDP.  The
production volumes grew in machine building (220 percent), steel
production (62.6 percent), timber and wood processing (25.5
percent) and light industry (3.5 percent).  During the first
nine months of 1999 Komsomolsk's GTP grew 31 percent as to the
same period of the previous year.  The increase in output of
small and medium size companies was especially noticeable.

The city administration restrains prices on tariffs, consumer
goods and services keeping them some 10 - 15 percent lower than
average in the Khabarovsk Krai.  During the last three years,
the number of enterprises employing gas for heat has been
increasing.  Gasification reduces heating costs 2 - 3 times.  At
the end of 1998, Komsomolsk obtained a road access to Vanino
seaport.  Apart from stimulating trade, the road provides
transport connections to Sakhalin by ferry.

BEST SALES PROSPECTS

Timber cutting equipment;
Wood processing equipment;
Construction equipment for wood processing.

KOMSOMOLSK-AMURSK-SOLNECHNY TECHNICAL-ECOLOGICAL PROJECT

Taking into consideration the industrial potential of
Komsomolsk, its proximity to the smaller industrial cities of
Amursk and Solnechny, and the fact that the major industrial
enterprises in these cities are experiencing restructuring and
shift toward consumer goods production, the Komsomolsk
Administration developed a Komsomolsk-Amursk-Solnechny
Technical-Ecological Project (KASTEP).  The project is aimed at
consolidation of the region's technological, financial,
intellectual and natural resources to support manufacture of
value-added goods.  Although KASTEP was approved as part of the
Federal Program of Social and Economic Development of the RFE
and Zabaikalye in April 1996, its implementation did not start
until 1998.  Investments within the KASTEP's framework totaled
63.14 million rubles in 1998.

Organizationally, KASTEP has three components:
The Board of Directors, a governmental entity led by Vladimir
Yefremenko, Head of the Municipal Department for Economy and
Finances.  The Board coordinates the project implementation and
lobbies it at the government.
The Development Fund is a non-commercial, non-governmental
entity engaged in accumulation of funds and invests on its own
account.  The Fund provides enterprises with free consulting on
legal, business planning and financial issues.  The Fund also
represents the project in the Krai and federal administrative
structures.
The Agency for Small and Medium-Size Business Development is a
commercial entity that facilitates interaction between
businesses and the government, including tax, legal, and
financial authorities.  The Agency seeks financing, provides
information and telecommunication services, and may establish
holding companies consisting of the KASTEP participants.  The
major activity of the Agency is to perform feasibility studies
and design business plans on a commercial basis.

Today, 60 local companies participate in the project.  They are
exempt from the local budget profit tax which equals 22
percent.  Mr. Yefremenko believes that the city GDP growth in
1999 was achieved mainly due to KASTEP.  He estimates that low
power and heat rates, cheap labor and tax benefits provided by
KASTEP will make Komsomolsk an attractive place for investments.

MAJOR INDUSTRIES

Komsomolsk has a diversified economy where machine building,
metallurgy and timber enterprises dominate.  The economic
crisis, the worsening conditions of the foreign, and national
markets, and the intensifying raw material orientation of the
economy all this had a negative impact on the condition of
manufacturing enterprises of Komsomolsk.  The local industries
are currently experiencing structural transformation and
reorientation toward the markets of the Asia Pacific region.
Like most Russian defense centers, Komsomolsk experiences budget
deficits because the federal government fell further behind on
its payments to the Komsomolsk largest enterprises.  The local
plants have produced jet fighters or submarines, but the central
government can't pay for them.  So the municipal administration
can't collect taxes and lacks funds for its budget.

MACHINE BUILDING

Machine building is the leading industrial complex of the city.
During the last five years, with the help of the Krai
administration large defense plants are actively struggling for
the state and foreign orders.  The Federal "Conversion" Program
approved in 1995 proposed to provide defense plants with funds
to arrange production and marketing of consumer goods. The
Program received only 15 percent of its proposed financing, and
has all but been abandoned.  The federal government (Department
of Defense Industry Reformation) has developed the same kind of
a program, which is expected to be more realistic, to be in
place from 2000 till 2005.  Smaller civil machine-building
operations are presently in deep crises.  Lack of potential
local consumers of their production, low rate of progress in
adopting new technologies and materials, high power and
transportation tariffs, and huge debts make the future existence
of most machine building enterprises doubtful.  Trying to
survive, these plants are searching for new niches developing
small wood processing, car repairing, metal working and even
food production facilities.  Many have established commercial
subsidiaries engaged in trade and other service businesses.

LEADING ENTERPRISES

AIRCRAFT MANUFACTURING ASSOCIATION

Komsomolsk-on-Amur Aircraft Manufacturing Association has
received recognition in the international markets for production
of SU fighters.  The Association is one of the major exporters
of the Khabarovsk Krai. Its main industrial facility produces
amphibian flying boat "BE-103" and an aircraft for regional and
domestic airlines "SUKHOI-80".  The plant is state-owned and,
during his October 1999 visit, Mr. Putin, the Prime Minister of
Russia, promised to keep the plant as a state-owned enterprise
and provide it with foreign contracts and state orders.  The
Aircraft Association is negotiating production of food waste
containers with a Japanese firm.
a
The Aircraft Association also encompasses a number of separate
manufacturing plants that produce civil goods, including "Stils"
(motor boats), "Strela" (yachts, scooters, children bicycles,
oxygen pressure chambers for medical needs, snowmobiles), and
"Avest" (electronics).  Avest has a partnership with LG, Korea,
to assemble television sets, radio and other home appliances.
The company is restoring its operation after the 1998 financial
crisis.  It hopes to produce 120,000 TV sets a year. Avest's
unused capacity allows it to seek a partner to produce
electronic appliances.  It also intends to start manufacturing
component boards for electronic appliances.

AMURSKAYA SHIPBUILDING YARD

Starting from its first year, the main activity of the Amursky
Shipbuilding Yard has been manufacturing submarines.  At
present, the Yard is cooperating with "Rossvooruzhenie" to find
orders for construction of the "Kilo" class (877 EKM type)
submarines.  The yard produces a multi-purpose, 5,500-ton
river-sea type freighter "Volga", a seagoing salvage tug,
135-ton displacement fishing boats, and hang-gliders.  In 1995,
the enterprise signed a contract with McDermott Shipbuilding,
Inc. for construction of a floating liquid RAD wastes processing
facility.  The plant was the first Khabarovsk enterprise to
participate the Sakhalin-2 offshore oil and gas project.  It was
subcontracted to build a spacer for Moliqkpaq drilling station.
The company has plans to expand its participation in Sakhalin
projects, as well as develop production of construction
materials, furniture, and other consumer goods.

AMURLITMASH

The Amurlitmash joint-stock company manufactures foundry
equipment: continuous shot-blasting barrels, batch-type
shot-blast cleaning barrels, batch-type shot-blasting chambers
with rail-running cars, universal shot-blast cleaning chambers,
shot-blasting machines for sheets, and rolled metal
electro-hydraulic machines.  Despite difficult economic
conditions, during the last four years, the company managed to
bring to market twenty new products. The volume of domestic
orders increased.  In 1998, Amurlitmash and its Belgian partner
established a "Robema" joint venture to manufacture
shot-blasting machinery for western European markets.

KOMSOMOLSKY ELECTRO-TECHNICAL PLANT

The Komsomolsky Electro-Technical Plant is the only battery
producer in Eastern Russia. Individuals own 89 percent of
company stock; the remaining eleven percent belongs to the
Imperial Fund.  The plant manufactures plastic consumables, and
is recognized among the most successful enterprises of the Krai.
In 1992, it sold 2,000 batteries to Alaska Batteries Company.
The plant is ready to raise funds on the capital market by
issuing 100,000 common shares with a face value of 100 rubles
per share.  The issue will increase chartered capital by 25
percent; additional capital will be used for plant development
and equipment modernization.

AMURSTAL

For decades, Amurstal plant was the only producer of steel and
rolled metals east of the Lake of Baikal.  After 1989 the
production of steel and rolled stock declined because of
disruption of economic ties and deliveries. Over the last eight
years, the plant has announced bankruptcy and changed owners
several times.  Currently several independent companies operate
on the industrial base of the former giant of the Far Eastern
metallurgy.

"Amurstal-Profil" joint stock was established on the base of the
bent section steel department of the "Amurstal" company.
"Amurstal-Profil" produces road metal barriers according to the
international DIN 17100 RSD 37-2 standard with the high quality
anti-corrosion covering.  The company's industrial capacity
permits to manufacture 200,000 tons of bent steel, which make
9,000 kilometers of the road barriers.  The annual demand for
the road barriers in Eastern Russia estimates 450-600
kilometers.  The closest producers of barriers are in European
Russia.

The demand for the barriers will increase considerably with the
reconstruction of existing and building of new roads, a major
priority of Khabarovsk Krai administration.  Taking into
consideration the forthcoming development of a gas pipeline
through Khabarovsk territory, the company also intends to
produce water and gas pipes of 32 to 193,7 millimeters
diameter.  "Amurstal- Profil" is interested in finding a partner
that will participate in its projects for 25 percent of its
stock.

STEEL-ROLLING PLANT

The Joint-Stock Company Far Eastern Steel-Rolling Plant
(Staleprokatny Zavod) is also one of the successors of
"Amurstal".  The company, established in 1997, employs 250
people and produces 60,000 tons of rolled steel per year. The
plant could increase its output.  At present, 30 percent of
rolled steel is exported to China.

TIMBER PRODUCTION AND WOOD PROCESSING

Forest industry has always been an important factor in
Komsomolsk's economy.  Large timber reserves located in the
neighboring districts and a relatively well-developed
transportation network gave some Komsomolsk timber companies
leading positions in the Krai.  Almost every timber producer is
trying to develop a wood processing facility.  Since the local
companies lack advanced wood processing technologies and
equipment, there are business opportunities for the US companies
in that sector.

FLORA JOINT-STOCK COMPANY

Flora is a major timber operation and exporter of the Khabarovsk
Krai.  The company was founded in 1991, and now employs 1,800
people. Its shareholders are private persons.  The basic fields
of business are logging, sawing, timber export and import of
logging equipment.  In 1998 Flora's turnover was USD 49 million,
its exports totaled 600,000 cubic meters.

The company controls 10 percent of Russia's timber exports to
Japan.  It has a solid partnership with Marubeni, Kamatsu and
Nissan Diesel, and runs two consignment warehouses of the latter
two firms.  Flora enjoys a one-year deferral of payment for
machinery received through the warehouses.  In 1998, the company
imported USD 1.5 million of goods, and in 1999 it plans to bring
in equipment for USD 5.5 million.  "Flora's" trade division
sells machinery, spare parts and tools to "Forest Starma" and
timber companies operating on Sakhalin, Khabarovsk and Primorski
Krais.

During the last four years, "Flora" has been introducing
Scandinavian logging technology.  Now Timber Jack units produce
80 percent of its total timber output.  The Company seeks a
foreign partner to modernize its wood processing facilities to
manufacture high quality materials for foreign and domestic
markets.

VOSTOK

Vostok LTD., established in 1987, is a woodworking company
oriented toward Southeast-Asian markets.  Its full-cycle wood
processing facility produces diversified construction materials
and log houses for export to the Republic of Korea.  To become
more competitive and expand sales, Vostok seeks partners to
modernize its industrial lines by installing a new dry kiln, a
wood preservation and packing units.

KEDR

Kedr Holding was founded by a number of Komsomolsk logging and
wood processing businesses on the industrial base of Expa
joint-stock company.  The Holding possesses its own timber stand
and woodworking facilities.  Kedr wishes to arrange a joint
venture with a foreign partner to produce high quality wooden
materials for construction and furniture.

APPAREL INDUSTRY

For many years, Komsomolka Sewing Factory was the leader of the
light industry in the Krai.  In the mid-90s, the company went
through a deep recession.  Today, Komsomolka employs 800 persons
(3,700 in 1992) and has set up sewing shops in small settlements
around Komsomolsk to reduce production costs. In 1995,
Komsomolka established "Renaissance-Komsomolka" (R-K) joint
stock.  R-K has modern equipment and manufacturers apparel for
export.  In 1998, R-K exports reached USD 1.5 million.  It has
recently designed a business plan to further develop its
production lines.

KOMSOMOLSK OIL REFINERY

The Komsomolsk refinery is the largest refinery in the Russian
Far East. It receives crude oil through a pipeline from Sakhalin
and by rail from Irkutsk.  The refinery process is below world
standards.  output falls each year. Both the Krai and municipal
governments suggest that the company management is inefficient
and that the plant needs a major restructuring.

TELECOMMUNICATIONS

Telecommunications services in Komsomolsk are scarce.
Electrosvyaz Company, which controls traditional
telecommunications, is very conservative and is not open to new
technologies.  Rosnet is a reputable non-governmental provider
of telecommunication services in Komsomolsk.  It represents
COMSTAR, a joint venture between the Moscow City Telephone
Network and GPT (Great Britain), and provides a variety of
reliable and relatively inexpensive telecommunication services
in the city.  The company clientele is growing rapidly.  Rosnet
is affiliated with a local organization of invalids; this grants
Rosnet significant tax exemption.  The industry experts believe
U.S. companies may find opportunities in some segments of the
telecommunications market.

TRANSPORTATION

A domestic airport located 40 kilometers south of the city
provides services to Moscow twice a week.  There is a good
quality highway (270 miles) between Khabarovsk and Komsomolsk.
There is a regular bus and train service between Komsomolsk and
the capital of the Krai.  Approximately in the middle of the
Khabarovsk Komsomolsk highway a new 210-mile Lidoga  - Vanino
gravel highway begins.  It provides direct excess to the third
largest seaport in the Russian Far East.  The Komsomolsk River
port operates six months a year and can serve river-sea
vessels.

LOCAL GOVERNMENT

The Komsomolsk government shows more creativity and initiative
in supporting business than most of its RFE counterparts.  Most
members of the Komsomolsk's government used to work for the
local large state industrial enterprises.  For years their style
of management has been production, rather than market,
oriented.  Several hundreds Komsomolsk businessmen and municipal
employees have attended seminars on marketing, general and
financial management, accounting, people resource management
arranged by the Russian - American Education Center.  The local
government is always very helpful in organizing trips of the
representatives of the American government, technical assistance
organizations and private businessmen.

BANKING

Since the August 1998 crisis, only four banks have been
operating in Komsomolsk: Sberbank, Dzyomgi, Dalcombank and
Regiobank.  In early 2000, Vneshtorgbank and some other Moscow
based commercial banks plan to open their representative offices
in the city.

TRAVEL INFORMATION

The trip by night train from Khabarovsk to Komsomolsk takes 8
hours.  The price of one ticket is $17.  First-class cars and
compartments are comfortable and the services are good. Trip by
bus during the daytime takes eight hours and by car five hours.
A domestic airport located 30 miles from Komsomolsk provides
regular service only to Moscow.  The city has regular train and
automobile links with Vanino and Sovetskaya Gavan.

HOTELS AND BUSINESS RELATED SERVICES

Three hotels in Komsomolsk provide adequate services.  The
hotels are safe and have restaurants and sauna.  The cost for
suits ranges from USD20 to 35.  The city has no business centers
or other facilities to provide telecommunication or other
business-support services. Private taxicabs charge approximately
one dollar per mile.

KEY CONTACTS:

GOVERNMENT OFFICIALS

CITY ADMINISTRATION OF KOMSOMOLSK-ON-AMUR
13 Alleya Truda
Komsomolsk-on-Amur, Russia 681000

Vladimir Mikhalyov, Mayor
In 1996, Mr. Mikhalyov was recognized as one of ten best mayors
in Russia.
Tel: (7-42172) 4453-44, 432-33
Fax: (7-42172) 444-19

Vladimir Yefremenko
Deputy Mayor for Economy and Finances
Tel: (7-42172) 428-99
Fax: (7-42172) 4446-19

Vladimir Gerasimov
Deputy Mayor for Industry, Transport and Telecommunication
Tel: (7-42172) 4468-07
Fax: (7-42172) 4446-19

Oxana Abasova
Head of the International Economic Department
Tel: (7-42172) 436-84
Fax: (7-42172) 4446-19

Sergei Ukhanaov
Head of the Informational Department
Tel: (7-42172) 465-69
Fax: (7-42172) 4446-19
E-mail: city@kmscom.ru

KOMSOMOLSK'S DEVELOPMENT FUND
Vladimir Mokrousov, Manager
Amursk-Solnechny Technoecopolyc
42 Sevastopolskaya Street
Komsomolsk-on-Amur, Russia 681000
Tel: (7-42172) 424-94

ENTERPRISES

KOMSOMOLSK AIRCRAFT PRODUCTION ASSOCIATION
Vyacheslav Shport, Production Director
1 Sovetskaya Street
Komsomolsk-on-Amur, Russia 681018
Tel: (7-42172) 632-00
Fax: (7-42172) 298-51
E-mail: knaapo@kmscom.ru

"AVEST" PLANT - AIRCRAFT PRODUCTION ASSOCIATION
Alexander Mikryukov, Director
1 Sovetskaya street
Komsomolsk-on-Amur, Russia 681018
Tel: (7-42172) 630-46
Fax: (7-42172) 284-33
E-mail: av@avest.bnkdp.khabarovsk .su

AMURSKIY SHIP YARD
Alexei Kokin
Head of Foreign Economic Relations Department
1 Alleya Truda,
Komsomolsk-on-Amur, Russia 681000
Tel: (7-42172) 400-39 or 473-00
Fax: (7-42172) 450-26
E-mail: sipper@kmscom.ru

AMURLITMASH JOINT STOCK COMPANY
Vladimir Zhuk, General Director
1 Kulturnaya Street
Komsomolsk-on-Amur, Russia 681008
Tel: (7-42172) 287-77
Fax: (7-42172) 455-86

KOMSOMOLSKY ELECTRO-TECHNICAL PLANT
Vladimir Schetinin, General Director
54 Kirova Street
Komsomolsk-on-Amur, Russia 681027
Tel: (7-42172) 454-63
Fax: (7-42172) 454-59

PODMA JOINT STOCK COMPANY
Dmitry Ryabov, General Director
3 Severnoye Shosse
Komsomolsk-on-Amur, Russia 681005
Tel: (7-42172) 445-39
Fax: (7-42172) 437-02

EXPO LTD.
Sergei Matveyev, Director
6 Lesozavodskaya Street
Komsomolsk-on-Amur, Russia 681000
Tel: (7-42172) 438-53
Fax: (7-42172) 469-27

AMURSTAL-PROFIL JSC
Sergei Safonov Director
2 Zavodskaya Street
Komsomolsk-on-Amur, Russia 681005
Tel: (7-42172) 924-39
Fax: (7-42172) 472-80

FAR EASTERN STEEL-ROLLING PLANT
Alexei Noskov, Director
2 Zavodskaya Street
Komsomolsk-on-Amur, Russia 681005
Tel: (7-42172) 923-36
Fax: (7-42172) 432-54
E-mail: dsz@kmscom.ru

FLORA JSC
Vladimir Belozyorov, General Director
79/2 Kirov Street
Komsomolsk-on-Amur, Russia 681000
Tel: (7-42172) 435-21
Fax: (7-42172) 470-16
E-mail: flora@kmscom.ru

VOSTOK, LTD.
Mikhail Che, Director
2 Komsomolskaya Street
Komsomolsk-on-Amur 681000, Russia
Tel: (7-42172) 433-21
Fax: (7-42172) 427-83

KEDR HOLDING COMPANY
Sergei Matveyev, Director
6 Lesozavodskaya Street
Komsomolsk-on-Amur, Russia 681000
Tel: (7-42172) 438-53
Fax: (7-42172) 469-27

ELCOM JSC
Vladimir Vlasov, General Dorector
1 Alleya Truda,
Komsomolsk-on-Amur, Russia 681000
Tel/fax: (7-42172) 450-80

RENAISSANCE-KOMSOMOLKA JSC
Ivan Belyovkin, General Director
39 Lenin Street
Komsomolsk-on-Amur, Russia 681024
Tel/fax: (7-42172) 377-45

ROSNET
Alexander Yermakov, President
40 Alleya Truda, office 331
Komsomolsk-on-Amur 681000, Russia
Tel: (7-42172) 368-38
Fax: (7-095) 737-62-60
E-mail: ermak@amur.rosnet.ru

GRANUL, LTD.
Anatoly Kiselyov, General Director
61 Severnoe Shosse
Komsomolsk-on-Amur 681005, Russia
Tel: (7-42172) 467-37
Fax: (7-095) 486-36
E-mail: modem@microjet.kmscom.ru

HOTELS

Vizit Hotel
25 Kirov street,
Komsomolsk-on-Amur 681000, Russia
Tel/fax: (7-42172)431-47

Voskhod Hotel
31 Pervostroiteley street
Komsomolsk-on-Amur 681000, Russia
Tel/fax: (7-42172)303-36

Amur Hotel
15 Mira prospect
Komsomolsk-on-Amur 681000, Russia
Tel/fax: (7-42172)430-74