Magadan Region Update

MAGADAN REGION UPDATE

SUMMARY

1. MAGADAN OBLAST, PERCHED IN THE RUSSIAN FAR NORTH NEAR ALASKA, HAS LONG BEEN A PRIME IMPORTER OF U.S. FOOD AND OTHER PRODUCTS, WITH U.S. MARKET SHARE OF LOCAL IMPORTS PASSING 50 PERCENT. WITH THE RECENT RUSSIAN ECONOMIC CRISIS AND FALL OF THE RUBLE, MAGADAN RETAILERS HAVE RAPIDLY SHIFTED TO LOWER PRICED RUSSIAN AND CHINESE PRODUCTS. DESPITE SHORT-TERM SETBACKS, MAGADAN, WITH SEVERAL GOLD MINING JOINT VENTURES, REMAINS ONE OF THE MOST ATTRACTIVE MARKETS IN THE RUSSIAN FAR EAST FOR U.S. FIRMS.

2. THIS IS AN UPDATE TO THE MAGADAN OBLAST REPORT PREPARED BY BISNIS IN 1996. THE REPORT PROVIDES INFORMATION ON THE CURRENT ECONOMIC SITUATION IN THE MAGADAN REGION, MAJOR INDUSTRY SECTORS AND PROJECTS, TRADE OPPORTUNITIES FOR U.S. COMPANIES, AND UPDATED CONTACT INFORMATION. END SUMMARY.

SUMMARY OF MEETINGS

3. ON NOVEMBER 14-18, 1998, SVETLANA KUZMICHENKO, VLADIVOSTOK BISNIS REPRESENTATIVE (VBR) AND RICHARD STEFFENS, PRINCIPAL COMMERCIAL OFFICER (PCO) VISITED MAGADAN AND MET WITH THE OBLAST ADMINISTRATION, RUSSIAN, U.S., AND FOREIGN COMPANIES, AND THE AMERICAN-RUSSIAN CENTER. PCO STEFFENS AND VBR KUZMICHENKO ALSO ATTENDED THE OPENING OF THE AMERICAN-RUSSIAN CENTER'S NEW OFFICES.

4. ON NOVEMBER 16, PCO STEFFENS AND VBR KUZMICHENKO MET WITH GENNADY TOLMACHEV, VICE-GOVERNOR IN CHARGE OF INDUSTRY AND GOLD MINING; ANDREY ZINCHENKO, HEAD OF FISHERY DEPARTMENT; VLADIMIR CHUFENEV, DIRECTOR OF MAGADANAVTOTRANS; EDUARD LOSINSKY, VICE GOVERNOR IN CHARGE OF FOOD SUPPLY AND ENERGY SECTOR; MIKHAIL UMANSKY, DIRECTOR OF THE FEDERAL AVIATION AGENCY. STEFFENS AND KUZMICHENKO DISCUSSED OPPORTUNITIES FOR U.S. COMPANIES, HUMANITARIAN AID, AND INTRODUCED U.S. DEPARTMENT OF COMMERCE PROGRAMS.

5. ON NOVEMBER 17, PCO STEFFENS AND VBR KUZMICHENKO MET WITH ALEXANDR IM, DIRECTOR OF MAGADAN COMMERCIAL PORT; NC MACHINERY (USA); PACIFIC NORTH EQUIPMENT (USA); VLADIMIR PECHYONY, VICE MAYOR OF MAGADAN; WILLIAM FOTHERINGHAM, GENERAL DIRECTOR OF OMOLON GOLD MINING COMPANY; JAMES WADE, GENERAL DIRECTOR OF SEREBRO DUKAT; AND JAMES SULLIVAN, GENERAL DIRECTOR OF OMSUKCHANSK MINING AND GEOLOGICAL COMPANY TO DISCUSS OPPORTUNITIES FOR U.S. SUB-CONTRACTORS AND THE BUSINESS ENVIRONMENT IN MAGADAN. COMPANY DIRECTORS DESCRIBED THE IMMEDIATE NEED FOR HUMANITARIAN AID IN MAGADAN AND VILLAGES.

6. ON NOVEMBER 18, PCO STEFFENS AND VBR KUZMICHENKO HAD A MEETING WITH U.S. COMPANIES AND U.S.-RUSSIAN JOINT VENTURES IN THE ARC OFFICE TO DISCUSS THE BUSINESS ENVIRONMENT FOR U.S. COMPANIES IN MAGADAN AND SET UP A BUSINESS CLUB. VBR KUZMICHENKO ALSO MET WITH LYUBOV KAKORINA, HEAD OF THE FOREIGN ECONOMIC RELATIONS DEPARTMENT, TO DISCUSS TRADE AND INVESTMENT DEVELOPMENT IN MAGADAN OBLAST. LATER, PCO STEFFENS AND VBR KUZMICHENKO VISITED KOLYMSKY GOLD REFINERY PLANT.

TRADE AND INVESTMENT

7. IN 1997, THE MAGADAN REGION RANKED SECOND AFTER THE PRIMORSKY REGION AMONG DESTINATIONS FOR U.S. EXPORTS (USD 88,925,000) TO THE RFE. U.S. COMPANIES EXPORTED MAINLY FOOD PRODUCTS (60% OF THE LOCAL FOOD MARKET), FUEL (COAL, FUEL OIL, AND BENZINE), AND MINING AND CONSTRUCTION EQUIPMENT. OTHER MAJOR TRADING PARTNERS WERE CANADA, GERMANY, AND THE VIRGIN ISLANDS. FOLLOWING THE FINANCIAL CRISIS, FOREIGN TRADE , ESPECIALLY WITH THE U.S, HAS DECREASED BY 90%. THE NUMBER OF CONTAINERS ARRIVING FROM THE U.S. HAS DECREASED FROM 150 PER MONTH TO 8-15 PER MONTH. U.S. FOOD PRODUCTS ARE BEING REPLACED BY RUSSIAN, CHINESE, AND EUROPEAN PRODUCTS.

8. THE U.S. REMAINED THE MAIN INVESTOR IN MAGADAN IN 1997 (78% OF ALL REPORTED FOREIGN INVESTMENT). U.S. COMPANIES INVESTED APPROXIMATELY US$ 50 MILLION INTO GOLD MINING, GEOLOGICAL RESEARCH, AND FOOD-PROCESSING IN 1997.

9. MAGADAN HAS GOOD RELATIONS WITH ANCHORAGE, ALASKA, A SISTER-CITY. THE CITIES HAVE A NUMBER OF EXCHANGE PROGRAMS. AN AMERICAN-RUSSIAN CENTER IN MAGADAN TRAINS LOCAL BUSINESS AND ENTREPRENEURS.

MAGADAN ECONOMY

10. THE TOTAL AREA OCCUPIED BY THE MAGADAN REGION IS ABOUT 460,000 SQUARE KILOMETERS. MAGADAN, A REGION WITH VAST DEPOSITS OF GOLD, SILVER, COPPER, OIL, AS WELL AS RICH FISH RESOURCES IN THE SEA OF OKHOTSK, REMAINS A THINLY POPULATED AREA IN NORTHEASTERN RUSSIA. AS A RESULT OF ON-GOING ECONOMIC CHALLENGES, THE POPULATION OF THE REGION HAS SIGNIFICANTLY DECLINED DURING THE PAST 5 YEARS AND IS NOW ABOUT 250,000. LAST YEAR OVER 5,000 PEOPLE LEFT THE MAGADAN REGION.

11. THE MAGADAN ECONOMY IS TRADITIONALLY BASED ON GOLD MINING, FISHING, AND TRANSPORTATION. IN 1997, THE REGIONAL ECONOMY REMAINED UNPROFITABLE. ABOUT 32% OF THE 1997 REGIONAL BUDGET WAS FROM REGIONAL INCOME, WHILE ABOUT 40% CAME FROM FEDERAL TRANSFER PAYMENTS. HOWEVER, THE GOVERNOR OF THE MAGADAN REGION BELIEVES THAT THE REGION CAN BECOME PROFITABLE AND SELF-SUSTAINABLE WITHIN SEVERAL YEARS. TO ACHIEVE THIS GOAL, THE ADMINISTRATION OF THE MAGADAN REGION HOPES TO:

- REVIVE AND DEVELOP GOLD AND SILVER MINING INDUSTRIES JOINTLY WITH WESTERN MINING COMPANIES;
- ORGANIZE INDEPENDENT EXPORT OF GOLD TO THIRD COUNTRIES TO INCREASE INCOME IN THE REGIONAL BUDGET;
- RESEARCH AND DEVELOP OIL DEPOSITS;
- ESTABLISH A SPECIAL ECONOMIC AND CUSTOMS ZONE TO STIMULATE FOREIGN INVESTMENT AND TRADE;
- AND STABILIZE THE ENERGY SECTOR.

MINING

12. SINCE 1937, GOLD AND SILVER MINING HAS REMAINED THE MAIN INDUSTRY OF THE MAGADAN REGION. 1997 GOLD OUTPUT WAS 26.1 TONS, UP FROM 20.8 IN 1996 AND 22.3 IN 1995. HIGH TRANSPORTATION TARIFFS, COSTLY ENERGY, OUTDATED MINING TECHNOLOGY, CONSTANT NON-PAYMENTS BY GOSKHRAN (THE RUSSIAN STATE RESERVE , THE EXCLUSIVE BUYER OF PRECIOUS METALS IN RUSSIA -- SEE PARA. 16 FOR MORE INFORMATION) TO RUSSIAN MINING COMPANIES FOR EXTRACTED GOLD AND SILVER HAVE LED TO THE BANKRUPTCY OF MOST MAGADAN MINING COMPANIES. SEVERAL HAVE HAD TO STOP OPERATIONS AND RETURN LICENSES TO THE MAGADAN NATURAL RESOURCES COMMITTEE.

13. THE ADMINISTRATION IS TRYING TO REVIVE GOLD AND SILVER MINING BY ATTRACTING WESTERN PARTNERS AND ISSUING LICENSES TO RUSSIAN INDIVIDUALS TO EXTRACT GOLD WITHOUT USING HEAVY MACHINERY IN OLD CLOSED MINES. WESTERN COMPANIES MAY DEVELOP BANKRUPT AND INDEBTED MINES BY ESTABLISHING JOINT VENTURES WITH MAGADAN MINING COMPANIES. ONE U.S. AND TWO CANADIAN COMPANIES HAVE ESTABLISHED JOINT VENTURES TO DEVELOP ONE SILVER (DUKAT) AND TWO GOLD (KUBAKA AND JULIETTA) LODES, WHICH CONTAIN ESTIMATED RESERVES OF 520 TONS OF SILVER AND 100-120 TONS OF GOLD, RESPECTIVELY.

14. THE MAGADAN ADMINISTRATION PLANS TO TENDER 9 MORE APPRAISED AND UNAPPRAISED GOLD LODES (SHKOLNOYE, LUNNOYE, NATALKA, AND VETRENNOYE) WITH ESTIMATED RESERVES OF 900 TONS. THE MAGADAN ADMINISTRATION ALSO INTENDS TO WORK WITH THE RUSSIAN DUMA TO INCLUDE THESE LODES ON A LIST OF PROJECTS TO BE DEVELOPED UNDER A PRODUCTION SHARING AGREEMENT. (NOTE: PROGRESS IN THE DUMA ON PRODUCTION SHARING AGREEMENTS HAS BEEN MOVING ONLY VERY SLOWLY FORWARD.) THE MAGADAN ADMINISTRATION IS READY TO INDIVIDUALLY NEGOTIATE LOCAL TAX AND OTHER PRIVILEGES WITH WESTERN PARTNERS INTERESTED IN THESE PROJECTS.

15. IN ADDITION TO GOLD AND SILVER MINING, THE MAGADAN ADMINISTRATION PLANS LOCAL ORE PROCESSING AND EQUIPMENT AND MATERIAL PRODUCTION TO SUPPORT LOCAL MINING. IN JUNE 1998, THE MAGADAN ADMINISTRATION BUILT KOLYMSKY GOLD REFINERY PLANT TO MANUFACTURE GOLD BARS TO SELL ABROAD. KOLYMSKY, THE SEVENTH LARGEST GOLD REFINERY PLANT IN RUSSIA, HAS ANNUAL CAPACITY OF 30 TONS OF GOLD. SINCE OPENING, THE PLANT HAS REFINED 2.8 TONS. THE PLANT WANTS TO PURCHASE A SILVER REFINING LINE AND IS INTERESTED IN TECHNOLOGIES FOR 5-500 GRAM MEASURING BAR PRODUCTION AND TECHNOLOGY OF JEWELRY GOLD PRODUCTION.

16. GOSKHRAN (THE STATE RESERVE COMMITTEE) IS ABLE TO PURCHASE ABOUT HALF OF MAGADAN'S POTENTIAL GOLD PRODUCTION. CURRENTLY, ABOUT 25 TONS OF GOLD MUST BE OFFERED TO GOSKHRAN FOR PURCHASE. IN CASE GOSKHRAN REFUSES TO PURCHASE GOLD, COMPANIES CAN SELL IT TO ANYBODY THROUGH A LIMITED NUMBER OF APPROVED COMPANIES OR BANKS (CURRENTLY 3). THE MAGADAN ADMINISTRATION IS NEGOTIATING FOR AN INDEPENDENT EXPORT LICENSE TO SELL GOLD AND SILVER ABROAD THROUGH A RECENTLY ESTABLISHED RUSSIAN "DRAGMET" (PRECIOUS METALS) FUND. THE FUND WILL ACCUMULATE GOLD AND SILVER FOR THE MAGADAN ADMINISTRATION TO ATTRACT FOREIGN INVESTMENT.

PROJECTS UNDER DEVELOPMENT

17. KUBAKA GOLD LODE, THE FIRST RUSSIAN GOLD PROJECT DEVELOPED WITH PARTICIPATION OF A WESTERN PARTNER, IS RUN BY THE OMOLON GOLD JOINT-VENTURE COMPANY, 50% OWNED BY CYPRUS-AMAX MINERALS COMPANY (USA) AND 50% OWNED BY RUSSIAN COMPANIES, OF WHICH 28% BELONGS TO GEOMETALL PLUS (MAGADAN). THE KUBAKA LODE IS LOCATED 850 KILOMETERS NORTHEAST OF MAGADAN CITY. THE ESTIMATED RESERVES OF THE DEPOSIT ARE 70-80 TONS OF GOLD. TOTAL COST OF THE PROJECT IS USD 180 MILLION. IN 1997, OMOLON GOLD STARTED EXTRACTION AND PRODUCED ABOUT 8 TONS; OMOLON PLANS TO PRODUCE 16 TONS OF GOLD BY THE END OF 1998.

18. JULIETTA IS A GOLD AND SILVER LODE WITH ESTIMATED 30 TONS OF GOLD RESERVES LOCATED 250 KILOMETERS NORTHEAST OF MAGADAN. THE LODE WILL BE JOINTLY DEVELOPED BY MAGADAN'S OMSUNKCHANSK MINING AND GEOLOGICAL COMPANY (50.5% OWNED BY ARIAN RESOURCES LTD. OF BARBADOS) AND BEMA GOLD CORPORATION (CANADA). THE COST OF THE PROJECT IS USD 70 MILLION. PRODUCTION WAS PLANNED FOR 2000, BUT MAY BE DELAYED.

19. THE DUKATSKY SILVER DEPOSIT, THE LARGEST IN RUSSIA, IS OPERATED BY SEREBRO-DUKAT JOINT-VENTURE WHICH WON A 20 YEAR LICENSE IN NOVEMBER 1997. THE JOINT-VENTURE PARTNERS ARE PAN AMERICAN SILVER CORPORATION (CANADA) -- 70% OF THE COMPANY'S STAKE, GEOMETALL PLUS (MAGADAN) -- 16.5%, AND WESTERN PINNACLE MINING (CANADA) -- 13.5%. THE LODE IS LOCATED 400 KILOMETERS NORTH OF MAGADAN CITY AND CONTAINS 400 TONS OF SILVER. THE OPERATOR PLANS TO UPGRADE MINING FACILITIES AND BUILD AN ON-SITE MILL TO PRODUCE CONCENTRATE. THE CAPITAL COST OF THE PROJECT IS US$ 212 MILLION. FIRST PRODUCTION IS EXPECTED IN 1999.

OPPORTUNITIES FOR U.S. COMPANIES

20. U.S. COMPANIES ARE ACTIVE SUBCONTRACTORS TO THE MINING PROJECTS, PROVIDING FEASIBILITY STUDIES, ENGINEERING, CONSTRUCTION, CATERING, SECURITY, AND LOGISTICAL SERVICES, AND SUPPLYING EQUIPMENT. DEVELOPMENT OF NEW GOLD AND SILVER MINING DEPOSITS COULD PROVIDE ADDITIONAL OPPORTUNITIES FOR U.S. COMPANIES IN THE FOLLOWING AREAS:

- GEOLOGICAL STUDIES;
- FINANCIAL SERVICES;
- FEASIBILITY STUDIES;
- CONSTRUCTION EQUIPMENT, MATERIALS, AND SERVICES;
- GOLD AND SILVER MINING EQUIPMENT AND MATERIAL SUPPLY FOR PROJECT DEVELOPERS;
- ENGINEERING SERVICES;
- SILVER REFINING EQUIPMENT;
- ROAD-BUILDING MACHINERY AND SERVICES;
- FUEL SUPPLY;
- GENERATORS;
- HAZARDOUS WASTE CONTAINERS AND TECHNOLOGIES;
- TRUCKS;
- SITE TRANSPORTATION SERVICES;
- HOUSING CONSTRUCTION;
- RUSSIAN PERSONNEL TRAINING;
- COMMUNICATION SERVICES;
- SECURITY SERVICES;
- CATERING.

FISHING INDUSTRY

21. FISHING IS THE SECOND MAJOR INDUSTRY IN MAGADAN. THE SEA OF OKHOTSK'S MAIN HARVESTS ARE COD, POLLACK, HERRING, SALMON, NAVAGA, PLAICE, CRAB, SQUID, SEA SNAIL, AND SHRIMP. CATCHES HAVE BEEN DECLINING SINCE 1990. OF THE 115,000 TON FISH QUOTA GIVEN TO THE MAGADAN REGION, ONLY ABOUT 60,000 TONS WERE CAUGHT IN 1997.

22. THE MAGADAN FISHING INDUSTRY LACKS MODERN FISHING VESSELS. THE 30 FISHING COMPANIES IN MAGADAN OWN 33 FISHING VESSELS. MOST WERE BUILT IN 1975-1990; ONLY 4 VESSELS IN THE REGION'S FISHING FLEET HAVE BEEN BUILT SINCE 1993. THE ESTIMATED NEED FOR FISHING AND FISH-PROCESSING VESSELS IN THE MAGADAN REGION IS 30-40 VESSELS. IN MOST CASES, MAGADAN FISHING COMPANIES LACK FINANCING TO PURCHASE VESSELS AND EQUIPMENT AND SEEK LOANS FROM WESTERN BANKS OR CREDIT LINES FROM U.S. COMPANIES OR JOINT-VENTURE PARTNERSHIPS. THE MAGADAN ADMINISTRATION WANTS TO UPGRADE FISH-PROCESSING FACILITIES AND DEVELOP COASTAL FISHING FOR WHICH CONSTRUCTION OF FISHING BOATS IS NEEDED. U.S. COMPANIES ARE ENCOURAGED TO CONTACT THE FISHERY DEPARTMENT OF MAGADAN ADMINISTRATION FOR INFORMATION ON POTENTIAL PARTNERS.

TRANSPORTATION

23. THE ISOLATED MAGADAN REGION RELIES ON SEA AND AIR TRANSPORTATION. A 1,500 KM HIGHWAY THROUGH CENTRAL MAGADAN TO YAKUTIA IS USED FOR COAL AND FOOD DELIVERY TO VILLAGES.

24. WITH THE FINANCIAL CRISIS, ALASKA AIRLINES CANCELED ITS MAGADAN-ANCHORAGE FLIGHTS. NOW, MOST FLIGHTS ARE OFFERED BY MAVIAL, THE LARGEST LOCAL AVIATION COMPANY (51% OF COMPANY'S SHARES BELONG TO THE MAGADAN ADMINISTRATION). MAVIAL HAS 9 REGULAR PASSENGER FLIGHTS TO MOSCOW, VLADIVOSTOK, ST. PETERSBURG, NOVOSSIBIRSK, YEKATERINBURG, KHABAROVSK, IRKUTSK, OMSK, KRASNODAR, AND ONE REGULAR PASSENGER FLIGHT TO ANCHORAGE-SEATTLE. FLIGHTS HAVE BEEN ONLY HALF FULL, AND THE FINANCIAL CRISIS HAS FURTHER REDUCED LOADS. SOME FLIGHTS ARE SUPPORTED BY THE LOCAL BUDGET. FLIGHT SCHEDULE CHANGES AND CANCELLATIONS ARE FREQUENT AND UNPREDICTABLE. THE COMPANY HAS 14 TU-154 AND TWO SMALL AIRCRAFT.

25. WITH THE SIGNIFICANT DECREASE OF CARGO TO MAGADAN, ONLY FESCO INTERMODEL LINE CONTINUES TO OPERATE. CARGO IS HANDLED BY THE MAGADAN COMMERCIAL PORT. ANNUAL CAPACITY IS ABOUT 3 MILLION TONS OF CARGO. THE PORT IS NAVIGABLE FROM MAY TILL DECEMBER. DURING THE PAST 10 MONTHS, THE PORT HANDLED ONLY ABOUT 500,000 TONS OF CARGO, MAINLY FOOD PRODUCTS, FUEL, AND SOME EQUIPMENT. THE PORT IS ALMOST BANKRUPT. PORT EQUIPMENT IS OUTDATED; MOST OF ITS CRANES WERE BUILT IN THE 1970S. THE PORT ADMINISTRATION SEEKS A CRISIS MANAGEMENT PLAN TO STABILIZE THE COMPANY DURING THE NEXT 12 MONTHS. AFTER THAT, THE PORT WILL SEARCH FOR WESTERN PARTNERS TO LEASE LOADING AND CARGO-HANDLING EQUIPMENT AND TUG-BOATS AND TO JOINTLY BUILT A HEATED WAREHOUSE.

ENERGY

26. LOCAL ENERGY COMES FROM LOCAL COAL (2 BILLION TONS) AND FUEL OIL (ABOUT 400,000 TONS) DELIVERED FROM OTHER REGIONS VIA VLADIVOSTOK. MAGADAN HAS A 2 MONTH RESERVE OF FUEL OIL TO HEAT APARTMENTS, HOSPITALS, AND OFFICES. MANY VILLAGES HAVE ONLY 2-3 DAYS OF COAL AND FUEL OIL RESERVES, AND SOME VILLAGES HAVE NO RESERVES. THE AVERAGE WINTER TEMPERATURE IN MAGADAN IS 25-30 CELSIUS (-13 TO -22 FAHRENHEIT) BELOW ZERO. THE POWER SUPPLY IN MAGADAN CITY MAY WORSEN BY JANUARY-FEBRUARY. THE LARGEST POWER AND HEAT PRODUCERS ARE KOLYMSKAYA GES AND MAGADANENERGO.

27. THE MAGADAN ADMINISTRATION HAS STARTED PRELIMINARY EVALUATION OF OIL AND GAS RESERVES IN MAGADAN SHELF, WHICH MAY CONTAIN UP TO 4.5 MILLION TONS OF OIL. A TENDER FOR DEVELOPMENT OF THE RESERVES IS PLANNED IN 1999.

SPECIAL TRADE AND CUSTOMS ZONE

28. IN 1998, THE MAGADAN ADMINISTRATION INTRODUCED FOR RUSSIAN DUMA DISCUSSION THE IDEA OF A SPECIAL TRADE AND CUSTOMS ZONE IN MAGADAN. THE FIRST READING OF THE PROJECT IN THE DUMA IS PLANNED FOR THE BEGINNING OF 1999. THE SPECIAL TRADE AND CUSTOMS ZONE WOULD BE IMPLEMENTED IN THE REGION FOR 5 YEARS. CUSTOMS DUTIES WOULD BE TEMPORARILY REDUCED OR CANCELED FOR MINING AND CONSTRUCTION EQUIPMENT USED IN THE MAGADAN REGION. ALL FEDERAL AND LOCAL TAXES WOULD REMAIN IN THE REGION'S BUDGET AND BE USED TO DEVELOP THE MINING INDUSTRY. (NOTE: THE RUSSIAN DUMA HAS BEEN MOVING FORWARD VERY SLOWLY ON ANY ISSUES CONNECTED WITH SPECIAL TRADE, CUSTOMS, AND ECONOMIC ZONES IN RUSSIA.)

POLITICAL CLIMATE

29. MOST U.S. COMPANIES OPERATING IN THE MAGADAN REGION HAD GOOD WORDS TO SAY ABOUT THE LOCAL ADMINISTRATION BUT NOTED THAT FEDERAL AGENCIES (CUSTOMS, TAX INSPECTORATE, AND THE CERTIFICATION AGENCY) ARE HARD TO DEAL WITH. FEDERAL AGENCIES ORGANIZE FREQUENT INSPECTIONS AND OFTEN ISSUE LARGE FINES.

BANKING

30. IT IS IMPOSSIBLE TO USE CREDIT CARDS IN MAGADAN. ACCORDING TO LOCAL BUSINESS MANAGERS, TRANSFER OF FUNDS INTO MAGADAN BANKS COSTS 10% OF THE TRANSFER'S VALUE. IF A PERSON WANTS TRANSFERRED FUNDS BEFORE A WAITING PERIOD OF TWO MONTHS, AN ADDITIONAL 20% IS CHARGED. IF A FOREIGNER WANTS TO EXCHANGE RUBLES INTO DOLLARS, HE OR SHE WILL BE OFFERED A LESS FAVORABLE EXCHANGE RATE THAN LOCAL CITIZENS.

31. LOCAL BANKS DO NOT LOAN MONEY TO RUSSIAN COMPANIES TO PURCHASE EQUIPMENT. THERE IS A HIGH DEMAND FOR BULLDOZERS AND TRUCKS AMONG GOLD MINING COMPANIES, WHICH WILL PAY CASH FOR 1 MACHINE WHEN 5 OR MORE ARE NEEDED. SMALL AND MEDIUM-SIZED JOINT VENTURES ARE ALSO EXPERIENCING DIFFICULTIES WITH FINANCING.

COMMUNICATIONS

32. LOCAL TELEPHONE LINES ARE UNRELIABLE AND ERRATIC. THERE IS LIMITED ACCESS TO THE INTERNET. MANY COMPANIES HAVE COMPLAINED THAT THEY ARE IN AN INFORMATION VACUUM.

MEDICAL SERVICES

33. THERE IS LACK OF RELIABLE MEDICAL SERVICES IN MAGADAN. MOST LOCAL HOSPITALS LACK BASIC MEDICATION AND MEDICAL SUPPLIES.

KEY CONTACTS

34. MAGADAN OFFICIALS

MAGADAN OBLAST ADMINISTRATION
6 GORKOGO STREET
MAGADAN, RUSSIA 685000
TEL: (7-41322) 2-31-34, 2-31-21, 2-64-82
FAX: (7-41322) 2-04-25

- VALENTIN IVANOVICH TSVETKOV, GOVERNOR
- EDUARD VYACHESLAVOVICH LOSINSKY,
FIRST VICE-GOVERNOR, FOOD SUPPLY AND ENERGY
- LUBOV ALEXANDROVNA KAKORINA,
HEAD OF FOREIGN ECONOMIC RELATIONS

11 PROLETARSKAYA STREET
MAGADAN, RUSSIA 685000

- GENNADY FEDEROVICH TOLMACHEV,
VICE GOVERNOR, INDUSTRY AND GOLD MINING
TEL: (7-41322) 209-79; FAX: (7-41322) 249-11

- ANDREY ANDREYEVICH ZINCHENKO,
VICE GOVERNOR, FISHERIES
TEL: (7-41322) 285-67; FAX: (7-41322) 276-83

RUSSIAN FEDERAL AVIATION AGENCY
7 NABEREZHNAYA REKI MAGADANKI
TEL: (7-41322) 284-30, 228-53
FAX: (7-41322) 221-96

MAGADANAVTOTRANS
(DEPARTMENT OF ROAD TRANSPORTATION)
48/A YAKUTSKAYA STREET
TEL: (7-41322) 525-60, 532-17
FAX: (7-41322) 509-66

CITY ADMINISTRATION
1 GORKOGO STREET
MAGADAN, RUSSIA 685000
TEL: (7-41322) 976-76
FAX: (7-41322) 249-40

-VLADIMIR PETROVICH PECHONY, VICE-MAYOR

35. COMPANIES

ALLIED SUPPORT
11 PROTERSKAYA STREET, SUITE #310
MAGADAN, RUSSIA 685000
TEL: (7-41322) 992-91
FAX: (7-41322) 245-39
CONTACT: KONSTANTIN ANOROV, OPERATION MANAGER
ALLIED SUPPORT PROVIDES SITE SERVICES.

FRANK'S SIBERIAN SUPREME
59/1 PROLETARSKAYA STREET, SUITE #48
MAGADAN, RUSSIA 685000
TEL/FAX: (7-41322) 383-22, 593-54
CONTACT: FRANK EDGERLY, PRESIDENT
ICE CREAM MANUFACTURER

NC INTERNATIONAL
12 BERZINA STREET
MAGADAN, RUSSIA 685000
TEL/FAX: (7-41322) 387-41, 387-50
CONTACT: CLINT SHALES, CONSULTANT
CATERPILLAR DEALER

OMOLON GOLD MINING COMPANY
14 PROLETARSKAYA STREET
MAGADAN, RUSSIA 685000
TEL: (7-41322) 294-11, 291-04
FAX: (7-41322) 245-15
CONTACT: WILLIAM J. FOTHERINGHAM, GENERAL DIRECTOR
RUSSIAN-AMERICAN JOINT VENTURE DEVELOPING THE KUBAKA GOLD LODE.

OMSUKCHANSK MINING AND GEOLOGICAL COMPANY
11 PROLETARSKAYA STREET
MAGADAN, RUSSIA 685000
TEL: (7-41322) 260-76
FAX: (7-41322) 227-40
CONTACT: JAMES SULLIVAN, GENERAL DIRECTOR
OPERATOR OF THE JULIETTA GOLD AND SILVER LODE.

PACIFIC NORTH EQUIPMENT
79 RECHNAYA STREET, SUITE #1
MAGADAN, RUSSIA 685021
TEL: (7-41322) 975-79
FAX: (7-41322) 777-72
CONTACT: TOM AUSTIN, BRANCH MANAGER
DEALER FOR KOMATSU EQUIPMENT

SEREBRO DUKAT
13 PARKOVAYA STREET, SUITE # 301
MAGADAN, RUSSIA 685000
TEL/FAX: (7-41322) 262-32
CONTACT: JAMES WADE, GENERAL DIRECTOR
OPERATOR OF THE DUKATSKY SILVER AND GOLD DEPOSIT

36. OTHER ORGANIZATIONS

AMERICAN-RUSSIAN CENTER
35 KARLA MARXA AVENUE
MAGADAN, RUSSIA 685000
TEL: (7-41322) 973-98
FAX: (7-41322) 975-58
CONTACT: SERGEI TALANOV, DIRECTOR
THE RUSSIAN-AMERICAN BUSINESS EDUCATION CENTER PROVIDES TRAINING TO LOCAL COMPANIES AND ENTREPRENEURS, AND LIMITED BUSINESS FACILITATION SERVICES.

MAGADAN INTERNATIONAL BUSINESS ASSOCIATION
35 KARLA MARXA AVENUE
TEL: (7-41322) 973-98
FAX: (7-41322) 975-58
CONTACT: TOM AUSTIN, CHAIRMAN
OR SERGEI TALANOV, VICE-CHAIRMAN
THE ASSOCIATION MEETS EVERY 1ST FRIDAY OF EACH MONTH AT 7:30 PM IN THE RED BAR.

37. HOTELS AND RESTAURANTS

VM TSENTRALNAYA
13 LENINA AVENUE
MAGADAN, RUSSIA 685000
TEL: (7-41322) 212-00, 978-78
FAX: (7-41322) 973-00
THE HOTEL IS LOCATED DOWNTOWN, AND HAS A RESTAURANT AND A BAR. IN WINTER, IT CAN BE COLD IN THE ROOMS. HEATERS ARE AVAILABLE ONLY IN 5 ROOMS.

THIS REPORT PREPARED BY BISNIS VLADIVOSTOK REPRESENTATIVE SVETLANA KUZMICHENKO.