******* #1 Vodka Dispute Shows Russia Chaos September 26, 2000 By JIM HEINTZ MOSCOW (AP) - Heading the Kristall vodka distillery should be a businessman's dream - the chance to manage one of Russia's most prestigious enterprises, with a world-renowned array of products, a diligent work force and awards from the government. But it's closer to a waking nightmare. For seven weeks, Kristall has been split between two men, each claiming to be the manager. One runs the executive offices, the other runs the production floor, and both are backed by squads of guards. The standoff highlights the perils of doing business in Russia, where the legal system is often ineffectual. How the dispute is resolved could indicate whether President Vladimir Putin's government can improve the business climate by upholding the law and public accountability. Kristall is among the most famous of Russia's approximately 180 vodka distilleries, producing the Western hit Stolichnaya as well as home-country favorites such as Gzhelka. The plant's red-brick complex on a leafy Moscow side street looks like a 19th century fortress. The resemblance was especially strong on Aug. 4, when gun-toting men arrived in waves. First came masked tax police, who seized documents as part of a tax-evasion investigation. Within hours, Alexander Romanov and his private guards showed up and moved into the building's executive offices. Romanov said he was staking his claim to the post of general director, to which the board had elected him in May. Before the day was over, Vladimir Svirsky and another group of guards moved into the production facilities. Svirsky, who had been Kristall's acting director since April, pointed out that a Moscow court had voided Romanov's election. But on Sept. 1, the same court reversed itself. Svirsky said an appeal has been filed. The dispute is further complicated by allegations of deceptive stock trading. Romanov says that about 20 percent of company stock that once belonged to the factory workers' collective has gone offshore. ``I admit that 19 percent of the stock belongs to an offshore company in Cyprus,'' Svirsky said. ``But this is a friendly company, and the stocks never vanished: they are working for the collective.'' Romanov spent the first couple of weeks of the standoff living in the executive offices, saying he was afraid to leave because ``I see many men with guns out there.'' But recently, he has had to go out occasionally on business duties because the office phone lines have been cut. Vodka is a cornerstone of Russian life, despite attempts by a succession of leaders right up to Mikhail Gorbachev to curb drinking. And Kristall has done its part in slaking Russians' thirst. Despite the tensions, it met its usual monthly production level of over 2 million gallons, said Kiril Peskov, a Romanov deputy. The guards, meanwhile, seem relaxed and amused. ``I never saw such a situation as this,'' said one guard, laughing and glancing at his rivals a few yards down the street. Russia, however, has seen many such disputes over lucrative firms. Workers seized a paper mill last year to protest foreign ownership of the plant, and troops shot one worker when they raided the plant to end the occupation. This month, rival factions brawled for control of a chemical plant in Yekaterinburg. But the Kristall dispute is in a class of its own because the state owns 51 percent of its shares. It is also notable because the government had lauded Kristall's previous management, naming the plant Russia's Outstanding Taxpayer of 1999 ($89 million on profits of $142 million, according to Svirsky). Analysts say the Kristall case sends a discouraging message to foreign investors who have been otherwise heartened by the Russian economy's recent tentative expansion after years of decline. ``We're watching it closely. What happens to a Russian company can just as easily happen to a foreign one,'' said Scott Blacklin, head of the American Chamber of Commerce in Russia. At the least, he said, it seems to demonstrate a pattern that has plagued Russia under czarism, communism, and nascent democracy: ``The power elite has never been a friend of the entrepreneur.'' However, Z. Blake Marshall of the Washington-based U.S.-Russia Business Council said the attention-grabbing dispute could be seen as ``a step forward''
