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. Last Updated: 07/27/2016

Coke probes vanished funds

Coca-Cola has sent two senior officials to Moscow to find out what became of $20 million the Russian treasury swallowed instead of paying for Coke's bottling operations in Russia.

Neville Isdell, senior vice president of the U. S. company, and Tore Bo, president of the Oslo-based Northwest Europe and Africa division, spent several days in Moscow last week. Their visit followed a PepsiCo delegation early in the month, and the visit last week of Donald Kendall, PepsiCo's chief executive.

Both soft drink companies have problems ensuring a reliable flow of hard currency to finance the supply of imported concentrates to Russian bottlers. The money is also needed to cover the cost of new plant construction and modernization of existing bottling factories and distribution systems.

Pepsi currently holds a 6 percent share of the Russian soft drink market; Coca-Cola a 3 percent share.

To match Pepsi's expansion program, Coca-Cola Refreshments Moscow, the joint-stock company established by the Atlanta-based corporation, is planning to build a new plant for producing large plastic bottles of Coke, as well as dispensers for restaurant and kiosk sales of the soft drink.

Meanwhile, an estimated 7, 000 Moscow kiosks are currently buying imported cans of Coke and Fanta drinks. The company's ruble profits are then converted to hard currency at auction.

At retail prices ranging from 50-120 rubles per can, Russian retailers will soon be vulnerable to systematic competition from Coke's own distribution-system, which could sell Coca-Cola and Fanta for less.

Coke's biggest problem, however, has been the disappearance of hard currency funds which, according to U. S. sources, should to be available for Coke's import operations.

The funds, estimated at over $20 million, were earned from Coke's barter arrangement with Avtoexport and Soyuzplodoimport. Avtoexport was the traditional Soviet exporter of Lada cars, while Soyuzplodoimport was the traditional importer of concentrate and supplierto Soviet soft drink bottlers.

Last year an estimated 16, 000-17, 000 Lada cars were exported to the United Kingdom. After expenses were paid and profits allocated between the exporter and the car producer, $20 million should have been placed on the Vnesheconombank account of Soyuzplodoimport for importation of Coca-Cola concentrates. When Vnesheconombank operations were halted last November, Coca-Cola was told the money for concentrates was frozen in an account.

Last week, the Russian Minister of Economics, Andrei Nechaev, confirmed the official interpretation - that the money does not exist.

In the government's view internal financial operations between the now defunct Soviet trade organizations, Avtoexport and Soyuzplodoimport, were taken over by the Russian treasury, and the release of funds subject to government decisions on which imports deserve priority in the present situation.

Nechaev offered the prospect of issuing promissory notes for Coca-Cola's claim which would not be redeemable for several years.

The Coca-Cola officials sought assurances from the minister and other government officials that their claim would be covered, and that the company might also receive an allocation for current import requirements. There has been no official response.

Coke is also running into difficulty with its planned expansion in the Russian Far East.

Russian regional sources say the Coke plan is to expand bottling operations in Vladivostok with Japanese investment from Mitsui, Asahi and Mitsubishi.

However, hostility among regional leaders in conceding the Kurile Islands to Japanese claims, and Tokyo's policy of restricting investment until the Kurile claim is met, have made it difficult for Coke to decide what steps to take next.