PROSPECTS IMPROVE FOR INCREASE IN SOVIET PURCHASES OF WESTERN CHEMICAL PLANTS A

Created: 9/1/1964

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PROSPECTS IMPROVE FOR INCREASE IN SOVIET PURCHASES OF WESTERN CHEMICAL PLANTS AND EQUIPMENT

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CENTRAL INTELLIGENCE AGENCY Office of Research and Reports

PROSPECTS IMPROVE FOR INCHEASE IN SOVIET PURCHASES OF WESTERN CHEMICAL PLANTS AND EQUIPMENT

Several signs point to an impending acceleration in the purchase of chemical plants and equipment by the USSR from tho Free World. epetition of last year's extraordinary Soviet expenditures for imports of grain now soems unlikely in view of prospectsood grain crop Second, the USSR has been successful in obtaining assurance of some credits beyond the previous limitears. Finally, theof negotiations during theonths of thia year (involving somelants valued in excess0 million)arger volume of contracts than has been evidenced to date. Thus farontracts have hecn concluded for onlylants with an estimated value0 million. The USSR must begin placing more orders soon if it is even to approach0 goals set for the chemical industry.

hrushchev stated:

We shall willingly give orders to the firms of (the capltaLlst/"bountrleBhole set or chemicalnd shall pay them whatever is required by coimrrclal agreements. However, those vho hope to ob- tain fabulous profits on these deals, allegedlyan "advantageous economicnd who assume that the Soviet Union will be forced to accept any kind of agreement because it allegedly has "no otherill bo bitterly disappointed. epeat, those who want to aake an honest profit will be given orders by uo,credit is .

Premier Khrushchev's revelation of plans for the vast new chemical program at the Party Plenum last December, thereultiplication of the already extensive negotiations for the purchase of chemical plants from the Free World- Representatives of major chemical companies throughout the world have made pilgrimages lo Moscow in the hope ofhare of the prospective trade, and itinerant Soviet delegations have brandished shopping lists in Tokyo. Ixindon, New York. Paris, and other centers of commerce. Soviet

negotiators often were members of the Kremlin hierarchy. First Deputy Premier Mikoyan, whorade delegation to Tokyo inxpressed interest in purchasing fromumber of plantschemical plants) totaling in value0 million, although he indicated that these purchases were contingent on the availability of favorable credit terms. In March, First Deputy Premier Kosygin visited Italian chemical equipment factories, and Premier Khrushchev himself discussed with Danish Prime Minister Krag the possibility of Sovietof fertilizer plants.

The stakes involved are not small. It has been estimated thatplants and equipment valued at approximatelyillion will befrom the Free Worldo implement the Soviet chemical plan/ Soviet trade officials allegedly have stated that they were prepared to buy chemical equipment from the West valued0 million annually for theears. 3/ earhe USSR concluded contracts with, the Free World for chemical plants with an estimated value in excess0 million. ) Most of the. new contracts will involve plants incorporating the latest technological advances for production of chemical fibers, fertilizers and otherchemicals, and plastics. Many of these plants will be very large by world standards.

2. Developments Since the Plenum

Although previous negotiations for the sale of chemical plants and equipment to the USSR have often been protracted, the publicitythe new program suggested that extensive Soviet purchases were To date, however, there has been much smoke and little fire. By early September, firm contracts had been signed forlantsotal value of0 million (see the table)- Six of these plants are for production of agricultural chemicals or of raw materials for production of chemicals,rea plant that is expected to be one of the largest of its type in the world.

Overshadowing the completed transactions have been the volume and scope of the negotiations- Based on an analysis of shopping lists and negotiations for specific plants, the total value of the approximatelylants under discussion since the Plenum is estimated to be in excess0 million- Two contractsotal value of0 million reportedly are very close to completion oneK consortium for

a giant dacron fiber complex valued0 million, the other with Japanarge plant for production of an intermediate for nylon fiber. Actually, one contract covering part of the dacron complex,alueillion, was signed in early September, with separata contractu for the remainder apparently to be concluded in the near future-

The delay in actual commitments probably is attributableariety of reasons. Prominent among these have been (a) an apparent reluctance of the USSR to commit scarce foreign exchange before the4 could be assessed and (b) hard bargaining on the part of Soviet negotiators in order to gain the best possible financial terms. Other factors in the delay probably include the size and complexity of tho contracts being negotiated. Indecision as to the exact requirements of the new program, Soviet bureaucratic delays, and resistance byinterests to the reallocation of resources necessitated by the program. As an example of the delays, the contract mentioned above for the dacron complex was reported to'be near approval inontract covering only part of the transaction was not signed until September.

3. Prospects

Several factors, however, point to an acceleration in the placement of orders- As of mid-August the grain crop in the USSR promised to be the best since the estimated record cropresumably eliminating any further large drain on hard currency resources for imports of grain and permitting attention to be focused on purchases of plants andfor the high-priority chemical program. Of course the possibility exists that an improvement in the agricultural situation would reduce the pressure for imports of fertilizer plants, althougheaction seems unlikely on the basisingle good harvest.

The USSR evidently will be able to obtain financing for somepurchasesonger repayment period thanear credits previously extended. ecent contract concluded with Japanrea plarit reportedly has credit terms The Britishhas agreed to guarantee up0 million in long-term creditsepayment period as long aaears, and the Frenchappears to be favoring more flexibility on credit terms infor future discussionsrade agreement. Finally,onths of negotiations, the USSR may conclude that firm orders must be placed soon if the goals set0 are to be approached. Certainly the volume of negotiations alone gives reason to expect an increased number of signed contracts in the near future.

Table

Contracts for the Purchase of Chemical Plants by the USSR from the Free Worldk

Type of Plant

Production Capacity (Metric Tons)

(Million Current US ,V

Country Firm

a/

Engineering

b/

Germany

c/

Germany

d/

Ltd.

fertilizer e/

f/

et Engrals

feed jr/

h/

acid it

0

Belgium

CMmlque

processing

Anger

chloride floor

Anger

tile (tvo plants)

e.

capacity is tentative. Other repoctsuch higher figure.

Sources:

1. State, Moscow. C.

Estimated Effects of Various

Possible Levels of Western Credits to the USSR,. 5. C.

Street Journal,. 1. U.

State, Tokyo. C.

East-West Trade News, . 1. ass, Moscow, U.

Dusseldorf Handelsblatt,. 1. U.

Chemical Trade Journal and Chemical Engineer.

- U-

New York.- U-

European Chemical. CIA. CS, IS S/

U- State, Moscow. OFF USE.

Chemical and Engineering News, . U.

CIA. OO,. M. CIA. CS, St

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