By Nadia Popova / The Moscow Times
A construction company recently rang up the Chelyabinsk Tractor Plant to order a bulldozer. But there was a catch: The company lacked the 3.5 million rubles ($106,000) needed to buy the vehicle.
No problem, said Stepan Sergeyev, head of the tractor plant's logistics department.
The Chelyabinsk Tractor Plant is now finalizing the sale of the bulldozer in exchange for 3.5 million rubles worth of sweetened condensed milk canned in the southern Urals.
"The construction company that wants the vehicle doesn't have the cash, but it was paid the milk for modernizing a dairy in Bashkortostan," Sergeyev said.
"When we get the milk, we will exchange it for other goods that our plant cafeteria needs, and we might try to sell some as well," he said, speaking by telephone from the Urals city of Chelyabinsk.
Milk is not the only thing that the Chelyabinsk Tractor Plant has accepted as payment as customers and suppliers run short of cash because of the web of nonpayments brought on by the financial crisis. The plant has accepted sheet metal, cars and office space -- and then placed them up for barter or sold them for cash.
Barter, which was widespread during the chaotic 1990s, is making a roaring comeback as insolvent companies struggle to stay afloat. Unrestricted by law but criticized by Western investors, barter is estimated to now account for 2 percent of sales, a miniscule amount but still worth billions of rubles. Small and mid-sized companies usually cut the deals through barter consultants or special web sites, while bigger metals and machinery producers and construction firms tend to act on their own.
"The worse the situation is in the economy, the better it is for us," said Anatoly Abadzhan, head of Rusbarter, a barter company in Rostov-on-Don.
The Chelyabinsk Tractor Plant now collects 20 percent of all payments in kind and pays 10 percent of its bills to its 2,000 suppliers with goods like cable and nickel. Since October, the plant has bartered for goods worth more than 130 million rubles ($3.9 million), the equivalent of 37 bulldozers.
"We decided to be flexible and agreed to accept goods after our sales fell dramatically in November," Sergeyev said. "Now we allow our customers to pay with whatever they can.
"We mainly exchange with steel suppliers, construction companies and our consumers, who pay for our bulldozers and tractors with things like cars, apartments and sometimes food," he said.
The plant created a special barter department late last year when the problems with liquidity and poor sales began. Now barter is the norm.
"In one deal in February, we took sheet metal for a third of a 60 billion-ruble payment for 20 bulldozers," Sergeyev said.
"We are now repairing a bulldozer for Ufaleynickel. The company will pay us with nickel, which we will use to make our payments to the Zlatoust Metals Plant. The plant, in return, will supply us with alloy steel."
The plant has set up a section on its web site where it lists about two dozen goods for sale, including cables and office space.
Barter trade accounted for up to 90 percent of industrial sales in the 1990s, when economic turmoil following the Soviet collapse prompted companies to pay employees and creditors with the products they produced.
Many of those who worked with the barter deals then have been hired by barter consultancies today, said Abadzhan, 28, of Rusbarter.
Abadzhan said he has invested 500,000 euros in the company and planned to get a return on his investment by June.
"We are actively expanding and advertising," Abadzhan said by telephone from Rostov-on-Don. "You can make a real business in this now."Rusbarter's web site says the company has goods worth 10.4 billion rubles on its database for trade. Abadzhan said he has overseen about 15 deals worth some 15 million rubles since January, and his company has collected a net profit of 153,000 rubles.
While the level of profits might make it seem unrealistic to recoup investment costs by June, Abadzhan said demand was growing, and he planned to expand through partnerships in other regions.
"We have estimated that you will begin to collect a profit one month after opening an office," Rusbarter's web site says, inviting people in other regions to set up barter offices.
Abadzhan said a regional office could make a net profit of 1 million rubles a month within 90 days of opening.
Barter accounts for only 2 percent of sales in Russian industry, Abadzhan estimated. "But it's worth billions of rubles," he said.
Abadzhan has competition. In Moscow, German Sterligov, one of Russia's first millionaires and a former commodity trader, opened the Anti-Crisis Settlement and Accounting Center to facilitate barter deals in March and now oversees a network of 49 branches around the country. Sterligov said he has invested 15 million euros into the company, but he declined to put a figure on profits or the number of deals clinched by his company.
Representatives of Sterligov's company in Kursk, Voronezh, Yekaterinburg and Chelyabinsk said their main job so far has been to explain to local businesses how their barter system works.
Demand for barter trade is growing in the regions.
Bosko Plus, a barter broker in western Siberia, has seen an eightfold jump in clients since November, said its director, Sergei Basyakin, speaking by telephone from Tomsk.
Basyakin, who had been bartering since 1999, refused to disclose the financial results of his company.
He said he was currently working on a complicated deal to exchange corn for electric generators and motors.
"You can't keep grain for long, while machinery can be left in the warehouse for ages, until the end of the crisis," Basyakin said.
Among the goods available for barter on Bosko Plus' web site are eight air conditioners, 400 female dress suits, one diesel generator and a pelmeni-making machine.
Vadim Morozov, 32, head of the Moscow-based company Region-Trade, looks for potential clients by browsing through about 10 web sites specializing in barter, including www.smartbarter.ru and www.online-barter.ru.
"I am now trying to find someone who would like to trade sugar or corn for fuel oil," he said. "My clients, fuel oil distributors, want money, but cash is easier to get by selling sugar than oil products."
Barter is particularly widespread in construction, which is one of the sectors hit hardest by the crisis. The First General Contractor Company, a St. Petersburg-based firm specializing in building industrial infrastructure, saw more than 60 percent of its sales of 30 million rubles ($909,000) in the first quarter paid in apartments. "They paid us with apartments that they got from constructors," company CEO Dmitry Smorodin said.
Smorodin recently received three apartments in place of 11.5 million rubles owned by concrete producers, transportation companies and some other clients of his firm.
Smorodin said clients started to pay him with apartments in January, and he has been selling them through a real estate agency.
"You could go to court if a business partner refuses to pay, but it would take a year, and there would be no guarantee that you would actually get the money, or you might go bankrupt first," Smorodin said. "For us, it is important to get at least something."
Smorodin said he would like to build agricultural infrastructure in other regions and would glad to be partly paid in food. "It would be easier to sell food than apartments," Smorodin said.
While barter is helping companies, its critics say it opens the door to tax evasion and call it a step back from developing the economy.
"The barter deals are absolutely legal, but the biggest concern is the way that the traded goods are valued," said Dmitry Zilinsky, partner at the Dia Law International law firm. "Experts at the Interior and Finance ministries and private auditing firms will have to value the goods."
But, he added, "The involvement of these kinds of organizations opens the door to corruption."
Another issue is possible tax evasion, because barter deals are subject to the 18 percent value-added tax. Dia Law International estimates that 40 percent of the companies that use barter do not pay their taxes in full. "The parties may understate the price of the goods exchanged to pay less taxes," Zilinsky said.
The government does not release information about barter trade. The Industry and Trade Ministry and the Chamber of Commerce and Industry did not respond to questions on how the market is regulated and whether any statistics are kept.
The Finance Ministry and the Economic Development Ministry said they did not deal with barter trade.
Foreign investors voiced worry that Russia was stepping back on the development of its market economy.
"Russia has made a lot of progress in building a market economy, but it seems that the progress is not that rooted if the barter appears again," said Ian Hague, a partner at Firebird Management, which manages $700 million in Russian stocks, by telephone from New York. "The whole world has the same problems with liquidity as Russia has. But there is no barter around."
Clemens Grafe, chief economist at UBS in Moscow, said if barter became as widespread as in the 1990s, it would shock foreign investors and become a huge problem for the government. "People would just use barter not to pay taxes," he said.
Some people believe that the barter market will die later this year if bank loans grow cheaper, as expected. "As soon as real money floods into the economy, you can forget about barter," said Sergei Guriev, rector of Moscow's New Economic School.
But barter consultants are counting on the financial crisis to last for some time.
"Even if some money enters the economy, the key problems won't be solved, because the main result will be inflation," said Abadzhan of Rusbarter. "The crisis will continue, because the fundamentals for the revival of the economy won't be in place. So our business will still have demand."