VZCZCXRO8072
RR RUEHAST
DE RUEHSK #0628/01 1650608
ZNR UUUUU ZZH
R 140608Z JUN 06
FM AMEMBASSY MINSK
TO RUEHC/SECSTATE WASHDC 4542
INFO RUCNOSC/ORGANIZATION FOR SECURITY COOPERATION IN EUROPE
RUEHGV/USMISSION GENEVA 0315
RUEHVEN/USMISSION USOSCE 1174
RUEHBS/USEU BRUSSELS
RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/DEPT OF COMMERCE WASHDC
RHMFISS/HQ USEUCOM VAIHINGEN GE
RUFOADA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS SECTION 01 OF 02 MINSK 000628 
 
SIPDIS 
 
SENSITIVE 
 
SIPDIS 
 
DEPT PASS TO USTR 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PREL USTR BO
SUBJECT: State Forces Competition to the Lowest Common Denominator 
 
 
MINSK 00000628  001.2 OF 002 
 
 
SENSITIVE BUT UNCLASSIFIED, PROTECT ACCORDINGLY 
 
¶1. (SBU) Summary: On June 8, General Manager for Coca-Cola 
Beverages Belarus Alexander Denisov listed for Econoff a number of 
problems Coke faces in Belarus.  In recent months the Minsk City 
government has been removing hundreds Coca-Cola refrigerators the 
company gave to street kiosks selling Coke products.  A senior city 
employee gave an independent newspaper several absurd 
justifications for this move.  Coke, and other private businesses, 
also face a series of new and restrictive laws and decrees which 
make it increasingly hard to operate in Belarus.  End summary. 
 
 
The War on Coke's Coolers 
------------------------- 
 
¶2. (U) About two months ago Minsk City authorities started ordering 
venders, mainly kiosks, to get rid of the large refrigerated Coca- 
Cola coolers many of them placed outside their kiosks to sell Coke 
products.  In its letters to businesses Minsk City claimed this 
move was to improve the esthetics of the city.  Since 1996 Coke has 
given over 2,000 such coolers for free to venders in Minsk.  In 
early May independent newspaper Belgazeta interviewed Denisov and 
Aleksandr Lukashevich, Head of the Minsk City Division for Trade 
and Services.  Lukashevich gave a grab-bag of reasons why the city 
had ordered the removal of Coke coolers, including: 
 
--the coolers made Minsk look like an "Asian city;" 
--Coke never received permission to distribute these coolers 
(Denisov claimed they did); 
--the Ministry of Labor ruled that the coolers were dangerous to 
citizens, although he did not say in what way; 
--Coke's competitors (state-owned) complained that they did not 
have any coolers at Minsk businesses and asked the city to provide 
them.  When the journalist suggested these companies should compete 
themselves, Lukashevich replied, "No, this is our problem, for the 
organs of trade control;" 
--kiosks were selling Coke at bus stops, making these places into 
"objects of trade," rather than places of transit; 
--"These kiosks at bus stops are not there to provide people with 
cold drinks, but to solve minor problems [i.e.- to sell small 
goods];" 
--drinking anything at a bus stop is not sanitary, and it is 
neither safe nor esthetic to drink from a bottle on a bus [he 
added, "Thank God no one has suffered from this, but it could 
happen."]; 
--a police study found that Coke coolers make the sidewalks unsafe 
because electrical cables can cause people to trip; 
--all brands of cold beverages must have space in these coolers, 
"so people have the right to choose," but Coke refused. 
 
¶3. (U) Lukashevich added that no one had yet complained about the 
withdrawal of Coke coolers, and stated that, "no one will 
complain."  While praising Coca-Cola as a firm which hires 
Belarusians, he concluded, "When a person buys a drink, they need 
to know and we need to know that everything is in order." 
 
¶4. (U) In his answering interview, Coke's Denisov argued that the 
city did give Coke permission to install these coolers, including 
from Minsk's architectural and esthetics specialists.  However, 
Coke was willing to help the city redesign its bus stops and kiosks 
to ensure that its coolers are safely positioned (although he 
stated there is no danger now).  He also argued that any company 
has the right to distribute such coolers, but only Coke had the 
initiative to make such an investment. 
 
¶5. (SBU) Denisov told Econoff that the real reason for this 
pressure is that Coke is viewed in Belarus as a foreign/American 
firm, even though 499 of its 500 employees are Belarusian.  Another 
strike against Coke is that it is a private firm.  Its main 
competitors, Darida and the Minsk Non-alcoholic Beverages Plant, 
are state-owned.  Both reportedly complained to the GOB that Coke 
was competing unfairly by distributing coolers, and asked the GOB 
to even this playing field.  Rather than the state helping its 
companies make this investment, the GOB decided to disadvantage all 
firms equally.  Moreover, Denisov stated these state companies 
already receive benefits from the GOB that Coke does not. 
 
 
Punish All Business Equally 
--------------------------- 
 
MINSK 00000628  002.2 OF 002 
 
 
 
¶6. (SBU) Denisov went on to explain that removing the coolers is 
not the only way in which the state is hindering trade.  Coke 
currently faces a number of new decrees and laws which will greatly 
impact business.  A recent presidential decree mandates how much 
companies can pay employees.  The law sets out a number of pay 
grades, and stipulates that the highest grade cannot be paid more 
than roughly eight times what the lowest grade earns.  Denisov said 
that it will be impossible to attract and retain qualified managers 
if Coke can only pay them eight times what his cleaning staff 
earns.  Within Belarus this is not a major problem, as all business 
will face the same restriction, but he complained he is already 
having difficulty keeping his staff from accepting much higher 
paying jobs in Moscow and Kiev. 
 
¶7. (SBU) Parliament recently passed the first reading of amendments 
to the investment code, which remove any preferential treatment for 
foreign investment and which put in place price controls.  Now, 
Denisov said foreign investors receive a five-year exemption from 
Belarus' rapidly changing laws (meaning that the foreign investor 
operates under the laws in place when it entered the market for 
five years).  This will not affect Coke, but Denisov claimed it 
would scare away some investment.  More importantly, state 
companies are currently limited to raising their prices no faster 
than the official inflation rate (around 0.8%/month this year). 
The bill would make this restriction apply to all businesses, state 
and private.  Denisov said that clause would be very damaging for 
Coke. 
 
¶8. (SBU) Another recent presidential decree prevents companies from 
paying bonuses to staff if they are not profitable.  Coke has most 
of its sales in the summer, meaning it is technically unprofitable 
in winter months, and so can no longer give end of year bonuses. 
On top of these new problems, Belarus has a high and complicated 
tax system, and Denisov said it is one of the few countries in the 
world that taxes revenue (at 2.7%), rather than profit.  Denisov 
said he spends 30 to 40% of his time trying to mitigate the effects 
of harmful legislation with the GOB, and chairs a committee of the 
GOB's Foreign Investment Council.  Despite these problems, Denisov 
said he expects Coke's sales to increase 12 to 15% this year. 
 
 
Comment 
------- 
 
¶9. (SBU) Despite the usual rhetoric from the GOB that it welcomes 
foreign investment, Belarusian state authorities constantly make 
life more difficult for all business, especially foreign and 
private companies.  In its desire to micromanage all aspects of 
life and business in this workers paradise, the GOB is only scaring 
away the investment and expertise it claims it needs to grow the 
economy. 
 
KROL