Combustion Engineering Plans Soviet Venture

Combustion Engineering Inc. announced in Moscow on Wednesday that it had reached an agreement to help build and manage a multibillion-dollar petrochemical complex in two Western Siberian cities.

This is the Stamford-based company’s second deal with the Soviet Union in the last six months.

In November, the company announced the first Soviet-American joint venture established under the Soviet Union’s new policy allowing Western concerns to own a share of Soviet industries.

Charles Hugel, president and chief executive of Combustion Engineering, said engineering and site preparation in the cities of Tobolsk and Surgut probably would begin later this year.

“These two complexes will probably be the largest created in the world,” Hugel said.

Analysts applauded Wednesday’s announcement.

“I’m pleased, but it is too early to tell what the full impact will be on Combustion Engineering’s financial statements,” said Candice Eggerss, an analyst with Morgan Stanley in New York. “I think it has the potential for being a very big market, but because of the lack of a track record (in Soviet Union joint ventures), it’s hard to know now.

“They’ve put a very small amount of capital at risk for large potential rewards in the future.”

The plants will produce synthetic rubber and plastics for consumer goods, he said. The Western Siberia site was chosen because of its abundance of natural gas, he said.

Focus on Consumer Goods

Hugel said he met with Soviet Premier Nikolai I. Ryzhkov last week about the project, and “Mr. Ryzhkov would like to see the first plant completed by the end of 1991 or early 1992, and all of it done by 1995. That’s a very ambitious schedule but it’s the schedule we are committed to.”

Ryzhkov’s involvement in the project reflected the attention that high-level officials are giving to improving the supply of consumer goods as part of Soviet leader Mikhail S. Gorbachev’s effort to restructure the Soviet economy.

Gorbachev has promised that his reforms will lead to an improvement in supplies of goods and services to consumers who struggle with a system of shortages and shoddy quality.

“There appears to be unusual urgency to get this project under way,” Hugel said. “In the last several months it obviously has become much more important, and the need to get on with it has been made clear by Soviet officials.”

Hugel said the project is worth “many billions of dollars,” but he could not give the exact figure. He said it’s much bigger than a joint venture to build a pair of plastics factories in the Soviet Ukraine announced April 13 by Occidental Petroleum Co. Occidental estimated the value of its project at $200 million.

Combustion Engineering will lead a consortium that also will include McDermott International, the Japanese firms Mitsubishi and Mitsui, and the U.S.S.R. Ministry of Oil Refining and Petrochemical Industries.

Tobolsk is located about 1,100 miles east of Moscow. Surgut is located about 270 miles to the northeast of Tobolsk.

The Western companies will receive payments in convertible currency for their design, engineering and construction work, and then will be invited to participate in a joint venture that actually will manufacture the petrochemicals, Hugel said.

The Soviet ruble is not convertible, making it difficult for foreign companies to export profits.