RICHARD L. SCHWARTZ, Manager, Pannell Kerr Forster

The Soviet Union never looked more attractive nor uncertain to foreign investors than today. The disintegrating central government has left some companies without a Soviet partner. Ventures under negotiation are frozen while new laws are being considered and created. Richard L. Schwartz, manager of Pannell Kerr Forster’s management advisory services in Irvine, negotiates and structures deals for U.S. companies in the Soviet Union. He discusses the changing business environment with Times staff writer Cristina Lee.

On how to conduct initial negotiations with the Soviets. . . .

“It depends on two factors: location of the venture and the level of government control on a particular product, service or facility that is important to the venture’s operation.”

On what to do while waiting for things to settle in the Soviet Union. . . .

“It’s now the right time to assess and identify the supply and demand needs of a product, service or facility to be developed.”

On the permanence of a joint venture agreement. . . .

“Nothing’s set in stone in the Soviet Union. Soviet companies tend to renegotiate terms of the venture even after the signing of the agreement, which is a problem for many Western companies because the Soviet Union does not have laws covering breach of contract.”

On new ventures. . . .

“Until they clear the legal hurdle, joint ventures actually taking place will remain low.”

Q. How did the failed coup last month change Soviet-Western business relationships?

Although changes there are for the better in the long term, it’s a very volatile environment right now. Companies will not draw much interest from financial institutions to finance deals there unless a proposed product or service shows strong demand and benefits to Soviet and western companies operating there. More risk insurance coverage will be available and the premiums on political risk insurance will decline as the Soviet government continues to stabilize politically.

Q. While waiting for the Soviets to sort out their political and economic problems, what should companies be doing?

Now’s the time to prepare and start putting together the appropriate team of executives to do feasibility studies and to start communicating with Soviet and local government officials and companies. It’s ripe for companies to study Soviet city zoning restrictions, permits needed for construction and understanding their tax and accounting systems.

Q. What should happen in the next two years to keep the momentum of change going in the Soviet Union.

We’re hoping that the ruble will be exchangeable in the international market, and that this will ultimately clear the way for local governments to create free trade zones in Leningrad (whose name is scheduled to revert to St. Petersburg Oct. 1), Moscow and other parts of the Soviet Union. Also, they will have to learn how supply and demand work in the Western sense.

Q. What role, if any, will accounting and management firms play in helping the Soviet Union move toward a market economy?

They can make it easier for joint ventures to function by converting the accounting system of Soviet companies to those acceptable in the West. Also, the Soviets are in the midst of creating a law on private ownership of land, and we can assist their governments in defining a system of determining the market value of properties. Our job is to determine if there’s sufficient future demand and supply for a product or service in that country.

Q. Have recent events in the Soviet Union made it tougher or easier for you to do you job?.

Both. It’s tougher because financial institutions look at projects in the Soviet Union as a risky investment. Because of the political instability and its effect on the Soviet currency, it is very difficult to conduct a financial analysis and determine the related expenses of a project. This is very important because it is an integral part in determining the potential cash flow of a venture and ultimately return on investments expectations for investors.

The other portion of our work is to evaluate the viability of a product or service and assist in getting commitment from local governments to approve a project.

It’s easier for us now to obtain information about consumer behavior in the Soviet Union today than six months ago because many of the statistics were previously controlled by the central government and was unobtainable to Western market researchers.

Q. What projects will likely be in demand in the next decade in the Soviet Union?

I’d say hotel development. Hotels in the Soviet Union have a higher occupancy rate than those in the United States. It’s not because it’s cheaper, but it’s the lack of supply in hotel rooms. Rate-wise, it’s not much cheaper than in the West, in fact, it’s like comparing room rates in New York, Boston and San Francisco. Another need is for office and retail space development because there’s a limited amount of space available in the open market.

The key questions companies should ask themselves are: What is the project going to do to the local economy? Is it going to provide jobs to local residents? Will it operate efficiently?

Q. How have events in the Soviet Union affected your clients’ plans there?

Before the coup attempt, we were assisting International Development Corp., a hotel developer in Los Angeles, evaluate the feasibility for a hotel, office, retail and residential complex, which will be built on a 25-acre site in Leningrad’s business district.

At the time of the coup, the project -- the Leningrad Center for International Trade -- was in the final negotiating stage between IDC and two Leningrad entities -- Lenauto-trans, which is one of the largest trucking concerns in the Soviet Union, and Lensoviet, the city government.

Since the coup failed, the Russian partners have indicated that the development process of the project will most likely move at a faster pace now that the fear of reverting back to the old ways of central government control has dissipated.

Q. Why Leningrad?

It’s much easier to deal with the city of Leningrad because the governing body for the joint venture project is the mayor’s office. In Moscow, while ap and federal government agencies.

There’s a greater need for this project in Leningrad than in 300 rooms are available to foreigners. It also has the largest seaport in the Russian Repubmajor foreign trade center. Currently, the city government is exploring ways to establish a sition as a leading commerce center.