May, 1995

THE QUIET inlets of Uliss Bay provide shocking evidence of the depths to which Vladivostok has sunk since the collapse of the Soviet Union and the mighty military-industrial complex that nourished this city.

It is here in this otherwise picturesque bay, on the outskirts of Vladivostok in Russia's wild and vast Far East, that some of the world's most appalling environmental outrages are being perpetrated. And no-one seems to care.

Twelve nuclear submarines, some with their radioactive reactors ripped out but most not, loll about in Uliss' murky waters like fat, disemboweled seals, their guts spilling and stinking around them.

Above on the wharf, the faded slogans and propaganda of the Soviet Navy, exhorting "SLAVA" (glory), are reflected in the lime-green, mauve-shaded gun that oozes from the subs' midships. The smell is putrid, suggesting rotten eggs mixed with the trauma of a hospital's casualty ward. No-one in Vladivostok goes near this environmental horror because no-one dares. Like a dozen mini-Chernobyls, this terrible mess is not an accident waiting to happen, it has happened and, if locals are to be believed, similar scenes are being played out in the many concealed coves and inlets that dot the magnificent harbour that was once home to the once mighty, now junked, Soviet Pacific Fleet.

The degradation of the Soviet (now Russian) navy - and of Vladivostok - was shown last year in even more tragic detail when four young naval ratings starved and froze to death at another base on Russki Island, about 5km off the coast of Valdivostok. They were simply forgotten and left without provisions, victims of a system that was unable to the adjust to the demands of the new world order.

Vladivostok's navy personnel are still evident in numbers. At a time when China is growing in military and economic strength, filling the weakened Russia's power vacuum, Russians here feel increasingly vulnerable, trapped in a sparsely populated corner of their country threatened by China's masses 100km away across the border.

On this fittingly gray day at Uliss, the scale of the disaster was measured only by a camera, as we strolled casually and unchallenged through the lightly-patrolled gates of what should have been - and was no doubt once - one of the world's most tightly secured military bases. Its just as well were weren't carrying a Geiger counter.

A few kilometers away, in downtown Vladivostok's No. 2 GUM department store another scene of post-Soviet Russia was being played out.

A posse of frontier capitalists from Melbourne food trading house International Food Processing in their shiniest suits were introducing the city's impoverished shoppers to the delights Cottee's toppings and jellies in an Australian food promotion.

This is capitalism's equivalent of politicians kissing babies. IFP's boss Micheal Murray, a diminutive Rodney Rude lookalike, is enthusiastically working the store. He's playfully bouncing green and gold balloons off the heads of local kids and trying desperately to generate a carnival atmosphere among their dour parents, who seem unable both to smile and wrap their minds around the concept of "Big M" chocolate flavoured milk.

Murray doesn't care to much about the environmental nightmare that has engulfed other parts of the city, preferring to "look ahead to the New Russia that is unfolding before our eyes." Murray should know. He's been trading in this market, and behind the old "Iron Curtain" before it, for the past 15 years, one of the few Westerners to stay the stay the frustrating course from Stalinist Brezhnev through reformist Gorbachev to Yeltsin's nascent embrace of capitalism. Murray's IFP is a spin-off from the old Commercial Bureau group, the Melbourne trading house at the centre of the notorious Ivanov-Combe spying scandal in 1983. It was one of Australia's rare brushes with the Cold War and the experience still sprinkles Murray's patter. His answers to innocent questions are punctuated with lame jokes - "if I told you that I'd then have to kill you" - suggesting a nostalgia for the cloak-and-dagger secrecy swept away by Yeltsin's market revolution.

"I'd have to say it was much easier doing business in the Russia of the old days because you always knew who you were doing it with,"says Murray. "Now ..its not as easy, but I reckon the potential and rewards are greater."

Two days earlier, the two scenes came together in Vladivostok's Golden Horn Bay, when the Australian Navy frigate, the HMAS Sydney, arrived for a goodwill tour, its decks festooned with bunting for Foster's Lager and blonde Russian courtesy girls in Foster's leotards plying Vladivostok's good and great with the amber nectar.

IFP was launching Foster's on board the Sydney in a way Vladivostokians might understand, in a marriage of military and Mammon. The proud naval past that defended Mother Russia against Western pollution was colliding with an uncertain capitalist future trying to shake off yesterday's ideological failures. Vladivostok has become that type of town, a magnet to corporate buccaneers like Murray.

The Australian community here is small but high-profile (read noisy). It is most visibly represented by the dozens of Fourex beer advertisements that litter city streets and watering holes. The XXXX slogan chosen is apt; "We Like It Up Here" (it was fortuitously regurgitated from a Queensland campaign).Trading food products is the easiest avenue of involvement in what is still a difficult market. In Vladivostok, this Conqueror of the East, as its rendered in Russian, caveat emptor very much applies.

Fourex beer is being brought in by a Shanghai-born Sydneysider Robert Steinberg, who claims to be a friend of another prominent Shanghai-born Sydneysider, stockbroker Rene Rivkin.

Steinberg ditched his previous partner, Eric Freid, to inherit one of Vladivostok's most intriguing joint ventures. Its based around a restaurant called The Captain Cook in suburban Satornaya, house in a grand Art Deco guesthouse where the Primorsk regional government houses its official visitors.

Until recently an off-limits area of a city that was itself off-limits to most Russians, let alone foreigners, Satornaya was where the privileged  nomenklatura of Vladivostok's communist and military elite would play, rest and hunt, a leafy district on the outskirts of towns where Russia's have kept their grandest dachas.

Russia's elite still gather at Satornaya. However, in today's New Russia, the elite is no longer the exclusive preserve of government heavies. The biggest, ugliest, most ostentatious dachas - the superlatives are usually measured by the size of the satellite dish on the roof and the marque (American-preferred) of the 4WD in the driveway - going up in Satornaya today are being built by Vladivostok's mob, mafia gangsters who on any given night can be found throwing around their extorted greenbacks with casual abandon at Steinberg's Captain Cook.

Steinberg is unfazed. "Dealing with a criminal element is a fact of life if you want to do business in Vladivostok," he says, chain-smoking and glancing around him nervously as if he expects to be the imminent subject of a mafia whack.

Corporate Vladivostok has imbued Steinberg with a certain pragmatism as to what is right and wrong. "It comes down to how you measure what crime is. I think its probably a temporary phenomenon...already we are already seeing serious straight new businesses starting up here." Steinberg parrots the oft-heard Vladivostok mantra; "this place has so much potential."

Possibly. But as a business town, Vladivostok has along way to go before it finds itself in the coveted Fortune rankings as good places to rest the shingle.

The city's entrepreneurs, particularly those in the services sector, have yet to fully grasp the fact that capitalism demands the provision of some plausible standard of service and facilities in return for payment.

Vladivostok is taking its time to break out of its state-planned psychological strait-jacket.

A new mindset could start with its accommodation. Top of the line is the Hotel Versailles, a magnificent wedding-cake of a converted belle époque of a building in the old town. Its seems straight from Tsarist St Petersburg, except building there weren't one-time opium dens for itinerant Chinese.

The Versailles is the main business hotel but don't let the magnificent exterior betray you. With average motel-style guest rooms starting at $US220 a night, and a surly staff to attend, even the flashiest of Mafiosi might blanch.

Still, its better fare than the Hotel Vladivostok, which destroys anything it might've gained by its magnificent positioning on a headland overlooking the Pacific with service and staff straight out of Soviet central casting.

"The Vlad" has set aside its fourth floor as a mini hotel-within-a-hotel in an attempt to lure the business traveler away from the Versailles. But its some way to go. The tiny rooms at $US120 don't have hot water, let alone a sink (this in a city spitting distance from the Arctic Circle) and male guests are plied at least twice a night with calls from the front desk soliciting interest in "blondes, brunettes, redheads, safety guaranteed, $US100 an hour, $US300 a night."

Personal safety is an issue in Vladivostok. Burly doormen at clubs and restaurants demand that guests remove coats and jackets before entering.

While Australia's honorary consul in the city, former local communist party hack Vladimir Gavriluk claims straight-faced that its because the city is "developing a dress code" the disarming frequency of gunfire heard around the city suggests concealed weapons might be another more compelling reason.

The list of services available at another business hotel, the Gavan, offer a window into how "bisnis" is conducted in Vladivostok. For $US15 an hour, guests can avail themselves of a "security escort with bodyguard" or "guards of client and luggage." And for just $US10 an hour, a "luggage escort" will accompany you and your suitcase full of greenbacks anywhere in the Primorsk region. But, as local lore advises, don't scrimp with the end-of-day tip.

Indeed, guns are not an unusual sight in Vladivostok. Here traffic police wear bullet-proof vests and their Chevrolet police cars are more often than not riddled with bullet holes. Magnums are waved casually out at limousines at traffic lights, urging dawdlers to get a move on...or else. I heard explosions in the city at least twice a day the week I was there and I don't think it was earthmoving.

The explosions were site clearances of a sort, except the sites were stores being removed by mafia business rivals, taking out an operation that wasn't coming to the party. The munitions are acquired from abandoned or loosely-guarded materiel dumps around the city, faded relics of the Soviet military machine.

"You can get anything you want in this town," says American Richard Thomas, publisher-editor of the English-language Vladivostok News. "a MIG, a tank and quite possibly a nuclear weapon."

POKING its promontory of Mittel Europa into the heart of North Asia, Vladivostok has begun doing what geography designed it to do but what politics precluded: apply its magnificent port to the art of commerce.

Vladivostok is closer to Tokyo, Seoul and Hong Kong than it is to Moscow and the contagious breath of Asia's dragon economies is drifting across the inhospitable Russian Far East. Although six million people spread over an area the size of Western Europe does not an economic tiger make,

Vladivostok's frequently corrupt authorities have big hopes for the region and, of course, themselves.

Those hopes are fed in large part by the two big corporate powers in the city - PAKT and FESCO - each a vast corporation with a pragmatic past as trading instruments of the old communist party machine. PAKT is the Russian acronym that translates as the Primorsk Producers Shareholders Corporation, while FESCO is the Far East Shipping Corporation. Each has transformed itself into a powerful and wealthy alliance of bureaucrats, former party elders and military officials. There are few big business activities in Vladivostok that don't bear bear their imprint somewhere.

FESCO was big in communist days, a trading house that plied Russia's eastern fisheries and forests in return for much-needed hard currency. Its still going strong and while its complex, unwieldy structure wouldn't win prizes at Harvard Business School, its adding hotels, tourism, property and foreign joint ventures to its portfolio.

PAKT is a relatively recent phenomenon, a co-operative of 30-40 of Primorsk's most powerful officials who privatized many of the old state-owned industries to themselves for next to nothing. The companies of both groups dominate the nascent stock exchange, as well as the seat of the provincial government in the White House on Svetlana Street (formerly Lenin Street) in the downtown. Indeed, PAKT-related listings on the bourse have been known to jump by as much as 2000 per cent in a month.

The stock exchange is a revelation. As much as 90 per cent of the trading of Vladivostok-listed companies takes place out-of-exchange. The exchange president, former marine biologist Viktor Sakharov, freely admits his administration has no idea how true its listed prices are on any given day.

Sakharov hands out an official exchange newsletter, listing available traded prices. Most stocks on the paper, dated May 15 1995, are last listed as trading officially in 1994 and one, the Dalnerechens Timber Company, hasn't officially been priced since September 1993. But the companies scrip is exchanged every day - just not via the bourse.

Its exactly this type of practice that makes the VSE a paradise for insiders. Sakharov admits to owning just 32 shares, a portfolio collectively valued at just a few thousand roubles, about $200. What about nominee companies? Perish the thought, says Viktor.

Situated in a converted pleasure dome, the VSE is probably the most emerging of any international stockmarket. It is so emerging, in fact, that a wander through its offices suggests little of the thriving market Sakharov describes.

On the "trading floor" this particular Wednesday afternoon, activity was supposed to be in full swing, beamed Viktor. But the two surly Mafiosi puffing Camels and swapping dollars out the trunk of a BMW in the car park were the only signs of anything suggesting commerce. Inside, what passes for a trading floor had a nice fresh paint smell and plenty of new computers but nobody navigating them, let alone any flickering screens and chattering tickers of a dynamic new market. "We do not have much regulation," admitted Sakharov.

That might help explain the following price fluctuations: the Avrotransport group price has risen from an initial 100 roubles to 7,700; the aptly-named road builder Active Society, 100 to 15,000; fisheries house VBTRF (don't ask) 1950 to 60,000; and cargo handler, Trading Port of Vladivostok, 320 to 95,000.

Notes Sakharov, "it is more profitable to trade shares on the street. There you can escape taxation."

Explorers from Credit Suisse First Boston, J.P Morgan, Morgan Stanley and Jardine Fleming have recently beaten a path to Vladivostok, talking to operations like FESCO and PAKT.

What these corporations don't want, or find too messy - such as controlling port traffic - the mobs snaps up. But business like this has had its price.

While all parties were sorting out who should have what, crime reached epidemic proportions.

Now that the division of the spoils has been more or less sorted after an "agreement," locals say crime is down and Vladivostok has become a safer city. Few people bother, or have the resources, to take on the mob, including the government.

"It's a very good idea to keep a low profile in Vladivostok," says Hans Ornig, a Duntroon-trained former officer in the Australian Army who now runs and part-owns the grandly-named Russian Broadcasting Service.

He should know. Ornig hasn't exactly had an easy time of running Vladivostok's "only commercial television station" for want of a better term.

Ornig has recently lost a much-prized Australian technician to a mysterious accident under a Vladivostok tram, been accused by various authorities and local heavies of being a spy (a charge he denies) and has witnessed any number of murders and mafia hits in the 18 months he's lived in the city.

He says its all in a normal day at the RBS. His big idea at the station is to turn it into the BBC of Russia and the wider Commonwealth of Independent States. A joint venture between Russian State Television, Ornig and his partners, a pair of Hong Kong lawyers, the RBS broadcasts for 35-40 hours a week on primitive equipment pieced together from the offcuts of Australian and US commercial networks. His in Vladivostok for the long haul ...but with qualification.

"Let's just say Vladivostok's an interesting town to live in for a while." Ornig says ruefully.

"But I wouldn't want to spend the rest of my life here."