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The Far Eastern Shipping Company will receive the biggest loan in its history -- $ 93.5 million from European Bank of Reconstruction and Development -- following an agreement signed early this month.

The money is earmarked for constructing new container carriers. Three large European banks, Christiana Bank, Mees Pierson and Societe Generale, will also participate in the project. The conditions of the loan and the amount are very attractive for the shipping company. By the middle of 1998 -- after selling unprofitable ships and completing three Polish cargo carriers – the average age of the company's fleet will decrease by 2.5 years, to 15.

The signing of the contract in London coincided with launch of the 180-meter container carrier Captain Afanasiev in Schetsin, Poland. Construction started last June and will finish in February. According to the press center for the Far Eastern Shipping Company (FESCO), two more ships are being built on the same design. The second ship will be completed by May 26, and the third a month later. Each vessel can carry 1,720 containers, and the crew is 19 people. In 1998, Captain Afanasiev will start working on the line between South Korea and Primorye. The other two vessels will work in the direction of Australia. On the world market, ships like this cost $28-29 million. That is why it was impossible to finance the construction without attracting loans.

Pavel Vasilchenko, head of FESCO's financial department, said the European bank offered favorable conditions for the loan.

Vasilchenko said: "It is important for the company to have ships working under Russian flag on the international lines since it raises the company's authority."

There are tax problems, but the FESCO bosses hope that the taxation for the ships flying the Russian flag will become more benign.

The loan was given for nine years with 7 percent annual interest. This time the rate is lower. The previous loan from the European bank -- $32 million was given for six years with 8 percent interest. FESCO has already repaid $14 million, proving to be a reliable customer. According to the last agreement, the remaining part of the previous loan will be returned on more favorable conditions.

However, the European banks need a reliable pledge. In this case, the container carrier Captain Serykh which costs $15-16 million is an additional pledge toward the vessels to be built in Schetsin.

The pattern of financing is usual: FESCO borrows 60 percent from foreign banks and invests 40 percent of its own. The entire project involves seven container carriers (six Polish ships and one German) and costs $ 150 million. The last loan is $93.5 million, so the company needs another $56 million. The bulk of 28 old ships FESCO planned to sell in 1997 has been sold and the company got $13,6 million from the sales.

The large sum of the loan drives to the conclusion that FESCO might end up in serious debt. However, FESCO officials seem to be confident about taking more loans. As of today, the total amount is $145 million: $110 million are long-term loans, $35 million is a short-term ones. The bulk of the money – $130 million – is involved in renovation of the fleet. Primorsk Shipping Company in Nakhodka has even bigger debt -- $200 million -- but this does not seem to bother the directors or shareholders.

Beside the Polish project FESCO launched construction of timber carriers in Komsomolsk-na-Amure. The first ship came in February 1997. The second one is planned to be built by the middle of 1998. At the same time Vasilchenko said that the customs and tax laws had changed for the worse since the contract was signed and it became unprofitable to build ships in Russia.