Corpus of articles from the English newspaper 'The Financial Times' from the year 1993. MLCC machine readable version 1995 This TEI conformant electronic version edited by the MLCC project, 7 July 1995. This file (ignoring this header) is 2822473 bytes long, its text includes 422564 words.

This electronic version was produced by the Multilingual Corpora for Cooperation (MLCC) project funded by the European Union. It has been converted to use the iso-latin-1 character set (where possible) and to be TEI(P3) conformant SGML.

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The original electronic version of this file was produced by the 'The Financial Times' newspaper.

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English 7 July 1995 Masja Kempen David Mckelvie processing of original corpus files into tei conformance.
De Benedetti legal team voices optimism Publication 931104FT Processed by FT 931104 By HAIG SIMONIAN MILAN

Mr Carlo De Benedetti, the Olivetti chairman, could be back at work 'within two or three days,' according to lawyers defending him against charges of alleged corruption, writes Haig Simonian from Milan. Mr De Benedetti was placed under house arrest on Tuesday after giving himself up to police in Milan. Following a transfer to Rome, where he was formally jailed, he was interrogated by magistrates investigating political corruption.

The terms of Mr De Benedetti's detention at his home in one of the most prestigious parts of Rome are relatively lax. Unlike some businessmen implicated in the 21-month corruption scandal, Mr De Benedetti has been allowed to receive visitors and to use the telephone to conduct his business affairs.

However, Rome magistrates have forbidden him from leaving home until they can weigh up the 'new' information, which they claim emerged from Tuesday's two interrogations. Mr De Benedetti admitted in May to Milan magistrates then investigating alleged kickbacks to post office officials that Olivetti had paid about L10.6bn (Pounds 4.4m) in bribes to win equipment contracts.

Olivetti et Cie IT Italy, EC P9221 Police Protection PEOP People P9221 The Financial Times London Page 2 208
Oil industry critical of Norway's tax reform plan Publication 931104FT Processed by FT 931104 By KAREN FOSSLI OSLO

THE Norwegian government is drafting changes to its oil tax regime which could increase the burden on foreign and domestic oil companies operating in the country, according to tax specialists.

The minority Labour government aims to complete a draft of the proposed tax reform by the end of the month, but it would be made retroactive to January 1, 1993.

On Monday, Mr Arne Oeien, permanent finance secretary, told a conference in Oslo that Norway was considering reducing tax concessions to oil companies that use high levels of debt to increase their tax allowances.

Industry reaction to the government move has been critical. 'This would have a serious negative impact on the Norwegian oil industry as well as Norwegian society as a whole,' according to Mr Mark Randle, finance manager of Phillips Petroleum Norway. 'There should be no doubt that future investments both onshore and offshore would be hurt by the proposal.'

'Also, the fact that the proposal is meant to be enacted with retroactive effect from January 1, 1993, shows that the industry can have little confidence in the Norwegian fiscal framework. There have been investment decisions made with the expectation that the 1992 fiscal framework would last longer than one year.'

Last year the government implemented a reform to the petroleum tax regime but it created a loophole for foreign oil companies, allowing them to repatriate funds to parent companies at the expense of the tax authorities. The loss to the government is estimated to be several hundred million kroner annually. At present, oil companies are allowed tax deductions of 78 per cent on the interest payments on their borrowings. Tax specialists say this has resulted in Norwegian subsidiaries repatriating substantial dividends to their foreign parent companies, while at the same time running up borrowings.

The government is now considering reducing the rate of tax deduction allowed on interest payments to 28 per cent.

Mr Anders Utne, a senior executive with Saga Petroleum, Norway's biggest independent oil company, sharply criticised the proposed move. 'The government will punish the Norwegian oil companies for the sins of foreign oil companies' subsidiaries operating in Norway,' Mr Utne said.

Tax specialists said there could also be an increase in the special tax on petroleum operations, which is currently a 48 per cent levy on extraordinary income from offshore operations. That is on top of 28 per cent corporate tax.

NO Norway, West Europe P9311 Finance, Taxation, and Monetary Policy P1311 Crude Petroleum and Natural Gas GOVT Taxes P9311 P1311 The Financial Times London Page 2 440
Brussels urges agreement on steel Publication 931104FT Processed by FT 931104 By ANDREW HILL and HAIG SIMONIAN BRUSSELS, MILAN

THE European Commission still hopes to rush through proposals on the restructuring of the Community's state-owned steelmakers in time for formal approval by EC industry ministers in two weeks.

Senior Commission officials yesterday welcomed 'positive new elements' in the Treuhand privatisation agency's plans for the sale of Ekostahl, the east German steelmaker. They said they believed an acceptable deal could also be struck with the Italian authorities on the restructuring of Ilva, the loss-making producer.

But national officials believe that there may not be enough time to sort out member states' remaining objections to the Commission's proposals and push for unanimous approval of the Italian, German and Spanish steel restructuring at the November 18 meeting.

Delaying a decision until December would further punish the EC steel industry, which is groaning under the burden of overcapacity, slackening demand and alleged unfair competition from outside the Community.

Wider EC plans to cut capacity and support the steel producers cannot take effect until decisions have been made on the restructuring of publicly owned steelmakers in east Germany, Italy and Spain. The Commission had originally hoped to agree an overall plan for capacity cuts, financial and commercial support, by the summer.

A senior Commission official said yesterday: 'We can't possibly postpone this council (of ministers): either they come to a miraculous agreement (on November 18), or we will have a very direct and dramatic exchange of views which hopefully will clarify the situation and at least pave the way for a final agreement.'

Both the German and Italian authorities are expected to submit formal plans to the Commission for the restructuring of their problem steel producers in the next few days.

According to Treuhand plans unveiled two days ago, Riva, the private Italian steel group, is expected to buy 60 per cent of Ekostahl, and invest in the construction of a new hot-rolling mill. Brussels officials said yesterday they would have to examine whether there was sufficient private investment in the hot-rolling mill to avoid adding to problems with overcapacity.

Private steelmakers will not make the painful closures that Brussels believes are required to restore the EC industry to health unless they are sure competition is not being distorted by subsidies.

Ilva, meanwhile, has formally approved a plan to divide itself into three separate operations, seen as a vital precursor to privatisation, or, in some cases, closure. The three operations cover the group's big flat products operation, based at Taranto in southern Italy; stainless steels, based at Terni in Umbria. The third company incorporates all those activities and assets due to be liquidated, along with a majority stake in the quoted Dalmine tubes group, which is set to be privatised.

Commission officials said yesterday they were heartened by the privatisation proposals contained in the Ekostahl plan.

To avoid accusations that the German authorities are covertly subsidising new capacity, German officials indicated yesterday that a separate legal entity, owned by Riva, may be set up to build the new hot-rolling mill at Ekostahl. Riva, one of Italy's leading private steelmakers, is still family-owned, is based in Milan and has most of its productive capacity in northern Italy.

Riva Group Ilva BE Belgium, EC ES Spain, EC IT Italy, EC P3312 Blast Furnaces and Steel Mills P9611 Administration of General Economic Programs MKTS Production COMP Company News RES Capital expenditures P3312 P9611 The Financial Times London Page 2 581
Wave of market reforms planned: New parliament expected to enact laws to transform economy Publication 931104FT Processed by FT 931104 By JOHN LLOYD and GILLIAN TETT MOSCOW

RUSSIAN authorities are preparing a mass of legislation to put a market system firmly in place, on the assumption that the December 12 parliamentary elections will return a reformist government, ministers said yesterday.

The reforms include:

Laws on foreign investment which would guarantee property rights and the ability to remit profit.

A new phase of privatisation from July next year, covering sectors such as energy and transport.

A decree allowing the government to set strict performance and profit targets for state-owned companies.

The drastic reduction of the Ministry of the Economy, formerly Gosplan, to a small agency concerned with analysis and forecasting - thus ceding top place in economic management to the Finance Ministry for the first time since the Bolshevik revolution.

The reformers, many of them on the ticket of 'Russia's Choice', the main party of the right, are confident of securing a reform-minded parliament and thus a radical government. Professor Richard Layard, who co-heads the Centre for Economic Performance in Moscow, reflected their optimism when he said yesterday that 'if Russia can stick to a course of tight monetary control and bring down inflation, then by the end of the century it could have the fastest-growing economy in the world'.

However, the figures produced yesterday by the Centre remain discouraging. Inflation remained over 20 per cent in September, while the real exchange rate of the rouble and output continued to fall.

Mr Yegor Gaidar, the first deputy prime minister, told a government session on privatisation yesterday that the mass privatisation of enterprises by voucher would continue until July 1 next year, after which 'a deep transformation' of the programme would be set in train, aimed at establishing strong companies and investment groups. The emphasis would shift, he said, from the rapid distribution of state property to individual programmes targeted on industries and companies.

Mr Valery Fateyev, deputy economics minister, said yesterday there were 'no serious investors' in Russia, because there were 'no guarantees for tomorrow'.

RU Russia, East Europe P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy NEWS General News P9611 P9311 The Financial Times London Page 2 380
Paris and Bonn to be Emu symbol Publication 931104FT Processed by FT 931104 By DAVID BUCHAN PARIS

FRANCE and Germany will be able to demonstrate to their EC partners later this month 'the credible convergence of Europe's two largest economies' by the mid to late 1990s, Mr Edmond Alphandery, France's economy minister, claimed yesterday.

Speaking a day after he and his German counterpart, Mr Theo Waigel, jointly unveiled the thrust - though not yet the detail - of their medium-term convergence plans, Mr Alphandery defended his government's estimate that the French economy would recover to grow by an average 3.2 per cent in 1995-1997.

He said this estimate was tenable in view of France's growth record in past decades, and of the fact that France would be bouncing back from its 1992-1993 recession. Mr Alphandery described the French and German governments' joint preparation of their convergence plans as 'symbolic' in the context of the Maastricht treaty's requirement that EC economies should converge on spending and inflation criteria to qualify for monetary union.

EC ministers are to discuss their countries' medium-term plans on November 22, paving the way for the EC summit in December to set general guidelines for economic convergence, as laid down in the Maastricht pact.

Convergence discussions with Germany, which started right after the monetary upheaval of early August, 'have led us to adapt our own medium-term projections,' Mr Alphandery said.

The French government had been working on the minimum assumption that France's economy would grow by 2.8 per cent annually in 1995-1997, which would at least bring its budget deficit under 3 per cent of gross domestic product, as required by Maastricht.

But emboldened by official German insistence that Germany, which is France's biggest trading partner, would have average growth of 3 per cent throughout that period, the French government has now put possible post-1995 growth in its own economy at up to 3.5 per cent.

In the much shorter term, Mr Alphandery scaled down his estimate of this year's contraction in the French economy from 0.8 to 0.7 per cent, in line with the forecast of Insee, the official statistics agency.

FR France, EC DE Germany, EC P9311 Finance, Taxation, and Monetary Policy STATS Statistics ECON Economic Indicators P9311 The Financial Times London Page 2 378
German prospects gloomy: Business community pessimistic on the recovery Publication 931104FT Processed by FT 931104 By QUENTIN PEEL BONN

THE west German business community sees no sign of an early recovery from the current recession, even if the decline in economic activity has slowed down, according to the latest comprehensive survey of business opinion.

The autumn poll of 25,000 enterprises in east and west Germany, conducted by the German chamber of trade and industry (DIHT), shows a continuing improvement in the mood in the east, but an overwhelmingly gloomy assessment of prospects in the vital western economy.

However, the federal statistics office released a more cheerful indicator yesterday, suggesting manufacturing industry orders in west Germany increased by 1 per cent in September, compared with August. The combined level of August and September orders was still 5.4 per cent below the value of the previous year, with the sharpest decline in the value of orders for investment goods - down 6.7 per cent.

The key conclusions of the business survey are for a further decline in investments in the coming year, and a continuing loss of jobs in the west, although with a slowdown in redundancies in the east.

'There is still no sign of a recovery in the (western) economy,' Mr Franz Schoser, chief executive of the DIHT. 'Signs of stabilisation at a low level are emerging.' A marginal improvement in expectations for 1994 - with 20 per cent of the enterprises expecting an improvement, compared with only 12 per cent in the last spring survey - is based mainly on hopes for a recovery in exports. Some 24 per cent expect higher exports, compared with only 16 per cent in the spring. 'The frosty investment climate has grown more severe,' Mr Schoser said. 'The consolidation measures in the public sector are regarded as inadequate. Hopes for a cut in taxes are receding.'

One positive assessment was over the effect of the reduction in interest rates, which should reduce business costs, and stimulate consumption.

However, the number of enterprises planning to increase employment in the coming year shrank to just 5 per cent, compared with 7 per cent in the spring.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy STATS Statistics CMMT Comment & Analysis ECON Industrial production P9311 The Financial Times London Page 2 385
Germany comes closer to modern infrastructure in markets Publication 931104FT Processed by FT 931104 By DAVID WALLER FRANKFURT

Germany came a step closer to introducing a modern regulatory infrastructure for its financial markets yesterday when the cabinet approved the draft of the second Financial Markets Promotion Law, writes David Waller from Frankfurt. The long-awaited new law will make insider dealing a criminal offence in Germany for the first time, punishing offenders with up to five years in jail or a fine of up to DM500,000 (Pounds 203,252).

DE Germany, EC P6231 Security and Commodity Exchanges GOVT Government News P6231 The Financial Times London Page 2 104
Yeltsin lays down the law to regional leaders Publication 931104FT Processed by FT 931104 By JOHN LLOYD MOSCOW.

PRESIDENT Boris Yeltsin yesterday told leaders of Russia's 88 regions and republics to approve a new constitution stripping them of privileges and rights and asserting the power of the presidency and the federal government.

In a toughly worded speech to the regional leaders, the Russian president insisted on removing from the draft constitution all reference to the republics as 'sovereign states' and to a right of secession - clauses which had been part of earlier drafts before Mr Yeltsin's hand was strengthened by his military victory over the Russian parliament a month ago.

He also said the 67 regions and the 21 republics must enjoy the same rights and responsibilities - rather than, as now, a bias in favour of republics.

A group of regions, including Tatarstan, Yakutia, Bashkiria, Kabardino Balkaria and Dagestan, have objected to these clauses and demanded changes.

Mr Mintimer Shamiyev, president of Tatarstan, said that 'this is the constitution of a unitary state. People in the republics will not support such a draft.'

However, after a day's argument, Mr Yeltsin ordered a six-man commission to thrash out an agreed position - while making it clear through Mr Sergei Filatov, his chief of staff, that he would not fundamentally alter the disputed clauses and that if no agreement was reached he would push it through in its present form.

The draft constitution must be completed and published by November 10, a statutory month before elections which will also include a referendum on the constitution.

RU Russia, East Europe P9711 National Security P9721 International Affairs NEWS General News P9711 P9721 The Financial Times London Page 2 285
Sainsbury cuts spark price war: Food retailing shares fall as supermarket group announces reductions on 300 lines Publication 931104FT Processed by FT 931104 By NEIL BUCKLEY

BRITAIN'S biggest food retailer J Sainsbury launched a supermarket price war yesterday as it disclosed that it was indefinitely cutting the price of 300 of its most popular own-label products - accounting for 10 per cent of its sales.

The move is the most important evidence yet of a significant shift in UK retailing away from concentration on profit margins, towards offering lower prices to drive volumes higher.

Shares in the food retailing sector were sharply lower, with brokers fearing escalating price competition would damage profits. Sainsbury itself fell 15p to 385p; Argyll, owner of Safeway, fell 18p to 274p; Tesco was down 4 1/2 p at 195p; and Asda fell 2 1/2 p to 50 1/4 p. Kwik Save, the leading discount chain, also fell 18p to 620p.

The move came as Marks and Spencer announced a 21 per cent increase in interim profits after trimming gross margins and sharpening prices.

Mr Bill Currie, analyst at BZW, who predicted Sainsbury's move, said the scope of the price cuts was bigger than expected. 'I think we are now in a price war,' he said. 'This turns the screw in a big way on the competition. They can either respond by cutting prices or they can lose sales.'

Mr David Sainsbury, chairman, said the move marked a long-term repositioning on price. 'It is more than just something we do for a three-month period. It (will) set the pattern for our future position in the market.'

He said other leading food retailers had responded to mounting competition from discount chains such as Germany's Aldi, Denmark's Netto and the UK's Kwik Save and Shoprite by focusing on price at the expense of quality.

'This provides us with a significant opportunity,' he said. 'Our response will be to press home our advantage by improving both price competitiveness and quality.'

Mr Sainsbury refused to disclose the average size of the cuts or the reduction they would cause in gross margins. He said their effect on profits would depend on any increase in sales.

TV and press advertisements with the slogan 'Sainsbury's - Essential for the Essentials' have been running since Sunday - a departure from the previous campaign featuring celebrities' recipes. The first price cuts were made on Sunday but their extent became apparent only yesterday, as Sainsbury announced record interim profits of Pounds 434m.

Sainsbury's action will significantly step up the pressure on other superstores, with Safeway probably forced to follow suit. Analysts said Tesco, which introduced a cut-price 'Tesco Value' brand in August, and Asda, which has sharpened its prices, might be cushioned, but Safeway would probably be forced to follow suit. The biggest casualties are expected to be weaker chains such as Gateway, Waitrose, the Co-ops and independent grocers.

The move comes a week after the UK's three biggest supermarket chains failed in a High Court battle to block the opening by US company Costco of the country's first warehouse club - which will sell a range of goods at very low prices to fee-paying members.

Sainsbury said it would not appeal against the judgment.

Samuel Brittan, Page 18 Lex, Page 20 Filling the aisles by selling them cheap, Page 21 M&S profits rise, Page 21 Sainsbury results, Page 23 London stocks, Page 42

J Sainsbury GB United Kingdom, EC P5411 Grocery Stores COSTS Product costs & Product prices CMMT Comment & Analysis P5411 The Financial Times London Page 1 594
New EBRD chief plans sweeping changes Publication 931104FT Processed by FT 931104 By ROBERT PESTON

A SWEEPING reorganisation of the European Bank for Reconstruction and Development will be announced on Monday by Mr Jacques de Larosiere, the central banker who took over as its president just over a month ago.

The restructuring of the aid bank, whose former president Mr Jacques Attali resigned this summer after the bank was criticised for its extravagance and poor internal management, aims to make it more 'user friendly' and responsive to the 'specific needs' of countries in the former Soviet Union and eastern Europe, according to a board document.

The bank's most distinctive division, merchant banking, which uniquely among international aid banks concentrates on privatisation, will disappear. The presidential cabinet and the political department, two departments highly valued by Mr Attali, are also being abolished.

The cabinet was an inner circle of executives advising the president and the political department was a team of political specialists, who offended some east European governments with analyses of politicial stability.

The press and public affairs department is also being cut back, with up to half of its 18 staff going. There will be up to 50 redundancies out of a total executive staff of 703.

The bank's board, which represents the countries and agencies that own the bank, is expected to approve the reorganisation at a meeting on Monday. 'It will then be put into effect immediately,' said a bank executive.

Mr de Larosiere's first working day at the bank was October 4. 'He has moved incredibly quickly to make his mark,' commented an executive. 'We had a big morale problem after all the criticism in the spring and summer. It was important for staff to know how we were going to move forward.'

The merchant banking division will be combined with the development banking division, which concentrates on financing and advising on infrastructure projects, such as transport, banking and telecommunications systems. But they will not be combined into a single division. Instead, one new department will provide merchant banking and infrastructure services to northern countries and another will be created for the south.

A board document explains that the 'need for enhanced country focus must be addressed within the context of one operational strategy'.

It continues: 'The notion of limited resources forces the bank to focus on its real priorities and to streamline its organisation in order to work in the most cost-effective way.'

There will, however, be a new central unit to provide functions spanning both the north and south departments, which will carry out marketing and procurement.

Mr de Larosiere has also commissioned a team headed by the bank's new economist, Mr Nick Stern, to carry out a fundamental review of the bank's strategy and priorities.

Observer, Page 19

GB United Kingdom, EC P6081 Foreign Banking and Branches and Agencies P6029 Commercial Banks, NEC NEWS General News P6081 P6029 The Financial Times London Page 1 490
Clinton plays down Republican wins Publication 931104FT Processed by FT 931104 By JUREK MARTIN WASHINGTON

PRESIDENT Bill Clinton yesterday put a brave face on election results which saw Republicans sweep Democrats from office in New York City Hall and in the governor's mansions in New Jersey and Virginia.

White House officials rejected suggestions that Tuesday's results would make it more difficult for the president to obtain approval for the North American Free Trade Agreement, on which the House of Representatives is due to vote on November 17.

The administration yesterday sent to Congress the formal Nafta legislation. Senator Robert Dole, Republican leader, who described the results as 'a big, big defeat for the White House', said he was still confident that at least 110 of the 175 House Republicans would support the treaty.

Mr Clinton said broad conclusions from the Democratic losses should not be drawn because 'voters are extremely discriminating, making judgments for their own reason'. He added: 'I think what you can say is that the American people want change and want results', and he was intent on delivering both.

The most disappointing loss for the president was in New Jersey where Governor James Florio, the incumbent Democrat, went down by 50-48 per cent to Mrs Christine Todd Whitman. Mr Clinton and his wife had campaigned for Mr Florio, whose policies in raising taxes and seeking more stringent gun control much resemble the president's.

In New York, Mr Rudolph Giuliani, former federal prosecutor, became the city's first Republican mayor since John Lindsay left office 20 years ago, ousting Mr David Dinkins, the black incumbent, by 51-48 per cent an almost exact reversal of four years ago.

This result was not unexpected, given city discontent with the record of Mr Dinkins, for whom Mr Clinton had campaigned. Voting patterns, very much on racial and ethnic lines, were similar to 1989, but Mr Giuliani secured enough defections from liberal whites and Hispanics, both traditionally Democratic, to win.

Presidential involvement in Virginia had been minimal. Mr George Allen, son of a famous football coach, trounced Ms Mary Sue Terry, a former Democratic state attorney-general, 58-41 per cent to become the first Republican governor in 12 years.

His running-mate, Mr Michael Farris, a favourite of the religious right, was defeated.

Mixed message, Page 4 Abrasive Giuliani, Page 4 Editorial Comment, Page 19

US United States of America P9111 Executive Offices NEWS General News P9111 The Financial Times London Page 1 407
Firestorm sweeps through Malibu mansions Publication 931104FT Processed by FT 931104

FIRES swept across more than 35,000 acres of southern California yesterday, driving 7,000 people, including film stars, from their homes. Exclusive neighbourhoods were levelled and at least 350 buildings were razed.

The Malibu Colony mansions of actors Charles Bronson, Sean Penn and Bruce Willis were damaged or destroyed during the night, according to news reports. Actor Rod Steiger called a local television station from his Malibu home and was given directions during a live broadcast on how to find his way out of danger.

The fires, which spread down from the Santa Monica mountains to the Pacific coast, were blamed on arsonists and it was estimated that the damage would run into hundreds of millions of dollars.

One of the most seriously injured in Malibu was British screenwriter and director Duncan Gibbins. He had escaped from his bungalow but was badly burnt when he returned to search for his cat. Report, Page 4

US United States of America P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 184
Stock and Currency Markets Publication 931104FT Processed by FT 931104

------------------------------------------------------------------------ STOCK MARKET INDICES ------------------------------------------------------------------------ FT-SE 100: 3162.3 (-1.8) Yield 3.72 FT-SE Eurotrack 100 1,381.11 (-1.25) FT-A All-Share 1,561.19 (-0.1%) FT-A World Index 169.36 (-0.4%) Nikkei Closed New York: Dow Jones Ind Ave 3,661.87 (-35.77) S&P Composite 463.02 (-5.42) ------------------------------------------------------------------------ US RATES ------------------------------------------------------------------------ Federal Funds: 3% (3 1/16%) 3-mo Treas Bills: Yld 3.127% (3.168%) Long Bond 101 29/32 (101 9/16) Yield 6.105% (6.058%) ------------------------------------------------------------------------ LONDON MONEY

------------------------------------------------------------------------ 3-mo Interbank 5% (5 3/4%) Liffe long gilt future: Dec 114 7/32 (Dec113 13/16) ------------------------------------------------------------------------ NORTH SEA OIL (Argus) ------------------------------------------------------------------------ Brent 15-day (Dec) dollars16.24 (15.91) Gold New York Comex (Jan) dollars368.9 (363.6) London dollars364.45 (361.0) ------------------------------------------------------------------------ STERLING ------------------------------------------------------------------------ New York: Dollars 1.4845 (1.4735) London: Dollars 1.4805 (1.4825) DM 2.5075 (2.5125) FFr 8.7375 (8.77) SFr 2.2225 (2.225) Y 158.75 (158.25)

Pounds Index 80.8 (80.9) ------------------------------------------------------------------------ DOLLAR ------------------------------------------------------------------------ New York: DM 1.689 (1.70325) FFr 5.90625 (5.9325) SFr 1.4975 (1.5085) Y 107.67 (107.75) London: DM 1.693 (1.6945) FFr 1.9025 (5.915) SFr 1.5015 (1.5005) Y 107.25 (107.5) Dollars Index 66.3 (66.4) Tokyo open: Y107.645 ------------------------------------------------------------------------

GB United Kingdom, EC US United States of America JP Japan, Asia P1311 Crude Petroleum and Natural Gas P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges P3339 Primary Nonferrous Metals, NEC COSTS Commodity prices COSTS Equity prices P1311 P9311 P6231 P3339 The Financial Times London Page 1 227
World News in Brief: Manchester United eliminated Publication 931104FT Processed by FT 931104

Manchester United were knocked out of the European Cup after a scoreless draw in Istanbul against Turkish team Galatasaray. The results of other European competition matches were: Aberdeen 1, Torino 2; Aston Villa 0, Deportivo La Coruna 1; Norwich City 1, Bayern Munich 1; Standard Liege 0, Arsenal 7; Sporting Lisbon 1, Celtic 0.

TR Turkey, Middle East GB United Kingdom, EC BE Belgium, EC IT Italy, EC P7941 Sports Clubs, Managers, and Promoters NEWS General News P7941 The Financial Times London Page 1 96
World News in Brief: Bhutto's brother arrested Publication 931104FT Processed by FT 931104

Murtaza Bhutto, younger brother of Pakistan's prime minister Benazir Bhutto, was arrested on his arrival in Karachi after 16 years of self-imposed exile.

PK Pakistan, Asia P9721 International Affairs PEOP People P9721 The Financial Times London Page 1 50
World News in Brief: Banks plan job cuts Publication 931104FT Processed by FT 931104

European banks in 21 countries plan to cut 250,000 jobs by the end of the decade, with 20,000 branches facing closure, according to a banking survey. Banks sceptical of Emu target, Page 2; Samuel Brittan, Page 18; Fitness regime for the '90s, Page 19

XG Europe P6081 Foreign Banking and Branches and Agencies P6021 National Commercial Banks PEOP Labour P6081 P6021 The Financial Times London Page 1 80
Ministers fight for rail bill after Lords setback Publication 931104FT Processed by FT 931104 By KEVIN BROWN, Political Correspondent

THE CREDIBILITY of the government's rail privatisation plans was dealt a serious blow last night by a series of defeats in the Lords on the crucial issue of franchises to run British Rail routes.

The defeats were immediately reversed in the Commons, but only after a rowdy debate in which Mr John MacGregor, the transport secretary, faced angry opposition demands for his resignation.

Mr John Prescott, Labour's transport spokesman, said the passage of the Railways Bill had degenerated into 'farce' because of the procedural 'trickery' deployed by the government.

The Lords still has to ratify the government's proposals before they can become law. However, peers are expected to back away from further confrontation when they reconsider the matter today.

Lord Peyton, the prime mover of the Lords amendments, said a further attempt to defeat the government would raise the prospect of 'a serious constitutional clash' with the Commons.

The drama began in mid afternoon, when the Lords voted three times to loosen restrictions placed by the government on BR's ability to bid for routes against private-sector companies.

The effect of the amendments would have been to resuscitate the spirit of an earlier Lords amendment, overturned by the Commons on Tuesday, which ministers had dismissed as an attempt to wreck the bill.

The series of defeats left government business managers facing the choice of capitulating to the Lords, or bringing the bill back to the Commons for a further bruising debate.

After a couple of hours' discussion, Mr Tony Newton, the leader of the house, told MPs that the scheduled business in the Commons would be interrupted to make way for an immediate attempt to rewrite the bill.

The announcement provoked angry protests from the Labour benches, including a protest by Mrs Margaret Beckett, the deputy opposition leader, that she was given only 30 seconds' notice.

Backbench Labour and Liberal Democrat MPs attempted to force the suspension of the debate, at times coming close to shouting down Mr Geoffrey Lofthouse, the deputy speaker.

When the debate finally began, Mr MacGregor nearly missed his opportunity to speak by being out of the chamber when he was called. The exchanges underlined the air of confusion which now surrounds the bill, which has had a difficult passage through both houses.

However, the government was assured of a Commons majority for its attempt to reverse the Lords defeats after the collapse on Tuesday of a threatened backbench rebellion. In a division, the main Lords amendment was rejected by 301 votes to 260, a government majority of 41.

The votes in the Lords would have given BR an unfettered right to bid for franchises unless the franchising director, who will supervise the bidding, decided to exclude it. As a result of the Commons vote, BR will be able to bid for franchises only if no credible private-sector bidder emerges.

Clarke warned over VAT on fuel, Page 6

British Rail GB United Kingdom, EC P9611 Administration of General Economic Programs P4011 Railroads, Line-Haul Operating P4111 Local and Suburban Transit GOVT Government News P9611 P4011 P4111 The Financial Times London Page 1 533
Lords defeat is setback for rail privatisation Publication 931104FT Processed by FT 931104 By KEVIN BROWN, Political Correspondent

THE GOVERNMENT'S rail privatisation plans were in disarray last night after an unexpected series of defeats in the House of Lords on the crucial issue of franchises to run British Rail routes.

In a highly unusual move, the Lords voted three times to loosen restrictions placed by the government on BR's ability to bid for routes against private sector companies.

The effect is to resuscitate the spirit of an earlier Lords amendment, overturned by the Commons on Tuesday, which ministers had dismissed as an attempt to wreck the bill.

The series of defeats left government business managers facing the choice of capitulating to the Lords or bringing the bill back to the Commons for a further bruising debate.

After a couple of hours' discussion, Mr Tony Newton, the leader of the house, told MPs that the scheduled business in the Commons would be interrupted to make way for an immediate attempt to rewrite the bill.

The announcement provoked angry protests from the Labour benches, including a protest by Mrs Margaret Beckett, the Labour deputy leader, that she was given only 30 seconds' notice.

The exchanges underlined the air of panic now surrounding the bill, which has had a torrid passage through both houses and is widely opposed by rail passengers.

However, the government was virtually assured of a Commons majority for its attempt to reverse the Lords defeats.

The prospects of a backbench rebellion appeared slim in the light of Tuesday's debate, when a threatened revolt fizzled out in the face of minor government concessions that would allow BR to bid for franchises where no credible private sector bidder emerges.

Mr Tim Rathbone, a leading backbench critic of the bill, said anxious Conservative MPs were largely satisfied with the government's 'very positive' concessions on Tuesday.

The Lords is likely to back down rather than defy the government again, in spite of the strength of feeling among peers in yesterday's debate. The opposition and independent benches were unusually full and many peers, including some Conservatives, appeared angry at the government's handling of the bill.

The anti-government vote was also swollen by the high standing of the main speakers - Lord Peyton, a former Conservative transport secretary, and Lord Marsh, a former chairman of BR.

However, Lord Peyton said last night that a further government defeat in the Lords would raise the prospect of 'a serious constitutional clash' with the Commons.

Lord Peyton's unwillingness to take on the government again will disappoint opposition leaders, who had hoped that the future of the bill would be threatened by further Lords defeats.

The government must act quickly, however, because the bill will fall unless agreement is reached before the Queen's Speech opening the next session of parliament on November 18.

Fuel tax, Page 6

British Rail GB United Kingdom, EC P9611 Administration of General Economic Programs P4011 Railroads, Line-Haul Operating P4111 Local and Suburban Transit COMP Company News GOVT Government News P9611 P4011 P4111 The Financial Times London Page 1 514
World News in Brief: Stamp sale record Publication 931104FT Processed by FT 931104

The 'Bordeaux cover', an envelope with two stamps sent from Mauritius to Bordeaux in 1847, sold at auction in Zurich for SFr5m (Pounds 2.2m), a record for one postal item.

CH Switzerland, West Europe P7389 Business Services, NEC NEWS General News P7389 The Financial Times London Page 1 60
World News in Brief: Increase in crime Publication 931104FT Processed by FT 931104

Criminal offences in England and Wales rose 3.8 per cent to a record 5.7m in the year to June, the Home Office said. Pledge by Howard on prisons, Page 8

GB United Kingdom, EC P9229 Public Order and Safety, NEC STATS Statistics P9229 The Financial Times London Page 1 61
International Company News: Bank of Finland sells Tampella stake Publication 931103FT Processed by FT 931105 By CHRISTOPHER BROWN-HUMES STOCKHOLM

THE IMPROVING fortunes of Tampella, the Finnish engineering group, have prompted the Bank of Finland to sell more than half its remaining stake in the company to domestic and international investors.

The disposal of 18m shares reduces the bank's stake in Tampella to 23.6 per cent from 50.6 per cent, and raises FM443m (Dollars 76m).

It represents a further diversification of the company's ownership base after the bank sold 25m shares to investors in New York, London and Stockholm for FM600m in August. Prior to that it held 88 per cent of the company.

Tampella was acquired by the Bank of Finland, the Finnish central bank, as part of a broader rescue of Skopbank in 1991. The group has shown a strong recovery since then, following extensive restructuring and cost-cutting which has left it focused on power and drilling operations.

In the first eight months losses after financial items were cut to FM65m from FM317m in the same 1992 period.

Tampella FI Finland, West Europe P3554 Paper Industries Machinery P1381 Drilling Oil and Gas Wells COMP Shareholding COMP Disposals P3554 P1381 The Financial Times International Page 18 206
International Company News: Lloyd's capital plans still on course Publication 931103FT Processed by FT 931105 By RICHARD LAPPER LONDON

THE SPONSORS of two of the biggest investment trusts at the Lloyd's of London insurance market will today press ahead with plans to raise some Pounds 400m in corporate capital despite setbacks to some smaller schemes in the last few days, writes Richard Lapper in London.

Backers of the larger schemes, sponsored by Samuel Montagu and Barclays de Zoete Wedd, will issue prospectuses today and are confident about raising capital from a range of institutions, including pension funds, life assurance companies and retail investors.

Samuel Montagu and Co Barclays de Zoete Wedd GB United Kingdom, EC P6726 Investment Offices, NEC FIN Share issues P6726 The Financial Times International Page 18 129
International Company News: Portuguese bank attracts bid Publication 931103FT Processed by FT 931105 By REUTER LISBON

THE PORTUGUESE government has received a single bid for an 80 per cent stake of state bank Banco Pinto e Sotto Mayor, which is being privatised, a government official said, Reuter reports from Lisbon.

Earlier, Banco Comercial Portugues said it was handing in its bid for the bank.

Banco Pinto e Sotto Mayor PT Portugal, EC P6081 Foreign Banking and Branches and Agencies P9611 Administration of General Economic Programs COMP Mergers & acquisitions P6081 P9611 The Financial Times International Page 18 97
International Company News: Winterthur warning on life insurance Publication 931103FT Processed by FT 931105 By REUTER DIESSENHOFEN

WINTERTHUR Insurance said premiums growth in life insurance business in 1993 would be significantly below last year's 15 per cent, Reuter reports from Diessenhofen.

Mr Peter Spaelti, chairman, said premium growth in domestic life insurance business would grow satisfactorily. He gave no details.

Domestic life insurance business represents some two-thirds of the group's total.

Winterthur Insurance CH Switzerland, West Europe P6311 Life Insurance COMP Company News P6311 The Financial Times International Page 18 90
International Company News: Denmark to sell stake in Girobank Publication 931103FT Processed by FT 931105 By REUTER

THE DANISH state will float 51 per cent of the share capital of state-owned Girobank, the post office's banking business, on the Copenhagen stock exchange, Reuter reports.

The 51 per cent stake, amounting to 2.55m shares with a nominal value of DKr100 (Dollars 14) each, will be offered at a price of DKr300 each between November 15 and 17. Girobank will be listed from December 1. It is the first major flotation under a privatisation plan also including telecoms group Tele Danmark, in which the state wants to cut its 93.7 per cent stake to 51 per cent.

Girobank DK Denmark, EC P6081 Foreign Banking and Branches and Agencies P9611 Administration of General Economic Programs FIN Share issues P6081 P9611 The Financial Times International Page 18 143
International Company News: French bank gives terms of FFr1.5bn share issue Publication 931103FT Processed by FT 931105 By ALICE RAWSTHORN PARIS

CREDIT Foncier de France, the French banking group, yesterday joined the queue of companies tapping the Paris stock market for capital by announcing the terms of a FFr1.5bn share issue.

The group, which said it had decided to raise capital to 'increase our financial capacity and to help us with our development', is issuing 1.48m new shares at FFr1,000 each.

Under the terms of the issue, Credit Foncier's existing shareholders will be given preferential rights to subscribe for one new share for every seven already held.

Credit Foncier, like other French banks, has recently come under pressure because of the recession. It previously announced a 14.4 per cent fall in interim net profits, to FFr404m (Dollars 68.13m) for the first half of 1993 from FFr472m in the same period last year.

However, the group also confirmed its performance was likely to improve in the second half, thereby producing a more favourable result for the full financial year.

The announcement of the FFr1.5bn issue follows the launch of similar capital-raising exercises by other French companies, including the BSN food group, the Lafarge-Coppee building materials concern and Schneider, the electrical engineers. They have timed their issues to take advantage of buoyancy in the Paris stock market.

Credit Foncier de France FR France, EC P6081 Foreign Banking and Branches and Agencies FIN Share issues P6081 The Financial Times International Page 18 249
Clinton presses Congress for gun controls Publication 931103FT Processed by FT 931105 By AP WASHINGTON

PRESIDENT Bill Clinton pressed the US Congress yesterday to impose a waiting period before handgun purchases as 'the first step' to controlling violent crime, AP reports from Washington.

'I think it's going to be very difficult for the Congress to justify continued inaction on what millions of Americans believe is the No. 1 problem in their lives,' the president said. He appeared with Mr Jim Brady, former White House press secretary to President Ronald Reagan.

Mr Brady and his wife, Sarah, are leaders of Handgun Control, an anti-gun lobbying group. He was badly wounded in the 1981 assassination attempt against Mr Reagan.

Mr Brady's espousal of handgun controls had left him estranged from the Republican administrations of Mr Reagan and Mr George Bush. He was welcomed back to the Oval Office he once frequented to help Mr Clinton build support for the Brady Bill, which calls for a waiting period on handgun purchases of five business days, when a background check would be required.

Mr Clinton predicted the bill would pass this year. It passed a House Judiciary subcommittee last week.

Mr Clinton hoped the full judiciary committee would complete work on it this week.

He said that it would be brought up in the Senate as a separate issue, apart from a crime bill, 'so that no one will be able to hide behind other issues and try to find clever ways to filibuster it'.

US United States of America P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times International Page 4 271
Illegal labour a growth business: Ariane Genillard on Germany's problems with a cheap import Publication 931103FT Processed by FT 931105 By ARIANE GENILLARD

IT IS 8am and Mr Herbert Botz, who heads the task force clamping down on illegal workers at the labour office in Cologne, scans his first construction site of the day in nearby Leverkusen.

'We have never found a clean construction site in the whole region,' says Mr Botz.

In Leverkusen, as in most cases, a letter from a rival construction company caused the surprise search. Three Polish workers are ordered to lay their tools down a few minutes later, when overdue papers show they are not entitled to be on site.

'Often, we just tell them to stop working. Sometimes, they are put back on buses to eastern Europe,' says Mr Botz.

More than half a million workers from eastern Europe are believed by trade unions and political organisations to be employed illegally in Germany's construction industry. Gathered in parking lots, they wait to be picked up by employers who are eager to pay less than 25 per cent of a German wage for the same job, says Mr Peter Rack. Albanians, employed for DM3 (Dollars 1.80) to DM4 (Dollars 2.40) an hour, are the cheapest.

With growing unemployment and bitter price wars for construction contracts, the rising number of illegal job-seekers crossing Germany's porous eastern border is pitting companies against each other and unionists against politicians.

Meanwhile, as the number of unemployed in western Germany in the sector has risen by 3,000 to 76,122 last year, profits in the construction industry have surged by 5.6 per cent, mostly as a result of growth in the east. Nearly 1,000 new construction companies were registered last year.

For IGbau, the construction industry union, the core of the problem lies in labour exchange agreements signed between Bonn and eastern neighbours in the wake of the fall of the Berlin Wall.

These allow 97,104 people from eastern Europe to work in Germany at any time for specific contracts lasting up to a year. Most are employed in the construction industry.

The unions say this has fostered the growth of middlemen from eastern Europe who sub-contract their nationals to German companies.

'One middleman gets 30 permits through a contract. But three days later, he exchanges legal workers against illegal ones. This way he can keep people coming in although they don't have the proper papers,' says Mr Hanz Haber, spokesman for IGbau.

Aware of the growing abuses, the authorities have been trying to control the problem by targeting companies rather than workers. Since the beginning of the year local officers can check construction sites without search warrants.

IGbau, which wants the labour agreements cancelled and greater protection of the local highly regulated labour market, claims the authorities are deliberately turning a blind eye to the problem. It says the government, which has already asked Poland and the Czech Republic to take back asylum-seekers, is reluctant to apply further pressure.

Pressure on the government has also come from organisations representing small and medium-sized companies squeezed by falling prices for construction contracts.

'We want the government to allow a limited number of eastern European workers per enterprise, depending on the labour force it employs,' explains Mr Julius Louvenen, from the Christian Democrats' small business lobby group.

Talks with the government, which started a year ago, have been fruitless, prompting an IGbau threat to take the government to the constitutional court to introduce tighter wage controls in the workplace.

Meanwhile, some attempts are being made to improve the control on the workers on a construction site. Special passes have recently been issued to facilitate regular check-ups. But fines for illegally employing workers have not been significantly increased.

'We get caught, the boss pays the fines and we come right back. For big employers, the fines are peanuts. They'll make the money back in one month, if you ask me,' says one illegal worker before vanishing into the crowd.

DE Germany, EC P9441 Administration of Social and Manpower Programs PEOP Labour P9441 The Financial Times International Page 2 683
Survey of Morocco (12): A guide for the businessman - What to look out for on your visit, and what to avoid, how to get there, where to stay and what to eat Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

The country and the climate

MOROCCO lies on the north-west corner of Africa, three hours' flight from London. It is the oldest kingdom in the Moslem world, the present Alaoui dynasty having been in power for more than three centuries.

The climate varies considerably, from the northern coast, which is Mediterranean, to the old imperial city of Marrakesh at the foot of the High Atlas mountains, which is a favourite winter resort for Europeans and boasts dry, temperate winters and very hot summers.

Along the Atlantic coast, the temperature is usually mild and often very damp, especially at night and during the winter. Morocco has a great variety of mountainous ranges, the highest peak, Jebel Toubkal, rising to over 4,000 metres.

The region beyond Agadir is true desert climate, more pleasant to visit in winter and spring than summer. The resort of Agadir is open all year round and boasts 300 days of sunshine a year. Most of Morocco's 27m people are of Berber stock and speak Arabic. French is commonly spoken, though not in country areas.

Getting there

Most major western air companies fly to Morocco. Royal Air Maroc and GB Airways between them provide daily flights from the UK. Visas are not required for European Community citizens. The Dirham currency cannot be bought outside Morocco.

Business hours

Moroccan companies and administrations work a five-day week, from Monday to Friday, with a slightly longer lunch hour on Friday to allow those who wish to pray. During the Ramadan fast, which lasts one month, it is best to avoid travelling to Morocco. In winter, hours of business are 8am to noon and 2pm to 6pm; in summer (end of June to end of September) the hours are 8am to 4pm.

Car hire

Cars are easy to rent at major airports and hotels, but do not expect them to be in perfect condition. By European standards, car hire is expensive. Roads between major towns are good, though often narrow. A fast and regular rail service and a motorway now connect the political capital, Rabat, to the economic hub of Casablanca, 100 kilometres away.

Hotels

Hotels are easy to find and in general not expensive, especially if you get a discount from the official price. However, many four or five star hotels do not deserve their rating.

In Rabat the choice is between an overpriced Hyatt Regency and the Tour Hassan, whose five-star de luxe rating is a standard joke. In Casablanca, the Royal Mansour remains true to its grand style and excellent service, while the Sheraton and the Holiday Inn offer good value. The Idou Anfa and Kandara hotels provide good average comfort and service. On the corniche, just outside the city, the Riad Salam is an attractive hotel.

In Marrakesh, the world-famous Mamounia underwent a refurbishment 10 years ago, which was not a success, though its reception rooms, restaurant and garden remain very attractive. The four-star Hotel Nassim provides excellent service at competitive prices.

Taroudant, in the southern foothills of the Atlas, boasts the Gazelle d'Or, a perfect resting place for the seriously rich, set in gardens outside the small walled town. In Fez the Palais Jamai provides spectacular views of the old religious capital of Morocco, though the service it offers is unworthy of its five-star de luxe status. The Minzah in Tangiers remains, arguably, the most attractive hotel in Morocco.

Eating out

Moroccan cooking ranks, alongside Turkish food, as the most refined in the Mediterranean. Good French and Italian food is also available in the large cities. You can safely shop by the roadside and eat 'keftas', skewers of meat sprinkled with saffron.

Casablanca boasts one outstanding French establishment, Ma Bretagne, on the corniche just outside the city. Other good French restaurants include Neroli (which has just been taken over by Pierre, as one of Casablanca's oldest French master cooks is known), Le Pretexte, Le Volubilis in the Royal Mansour Hotel and La Gondole in the Centre 2000, near the railway station. This establishment is run by Pierre Viaud, who left the Le Cabestan, where he was chef, to open his own restaurant. The food at Le Cabestan has not recovered. For Italian food, try Le Valentino in the Hyatt Regency Hotel or Le Fellini and for Moroccan food, Al Mounia. Le Pekin offers good Chinese food and Le Beyrouth excellent Lebanese fare.

In Rabat, L'Entrecote et le Vert Galand offer good French food. In Marrakesh, L'Orangerie offers fine French food, Villa Rosa good French and Italian fare; for traditional Moroccan food, the Yacout and Tobsil are best.

Arts and crafts

The variety of crafts in Morocco remains great. Carpets are plentiful and varied but the wool they are made from is not always of good quality. Good pottery from Fez, which is famed for its intricate bleu patterns, can be ordered from Hidaya Tazi in Casablanca (tel 445638); excellent pottery can also be found in the Potteries de Sale which are to be found in Rabat, at the foot of the old walled medina. The town of Safi also has very attractive wares.

State-run craft centres exist in most big towns but haggling in the souk, while time-consuming, can be rewarding. The Habous district of Casablanca has a wealth of traditional jewellery and caftans. Casablanca also provides scope for getting good leather artefacts, which are cheaper if bought directly at the factory gate.

Morocco has many modern painters whose works are keenly sought in Morocco and abroad. Galleries such as Bab El Rouah in Rabat and Meltem in Casablanca are worth a visit. Unfortunately, no museum regularly displays such works, which can best be seen in the private galleries of the Banque Commerciale du Maroc or the Office Cherifien des Phosphates.

Economics

For economic information about Morocco, the best source is the weekly L'Economiste, whose reports and analysis are very reliable. The Centre Marocain de Conjoncture produces regular studies on the state of the economy but they are rather too academic for the average businessman. New financial services such as Upline (tel 985855) or the Casablanca Finance Group (tel 441244), both in Casablanca, are reliable and good.

Books to read

John Warterbury's Commander of the Faithful, unfortunately out of print remains as good a guide as any to the monarchical system of Morocco. Wyndham Lewis's Travel in Barbary is a wonderfully evocative description of the Berber society of southern Morocco.

Remy Leveau's Le Fellah Marocain, Defenseur du Trone provides a good political introduction to the kingdom while Bruno Etienne's Les Arcanes du Sultanat recently published by the French cultural review Autrement (September 1990), is a pointed analysis of how King Hassan exercises his considerable powers.

MA Morocco, Africa P874 Management and Public Relations NEWS General News P874 The Financial Times London Page VI 1167
Survey of Morocco (11): Recession in Europe hits industry - After a tough year, the government's passive attitude is under attack Publication 931103FT Processed by FT 931103 By SCHEHERAZADE DANESHKHU

AT THE implausibly named Bogart factory in the industrial zone just outside the centre of Casablanca, the Made in Morocco label is diligently stitched into children's Levi denim clothes destined for France. Mr Mohamed Tamer, the factory's owner, says that he has been fortunate in the current recessionary climate to have experienced stagnant rather than falling sales.

Morocco's industrialists have had a tough year. The country's gross domestic product fell in 1992 in real terms compared to the previous year, while total exports experienced a 9 per cent drop to Dh33.6bn (Dollars 4bn). The government expects exports to fall further in 1993 although gross domestic product should grow by 3 per cent. The second year of drought has taken its toll on production and on domestic purchasing power while exports have suffered because Europe, which is Morocco's main market, has been in recession.

Members of the Office of the Federation of Industry set out their grievances to the government, in the shape of Mr Abder- azzak Mossadeq, secretary-general of the Ministry of Commerce, at a seminar in May.

The main complaints were the progressive removal of tariffs against imports, the high cost of energy (including periodic power cuts which are particularly disruptive to textile manufacturers) and high interest rates. Externally, the industry representatives were unhappy about the trend towards increasing protectionism in overseas markets, depressed worldwide demand and competition from smuggled goods.

While acknowledging the grievances of the industrialists, Mr Mossadeq inclines towards the opinion that there is not much that the government can do. He says that real rates of interest are about 10 per cent and the government itself is bor- rowing money from the World Bank at 10 per cent.

Though he admits that the cost of energy is high, that is a problem which everyone faces in Morocco, which does not have the fortune to be a part of the oil-rich Arab world.

With privatisation a buzzword, the state in Morocco is distancing itself from the industrial sector. Mr Mossadeq says that the government no longer has an industrial strategy because that implies dirigisme. Things have changed since the 1960s when it was forced to intervene because of the lack of a private sector.

'I was at an African ministers of industry meeting recently and everyone was talking about privatisation. But you need a private sector before you can privatise which is why the state first invested in industry and is now retreating,' says Mr Mossadeq.

Although the government would like to see greater vertical integration, part- icularly in the textile and garments sector which is heavily dependent on the import of raw materials, Mr Mossadeq says that the government can only try to create the conditions in which industry might prosper by measures which include providing technical centres to improve the skill of the labour force.

The manufacturing sector is the second largest contributor to the country's gross domestic product, accounting for over 18 per cent in 1992 and overshadowed only by commerce with a contribution of 21.4 per cent to GDP.

The main industries are agro-industry (food-processing), textiles, chemicals, metallurgy/mechanics and electrical/electronics. Of these, the agro-industry and chemical industries contribute the most to industrial production, with a share of roughly 32 per cent each in 1991 but textiles and leather are the largest industrial export, accounting for 38 per cent of industrial exports in 1991.

With 180,000 employees, the textile and leather industry is also the largest industrial employer, accounting for one third of all those employed in industry.

The industry's labour costs are the lowest of any Mediterranean country with privileged access to the EC. It also has the advantage over its south-east Asian competitors of proximity to Europe, which means lower transportation costs.

Manufacturers, however, are worried by increasing protectionism in Europe since they are heavily dependent on the European market for exports. Some 50 per cent of goods manufactured in the textile industry is exported and 80 per cent of these exports are to France.

Mr Mohamed Lahlou, vice president of Manatex, one of the country's longest-established textile companies, and president of the Moroccan Association of Textile Industries, says that the industry has suffered as a result of the devaluation of some European currencies, notably the Spanish peseta, the Italian lira and sterling. The leather industry saw a 10 per cent fall in exports in 1992, with shoe sales performing particularly weakly with a drop of over 20 per cent.

Investment in the whole sector fell in 1992 for the second consecutive year, partly as a result of high interest rates, and Mr Lahlou has criticised the government for its passive attitude towards the problems facing the sector.

By contrast, the sector which enjoys the largest investment is the chemical and pharmaceutical industry which accounted for 38 per cent of all industrial investment in 1991. The sector includes the phosphate industry, controlled by the influential state monopoly, the Office Cherifien des Phosphates (OCP).

Phosphate exports dropped to Dh8.48m last year from Dh10m in 1991 and are expected to fall further to Dh7.7m this year. The industry has not been aided by a drop in international prices from Dollars 42.5 a ton at the beginning of 1992 to Dollars 38 in May this year.

Despite a fall in the phosphate sector's share of total exports from 43 per cent in 1983 to an estimated 24 per cent in 1993, Morocco remains the largest exporter of phosphates in the world and the proprietor of the world's largest phosphate reserves.

The most optimistic industry is the metallurgy, mechanical, electrical and electronic sector which has seen production increase from Dh13.2bn in 1988 to Dh20.3bn in 1991, on the back of strong investment which has almost doubled over the same period while exports have risen almost threefold. The industry is hoping for further growth this year.

Although some industrialists are calling for a devaluation of the dirham to help exports and the reimposition of higher tariffs to protect domestic industries from outside competition, the government appears unlikely to adopt either measure.

Industry will have to weather the recession both at home and abroad and hope that the trend towards lower domestic interest rates will continue in order to aid both production and investment in the coming years.

MA Morocco, Africa P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product CMMT Comment & Analysis ECON Balance of trade MKTS Foreign trade P9311 The Financial Times London Page VI 1101
Survey of Morocco (9): Acts of faith in Western Sahara - Francis Ghiles finds that the Moroccan government is determined to keep the territory Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

ON THE edge of the small fishing port of Dakhla, 1,000 kilometres from Rabat, the Moroccan capital, a small block of flats stands empty. According to local officials, it awaits the return of the 'lost brothers', those Saharaouis who, since Morocco took over the Western Sahara 18 years ago, chose to flee to camps in south-western Algeria and fight King Hassan's claim to the former Spanish colony.

The dispute is still far from being settled despite 10 years of intermittent fighting and a UN peace plan launched just over two years ago. Progress on the plan has been stalled by disagreement between the Moroccans and the Polisario Front, which has been fighting for an independent Western Sahara and over who would be entitled to vote on the future of the territory.

On the ground, however, everything has been done to ensure that the Moroccans stay. True figures of investment are not available but a visit to the capital of the territory, Laayoune, and to Dakhla, to the south, underlines the extent of Morocco's determination.

Laayoune, which in 1975 boasted a governor's residence, a traditional Spanish parador style hotel, a brothel and thousands of shacks for the natives - indeed it was more reminiscent of the wild west than anything else - has been turned into a bustling town of over 130,000 people, thronged at lunchtime and in the late afternoon with children going to and from school.

A new airport has been built, while a new and slightly vulgar hotel has been added to the parador, where the availability of peanut butter at breakfast is a sure way of detecting the Canadian and American members of the Minurso (United Nations Mission for Peace in Western Sahara), whose headquarters lie just below the parador.

UN marked aircraft at Laayoune and Dakhla airports also remind the visitor of the dispute, as does the fact that his passport is checked on arrival and departure for domestic flights.

Unofficial estimates of investment in roads, hospitals, schools, water ducts and other civilian projects are put at between Dh20bn and Dh30bn. Even these figures, however, are underestimates as soldiers are often used, at no cost to the state.

To those Saharaoui town dwellers who chose to remain and pay allegiance to the Moroccan crown were added the nomads who, in the late 1970s, were driven to the towns by the severe drought endured by the Sahel region of Africa. Despite Moroccan government efforts to help such people reconstitute their camel herds, the nomadic way of life is, here as elsewhere, a victim of modern political and social evolution.

The effort to spread literacy and ensure a minimum of health is impressive. A second hospital is about to open in Laayoune, and the province itself boasts a further four. Each has 220 beds. Four smaller health centres exist in Laayoune alone.

Medicine and all consultations and operations are free in the Western Sahara. Laayoune's hospitals appear well run, staffed by well-trained Saharaoui doctors and Moroccans from the north.

The 900 children who went to school in Spanish days have become 32,000 today. Laayoune boasts 27 primary schools, five lycees and a teachers' training college. The authorities say that 90 per cent of those in age to attend school in Laayoune do. Spanish has been forsaken as a foreign language to be replaced by French and, increasingly, English. No foreign teachers, however, have yet been allowed to practise in the territory.

Dakhla, which is now twinned with Rambouillet near Paris, has been virtually built from scratch. The pasha of Dakhla, the genial Si Mohamed Fadhel Semlali, points to a few remaining Spanish buildings, including an ugly 1950s style Catholic church still inhabited by an old Spaniard who has apparently decided he is going to die in the place, around which he said that about 90 Saharaoui families lived back in 1975. Dakhla was taken over by Mauritania then and handed over to Morocco in August 1978.

The town now has 30,000 inhabitants and sits near the tip of a 40-kilometre-long tongue of sand between the rolling Atlantic waves and a deep laguna. It feels like the back of beyond but boasts one asset which, were the status of the Western Sahara to be finally settled, could be of great importance: some of the richest fishing grounds in the world.

Indeed, the oddest sight in Dakhla is that of two Japanese visitors. Japanese, Korean, Russian and Spanish vessels fish offshore, some legally, others not. The prize here is squid, a great favourite with Asian consumers. In Dakhla itself a few small plants, such as Fishgod, set up by a Mr Salem Amghayer in 1989 operate, but the absence of a fully equipped port means that most of the fish or squid caught offshore is treated in Agadir or Tan Tan, much further north on the Moroccan coast, in the Canary Islands which lie offshore or on the ships themselves.

How much people who have traditionally been nomadic and turned their back on the sea can be turned into fishermen and businessmen remains to be proved.

Fishing could also provide a basis for tourist activity, though to date there is little of that other than passengers transiting through Laayoune to and from the Canary Islands and northern Morocco. The Dakhla laguna, its beaches and the opportunities for serious fishing might well attract an international hotel group. However, such an outcome appears unlikely so long as the dispute continues.

The authorities in Dakhla have built a four-star hotel but for some reason have done so in the middle of the town, away from the beach and in such a tight location that the compound boasts no garden, no large swimming pool and no seashore to step out to. No wonder they are finding it difficult to find a company willing to manage such an establishment which otherwise is soberly decorated and built to high standards.

Dakhla has also to do a lot to ensure running water in most homes. The town is lucky as it sits on a large underground aquifer of sweet water. On the other side of the laguna the king has set up a farm where fruit, including winter melons, and vegetables are grown using state-of-the-art irrigation technology. Much of the produce is exported to France.

The rich phosphate deposits at Bu Craa, 70 miles inland from Laayoune, are still exploited and the rock treated at a plant outside Laayoune before being exported but the depressed state of the market currently makes such wealth of little importance in providing new jobs.

The considerable resources that Morocco has poured into developing the Western Saharan provinces - whose population includes Saharaouis and many northern Moroccans who can earn tax-free salaries while working there - constitutes an act of faith. Traditional ties of allegiance between the Moroccan sultans and tribal chieftains have been buttressed by Rabat's continuous efforts to reinforce its physical presence and win the hearts and pockets of the Saharaouis. Whatever their innermost feelings might be, they have been offered more in terms of health, education and general well-being than many of their northern brethren.

MA Morocco, Africa P9721 International Affairs NEWS General News P9721 The Financial Times London Page V 1234
Survey of Morocco (10): Hub of undeclared activity - The importance of the informal sector Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

ALTHOUGH it has been suggested that production of goods and services in Morocco's traditionally flourishing informal sector may amount to 70 per cent of official gross domestic product, academics and businessmen believe that 30 per cent is a more realistic figure. No one, however, is in any doubt that this sector plays a key role, providing hundreds of thousands of jobs. The fact that it thrives helps to explain why, despite two years of drought and declining GDP, the kingdom has so far not witnessed any serious social disturbances.

Morocco's national accounts revalue the statistics they receive by a coefficient to take account of the informal sector: the value of manufacturing is thus raised by 14 per cent and that of the building sector by 15-20 per cent. This figure is reached by matching the number of permits to build with the consumption of cement.

In some sectors, the percentage of activity accounted for by the informal sector is more precisely measured - it accounts for 36 per cent of all clothes manufacturing, 30 per cent of all food processing and tobacco, 16 per cent of manufacturing of upholstery, 28 per cent of transport of goods, 25 per cent of hotel business and 19 per cent of all activities grouped until the broad name of 'repairs'. These estimates date from 1988 but the Direction de la Statistique in Rabat feels they hold true today.

Under the name 'informal sector' may be found a multitude of sins. First and foremost is the USDollars 2bn estimate of hashish exported every year to western Europe from the north-west Rif mountains around Tangiers and Tetuan. Not all that money is reinvested in the local economy, but the price of real estate and the impossibility of finding builders in Tangiers, Nador and the Spanish enclave of Ceuta are enough to convince any observer that a lot of money is washing around.

Money from this source must be added to that made from illegal imports through Ceuta and the other Spanish Mediterranean enclave of Melilla, which it partly finances. Alcohol around these ports fetches one-third of the price it does in Casablanca. Moroccan buyers have access to all the latest hi-fi, computers and white goods they can afford on the free market in Casablanca - these goods are much cheaper in the north. In recent years a thriving market in cars stolen in Europe has developed, often brought in by Moroccan emigres in France or Belgium who have been made redundant. The Fnideq market near Ceuta handles an estimated 40,000 such vehicles a year.

Another source of informal money is the selling of fish caught by Moroccan vessels to foreign fishermen on the high seas, in exchange for foreign currency. Precise figures are impossible to obtain, but observers believe that a few hundred million dollars would not overstate the volume of that particular trade.

Customs officials are unable to prevent the smuggling nor do their modest salaries - Dh1,600 a month with only a further Dh0.35 per extra hour of work - suggest they have the incentive to try. The figure of tonnage unloaded in several Moroccan ports is thus believed to underestimate the true weight and value of cargo.

An estimated 450,000 informal jobs exist in manufacturing, worth at least Dh30bn. Moroccan industrialists readily admit that a third of what they manufacture is not declared, pointing to the fact that tax inspectors are so harsh in their treatment that they encourage people to cheat. As in Tunisia, tax inspectors seem to consider private entrepreneurs a bunch of thieves. Another reason why industrialists and those in the service sector conceal their activities is the stringent nature of the labour laws, which make it difficult and expensive to fire employees.

The reaction of local manufacturers to illegal imports varies. General Tire, for instance, is not best pleased to see Goodyear tyres smuggled in from the Canary Islands. Others are less worried because their own brand products manufactured in Spain are brought in.

One important factor in all this is that Moroccans often prefer imported products to locally manufactured ones, even if they have to pay more because they reckon they are getting better value for money. They are not always wrong. As for paying added value tax, wholesalers may have to, but the many small shops do not. In a country where two-thirds of the population is unable to read or write, imposing VAT across the board would not be practicable.

It is important to bear in mind that local family networks dominate much of Morocco's activity, even in large towns such as Casablanca. Many laws enacted by the French or the new state were quite inapplicable from the start. Today few Moroccan industrialists who are in dispute will go to court because the legal system is erratic, slow and often corrupt. Rather, they will resort to one of their peers who is respected both for his sense of fair play and knowledge of the matter which is in dispute.

The consequence of the past two years of drought are interesting in this respect. As farmers were forced to sell their cattle to make ends meet, the price of red meat was pushed down. But official slaughterhouses did not change their prices, thus forcing farmers into illegal slaughtering and selling. Butchers thus bought directly, bypassing the slaughterhouses. Such transactions are often agreed to by the powerful Mouktassib, the corporation which traditionally checks the honesty of transactions, the quality of goods, notably food, and their conformity with religious edicts.

Appointed directly by provincial governors, the Mouktassib, whose powers were reinforced by royal decree 10 years ago, appear to many Moroccans to be more attuned to the real needs of Moroccan society than many of the bureaucrats.

The informal sector is in many respects a safety valve for Moroccan society. It supplies flexible jobs at a fraction of the cost of the formal sector. Yet, one of the tests of the progress Morocco makes as it modernises its economy will be the authorities' capacity to ensure a more open and accountable system. That does not simply mean bringing the private sector to heel; it also means that the authorities will behave in a fairer and more open manner with all Moroccan citizens and companies.

MA Morocco, Africa P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs ECON Gross domestic product CMMT Comment & Analysis ECON Industrial production MKTS Foreign trade P9311 P9721 The Financial Times London Page V 1102
Survey of Morocco (6): Foreign policy stance seems vindicated - The important role being played by King Hassan Publication 931103FT Processed by FT 931103 By ROGER MATTHEWS

MOROCCAN foreign policy for the past three decades has not just been consistent, but also consistently right, according to officials in Rabat. The recent breakthrough in relations between the Palestine Liberation Organisation and Israel is, for them, just the latest vindication of a Moroccan stance taken and maintained whatever the external or domestic pressures.

Support for the western coalition against Iraq culminating in the Gulf war is cited as the best example of King Hassan flying in the face of domestic opinion, while the takeover of the Western Sahara from Spain in 1975 is seen as a lesson in how to defy international pressure.

For King Hassan there has been no historical contra- diction in sending Moroccan troops to fight against Israel while also protecting his own Jewish population and arguing for a negotiated settlement to the Arab-Israel conflict. Meetings between Egyptians and Israelis in Morocco helped to prepare for President Anwar Sadat's critical visit to Jerusalem in January 1977, and few obstacles have been put in the way of Israelis of Moroccan descent who wish to return to their former homeland for holidays.

But, at the same time, officials in Rabat stress that Morocco stands four-square behind the aspirations of the Palestinian people to achieve self-determination, is proud to be the chairman of the al-Qods (Jerusalem) committee of the Islamic Conference Organis- ation, and is a fully committed member of the League of Arab States.

The visit by Mr Yitzhak Rabin, Israel's prime minister, to Rabat in September on his way home from his historic handshake in Washington with Mr Yassir Arafat, the PLO chairman, was an ack- nowledgment of King Hassan's peace-making role. But it went no further than that. Israel's hopes for a visit by King Hassan to Jerusalem and the establishment of diplomatic relations were not realised, and are unlikely to be until there is substantially greater progress in the peace process.

'Peace is not just a piece of paper. It is not just a matter of politics. Peace is about changing people's minds, about changing the way they look at issues. This is what we have been trying to do, and we shall keep on trying,' says an official, who looks forward to early progress in Israel's talks with Syria in order to demonstrate that the peace process has become irrev- ersible.

Less publicly, but with even greater private satisfaction, there is a growing sense in official circles that Morocco's 15-year military and dip- lomatic struggle to confirm its occupation of the Western Sahara is, however grud- gingly, winning international acceptance.

Algeria's mounting domestic problems, the weakening of the nationalist Polisario Front, the preoccupation of the UN with other more pressing issues, and the US concern at the spread of Islamic radicalism, are combining to present a solution that will be acceptable to Morocco.

The key lies in who would be eligible to vote in a referendum on the territory's future: just the 74,000 people included in the 1974 Spanish census, as favoured by Polisario, or the additional 120,000 said by Morocco to be of Saharan parentage or origin.

Mr Boutros Boutros-Ghali, the UN secretary general, said during a visit to the region in June that he was pressing both sides to come to an agreement. Whatever the outcome of any compromise, or a decision to go ahead without Polisario agreement, the Moroccans will accept only a formula which they are confident would produce a satisfactory result.

The risk, of course, is that a frustrated Polisario, which is recognised by some 75 countries, could return to some form of armed struggle to continue pressing its case. Much would depend on the attitude of Algeria: there have been recent signs of a slight improvement in relations with Morocco.

There is little indication, however, that this will translate into a more effective Arab Maghreb Union, the organisation which brings together Morocco, Algeria, Libya, Tunisia and Maur- itania. Formed in 1989, the AMU has agreed a number of conventions but none has been put into effect. Moroccan officials acknowledge that the organisation's chances of development remain modest. There was disagreement between the five partners over the Gulf war and this was heightened when the other members decided to follow the UN ruling on sanctions against Libya for its alleged role in the destruction of an airliner over Lockerbie in Scotland.

Morocco's main attention, however, is concentrated on its negotiations with the European Community. Earlier dreams of an eventual bid for membership, and before that an agreement which would permit almost free trade in agricultural produce, have reluctantly given way to a more sober assessment of what might be possible.

Whatever the final outcome on improved economic co- operation, EC officials see the biggest immediate gain for Morocco as political. 'The big gain for Morocco is not in whatever is finally negotiated. The details matter less than the heightened political visibility that Morocco will enjoy as a result of closer links with the EC, and the impact this could have on inward investment, not just from EC members but also from other industrialised countries, such as Japan', comments one official.

Negotiations are certain to be tough over sensitive issues for southern European countries, such as the access allowed to Moroccan tomatoes, but diplomats in Rabat sense that King Hassan's desire to attach Morocco firmly to Europe will eventually prove decisive.

MA Morocco, Africa P9111 Executive Offices P8651 Political Organizations CMMT Comment & Analysis P9111 P8651 The Financial Times London Page IV 938
Survey of Morocco (7): Sleepy giants face market - The likely impact of banking reforms Publication 931103FT Processed by FT 931103 By SCHEHERAZADE DANESHKHU

Moroccan banking is based, like much else in the country, on the French system. Until the Moroccanisation Law of 1973, which restricted foreign ownership, French banks dominated the sector.

Today, the French legacy is one of structure so that the bulk of the sector's assets are in the hands of only a small number of banks. Though there are 14 commercial banks, only three - the state-owned Banque Centrale Populaire, Banque Marocaine du Commerce Exterieur and the Banque Commercial du Maroc, the largest bank in the private sector - hold 60 per cent of the banking system's assets. This makes it hard for newcomers or the smaller banks to compete and is reflected in the weak penetration of the market by the seven smallest banks which hold less than 10 per cent of banking aggregates.

The system is highly regulated by the Bank al-Maghrib, the central bank, which still fixes the maximum lending rate. As a result of these controls, the banks have stuck to a traditional role of lending money and taking deposits. About half the deposits held in the commercial banking sector are in non-interest bearing accounts, so an easy way to make money has been to increase the branch network. Just under 30 per cent of deposits are held by Moroccans working abroad and Banque Populaire holds about 70 per cent of expatriate accounts.

Although the domestic banks have competed fiercely for market share, they are sometimes unkindly known as the sleepy giants. They are now being steered into a more competitive environment with the introduction of banking reforms and the passage of a banking law last year. The aim is to liberalise the banking system, which is regarded as a necessity if privatisation and competition are to take hold, which will inevitably result in a reduction of control exercised by the central bank.

Nearly two-thirds of the candidates for privatisation are from the banking and financial sector with the commercial banks representing 40 per cent. The single largest company due for privatisation is BCP, the country's largest bank.

The monetary authorities began liberalising in 1991 by lifting credit ceilings imposed by the central bank. Interest rates were also liberalised to the extent that banding was introduced and banks were free to set their interest rates within those bands.

However, the result was that the money supply increased by 20 per cent in 1991 with banks, anxious to increase their credit market share, increasing the growth of their loans by 35 per cent compared to the previous year. By the end of 1992, the commercial banks accounted for 60 per cent of credit compared to 53 per cent in 1990.

The strong explosion of credit prompted the central bank to intervene and it did so principally by raising the banks' reserve requirement to 25 per cent on demand deposits and by increasing the overnight borrowing rate. The measures have had the desired effect and the rate of growth of the money supply fell back to 9 per cent in 1992 while credits rose by 11.5 per cent.

The central bank eased the reserve requirement a year ago to 10 per cent (although banks had to place the 15 per cent balance in treasury bonds instead) and in June, the Ministry of Finance lowered the maximum lending rate by 1.5 percentage points to 14 per cent, to help stimulate the economy.

The banking law, which has not yet been codified, is intended to improve the supervision of banks by creating new regulatory bodies and a guarantee protection fund for depositors. The banking reforms are aimed at strengthening domestic banks and bringing them up to international standards. New capital adequacy ratios were introduced at the beginning of the year; banks must maintain 8 per cent of their capital against risk-adjusted assets. Banks must also make provisions against a non-performing loan after four months by making a 100 per cent provision against the loan unless there is a guarantee. The measure is being introduced gradually.

The banks also operate under one of the toughest legal lending limits in the world. The limit is 7 per cent of net capital funds to a single borrower compared to the usual limit of 25 per cent in other countries. While the limit used to apply to each subsidiary of a company, it is now restricted to the company as a whole.

The reforms are not popular with most of the banks, which claim they were imposed too suddenly. 'The provision against non-performing loans is terrible for us,' said one banker at one of the largest banks 'because we have to increase our capital.' However, the banks are now obliged to do their homework before they lend money by selecting businesses which are well-managed and by looking for profitable loans or those giving the best guarantees. While the reforms may seem a constraint to the bankers, some Moroccan companies have traditionally found it cheaper to finance themselves through debt, leading to an undesirable capital structure. The new reforms should make it cheaper for them to turn to equities for finance.

Despite the proliferation of measures, there is some anxiety that change is not taking place as quickly as it should. In his open letter on July 14 to Mr Muhammad Karim Lamrani, the prime minister, King Hassan urged a reformulation of financing policy to make access to international capital markets easier for local companies. He also called for the development of domestic capital markets through stock market reform and an increase in the range of financial instruments available. Companies need the infrastructure of suitable instruments, such as capital markets to gain access to foreign investment.

The International Finance Corporation, the World Bank affiliate devoted to private sector investment in the developing world, is planning to establish with the CPR group, the French investment bank, a Moroccan discount house with six Moroccan banks before the end of the year. It will give advice on the central problem of how to create greater liquidity on the debt securities market.

Morocco returned to the international capital markets in July through a Dollars 30m Euroloan arranged by Citibank International for Omnium Nord Africain, the country's largest private company.

One international banker says that while there is a lot of interest in the stock exchange from international institutions, progress has been slow which are highlighted by the lack of a developed capital market. 'There is not enough synchronisation,' he said. 'While banks and corporations are allowed access to international capital markets and can borrow money overseas, there is, as yet, no mechanism by which foreign exchange exposure risk can be hedged.' Morocco also lacks a money market and a secondary market for fixed income instruments.

The Casablanca Finance Group, established with backing from Paribas and others, says that there is a lot to do before it can establish itself as the country's first investment bank. It needs to convince investors to turn to the capital markets instead of banks, and also a developed brokerage system and buoyant stock exchange. It plans to launch the country's first open-ended mutual fund by the end of the year.

MA Morocco, Africa P6081 Foreign Banking and Branches and Agencies P9311 Finance, Taxation, and Monetary Policy P6011 Federal Reserve Banks CMMT Comment & Analysis P6081 P9311 P6011 The Financial Times London Page IV 1242
Survey of Morocco (8): Madrid investors pack flights to Rabat - Relations with Spain Publication 931103FT Processed by FT 931103 By TOM BURNS

SPANISH interest in Morocco may be measured by the fact that business class passengers often outnumber those travelling economy on Iberia's usually packed daily Madrid-Rabat flight.

Mr Alvaro Renfigo, the commercial attache at the Spanish embassy in Rabat, knows all about the extra space that the airline has had to set aside for Morocco-bound business people. At least 1,000 Spanish executives have passed through his overstretched department so far this year and more than 400 have made appointments to see him.

Mr Renfigo says he faces an 'avalanche' of potential Spanish investors in Morocco.

The Spanish press regularly reports travellers, in just as many numbers, moving in the opposite direction and under very different conditions. Hardly a day goes by without a news story of illegal immigrants being arrested on arrival from Morocco aboard tiny fishing smacks. Frequently, the news is of bodies washed up on on a southern Spanish beach in the vicinity of Gibraltar.

The Mediterranean 'wetback' saga has all the elements of a North-South drama, mixing exploitation and futility. The Madrid-Rabat flights, which are not nearly so fully reported, tell a tale of intriguing dollar-laden developments shaped by enterprise and focused on a clear future plan.

Over the past four years, direct Spanish investment in Morocco has moved between the Dollars 40m posted in 1990 to the Dollars 100m forecast for this year. Direct investment already topped the Dollars 100m mark in 1991, largely due to the outlay that year by the Insituto Nacional de Industria, Spain's public sector holding, in Morocco's Fosbucraa phosphate group and it will be back to the Dollars 100m level this year, having slipped to Dollars 40m again in 1992, thanks in part to a recent investment by Banco Central Hispano (BCH), Spain's largest private bank, in Banque Commerciale du Maroc.

These figures should be compared with those of the second half of the 1980s when direct Spanish investment in Morocco was in the Dollars 3m-Dollars 4m range. Spain's business invasion of Morocco is comparable only to the one it is waging in Portugal.

What is most revealing is that new investment by Spain in Morocco has now outstripped that by France. Whereas French finance entering Morocco is mostly aimed at consolidating existing positions, Spanish capital is fresh and acquisitive.

By Mr Renfigo's reckoning, the evidence of Spain's investment drive is to be found in more than 500 Moroccan companies which now have Spanish partners. Madrid's stamp on Morocco has been emphasised by the trickle-down effect of a 1991 bilateral friendship agreement that has lured major Spanish companies into big Moroccan civil engineering projects on the back of soft credit lines worth Dollars 70-80m a year.

Meanwhile, it is estimated that this year Spain's quota of Morocco's foreign trade will rise from 8 to 12 per cent while France's will fall from 23 to 21 per cent. Mr Alfonso de Pedro, the representative of the savings bank Caja de Madrid in Casablanca, echoes a widely shared opinion among the expatriate Spanish business community when he claims there is a specific local interest in 'redressing the French weighting in the Moroccan economy'.

In the main, Spanish business finds itself on familiar territory in Morocco. The present state of Morocco's development, as well as its regulatory environment, is not unlike that of Spain in the 1950s and 1960s. There are similarities in the bid to have foreign investment fuel a great leap forward.

Mr de Pedro is at present building up a consultancy and venture capital business on behalf of Caja de Madrid and in partnership with Banque Commerciale du Maroc. He has recently given the green light to five investment projects that deal mostly with hotel, hypermarket and office developments and he has a further 12 under study, encompassing potential businesses in the agriculture and textile sectors.

Spanish investment falls broadly under two groups. The first seeks a low cost production base for goods aimed at the Spanish and the European markets, while the second is looking for openings in the domestic Moroccan market.

The two investment models are present in most sectors. Spanish agricultural groups are developing strawberry plantations south of Larache which will get the first crops of the fruit across to Northern Europe before Christmas, two to three months ahead of the early strawberry harvests in southern Spain. Other groups, in contrast, have imported Spanish rice transformation technology to supply the Moroccan market with improved and competitive products.

In the textile sector the Madrid-based Cortefiel group has begun manufacturing in Morocco in order to supply its large retail network in Spain. Algodoneras San Antonio, the denim material producer, one of the prestige Spanish investments in Morocco, has however ignored the cheap labour possibilities and established a highly automated plant which services the local clothing industries.

The clearest indicator to date of the potential of Spanish investment in Morocco came in July when Banco Central Hispano invested Dollars 43.3m to raise its equity in Banque Commerciale du Maroc from 5 to 20 per cent and a further Dollars 6.9m to acquire 2.5 per cent of ONA, the Moroccan financial holding group that also owns 20 per cent of Banque Commerciale du Maroc.

The Spanish bank's new relationship with ONA, and its joint interest with the financial holding in Banque Commerciale du Maroc, will allow the strategic penetration of Morocco by the wide-ranging industrial interests that come under Central Hispano's umbrella. Some Central Hispano companies, such as the construction firm Dragados, are already well installed in Morocco but others, such as those in the energy, the agribusiness and the communications sectors will assuredly soon be booking their executives onto the Madrid-Rabat flight.

ES Spain, EC MA Morocco, Africa P9311 Finance, Taxation, and Monetary Policy P6081 Foreign Banking and Branches and Agencies P9721 International Affairs ECON Economic Indicators CMMT Comment & Analysis P9311 P6081 P9721 The Financial Times London Page IV 1000
Survey of Dubai (10): 'Upstart' airline has cause to celebrate - Profile: Emirates Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

'WHAT are they doing in Dubai?', a senior official at the Gulf Co-operation Council secretariat in Riyadh asked in October 1985, shortly after Emirates Airline had made its maiden flight to Bombay.

The question was put with more than a hint of exasperation, and the inference was clear; that Dubai, through its upstart airline, was in some undefined way breaking ranks within the UAE - and by extension with its GCC partners - by injecting an unwanted element of competition among Gulf Arab states confronted with the Iran-Iraq war.

After all, the misconception was widespread that it was the UAE as a whole, and not just Abu Dhabi, which was one of four shareholders in Gulf Air - then, as now, the main regional rival to Emirates. So what business did Dubai have in starting another airline - its own - when there were enough airlines to go around?

Last month, the 'upstart' airline celebrated its eighth anniversary by implementing a marketing agreement with United Airlines, one of the three biggest US carriers, in a further move to expand its international network. This now directly spans 30 destinations in 24 countries. And far from undermining the GCC, Dubai's airline has brought more and new business into the region, and competitors have been forced to improve their own services to keep up.

The marketing alliance with United, in effect a code-sharing agreement, means that the two airlines can use each other's flight identification code to book passengers in computer reservations systems. The logic of the arrangement is that Emirates' network, which has focused on the Middle East, the Indian sub-continent and Asia, can now dovetail with United's transatlantic and US domestic routes.

To link with United, Emirates now has two daily flights to London's Heathrow, which replace a previous service to Gatwick.

Emirates has never received subsidies from the Dubai government, which continues to insist on an open-skies policy and looks with equal favour on the 61 airlines which now fly into the emirate. The government does not regulate fares.

Emirates' start-up capital was used to buy two second-hand Boeing 727s from Dubai's Air Wing. Emirates shares head office premises with Dubai National Air Travel Agency to which it pays a cross-charge for rental. 'That is all Emirates ever received in government investments or grants,' according to Mr Dermot Mannion, the airline's corporate treasurer. And Emirates gets no guarantees from the government when negotiating bank financing for new aircraft leases or acquisitions.

In the western context of the distinction between the private sector and the public-state sector, Emirates is an anomaly, for it is simultaneously in both of these. In common with all seven emirates forming the UAE, as well as with other member countries of the GCC, the Dubai government is 'private', consisting of the ruling family and, lower down, its nominees and officials. In this sense Dubai Inc is a private company. At the same time it is very much the State.

The airline is thus the private sector commercial extension of the government and its campaign to promote the emirate of Dubai, as part of the UAE, as the predominant regional business centre and transit point between Europe and Asia. Not for nothing is the airline's chairman, Sheikh Ahmed Bin Said Al Maktoum, a member of the ruling family, also chairman of Dubai's Commerce and Tourism Promotion Board, an autonomous government agency, as well as president of Dubai's Department of Civil Aviation.

But to finance the leasing of its fleet of 13 aircraft, the airline has had to rely on its own resources and return on capital. The fleet consists of eight Airbus A310-300s, and five A300-600Rs. The average age of aircraft in the fleet, including the two original 727s, is less than 3 1/2 years.

The airline releases figures on a selective basis only to institutions involved in loan negotiations. But according to the journal Airline Business last April, Emirates, based on fleet size, a 1992 kilometre total of 5.52bn and a load factor of nearly 70 per cent, had 1992 revenues of between Dollars 400m and Dollars 450m.

The airline has been profitable for six out of its seven full financial years, according to Mr Mannion. In the period April 1992 - April 1993 capacity increased 54 per cent and six new routes were added.

All of its fleet of 13 Airbuses have been financed by commercial bank borrowings, including the first-ever Islamic lease - for one Airbus - arranged by Saudi Arabia's Al Rajhi Banking and Investment Corporation. To do this, Al Rajhi set up a special purpose company which owns the aircraft until the expiry of the lease, at which time Emirates has an option to buy the aircraft. Western commercial bank arrangements also allow for the banks to own the aircraft until the revenue is generated which pays off the loan plus the interest.

There is, says Mr Mannion, a pool of liquidity available in Islamic banks. The only hurdle has been regional investors' reluctance to commit liquidity for as long as 10-15 years instead of the five to seven years they prefer.

Al Rajhi is one of the institutions Emirates is approaching to finance the purchase of seven Boeing 777s which are on order and due for delivery starting in March 1996. The airline also has an option on a further seven 777s. Discussions have already started with Eximbank over airframe financing and with Britain's Export Credits Guarantee Department over a Dollars 400m contract which Emirates signed last July for 35 Rolls-Royce Trent engines.

After the heady expansion of its fleet and new routes since the beginning of last year, the airline could be looking for a period to build up its cash reserves in advance of the delivery of the 777s, and to continue to streamline some of its existing routes.

For example, Rome, a recent addition as a stop-over point to Zurich, is now a stand-alone destination, drawing both tourists and businessmen to Dubai. On existing routes, flights to Hong Kong and Singapore now leave daily, while the frequency to Manchester has been increased.

Emirates generates 40 per cent of total traffic movement through Dubai's international airport. Renovation and modernisation plans have been on the books since 1988 when Bechtel prepared the first studies. The Dubai government is considering, but has not yet decided, on the scale of the proposed redevelopment.

Emirates Airlines AE United Arab Emirates, Middle East P4512 Air Transportation, Scheduled CMMT Comment & Analysis P4512 The Financial Times London Page IV 1106
Survey of Dubai (9): Focus on 'quality' sectors - Tourism Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

BARELY 10 days after the departure of thousands of businessmen expected at Dubai's International Aerospace Exhibition next week, thousands of a different kind of visitor are scheduled to pour into Dubai from India, Pakistan, Saudi Arabia and other Gulf states to hear pop star Michael Jackson at a sell-out concert in a local soccer stadium.

Such is the magnetic pull of Dubai and its government-sponsored promotional organisations - notably the Dubai Commerce and Tourism Promotion Board, the Dubai National Air Travel Agency, and the travel management division of Emirates, Dubai's airline.

Attendances at both exhibition and concert are almost certain to be inflated thanks to the timely decision last month by the Dubai government to open the emirate for short visits to white-collar residents of all Gulf Co-operation Council countries regardless of nationality. Previously only citizens of GCC countries - Bahrain, Kuwait, Oman, Qatar, and Saudi Arabia - had been allowed into Dubai without a visit or transit visa provided by a Dubai-based sponsor.

Dubai's success in selling itself as a tourist and conference-exhibition centre is reflected in the aggregate figures for local hotel occupancies. These show the total number of visitors - business and tourist - increasing by 50 per cent between 1990 and 1992, despite the temporary but dramatic fall-off caused by the Gulf war.

The majority of these visitors are staying in deluxe or first-class hotels, but the biggest proportional increase in the same period - more than 250 per cent - have been visitors at the lower-income end of the market.

Dubai's Promotion Board now maintains offices in seven countries for North America, Europe, Hong Kong and Japan. An example of its success is that Dubai now features on the books of 38 German tour operators alone. The general manager of Frankfurt-based Airtours said in September there had been a steady increase in the German demand for holidays to the Emirates. But the reasons he gave - 'very high standards of quality, service, and security,' - apply to all the countries where Dubai has made a visible impact on both the summer and winter tourist markets. And because Dubai is a cosmopolitan city, language is not a problem for any visitor, regardless of nationality.

Russians and citizens of other former Soviet republics are a fairly recent addition to Dubai's tourist market. They descend by the planeload on Dubai and neighbouring emirates, not wearing uniforms, but selling them - along with medals, Russian dolls and other paraphernalia. Dubai's traders welcome them. They barter the Russian goods for television sets, radios and all kinds of consumer durables.

Those who have seen the Russians' departure say there is not a square inch of aircraft aisle or emergency exit which is not packed to the ceiling with man and metal for the home market.

Many of Dubai's existing five-star hotels are expanding. The luxury Jebel Ali hotel could be adding 100 rooms to its present 275; and the Hatta Fort hotel, an oasis in Dubai's desert and mountain hinterland, has doubled capacity and added a conference facility. J. P. Marriott opened a five-star hotel last September and a new Forte Grand opens next April. The luxury hotel construction spree is probably not over yet.

The chief executive of Dubai's Promotion Board, Mr Khalid Bin Sulayem, says his organisation's efforts are moving towards 'quality' tourism and incentive travel visitors. It was the Promotion Board which intitiated the new entry freedoms for GCC residents, an initiative which has already been endorsed by GCC regional chambers of commerce.

But the icing on the cake for Dubai's leisure market must surely be the three all-grass golf courses, and their related facilities. Emirates Golf Club, opened in 1988, is the home to the PGA Desert Classic. Dubai Creek Golf & Yacht Club, completed only last November, has a flood-lit three-hole course and driving range in addition to its 18-hole course. The newest of all, Dubai Golf & Racing Club at Nad Al Shiba on the desert outskirts of Dubai city, has a nine-hole flood-lit course next to the racetrack and paddock.

Dubai Racing Club, which owns and manages the race course will have its first full season this winter. It is internationally recognised, which means pedigrees of owners appear in catalogues everywhere and jockeys registered in Dubai can race anywhere.

Thoroughbreds trained in Dubai are now entering - and being placed - in races in Europe. And Dubai Racing Club's facilities for club members and sponsors, including hospitality boxes, make facilities at Europe's traditional race courses seem very inadequate by comparison.

AE United Arab Emirates, Middle East P7999 Amusement and Recreation, NEC P9611 Administration of General Economic Programs CMMT Comment & Analysis P7999 P9611 The Financial Times London Page IV 803
Survey of Morocco (4): Quiet revolution is under way in farming - Now the country must co-ordinate its agricultural reforms Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

TEN years ago, 57 per cent of Morocco's population lived and worked on the land. That percentage has declined to 50 per cent and is set to continue its downward trend.

However, fewer than half of all the jobs in Morocco are on the land, as between one fifth and one quarter of all farmers are seriously under-employed. Overall, this sector contributes nearly 20 per cent of gross domestic product, yet the average income of those who till the land amounts to half that obtained in the towns.

Imports of foodstuffs account for 12 per cent of Morocco's trade deficit which in 1990-92 averaged Dh3bn a year. Yet exports of farm produce average 17 per cent of total exports and are growing, though in erratic fashion because very contrasted climatic conditions (the country has suffered badly from drought since 1991) makes the sector's contribution to national wealth volatile.

Many difficult problems confront the Moroccan countryside. It remains under-equipped in many ways. Few small farmers have electricity, let alone running water, and little has been done to improve communications with outlying areas. The land remains extremely fragmented, with the average farms no more than 4.8 hectares, the average age of farmers is over 50 and between two-thirds and three-quarters of the population remains illiterate.

Yet despite these difficulties, a quiet revolution is under way. Much of the credit for these changes rest with Mr Othman Demnati, who left the government earlier this year after a decade during which his reputation was steadily enhanced, an unusual outcome for someone occupying a ministerial portfolio in Morocco for so long.

A private landowner himself and a man of common sense and determination, Mr Demnati set about changing a policy which, in the 25 years after independence in 1957 had seen fit to make the farming sector pay for the development of industry. Luckily, such a policy was not pursued, as in many other Arab or African countries, with the kind of ideological drive displayed in neighbouring Algeria.

Furthermore, the monarch had no intention of impoverishing the countryside, from which he still draws considerable support. Throughout his reign, King Hassan has insisted that investment in water was essential.

It is thanks to this policy that 10 per cent of all usable land is irrigated. Production from such land today accounts for 45 per cent of the added value of farm production and 90 per cent of the value of exports.

In 1984, after three years of very severe drought, King Hassan decreed that farming would be exempt from taxes until the year 2000. Though it discriminated between rich and poor farmers, the decree was more than justified because the old agricultural tax yielded less than it cost to levy. A 50 per cent devaluation of the dirham over 10 years has provided a strong boost.

The results are remarkable. The diversity of Moroccan production has grown. Potatoes, courgettes, winter melons, strawberries, artichokes grown from seed, peas, chilli peppers, mange-tout and cut flowers have been added to the traditional list of tomatoes and citrus.

Even more remarkably, half of all exports now go to markets outside the European Community, notably to Canada and Scandinavia. Within the EC, Moroccan exporters have targeted the UK and Germany, markets where they were hardly present a decade ago, successfully. They are now taking their produce directly into Portsmouth through Geest, a large UK shipping, distribution and packaging company and into Bremen in north Germany. They are selling to eastern Europe, in exchange for hard cash.

Where exports have not been diversified, difficulties remain. Sixty-five per cent of all tomatoes are exported to France, where they risk being destroyed by irate French farmers. Spain and France are in direct competition with Morocco but the EC has proved, overall, a good market for those producers in Morocco who innovate and upgrade quality - in other words, are really professional.

Around Agadir on the Atlantic coast of southern Morocco, the carefully cultivated plain which boasts 300 days of sunshine a year looks from the air like parts of California. The Soussi berbers are proof that some Moroccans are more than able to hold their own in the modern world.

Joint ventures with foreign partners, many of whom are actively relocating production, helps to explain this success. Near Agadir, one Swiss investor has built 400 greenhouses at a cost of between Dollars 40m and Dollars 50m since 1990. The Spanish seem to be everywhere, in Larache near Tangiers in the north and around Agadir.

British and French investors are present. In the vast irrigated Haouz project around Marrakesh, which boasts a computer-controlled water distribution system worthy of the best in the west. The Italians, the French and the Dutch are, growing roses on 120 hectares of land in joint ventures with Moroccans. Seventy per cent of the production is exported to Holland, Canada and the US.

Not only is production increasing and getting very diversified, but more added value is being put onto products in Morocco. French bulk importers of Moroccan potatoes are now happy to treat and repackage Moroccan potatoes in winter months because their profit margins are under pressure owing to the recession.

This winter Morocco will start treating and packaging some of its own potatoes before exporting them. Chilli peppers produced around Larache are being turned into paprika before being exported.

Other factors have contributed to this revolution. One is that by introducing Israeli seeds to Morocco a few years ago, the authorities have in effect broken what was a virtual Dutch monopoly. Israeli irrigation techniques, often trading under Spanish convenience names, are also openly pointed to in Marrakesh and around Agadir. In the Haouz project, farms of different sizes are integrated into the water distribution pattern, less well-off farmers working side by side with wealthier ones. Some can afford more sophisticated irrigation and fertilising methods than their neighbours, but the result appears to encourage change rather than envy.

On all these fronts, King Hassan's domaines royaux are said to offer models of what modern farming should be, but are virtually closed to outsiders. Observers agree that the economic reforms which the rescheduling of the country's debt forced on Morocco after 1983 have been the key to the current changes. Indeed, the abolition of the state export monopoly of fruit and vegetables and its replacement by private groups such as Atlas Fruit Board, which handles exports from the king's domains, have made all the difference.

Another debate is now opening up which centres on why Morocco should be self-sufficient in a number of foodstuffs such as sugar. Two-thirds of the sugar that Morocco consumes comes from the central Doukkala, Tadla and Gharb regions. But small local farmers are increasingly protesting against the local water boards that impose a pattern of water distribution, which is only of use to those who grow sugar beet. So great is their obduracy that some farmers have taken to sinking small wells and storing the water, thus escaping the tyranny of the water boards.

Sugar beet is very labour-intensive and thus its cultivation reduces unemployment. Against that rather political logic, a new logic is increasingly rearing its head, that is the logic of the market and a real appreciation of the costs of production. And water is a key here as Morocco must manage its water resources with greater care. Needs are huge, while resources are increasingly expensive to mobilise, but years of drought will force, every few years, some water resources to be used for cereals rather than fruit and vegetable crops.

Mr Demnati is believed to have left his post because he could not get the government to agree to co-ordinate the different aspects of rural development - bringing electricity, schools, roads and running water to what remains a physically and tribally very fragmented countryside. He appears, most notably, to have run into difficulties with the powerful ministry of the interior.

Here, as in other sectors, the challenge Morocco faces in the next few years is to co-ordinate reforms which to date have often been conducted sector by sector and avoid what a recent strategic study on 'Rural Development' from the Ministry of Agriculture describes as 'confrontation' between different ministries and economic interests. Such a change would hold the key to further rationalising and developing the farming wealth of Morocco.

MA Morocco, Africa P9641 Regulation of Agricultural Marketing P01 Agricultural Production-Crops P02 Agricultural Production-Livestock CMMT Comment & Analysis MKTS Foreign trade ECON Economic Indicators P9641 P01 P02 The Financial Times London Page III 1447
Survey of Morocco (5): How to tempt the tourist - Hotels are doing better, but the industry still has problems Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

TOURISTS ARE back in force and hotel managers are smiling again. The Iraqi invasion of Kuwait three years ago was catastrophic for the tourist sector, which remains Morocco's second largest hard currency earner, after remittances from Moroccan workers living in western Europe. Last year's net receipts from tourism, Dh11.7bn, were one third up on 1991 and this year is expected to be even better.

France remains the leading source of visitors with more than 2m, followed by Germany with 1.7m visitors, and then Spain and Italy. The recovery in tourist numbers, notably in Marrakesh, has been helped by the war in former Yugoslavia and attacks on tourists in Egypt and, more recently, Turkey. Casablanca has also seen a larger flow of visitors, both tourists and businessmen.

However, the gains may not be as great as they seem. Not only are European tourists spending little outside their hotels, but the price of many tours and hotel rooms for businessmen can easily be booked at discounts of 30 to 50 per cent.

In 1890, Lord Salisbury dismissed Morocco as an 'enormous amount of sand' which he was happy to let the 'Gallic cockerel' have. That remark is very unfair to the sheer beauty and variety of the lands ruled by the oldest monarchy in the Arab world.

For those who seek sun and sea, good beaches abound along the Mediterranean and Atlantic coasts. Around Agadir, one may enjoy 300 days of sunshine a year. For those with more cultural pursuits, the old imperial cities of Fez and Marrakesh offer the easiest exposure to the 'mysterious Orient'. For the rapidly growing adventure holiday sector, walking and skiing in the High Atlas mountains and motoring to the spectacular Saharan valleys around Erfoud and Zagora offer endless scope.

Morocco has been spared the vandalising of its coastline so characteristic of parts of Greece and Spain, yet its lack of visitors remains a puzzle. Why does the country do no better than Tunisia, its small eastern neighbour, whose scenery and traditions, however pleasant, are no match for its own? Why does Morocco attract less than a fifth of those who visit the Canary Islands? The two main reasons are not too hard to find.

First of all, foreign visitors are liable to harassment by flocks of teenage touts and 'guides' almost wherever they go. Secondly, there is often no obvious connection between the number of stars that a hotel boasts and the quality of service that the tourist should expect.

1. More discerning visitors are also disappointed by the absence of any serious policy to restore old buildings and cities and the lack of any cultural activities, except for the most jaded of folk dances, which are often a source of embarrassment rather than entertainment.

The authorities have often promised to crack down on unofficial guides and beggars and on unscrupulous taxi drivers, whose endless expectation of yet another tip helps to explain why, for so many European visitors, their first visit to Morocco is their last. Begging has begun to be discussed more openly in the media, notably on television. Nevertheless, in Marrakesh the situation is so bad that many Moroccan nationals refuse to visit the city.

Repression alone will not provide an answer as the intricate network of protection and corruption, built up over the years and taking in shopowners, young Moroccan guides and the local police, makes the problem a complex one to unscramble. Income disparities in Morocco remain great and the European visitor is inevitably cast as the rich man, particularly in towns such as Marrakesh and Fez, where one fifth of the population remains unemployed. In Marrakesh one half of the population is believed to derive its living, directly or indirectly, from tourism. The last two years of drought have compounded difficulties as more people than usual flock from the countryside to the cities, desperately seeking some means of earning a living.

Many Moroccans suspect that the aggressive attitudes shown to foreign visitors are not susceptible of an easy cure. Morocco is paying for its high income disparities and poor education system, which leaves two-thirds of the population illiterate. The comparison with Tunisia is instructive - there harassment is simply not a problem.

2. The second reason is equally complex. Morocco has always prided itself on being an upmarket destination. Yet despite the 'beautiful' people who travel to Marrakesh, most European visitors travel on package tours, like millions of others around the Mediterranean. Yet they are often billeted in four- or five-star hotels, which provide only what has been paid for, not that demanded by high-class establishments.

The authorities have tried to downgrade certain hotels, but nonetheless the visitor must be prepared for surprises. Some three-star hotels are excellent, but many five-star hotels are not worth the money.

It is damaging to the country's reputation among tourists when hotels such as the Hotel Palais Jamai, which dominates Fez and is meant for the seriously rich, provide indifferent service or when the Tour Hassan Hotel, the second best in the capital, Rabat, charges prices way above the service it offers. Its five-star de luxe status is viewed, in Rabat, as a bit of a joke.

The Tour Hassan is privately managed which shows that a privately-run hotel can be as badly run as a public sector one. In general, Morocco's hotels are burdened with a surfeit of stars; the older hotels suffer from lack of upkeep and many establishments have a gung-ho attitude towards their customers.

However, there are enough well-managed hotels to suggest that Moroccans are capable of maintaining high standards. The Royal Mansour in Casablanca, which is managed by Forte, and the Minzah in Tangiers, perhaps the most attractive hotel in Morocco, are two prime examples. Further down the scale, the Idou Anfa and Kandara hotels in Casablanca offer good service at a reasonable price.

More recently, a new chain called Moussafir started to open hotels that operated on a new formula. All are built at railway terminals and though boasting only three stars they are competitively priced, decorated in a simple style and provide good service. They enjoy a 75 per cent occupancy rate. Eleven more are due to open in the next few years.

The Moussafir chain is the brainchild of the largest private group in Morocco, ONA, which owns the hotels jointly with the Banque Commerciale du Maroc and the Moroccan state railway company ONCF. Unlike many hotels in Morocco, these hotels are staffed by professionally trained personnel.

ONA is also launching three large 'integrated' tourist projects in Cabo Negro, near Tetouan, in the north, Casablanca and Marrakesh. All will have golf courses and with luck will provide an example to others.

The difficulty of imposing modern standards of management in many hotels stems from the fact that many private entrepreneurs who have made money in one sector like to invest their savings in bricks and mortar. They often run their hotels themselves, and do not allow the professionally trained managers they appoint any real say in decisions. They do not see fit to reinvest profits in the business and thus standards deteriorate over time. Too many hotels are built for essentially speculative reasons.

Another, historical, reason explains this lack of progress. Until the Treaty of Fez established the French and Spanish protectorates in 1912, Morocco was as closed and unknown to foreigners as Tibet. The country had been an independent kingdom since the arrival of Moulay Idriss, a grandson of the prophet Muhammed in the 8th century AD. This independence had been fiercely guarded until the the beginning of this century.

Being cut off from the outside world did, however, offer the great advantage of preserving, far more than elsewhere in North Africa, old traditions. The other side of the coin is that until recently, Morocco has not been as successful at marketing itself abroad as it should have been.

Nor has the number of just over 84,000 beds increased: the figure is what it was six years ago. However, some Moroccan observers argue that the tourist industry's main task should be to raise its standards and to contain harassment.

That means more professional staff and a willingness on the part of the authorities to act rather than talk. Recent measures by Mr Hassan Abouyoub, minister of tourism, suggest he is fully aware of what is needed. If the problems which confront the sector are tackled with determination, the pickings, in terms of foreign income and new jobs - not to mention a kinder perception of Morocco abroad - will be rich indeed.

MA Morocco, Africa P7011 Hotels and Motels P7999 Amusement and Recreation, NEC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Economic Indicators P7011 P7999 P9311 The Financial Times London Page III 1489
Survey of Dubai (8): Alternative sources needed - Energy Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

ALL but 2 per cent of Dubai's energy requirements are met by gas. But for the government, with its strategy of creating a long-term self-sustaining economy based on the tripod of traditional imports and re-exports, tourism, and further development of Dubai as a regional services and light industries centre, there can never be enough energy. Nor is it satisfactory for Dubai to be dependent on only one or two sources of supply.

Some gas reaches Dubai's generators from the four off-shore oilfields which provide the bulk of Dubai's oil and gas revenues - Fateh, South West Fateh, Falah and Rashid. Output from the first two has averaged some 200,000 barrels a day and 190,000 b/d respectively. Output from the last two is some 10,000 b/d each. The concession holder is Dubai Petroleum Company (DPC) consisting of the US's Conoco, the operator, France's Total, the Spanish company Repsol, and two German companies: RWE, Germany's sixth-largest industrial group and its biggest electricity generator, and gas company Wintershall.

Conoco-DPC lifts and markets the crude; Dubai sets the price. It also markets four or five cargoes a month, each containing some 1/2 m barrels, so that when traded the government knows what price DPC should also be getting. Dubai treats crude oil as just another commodity, with the sole purpose being to maximise value. The approximate published price for mid-October was Dollars 15.23 a barrel. Dubai gets its revenue from taxes and royalties levied on DPC.

Since last April, a pilot scheme has operated to inject 100m cu ft a day of gas to enhance recovery. Signs are that the scheme is proving positive and that recoverable crude reserves are greater than originally foreseen. The reinjection scheme is due to run until 2038.

Associated gas is also piped to Dubai Natural Gas Company's processing plant at Jebel Ali. Most of the liquids - butane, propane, and condensate - are separated and shipped to Japanese buyers. Some of the liquid gas goes to Dubai's own products company, Emirates Petroleum Products Company, which operates its own petrol stations.

A Dollars 2bn refinery with a capacity of 250,000 b/d - almost all of which would be for export - at Jebel Ali is still being considered. Potential markets are in India, east Asia and the east coast of Africa. Such a refinery would also enable Dubai to be self-sufficient in petroleum products - or at least less dependent on Abu Dhabi - even allowing for the anticipated surge in demand. Some of the dry gas - about 130m cu ft a day - is used by Dugas itself; some goes to power generators at Dubai's aluminium smelter and to Dubai city.

The onshore gas and condensate field operated at Margham by Atlantic Richfield produces some 35,000 b/d of condensate and can produce 400m cu ft a day of gas. This is all reinjected to maintain reservoir pressure except when, in high summer, Dubai itself needs extra gas supplies for generators. In this case up to 150m cu ft a day is available.

Most of Dubai's energy requirements are met by the neighbouring emirate of Sharjah where the Sajaa gas and condensate field is operated by Amoco. Under an agreement signed in May 1985, Dubai receives 140m-250m cu ft a day depending on seasonal demand in Dubai. For this it is thought to have paid something less than Dollars 1.25 per million cubic feet. Amoco has recently found more gas and condensate. Other, smaller, gas supplies reach Dubai from Sharjah's offshore Mubarak field.

Dubai's energy needs last summer averaged 315m cu ft a day, with the annual average being about 230m cu ft a day. But energy demand is rising almost 20 per cent a year and one estimate puts Dubai's summer consumption in the next few years at 500m cu ft a day if present growth rates are maintained.

For the time being, this demand can be met from existing sources, but the narrow spread of suppliers is causing concern. Added to which, gas from Sajaa and Margham may not last more than 10-15 years.

Dubai has to find other sources of energy. Sporadic talks have been held for some time with Abu Dhabi, Qatar and Iran, but no agreements have yet been reached.

Dubai Petroleum Co AE United Arab Emirates, Middle East P1311 Crude Petroleum and Natural Gas P4923 Gas Transmission and Distribution CMMT Comment & Analysis P1311 P4923 The Financial Times London Page III 757
Survey of Dubai (7): New curbs concern foreign banks - Banking Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

IT took just one well-intentioned directive from the UAE central bank to change the complexion of future business opportunities for Dubai's foreign banking community.

Until October 16, there seemed no reason why loan assets, deposits and profits should not have increased over the next 15 months more or less as they had since the beginning of last year - for foreign banks as well as for the five locally-incorporated banks which originate and do most of their business in Dubai.

But the five local banks - in common with the stronger local banks throughout the Emirates - are not affected by the central bank directive in anything like the same degree as their foreign counterparts.

The bombshell for foreign banks came with the announcement of new rules setting a limit on loans to single borrowers or group of related borrowers at 7 per cent of a bank's capital base. A key clause of the central bank's directive identified a bank's capital base as the same as that used for capital adequacy purposes based on the 1988 ruling of the Basel committee of the Bank for International Settlements. This stipulated that banks worldwide had to have an adequacy of 8 per cent capital relative to risk assets, to ensure they had enough capital to cope with a crisis.

The calculation of total advances to customers is graded according to the type of advance - a straightforward loan counts as a 100 per cent advance while a letter of credit counts for less. The UAE and other Gulf states except Saudi Arabia were listed as high risk country borrowers. And even though the UAE is claiming average capital adequacy among its banks of 10 per cent - 2 per cent higher than that required by the Basel Committee - it is not, yet, accepted by the Basel committee on a par with Saudi Arabia or Organisation for Economic Co-operation and Development countries.

The latest UAE central bank restrictions follows a long list of regulations issued since 1985 when UAE banks paid the price for some poor-quality loan assets, and were either forcibly merged by emirate government decree or bailed out with an injection of fresh capital.

In Dubai - as in Abu Dhabi - the combination of forced mergers and new capital enabled new management, with support from the emirate government, to start clawing back bad debts. Mr Sultan Al-Suweidi, the UAE central bank governor, probably has more experience of this kind of exercise than all the other UAE bank managing directors. Starting in 1982 with Abu Dhabi Investment Company, Mr Al-Suweidi went on to manage the Bahrain-based Gulf International Bank which had burned its fingers in Saudi Arabia; and finally to Abu Dhabi Commercial Bank which inherited the problems left over from the three banks from which it was created. Even without the BCCI fiasco, it would be understandable, as foreign bankers in Dubai are the first to acknowledge, if Mr Al-Suweidi has a bee in his bonnet about the quality of loan assets.

Ironically for Dubai, a city-state which prides itself on its laissez-faire approach, there now remains only one commercial bank out of five Dubai-registered banks which has no government shareholding. This is the Bank of Oman (renamed MashreqBank on October 1 for reasons of internal strategy.

All the others - the National Bank of Dubai, Emirates Bank International (EBI), Middle East Bank (MEB), and Commercial Bank of Dubai - are either owned outright by the government or majority-owned by it. EBI is 80 per cent government-owned, and EBI in turn owns 98 per cent of Middle East Bank.

None of these banks will have any serious problem with the central bank circular. Mr Abdulaziz Al Ghurair, MashreqBank's chief executive officer, pointed out his bank's capital adequacy was 17 per cent. After two years of planned restructuring leading up to the change in name, its 1992 return on assets was 2.1 per cent and 21 per cent on shareholders funds. Its liquidity ratio was also high at 41 per cent. Profits last year exceeded Dh200m, up more than 40 per cent from 1991. Eighty per cent of these derived from its home base, Dubai; the balance from its branches overseas in New York, London, Hong Kong and four other countries.

EBI is itself the result of government intervention in three former local banks which were bailed out between 1983 and 1985. The bank, applying lessons learned from the past, has its own internal credit restrictions which, according to Mr Anis Al Jallaf, managing director and chief executive officer, confine lending to below central bank limits. However, with shareholders' funds of Dh1.17bn, the 7 per cent limit would still amount to Dh80m.

Mr Al Jallaf is somewhat sympathetic to the position foreign banks now find themselves in. He says: 'UAE national banks abroad can lend according to the capital base of their group and work according to a country limit.' He and others interpret the central bank's directive as a warning shot across the bows of smaller, less viable banks to find more capital and merge.

The dilemma for foreign banks is all the more acute in that much of their sizeable exposure is to contractors and traders dealing on a large scale. They require cash facilities, guarantees and letters of credit which can amount to one third or more of the value of a contract. If the credit limitation is not modified, they would have to go to a syndicate of banks rather than to one alone - much more expensive and time-consuming.

One foreign banker's reaction to the central bank circular was blunt: 'If the central bank wants to get rid of foreign banks, it is going about it the right way.' Business prospects are favourable enough, however, and foreign banks are likely to stay even if between now and January 1, when the directive starts coming into force, they do everything they can to get the central bank to amend its directive.

Most of the 13 larger foreign banks have branches or are based in Dubai. Their combined balance sheets for 1992 showed net profits soaring by some 32 per cent over 1991 to almost Dh300m. Loans and deposits were up 11.5 per cent and 12 per cent respectively.

British Bank of the Middle East reported profits up 17 per cent compared with 1991; Standard Chartered up 26 per cent; Citibank almost double the profits of the previous year. Official figures show that loans by foreign banks accounted for more than half their assets; those by local banks at 40 per cent.

If the central bank would accept that foreign banks could use their head office or parent's global capital base as a yardstick, that, said one foreign banker, would solve their immediate problem. Another possible solution is for the bank's head office to increase capital funds allocated to the UAE central bank as an interest-free deposit. If neither of these two is acceptable to the central bank then one banker suggested larger loans would go onto the books of off-shore banks, away from UAE rules.

The deadline for reporting large exposure is March 31 next year, but extensions can be granted until the end of 1995. If the UAE economy in general, and Dubai's in particular, remain buoyant, it is more than likely that foreign banks will stay for a slice of the business.

AE United Arab Emirates, Middle East P9311 Finance, Taxation, and Monetary Policy P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis TECH Safety & Standards P9311 P6081 The Financial Times London Page III 1282
Survey of Morocco (3): Investors may be attracted as target looks set to be beaten - The country's privatisation programme Publication 931103FT Processed by FT 931103 By FRANCIS GHILES

FOR MANY international banks and investment funds, the acquisition by a French subsidiary of the Swiss Holderbank group of a 51 per cent stake in the CIOR state cement company last July marked a watershed in Morocco's ambitious privatisation programme.

Privatisation this year has so far brought USDollars 250m worth of foreign investment into the country. By the end of the year, the authorities are confident that they will have overshot their initial target by 40 per cent.

Last year, external financing in the form of direct investment covered the whole of the Dollars 500m current account deficit, whereas foreign investment financed only 50 per cent and 23 per cent of the deficit respectively in 1992 and 1991.

The privatisation programme is on target and, if successfully pursued - 112 companies worth an estimated Dollars 2bn are expected to be privatised by the end of 1995 - will play a key role in furthering the liberalisation of the Moroccan economy, modernising the country's industrial sector and strengthening the country's balance of trade. Its success so far is a tribute to Mr Moulay Zine Zahidi, the minister of industry, and Mr Hassan Amrani, his very energetic director of privatisation. The full backing of King Hassan, an essential precondition for any successful venture in Morocco, is assured.

Citibank, which recently signed the first international commercial loan in 10 years for a Moroccan company - USDollars 30m for the private ONA Group - pointed out in a recent analysis of the Moroccan economy that it felt 'comfortable with the country's low level of commercial debt (19 per cent of total external debt), relatively high level of foreign reserves and the Moroccan administration's stated goals to pursue market orientated policies and to re-establish normal relationships with external creditors.' The loan for ONA comes 10 years after Morocco was forced to reschedule its foreign debt.

A price tag of Dh1.2bn was put on CIOR whose sale dwarfed the privatisation of CTM, an international bus company which was valued at Dh320m and successfully privatised last June. Ten per cent of the shares were sold to the regional authorities in Oujda and Fez in north-eastern Morocco where the company's two plants are located. A further 30,000 shares were earmarked for employees. Some 40 per cent of CTM shares were issued on the stock exchange last June and the offer was oversubscribed.

The shares are currently trading at a 34 per cent premium to issue price. The most interesting feature of that sale was the keen interest shown by Moroccans living abroad who picked up one-third of the shares on offer. This interest underlines the importance of the Dollars 2bn that Moroccan immigrants remit home every year and which could prove a significant source of capital for the privatisation programme.

The bourse has, since its creation by the former French colonial ruler, played a very limited role in the economic life of the country. Apart from an odd flurry of activity in French times, the bourse has been effectively moribund by international standards for all its 65 years.

Moroccan savers traditionally invest in real estate or put their money on deposit. Businessmen go to their banks or tap private sources of finance, usually within the extended network of family companies and banks. Recently, treasury bills with a yield of 13 per cent tax free have been a magnet for individual investment.

The lethargy of the bourse today does not, however, reflect a lack of demand but rather a combination of chronic shortage of supply, high cost of transaction and inadequate disclosure of company accounts. The privatisation process is thus expected to provide an impetus to the bourse and an opening to foreign institutional investors, for two reasons. One is that it will result in a large increase in liquidity. The second is that the Moroccan government has learnt from other countries' experience and knows that selling off a string of companies to multinational corporations may be the easy way out but it is a method which is both short-sighted and fraught with political risks.

To ensure a privatisation programme is acceptable politically, shares in major companies must be widely distributed and a diversified body of domestic shareholders created. As a report by Blakeney Management, the investment adviser, notes: 'Neither of these goals can be achieved without an efficient and liquid bourse as a medium of exchange.'

Today, there are still only 69 stocks listed on the bourse. Many of these never trade. Many stocks go for weeks without trading and the last price may not reflect current market conditions. Twenty institutional investors, essentially banks and insurance companies constitute a comfortable and rather cosy club.

Three factors however are conspiring to bring changes. First of all the law passed last July on capital markets and mutual funds which will reduce transaction costs and encourage greater demand as the wealthier middle class bank depositors switch some of their funds. The second is the new-found interest in acquiring some Moroccan shares shown by institutional investors such as the US money management fund Templeton. Salomon Brothers and the ONA Group are setting up a Dollars 200m private equity fund. Barings has recently underwriting 400,000 ONA shares for its institutional clients.

Privatisation is encouraging the emergence of investment funds such as Casablanca Finance, which is backed Banque Commerciale du Maroc. The country's leading private bank, its aim is to develop corporate and investment banking. Maroc Privatisation is backed by the Mutuelles du Mans insurance group and the Societe Marseillaise de Credit. Two much larger funds are the Dollars 24m Interfina fund, jointly owned by three Moroccan banks, the International Finance Corporation Spain's Banco Exterior, Credit Lyonnais Investissement and Proparco, the French equivalent of IFC. IFC, together with Siparex, a Lyon based venture capital group and the Moroccan commercial Wafa Bank, is in the process of setting up a Dollars 40m venture capital fund to help bring equity capital to medium-sized Moroccan companies.

Other interesting developments include the setting up by three young Moroccans of the Upline group, which aims to provide foreigners interested in Morocco with risk assessment studies and investment advisory services. L'Economiste, the first reliable economic and financial weekly, was launched two years ago, edited by the much respected Nadia Salah.

Owned by a small group of private investors, it sells 17,000 to 20,000 copies every week. Its senior editorial and management staff hold 44 per cent of the capital and its publication marks a break with the traditional type of Moroccan newspaper, which is highly politicised and usually sensational in style in a country where the hand of the censor remains heavy.

A further development should help boost Casablanca as a city of international trade and finance. The ONA Group is soon to start building a world trade centre whose facilities, it is hoped, will bring many Moroccan companies into closer touch with what is going on abroad. The two towers, whose architects are Ricardo Bofill and Elie Mouyal, should help embellish the sky line of a city which over the years has grown in rather disorderly fashion.

For the privatisation process to run smoothly and the opening of the Moroccan economy to be confirmed, one factor is still missing: transparency in business. As a recent World Bank summary on 'Developing Private Industry in Morocco' underlines, a weak judicial process which is slow, opaque and unpredictable in enforcing rules and resolving disputes is, in the view of foreign companies 'an important obstacle to investment.'

------------------------------------------------------------------------ PRIVATISATION ------------------------------------------------------------------------ Company name Sector Status Type ------------------------------------------------------------------------ Societe des derives du sucre sugar & yeast done sealed tender bid prod Compagnie marocaine de gestion des exploitations agricoles agriculture done lease Societe Chellah confections textiles done private placement Compagnie de Transports du Maroc transportation done public offering* Hotel Tarik Tangier tourism done sealed tender bid Hotel les Amandiers tourism done sealed tender bid Cimenterie de l'Oriental cement manuf done public offering* Societe petroles du Maghreb gas distribution done sealed tender bid Hotel Basma Casablanca tourism done sealed tender bid Societe nationale d'electrolyse et de petrochimie petrochemicals done sealed tender bid Compagnie Marocaine des Hydrocarbures gas distribution ongoing sealed tender bid Hotel Toubkai, Marrakesh tourism ongoing sealed tender bid Hotel Volubilis, Fez tourism ongoing sealed tender bid Hotel des iles, Essaouira tourism ongoing sealed tender bid Sococharbo coal distribution ongoing sealed tender bid Sofac Credit credit & leasing ongoing public offering*

------------------------------------------------------------------------ Company name Amount Buyer ------------------------------------------------------------------------ Societe des derives du sucre Dh18.49m Lesaffre Compagnie marocaine de gestion des exploitations Dh20m a year several farmers Societe Chellah confections Dh10m Courtaulds Compagnie de Transports du Maroc Dh110.57 Moroccan companies** Hotel Tarik Tangier Dh15.5m Union Moroccan Hotels Hotel les Amandiers Dh5m Floride Cimenterie de l'Oriental Dh612m Holderbank Societe petroles du Maghreb Dh122.4m Bouaida Gp Hotel Basma Casablanca Dh50m Moroccan-Libyan consortium Societe nationale d'electrolyse et de petrochimie Dh364m Group Chaabi Compagnie Marocaine des Hydrocarbures Dh100m Hotel Toubkai, Marrakesh Dh35m Hotel Volubilis, Fez Dh30m Hotel des iles, Essaouira Dh20m Sococharbo Dh46.81m Sofac Credit Dh87.5m ------------------------------------------------------------------------ * Also sealed tender bid. ** Banque Centrale Populaire, Interfina, Bank al Amal, Al Amane, Asma invest., CIMR. ------------------------------------------------------------------------ Source: Upline Research, Casablanca ------------------------------------------------------------------------

MA Morocco, Africa P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis GOVT Government News P9611 P9311 The Financial Times London Page II 1577
Survey of Morocco (2): Debt is under control but change is still needed - Economic problems and achievements Publication 931103FT Processed by FT 931103 By SCHEHERAZADE DANESHKHU

IN THE expanding high rise buildings of Casablanca, Morocco's industrial and banking base, the whiff of dynamism and of an economy at work is strong. And it is in Rabat, the seat of the king, his ministers and of decision- making, that the quiet hum of satisfaction at the country's recent economic successes can be discerned.

Morocco, which at one stage looked as if it would go the way of Latin America, appears to have escaped the fate of countries that are saddled by increasing debt and uncontrollable inflation. Instead, it presents an impressive macro-economic record. It still faces an enormous challenge, however, in trying to improve the country's social development record.

The origin of Morocco's debt problem is to be found in the severe bout of overspending in the 1970s when, after the rise in the price of oil by the oil-producing countries, the price of phosphates, Morocco's largest mineral export, also increased. It went on a spending spree and invested heavily in the development of the phosphate industry - three-quarters of the world's phosphate reserves are in Morocco - but by the early 1980s the collapse of world prices for phosphates, the cost of importing oil and a drought conspired to make it turn to the IMF for help.

Morocco has followed a regime of structural reform since 1984 which has been so well implemented by Mr Mohammed Berrada, the finance minister, that the country has been held up by international institutions as a role model for countries in chronic economic difficulties.

The government's budget deficit has been steadily reduced from around 12 per cent of gross domestic product in the early 1980s to under 2 per cent in 1992. The current account deficit in the balance of payments has also been brought down from 10 per cent to less than 2 per cent over the same period.

This, combined with steady export-led growth, has allowed Morocco to control its total external debt of just over Dollars 21bn. The ratio of debt outstanding and disbursed to GDP dropped from 113 per cent during 1984-87 to 73 per cent in 1992. The ratio of paid debt service to exports declined from 31 to 28 per cent over the same period.

Debt-service repayments with the Paris Club creditors, which account for about half the debt, have been rescheduled several times in the 1980s and what is billed as the last rescheduling took place in February 1992. Some Dollars 2.7bn owing to Saudi Arabia was written off by Riyadh in thanks for Morocco's support of the coalition forces in the war against Iraq.

Morocco hopes that another politically correct tactic will also prove profitable. Rabat was the stopover for a press conference by Mr Yitzhak Rabin, the Israeli prime minister, and Mr Shimon Peres, his foreign minister, who lauded the warm welcome extended to them by King Hassan. Morocco is hoping that the move will help attract foreign investment to the country. Last year it increased to Dollars 514m from Dollars 330m the year before.

The result of macro-economic discipline has been to save Moroccans from the ravages of inflation. The inflation rate averaged 5 per cent last year, compared to 8.2 per cent in 1991. The dirham has also held its value, allowing the government to introduce dirham convertibility for international transactions in January with full convertibility as the goal.

Despite the years of austerity and the cuts in government spending, the economy has managed to grow, albeit erratically, due to its dependence on the agricultural sector, which is in turn victim to the vicissitudes of rainfall. Gross domestic product averaged 4.5 per cent over the period 1985-1991 but the economy contracted by 3 per cent last year due to a drought which is now in its second year. The current slump has also been exacerbated by recession in Morocco's main export markets, notably France, which takes some 30 per cent of Moroccan exports.

The trade deficit therefore worsened in 1992 to Dollars 2.4bn from Dollars 2.1bn in 1991, although higher tourism receipts as the sector recovered from the slump caused by the Gulf War which, along with greater remittances from Moroccans working abroad, is the country's main source of foreign exchange earnings, narrowed the current account deficit to just over Dollars 500m in 1992 from Dollars 650m in 1991.

The government is now trying to accelerate a process of liberalisation and privatisation to attract foreign investment. In an open letter in July, King Hassan asked Mr Muhammad Karim Lamrani, the prime minister, to speed up the implementation of the structural and administrative reforms to create a favourable environment for productive investment but also to take measures which will allow investors, in the short term, to cope with the vagaries of the economic environment.

However, the success of the structural adjustment programme can mask the very real economic problems facing the majority of the population. A recent World Bank report highlighted lagging performance in social indicators and labour absorption: despite recent progress in reducing poverty, such indicators as child mortality, nutritional status for the lowest income groups, access to safe water, and literacy and primacy school enrolment rates, especially among women, remain well below averages for countries with similar per capita incomes.

There has been some improvement since the mid-1980s but many Moroccans feel that the government reacts only when it has no choice. One such time was in 1990, when violent protests against poverty and unemployment prompted an increase in social spending by the government. The population of 25m is young, with over 75 per cent below the age of 25 years. Unemployment, even for university graduates, is a real problem and the most recent estimates, for 1991, put unemployment at 20 per cent in urban areas, compared to 12 per cent 10 years earlier.

Comparisons with neighbouring Tunisia are not flattering. While GNP per capita in Morocco is Dollars 1,030, it is Dollars 1,523 in Tunisia. About one in seven Moroccans lives below the poverty line (an improvement on one in five in 1985) compared with one in 15 in Tunisia. The infant mortality rate is 65 per 1,000 births compared to 43 per 1,000 in Tunisia and life expectancy is 62 years against 70 years for a Tunisian.

About 45 per cent of the population in Morocco lives in the countryside and the rural-urban gap is enormous. Primary school enrolment rates are 73 per cent for boys and 54 per cent for girls, but as low as 35 per cent for girls living in the countryside. Only 23 per cent of the rural population is literate compared with 63 per cent in urban areas. The government is now preparing a strategy to improve living conditions for the poor and has come under pressure from the World Bank to do so, since the second tranche of the Structural Adjustment Loan is dependent on the materialisation of the report.

Some government members are unhappy about the pressure being exerted upon them. 'Social development has become fashionable,' said one minister. 'But how are we to control the economy and spend money on the social side? We need to invest in social development but you can only do that if you have money and for that you need growth.'

The government also faces criticism and resentment from its seemingly prosperous business class. 'I'm appalled at all the stories about how Morocco's economy is perfect when we all know there are so many problems,' says one Moroccan industrialist unhappy at the country's weak industrial structure. 'Why do you think foreign investors do not come to Morocco? It is because the business climate is so bad.'

Businesses are suffering from a severe shortage of office space due to property speculation which has left rents beyond the reach of all but the very wealthy. As a result, buildings stand empty while accommodation is acutely needed.

While good laws exist, some people complain that the judiciary cannot be relied on to implement them and that it is up to the country's political leaders to set an example.

Morocco will need change from the top if it is to capitalise on its impressive record of structural adjustment and rely on the development of its own productive resources to ease poverty and encourage an efficient economy.

------------------------------------------------------------------------ FOREIGN INVESTMENT: PRINCIPAL COUNTRIES (DOLLARS M) ------------------------------------------------------------------------ 1988 1989 1990 1991 1992 ------------------------------------------------------------------------ France 37.1 53.5 69.9 111.8 118.6 Spain 4.9 13.7 18.8 28.1 95.0 US 3.8 10.3 5.8 10.6 34.4 Switzerland 5.1 12.5 11.9 37.4 32.3 Saudi Arabia 13.8 37.9 20.8 29.5 26.4 Others 64.3 98.1 99.8 157.6 197.3 Total 129.0 226.0 227.0 375.0 504.0 ------------------------------------------------------------------------ Source: Ministry of Finance Rabat ------------------------------------------------------------------------

------------------------------------------------------------------------ KEY ECONOMIC INDICATORS ------------------------------------------------------------------------ 1989 1990 1991 1992 1993* ------------------------------------------------------------------------ Real rate of GDP growth (%) 2.5 3.7 5.1 -2.9 3.0 Exports (Dollars bn) 3.3 4.2 4.3 4.0 3.5 Imports (Dollars bn) 5.5 6.9 6.9 7.4 6.5 Trade deficit/GDP (%) -9.4 -10.4 -9.3 -11.7 -10.9 Current account deficit (Dollars bn) -1.0 -0.7 -0.6 -0.5 -0.5 as a percentage of GDP -4.4 -2.8 -2.2 -1.9 -1.7 Foreign investment (Dollars m) 226.0 227.0 375.0 504.0 462.0 Outstanding foreign debt (Dollars bn) 20.8 20.6 21.1 21.3 21.6 Debt service (Dollars bn) 3.6 3.9 3.3 3.2 2.9 as a percentage of current income 53.6 44.7 38.5 34.8 34.3 of which interest charges (Dollars bn) 1.4 1.5 1.4 1.3 1.3 as a percentage of GDP 6.0 5.8 5.1 4.7 4.5 ------------------------------------------------------------------------ * Forecast. ------------------------------------------------------------------------ Source: Ministry of Finance, Rabat. ------------------------------------------------------------------------

MA Morocco, Africa P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product ECON Gross national product CMMT Comment & Analysis ECON Balance of trade P9311 The Financial Times London Page II 1637
Survey of Dubai (3): Quality producers - Heavy industry Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

DUBAI'S manufacturing industries have developed on the back of the finest sea and air communications in the Middle East. Dubai Aluminium (Dubal) and industries located in the Jebel Ali Free Zone depend on the ports. These are Dubai's lifeline. The tanker traffic and the commercial shipping in turn create the business for Dubai Drydocks.

Manufacturing industries located in Dubai represent only about 25 per cent of the country's non-oil manufacturing base, but what is lacking in quantity is to a large extent made up in quality. Dubal; Dubai Cable Company, a 60-40 joint venture between the government and the BICC group of the UK which operates and manages the company; and Dubai Drydocks are all industry leaders.

In little more than two decades Dubai has become one of the top 15 shipping centres in the world container port traffic league and the redistribution hub of the Middle East.

In May 1991, the two ports of Mina Rashid and Jebel Ali, 35 kilometres south of Dubai city, were merged to create Dubai Ports Authority (DPA), headed by Mr Sultan Bin Sulayem who is also chairman of the Jebel Ali Free Zone Authority (Jafza). By the end of that year, container traffic had increased 37 per cent to top 1m TEUs (twenty foot equivalent units), for the first time. Last year, container traffic had increased by a further 48 per cent, and this year throughput is likely to reach 1.6m TEUs.

Last year, DPA invested Dollars 100m to expand Jebel Ali's container terminal and buy six new container cranes, and a further two are on order for both Jebel Ali and Mina Rashid. The two ports together have 102 deepwater berths.

The cargo village at Dubai's international airport completed its first full year of operations in July 1992 and, working in tandem with DPA, handled more than 12m kilos of sea-air cargo. DPA claims that a Japanese manufacturer using sea-air via DPA to reach Germany can save one third off all-sea transport and more than 40 per cent off all-air costs.

Dubai Aluminium's production last year exceeded capacity for the first time since completion of the smelter development programme in January 1991. Hot metal production reached 244,605 tonnes, an increase of 5,575 tonnes on 1991 production. The aluminium industry as a whole suffered from the effects of the recession in Organisation for Economic Co-operation and Development countries. Despite the tight market, Dubal sold more than 250,000 tonnes of finished metal to 21 countries, with Japan continuing to account for the largest percentage of sales.

Dubal is now applying for accreditation to the International Standards Organisation under ISO 9002 for coverage of the entire smelter operation, in readiness for exporting to the EC.

Last July, Dubai Cable Company became the first cable factory in the Middle East to be awarded the ISO 9002 standard, widely used throughout the US, Europe and Japan to ensure manufactured products meet specific high quality standards. The European Community is planning to ensure that all cable imports into Europe meet these standards.

The company says it achieved record sales in 1992 with a 12 per cent increase over 1991. It successfully broke into the Asian market with a Pounds 10m contract from Singapore's Public Utilities Board and last August won another supply contract for low voltage cables from Hong Kong's China Light & Power Company. Mr Neil Chesworth, general manager for sales and marketing, says products can be made in Dubai which are as good as anywhere. The ingredients for success in Ducab's case are a growing market such as the Middle East, a joint venture partner such as the Dubai government which leaves BICC to run the company, and BICC's know-how.

The same 'hands-off' policy adopted by the government has also been a winning formula in the case of Dubai Drydocks, the Dollars 400m ship repair complex opened in 1979. It has three graving docks of 350,000dwt, 500,000dwt, and 1,000,000dwt, and for years was regarded as a white elephant because by the time it opened the tanker market involving very large vessels was undergoing one of its very depressed periods. In the 10 years it has been operating, however, it has made a profit every year, according to Mr Ernie Ware, chief executive.

During the Iran-Iraq war, a lot of vessels with minor damage were repaired in Dubai, and once the war was over in August 1988, Dubai Drydocks began seriously the job of building up industries related to the drydocks themselves. It has attracted several contractors into the industrial estate adjacent to the shipyard.

The number of vessels repaired between March 1992 and February 1993 was 103 with a tonnage of more than 20m. Since the beginning of March this year, 103 vessels have been in for repair with a total tonnage of nearly 16m.

Jebel Ali Free Zone has witnessed the same kind of success. The concept and the scale of Dubai's ambition when the Free Zone Authority was established in February 1985 was greeted with the same kind of scepticism as Dubai Drydocks. But despite the Iran-Iraq war and the 1991 Gulf war - and fears for the region's stability which curbed investor interest - Jebel Ali Free Zone is now benefiting from the scale of the original concept.

It offers a long list of very attractive inducements to potential investors, including a lack of red tape which is a businessman's dream compared with the red tape in most neighbouring countries, and it has been vigorous in promoting itself. By mid-October there were more then 560 companies with licences to operate in the Free Zone. They came from 58 countries and represented an investment of more than Dollars 1bn. Sultan Bin Sulayem, Jafza chairman, said 'mega-companies' had been showing considerable interest in applying for special offshore licences.

He says European companies are beginning to see the wisdom of manufacturing products for sale in Europe, in Dubai rather than in Asia.

There are still obstacles to attracting the kind of manufacturing companies the Free Zone wants. The first has been the conspicuous reluctance of neighbouring countries which are prime re-export targets, particularly Saudi Arabia, to accept that goods made in the free zone with a minimum 40 per cent value-added content by a company owned at least 51 per cent by a GCC national should pass as a locally-produced item, and therefore be liable to a similar low rate of import duty as that payable by any other GCC onshore industry. According to Mr Bin Sulayem, however, the problem is being resolved.

But the bureaucratic hurdles have been formidable. First, the company concerned has to get a certificate of origin from the UAE Finance and Industry Ministry. Next, the paperwork has to pass through not only the Dubai chamber of commerce - a relatively very straightforward process - but also the GCC secretariat in Riyadh and then it must be approved by the Saudi customs.

Meanwhile, because Dubai sticks to its belief in a free market and refuses to protect its industries, the manufacturer has to compete with manufactured goods from neighbouring countries, including Saudi Arabia, which benefit from high domestic tariffs, cost more to produce but still sell at a profit in their own domestic markets, which enable their owners to dump them in the UAE. The cost disadvantages, frustrations and delays have deterred many a would-be investor.

The other cloud on the horizon is the nagging possibility that Dubai in general could not support a major industrial investment because it could not satisfy long-term power needs. Talks are reported to have taken place, however, with the neighbouring emirate of Sharjah, with Abu Dhabi, Qatar, and Iran.

AE United Arab Emirates, Middle East P3999 Manufacturing Industries, NEC P4491 Marine Cargo Handling P3731 Ship Building and Repairing P3334 Primary Aluminum P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Industrial production P3999 P4491 P3731 P3334 P9311 The Financial Times London Page II 1336
Survey of Dubai (6): Top-ranking regional event - International Aerospace Exhibition Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

AS many as 450 companies from 33 countries will be taking part in the second International Aerospace Exhibition in Dubai on November 7-11. The degree of interest shown by supplier countries and aviation companies has confirmed the hopes of its organisers, the UK's Fairs & Exhibitions, that 'Dubai '93' - held every two years - ranks, in the Middle East, on a par with Farnborough and Paris for Organisation for Economic Co-operation and Development countries.

The Financial Times is organising a conference, also in Dubai, on 'World Commercial Aviation' on November 8-10. Speakers include senior executives from aviation companies, government organisations and commercial banks.

Some 75 civil and military aircraft which will be on display and will take up the bulk of the one kilometre-long exhibition grounds at Dubai's international airport. Equal numbers of civil and military suppliers are expected and the exhibition is intended to reflect a trend for manufacturers to display future aerospace technology rather than just existing products.

But the immediate interest lies in potential orders for high-technology defence equipment from Saudi Arabia and the Gulf states. Saudi Arabia, Kuwait and Abu Dhabi are expected to spend more than Dollars 30bn over the next seven years, in addition to existing orders, on advanced fighters, helicopters and air defence systems.

A Kuwait Defence Ministry spokesman said on October 5 that the government was still evaluating different options for helicopters, following reports that Kuwait had followed Saudi Arabia and Abu Dhabi in having placed firm orders for the McDonnell Douglas Apache attack helicopters.

Offset agreements, by which the supplier or the supplier government agrees to invest 30 per cent or more of the contract value in the client country, are now a standard part of large defence contracts.

Two factors have caused competition to intensify between traditional western suppliers and companies from the former Soviet bloc countries. The first is the expected decline in defence requirements from Israel and the Arab front-line countries following the signing of the PLO-Israel accord in September. The second is that Saudi Arabia and the Gulf states, whatever the size of their budget deficits, are perceived to be the last remaining countries with significant amounts of cash to spare and obvious high-technology defence needs to compensate for their small populations and defence establishments. Since the end of the 1990-91 Gulf war which exposed their defence weaknesses, they have all embarked on expensive defence procurement programmes.

The UAE in particular is concerned about the recent Iranian occupation of the UAE Gulf islands of Abu Musa and the Tumbs near the Gulf entrance to the Strait of Hormuz. The Gulf states and the western countries with which they have defence agreements have also commented on the Iranian acquisition of two former Soviet diesel submarines at a cost of some Dollars 400m and at a time when Iran is conspicuously strapped for cash.

Iran is reported to have an option on a third submarine. It is also reported to have plans to assemble North Korean-made medium-range Scud missiles. The Iranian government has denied recent Saudi newspaper reports that it was planning to test-fire the North Korean missiles in the Dasht-e-Lut desert in central Iran.

Russia and other CIS and eastern European countries will be represented by some 40 companies. Russia also intends to put on display the giant Antonov 125 cargo carrier as well as the Mig-29 and the Sukhoi-27 fighters. Russian companies also have a wealth of research and development experience, most of which cannot now be afforded by their own government. Their weakness may be their need for financing.

Among civil airline fleets, the most publicised customer, Saudi Arabia's flag carrier Saudia, has yet to select suppliers to revamp its ageing fleet of some 60 aircraft. Both Boeing and Airbus are vying for the deal. India is expected to spend several hundred million dollars modernising its airports. Dubai is also due to expand its airport - where the exhibition is being held. The Dubai government is still examining different options, and it is possible an announcement could be made at the air show.

AE United Arab Emirates, Middle East P7999 Amusement and Recreation, NEC NEWS General News P7999 The Financial Times London Page II 718
Survey of Dubai (5): A stimulating environment - Nicholas Hills takes a look at business law in Dubai Publication 931103FT Processed by FT 931103 By NICHOLAS HILLS

THE UAE is an interesting business legal environment because of the interface between the federal (UAE) legislation and regulations in force in individual emirates, including, of course, Dubai.

The law is embodied in codified decrees published in either the Federal or individual emirates' Official Gazettes, which then need application and interpretation in the context of an active and established commercial environment.

Businesses in Dubai are required to comply with federal legislation as well as Dubai's own regulations, which are designed to attract responsible and appropriate foreign businesses to Dubai, which itself has become a significant regional centre.

In 1993, the Dubai government has established the Economic Department, which now looks after, controls and facilitates the registration of businesses in the Emirate of Dubai (other than in the Jebel Ali Free Zone (JAFZ). The JAFZ has its own individual registration and licensing requirements and operates under its own enabling legislation: an interesting recent development at JAFZ has been the introduction in 1992 of a single-shareholder limited-liability entity known as a Free Zone Establishment (FZE).

While there are considerable advantages and incentives in setting up in JAFZ, many businesses still opt (or require) to establish outside JAFZ in Dubai itself.

There are a variety of ways - many not mutually exclusive - in which a foreign business may operate in or into Dubai under the auspices of the Commercial Companies Law, some of whose provisions are at the moment under review, or under the Commercial Agencies Law.

Care and advice needs to be taken over selecting how to establish. Outside JAFZ, with very few exceptions, some local connection ( a sponsor, agent or partner) is required. As a general rule, limited companies established with foreign investment need 51 per cent local participation.

By far the most interesting prospective legal development in the UAE (and in particular in Dubai as a commercial and financial centre) is the imminent introduction of the Commercial Transaction Law, which will need to be considered very closely in parallel with the existing civil law.

In the vibrant mercantile environment of Dubai, the introduction of regulatory commercial legislation will be particularly relevant and, it is expected, beneficial in terms of commercial activity. However, there is bound to be a transitional period while the experienced business practices will need to change to conform with the new law.

The new legislation is comprehensive and, although it is similar to commercial legislation in other Gulf states, it has been carefully considered in the context of local requirements. With the recent introduction of intellectual property legislation, the UAE will, with the new Commercial Transactions Law, have a more complete body of business law.

The development of business law and the constant inter-relation between local and foreign interests, particularly in Dubai (as a regional centre), will continue to provide a challenging and stimulating environment in which there will be an increasing need for sophisticated, but nonetheless practical, legal structuring and documentation.

The author, who has worked in Bahrain, Oman and the UAE, is the resident managing partner of Trowers & Hamlins regional office in Dubai. Trowers & Hamlins is an established London legal practice with offices in Dubai, Abu Dhabi and Oman.

AE United Arab Emirates, Middle East P92 Justice, Public Order, and Safety P8111 Legal Services P9651 Regulation of Miscellaneous Commercial Sectors CMMT Comment & Analysis P92 P8111 P9651 The Financial Times London Page II 588
Survey of Dubai (2): New strategy for a different era - The economy Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

AS reflected in trade statistics, Dubai's economy has rarely been so buoyant. The timing could not be better to implement, through the recently-created Economic Department, a strategy to take the emirate into the era - still a long way off - when a self-sustaining economic base will mean Dubai is no longer dependent on oil revenues.

If government aspirations are met, the self-sustaining economic base will rest on three factors: traditional trade; the leisure and business tourist industry; and the continuing growth in the number of companies choosing Dubai as a regional services and light industries centre.

But four essentials must be met if these ambitions are to be realised. First, there has to be regional political stability; secondly, there must exist a coherent and effective legal framework within which all kinds of business can flourish; thirdly, Dubai must have abundant energy supplies at affordable rates; and lastly it must rest comfortably within the federation even if it retains degrees of autonomy on different issues.

For the past five years, Dubai's non-oil trade - the traditional core of its economy - has been growing at an annual rate of more than 20 per cent, official statistics show. Dubai caters for 70 per cent of the UAE's total trade. Just over half is with Asian countries; almost 30 per cent with Europe. For 1992 alone, imports totalled almost Dh60bn and re-exports almost Dh9bn.

The main entry and re-export points are Port Rashid, a large and extremely efficient container port with an average re-export turnaround time of 24 hours; Jebel Ali, the largest man-made container harbour in the world; the dhow traffic on Dubai's creek, the waterway on which it built its reputation as an entrepot; and the air-cargo terminal which has a capacity at present of 250,000 tonnes a year. Greatly expanded over the years and always being improved, they allow Dubai's life-blood to flow.

The funds generated by this trade are several times greater - Dh70bn compared with some Dh10bn - than revenue from crude oil and gas. 'The funds for all this activity are entirely generated in the market,' says Mr Bill Duff, chief financial expert at Dubai's Central Accounts Office. 'They are not subsidised by the government whose oil revenues have to be concentrated on improving the infrastructure to cope with the increase in load.'

Dubai's re-exports are greatly helped by periodic problems in Iran such as the imposition of quotas which limit imports. These may make it more difficult for other traders, but Dubai is near enough and with sufficient experience to give its Iranian community the necessary flexibility to take advantage of them. The Iranians themselves realise Dubai's special role, for when they stipulated that all imports to Tehran and Bandar Abbas should go direct rather than through middle men, Dubai was exempted.

But all this trade, as Mr Duff points out, is in cash investments 'which you have to try to stabilise'. So to a very large extent is tourism and the investments made by foreign companies which choose Dubai as the preferred centre from which to service the wider Middle East and West Asia, the Indian sub-continent.

Continuing political stability in the region, of the kind that has existed since the end of the Gulf war, is therefore vital while Dubai finds ways to attract more - and more valuable - investments.

The advent into Dubai of so many companies, particularly in the past 2 1/2 years, has in turn unleashed a property boom in both house construction and rentals. Rentals, some businessmen insist, have risen more sharply than the actual increase in business turnover and, more importantly, profits.

These, however, are cyclical factors. Of greater concern in the longer term is that these markets - houses, service offices, commerce - could decline as rapidly as they came if the right conditions are not established within Dubai to tempt more fixed investment.

The government needs time to expand the infrastructure and the private sector needs time to consolidate the commercial gains of the past few years. Both of these factors are in play partly because the prolonged recession in the west has encouraged more and more companies to venture into the expanding Gulf market. Hence the phenomenal interest in regional exhibitions, including the forthcoming Air Exhibition.

One answer to Dubai's (and the UAE's) need for more fixed investment in non-oil industries is to acquire the high technology industries that come with offset programmes. But as one visiting representative, in Dubai to discuss offset proposals, said: 'High technology industries are not like an invention. You cannot create one and then leave it. You need the talent on-the-spot to run it and develop it further'.

A source close to the government added: 'Technology transfer and diversification are all fashionable to talk about, but they have to be viable before they set up here because they cannot rely on government subsidies. Common sense and business acumen are Dubai's greatest assets, and these are what we should build on.'

Overall strategy for Dubai's economic development for the next decade is with the recently-formed Dubai Government Economic Department and Mr Mohamed Alabbar, its director-general. Although best known to Dubai's business community as the man expected to streamline the process of issuing business and office licences (and the principal target of their complaints when expectations are not immediately met), Mr Alabbar has an awesome task dealing with many other issues, for which he has earned the title of 'the government's economic troubleshooter.'

He is credited with having turned round the government's property and other investments in Singapore which it inherited from the Dubai entrepreneur Mr Abdul Wahab Galadari; and more recently with having rationalised the structure at Dubai Aluminium Company, which he continues to direct. But the Economic Department under his direction also has to oversee other government onshore investments; and represent Dubai at meetings of federal committees where all types of draft legislation are discussed, including the extent to which individual emirates retain degrees of autonomy.

However the core of his responsibilities lies with trying to streamline the licensing process for companies wanting to register or to renew registration. His goal, he says, is to provide companies with their registration certificates within 48 hours of application and requests for information by fax on demand. This is ambitious to say the least given the amount and complexity of forms required, and the need for his staff to undergo 'customer service training.' But by and large the business community acknowledges that progress has been made.

Mr Alabbar says that a lot of the work that is done is not visible to the business community. His department is involved in continuous federal committee sessions and it is in these where Dubai's voice is heard.

He is quick to point out that many of those who sit on federal committees have been at school together, and that Dubai's relations with other emirates at federal level are fundamental to its economic future.

AE United Arab Emirates, Middle East P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Balance of trade MKTS Foreign trade ECON Gross domestic product P9311 The Financial Times London Page II 1213
Survey of Dubai (4): Facing up to realities - Defence Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

AFTER almost 22 years of federation, Dubai's defence is inextricably bound up not only with that of the United Arab Emirates, but in a wider sense with that of the Gulf Co-operation Council (GCC) too. So defence forces stationed in Dubai are referred to, by virtue of their geographical location at the centre of the federation, as Central Military Command (CMC), even though direct authority over CMC is via a chain of command containing only names from Dubai's ruling family, the Al Maktoum.

CMC's ground forces consist of as many as 15,000 men, out of a total UAE federal army of 50,000, according to the London-based International Institute for Strategic Studies. Up to 80 per cent of CMC is comprised of Omanis from the Batinah coast in the northern part of the country, and the balance from Dubai.

The ground forces include an armoured regiment equipped with Italian-made Ottomelara tanks of German design with 105mm guns and British Scorpion light-track tanks; two infantry brigades; and an anti-tank regiment plus artillery.

The air force includes an air defence regiment and the Air Wing which has British-made Hawk and Italian Aeromacchi fighter-trainers.

CMC's titular commander-in-chief is Sheikh Ahmed Bin Rashid Al Maktoum, the youngest of the four sons of Sheikh Rashid, Dubai's former ruler and brother of Sheikh Mohammad, the UAE's minister of defence who was recently promoted to full general by Sheikh Zayed, the UAE president and ruler of Abu Dhabi. Sheikh Mohammad is reported to take a very close interest in CMC, as well as exercising financial control.

The two deputy commanders are Sheikh Ahmed Al Maktoum and Sheikh Butti Al Maktoum, brothers who are close relations of Sheikh Maktoum, Dubai's ruler. Both deputy commanders have passed through Britain's officer cadet training college at Mons near Aldershot. Of the two, Sheikh Butti is the one most frequently referred to as the day-to-day commander of CMC.

All of the other senior officers, NCOs and warrant officers are from Dubai, although there are Egyptian and Sudanese training officers plus a few British, seconded or on contract.

The historical role of a Dubai army has been to protect Dubai itself and, given the authority wielded by its ruling family, the tradition of retaining command and control is very much alive.

But today's demands on the UAE impose their own realities on CMC to which it has responded. During the Gulf war, CMC would have been in a state of complete readiness. It also provided a large squadron - some 120 men - for a battalion-size force which the UAE contributed to the US-led coalition. This battalion was engaged at Khafji on the Saudi-Kuwaiti border, and took some casualties. Today, CMC has a large squadron as part of the UAE force attached to the UN forces in Somalia.

Although Abu Dhabi is thought to bear some of the cost of maintaining CMC, the overwhelming charge is to Dubai's account, and this represents a significant part of Dubai's direct contribution to the UAE federal budget.

The fact that Sheikh Mohammad, the UAE defence minister, is from Dubai also gives CMC a political dimension. Like other senior figures in the federation, he is reported to be a strong supporter for greater defence co-operation at more levels, especially where defence overlaps with political and diplomatic issues.

AE United Arab Emirates, Middle East P9711 National Security NEWS General News P9711 The Financial Times London Page II 586
Survey of Morocco (1): Press on the accelerator - Morocco is more self-confident than in 1983 when a balance of payments crisis forced it to reschedule foreign debt. King Hassan provides stability and there has been some progress on liberalising the economy Publication 931103FT Processed by FT 931103 By ROGER MATTHEWS and FRANCIS GHILES

Morocco is in the process of reviewing its identity. Geo- graphically, it is part of north Africa, but emotionally it is strongly tied to the Arab world. Devotionally, it belongs to Islam, but economically it has decided that it wishes to be linked to Europe.

The priorities given to those potentially conflictive characteristics, under the leadership of what remains ultimately an absolute monarchy, is likely to define Morocco's capacity to realise its considerable potential during the remaining years of this century.

The one apparently sure thing is that the changes will be gradual and the signposts may simultaneously point in different directions. King Hassan II, who appears to sit more comfortably on his throne than at any time since he took over from his father Mohammed V in 1961, exercises his power with acknowledged skill but not always with the most obvious intentions.

The interpretation of royal wishes, like the sources of information and the identity of the most influential advisers at the royal court, has long been one of Rabat's most engrossing activities.

There are, however, certain imperatives which no monarch or government can safely ignore. Morocco's population of some 26m (it could be a million or two more) is growing by at least 2.2 per cent a year. Some 50 per cent of Moroccans are under 20 years old and more than 50 per cent of adult males are illiterate. Urban unemployment is unofficially estimated at 20 per cent or more, while there is considerably greater underemployment in rural areas.

World Bank studies suggest that 13 per cent of the population lives below the poverty line, with another 8 per cent only marginally above it. Income disparities are substantial, particularly between town and country. Across a wide range of social indicators, Morocco lags well behind other countries with similar per capita incomes.

The need for social advancement, especially among the most disadvantaged, has taken on greater urgency with the spread of Islamic militancy throughout the Arab nations. The alarming social, political and economic deterioration in neighbouring Algeria is an uncomfortably close reminder of what can happen when an entrenched government fails to respond adequately to popular demands.

Plentiful reasons can be advanced to explain why Morocco will continue to avoid the pitfalls suffered by its neighbour. King Hassan enjoys widespread respect, if not always affection. His judgment and policies on major foreign policy issues, such as the Arab-Israel conflict and the Gulf war, have been substantially vindicated.

The visit to Rabat in September by Mr Yitzhak Rabin, Israel's prime minister, recognised the importance of King Hassan's long-term commitment to a negotiated peace settlement. His support for the western-led military action to evict Iraqi forces from Kuwait flew in the face of popular sentiment, but is now seen by many Moroccans to have been a politically astute decision.

The 'green march' in 1975, which brought the Western Sahara under Moroccan control, is still disputed by the international community but looks increasingly irreversible and was, in domestic terms, arguably the single most important decision of King Hassan's reign.

As Commander of the Faithful and a direct descendant of the Prophet, King Hassan can also claim a religious authority which appears to be largely unchallenged. Some Moroccans say they sense a growing Islamic militancy, but are hard pressed to provide evidence of it.

The country's political parties are all, to a greater or lesser extent, monarchist. When this embraces even the communists, the scope for ideological debate is necessarily limited and confines itself to policy priorities rather than fundamental aims.

The first round of elections for a new parliament earlier this year was thought by independent observers to be relatively free. The second round, for reasons that are not immediately obvious, fell miserably short of that objective. But despite the disputed outcome, Morocco is advancing, however slowly, towards a more representative form of government in which the prime minister theoretically enjoys greater freedom of action.

Rather more impressive progress has been made during the past decade in the structural readjustment of the economy along lines encouraged by the IMF and World Bank. The budget deficit has been reduced to about 2 per cent of GDP, the current account deficit has dropped sharply as exports increased, rescheduling agreements have lowered the debt service ratio and inflation has been reduced to around 5 per cent.

Windfall benefits, such as Saudi Arabia's agreement to wipe out debts of more than Dollars 3bn following the Gulf war, have, however, been offset by two years of drought which last year curtailed agricultural output and caused an estimated 3 per cent fall in gross domestic product.

The vagaries of the weather, and the consequent sharp fluctuations in annual GDP, lend even greater weight to arguments advanced by members of the business community for a more vigorous approach to the liberalisation and diversification of the economy. They acknowledge that the government is edging in the right direction.

A range of measures over the past few years, including a reduction in tariffs, lower import duties, an easing of licensing restrictions, the convertibility of the dirham, financial sector reforms and the privatisation programme is helping to make the economy more market-oriented.

One immediately beneficial result has been a sharp increase in direct foreign investment which last year was estimated at Dollars 500m, more than double the figure for 1990.

But whether this is happening quickly enough to create the hundreds of thousands of new jobs that Morocco needs every year to satisfy new entrants to the labour market is open to doubt. The pace of industrialisation remains sluggish compared with many other countries at a similar stage of development. It must accelerate if Morocco is to take full advantage of the partnership agreement it is negotiating with the European Community.

The economic picture is additionally complicated by the ill-defined but undoubtedly substantial 'informal sector', which ranges from an impressive array of illegal imports to the flourishing production and export of cannabis, said by some diplomats to account for about 30 per cent of Europe's annual consumption and to be worth around Dollars 2bn a year. Such trade can only complicate Morocco's desire to strengthen its links with the EC, while also posing uncomfortable questions about the country's policing and judicial system.

How keenly Morocco intends to address these issues depends heavily on King Hassan and the legacy he wishes to bequeath. He is only 64 and in good health, but the political dominance of the monarch is such that any discussion in Rabat about Morocco's future cannot avoid the issue of the succession.

The king's experience and skills in manipulating and balancing the diverse centres of power and influence within the country are unlikely to be inherited intact by Crown Prince Sidi Mohammed, who may anyway wish to pursue a less directly interventionist role. Many Moroccans accept that for the next few years at least the country will need a strong, unifying force at the centre.

If there is a vision and an example of how Morocco should evolve in the next two decades, the most often mentioned is that of Spain, just 14 kilometres away.

Morocco, like Spain in the 1950s and 1960s, is authoritarian, close to Europe but far from it politically, agricultural but with huge industrial and tourism potential, and with a growing nucleus of young professionals who are internationally aware but increasingly frustrated by a cumbersome and restrictive bureaucracy.

By the time of General Francisco Franco's death in the mid-1970s, the growth of the Spanish economy and a burgeoning middle class had laid the basis for a relatively smooth political liberalisation and eventual transfer of power.

It might seem wildly fanciful today to see Crown Prince Sidi Mohammed as a future King Juan Carlos, but as a signpost for the future it points in a general direction that most other Arab populations would envy.

MA Morocco, Africa P9711 National Security P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Gross domestic product ECON Employment & unemployment P9711 P9311 The Financial Times London Page I 1393
Survey of Dubai (1): Mercantile capital of the Gulf - Dubai's oil and business acumen have made it the second wealthiest state in the United Arab Emirates. However, as the economic climate becomes more complex, it is seeking new strategies to maintain its prosperity, as described in this survey written by Robin Allen Publication 931103FT Processed by FT 931103 By ROBIN ALLEN

TO all appearances, Dubai is continuing to re-inforce its position as the mercantile capital of the Gulf. Second richest of the seven states which form the United Arab Emirates, over the years Dubai has earned for itself the sobriquet Dubai Inc. by virtue of its business acumen and the shrewd instinct, not only of its former celebrated ruler, Sheikh Rashid, but also of the merchant community as a whole.

It has also benefited - and continues to benefit - from a healthy surplus of capital from oil revenues, which has enabled the government, the ruling Al Maktoum family, to build the best infrastructure that money can buy.

Under Sheikh Rashid, Dubai has also equipped itself with industrial facilities on a par with the best in the world, a tradition continued by his sons with the creation of a Free Zone Authority and industrial area at Jebel Ali and the establishment on a commercial basis of Dubai's own airline.

The combination of capital wealth, personal commitment, and sheer hard work have helped to provide Dubai with a freedom to make its own decisions within the federation in its formative years, and have subsequently enabled it to keep going through two regional wars and the collapse of oil prices in the mid-eighties.

These conditions, not least the availability of continuing reserves of capital, are changing, however. To compensate, the government is trying to enlarge and improve on developments that have already taken place. The government's Economic Department, set up in July 1992, but only really in operation since June this year, has the job of overseeing the management of some of the government's onshore industries, of representing Dubai at federal meetings where legislation is drafted, and, of most immediate importance to the business community and potential investors, of streamlining the trade licence registration process, a source of considerable ambiguity and frustration in recent years.

In addition, the government has been spending a lot of money to improve the road network and other infrastructure; and its commerce and tourism promotion board is waging an effective campaign to attract more investors and tourists, the overall aim being to create an economy based on self-sustaining tourist and regional services industries, for an era when the cushion of wealth from oil revenues is no longer there.

On the investment front, it is intended that the Economic Department should develop into a one-stop shop where it will be possible to establish a limited liability company. Many businessmen still complain, however, about the amount of time-consuming paperwork, and the cost - Arabic translations at Dh100 (Dollars 27) a page - when it comes to the enactment of a coherent legal code.

Taken together, these measures should ensure that Dubai retains its prominence, if not its pre-eminence, as the mercantile capital of the Gulf. But there are several conditions to be fulfilled and a number of potential weaknesses which may make it more difficult to keep the strategy on course. These include:

continued regional political stability;

the Economic Department's ability to live up to the demands made on it;

the progressive implementation of a coherent and effective business legal framework;

the peaceful development of the federation and of Dubai's role within it,

a guarantee of continuing abundant sources of energy at affordable prices.

The successful resolution of the 1990-91 Gulf crisis removed doubts in investors' minds over whether the west would intervene in a crisis, and instilled a degree of confidence about the Gulf which had been previously lacking.

Iran's occupation of, and claims on, three UAE islands near the strait of Hormuz, has not so far led to anything more than curt exchanges of diplomatic notes, and resolutions from foreign ministers of the six-member Gulf Co-operation Council. Iran's apparent decision to invest in expensive weaponry at a time when it is thought least able to afford it, and for motives which are not clear, has certainly caused concern - but so far nothing more.

These problems are so sensitive that in Dubai senior officials refuse to discuss them. This is partly in deference to Abu Dhabi and the federation. Foreign affairs comes within the jurisdiction of the presidency, that is to say, Sheikh Zayed in Abu Dhabi, where it is reported there is a real fear of Iran trying to extend its physical control over other Arab Gulf islands.

Dubai is thought to share this apprehension, but not to the same degree. The trading links between Dubai and Iran are historically very strong, and the relationship deeper and more subtle than that between Abu Dhabi and Iran.

Other matters of foreign policy, including the US policy of 'dual containment' of Iraq and Iran, are not ones which Sheikh Mohammad Bin Rashid, the defence minister, is prepared to discuss. But it is known that as a result of the Gulf war, he is a leading proponent of a much greater depth of co-operation between member countries of the GCC, and continuing links with the US and the west. The UAE and particularly its president Sheikh Zayed, was one of the staunchest supporters of the US-led coalition.

The outline peace agreement between Israel and the Palestine Liberation Organisation falls into the same category.

Critics of the modern form of tribal leadership, of which there are a few in Dubai, contend that the system of government by word-of-mouth and by telephone, is inadequate for the administration of a modern state. There is no legislative assembly or consultative council within Dubai - where the majlis, or open session held by the sheikhs, acts as an alternative forum for discussion, and for petitions to be presented. To be present at one such majlis is to see tribal democracy in action at its most basic level.

On the other hand even critics acknowledge that in a state as small as Dubai, there is enough delegation of authority to individuals and institutions for the state to function sufficiently well. By contrast with some of its neighbours, Dubai's public administration is smooth and efficient, and better than some European countries.

Where tribal leadership falls short - and Dubai is only one small example in the whole of Arabia - is in its inability to decentralise authority, and to make the most of existing opportunities. Industries such as Dubal, a state-owned competitor on world markets; Dubai Drydocks, a successful and apparently profitable alternative to Singapore's ship-repair facilities; and Emirates Air, a fast-growing airline, are all in need of capital that public shareholders could provide, but have never even published a balance sheet. They should have been partly privatised long ago.

The UAE as a whole does not yet have a formal stock exchange. Private capital, and not least that belonging to the ruling families themselves, could be harnessed to gel with Dubai's sizeable and hugely wealthy business community to create a state of shareholders.

There is indeed scope for the for the UAE - which last year saw such an outflow of private capital that it ran a balance of payments deficit for the first time since federation - to work with the GCC countries as a whole, to create a GCC-wide capital markets.

For day-to-day government, Dubai's ruling family is more than adequate. It is respected and the rulers have their their ear to the ground. There are no Islamic pressures of any significance, at least for the time being. And when it comes to relations with Abu Dhabi and the federal authorities, natural evolution suggests that Dubai's autonomy will continue to lessen by degree.

The key long-term challenge for the leadership may be to instill in today's youth the drive and commitment that has characterised the emirate for the past 30 years. Several statements from anxious federal officials suggest that the next generation is not being sufficiently prepared for the day when the Dubai government will not be able to support so many subsidies, or create so many opportunities by a simple expenditure of capital.

AE United Arab Emirates, Middle East P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs ECON Economic Indicators CMMT Comment & Analysis P9311 P9721 The Financial Times London Page I 1411
London Stock Exchange: New highs and lows for 1993 Publication 931103FT Processed by FT 931103

NEW HIGHS (162).

BRITISH FUNDS (2) Treas. 2pc I-L 1994, Treas. 3pc '66 Aft., AMERICANS (9) Bellsouth, Chrysler, Eaton, Echlin, Ford, Lockheed, Malvy Tech., Sun, US West, CANADIANS (3) BC Gas, Bank of Nova Scotia, Can. Pacific, BANKS (4) ANZ, Barclays, Standard Chrtd., TSB, BREWERS (4) Fosters, Gibbs Mew, Matthew Clark, Vaux, BLDG MATLS (6) Blue Circle, Do 7 5/8 pc Pf., Latham (J), Sharpe & Fisher, Sheffield Insul., Wolseley, BUSINESS SERVS (3) Casket, Coutts Consul., Dart, CHEMS (5) BASF, Bayer, Croda, Halstead (J), Yorkshire, CONGLOMERATES (2) Fletcher Challenge, Hanson 9 1/2 pc Cv., CONTG & CONSTRCN (6) Ashtead, Bellway, CALA, Eve, Fairbriar, Westbury, ELECTRICALS (3) Electrolux, Sony, Oxford Insts., ELECTRONICS (7) Diploma, Druck, Farnell, Polar, Psion, Tunstall, Vega, ENG GEN (5) Crabtree, Dobson Park, Fenner, MS Intl., Siebe, FOOD MANUF (1) Carr's Milling, HEALTH & HSEHOLD (2) Reckitt & Colman, Do 9 1/2 pc Cv., HOTELS & LEIS (3) Mandarin Oriental, Pelican, Rank Org., INSCE COMPOSITE (2) Allianz, FAI, INV TRUSTS (31) MEDIA (7) Anglia TV, Euromoney Publications, Holmes Marchant, Independent, More O'Ferrall, Reuters, SelecTV, MERCHANT BANKS (2) Close Bros., Warburg (SG), MTL & MTL FORMING (1) Thyssen, MISC (4) Black (P), Danka Bus. Systems, Kershaw (A), Rhino, MOTORS (5) Evans Halshaw, Lucas Wts., Malaya, Motor World, Volkswagen, OIL & GAS (5) BP, Pittencrieff, Ranger, Royal Dutch, Shell Trans., OTHER FINCL (3) BWD, Quayle Munro, Sharelink Inv. Servs., OTHER INDLS (3) Pacific Dunlop, Vinten, Whitecroft, PACKG, PAPER & PRINTG (2) De La Rue, Kymmene, PROP (13) Chesterfield, Daejan, Dencora, Frogmore Estates, Helical Bar, High-Point, Lend Lease, Mucklow (A & J), Peel, Smith (J), Southend, Warner Estate, Wates City of London, STORES (1) Courts, TELE NETWORKS (3) Securicor, Do 'A', Security Servs., TEXTS (5) Allied Textile, Faupel Trading, Lamont, Magellan, Rexmore, TRANSPORT (4) Brit. Airways 9 3/4 pc Cv., CSX, Forth Ports, Irish Continental, WATER (2) Northumbrian, Welsh, PLANTATIONS (2) Cons. Plants., Golden Hope, MINES (2) Cape Range, Sons Gwalia.

NEW LOWS (9).

FOOD MANUF (3) Berisford, Cranswick, Northern Foods, FOOD RETAILING (1) Sainsbury, INSCE BROKERS (1) Marsh & McLennan, MISC (1) Ashley, OIL & GAS (2) Midland & Scottish, Oceonics, PACKG, PAPER & PRINTG (1) St Ives.

GB United Kingdom, EC CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 44 393
London Stock Exchange: Thorn in the frame Publication 931103FT Processed by FT 931103 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

The share price of Thorn EMI rocketed for a second session, although both leisure and telecoms specialists continued to be sceptical on press speculation of a possible takeover bid by BT. Many preferred to believe the story from across the Atlantic that a US telecoms group was eyeing Thorn, speculation fuelled by US buying of the group's shares yesterday afternoon.

They closed 23 ahead at 987p after turnover of 1.9m. Meanwhile, BT watchers were not discounting an aquisitive move in the near future, with one senior trader predicting that the move would come when BT took receipt of the Dollars 2bn-odd for its stake in McCaw Cellular Communications, due shortly. BT fully-paid shares advanced 4 to 469 1/2 p and the partly-paid 5 1/2 to 220p.

The property sector saw a burst of activity as a number of features excited interest. Firstly, MEPC announced it was extending its US retail activities with the purchase of American Property Trust, a property unit trust whose principal assets are two shopping malls in the US, for Pounds 115m. Analysts welcomed the deal, particularly in the extra exposure to the US retail market and at an attractive price. NatWest Securities raised its net asset value forecast for the group to 440p on the back of the deal. MEPC shares jumped on the news but faded to close a penny down at 532p.

British Land extended its debt profile through a Pounds 150m bond issue. The shares moved up 3 to 409p. The company, which is known to be on the acquisition trail, was one being mentioned in connection with Stanhope yesterday as speculation increased over the shape of its future financing.

Stanhope had confirmed weekend press reports that it is considering a restructuring, and although there were few more details emerging in the market yesterday - other than the attention of an overseas investment group - there was talk of some burgeoning dissent among shareholders. Under preliminary plans, existing shareholders could see their holding diluted to 20 per cent. Stanhope shares steadied at 36p.

Barclays was the outstanding performer in the financials area of the market, with a buyer of 750,000 shares mainly responsible for driving the stock up 14 to 583p. Dealers said news of the US Supreme Court's decision to review California's unitary tax system, which they said mitigates against Barclays in the US, had triggered the upsurge.

Legal & General finished 2 firmer at 518p, after 521p, on exceptionally heavy turnover of 7.1m, with interest stimulated by an agency cross of 1.8m shares at 528p.

Milk products group Northern Foods gained 4 at 232p amid talk of the unwanted attentions of a European competitor. BSN, the French food group and a frequently named suitor on the UK food scene, was one name being touted by dealers. Strauss Turnbull was also said to be recommending the stock. Northern is currently subject to a strong two-way pull in the market between those cautious ahead of the restructuring of the UK milk industry and those who consider some good opportunities opening up as a result.

Leading oil shares showed resilience in the face of a steep decline in crude oil prices. British Petroleum was unaltered on balance at 352 1/2 p, while Shell Transport continued to attract overseas funds and moved up 6 1/2 to 718p on 4.2m traded.

Pittencrieff climbed a further 37 to 473p as US investors focused on the US telecoms interests.

George Wimpey was said to have suffered a downgrading and shed 6 to 167p.

NatWest Securities upgraded its forecast for Ladbroke Group, the broker taking into account the betting and hotel group's share of a Pounds 55m dividend payment from SIS, the satellite service owned by the UK's leading bookmakers. NatWest is now looking for Pounds 153m for this year, an increase of Pounds 10m. The shares steadied at 172p in good turnover of 3.9m.

In the face of high-profile sell notes, ICI nevertheless proved a tough customer and mustered a rally, adding 8 at 725p in reasonable volume of 3.6m. US interest was largely credited for the rise.

Wellcome began to fight back, moving forward 15 to 690p. Sentiment was boosted by a company presentation at SG Warburg, its broker.

Fisons relinquished 3 to 156p as UBS reduced its forecasts, trimming current year expectations by Pounds 10m to Pounds 100m.

Thorn EMI MEPC British Land Stanhope Properties Northern Foods George Wimpey Ladbroke Group Wellcome Fisons GB United Kingdom, EC P6231 Security and Commodity Exchanges P3651 Household Audio and Video Equipment P6552 Subdividers and Developers, Ex Cemeteries P2026 Fluid Milk P1521 Single-Family Housing Construction P7999 Amusement and Recreation, NEC P2834 Pharmaceutical Preparations P2879 Agricultural Chemicals, NEC CMMT Comment & Analysis MKTS Market data P6231 P3651 P6552 P2026 P1521 P7999 P2834 P2879 The Financial Times London Page 44 819
London Stock Exchange: Waters strong again Publication 931103FT Processed by FT 931103 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

Water stocks made further rapid progress, building on Monday's solid gains ahead of the important document from the industry watchdog outlining its broad methodology for setting new pricing levels for 1995 to 2000. Worries about the content of the Ofwat document, which is expected to be published in full in July next year, have cast a shadow over the sector in recent weeks.

But the market adopted a more relaxed view of the contents of the document yesterday, with a number of the leading brokers of the opinion that most of the bearish factors have already been factored into share prices.

SG Warburg's utilities team took the lead in the market yesterday, advising their clients to 'exploit any further weakness by increasing holdings'. Warburg said: 'We expect nothing of fundamental alarm on Thursday to jeopardise our view that an attractive real rate of dividend growth can be sustained through to 2000; at a 130 sector yield relative, any downside on toughening regulation is discounted.' Warburg has projected 'at least 3 per cent real dividend growth from 1995'.

Warburg continued to recommend its 'core holdings' in the sector: Severn Trent, 12 higher at 560p, Thames, 4 firmer at 554p, and Southern, 10 stronger at 589p.

Severn Trent Thames Water Southern Water GB United Kingdom, EC P4941 Water Supply P4952 Sewerage Systems P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P4941 P4952 P6231 The Financial Times London Page 44 261
London Stock Exchange: Forte unsettled Publication 931103FT Processed by FT 931103 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

Shares in Forte were unsettled by talk in the market that CIGA, the loss-making Italian hotelier currently being courted by the UK group, had been made a more attractive offer by Hyatt Hotels, of the US. Forte came off 7 at one stage, but rallied towards the close to finish 3 adrift at 216p. Turnover was an average 2m.

Forte struck a management deal with CIGA last month, paying Pounds 33m cash and inserting some of its own luxury hotels with a value of about Pounds 125m into an Italian operating company. However, the two groups were undergoing due diligence, and leisure analysts have been told that the deal is some months away from being finalised.

Forte GB United Kingdom, EC P6231 Security and Commodity Exchanges P7011 Hotels and Motels MKTS Market data CMMT Comment & Analysis P6231 P7011 The Financial Times London Page 44 164
London Stock Exchange: Hong Kong hint pushes C&W down Publication 931103FT Processed by FT 931103 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

RUMOUR that CITIC, the Chinese government's investment agency, is planning a major placing of HK Telecom shares, perhaps as much as a 5 per cent stake in the equity, after it announces its results tomorrow, badly upset the share price of Cable and Wireless, parent company of the Hong Kong group.

C&W retains a near 58 per cent holding in HK Telecom and dealers took the view that any sale of CITIC's stock would trigger a slide in Telecom's share price.

Shares in C&W slipped at the outset of trading, reflecting the late sudden downward movement of the Hong Kong market, which closed only marginally higher after being substantially firmer at first. After reaching a peak 509p on Monday, the shares opened easier yesterday at 502p, and moved lower to close a net 11 1/2 off at 491p after another session of well above average turnover of 10m.

CITIC acquired its near 17 per cent HK Telecom stake in December 1989, for an average HKDollars 4.50 a share and, according to UK dealers, could seek to lock in substantial profits now that the shares stand above HKDollars 17 apiece. 'The Chinese would be looking at a massive profit of over Pounds 1bn from their holding,' said one specialist.

He mentioned 'a massive US appetite for Far Eastern and particularly Hong Kong stocks in recent months'. Because of its 17 per cent shareholding in HK Telecom, CITIC would be prevented from selling any of its HK Telecom shares in London because of the 'closed period' rules.

Cable and Wireless GB United Kingdom, EC P6231 Security and Commodity Exchanges P4813 Telephone Communications, Ex Radio CMMT Comment & Analysis MKTS Market data P6231 P4813 The Financial Times London Page 44 310
London Stock Exchange: Equity futures and options trading Publication 931103FT Processed by FT 931103 By CHRISTINE BUCKLEY

TRADING in Footsie futures yesterday moved on a rollercoaster yesterday, with several influences pulling on the December contract, writes Christine Buckley.

US selling once again stalked the contract in the morning and it slipped to a day's low of 3,166 early in the session. There was not much of a fight to rescue December, with sellers outweighing buyers.

Later on some optimism fed across from a bouncy German market and the contract moved up to trade in more positive territory. For a while it hovered mainly in a small range between 3,185 and 3,187.

But the US sellers would not be deterred and returned to push the contract down. It struggled to muster a rally before the official close when it registered 3,174 - on a par with its fair value premium to the cash market which stands at about 8 points.

Volume was improved on recent sessions at 10,602 contracts.

In after-hours trading the market was enlivened by the Bank of England's quarterly bulletin which contained upbeat signals for inflation. The contract advanced to 3,174 and looked poised to bounce in today's trading.

Traded options were steady at 29,904 lots. The bulk of the interest was in index options with the FT-SE 100 option trading 9,416 lots and the Euro FT-SE 100 option showing good interest at 6,747.

GB United Kingdom, EC P6221 Commodity Contracts Brokers, Dealers P6231 Security and Commodity Exchanges MKTS Market data P6221 P6231 The Financial Times London Page 44 260
London Stock Exchange: Weak close after an erratic session Publication 931103FT Processed by FT 931103 By TERRY BYLAND, UK Stock Market Editor

WEAKNESS in the New York bond market, quickly reflected on Wall Street, undermined equities in London yesterday and wiped out an early round of share price gains. But City confidence rallied after the official close of the market when the Bank of England Quarterly Bulletin took a more positive view of domestic inflation prospects than had been feared.

It was an erratic session, with the FT-SE 100 Index gaining nearly 12 points initially after reports that Mr Kenneth Clarke, the UK chancellor of the exchequer, was winning the political battle inside the Cabinet for cuts in public spending; this would reduce the pressures for increased taxation in this month's Budget, according to City pundits.

However, the early morning Footsie reading of 3,176.2 proved to be the day's best, although a further advance was mounted later on the back of a sizeable trading programme which ranged across the market.

All came to naught when the Dow, having closed at a new peak on Monday, opened 20 points down, and the London market retreated into negative territory.

After allowing for a mild rally in the final minutes, the FT-SE 100 finished just a net 0.3 points off at 3,164.1. The FT-SE Mid 250 Index, covering a broad range of second line stocks, gained 1.8 at 3,522.3, benefiting from the effects of the trading programme from a leading UK securities house.

Publication of the Bank's Quarterly Bulletin came too late for equities, but stock index futures turned higher in very late deals as traders considered that the Bank's views on inflation provide underpinning for a base rate cut before the end of the year.

Although UK market strategists agreed that it was the New York bond market that unshipped London, several believed that the logic might prove short-lived. US bonds have been leading equities ahead in New York and Europe since August. But yesterday's data confirming growing recovery in the US economy checked the US credit markets and raised fears for global equities - fears immediately reflected in the Dow's fall.

However, economic recovery in the US is seen by many analysts as more significant, as well as more positive, for global stock markets than any fears over any revival of inflationary pressure in the US .

By the close, market traders sounded more positive than the readings on market indices might have suggested. The Footsie has bounced successfully from the 3,150 area once again and trading volume continues to indicate underlying confidence.

Retail business in equities was worth Pounds 1.09bn on Monday and Seaq volume jumped by nearly 43 per cent to 664.4m shares yesterday.

On the domestic front, the 0.4 per cent gain in October M0 money supply was in line with market expectations. Attention continued to focus on the prospects for the UK Budget due at the end of the month, with suggestions of changes in pension fund taxation dominating lunchtime converations in the City of London.

Banking stocks again attracted strong support, and hints that a large international deal was pending in the telecommunications industry kept institutional dealers on the alert throughout the trading session.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 44 556
World Stock Markets (America): Dow overcomes profit taking to set new high Publication 931103FT Processed by FT 931103 By PATRICK HARVERSON NEW YORK

Wall Street

AFTER posting early losses on profit-taking and rising bond yields, US share prices rallied on the back of strong cyclical stocks to end the day at or close to record highs, writes Patrick Harverson in New York.

The Dow Jones Industrial Average, which had fallen to 3,667.46 by mid-morning, finished a net 5.03 ahead at an all-time peak of 3,697.64. The more broadly based Standard & Poor's 500 ended 0.66 off at 468.44, while the American SE composite gained 1.71 at a record 484.28 and the Nasdaq composite was finally up 1.89 at 785.66. New York SE volume totalled 305m shares.

After Monday's record-breaking gains, when confidence in the economic outlook pushed blue chip stocks to new highs, investors took the opportunity to book some profits early yesterday. At one stage the Dow was down 25 points.

Also adding pressure to stocks was another rise in bond market yields. As on Monday, news of strengthening economic activity depressed bond prices, and pushed up yields at the long end to almost 6.1 per cent. The trigger for the selling was the report of a 20.8 per cent rise in September home sales. The increase, the largest since 1986, was well ahead of forecasts. The day's other news - a 0.5 per cent increase in September leading economic indicators - was also bearish for bonds but bullish for stocks.

Consequently, after suffering sharp declines in early trading, equity prices returned to positive territory later in the day, aided by strong demand for economically sensitive stocks. Analysts said the rise in bond yields, while worrying, had not been large or rapid enough to offset the positive implications of recent economic data.

The Dow was helped by a strong advance by IBM. Following a delayed opening due to an order imbalance, IBM moved ahead Dollars 3 1/8 to Dollars 50 7/8 in volume of 10.2m shares after brokerage house Donaldson, Lufkin & Jenrette raised its rating on the stock from 'neutral' to 'very attractive'.

Among firmer cyclical issues, forestry product stocks were especially strong for the second consecutive day. Louisiana-Pacific jumped Dollars 3 1/8 to Dollars 41 1/2 , Georgia-Pacific climbed Dollars 1 3/8 to Dollars 68 and International Paper added Dollars 7/8 at Dollars 62 5/8 . Auto shares were also in demand, with Ford up Dollars 1 at Dollars 63 3/4 and General Motors ahead Dollars 3/4 at Dollars 49, both in heavy trading.

WorldCorp surged ahead Dollars 1 1/2 to Dollars 6 1/4 on news that Malaysian Helicopter planned to buy a 24.9 per cent stake in the company for Dollars 27.4m.

On the Nasdaq market, Geotek Industries advanced Dollars 2 3/4 to Dollars 13 1/2 in volume of 5.3m shares after stating that several big investors, including the influential money manager Mr George Soros, were investing Dollars 40m in the company to build wireless telecommunications networks overseas.

Canada

TORONTO ended steady after extremely heavy trading. The TSE 300 index edged up 2.3 to 4,250.3 and rises led falls by 482 to 341. Volume came to 82.8m shares valued at CDollars 703.7m.

Eight of the 14 stock groups ended higher, led by paper and real estate, which rose 2.04 and 1.50 per cent respectively.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 579
World Stock Markets: Action in drugs sector as Bombay waits for a wind - A market currently in the doldrums Publication 931103FT Processed by FT 931103 By RC MURTHY

When world markets dropped early last year, the Bombay Stock Exchange was at the crest of a wave. But now, with global markets in buoyant form, and feverish excitement in the Pacific Basin further east, India is in the dumps.

The process of integrating India with the world economy has begun in earnest, but the local stock market still moves in its own orbit, unconcerned with world developments.

Bombay's bourse, India's largest, has been haunted for some time by the controversy surrounding Mr Harshad Mehta, the key broker in India's Rs40bn securities market scandal; it has current political fears, with Kashmiri terrorists holed up in a Srinagar mosque under siege by the army.

It is two weeks since brokers concluded a four-day trading strike which shut down the bourse after a judge delayed settlement of a dispute over shares seized by tax authorities investigating the securities scandal. Since that time, the market has looked unhappy.

Traders fear further interruptions in trading. The income tax department has vowed to track down Mehta-owned shares sold on the market with the connivance of some fellow brokers.

Meanwhile, the BSE index, which closed at 2,720.29 in a special trading session on October 19 following the resolution of the brokers' strike, dropped a further 52.46, or 2 per cent, to 2,621.28 on Monday, and stayed flat yesterday amid a general lack of interest.

There have been bright spots. Pharmaceutical companies, especially transnationals, have stood their ground after impressive gains over the past three months: Abbott Laboratories jumped by two-thirds to Rs200 between August and October, Boehringer Mannheim by nearly one half to Rs130 and E Merck by a third to Rs115. Glaxo India was up to Rs293.50, from Rs230 at the end of July.

According to James Capel, investors have taken a fancy to foreign company shares. The market perceives that foreign companies have access to high technology, resources and efficient management.

There are more specific reasons for the drug industry enthusiasm. Traders have driven up share prices, expecting major changes in the draconian drug price policy that stifled profitability and growth of foreign companies over the past two decades; in addition, says Capel, there is a feeling that India will join the Paris convention on patents. That would eliminate competition from cheap imitations.

However, there are warning signals, of which Roche India is an example. This year it peaked at Rs170, with a p/e of more than 40, and brokers said this was a high price for a company which returned to black only last year, and paid its first dividend in five years.

The bubble burst at the weekend when news leaked to the press that the company's Swiss parent was less optimistic than Indian share traders on Indian government drug policies - and sold its subsidiary to a local businessman.

Carmakers have also attracted the traders' attention. Favourable comments by General Motors on the Indian car industry boosted the Calcutta-based Hindustan Motors, although it passed the dividend last year; and the recession-hit Tata Engineering, the largest truck producing company, jumped to Rs270 from Rs240 after Mercedes Benz hinted at a joint venture with Tata.

The broad market will have to reckon with the fallout from a special parliamentary committee report on the securities scandal, due next month. This could make it difficult to mount a major rally in the immediate future.

The fundamentals are more encouraging for the medium term. They include a good monsoon, strong foreign exchange reserves (Dollars 8bn), good half-yearly corporate results and the prospect of an IMF agreement to a medium-term financing programme.

Lehman Brothers, in London, notes that the market has declined by some 40 per cent in local currency terms from its April 1992 'scam-induced' peak of 4,547. However, it likes India's sheer size, its growing middle class population, its well developed local equity culture, its huge pool of cheap skilled labour and the significant pool of non-resident Indian money.

Lehman, too, thinks that it is too early for a rally; but it says that this is a good time to start building up Indian exposure to at least a neutral weight position, to benefit from a possible pre-budget bull run towards the end of 1993.

IN India, Asia P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis P6231 The Financial Times London Page 41 750
World Stock Markets: South Africa Publication 931103FT Processed by FT 931103

INDUSTRIAL shares maintained steady progress, while golds saw a slight gain following Monday's sharp fall. The industrials index rose 18 to 4,557, golds 3 to 1,703 and the overall 7 to 3,914. De Beers put on 25 cents at R83.50.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 69
World Stock Markets (Europe): Daimler fails to put brake on Dax rally Publication 931103FT Processed by FT 931103 By Our Markets Staff

GERMANY was the story of the day, but some other markets dropped back on individual news, writes Our Markets Staff.

FRANKFURT had a phenomenal session, a surge of 33.46 in the DAX index to 2,095.58 taking its gain to nearly 36 per cent on the year so far, turnover soaring from DM4.1bn to DM11.1bn and the Ibis-indicated DAX breaking 2,100 at one point in the afternoon before edging back to 2,086.40 at the post-bourse close.

Mr Bernd Pinnicke, equity analyst at Deutsche Bank Research, forecast that the DAX would rise to between 2,400 and 2,500 in the next three to six months. Liquidity from abroad was still flowing in and many domestic investors, he said, were still underinvested in equities.

The fundamental news was not good. Daimler indicated that it might be considering a reduction in its 1993 dividend and this merely cost it a below par share price rise of DM4.50 to DM752. Mr Harry Jaarsma, of Dresdner Bank in Frankfurt, observed that the DB Research forecasts would put the market on a prospective 1994 p/e of between 22.6 and 23.6.

Mr Jaarsma noted outperformance among second liners like AEG, up DM7.30 to DM174.50 for a two-day gain of DM11.50, and among engineers where Linde rose DM34 to DM874 and Mannesmann by DM10.90 to DM354.20.

PARIS drifted lower and the CAC-40 index settled just above the day's low, down 12.24 at 2,169.71.

BZW's European equity strategists have recently upgraded their weighting in France to overweight, arguing that the market's recent underperformance 'has been driven by a deterioration of relative sentiment rather than fundamentals'.

This positive attitude was echoed by Kleinwort Benson's research team. Maintaining an overweight position in France against Germany, they suggested that when the switch into equities does come - probably triggered by a further easing in interest rates - it will be domestically driven and therefore less vulnerable to US profit-taking.

Peugeot slipped FFr8 to FFr646 ahead of reporting an 8.5 per cent fall in third quarter turnover.

STOCKHOLM declined on worries over Volvo's proposed merger with Renault of France and a downgrade by Morgan Stanley of Astra, the pharmaceutical company. The Affarsvarlden general index lost 11.9 to 1,425.9.

Volvo closed off SKr14 to SKr427 as it announced a one month postponment of a shareholders meeting to discuss the merger proposals.

Astra lost SKr8 to SKr163 on the downgrade. Mr James McKean, pharmaceuticals analyst at Morgan Stanley, reduced his estimate for earnings growth to 20 per cent from 25 per cent given 'the more difficult environment for healthcare companies in the 1990s.'

MILAN focused attention on developments involving Mr Carlo De Benedetti, the Olivetti chairman, and the Comit index eased 3.66 to 579.75, also reflecting political concerns after the budget minister warned that the government's proposals might not win parliamentary approval before the year-end deadline.

Olivetti was marked down 4.8 per cent before paring the loss to finish L49 or 2.7 per cent lower at L1,752 as the chairman surrendered to police in response to an arrest warrant issued by Rome magistrates, investigating alleged corruption.

ZURICH remained in record territory, with the firm dollar and interest rate outlook again providing the conditions for a 15.8 rise in the SMI index to 2,742.9.

Winterthur bearers added SFr31 to SFr849 as the insurer forecast higher profits in 1993. The positive tone helped Zurich Insurance, up SFr29 to SFr1,387 and Swiss Re, up SFr50 to SFr3,820.

AMSTERDAM remained on the upward track with the CBS Tendency index adding a further 1.3 to 137.7, although off the day's high of 138.5. VNU was a strong riser in low volume, adding Fl 5.50 to Fl 154.00.

BRUSSELS recorded a new year's high with a substantial amount of foreign buying being seen. The Bel-20 index rose 4.32 to 1,385.70 in turnover of some BFr1.9bn.

MADRID's US quoted stocks reflected mid-morning weakness on Wall Street, Repsol falling Pta40 to Pta3,995 as the general index closed 1.03 lower at 307.17.

ATHENS lost a further 1.6 per cent after Monday's decline of 1.5 per cent as many investors continued to take profits. The general index fell 13.42 to 807.37. ISTANBUL settled down 1.9 per cent on fears that the coalition might split. The composite index tumbled 267.1 to 13,668.1.

Written and edited by William Cochrane, John Pitt and Michael Morgan.

------------------------------------------------------------------------ FT-SE ACTUARIES SHARE INDICES ------------------------------------------------------------------------ November 2 THE EUROPEAN SERIES ------------------------------------------------------------------------ Hourly changes Open 10.30 11.00 12.00 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1379.28 1380.54 1381.60 1385.99 FT-SE Eurotrack 200 1443.96 1444.84 1444.67 1448.13 ------------------------------------------------------------------------ Hourly changes 13.00 14.00 15.00 Close ------------------------------------------------------------------------ FT-SE Eurotrack 100 1386.33 1386.92 1383.15 1382.36 FT-SE Eurotrack 200 1449.01 1449.47 1445.39 1444.39 ------------------------------------------------------------------------ Nov 1 Oct 29 Oct 28 Oct 27 Oct 26 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1375.31 1374.61 1369.48 1367.82 1377.10 FT-SE Eurotrack 200 1440.75 1439.46 1435.53 1430.55 1437.92 ------------------------------------------------------------------------ Base value 1000 (26/10/90) High/day: 100 - 1387.58; 200 - 1450.38 Low/day: 100 - 1379.28 200 - 1443.50. ------------------------------------------------------------------------

FR France, EC DE Germany, EC SE Sweden, West Europe IT Italy, EC CH Switzerland, West Europe NL Netherlands, EC BE Belgium, EC ES Spain, EC TR Turkey, Middle East GR Greece, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 887
World Stock Markets (Asia Pacific): No let-up in region's record-breaking run Publication 931103FT Processed by FT 931103 By EMIKO TERAZONO TOKYO

SHARE prices edged down on position squaring ahead of today's national holiday and the Nikkei average ended marginally lower on arbitrage-related selling, writes Emiko Terazono in Tokyo.

The 225-issue index lost 57.00 at 19,381.24 after registering a day's low of 19,342.03 and high of 19,549.15. The focus of attention was once again East Japan Railway, which finished Y3,000 firmer at Y495,000, after moving between Y491,000 and Y501,000.

Volume remained low, at 210m shares against 197m, and falls led rises by 518 to 438, with 199 issues unchanged, although the Topix index of all first section stocks put on 2.12 at 1,621.87. In London the ISE/Nikkei 50 index gained 1.13 at 1,288.99.

The market remained generally resilient to news of the financial crisis at Muramoto Construction, an unlisted contractor, which filed for court protection on Monday with debts of Y590bn.

Daiwa Bank, Muramoto Construction's leading creditor, declined Y50 to Y1,180. However, elsewhere in the banking sector, Sakura Bank rose Y10 to Y1,700 and Fuji Bank Y20 to Y2,360. Real estate and construction companies were also lower, with Mitsui Fudosan down Y20 to Y1,290, Shimizu falling Y15 to Y853 and Sato Kogyo off Y10 at Y760.

Sumitomo Metal Mining retreated Y6 to Y830 after weak interim earnings on Monday, and as margin traders, who had bought the stock six months earlier on rising gold prices, liquidated holdings.

The rise in JR East helped other railway issues, Seibu Railway improving Y150 to Y3,900.

Consumer electronics stocks were higher on bargain hunting. Matsushita Electric Industrial firmed Y10 to Y1,470 and Sony Y10 to Y4,970. Toyota Motor, which rose on foreign buying on Monday, shed Y30 to Y1,870 on profit-taking.

In Osaka, the OSE average dipped 21.34 to 21,489.77 in volume of 12m shares. Roundup

PACIFIC Rim markets continued their record-setting ways. Manila was closed.

HONG KONG again set a record closing peak, although late profit-taking had wiped out much of the day's gain. The Hang Seng index was finally 13.72 ahead at 9,642.91, after reaching 9,716.38.

Profit-takers began the day by dragging the index down 68 points before major buyers regained the upper hand, although buying slowed as the index topped the 9,700 level.

Second and third liners led the active list: they were sought by retail investors who have been trying to avoid expensive blue chips.

SINGAPORE picked up late in the day, taking the Straits Times Industrial index 18.17 higher to a record 2,123.85. The newly listed Singapore Telecom eased 14 cents to SDollars 4.00.

BANGKOK added another 2.4 per cent, with the banking sector selected by investors. The SET index rose 31.59 to 1,357.75 in turnover of Bt26.7bn. Among the actives, Thai Farmers Bank gained Bt7 at Bt117 and Bangkok Bank Bt10 at Bt182.

NEW ZEALAND remained firm following good half-year results from Telecom, which rose to an all-time high of NZDollars 4.69 immediately after the announcement, but then fell back to NZDollars 4.57, down 3 cents on the day. The NZSE-40 index closed at a four-year peak of 2,203.09, up 3.59 points, in turnover of NZDollars 56.7m.

AUSTRALIA retreated for the first time since October 25, with the All Ordinaries index losing 7.1 to 2,125.3. Turnover was ADollars 337.05m. A weaker bullion price contributed to the change of sentiment and the golds index fell 36.0 to 2,173.6.

Foster's Brewing, the day's most active stock, added 6 cents at ADollars 1.54, while BHP lost 6 cents to ADollars 17.80 and Western Mining 10 cents to ADollars 5.46.

KUALA LUMPUR closed higher but trading was subdued due to investor caution and trading restrictions by some stockbroking firms. The composite index advanced 5.31 to 972.36.

Malaysian Airline System gained MDollars 1.30 at MDollars 7.55 amid speculation that the government planned to place shares it holds in the group. Malaysian International Shipping, in which the government also has a stake, rose 55 cents to MDollars 7.20.

SEOUL finished lower as sales by institutions of issues with low price-to-book ratios won a tug-of-war with buyers of blue chips in the manufacturing sector. The composite index shed 2.34 to 759.42 in turnover of Won941.48bn.

JP Japan, Asia HK Hong Kong, Asia SG Singapore, Asia TH Thailand, Asia NZ New Zealand AU Australia MY Malaysia, Asia KR South Korea, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 41 738
Foreign Exchange: Dollar gains at DM's expense Publication 931103FT Processed by FT 931103 By PETER JOHN

ENCOURAGING economic data from the US gave a lift to the dollar, which recorded a significant rise against the D-Mark yesterday. The German currency was also weak against several European currencies, particularly sterling, which consolidated above DM2.50, writes Peter John.

The dollar tried to move higher in Tokyo trading but ended steady against the yen and D-Mark after late profit-taking, apparently by Japanese life insurers.

Then at the start of European dealing, the German Bundesbank announced that today's securities repurchase operations would be carried out at a variable rate. This gave hope that the repo would fall from its current 6.40 per cent to around 6.35 per cent.

Belief that Germany will continue to cut rates was given additional impetus by figures showing German industrial output was still very weak.

Switching from the D-Mark to the dollar pushed the US currency above DM1.70. It slipped at midday, but when the US markets opened, figures were released showing a surge in home sales and it moved higher again.

Ms Francoise Skelley of Credit Suisse said charts of recent buying trends showed that the dollar was now well supported at DM1.6850 and DM1.6920, while DM1.70 and DM1.7250 were resistance levels on the way up.

The dollar finished at DM1.6945, up from DM1.6935. Against the pound it eased to Dollars 1.4825 from Dollars 1.4810, and against the yen it slipped to Y107.50 from a previous Y108.20. At the close of New York trading the dollar stood at DM1.7032 and Y107.75, with sterling at Dollars 1.4735.

Meanwhile, a weaker D-Mark was most strikingly reflected by the relative strength of the pound. Sterling continued to build on its rise at the start of the week as the argument against an early cut in interest rates developed.

Previous statements by Mr Eddie George, the governor of the Bank of England, and Mr Kenneth Clarke, the chancellor, sought to dampen speculation that the base rate is set to fall. Yesterday's Bank of England inflation report did little to support the case for a near-term cut in base rate.

Sterling reached a high of DM2.5157 in the afternoon before settling at DM2.5125, up from DM 2.5075. Foreign exchange dealers now consider it can quite easily rise as high as DM2.54 before there is any strong desire to switch funds.

The D-Mark also declined against the Danish krone, falling below DKr4.0 to close at DKr3.9990 from DKr4.0209. It slid against the Italian lira to L967.40 from L975.30, with technical analysts saying it could reach L960 soon.

The German currency was easier against the French franc as Mr Edmond Alphandery, the French finance minister, reaffirmed France's policy to maintain a strong currency. In contrast, it gained against the Swiss franc to finish at SFr1.299, up from SFr1.287.

US United States of America DE Germany, EC GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 35 499
Money Markets: Bank dealings smooth Publication 931103FT Processed by FT 931103 By PETER JOHN

INTERBANK operations in the UK proceeded very smoothly, with the liquidity shortage largely taken out at the earliest opportunity, writes Peter John.

This was in contrast to Monday when most of the shortage remained outstanding until the end of the day. And the ease of yesterday's dealing prompted suggestions that the Bank of England might have exerted its influence by persuading some of the clearing banks to part with bills.

The Bank of England offered the money market an early round of assistance after forecasting a liquidity shortage of around Pounds 1.9bn, which was later revised up to Pounds 2.1bn.

Among factors affecting the position were the take-up of Treasury Bills and paper maturing in official hands which drained Pounds 1.35bn from the system, bills for repurchase by the market which took out Pounds 743m and Exchequer transactions which removed Pounds 55m. Offsetting these, a fall in note circulation added Pounds 115m and bankers' balances above target contributed Pounds 150m.

The Bank of England provided Pounds 1.65bn of early assistance, buying bills for resale to the market on November 22 at 5 29/32 per cent, and gave an additional Pounds 125m in the morning. This was followed by a further Pounds 198m of assistance in the afternoon, bringing total help for the day to Pounds 1.973bn.

Short sterling took no cue from money supply figures which added to evidence that consumer spending is driving economic recovery in the UK. The rise in M0 - cash in circulation - to a seasonally adjusted 5.4 per cent in the year to October was very much as expected and most dealers were waiting for the Bank of England's quarterly bulletin later in the day.

The futures contract for December traded within a tight range and was two basis points higher at 94.44 at the official close, but fell back later.

Euromark futures were firmer as an announcement that the Bundesbank's repo today would be at a variable rate gave hope that it would fall slightly from its current 6.40 per cent. That hope was further encouraged by German industrial output data which showed that the economy was still very weak. The Euromark contract for December hit a high of 93.87 before ending two basis points up at 93.82.

The French short-term interest rate contract settled two basis points lower at 93.60.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 35 420
World Commodities Prices: Jute and cotton Publication 931103FT Processed by FT 931103

JUTE

September/October c and f Dundee BTC Dollars 405, BWC Dollars 425, BTD Dollars 365, BWD Dollars 385; c and f Antwerp BTC Dollars 385, BWC Dollars 385, BTD Dollars 355, BWD Dollars 355.

COTTON

Liverpool - Spot and shipment sales amounted to 91 tonnes for the week ended October 29, against 40 tonnes in the previous week. Improved demand brought moderate purchases mainly in Benin descriptions. Support was also forthcoming in Turkish growths.

GB United Kingdom, EC P0139 Field Crops Ex Cash Grains, NEC P0131 Cotton COSTS Commodity prices P0139 P0131 The Financial Times London Page 34 109
Commodities and Agriculture: Cocoa and coffee lift LCE trade Publication 931103FT Processed by FT 931103 By ALISON MAITLAND

COCOA and coffee futures and options had another active month on the London Commodity Exchange last month, lifting trading volumes 30 per cent compared with a year ago.

The cocoa futures market, where average daily turnover was 8,226 lots, up 51 per cent on October 1992. Open interest - the number of contracts not liquidated - was up 74 per cent at 149,589 lots.

Total options turnover rose 83 per cent, with particular interest in cocoa options, up 187 per cent, and robusta coffee options (69 per cent), though trading in robusta futures was down 20 per cent on a year ago.

Volumes overall were 24 per cent down on September.

GB United Kingdom, EC P6221 Commodity Contracts Brokers, Dealers P0139 Field Crops Ex Cash Grains, NEC P0179 Fruits and Tree Nuts, NEC MKTS Market data P6221 P0139 P0179 The Financial Times London Page 34 162
Commodities and Agriculture: Minor metals prices Publication 931103FT Processed by FT 931103

Prices from Metal Bulletin (last week's in brackets).

ANTIMONY: European free market 99.6 per cent, Dollars per tonne, in warehouse, 1,560-1,625 (same).

BISMUTH: European free market, min. 99.99 per cent, Dollars per lb, tonne lots in warehouse, 2.30-2.50 (same).

CADMIUM: European free market, min. 99.5 per cent, Dollars per lb, in warehouse, 0.38-0.42.

COBALT: MB free market, 99.8 per cent, Dollars per lb, in warehouse, 11.40-12.00 (11.55-12.10); 99.3 per cent, Dollars per lb, in warehouse, 10.65-11.10 (10.65-11.20).

MERCURY: European free market, min. 99.99 per cent, Dollars per 76 lb flask, in warehouse, 90-108 (95-110).

MOLYBDENUM: European free market, drummed molybdic oxide, Dollars per lb Mo, in warehouse, 2.55-2.65 (same).

SELENIUM: European free market, min 99.5 per cent, Dollars per lb, in warehouse, 4.45-5.25.

TUNGSTEN ORE: European free market, standard min. 65 per cent, Dollars per tonne unit (10 kg) WO, cif, 27-39 (27-37).

VANADIUM: European free market, min. 98 per cent, Dollars a lb VO, cif, 1.30-1.45 (same).

URANIUM: Nuexco exchange value, Dollars per lb, UO, 6.90 (same).

XG Europe P1061 Ferroalloy Ores, Ex Vanadium P1099 Metal Ores, NEC P1094 Uranium-Radium-Vanadium Ores COSTS Commodity prices P1061 P1099 P1094 The Financial Times London Page 34 205
Commodities and Agriculture: Attacks on Agip halt oil output Publication 931103FT Processed by FT 931103 By PAUL ADAMS LAGOS

AGIP'S Nigerian oil operation has lost more than 270,000 barrels of production since October 22, when attacks by local communities forced the company to close its Obama and Clough Creek flow stations.

Agip says the violence stems from mishandling of compensation for the local communities by a development commission set up by the Nigerian government. The company has asked the oil minister, Mr Don Etiebet, to take action over this and other disputes in Rivers state, Nigeria's main oil-producing region.

'We need to make the government aware,' a company spokesman said. He said some of the local communities' demands for compensation 'bear on revenue allocation yet the commission has no programme which is binding'.

Agip operates five oil fields in the Niger delta, producing on average 150,000 barrels a day. It owns 20 per cent of the venture, along with the Nigerian National Petroleum Corporation (60 per cent) and Philips Petroleum, and plans to open a new 20,000 b/d field next year.

The trouble at Obama started when the development commission awarded money from Agip, which was intended for the chief of the community, to a former official of the government. The money was to compensate for pollution of the water through dredging the local swamp.

Although Agip provided water and electricity for the area, villagers loyal to the chief marched on the flow station, forcing Agip to close it with the loss of 205,000 barrels by Monday. When a negotiation team arrived by helicopter, the pilot was attacked and badly injured.

The dispute at Clough Creek is also over demands from rival communities. When Agip built a school for the local village another community demanded a health centre. The threat to oil workers led to a loss of production of about 73,000 barrels last week.

Police were handling the dispute yesterday and Agip expected to resume operations within 24 hours.

However, the company said there had been 'some agitation' at the Tebibada flow station, but no loss of production. There had also been 'numerous problems' at the Obrikom-Obiafu gas re-injection plant.

Agip NG Nigeria, Africa P1311 Crude Petroleum and Natural Gas MKTS Production RES Natural resources P1311 The Financial Times London Page 34 383
Commodities and Agriculture: Zinc producers plan smelter closures Publication 931103FT Processed by FT 931103 By KENNETH GOODING, Mining Correspondent

EUROPEAN ZINC producers decided yesterday to press ahead rapidly with a scheme to eliminate substantial over-capacity by the permanent closure of one or two smelters. The cost of the so-called 'shut-down' scheme would be paid for by the rest of the industry.

An independent assessor has been taking soundings during confidential discussions with industry representatives for the past three months, and his report, presented to senior executives yesterday, showed that the scheme was feasible and that there were a number of smelters willing to be considered for closure.

'This is a very serious project now,' one industry executive said after the meeting in Brussels. The producers will now work on the difficult details - how much capacity should be closed, how much it would cost and how the rest of the industry would contribute towards the cost.

They must also get European Commission approval, but this should not prove difficult because the Commission gave the go-ahead to a similar scheme in 1982. That scheme came to nothing because prices rose, easing pressure for cuts.

However, last year Union Miniere, on its own account, closed its zinc smelter at Overpelt, Belgium, and with it 100,000 tonnes of capacity.

Some zinc traders hoped to hear something more dramatic from the European producers yesterday so, after touching Dollars 961 a tonne at one stage, zinc for delivery in three months on the London Metal Exchange eased back to close last night at Dollars 951, up Dollars 2.50 a tonne.

'The market was holding its breath and anticipating some sort of cutback now, not more talks,' said Mr Angus MacMillan, research manager at Billiton-Enthoven Metals, part of the Royal Dutch/Shell group.

He said a fundamental refined zinc supply surplus, likely to be about 420,000 tonnes this year, was putting severe pressure on prices, which reached a six-year low of Dollars 927 a tonne in July. The closure of only one smelter might not be enough to bring the market back into balance.

While European producers seem unified over the shutdown scheme, they are split over whether to restrict imports from the Commonwealth of Independent States, which are adding to the industry's severe difficulties.

------------------------------------------------------ LME WAREHOUSE STOCKS (As at Monday's close) tonnes ------------------------------------------------------ Aluminium +12,875 to 2,302,125 Copper -1,350 to 612,250 Lead +5,850 to 299,300 Nickel -228 to 118,968 Zinc +4,250 to 832,600 Tin -140 to 20,475 ------------------------------------------------------

XG Europe P1031 Lead and Zinc Ores P3339 Primary Nonferrous Metals, NEC CMMT Comment & Analysis RES Facilities MKTS Production P1031 P3339 The Financial Times London Page 34 440
Commodities and Agriculture: Nigeria's burden of proof - Arrests have been made but the state oil business has still to satisfy the industry that its reforms are working Publication 931103FT Processed by FT 931103 By PAUL ADAMS

THE interim government's purge of the Nigerian National Petroleum Corporation (NNPC) has stopped some of the racketeering that became rife during former president Ibrahim Babangida's regime - but it will take more than a few arrests to convince the oil industry that a reform of the public sector oil business is under way.

After the discovery of unauthorised payments to store fuel in tankers offshore, NNPC's managing director, Mr Edmund Daukoru, finance director Mr O. Okwara, and company secretary Dr Beneni Briggs were arrested last month. Mr Daukoru, Mr Okwara and five other senior officials were formally charged yesterday with stealing Dollars 41m. About 20 senior officials in NNPC have been suspended.

The plan to charter two very large vessels for storing about 1m tonnes of fuel through Lenoil, an independent oil and marketing company, was approved by Mr Chu Okongwu, who was oil minister in 1992. Although each ship was costing Nigeria an estimated Dollars 49,000 a day, the so-called strategic reserve never supplied any fuel.

Nigeria has adequate storage capacity on shore but its fuel shortages stem from large-scale smuggling, and crumbling refineries and distribution systems run by subsidiaries of NNPC.

Mr Philip Asiodu, who became oil minister in January this year, rejected the chartering scheme and ordered instead the purchase of smaller tankers secondhand, also through Lenoil. Although Mr Asiodu blocked a demand by Lenoil for Dollars 62m, it is alleged that most of the payment went through shortly after he left office in August, leading to the arrest of the NNPC directors.

Mr Len Adesanya, managing director of Lenoil, was also arrested. Mr Adesanya was to be in the new management following the takeover of Texaco Nigeria in July. The deal was opposed by the minority Nigerian shareholders, who allege that the buyer, TNP Holdings, registered in the British Virgin Islands, was funded indirectly by the military regime. The takeover is under investigation by Nigeria's Securities and Exchange Commission.

Industry analysts say that close links between Mr Adesanya's operations and Mr Babangida's military regime went right to the top and that Lenoil was one of the two main operators in the smuggling of about 100,000 barrels a day of fuel.

Since Mr Don Etiebet took over as petroleum minister in late August, the boards of NNPC and its refining and marketing subsidiaries have been dissolved, and the axe has fallen on several other deals agreed by his predecessor. Mr Etiebet has cancelled all the crude oil lifting contracts signed by Mr Asiodu. Mr Etiebet said the contracts were to be renegotiated because 'people are hawking crude oil . . . we want to know the exact number of people who are lifting and whether they comply with our objectives'.

Mr Etiebet has invited new applications to buy Nigerian crude oil from companies established internationally as traders or refiners of oil products or which are investing in upstream exploration in Nigeria. The minister has also invited tenders to supply fuel from internationally recognised companies.

The minister has cancelled 16 oil exploration licences awarded by Mr Asiodu to indigenous prospecting companies. According to industry sources, the approvals were rushed through without the normal procedures and many of the licencees do not have the technology or resources to carry out exploration.

NNPC's acting managing director is reviewing the sale of an extra 5 per cent stake in an oil production venture to one of its equity partners, Elf Aquitaine, for around Dollars 520m.

The joint venture is operated by Shell and produces half of Nigeria's 1.8m b/d oil output. July's sale to Elf broke the 40 per cent limit on foreign ownership in oil joint ventures.

The private sector in Nigeria and international creditors would like to see the shake-up in NNPC go further. Recommendations by an economic conference chaired by Mr Ernest Shonekan in February, which included a reduction in state control of the oil and gas industry, have not been implemented.

In a follow-up to that conference today the private sector will press for the measures to be passed in the January budget. The budget monitoring committee set up by Mr Shonekan to review government spending under the Babangida regime has submitted the report. The document is highly critical of dedication accounts that diverted about 110,000 barrels of oil from central revenue into offshore accounts.

Mr Shonekan has made transparency in government revenue one of his government's main target, but he has yet to show that he can bring oil revenue under control.

Nigerian National Petroleum Corp Lenoil NG Nigeria, Africa P1311 Crude Petroleum and Natural Gas CMMT Comment & Analysis P1311 The Financial Times London Page 34 808
World Commodities Prices: Market Report Publication 931103FT Processed by FT 931103 By REUTER

News that OPEC cut crude OIL output in October failed to drive prices higher yesterday. London December futures for the world benchmark Brent Blend crude briefly fell below Dollars 15.90 per barrel, down 30 cents from Monday when the market tried a rally. A Reuter monthly survey of industry estimates put October production by OPEC (Organisation of the Petroleum Exporting Countries) at 24.67m barrels daily. This was down 140,000 from the Reuter estimate for September and 450,000 lower than a year ago - when prices were Dollars 4.0 higher. If OPEC has curbed excess supply, however, demand for oil has remained stubbornly weak in a recessionary world economy and this was cited as the other reason for the decline of 20 per cent in world oil prices this year. OPEC leaders, however, believe that prices are poised to head higher. GOLD attempted a tentative recovery after the sharp fall, lead by silver, on Monday. But after being 'fixed' at Dollars 363 a troy ounce in the afternoon, gold closed in London last night down another Dollars 1.75 an ounce at Dollars 361. Silver closed another 3.5 cents down.

Compiled from Reuters

GB United Kingdom, EC US United States of America P1311 Crude Petroleum and Natural Gas P1041 Gold Ores COSTS Commodity prices P1311 P1041 The Financial Times London Page 34 232
Commodities and Agriculture: Russian freight tariffs up 50% Publication 931103FT Processed by FT 931103 By REUTER MOSCOW

RUSSIA has raised rail freight tariffs by 50 per cent for oil, metals, coal and other goods transported within the Commonwealth of Independent States (CIS) but export cargoes will not have to pay the higher fees, reports Reuter from Moscow.

A ministry telegram obtained yesterday said the state pricing committee decided on October 20 to raise tariffs within the CIS (including Georgia and Azerbaijan).

But the increase did not apply to cargoes destined for export to non-CIS markets 'through Russian railway stations located near ports or state frontiers'.

The telegram, dated October 19, said freight charges would be based on tariffs set in 1989 multiplied by 2,463 for wagon and container dispatches, and by 4,922 for smaller deliveries.

With the exception of export cargoes, 20 per cent value added tax will be maintained for all goods, the telegram said.

It was not clear if the new fees will also apply to imports, including metal ores and concentrates brought to Russia for tolling - refining the metal in Russia and selling it to export markets.

Many companies complain high rail tariffs, taxes and other costs are making trade unprofitable.

Trade sources say there have been rumours of a further rise in freight tariffs by 15 or 20 per cent this month.

One official source said there would probably not be any increases, at least until December.

RU Russia, East Europe XV Commonwealth of Independent States P4011 Railroads, Line-Haul Operating COSTS Service costs & Service prices P4011 The Financial Times London Page 34 267
Commodities and Agriculture: Nymex energy futures system in London Publication 931103FT Processed by FT 931103 By TRACY CORRIGAN

ACCESS, the electronic system for dealing energy futures developed by the New York Mercantile Exchange, will go live in London tomorrow.

There are already 100 Access screens in the US, but the 10 screens in London will be the first outside Nymex's domestic market. Nymex officials said 70 traders in London had been trained to use the screens, which operate outside normal Nymex trading hours. The next stage is to install screens in the Far East.

Average daily volume on Access reached 2,000 contracts in October, ahead of targets.

According to dealers, the success of the system is partly due to the global nature of the oil market. Oil futures can used by oil producers, and companies which need to buy large quantities of oil, to hedge their exposure to price changes.

Six leading brokerage houses have taken screens, which will give access to a pool of around 100-150 accounts each, a Nymex official said. One of the London screens has been taken by Mobil, reflecting interest among commercial companies, as well as brokers.

Dealers said the arrival of Access screens was likely to boost volume on London's International Petroleum Exchange, since it will allow dealers to trade the spread between the IPE's Brent and Nymex's WTI (West Texas Intermediate) contracts during the whole of the London trading day. Currently, traders cannot do this until Nymex opens at 9.45 local New York time.

Chevron Corporation of the US has been awarded exploration rights for a 1,820 square kilometre bloc in the East China Sea under an agreement signed at the weekend with the China National Offshore Oil Corporation.

Chevron Corp GB United Kingdom, EC CN China, Asia P6231 Security and Commodity Exchanges P6289 Security and Commodity Services, NEC P1311 Crude Petroleum and Natural Gas MKTS Market data COMP Company News P6231 P6289 P1311 The Financial Times London Page 34 327
Recruitment: How living costs vary worldwide - Survey shows that at least 40 other cities rank ahead of London in expensiveness league Publication 931103FT Processed by FT 931103 By MICHAEL DIXON

AT LAST the multitudinous globetrotters among the FT's readership can cease tapping their hooves impatiently, not to mention telephoning to demand 'where is it?' What they've been waiting for is in the table down to the right: the latest indicators of international living costs as calculated by the P-E International consultancy.

The reason why they are appearing two months later than usual is that the consultancy has expanded its regular survey to include far more than basic cost data. To compensate for the delay, however, it is allowing the Jobs column not only to print extracts from the study several days ahead of official publication, but to give figures for 75 different places around the world instead of 60 as before.

That is still barely more than half the number, 143 cities in 118 countries, covered by the study. Anyone wanting information on other places should contact Joanna Pawulska-Saunders of P-E's centre for management research at Park House, Wick Rd, Egham, Surrey TW20 0HW; tel (0)784 43441, fax (0)784 437828. The price of the report is Pounds 500.

My table gives three figures for each of the cities included. The first is an indication of the local cost of a 'basket' of goods and services typically bought by executives, and represented by an index based on London prices at 100. Next comes the most recent official rate of inflation to hand when the data were compiled. The third - the exchange rate at which the other currencies have been converted to sterling - will strike most readers as having an antique and in some cases nostalgic look. After all, 172.75 yen and even 1.52 US dollars are appreciably more than Pounds 1 will buy now.

The explanation is that the rates of exchange given in the table are those which prevailed on the date when the original information on price levels was collated: to wit, April 5. And my excuse for refraining from adjusting them is not just pressure of work, but also a foreboding based on past experience that, had I done so, something would have happened to change them all again in hours. For instance, the appearance of the indicators three years ago co-incided with Iraq's invasion of Kuwait, and my update of them the following January with the onset of the Gulf war.

Besides, although the cost-index figures in the table reflect the April exchange rates, there is a simple way of adjusting the indices in line with changes in currency values. Except in countries with soaring inflation, of course, the prices of the sorts of goods and services covered by the survey change only slowly. So the basic cost data collected last spring should in most cases remain a tolerable guide to reality until at least the end of the year.

To compensate for currency-market movements in the meantime, all that is needed is a two-step calculation. First take the exchange rate given in the table, and divide it by the rate currently in force. Then multiply the result by the table's index figure and, hey presto, you are up to date.

As an example, since the yen rate was down from 172.75 to 160.25 last Monday night, Tokyo's index was up from 179.8 to 193.8, and Osaka's from 172.1 to 185.5. So whereas the difference between them from the Brits' angle was previously 7.7 points, it is now 8.3 - the same as the gap between London's 100 and the 91.7 of Birmingham, which is included in the study for the first time.

Another innovation is that the latest report provides some compensation for a weakness affecting all surveys of world living expenses that I have come across to date. It is that, because of the difficulty in devising an internationally consistent yardstick of housing costs, the surveys take no account of that important outlay at all.

While the same remains true of the indices I've printed, P-E has joined with the Hamptons Relocation consultancy - which operates world-wide from its base in Swindon - to give information on accommodation costs in 46 cities. Here is a sample, showing the typical range of monthly rents apparently charged for an unfurnished three-bedroom apartment (prices in sterling at the exchange rates of April 5):

----------------------------------------------------------------- City Range in Pounds Mid-point Pounds ----------------------------------------------------------------- Paris 1,580 - 3,400 2,490 London 1,800 - 2,600 2,200 Frankfurt 1,030 - 2,680 1,855 Dubai 985 - 1,525 1,255 Madrid 870 - 1,450 1,160 Barcelona 695 - 1,155 925 Stockholm 780 - 1,050 915 Grenada 530 - 790 660 Washington 600 - 660 630 Johannesburg 410 - 680 545 Jerusalem 495 - 595 545 Panama 330 - 400 365 -----------------------------------------------------------------

GB United Kingdom, EC XA World P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 29 829
Government Bonds: Weak Treasuries hit European sentiment Publication 931103FT Processed by FT 931103 By TRACY CORRIGAN and PATRICK HARVERSON LONDON, NEW YORK

THE WEAKNESS of the US Treasuries market continued to dampen sentiment in Europe's government bond markets yesterday.

In these unfavourable conditions, German bunds strongly outperformed other continental European markets, with the Bundesbank opening the way for further easing of market interest rates by announcing that today's auction of 13-day securities repurchase agreements will be at variable rates. Weak industrial production data also underpinned hopes that there could still be room for easing.

'The bund market tends to hold on to its value better, when there is uncertainty,' said Mr Adrian James, a bond analyst at NatWest Capital Markets.

BOND markets in France, Spain and Italy, which were closed on Monday for All Saints' Day, all fell yesterday, with Italy recording the sharpest decline of about a point, which dealers attributed partly to political worries.

The Italian Treasury's latest issue of L4,500bn 10-year BTP notes were sold at a gross yield of 9.16 per cent, up from 8.88 per cent at the previous auction of 10-year notes on October 1.

Spain and Italy are 'the markets where investors have the the most to lose, having notched up very high returns this year. It makes sense to get out of the market, or move to the short end,' said one trader. Because these markets are more volatile, they typically lose considerable ground when traders become bearish.

The French bond market also struggled yesterday, losing half a point while bunds posted a slight gain. This caused a further widening of the 10-year yield spread between French and German bonds to 22 basis points, compared with 14 basis points on Friday and about 5 basis points a week ago.

IN LONDON, gilts closed slightly higher after partially retracing earlier gains. Details of the Bank of England's quarterly inflation report were released too late to have much impact on prices, but traders said that the market may react negatively today, as the Bank's worsening inflation outlook is bearish for the bond market.

The report said that the Bank of England's near-term inflation expectations have risen and there is a 'slight possibility' that underlying inflation could climb above 4 per cent next year, breaching the government's official target range.

US Treasury securities continued to slide at both ends of the market yesterday as investors reacted badly to news of stronger home sales.

In late trading the benchmark 30-year government bond was down 15/32 at 102 15/32 , yielding 6.064 per cent. At the short end of the market, the two-year note was down 1/32 at 99 15/32 , to yield 4.139 per cent.

Recent evidence that the economy is picking up steam has put the bond market on the defensive, and for the second consecutive day prices eased in the wake of fresh economic data. The trigger for the selling was the much bigger-than-expected 20.8 per cent surge in September home sales, the biggest monthly increase since September 1986.

Although analysts said the big rise in sales was primarily due to one-off seasonal factors, the number deepened concern among retail investors that accelerating economic growth could drag interest rates higher and eventually lead to a revival of inflation. At one stage the long bond was down a full point, but short covering helped bring the market back from its session lows.

US United States of America FR France, EC IT Italy, EC ES Spain, EC GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy MKTS Market data P9311 The Financial Times London Page 28 600
International Bonds: Eurosterling offer from British Land finds favour Publication 931103FT Processed by FT 931103 By ANTONIA SHARPE

VOLUME in the international bond market picked up yesterday as British Land launched its widely-expected Eurosterling offering.

The commercial property group raised Pounds 150m through an offering of 30-year Eurobonds. The relatively generous yield spread on the unsecured bonds ensured a favourable reception with investors. The bonds were priced to yield 180 basis points over the 8 3/4 per cent UK government bond due 2017.

Lead manager SG Warburg said that following this issue, the average maturity of British Land's outstanding debt would exceed 20 years. Only a few years ago, 70 per cent of the company's debt had a maturity of less than five years.

The bonds, which were mainly placed with UK investors, had a fixed re-offer price of 98.843. When they were freed to trade they eased to 98.69 bid, in line with the weakness in the underlying UK government bond market. However, the spread on the bonds narrowed to 178 basis points.

The Spanish autonomous region of Catalonia is expected to make its debut in the international bond market today with a FFr1bn offering of 10-year Eurobonds. Catalonia's Eurobonds, via CCF, are likely to be priced to yield 30 to 35 basis points over the underlying French government OATs.

By contrast, the forthcoming FFr1.3bn offering of 10-year Eurobonds from the Spanish region of Andalucia is expected to have a yield spread of around 35 basis points.

Depfa, the German mortgage bank, is expected to achieve a yield spread of 20 to 25 basis points when it raises between FFr2bn and FFr3bn through an offering of 10-year Eurobonds.

Catalonia's issue is the result of the region's decision to open new channels for financing its debt. The region plans to fund up to a quarter of its annual borrowing needs in foreign bond markets from next year.

The region also plans to raise Pta25bn before the end of the year in the domestic Spanish market. The domestic issue and the Eurobond issue will complete the region's 1993 borrowing programme of Pta93bn. Catalonia plans to raise a similar amount next year.

Catalonia, which has a credit rating of Aa2 from Moody's, has chosen French francs for its first Eurobond offering because of the low volatility between the franc and the peseta. Between 30 to 50 per cent of the proceeds of the forthcoming Eurobond issue will be swapped into pesetas.

In the Eurodollar sector, the Kingdom of Sweden increased its recent global offering of floating rate notes by Dollars 500m to Dollars 1.5bn as investors sought protection against the volatility in the US Treasury market.

In the domestic sterling bond market, NatWest Capital Markets brought a Pounds 125m issue of debenture stock due 2018 for Halos, a new special purpose vehicle consisting of 10 housing associations. NatWest said that the introduction of covenants relating to capital and income gearing and its agreement to provide a 25-year loan facility representing 5 per cent of the nominal stock were designed to meet any investor concerns about the long maturity of the issue.

GB United Kingdom, EC FR France, EC DE Germany, EC ES Spain, EC SE Sweden, West Europe US United States of America JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MKTS Market data P9311 The Financial Times London Page 28 563
International Capital Markets: Futures trade in Europe beats records Publication 931103FT Processed by FT 931103 By TRACY CORRIGAN

THE EXPANSION of European futures trading shows no sign of abating, with Europe's leading futures exchanges continuing to set new volume records.

Both Liffe in London and the Matif in Paris, Europe's two largest futures exchanges, have already traded more contracts than for the whole of last year. Liffe traded nearly 83m contracts in the first 10 months of 1993, compared with around 72m for 1992 as a whole. The Matif, meanwhile, has traded more than 60m contracts so far, compared with 55m last year.

Last month, Liffe traded more than 10m contracts in a single month for the first time, and open interest reached a record level of more than 4m contracts. While the two largest US exchanges, the Chicago Board of Trade and the Chicago Mercantile Exchange, continue to dominate the market, European exchanges are narrowing the gap.

XG Europe P6221 Commodity Contracts Brokers, Dealers MKTS Market data P6221 The Financial Times London Page 28 174
International Capital Markets: Efim bank creditors set for repayments Publication 931103FT Processed by FT 931103 By HAIG SIMONIAN MILAN

BANK creditors to Efim, the Italian state holding company put into voluntary liquidation in July 1992, may be on the brink of receiving their first repayments.

A first tranche of more than L2,170bn should be paid shortly following the signature in late October of a special decree by Mr Piero Barucci, treasury minister.

The repayment will be made in the form of government bonds. The five-year government bonds being paid to creditors will carry a coupon of 6.20 per cent.

Once necessary bureaucratic procedures are completed, between L1,450bn and L1,500bn will be reimbursed to around 20 Italian creditor banks.

Separately, Banca Commerciale Italiana, the bank which is to move from state control into the private sector and which is an agent for Efim, will receive about L700bn for on-payment to non-bank creditors.

The first of Efim's major repayments still leaves most foreign bank creditors in the cold, however.

Last month, a separate treasury decree authorised preliminary payments of L225bn, also in the form of government bonds, to a number of domestic and foreign banks. However, the bulk of Efim's foreign bank creditors are awaiting reimbursement of their loans, which are due to be repaid in a variety of foreign currencies rather than lira bonds.

The latest decree opens the door to the first big reimbursement of creditors since Efim went into liquidation.

In spite of the repeated promise of speedy repayment by Efim, reimbursements have been bogged down by bureaucratic problems, notably the tussle between the Italian government and the European commission in Brussels over alleged illegal state aid.

Ente Partecipazioni e Finanziamento Industria Manifatturiera IT Italy, EC P6081 Foreign Banking and Branches and Agencies P6719 Holding Companies, NEC COMP Company News P6081 P6719 The Financial Times London Page 28 309
International Company News: Mexican firm buys control of Rodman Publication 931103FT Processed by FT 931103 By LAURIE MORSE CHICAGO

ANACO Casa de Bolsa, the Mexican securities firm, has ended a year-long debate over the future of Chicago-based regional brokerage firm Rodman & Renshaw Capital by agreeing to buy a majority interest in Rodman for around Dollars 23m.

Analysts said that if the purchase cleared regulatory review, it would be the first time that a Mexican financial company has acquired control of a US securities firm.

Rodman is the only remaining publicly-traded securities firm in Chicago. It began seeking buyers in September and had been expected to accept an offer from the New York investment company Josephthal, Lyon, and Ross.

Abaco's bid, at Dollars 10.50 per share for 51 per cent of Rodman's 4.3m outstanding common shares, is understood to be about Dollars 1 above the Josephthal bid.

The purchase will give Abaco, the brokerage arm of Monterey-based financial services company Abaco Grupo Financiero, an unusual presence in the US. It has an office in New York.

Rodman has 500 employees.

Anaco Casa de Bolsa Rodman and Renshaw Capital Group Inc MX Mexico US United States of America P6211 Security Brokers and Dealers CMMT Comment & Analysis COMP Mergers & acquisitions P6211 The Financial Times London Page 28 217
International Capital Markets: Citicorp aims to tap Russian bills trading Publication 931103FT Processed by FT 931103 By REUTER MOSCOW

CITICORP, the US bank due to open a fully-owned subsidiary in Moscow early in 1994, sees a big potential in Russia's fledgling Treasury bill trade, Reuter reports from Moscow.

'We believe there is potential for this market to grow and become very big. As soon as we open we will be registered as a government securities dealer,' said Mr Miljenko Horvat, who heads Citicorp's Moscow operation.

'We are very interested in seeing the securities market develop in Russia. The T-bills give our clients with rouble balances an investment opportunity,' he said.

Bankers say the accounts of foreign multinationals in Russia, many of which have to fly in cash to fund operations in the absence of western-style banking services, are up for grabs for western newcomers to the Russian banking scene.

In the absence of competition, Russian banks are charging commissions of up to 5 per cent per deal.

Citicorp RU Russia, East Europe P6081 Foreign Banking and Branches and Agencies P6211 Security Brokers and Dealers COMP Company News P6081 P6211 The Financial Times London Page 28 195
International Company News: Japanese oil refiners hit by decline in prices Publication 931103FT Processed by FT 931103 By EMIKO TERAZONO TOKYO

REVENUES at Japan's leading oil refiners and distributors were hit by a fall in demand due to the stagnant economy, and a fall in prices.

Cosmo Oil, a leading oil wholesaler, reported a 7.3 per cent slide in non-consolidated sales to Y690.9bn (Dollars 6.4bn) for the first six months to September, due to the 3 per cent fall in sales volume. However, the company saw a 19.1 per cent rise in pre-tax profits due to higher profit margins for gasoline and kerosene.

A Y1.2bn fall in its financial deficit figure due to repayment of loans, also helped profits. After-tax profits fell 22.5 per cent to Y5.2bn as the previous year's figures were supported by income from land sales.

For the full year to March, Cosmo expects continued sluggish demand for oil products, and forecasts a 5.3 per cent fall in sales to Y1,470bn and profits to rise a marginal 0.6 per cent to Y32bn.

Nikko Kyodo, a mining and oil refining company which was established last December through the merger of Nippon Mining and Kyodo Oil, saw interim sales fall 8.6 per cent to Y664.2bn due to the fall in oil prices.

Pre-tax profits however rose 28 per cent to Y12.3bn, while after-tax profits rose 78 per cent to Y7.2bn.

For the full year to March the company expects pre-tax profits of Y34bn on Y1,400bn in sales. After-tax profits are expected to total Y1bn as the company plans to book an extraordinary loss to liquidate Gould, its US unit.

Cosmo Oil Nikko Kyodo JP Japan, Asia P2911 Petroleum Refining P5169 Chemicals and Allied Products, NEC FIN Interim results CMMT Comment & Analysis P2911 P5169 The Financial Times London Page 27 301
International Company News: HK Telecom plans cable television service Publication 931103FT Processed by FT 931103 By SIMON DAVIES HONG KONG

HONGKONG Telecom has announced plans to cash in on its existing telecommunications system by setting up a cable TV and video-on-demand service.

The move comes two days after the launch of Wharf Holding's HKDollars 5bn (USDollars 647m) cable TV network for the colony.

Hongkong Telecom attempted to bid for the first cable network franchise awarded in 1989, but the government decreed that it could own only 15 per cent of a cable operator and could not use its telephone network to relay the service.

The monopoly on domestic services disappears in 1995, and since Wharf is planning to use its cable system as the basis for a second telecommunications network, Hongkong Telecom expects to be allowed to do the same, once Wharf's three-year exclusivity period expires in June 1996.

Hongkong Telecom anticipates that it would invest more than HKDollars 1bn in building up a cable television system. It is expected to be joined by the Hutchison Whampoa group in its application for the licence.

Mr Peter Howell-Davies, Hongkong Telecom's deputy chief executive, said: 'It is the right strategic step for us to extend the range of our video services to meet the needs of medium-sized business and domestic customers, as well as the major corporations.'

Hongkong Telecom HK Hong Kong, Asia P4841 Cable and Other Pay Television Services TECH Services & Services use COMP Company News P4841 The Financial Times London Page 27 253
International Company News: Nova turns in strong result at nine months Publication 931103FT Processed by FT 931103 By ROBERT GIBBENS MONTREAL

NOVA, western Canada's most conspicuous corporate turnround of the recession, reported a strong result for the first nine months of 1993.

The company said that capital spending would rise substantially to handle growing demand for capacity in its natural gas pipeline system.

Nova, which is concentrating on building its core pipeline and petrochemical businesses after a brush with failure two years ago, has put its Novalta Resources gas production unit out to tender.

It expects firm bids later this month. Analysts value the unit at CDollars 200m or more.

Nine-month net profit was CDollars 159m (USDollars 121m), or 37 cents a share, up 43 per cent from CDollars 111m, or 27 cents a share, a year earlier, on revenues of CDollars 2.4bn, an increase of 9 per cent.

Third-quarter profit was CDollars 45m, or 10 cents, down 4 per cent from CDollars 47m, or 11 cents, on revenues of CDollars 828m, up 10 per cent. The decline was due to a lower regulated rate of return on pipeline operations.

The nine-month period included a 6 cents a share gain on the sale of its interest in an Italian manufacturing concern. Nova also gained from a lower Canadian dollar and lower level of debt.

Chemicals remained in the black in spite of depressed markets, and requests for pipeline services in 1995-96 were up 'very significantly', said Mr J. Edward Newall, chairman and main architect of Nova's revival.

Capital spending, mainly for the pipelines, will average CDollars 500m-CDollars 600m a year in 1994 and 1995 and could reach CDollars 600m-CDollars 700m in 1996.

Cashflow from petrochemicals was positive and Nova believes prices should improve late in 1994.

Nova Corp of Alberta CA Canada P1311 Crude Petroleum and Natural Gas P2819 Industrial Inorganic Chemicals, NEC FIN Interim results P1311 P2819 The Financial Times London Page 27 324
International Company News: Communications device from IBM Publication 931103FT Processed by FT 931103 By LOUISE KEHOE SAN FRANCISCO

INTERNATIONAL Business Machines is making its first foray into the nascent market for hand-held computer/ communicator devices with the introduction of Simon, a hand-held cellular telephone-cum-computer.

The device is to be sold in the US by BellSouth Cellular, one of the leading US cellular telephone service providers.

Simon weighs just over a pound and looks much like an ordinary cellular telephone, with a touch-sensitive display instead of the usual dial pad.

However, unlike earlier 'personal digital assistants', such as Apple's Newton, Simon is primarily a communications device.

Its functions include: facsimile, paging, electronic mail, calendar and appointments diary, address book, calculator and pen-based note pad, as well as cellular telephone.

Unlike Apple Computer's Newton, which deciphers handwritten notes and turns them into text, Simon stores the image of a written note and sends it via the cellular network to a standard facsimile machine.

IBM has granted BellSouth Cellular exclusive distribution rights to Simon in the US. The product will carry the BellSouth name.

International Business Machines Corp US United States of America P3571 Electronic Computers P4812 Radiotelephone Communications TECH Products & Product use P3571 P4812 The Financial Times London Page 27 209
International Company News: Property is still the problem for Japanese banks - The continuing trouble with bad debts Publication 931103FT Processed by FT 931103 By ROBERT THOMSON

WHEN Japanese banks established the Co-operative Credit Purchasing Company to clear the industry's problem loans, they housed it in a half-empty Tokyo office building.

It was an apt reminder of the property market collapse that is blamed for the banks' woes.

Almost a year later, the CCPC is still occupying one floor in a half-empty building, and the banks' non-performing loans continue to increase. The collapse this week of Muramoto Construction, a provincial contractor, has added to the total; its outstanding debt is estimated at a record Y590bn (Dollars 5.45bn).

The aim of the CCPC, established in January, was to buy the banks' non-performing loans and oversee the sale of property collateral, enabling them to write off the resulting losses. The banks hoped its valuations would put a floor under property prices, which have fallen by as much as 70 per cent over the past three years.

But the Muramoto collapse, which will leave deep scars at a few regional banks, raises doubts over the CCPC's ability to assist those most in need. One problem is that the CCPC buys bad loans with money injected by the bank selling the loan, which means that weaker banks cannot afford to confront their portfolios.

Mr Akira Miyagawa, managing director of the CCPC, said public concerns about the heath of the banking system have eased over the past year. 'We had as our objective a vehicle to handle the problem stage by stage, and I think we are doing that,' he said.

However, the unexpected Muramoto failure has rekindled concerns. Doubt remains over the extent of the damage caused by reckless lending during the late 1980s, when banks competed fiercely and pumped money into speculative property developments.

At the end of March, Japan's 21 leading banks declared that they had non-performing loans of Y12,700bn, just over 3 per cent of total lending. That figure is thought to have risen to about Y14,000bn by the end of September. Actual exposure is widely estimated at Y30,000bn or more, if lending by affiliates is included, but even that figure does not measure the burden of loan repayments frozen by many troubled clients.

The Muramoto case highlights the 'hidden' liabilities carried by many Japanese companies, some of which routinely exaggerated the value of their land collateral and provided loan guarantees not reported in accounts. Muramoto is said to have guaranteed loans worth Y150bn, leaving it more vulnerable than the banks had realised.

Taking the official figure of non-performing loans, the CCPC has made little impression on the total. Until the end of October, loans with a face value of Y1,919bn had been purchased through the company for Y1,084bn - the price is calculated by a valuation panel which assesses the property collateral and other relevant assets. However, the company has been able to recover only Y4.43bn of the Y1,084bn, meaning that most banks are unable to find buyers for property collateral.

At least the banks can claim the loss on their sale to the CCPC as a tax deduction; previously, they were virtually forced to wait until their client was declared bankrupt before tax authorities would accept the write-off.

But the CCPC has not fulfilled its stated aim of stimulating the property market.

Mr Miyagawa said the unexpected weakness of the economy, partly caused by the yen's sharp appreciation, has worked against a recovery in property prices - in all, 755 loans have been bought by the CCPC but property assets have been sold in only 19 cases.

Nor are the banks helping the CCPC's cause. They have insisted on secrecy for more than half their sales, defeating the aim of providing information on property trends. And the pattern of sales, with a rush in the weeks just before the interim and annual book closing, works against the desired image of the CCPC presiding over an orderly resolution of problem loans. In the period from April to September, 510 loans were purchased by the company; 414 were bought in September, just before the close of the first half. In October, banks brought only 16 loans to the CCPC - suggesting that most institutions see it merely as a vehicle to speed write-offs for tax purposes.

Japanese banks, which will announce their first-half profits later this month, are able to afford write-offs because of falling interest rates, which have created a favourable spread. The official discount rate is now at a record low of 1.75 per cent; without the good fortune of an interest rate fall, the CCPC would be under more pressure and the banks in greater pain.

But the sudden failure of Muramoto Construction is a warning that Japanese banks' bad loan hangover from the late 1980s is far from over.

See Lex

Co-operative Credit Purchasing Company JP Japan, Asia P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P6081 The Financial Times London Page 27 839
International Company News: Earnings at NZ utility ahead 19% Publication 931103FT Processed by FT 931103 By TERRY HALL WELLINGTON

TELECOM Corporation, the New Zealand utility controlled by Bell Atlantic and Ameritech, yesterday announced a 19.1 per cent increase in earnings to NZDollars 251.4m (USDollars 139.5m) for the six months to the end of September.

Dr Roderick Deane, chief executive, said the 'excellent' result was due to cost-cutting, 'well focused, powerfully driven marketing initiatives' and the benefits of the continuing restructuring.

In February the company announced plans to cut the payroll by 5,000, and this process was running ahead of schedule, he said. The total employed had so far been cut to 10,360 from 12,338.

Net earnings for the second quarter rose to NZDollars 133.2m, a 17 per cent rise on the year-ago figure. However, the company warned against the expectation of earnings continuing to rise at that rate.

The dividend is being raised to 8.25 cents from 7.25 cents. Operating costs, excluding abnormal operating costs, fell by 4.8 per cent to NZDollars 797.5m.

Telecom Corp NZ New Zealand P4813 Telephone Communications, Ex Radio FIN Interim results P4813 The Financial Times London Page 27 193
International Company News: Pacific Telesis spin-off approved Publication 931103FT Processed by FT 931103 By MARTIN DICKSON NEW YORK

PACIFIC Telesis, the California-based local telephone company, yesterday won regulatory approval for its unusual and controversial plan to spin off its mobile communications business into a separately quoted company.

The go-ahead from the California Public Utilities Commission, which oversees the industry, ended a dispute which had delayed the spin-off.

The commission's public advocacy office had demanded that Pacific Telesis refund Dollars 1bn to its telephone operating companies for research into cellular technology supposedly paid for out of telephone rates. In the end, the commission insisted the company pay just Dollars 41.3m.

Pacific Telesis announced plans for the spin-off last December. The wireless business, to be known as Pactel, involves the group's US cellular telephone and paging businesses and its international mobile operations, which includes ventures in Germany, Sweden, Portugal and Spain.

The group plans to sell 12 per cent of Pactel in a public offering which could raise up to Dollars 1.2bn and will be completed by mid-December. It will distribute the remaining 88 per cent of the stock to existing investors.

Pacific Telesis, one of the seven Baby Bell regional telephone companies, has a strategy very different from most of the other big local operators as they prepare for the convergence of the telecommunications, computer and media industries.

Its rivals are keeping all their operations under one corporate parent and snapping up interests in cable TV companies and programme providers.

Pacific Telesis, with no significant television investments, argues that the spin-off will allow Pactel to take greater advantage of worldwide wireless growth, since it will free it from much of the regulatory oversight of its traditional telephone business.

At the same time, the split will enable Pacific Telesis to play a much larger role in personal communications services (PCS), a new kind of mobile telephony which some advocates say may have greater mass market appeal than cellular.

Pacific Telesis US United States of America P4813 Telephone Communications, Ex Radio P4812 Radiotelephone Communications COMP Demerger P4813 P4812 The Financial Times London Page 27 351
International Company News: Sultan adds New York hotel to his collection Publication 931103FT Processed by FT 931103 By KIERAN COOKE KUALA LUMPUR

SULTAN Hassanal Bolkiah of Brunei collects luxury hotels like the rest of us collect postage stamps.

But when you have a personal fortune of Dollars 37bn you can afford to be a bit choosy about where you put your head down for the night.

The Sultan of Brunei (left) this week agreed to pay Dollars 202m for the luxurious New York Palace Hotel on Madison Avenue. The Sultan and his family also own the top of the range Beverly Hills Hotel in California and the Dorchester in London.

Closer to home, the Sultan controls two Hyatt hotels in Singapore. When the Sultan held a sit-down dinner party last year at his palace in Brunei for nearly 6,000 people as part of celebrations of his 25 years on the throne, Hyatt chefs and waiters were flown in from Sydney and Tokyo.

If the Sultan tires of hotel living on his frequent trips abroad there are alternatives available. The Sultan's family are believed to have at least two houses in Beverly Hills.

There are various houses and flats dotted round London. Then there is the main British residence - a country house conveniently situated close to Heathrow airport. The Sultan also has a mansion in central Kuala Lumpur.

The Sultan's latest acquisition has an interesting history. The New York Palace Hotel was once called the Helmsley Palace, after Mrs Leona Helmsley, once the most famous hotelier in the US and a leading New York socialite.

But the Helmsley hotel empire came crashing down in 1989 when Mrs Helmsley, known as the 'Queen of Mean' for her treatment of hotel employees, was sentenced to imprisonment for tax evasion and mail fraud.

As the Sultan of Brunei's investment advisers were putting the final touches to documents buying the old Helmsley Palace, Mrs Helmsley herself was moving into less salubrious hotel accommodation - a halfway-house low-cost hotel just down the road from her old stamping ground.

US United States of America MY Malaysia, Asia P7011 Hotels and Motels RES Facilities CMMT Comment & Analysis P7011 The Financial Times London Page 27 367
International Company News: Malaysia/US deal Publication 931103FT Processed by FT 931103 By REUTER KUALA LUMPUR

MALAYSIAN Helicopter Services has bought a 24.9 per cent stake in US cargo and passenger charter operator World Airways for USDollars 27.4m, Reuter reports from Kuala Lumpur.

Malaysian Helicopter Services World Airways Inc MY Malaysia, Asia US United States of America P4512 Air Transportation, Scheduled P4522 Air Transportation, Nonscheduled COMP Shareholding P4512 P4522 The Financial Times London Page 27 74
International Company News: Proton sales drive Publication 931103FT Processed by FT 931103 By REUTER KUALA LUMPUR

PERUSAHAAN Otomobil Nasional Bhd (Proton), Malaysia's national car company, plans to start exporting left-hand drive cars to continental Europe by the middle of 1994, the company said, Reuter reports from Kuala Lumpur. Proton, in which Japan's Mitsubishi Corp and Mitsubishi Motors have a total 17 per cent stake, has formed a joint venture to sell its cars in Europe.

Perusahaan Otomobil Nasional Bhd MY Malaysia, Asia XG Europe P3711 Motor Vehicles and Car Bodies MKTS Foreign trade MKTS Sales P3711 The Financial Times London Page 27 102
International Company News: Tokyo broadcast unit alters view Publication 931103FT Processed by FT 931103 By AP-DJ TOKYO

TOKYO Broadcasting System, a leading Japanese commercial broadcasting company, issued revised unconsolidated earnings forecasts showing expectations for increased profits but falling revenue for both the six months to September 30 and the full year to March, AP-DJ reports from Tokyo.

The company said a review of costs and programming conducted last summer had resulted in a greater impact than expected on earnings.

Tokyo Broadcasting System JP Japan, Asia P4833 Television Broadcasting Stations P4832 Radio Broadcasting Stations FIN Interim results P4833 P4832 The Financial Times London Page 27 104
International Company News: HK Telecom plans cable TV service Publication 931103FT Processed by FT 931103 By SIMON DAVIES HONG KONG

HONGKONG Telecom has announced plans to cash in on its existing telecommunications system by setting up a cable TV and video-on-demand service. The move comes two days after the launch of Wharf Holding's HKDollars 5bn (USDollars 647m) cable television network for the colony.

Hongkong Telecom attempted to bid for the first cable network franchise awarded in 1989, but the government decreed that it could own only 15 per cent of a cable operator and could not use its telephone network to relay the service, due to its monopoly position.

The monopoly on domestic services disappears in 1995, and since Wharf is planning to use its cable system as the basis for a second telecommunications network, Hongkong Telecom expects to be allowed to do the same, once Wharf's three-year exclusivity period expires in June 1996.

Hongkong Telecom anticipates that it would invest more than HKDollars 1bn in building up a cable television system. It is expected to be joined by the Hutchison Whampoa group in its application for the licence.

Mr Peter Howell-Davies, Hongkong Telecom's deputy chief executive, said: 'It is the right strategic step for us to extend the range of our video services to meet the needs of medium-sized business and domestic customers, as well as the major corporations.'

Hongkong Telecom plans to launch a service whereby customers can dial a number and have videos delivered to their TV set through the telephone network.

Wharf Cable officials claimed such a service would provide only niche competition, since it currently offers eight channels, of which only one includes movies.

The push to launch a cable channel will cause greater concern, since Hongkong Telecom would be in a position to set up a network more rapidly and cheaply than any other company.

It has the obvious advantages of its existing network and its business relationship with almost every family in the colony. However, the move does underline the attractiveness of Wharf's new franchise.

Hongkong Telecom HK Hong Kong, Asia P4841 Cable and Other Pay Television Services TECH Services & Services use COMP Company News P4841 The Financial Times London Page 27 370
International Company News: Associated Dairies backs QUF offer Publication 931103FT Processed by FT 931103 By NIKKI TAIT SYDNEY

ASSOCIATED Dairies, the Victoria-based dairy products company which is the focus of an ADollars 82m (USDollars 55m) bid battle, is recommending that shareholders accept a ADollars 3.35 a share offer from QUF Industries in the absence of a higher bid.

'Your directors regard the offer as fair and reasonable and recommend that you join them in accepting this offer in the absence of a higher offer,' Associated Dairies said in its formal bid response document filed yesterday.

Australian Co-Operative Foods (ACF) has launched a rival bid for Associated Dairies, but this is currently worth only ADollars 3.25 a share.

ACF holds just under 20 per cent of its target's equity, shares which were bought at prices significantly below the QUF offer terms.

This would allow ACF to walk away from the battle with a profit of almost ADollars 6m, if it chooses not to raise its terms again.

Associated Dairies directors, however, advised shareholders to wait until the last minute before accepting the offer from QUF.

'As your company has a unique position within the Victorian dairy industry, it is possible that either or both of these offers could be revised upwards in the days ahead,' they said.

Associated Dairies QUF Industries Australian Co-Operative Foods AU Australia P2021 Creamery Butter P2026 Fluid Milk P2022 Cheese, Natural and Processed COMP Mergers & acquisitions P2021 P2026 P2022 The Financial Times London Page 27 249
International Company News: Indian chemical group climbs Publication 931103FT Processed by FT 931103 By Our Financial Staff

TATA CHEMICALS, the Indian fertilisers and chemicals company which is part of Tata, the country's largest industrial group, reported a 125 per cent advance in net profit to Rs883.9m (Dollars 28.2m) in the six months to the end of September, from Rs392.7m a year ago, writes Our Financial Staff.

Net sales amounted to Rs2.22bn, compared with Rs1.75bn.

Tata Chemicals IN India, Asia P2899 Chemical Preparations, NEC P2875 Fertilizers, Mixing Only FIN Interim results P2899 P2875 The Financial Times London Page 27 98
International Company News: Hopewell to create power unit Publication 931103FT Processed by FT 931103 By SIMON DAVIES

HOPEWELL Holdings, the Hong Kong-listed property and infrastructure group, is to create a separately listed company for its power plant operations, which will have an initial stock market value of HKDollars 12.75bn (USDollars 1.65bn).

Consolidated Electric Power Asia (CEPA) will become the holding company for all Hopewell's power generation projects. Hopewell was the first Hong Kong company to construct a power station in China and it has expanded this business into the Philippines.

It has completed three projects with a combined capacity of 1,010MW, and is constructing two more plants which would add a further 2,715MW.

CEPA is to issue HKDollars 8bn of partly-paid shares to the parent company, and a further HKDollars 4.7bn of shares to outside investors, including Hopewell's largest shareholder Mr Gordon Wu and Mr Li Ka-shing's Cheung Kong group. Peregrine International, the parent of the listed financial services group, and the large Japanese trading group Kanemaru will also take minority stakes.

The public offer will be valued at around HKDollars 1.5bn, based on the projected issue price of HKDollars 10 a share. The Hopewell group's own share placement will be issued on a partly-paid basis, but assuming full subscription, it will control 63 per cent of the new company.

The capital raising will enable the group to fund an aggressive expansion programme.

The company claimed that 'a separate listing of CEPA will enable investors to assess the business of the CEPA Group and the other business of the Hopewell Group independently which, in the opinion of the directors of the company, will enhance the market rating of the Hopewell Group'.

Hopewell Holdings Consolidated Electric Power Asia HK Hong Kong, Asia P6552 Subdividers and Developers, Ex Cemeteries P4911 Electric Services FIN Share issues P6552 P4911 The Financial Times London Page 27 311
International Company News: Norwegian bank back in black at nine-month stage Publication 931103FT Processed by FT 931103 By KAREN FOSSLI OSLO

SPAREBANKEN Nor, Norway's third biggest bank in asset terms, yesterday disclosed it had returned to the black in the first nine months of this year, posting a pre-tax profit of NKr1.034bn (Dollars 14m), against a NKr210m loss last year.

The sharp improvement was helped by substantial gains on securities, lower interest rates, and a decline in loan losses.

The bank, known internationally as Union Bank of Norway, increased net interest income by NKr315m to NKr2.29bn in the nine-month period as other operating income - gains on securities and foreign exchange - more than doubled to NKr1.55bn from NKr671m.

'About half the improvement is due to gains on securities,' Sparebanken Nor said.

Group operating expenses rose slightly by NKr84m to NKr1.85bn as operating profit, before credit losses and writedowns, more than doubled to NKr1.99bn, or 2.82 per cent of average assets, from NKr875m. Losses on loans and guarantees were cut by NKr124m to NKr944m.

Sparebanken Nor NO Norway, West Europe P6081 Foreign Banking and Branches and Agencies FIN Interim results P6081 The Financial Times London Page 26 197
International Company News: Kmart sells Pace warehouse stores to Wal-Mart Publication 931103FT Processed by FT 931103 By KAREN ZAGOR NEW YORK

KMART, the second-biggest US retailer, is selling most of its loss-making Pace Membership Warehouse clubs to rival retailer Wal-Mart Stores.

Although terms were not disclosed, Kmart said the deal would yield net proceeds of about Dollars 300m in cash, equal to Pace's net tangible book value. It said the sale price included a premium over net book value, which will be used to offset the cost of closing some Pace stores not sold to Wal-Mart.

Kmart will take a pre-tax charge of about Dollars 450m against fourth-quarter earnings.

Wal-Mart, which owns 326 Sam's Club warehouse stores, is buying 91 Pace outlets. Pace operates 113 stores and had contracts for another 19 which have not opened.

Wall Street had expected Kmart to shed its Pace stores. Kmart shares rose Dollars 1/8 to close at Dollars 24 7/8 , while Wal-Mart finished the day up Dollars 7/8 at Dollars 27.

Kmart's foray into the deep discount market has been beset by problems. It first struggled with Makro, a low-cost, warehouse-style retailer operated in the US as a joint venture between a Michigan-based group and SHV Holdings of the Netherlands. The Makro outlets were merged into the Pace business after Kmart acquired Pace for Dollars 322m in 1989.

The timing of Kmart's Pace acquisition was also unfortunate. Shortly after Kmart decided that clubs were more than a fad and expanded into the sector, the industry started to show its vulnerability to competition and the weak economy.

Pace, which had operating losses of Dollars 63m in the first half of this year, has been criticised for operating inefficiencies.

In contrast, Wal-Mart was quick to spot the potential in the sector, opening three Sam's Wholesale Clubs in 1983. By 1990, the company had more than 140 Sam's outlets.

Although the rate of same-store sales growth at Sam's has declined this year, analysts have praised its sophisticated distribution system. They expect it to benefit from the Pace acquisition.

The Pace deal will also strengthen Sam's position against the consolidation of Price/Costco - the second- and third-biggest warehouse club chains which agreed to merge this year.

Wal-Mart said the Pace clubs would continue to operate under the Pace name until the sale was finalised.

The divestiture will help Kmart focus on its core discount-store operations. In October, the company said it might sell 25 per cent stakes in its Sports Authority, Borders, OfficeMax and Builders Square specialty chains through initial public offerings.

In August, Kmart confirmed it was seeking bidders for its PayLess drugstores chain. According to US press reports, Kmart has tentatively agreed to sell PayLess for Dollars 1bn to a Los Angeles-based investment firm.

Kmart Corp Wal-Mart Stores Inc US United States of America P5311 Department Stores P5331 Variety Stores COMP Disposals COMP Mergers & acquisitions P5311 P5331 The Financial Times London Page 26 490
International Company News: Visa to buy Plus ATM network Publication 931103FT Processed by FT 931103 By RICHARD WATERS NEW YORK

VISA International is to buy the 70 per cent of the Plus ATM (automated teller machine) network it does not already own, intensifying the competition for the international cash-withdrawal business with rival Mastercard.

Visa said it would exercise an option to buy Plus in three years, and in the meantime will run the system.

It took a 10-year option to buy Plus, which is majority-owned by the banks which issue Plus cash-withdrawal cards, when acquiring its initial 30 per cent stake in 1988.

The acquisition of 101,000 Plus terminals in 40 countries will take the Visa total to 160,000. The payment organisation said it plans to take the total to 250,000 by 1996 by absorbing other bank-owned ATMs into the system.

Mastercard, by contrast, made a big move into ATMs in 1987 with the acquisition of rival network Cirrus, and now has 143,565 ATM machines internationally.

Visa's aggressive plans to expand its network could lead to a greater polarisation between the two ATM systems, forcing banks to choose between issuing Visa or Mastercard debit cards (use of which leads to an immediate debit to the user's bank account).

The expansion of the ATM network is part of a move to expand the use of its debit cards, Visa said. It currently has 68m debit cards in issue, compared with 318m credit cards, but plans to expand the number to 220m within two years.

The availability of ATMs internationally, which allow users to debit their accounts from abroad, is part of a move to enhance the attractiveness of the Visa debit cards.

Visa International US United States of America P6141 Personal Credit Institutions COMP Mergers & acquisitions P6141 The Financial Times London Page 26 303
International Company News: Merck drug withdrawn Publication 931103FT Processed by FT 931103

MERCK yesterday withdrew Roxiam, a schizophrenia treatment which was awaiting approval from the US Food and Drug Administration. The move follows the death of a patient in Europe, write Richard Waters and Paul Abrahams in New York.

The drug, which has been marketed in Europe by Astra, the Swedish company, for the past two and a half years, was said by analysts to have the potential for peak annual sales of Dollars 100m-Dollars 250m in the US.

The withdrawal followed the development of a blood disorder in eight patients taking the drug in Europe.

Merck and Co Inc US United States of America P2834 Pharmaceutical Preparations TECH Safety & Standards P2834 The Financial Times London Page 26 129
International Company News: Case gets in shape for a difficult harvest - Laurie Morse examines restructuring at Tenneco's agricultural machinery subsidiary Publication 931103FT Processed by FT 931103 By LAURIE MORSE

THE grain harvest is about three weeks behind schedule in the American mid-west, and farmers are working overtime, pushing their tractors and combines to the limit.

The machines are invariably the trademark green of John Deere, or the distinctive red of the old International Harvester company, whose logo has been assumed by equipment manufacturer J. I. Case, the Wisconsin-based unit of Tenneco.

This year, with US farm income projected at 10 per cent above 1992's Dollars 62.5bn, Deere and Case are hoping farmers will end their self-imposed austerity and make long-deferred purchases of tractors and other equipment. For Case, always a distant second to Deere, the battle for market share will be more difficult than usual.

The company, the largest division of Houston-based Tenneco, is restructuring, with the aim of returning the unit to profitability. Case delivered Dollars 4bn in revenues to Tenneco last year, and still logged a huge Dollars 1bn loss.

Quality problems in manufacturing, a pricing policy aimed at maintaining market share at any cost, and out-of-control inventories have plagued Case for years. When turnround expert Mr Michael Walsh took the helm at Tenneco in 1991, he hired an old friend, Mr Dana Mead, as president and asked him to revamp Case.

Mr Mead tackled inventories that had jumped as high as Dollars 2bn, ordering manufacturing cutbacks and reduced manufacturing time. He also cut the workforce to 17,000 from about 30,000 in 1990.

Mr Mead also instituted stringent quality controls, and reviewed Case's agricultural and construction equipment product lines model by model.

Some products were scrapped and others were re-tooled so that Case retained only assembly functions, buying parts from outside suppliers. Production was rationalised to meet customer demand, a new concept for Case.

This year 70 per cent of its output will be built to customer specifications, rather than being manufactured wholesale and then customised through costly rebuilding.

Mead also ended Case's customary sales discounts. This reform has reduced volume this year, but profits have grown.

'Case forgot it liked to make money and just liked to make tractors,' Mr Mead jokes.

Inventories fell by Dollars 719m in 1992, and are projected to be down another Dollars 300m in 1993. Tightening quality controls at the factory and in the sales process has saved the company about Dollars 200m this year, according to Mr Ted French, Case's chief financial officer.

Mr Mead's policies are paying off. Case posted a Dollars 52m operating profit at the end of the third quarter, up from a loss of Dollars 134m a year earlier. Contrary to Wall Street projections only a few months ago, Case is expected to show a profit for the full year.

Its production lines are gearing up for a 30 per cent surge this quarter, to bring output in line with that of 1992. Meanwhile, Mr Mead says he intends to continue to trim his workforce, and will squeeze out an additional Dollars 34m in quality savings in 1994.

Still, analysts say the turnround is weak at best. Mr Frank Manfredi, editor of Machinery Outlook, an Illinois-based newsletter, says Case's practice of rolling earnings from the financing unit into profits boosted the third-quarter bottom line. Without the credit subsidiary's contribution, Case's year-to-date operating profit is a mere Dollars 12m.

The company's European cuts have been difficult, and markets there are shrinking, while the US agricultural economy remains flat.

Mr Mead says it is not yet time to ease up. 'This is just the beginning of the transformation,' he told analysts recently. 'It's been a long, tough struggle and we're not getting any help from our markets.'

Indeed, Case is projecting sales of Dollars 2.8bn in North America this year, and about Dollars 1.1bn in Europe, its second-largest base.

Of those sales, about 60 per cent will be agricultural machinery and 40 per cent in construction equipment.

The late harvest has delayed the autumn selling season for big-ticket agricultural items such as tractors by about three weeks in North America. Meanwhile, farmers who are used to buying Case's shiny red tractors at juicy discounts are finding value pricing hard to swallow. 'They're trying to wait us out, looking for year-end mark-downs,' one dealer observed.

And while US farm income is up slightly this year, it is projected to be down 8 per cent in 1994, a forecast that reinforces Mr Mead's determination to raise operating profits even as sales decline.

In Europe, the situation is even more dismal. European tractor sales are projected to fall to 106,000 units in 1994, down from 181,000 in 1990. Industry-wide sales of construction equipment are flat to lower. And unlike North America, competition is fragmented and intense.

The big German construction market remains depressed. 'We don't have any idealistic views about the 1994 market,' says Mr Steve Lamb, Case's managing director for Europe.

Case's policy of holding the line on discounts has not succeeded in Europe, where Deere, also suffering from a shrinking market, is pricing aggressively.

Case operates eight manufacturing plants in Europe, most of them the legacy of Tenneco's acquisition of France's Poclain construction equipment and International Harvester's agricultural divisions in 1985.

Several small manufacturing operations are being closed or reduced in size, with redundancies of about 1,000 workers. That includes the 266 redundancies at Case's French plants announced in September.

Given Case's ambitious restructuring plans and the struggling state of Poclain's businesses, 'its a pretty safe bet that you'll see more closures in France', where about half of Case's 7,500 European employees are situated, Mr Lamb says.

The contraction is fundamental to the success of Case's turnround. 'It is essential to get the size of production down to the size of the market,' Mr Mead says.

JI Case Tenneco Inc US United States of America P3523 Farm Machinery and Equipment CMMT Comment & Analysis MKTS Market shares P3523 The Financial Times London Page 26 1005
International Company News: Cincinnati Milacron in German acquisition Publication 931103FT Processed by FT 931103 By FRANK MCGURTY NEW YORK

CINCINNATI Milacron, the US machine toolmaker, is to buy the Ferromatik plastics-moulding equipment business from Klockner Werke of Germany for DM94m (Dollars 56m).

The US company hopes the acquisition will bolster its moulding machinery business, while giving it immediate access to the European market, the world's largest for such equipment. The acquisition is expected to add Dollars 100m to 1994 revenues.

The growing importance of the business to Milacron's bottom line was underscored yesterday by the announcement of third-quarter results.

Stripping out extraordinary items, operating earnings were up 58 per cent at Dollars 8.4m, or 25 cents a share, on revenues of Dollars 301m, a 33 per cent gain.

The improvement reflected in part one of the best quarters ever for the plastics machinery group, which appeared to be on target for a record-breaking year in new business and sales.

The strong performance in plastics equipment offset weakness in the machine tools segment, which posted flat sales, lower earnings and a 'precipitous fall-off' in orders.

'Our machine tools business continued to be hurt by the deep recession in the aerospace industry,' said Mr Daniel Meyer, chairman and chief executive.

The results include an Dollars 18.1m charge related to Sano, a supplier of plastic film systems acquired in 1986. The company wants to sell Sano because of problems of integration with core businesses.

With the one-time provision included, the company posted a net loss of Dollars 7.9m, or 23 cents, against net earnings of Dollars 7.3m.

Cincinnati Milacron Klockner-Werke Ferromatik US United States of America DE Germany, EC P3541 Machine Tools, Metal Cutting Types P3542 Machine Tools, Metal Forming Types COMP Mergers & acquisitions COMP Disposals P3541 P3542 The Financial Times London Page 26 302
International Company News: Asbestosis claims charge pushes Cigna into the red Publication 931103FT Processed by FT 931103 By RICHARD WATERS NEW YORK

A Dollars 244m after-tax charge to cover asbestosis and environmental claims pushed Cigna, the US insurer, into the red during the third quarter of the year.

The company also took a Dollars 107m charge to cover 1,400 redundancies in its health and property/casualty businesses, which have already been reported, as well as a further 800-1,000 job losses expected in the next 18 months.

The latest charges led Cigna, one of the leaders in the US health and life insurance businesses, to post a net loss of Dollars 94m, or Dollars 1.31 a share, for the period, compared with a net profit of Dollars 50m, or 70 cents, a year ago.

The scale of the loss was reduced by a Dollars 48m benefit from the change in the US corporate tax rate.

The results a year before had been struck after one-off items which led to a net benefit of Dollars 42m.

Operating results during the period in health, pension and life businesses had been strong, said Mr Wilson Taylor, chief executive.

Cigna Corp US United States of America P6331 Fire, Marine, and Casualty Insurance PEOP Labour FIN Interim results P6331 The Financial Times London Page 26 218
International Company News: ABB investment fund link-up Publication 931103FT Processed by FT 931103 By MARTIN DICKSON NEW YORK

ASEA BROWN Boveri, the European manufacturer of power plant and industrial systems, is setting up a fund with six US investment institutions to provide equity and subordinated debt to help finance industrial and power projects in the US, writes Martin Dickson in New York.

GE Capital, the financial services arm of power equipment manufacturer General Electric, already provides equity capital for power projects. ABB believes, however, its move will give it a lead in other industrial areas served by the company, such as petrochemicals and paper and pulp.

ABB Asea Brown Boveri US United States of America CH Switzerland, West Europe P6726 Investment Offices, NEC COMP Strategic links & Joint venture P6726 The Financial Times London Page 26 136
International Company News: Quebecor lifts sales, earnings in third term Publication 931103FT Processed by FT 931103 By ROBERT GIBBENS MONTREAL

QUEBECOR, the Montreal-based publishing group which controls North America's second-biggest commercial printer, reported a gain in sales and earnings in the third quarter, writes Robert Gibbens in Montreal.

Net profit was CDollars 17.5m (USDollars 13.5m), or 27 cents a share, up from CDollars 16.1m, or 24 cents, a year earlier on revenues of CDollars 789m, against CDollars 623m.

Nine-month profit was CDollars 52.6m, or 77 cents, up from CDollars 36.8m, or 55 cents, excluding special items in both periods. Revenues for the period advanced to CDollars 2.2bn from CDollars 1.8bn.

Quebecor is controlled by the Peladeau family. It owns Canada's second-biggest daily newspaper, and weeklies and magazines. Much of its income comes from the 55 per cent-owned Quebecor Printing. Talisman, the former BP Canada, earned CDollars 4.3m, or 7 cents a share, in the third quarter, double the total of a year earlier. For the first nine months it earned CDollars 19.2m, or 33 cents, up from CDollars 7.5m, or 15 cents, a year earlier.

The company has doubled oil and gas production and reserves this year through a significant acquisition, and gas prices have risen steadily. A lower Canadian dollar has also helped.

Bow Valley Energy, 33 per cent held by British Gas and expanding internationally, earned CDollars 10.4m or three cents a share in the first nine months, up from CDollars 7.9m or one cent a share, on revenues of CDollars 178m, little changed.

Quebecor Inc Talisman Energy Inc Bow Valley Energy Inc CA Canada P2711 Newspapers P2721 Periodicals P1311 Crude Petroleum and Natural Gas FIN Interim results P2711 P2721 P1311 The Financial Times London Page 26 289
International Company News: Norwegian bank back in black Publication 931103FT Processed by FT 931103 By KAREN FOSSLI OSLO

SPAREBANKEN Nor, Norway's third biggest bank in asset terms, yesterday disclosed it had returned to the black in the first nine months of this year, posting a pre-tax profit of NKr1.034bn (Dollars 14m), against a NKr210m loss last year.

The sharp improvement was helped by substantial gains on securities, lower interest rates, and a decline in loan losses.

The bank, known internationally as Union Bank of Norway, increased net interest income by NKr315m to NKr2.29bn in the nine-month period as other operating income - gains on securities and foreign exchange - more than doubled to NKr1.55bn from NKr671m.

'About half the improvement is due to gains on securities,' Sparebanken Nor said.

Group operating expenses rose slightly by NKr84m to NKr1.85bn as operating profit, before credit losses and writedowns, more than doubled to NKr1.99bn, or 2.82 per cent of average assets, from NKr875m. Losses on loans and guarantees were cut by NKr124m to NKr944m.

'Calculated on an annual basis, the loss ratio for the first nine months was 1.6 per cent of gross loans, while for 1992 the figure was 1.9 per cent,' the bank said.

Sparebanken Nor has recommended a dividend payment of not less than NKr15 per primary capital certificate (PCC) for 1993.

PCCs are financial bourse-listed instruments, similar to preference shares, which are traded like usual stocks and governed by the same legislation. They are used by Norway's savings banks to raise fresh equity capital and to expand their ownership to include a limited percentage of foreign shareholders.

Sparebanken Nor NO Norway, West Europe P6081 Foreign Banking and Branches and Agencies FIN Interim results P6081 The Financial Times London Page 26 291
International Company News: Gildemeister to raise DM40m Publication 931103FT Processed by FT 931103 By DAVID WALLER FRANKFURT

GILDEMEISTER, one of Germany's leading machine-tool manufacturers, is to double its capital base and cut its workforce in an attempt to stave off the impact of deep recession in what was once one of Germany's most prosperous industrial sectors.

The Bielefeld-based group said it planned to hold a near one-for-one rights issue to raise DM40m (Dollars 23.6m) in new equity. The issue is to be underwritten by Westdeutsche Landesbank, the house bank to the state of North-Rhine Westphalia in which Gildemeister is based. In addition, banks will be forgoing debts totalling DM32m.

Gildemeister plans to reduce its workforce by 380, the latest in a series of job-cutting measures which have taken the group total to just over 2,000 from 3,200 at the end of 1991.

The group, which specialises in turning machines, added that it had devised a new strategy to adapt further to difficult market conditions. It is planning to reduce the number of products which it makes and to contract out layers of manufacturing to third-party suppliers.

It gave no detailed picture of its operational situation, but the measures imply a further deterioration in business conditions in the second half of the year. At the end of June the order book was 45 per cent of last year's level. Last year the group made losses of DM77m on turnover of DM470m; the group has already warned that losses for the current year will be substantial.

Gildemeister DE Germany, EC P3541 Machine Tools, Metal Cutting Types P3542 Machine Tools, Metal Forming Types PEOP Labour FIN Share issues P3541 P3542 The Financial Times London Page 24 283
International Company News: Time Warner and Tribune launch television network Publication 931103FT Processed by FT 931103 By MARTIN DICKSON NEW YORK

MEDIA companies Time Warner and Tribune announced yesterday that they were joining forces to launch a fifth US prime time television network - in direct competition with Paramount Communications and Chris-Craft Industries, which also unveiled plans for a network last week.

'There is room for one more broadcast network, but only one,' said Mr Jamie Kellner, who will head the new organisation. 'This is it.' Mr Kellner played an important role in the launch of the fourth US network, Fox, which was set up in 1986 by Mr Rupert Murdoch's News Corporation.

Programming for the network will be provided by Time-Warner's Warner Brothers subsidiary, one of the leading suppliers of prime-time television in the US. Tribune, which publishes the Chicago Tribune newspaper, will contribute at least six of its seven television stations, covering some 19 per cent of US households. Time Warner's cable interests would take the coverage to 29 per cent.

Paramount and Chris-Craft said stations they owned would give their network access to 27 per cent of US households.

Both sides will be battling to affiliate the 280 independent stations in the US which are not already tied into one of the three big longstanding television networks - CBS, ABC and NBC - or Fox.

Yesterday, Warner said that it expected the network would initially cover 85 per cent of US households. It already had commitments from station groups representing 40 per cent coverage of the country.

Analysts reckon that a network needs to achieve at least 70 per cent coverage to attract the advertising necessary to support a large amount of original programming.

They doubt there is room in the US for more than one more network, given the limited pool of unaffiliated stations and increased competition for advertisers' dollars.

Warner intends to start its network in the autumn of next year, while Paramount's venture is due to start up in January 1995.

Time Warner Inc Tribune Entertainment US United States of America P4841 Cable and Other Pay Television Services COMP Strategic links & Joint venture P4841 The Financial Times London Page 24 367
International Company News: Swedish bank back in profit Publication 931103FT Processed by FT 931103 By CHRISTOPHER BROWN-HUMES STOCKHOLM

HIGHER revenues, cost-cutting and lower credit losses combined to help Svenska Handelsbanken swing to an operating profit of SKr1.39bn (Dollars 170m) in the first nine months of 1993 from a SKr883m loss in the same 1992 period.

The bank's result has improved in every quarter this year, culminating in a SKr552m profit in the July to September period. This recovery and the SKr2.65bn proceeds of its October rights issue have left it in a strong competitive position based on a 12.4 per cent capital adequacy ratio.

Total operating income in the first nine months was up 17 per cent at SKr10.7bn. This followed a 10 per cent rise in net interest income to SKr7.54bn and higher commission and property rental income. The bank also realised SKr400m in capital gains on bond sales, compared with SKr80m last time round.

Expenses were virtually unchanged at SKr3.98bn, with higher system development costs and the weaker Swedish krona offsetting a 2 per cent fall in personnel costs.

Another encouraging feature of the report was the 12 per cent fall in loan losses to SKr5.28bn, equal to 2.6 per cent of total lending. Problem loans fell to SKr12.4bn, or 4.5 per cent of lending volume, compared with SKr13.2bn at the end of June.

Svenska Handelsbanken has weathered the Swedish banking crisis better than its rivals, and was the only significant bank in the Nordic region which neither received nor sought government assistance.

Svenska Handelsbanken SE Sweden, West Europe P6081 Foreign Banking and Branches and Agencies FIN Interim results P6081 The Financial Times London Page 24 278
International Company News: Time-out called as strains start to show - Delay to Renault-Volvo merger reveals differences in emphasis Publication 931103FT Processed by FT 931103 By HUGH CARNEGY and JOHN RIDDING

LIKE embarrassed mechanics rushing to fix a new model that stalls in the showroom, executives from Volvo and Renault were quick to insist yesterday that their ambitious plan to form a Franco-Swedish automotive powerhouse was suffering from no more than a temporary hitch.

Both groups explained in soothing tones that Volvo's decision on Monday to postpone a shareholder vote on the proposed merger of its car and truck operations with state-owned Renault was simply a move to allow them more time to answer the concerns voiced by Volvo's highly sceptical Swedish shareholders.

But despite the attempt at reassurance, there was little disguising that the postponement had revealed the strains involved in converting their three-year old alliance into a full-blown merger and carried no guarantee that Volvo will win a Yes vote from its owners at the re-scheduled meeting on December 7.

A difference in emphasis was discernable between the French and Swedish sides yesterday. Renault and the French government stressed that clarification of the existing agreement, not renegotiation, was the order of the day.

Volvo, however, did not rule out seeking at least some changes in the merger deal after it had ascertained more clearly what its shareholders - mostly institutional investors - objected to.

Working out what the Swedish shareholders are demanding is a more difficult task than it might at first sight appear. The opposition to the deal has focused on the timing of the privatisation of Renault - set to take place after the merger takes effect at the beginning of next year - and the French government's intentions concerning the use of a golden share which it will retain after privatisation.

A director of one leading shareholder fund said yesterday that these questions had a vital impact on any analysis of the worth of the merger deal for Volvo, which is set to have a 35 per cent share in the new Renault-Volvo company.

'Renault is basically making a bid for Volvo's cars and trucks and paying with its shares,' he said. 'As Volvo shareholders, we cannot assess what those Renault shares are worth until Renault has a market value.'

He said the French government's plan to retain a golden share not only contained a future threat to the level of Volvo's holding in the merged company. It also amounted to a 'poison pill' which would entail a discount in the share price of the merged company and thus also had an impact on the worth of the deal to Volvo.

This shareholder would likely be satisfied by more information on the values imputed in the deal by Renault and Volvo and more details - hitherto not circulated by Volvo - of a mostly favourable 'fairness opinion' commissioned from Credit Suisse First Boston.

However, some Swedish opposition goes well beyond this. It ranges from demands that the merger be postponed until after Renault's privatisation, to longstanding hostility to Mr Pehr Gyllenhammar, the Volvo chairman, and his perceived sell-out to foreigners of Sweden's industrial crown jewels.

'Certainly there is a degree to which the privatisation and golden share issues are being used as a smokescreen for more basic opposition,' said a Stockholm investment broker.

The French government and Renault believe that the failure to persuade Volvo's shareholders has been a problem of presentation rather than the terms of the agreement.

Mr Gerard Longuet, the industry minister, promises that the merged group will be privatised as quickly as possible after the merger and that this should be achieved by the end of next year.

The problem, however, is that such statements fall short of demands from Swedish shareholders for a fixed timetable.

The French government says that because a successful privatisation depends on the conditions in the financial and car markets it is unwise to set a more precise date. 'Do you think shareholders would appreciate it if we went through with a privatisation which flopped?' asked one economic official.

One solution would be to move the merger up the list of 21 publicly owned groups slated for privatisation, or even to launch the privatisation at the time of the merger - scheduled for January 3 next year.

The problem with this approach, say French officials, is that it is necessary to establish a value for the merged company before it can be sold.

It would also be politically difficult to bow to Swedish pressure on the timing of the sale of one of France's flagship public sector industrial groups.

As for the golden share in Renault, the French government will retain the right to limit any investor to 20 per cent of the merged company's capital in the event of a breakdown of the shareholders' agreement. The government says that the golden share would only be used to protect the group from a hostile takeover.

Nevertheless, it enables the French government to ensure French control of the group following privatisation - including, in theory, forcing Volvo's share down to 20 per cent. Hence Swedish objections.

Persuading Swedish shareholders over the next month to support the merger seems certain therefore to require more than a stronger sell of the existing deal. At some point Volvo will turn to Paris for at least some degree of renegotiation, or new concessions.

The importance of the deal for the French government and its privatisation plans may ensure the door is open. But yesterday was much too early to predict whether the new Renault-Volvo model restarts and makes it out of the showroom.

Volvo Renault FR France, EC SE Sweden, West Europe P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Mergers & acquisitions CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 24 979
International Company News: Car chiefs try to defuse opposition to merger Publication 931103FT Processed by FT 931103 By JOHN RIDDING and HUGH CARNEGY PARIS, STOCKHOLM

RENAULT and Volvo said yesterday they would launch a concerted campaign to defuse mounting shareholder opposition to their proposed merger after the Swedish group was forced to postpone a vote to approve the deal.

Renault expressed confidence that the merger would go ahead on schedule and said that Volvo's decision to postpone the vote from next week to December 7 would allow it to calm what it described as exaggerated concerns.

'Volvo has given itself time to show investors that the agreement is indispensable for both companies', Renault said.

But Swedish investors continued to press for a clearer timetable for privatisation and increased information concerning the golden share which the French government plans to hold after the group is privatised. The strength of opposition could increase pressure on the French government to make concessions to Volvo shareholders to win approval for the deal.

Mr Gerard Longuet, the French industry minister, telephoned Mr Per Wersterberg, his Swedish counterpart, to emphasise his government's commitment to privatising the merged group as quickly as possible. He also said that the golden share would be used to protect the combined group from predators and not to ensure French control.

Mr Pehr Gyllenhammar, Volvo's chairman, said his company remained fully committed to the plan to merge the two groups' car and truck operations. He said Volvo would examine all questions raised by critics of the merger. 'We take the criticism seriously and will try to deal with it in the best way.'

Volvo officials said the company would consult further with its key institutional shareholders on their objections to the merger deal before deciding what demands it might make on Renault and the French government to help win over shareholder support.

A spokesman said Volvo was not demanding renegotiation of the merger agreement but would keep open the possibility of making some changes.

French industry ministry officials said there was no need to change the terms of the agreement. They blamed the opposition from Swedish shareholders on a lack of information and said that clarification of the disputed points should ease their concerns.

The merger, regarded by the French government as a necessary precursor to privatisation, is one of the most important projects in the French industrial policy.

The stakes are also high for Mr Gyllenhammar. He came under increased personal criticism for having mishandled the Renault deal, a charge he denied. But critics said that if the merger failed it would be the latest in a line of failed strategic initiatives in his two decades in charge at Volvo, and that he would not survive.

Editorial Comment, Page 19

Renault Volvo SE Sweden, West Europe FR France, EC P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Mergers & acquisitions CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 24 496
UK Company News: Tarmac's recuperation at a critical point - The troubled construction group's progress on the road to profit Publication 931103FT Processed by FT 931103 By ANDREW TAYLOR

THE RECUPERATION of Tarmac, the lossmaking construction and building materials group, has reached a crucial point.

The announcement on Monday of plans to float off its Ruberoid roofing materials subsidiary marks the end of a period of surgery during which Mr Neville Simms, Tarmac's chief executive, will have raised almost Pounds 300m by disposing of unwanted businesses.

The next step will be to see how Tarmac's remaining interests perform as the construction market, particularly housebuilding in the UK, begins to improve.

The group has savagely reduced costs and made substantial write-downs as it has fought to regain financial health. Net borrowings at the end of last year - including Tarmac's share of off-balance sheet finance of Pounds 100m and Pounds 99.3m of auction market preferred stock - stood at Pounds 677m, equivalent to 73 per cent of shareholders funds of Pounds 924m.

This is expected to fall to about Pounds 260m, compared with increased shareholders' funds of Pounds 1.05bn, should Ruberoid raise Pounds 70m as expected, and following Tarmac's Pounds 215m rights issue.

To continue the medical metaphor: the patient is recovered enough to get out of bed but it remains to be seen if he will ever run again.

Tarmac's rise and fall has been dramatic. Between 1978 and 1988 its annual pre-tax profits rose from Pounds 26.5m to Pounds 393m. Last year, after write-downs, it made a pre-tax loss of Pounds 350.3m.

The key to Tarmac's future will be the strength of its housebuilding operations, says Mr Mark Stockdale, construction analyst for SG Warburg Securities, the company's broker. He estimates that capital employed by Tarmac in housebuilding has fallen from a peak of Pounds 750m at the end of 1988 to about Pounds 250m now. Overhead costs in the housing division have fallen from more than Pounds 70m annually to an estimated Pounds 50m this year.

Tarmac is already beginning to reap the benefit from this improved efficiency.

Net margins on house sales are thought to be about 8 per cent this year compared with a low of 2.5 per cent in the first six months of 1992.

Annual output of homes, however, has fallen from a peak of 12,000 in the late 1980s to an estimated 7,500 this year.

This total is expected to rise again as the housing market continues its recent recovery. Tarmac will therefore need to use its renewed financial strength to replace its stock of housing land.

Elsewhere prospects look less bright.

Tarmac's strategy is to concentrate on the three core businesses of housebuilding, construction and quarry products. These last two show limited prospects for improvement, with little recovery expected in construction output outside of housebuilding.

Competition for work could become even more intense if the government cuts road building and other large scale infrastructure projects in its unified budget later this month.

Cuts in public sector transport and housing investment might also have a detrimental effect on attempts by the big quarry companies - Tarmac, Redland and RMC - to force through higher prices.

A cause of the group's collapse was its failure to recognise the intensity and duration of the recession.

This meant that management was slow to rein back housing land purchases and investment in commercial property development when property values fell sharply.

Tarmac has now announced a complete withdrawal from commercial property development.

It has also sold a large part of its Econowaste waste disposal operations along with other peripheral businesses, some of them expensively acquired in the mid to late 1980s.

Still to be decided is the future of two other businesses described by Mr Simms as 'non-core'.

These are the building materials division, which manufactures bricks and concrete blocks, and the US aggregates and concrete operations in Florida and the Carolinas.

The recent decision by Tarmac to swap its clay tile operations for the brick making interests of rival building materials group Marley is seen by some as a prelude to a sale by Tarmac of the entire enlarged brick business.

It may, however, decide to keep, or even expand, its US interests, given the recent improvement in the outlook for the US economy.

Warburg is forecasting another pre-tax loss of up to Pounds 20m for this year after further goodwill write-offs, mainly against Ruberoid which was acquired for Pounds 141.3m in 1988. The investment bank, however, is forecasting a return to profits of Pounds 95m for Tarmac next year, rising to Pounds 150m in 1995.

Tarmac's share price since sterling left the European exchange rate mechanism last September has more than doubled from 61p to 135p, matching a similar rise in the FT-Actuaries construction and contracting share index.

The market appears pleased with progress so far but awaits evidence that the company, having got this far, can produce good returns from its reorganisation.

To switch from a medical to a legal metaphor: the jury is still out.

Tarmac GB United Kingdom, EC P1611 Highway and Street Construction P1521 Single-Family Housing Construction COMP Disposals CMMT Comment & Analysis MKTS Market shares P1611 P1521 The Financial Times London Page 23 871
UK Company News: BDA improves to Pounds 28,000 Publication 931103FT Processed by FT 931103

Despite difficult trading conditions BDA Holdings, the architect, consultant and property developer, increased pre-tax profits from Pounds 6,000 to Pounds 28,000 for the half year to end-July.

BDA Holdings GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries P8712 Architectural Services FIN Interim results P6552 P8712 The Financial Times London Page 23 67
UK Company News: Cleveland Trust rises to a premium Publication 931103FT Processed by FT 931103

Shares in Cleveland Trust, the first new property company to seek a listing since the bottom fell out of the market in 1989, rose to a premium yesterday on their first day of trading.

Cleveland Trust GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Share issues P6552 The Financial Times London Page 23 71
UK Company News: Unichem expands Moss Chemists Publication 931103FT Processed by FT 931103

UniChem has added a further nine shops to its Moss Chemists chain at a cost of Pounds 3.42m. The company now operates 253 shops through E Moss.

The nine outlets have a combined turnover of Pounds 5.76m. UniChem intends paying with Pounds 2.61m in cash and the balance via the issue of 309,482 ordinary shares. Included are six pharmacies run by the north-east chain Sarah Kirkup.

UniChem GB United Kingdom, EC P5912 Drug Stores and Proprietary Stores RES Facilities P5912 The Financial Times London Page 23 99
UK Company News: Celsis Intl Pounds 561,000 in the red Publication 931103FT Processed by FT 931103

CELSIS International, the specialist in rapid microbial testing which came to the market in a Pounds 12.4m flotation in July, reported a pre-tax loss of Pounds 561,000 for the six months to end-September, compared with a deficit of Pounds 460,000.

Turnover was up from Pounds 67,000 to Pounds 79,000. Losses per share were 1.05p (1.03p). Net interest income amounted to Pounds 185,000 against a Pounds 16,000 charge last time. Cash on deposit at the end of October was Pounds 12.2m.

Celsis International GB United Kingdom, EC P8734 Testing Laboratories FIN Interim results P8734 The Financial Times London Page 23 115
UK Company News: Tunstall forecasts 21% growth to Pounds 6.4m Publication 931103FT Processed by FT 931103 By JOHN MURRELL

AN INCREASE of 21 per cent in pre-tax profits to Pounds 6.4m and a 1p lift in the dividend for the year ended September 30 1993 was yesterday forecast by Mr Michael Dawson, chairman of Tunstall Group, the Yorkshire-based supplier of emergency and security systems, as it announced big expansion moves. The shares closed 20p higher at 560p.

The forecasts corresponded with the announcement of the formation of Mion Electronics, a wholly owned subsidiary, to take over the existing contract design and manufacturing business.

Mr Dawson said the expansion of this division follows a year of significant growth and a continuing strong order book by Tunstall Electronics.

Mion intends to build a 6,600 sq m factory near Barnsley, South Yorkshire.

Total capital expenditure over the next four years on land, buildings and new equipment would be about Pounds 11m with a further Pounds 1.5m required for working capital. It was anticipated that over 400 jobs would be created within two years.

The funding would be financed by a regional assistance grant of Pounds 2.5m from the Department of Trade and Industry and, subject to contract, by a five-year loan of Pounds 5m from the European Coal and Steel Community.

Mr Dawson said the contract manufacturing activity had the potential 'to produce significant profit growth' for the group.

Tunstall's estimated 1992-93 results for contract manufacture shows turnover of Pounds 3.6m (1991-92 actual Pounds 400,000), percentage gross margins of 30 (23) and profits before interest of Pounds 500,000 (nil).

Pre-tax profits would total Pounds 6.4m (Pounds 5.3m), sales Pounds 44.5m (Pounds 40.5m) and earnings per share 26.4p (21.6p).

Cash balances were expected to stand at Pounds 6.4m (Pounds 4.3m).

The directors would propose a final dividend of 4.5p (3.75p) making a total of 7p (6p).

Tunstall Group Mion Electronics GB United Kingdom, EC P3661 Telephone and Telegraph Apparatus P3679 Electronic Components, NEC RES Capital expenditures RES Facilities P3661 P3679 The Financial Times London Page 23 342
UK Company News: Trafalgar House in bond purchase deal Publication 931103FT Processed by FT 931103

Trafalgar House has entered into option arrangements with Swiss Bank Corporation under which it may acquire Pounds 39m nominal of 10 7/8 per cent bonds due in December 1993 or February 1994.

The company may be obliged to purchase the bonds in February 1994. It expects to use part of the proceeds of a proposed rights issue to discharge any obligation arising as a result of the arrangement.

Should Trafalgar House acquire the bonds it will retire them, leaving a nominal Pounds 61m outstanding.

Trafalgar House GB United Kingdom, EC P1542 Nonresidential Construction, NEC P9311 Finance, Taxation, and Monetary Policy COMP Company News P1542 P9311 The Financial Times London Page 23 126
UK Company News: Swithland seeks SE listing Publication 931103FT Processed by FT 931103 By PAUL CHEESERIGHT, Midlands Correspondent

SWITHLAND, the Midlands car retailer, is seeking a Stock Exchange listing through a share placing which will give the group a market value of Pounds 21.4m.

The placing involves 18.5m shares, about 70 per cent of the issued equity, at a price of 81p each. Of this, 12.34m will be new shares, the sale of which will raise Pounds 9.05m net.

The balance of 6.1m shares is owned either by NatWest Ventures, Swithland's venture capital backer for the past two years, or Mr John Hayes, the group's founder and chief executive, and members of his family.

Ionian Corporate Finance is sponsoring the placing, for which the broker is Harris Allday Lea & Brooks.

Trading in the shares will start on November 15, provided buyers have been found for the issue of new shares. If not, the issue will be cancelled.

If the offering is completely sold, the Hayes family's holding in Swithland will be 29.96 per cent.

The share placing represents both re-financing of the group and clearance of the decks for expansion.

Of the Pounds 9.05m raised, Pounds 0.5m will be used to redeem preference shares held by NatWest Ventures, Pounds 322,000 to buy from Mr Hayes a piece of land over which the group has an option and about Pounds 6m to retire debt, reducing gearing from 240 per cent to 40 per cent.

The balance of the funds will be kept in reserve for expansion. 'Over the next three years we're looking to acquire another 10 retail operations, all within the Central TV area', said Mr Hayes.

Swithland now has 16 retail centres in the Midlands; it specialises in selling nearly new and used cars and, to 85 per cent of its customers, providing related finance.

Expansion will take place against the background of concentration in car retailing. 'Groups have been getting bigger over the past two and a half years. Over the next five to seven years, about 20 groups will emerge which will dominate the industry,' Mr Hayes said.

Swithland GB United Kingdom, EC P5511 New and Used Car Dealers FIN Share issues P5511 The Financial Times London Page 23 373
UK Company News: Rexmore stages strong recovery to Pounds 688,000 Publication 931103FT Processed by FT 931103 By PETER FRANKLIN

THE SALE of its lossmaking timber businesses coupled with a reduction in interest costs helped Rexmore, the contract furnishings group, to achieve a strong recovery with a pre-tax profit of Pounds 688,000 for the six months to October 2.

The outcome compared with a deficit of Pounds 143,000 last time and losses of Pounds 1.36m at the previous year end. Turnover for the 26 weeks amounted to Pounds 15.5m against Pounds 20.1m - including Pounds 5.25m from discontinued operations. Comparisons have been adjusted to conform with FRS 3.

Interest payments for the interim period were cut from Pounds 322,000 to Pounds 177,000.

Further reductions in borrowings and interest costs will materialise from operating profits and as the deferred consideration due from disposals is received, said Mr Michael Rosenblatt, chairman.

All operations performed well and indications were that the improvement would be maintained, he said.

The interim is raised by 43 per cent from 0.7p to 1p, payable from earnings of 4.44p per share (0.83p losses).

The shares closed 11p up at 82p.

Mr Rosenblatt, who founded the company almost 50 years ago, is to step down as chairman but will continue to serve as a non-executive director.

Mr Michael Rosenblatt will become chairman and Mr Norman Rosen, managing director.

Rexmore GB United Kingdom, EC P2211 Broadwoven Fabric Mills, Cotton P2421 Sawmills and Planing Mills, General FIN Interim results P2211 P2421 The Financial Times London Page 23 255
UK Company News: J Smith ahead to Pounds 0.78m Publication 931103FT Processed by FT 931103

HELPED by lower interest charges of Pounds 237,000, against Pounds 368,000, pre-tax profits of James Smith Estates, the USM-quoted property investment concern, improved from Pounds 689,000 to Pounds 775,000 for the six months ended September 24.

After tax of Pounds 256,000 (Pounds 229,000) earnings per share were 3.37p (2.99p) while the interim dividend is increased to 1.55p (1.4p).

The directors pointed out that gross rental income was affected by the incidence of a small number of voids and fell slightly from Pounds 1.18m to Pounds 1.16m. However, they believed that full-year results would show a resumption of rental income growth.

James Smith Estates GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Interim results P6552 The Financial Times London Page 23 138
UK Company News: B Elliott calls for Pounds 5.4m and acquires dies maker Publication 931103FT Processed by FT 931103 By JEAN MARSHALL

B ELLIOTT, the electrical and mechanical engineer, is acquiring Deeming Taylor, the specialist dies and tooling products manufacturer, for a maximum Pounds 771,500 in cash.

Partly to fund the acquisition the company is calling for Pounds 5.4m net through a 1-for-3 rights issue of 9.1m new ordinary shares at 63p each. Yesterday the shares closed 3p up at 75p.

The issue, which is fully underwritten by Beeson Gregory, is also offered on the basis of one ordinary share for every 2.13, 7.5 per cent preference shares.

B Elliott has also announced a turnround from restated losses of Pounds 764,000 to pre-tax profits of Pounds 1.26m for the six months to October 31. Turnover amounted to Pounds 40.7m against Pounds 45.8m last time which included Pounds 10.6m from discontinued operations. Operating profits from continuing operations improved to Pounds 1.97m (Pounds 1.5m).

Earnings per share worked through at 3.42p against losses of 57.44p last time. There is again no dividend.

Mr Somerset Gibbs, chairman, said the company had made excellent progress since completing the refinancing at the end of 1992, when 24.6m new shares were issued.

As part of its restructuring programme the group's machine tool businesses had either been closed or divested and that process had concluded with the sale of the assets and under taking of Butler Machine Tool in February 1993.

The continuing businesses were performing to plan and proceeds from the rights issue would also be used to fund the retention of the Philidas and Newall businesses, Mr Gibbs said.

For the year to October 31 1992 Deeming Taylor achieved gross profits of Pounds 353,000 on sales of Pounds 853,000. The net book value of the trading assets, plant and equipment being acquired is expected to be a minimum Pounds 394,000, including some Pounds 90,000 cash.

B Elliott Deeming Taylor GB United Kingdom, EC P3541 Machine Tools, Metal Cutting Types P3542 Machine Tools, Metal Forming Types COMP Mergers & acquisitions FIN Share issues FIN Interim results P3541 P3542 The Financial Times London Page 23 358
UK Company News: Amber Day reduces deficit to Pounds 2.09m Publication 931103FT Processed by FT 931103 By PETER PEARSE

MR PETER CARR, chairman of Amber Day Holdings for just seven weeks, said he believed that the decks had been cleared in the results for the year to July 31.

Pre-tax losses were reduced to Pounds 2.09m (Pounds 7.75m), despite exceptional costs totalling Pounds 8.99m.

The exceptionals represented the costs of the withdrawal from non-core businesses and the settlement of contractual obligations to Mr Philip Green, the ex-chairman and chief executive who resigned in September 1992, and Mr Stacey Ellis, who resigned as non-executive chairman this August.

The discount retailer has been dogged, Mr Carr said, by its past reputation, and the job of the new management team - which includes Mr Keith Paskins, finance director - was to 'change shareholders' fortunes'. However, there has been a 'significant' cut in the final dividend from 2p to 0.25p making a total of 1.35p (3.1p) for the year.

The group has now stripped down to the What Everyone Wants retail chain which at July 31 was 52-strong but now numbers 56. Two more will open this month and a further six are planned for spring 1994.

Mr Carr said the business plan he and Mr Paskins had drawn up showed that discount stores were the fastest growing retailing sector - at about 10 per cent a year.

WEW's market share had been broadened by the recession as consumers had been forced to hunt for bargains. Its operating profits in the year rose from Pounds 10.1m (expanded by a Pounds 1m one-off profit) to Pounds 10.3m.

Group turnover grew to Pounds 106.1m (Pounds 96.5m) with Pounds 1.53m from discontinued operations - the imports and distribution division and the mens wear side. The former accounted for trading losses of Pounds 2.37m and closure costs of Pounds 3.21m. The latter, sold in 1991, accounted for a further Pounds 3.32m of exceptional costs, and Mr Green and Mr Ellis were paid Pounds 1.13m and Pounds 500,000 respectively.

Group operating losses before interest shrank to Pounds 1.35m (Pounds 6.91m) and the retained loss for the period came to Pounds 4.74m (Pounds 13m). Losses per share emerged at 2.72p (7.61p), though on continuing operations earnings would have risen to 3.89p (3.86p).

Amber Day Holdings GB United Kingdom, EC P5611 Men's and Boys' Clothing Stores P5621 Women's Clothing Stores FIN Annual report CMMT Comment & Analysis P5611 P5621 The Financial Times London Page 23 414
UK Company News: Ashtead rights to raise Pounds 20.4m Publication 931103FT Processed by FT 931103 By PETER PEARSE

ASHTEAD, the plant and machinery hire group, has announced a rights issue to raise Pounds 20.4m to fund expansion.

Mr Peter Lewis, chairman, explained that the board had seen a 'window of opportunity. The recession has shaken the plant hire sector to bits' and, as a result, 'there is no shortage of businesses to buy'. With the bulk of the money raised, he foresaw 'a series of acquisitions' in the UK. The group had waited until now, he said, when vendors were becoming more realistic about the value of their businesses.

A-Plant, the core business, currently has 57 outlets, or 'profit centres', and Mr Lewis estimates it needs 130 for full national coverage.

Some Pounds 4m of the rights money has been earmarked to broaden the group's Sunbelt Rentals operations in the south-eastern states of the US. So far, expanding Sunbelt to six profit centres had been cautious, Mr Lewis said, but the business had now reached critical mass. Ashtead planned to double the six to 12 by April 1995.

About Pounds 500,000 of the cash raised will go towards the opening of an office of Ashtead Technology, the offshore services arm, in Singapore, to complement the operations in Aberdeen and Dubai.

Ashtead said that trading conditions had improved in the current year. In the five months to September, turnover rose by 24 per cent, mostly through volume growth. The group is highly operationally geared, so profits should respond sharply. A BZW research note has lifted the profits forecast for the current year from Pounds 4.5m to Pounds 5.2m. Last time profits were Pounds 2.76m.

The rights is on a 1-for-3 basis at a price of 280p per new ordinary. It is underwritten by Barclays de Zoete Wedd.

The shares closed at 324p, up 1p on the day.

Ashtead Group GB United Kingdom, EC P7353 Heavy Construction Equipment Rental FIN Share issues P7353 The Financial Times London Page 22 337
UK Company News: Casket shrugs off slow start from Lotus-branded cycles Publication 931103FT Processed by FT 931103 By CATHERINE MILTON

ROAD-GOING versions of the high technology Lotus bicycle on which Chris Boardman won an Olympic gold medal last year are not yet in the shops to the disappointment of Casket, the UK company which bought the LotuSport brand.

However, interim pre-tax profits jumped 20.3 per cent to Pounds 2.13m, helped by FRS 3 which meant the company restated the comparative figure at Pounds 1.77m to include one-off costs amounting to Pounds 167,000 relating to reorganisation and closures.

Sales climbed from Pounds 50.1m to Pounds 51.8m for the six months to September 30.

The board declared an interim dividend of 0.4p (0.3p) out of earnings per share of 1.89p (1.56p).

Mr Joe Smith, chief executive, said the six Lotus-branded conventional cycles that the company launched in the summer 'had got off to a slower start than expected'.

He said: 'We had anticipated bringing them out with the road-going version of the Chris Boardman Olympic bike. Sales of the conventional bikes were always planned to revolve around them.'

He said Lotus had had a 'certain amount of problems in making a sensible road bike'. Casket will assemble the top of the range cycles from components designed by Lotus Engineering: 'Lotus Engineering wanted a perfect design before it went to the market,' Mr Smith said.

The setback would not hit results since the premium products had expected to give low sales.

The cycles division as a whole, which includes names such as Townsend, Falcon and British Eagle, returned operating profits ahead at Pounds 2.58m (Pounds 2.45m) for the six months to September 30 on sales ahead at Pounds 28.6m (Pounds 27.4m).

This year the company expects to assemble about 60 per cent of its units in the UK against 37 per cent in the comparative period.

Casket said imported bikes were now subject to EC duties totalling about 50 per cent, including an anti-dumping levy, while components attracted much lower rates.

The clothing division returned reduced operating profits of Pounds 273,000 (Pounds 336,000) on sales up at Pounds 23.3m (Pounds 22.7m) as market conditions remained difficult.

Gearing fell to 78 per cent (91 per cent) at the half-way stage as net assets increased to Pounds 14.9m (Pounds 13.1m) and borrowings fell slightly to Pounds 11.6m (Pounds 11.9m). Interest cover rose to 3.9 times (3.1 times).

Casket GB United Kingdom, EC P3751 Motorcycles, Bicycles, and Parts FIN Interim results P3751 The Financial Times London Page 22 422
UK Company News: Body Shop dispute in Singapore Publication 931103FT Processed by FT 931103 By MAGGIE URRY

BODY SHOP International, the retail group which operates largely through franchisees, has become embroiled in a dispute with the head franchisee of its Singapore operation, where the group has 11 of its near 1,000 shops. It has been in Singapore for 10 years.

Ms Anne Downer, the head franchisee in Singapore, has issued a writ against Body Shop in London claiming damages after Body Shop instituted proceedings in Singapore. Body Shop claims Ms Downer's right to operate the Body Shop business in Singapore, and in Brunei, Indonesia, Malaysia, the Philippines, Thailand and Taiwan, has been terminated.

Body Shop said yesterday that it disputed all of Ms Downer's claims. One analyst said that Singapore was insignificant in group terms.

The dispute echoes an episode concluded in July last year when Body Shop won back control of six of its UK shops operated by Ms Pauline Rawle, a franchisee.

In its international operations, Body Shop has in recent years been pursuing a policy of moving to have each country's franchise operated locally rather than grouping countries together.

Body Shop International GB United Kingdom, EC SG Singapore, Asia P5912 Drug Stores and Proprietary Stores PEOP People CMMT Comment & Analysis P5912 The Financial Times London Page 22 221
UK Company News: Capital House buys bring funds to near Pounds 5bn mark Publication 931103FT Processed by FT 931103 By NORMA COHEN, Investments Correspondent

CAPITAL House Investment Management, a division of Royal Bank of Scotland, said it had acquired Brown Shipley Unit Trust Managers, which has Pounds 70m in assets.

Capital House has also acquired Pounds 100m of Brown Shipley's institutional funds, bringing its total of funds under management to just under Pounds 5bn. Terms of the acquisition were not disclosed.

The acquisitions are part of Capital House's strategy of growing through acquisition. Earlier this year it acquired the fund management businesses of two UK life insurance companies.

Capital House will retain three of Brown Shipley's unit trust staff, including its two leading fund managers, Mr Christopher Bomford and Mr John Cornes. The company said that in line with the recent trend in the unit trust industry, it would merge some of Brown Shipley's existing unit trusts into its own funds.

Capital House Investment Management Brown Shipley Unit Trust Managers GB United Kingdom, EC P6722 Management Investment, Open-End COMP Mergers & acquisitions P6722 The Financial Times London Page 22 189
UK Company News: Coal Investments bullish on prospects Publication 931103FT Processed by FT 931103 By MICHAEL SMITH

THE CHAIRMAN of Coal Investments, the former Geevor group whose shares will recommence trading tomorrow, has told shareholders that pits acquired by the company will make operating profits immediately.

In a bullish statement, Mr Malcolm Edwards, former British Coal commercial director, also predicted that the steam coal market in England and Wales would exceed 50m tonnes by the middle of this decade, at the top end of market expectations.

With imports expected to be low 'we are satisfied there is sufficient scope for several efficient mines to operate profitably alongside British Coal mines servicing core contracts (with generators).'

The shares are returning to the market following their suspension 18 months ago at 4.75p. However, it is a considerably different company following Mr Edwards' appointment as chairman and a restructuring.

A recent extraordinary meeting agreed the acquisition of a company which owns the Cwmguili mine in south Wales and the raising of Pounds 1.35m through a rights issue and shares placing.

Coal Investments will acquire any rights that arise from applications made by Edwards Energy, a company owned by Mr Edwards, to operate five collieries owned by British Coal.

Mr Edwards said the acquisition of mines should be complemented by the development of inter-related businesses, including coal distribution in the UK, coal trading overseas, and 'cautious investment' in coal mining overseas.

Coal Investments GB United Kingdom, EC P1221 Bituminous Coal and Lignite-Surface P1222 Bituminous Coal-Underground COMP Mergers & acquisitions FIN Share issues P1221 P1222 The Financial Times London Page 22 266
UK Company News: Hanson expands housebuilding arm Publication 931103FT Processed by FT 931103

Hanson has, through its Beazer Homes subsidiary, bought the housebuilding division of the Walker Group for Pounds 28.2m.

Beazer, Scotland's second largest housebuilder, has acquired Walker Homes (Scotland), Torwood Homes and Pinnacle Developments.

Beazer Homes Inc Walker Group Walker Homes (Scotland) Torwood Homes Pinnacle Developments GB United Kingdom, EC P1521 Single-Family Housing Construction COMP Disposals COMP Mergers & acquisitions P1521 The Financial Times London Page 22 79
UK Company News: GPG halts Power offer Publication 931103FT Processed by FT 931103

Guinness Peat Group, the UK investment vehicle for Sir Ron Brierley, the New Zealand entrepreneur, is not proceeding with its Dollars 17.32m (Pounds 7.3m) offer for Power Brewing Company of Australia.

It had intended to make an offer at 44 cents a share for 50 per cent of each member's fully paid ordinary PBC shares. However, GPG decided against it since PBC has proposed to adopt initiatives suggested by GPG to end PBC's joint venture with Queensland Breweries and the return of resulting cash to PBC shareholders.

Guinness Peat Group Power Brewing GB United Kingdom, EC AU Australia P6719 Holding Companies, NEC P2082 Malt Beverages COMP Mergers & acquisitions P6719 P2082 The Financial Times London Page 22 130
UK Company News: Abacus for market with Pounds 41m tag Publication 931103FT Processed by FT 931103

ABACUS GROUP, a franchised distributor of electronics components, is coming to the market via a placing of shares valuing the company at Pounds 40.6m.

A total of 10.71m shares, 37 per cent of its enlarged capital, have been placed at 140p by NatWest Markets. The price represents a p/e of 18.9 and a notional gross dividend yield of 3.1 per cent for the year ended September.

The flotation has raised a net Pounds 3.1m of new money which will be used to repay a majority of Abacus' debt.

The company, which holds 25 distribution franchises from manufacturers such as 3M and National Semiconductor, reported pre-tax profits of Pounds 2.98m (Pounds 1.76m) for the year ended September and earnings per share of 7.4p (4.3p) on turnover of Pounds 30.9m (Pounds 23.4m).

Abacus was the subject of a Pounds 3.4m management buy-out led by Mr Brian Murdoch, its current managing director, and three colleagues in 1989.

Abacus Group GB United Kingdom, EC P5065 Electronic Parts and Equipment FIN Share issues P5065 The Financial Times London Page 22 191
UK Company News: Finsbury Growth Tst Publication 931103FT Processed by FT 931103

Net asset value per ordinary share of Finsbury Growth Trust improved from 85.6p to 112.9p over the 12 months ended September 30.

Net revenue fell to Pounds 1.37m (Pounds 1.41m), equal to earnings of 2.94p (3.14p). The 2p final maintains the total at 2.9p.

Finsbury Growth Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 22 77
UK Company News: Powerscreen ahead to Pounds 12.6m - Sales reach Pounds 59m thanks to the Far East and North America Publication 931103FT Processed by FT 931103 By PAUL TAYLOR

POWERSCREEN International, the Northern Ireland-based manufacturer of screening and stone crushing equipment, yesterday reported a 12.5 per cent increase in interim pre-tax profits helped by strong sales growth, particularly in the Far East and North America.

Pre-tax profits in the six months to September 30 rose from Pounds 11.2m to Pounds 12.6m - the 11th successive increase.

Turnover on continuing activities increased by 16 per cent to Pounds 59.4m against Pounds 51.3m, which included Pounds 5.92m from discontinued operations.

Earnings per share rose to 10.8p (9.7p) from which the interim dividend is being raised to 2p (1.8p). The shares closed up 3p at 372p.

Mr Shay McKeown, chief executive, attributed the profit improvement to the success of the group's strategy of focusing on its core manufacturing activities.

He said this had resulted in each subsidiary, with the exception of CPV which was acquired in September last year and therefore made no contribution to last year's interim results, producing increased turnover.

Powerscreen International Distribution, the biggest subsidiary which manufactures screening equipment, managed to lift its turnover by 15 per cent to Pounds 21.8m (Pounds 18.9m) buoyed by increased penetration of the Far Eastern market and the continued recovery in North America. Unit sales rose from 613 to 710.

Sales of a new jaw crusher launched in February, together with an upturn in the UK crusher market helped Brown Lenox lift its sales by 18 per cent to Pounds 12.9m (Pounds 11m.)

However, Matbro, which was acquired in 1991 and makes telescopic handling machinery for the agriculture and construction markets, recorded the biggest relative increase in turnover helped by strong exports to continental Europe. Sales jumped by 66 per cent to Pounds 11.3m (Pounds 6.91m).

The introduction of the sub-contract labour system at Finlay, which manufactures washing and screening equipment, lifted both turnover and profits. Sales grew by 32 per cent to Pounds 7.71m (Pounds 5.51m).

The latest profit figures come after Pounds 700,000 of reorganisation costs related to CPV, which manufactures pressurised vessels mainly for the chemicals and food industries.

Overall, Mr McKeown said group order books remained strong, buttressed by new products and strengthened dealer networks. The group ended the period with net cash of Pounds 21.4m, up from Pounds 16.7m at the end of March.

Powerscreen International GB United Kingdom, EC P3523 Farm Machinery and Equipment P3559 Special Industry Machinery, NEC FIN Interim results P3523 P3559 The Financial Times London Page 22 433
UK Company News: Ferranti asks banks for further Pounds 7m funds Publication 931103FT Processed by FT 931103 By PAUL TAYLOR

FERRANTI, the troubled defence electronics group, has asked its banks to provide an additional Pounds 7m in funds while it seeks to persuade shareholders to accept GEC's 1p-a-share bid.

Mr Eugene Anderson, Ferranti's chairman, said yesterday he was optimistic that the banks would respond positively to Ferranti's request 'by the end of this week.' The group made a presentation to the banks on Monday.

He added that the need to seek additional bank funds highlighted the seriousness of Ferranti's position and reiterated that the only alternative to GEC's bid, however unpopular, was receivership.

Nevertheless, Mr Anderson acknowledged that the recommended GEC offer faced a number of significant 'hurdles,' not least the opposition of some individual shareholders. About 10 per cent of Ferranti's outstanding equity is held by some 40,000 investors.

Many individual shareholders have reacted angrily to the token offer by GEC which promises them just Pounds 10m while at least Pounds 110m will go to the banks. They have commissioned Katz Associates, a City investment consultancy, to explore alternatives to the GEC bid.

GEC has made it clear that it is seeking the acceptance of at least 90 per cent of all classes of shareholders for the bid.

Ferranti has a particularly complicated share structure, and this requirement is acknowledged to be a significant obstacle by Ferranti. But one Mr Anderson maintains must nevertheless be overcome.

Mr John Katz, who heads Katz Associates, met Mr Anderson on Monday to convey shareholders' concerns about the terms of the bid. Mr Anderson in turn emphasised that there was no alternative bidder for the group, and that the GEC offer was 'better than nothing.'

Mr Katz said after the meeting that he had not been 'pacified.' However, Mr Anderson said Ferranti planned to try and persuade shareholders to back the GEC bid through a communications offensive, which would probably be launched over the weekend.

Ferranti International General Electric Co GB United Kingdom, EC P3612 Transformers, Ex Electronic P3699 Electrical Equipment and Supplies, NEC COMP Mergers & acquisitions P3612 P3699 The Financial Times London Page 22 363
Companies in this issue Publication 931103FT Processed by FT 931103

------------------------------------------------ UK ------------------------------------------------ Abacus 22 Amber Day 23 Ashtead 22 BDA Holdings 23 Body Shop 22 Cable and Wireless 44 Capital House 22 Casket 22 Celsis Intl 23 Coal Investments 22 Elliott (B) 23 Ferranti 22 Finsbury Growth Tst 22 Forte 44 GPG 22 Hanson 22 Johnson Fry 21 MEPC 21 Powerscreen 22 Rexmore 23 Severn Trent Water 44 Smith (James) Ests 23 Tarmac 23 Thorn EMI 44 Trafalgar House 23 Tunstall 23 UBS 15 ------------------------------------------------ Overseas ------------------------------------------------ ACF 27 Chris-Craft 24 Cincinnati Milacron 26 Cosmo Oil 27 Daimler-Benz 21 Gildemeister 24 Hongkong Telecom 27 Hopewell Holdings 27 IBM 27 Kmart 26 Merck 26 Nikko Kyodo 27 Nova 27 Pacific Telesis 27 Paramount 24 Power Brewing 22 Quebecor 26 Renault 24 Sparebanken Nor 26 Svenska Handels. 24 Telecom Corp (NZ) 27 Tenneco 26 Time Warner 24 Tribune 24 Visa International 26 Volvo 24 Wal-Mart 26 ------------------------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 21 170
MEPC doubles exposure to US Publication 931103FT Processed by FT 931103 By RICHARD GOURLAY

MEPC, the UK's second largest property company, is to pay Pounds 115m for American Property Trust, a unit trust controlled by UK pension funds that owns two shopping malls in the US.

The acquisition is the first significant move by a UK property group into an overseas market for some time, as the recession has put most companies in the sector on the defensive.

While analysts say the APT acquisition is unusual because MEPC is paying a discount to net assets, the deal shows that some property companies may be beginning to consider buying assets once again, having bolstered their balance sheets.

It doubles MEPC's exposure to the US property market, where it already has interests in shopping malls. By issuing paper to pay for the deal, MEPC does not expect to deplete greatly the Pounds 222m it raised in July through a rights issue.

MEPC says the deal increases the proportion of assets in retail, rebalancing the portfolio in line with a commitment made at the time of the rights issue.

For APT's pension fund unit holders, the deal significantly increases the liquidity of their investment while leaving them an interest in US property.

MEPC will be issuing up to 22.65m new shares but APT unit holders will be able to take cash for up to 20 per cent of the consideration. The unit holders have agreed not to sell their shares for at least 12 months. MEPC will also take on Dollars 176m (Pounds 119m) of borrowings and preferred stock in UK-American Properties, APT's main US investment vehicle.

In the year to June 30, APT had pre-tax income of Pounds 4.4m and year-end net assets stood at Pounds 145.6m. The pricing represents a discount of just under 10 per cent on the gross property value.

MEPC said the acquisition would enhance earnings per share and net assets per share this financial year.

Mr James Tuckey, managing director, said the properties were expected to yield about 8 per cent in their first year and at least 9 per cent thereafter.

The two US shopping centres - one in California, the other in Georgia - that make up most of APT's assets have a combined leaseable area of more than 2.5m square feet. The deal lifts the retail content of MEPC's portfolio to 31 per cent from 26 per cent.

MEPC said gearing would not be materially affected by the deal and the group could make further acquisitions.

Lex, Page 20

MEPC America Property Trust GB United Kingdom, EC US United States of America P6552 Subdividers and Developers, Ex Cemeteries P6726 Investment Offices, NEC CMMT Comment & Analysis COMP Mergers & acquisitions P6552 P6726 The Financial Times London Page 21 464
Lloyd's trusts press on with capital raising Publication 931103FT Processed by FT 931103 By RICHARD LAPPER

THE SPONSORS of two of the biggest investment trusts at the Lloyd's of London insurance market will today press ahead with plans to raise some Pounds 400m in corporate capital, despite setbacks to smaller schemes in the last few days.

Backers of the larger schemes, sponsored by Samuel Montagu and Barclays de Zoete Wedd, will issue prospectuses today and are confident about raising capital from a range of institutions, including pension funds and life assurance companies, as well as retail investors.

Successful launches will bolster confidence in Lloyd's corporate capital initiative, following yesterday's decision by Johnson Fry, the financial services company, to scrap its Pounds 50m Corporate Insurance Recovery Trust, which offered retail investors participation in a range of Lloyd's funds. Johnson Fry blamed the 'limited time frame'. The trust raised Pounds 8m out of its minimum subscription level of Pounds 15m.

London Insurance Market Investment Trust (Limit), sponsored by Samuel Montagu and James Capel, will be the biggest of more than a dozen investment trusts and companies seeking to raise at least Pounds 1.3bn for Lloyd's. Names - the individuals who have traditionally supported the market's capital base - approved plans to invite new corporate members last month.

Limit is aiming to raise Pounds 280m from about 60 institutions and retail investors for a fund which will allow 98 syndicates to underwrite up to Pounds 480m in premium income. 'We wouldn't be doing this if we were not certain that we were going to find placees,' said Sir Laurie Magnus, a director of Montagu.

The CLM Insurance Fund, sponsored by BZW and backed by a subsidiary of Sedgwick Group, the insurance broker, has scaled back its capital raising target from Pounds 200m to between Pounds 100m and Pounds 120m. This was mainly because of difficulties in securing sufficient 'good quality' capacity on Lloyd's syndicates, said Mr Michael Wade, CLM chief executive. Like Limit, CLM will also target retail investors, including opening a 'share shop' in the Lloyd's building.

Johnson Fry's scheme was focused exclusively on the retail market. Mr Charles Fry, chief executive of Johnson Fry, said that demand from private investors 'is certainly there' and that 'with a longer subscription period, we would have reached our targets.'

Two other Lloyd's agencies - Sturge Holdings and London Wall - have abandoned plans to develop trusts with stockbrokers Kleinwort Benson and Beeson Gregory respectively, mainly because anticipated shortages of capacity have not materialised.

Last week another fund, HCG Lloyd's Investment Trust, scaled back its capital raising efforts after institutions did not respond as well as expected. Nevertheless HCG still raised Pounds 65m and two other funds - Hiscox Select Insurance Fund and Finsbury Underwriting Investment Trust - experienced no difficulty in each raising Pounds 30m.

Six more trusts plan to issue prospectuses in the next two weeks, aiming to raise capital through private placements and offers for sale via intermediaries.

Lloyd's of London Corporate Insurance Recovery Trust London Insurance Market Investment Trust CLM Insurance Fund GB United Kingdom, EC P6726 Investment Offices, NEC COMP Company News P6726 The Financial Times London Page 21 529
Sid urged to apply for share deals sans frontieres Publication 931103FT Processed by FT 931103 By CATHERINE MILTON

FRENCH farce yesterday took to the City of London to make the serious point that British punters could profit as France privatises up to FFr360bn (Pounds 42bn) worth of state-owned companies - thanks to European Community rules.

A woman dressed up as a French onion seller handed out leaflets offering this advice to commuters hurrying to work along Threadneedle Street.

The stunt was encouraging retail investors to exploit the European Community's regulations which outlaw discrimination of any kind against the nationals of one member state who apply for shares in the privatisations of other member states.

This makes Sid eligible to apply for shares in an estimated Pounds 17bn of companies due to be privatised in EC countries this year.

Of this total the French programme is one of the biggest and most attractive. The leaflets were offering 'free advice' to UK nationals interested in buying shares in Rhone-Poulenc, the chemicals company, due to be privatised this month.

The government is committed to transferring at least 21 companies to the private sector over the next five years.

The French economy ministry confirmed that retail investors who are EC nationals are eligible to apply for shares in the tranche of equity available to private investors. Applicants must have bank accounts in France.

Under UK law the Rhone-Poulenc securities may only be offered for sale to professional investors, although private investors are not prevented from taking the initiative to apply through a bank or broker in France.

The stunt may rebound on its instigator, Mr Roger Trotman, a chartered accountant and the sole trader behind Sutton-based Gloucester Trotman.

Last night the Institute of Chartered Accountants was studying his 'investment advert': 'We are looking at it from a regulatory point of view,' a spokesman said.

Mr Trotman, who has formed a link with a French stockbroker to ensure clients experience a smooth transaction, said he was not offering to sell shares: 'I am simply offering a basic background of the details of the offer and who to contact to take it further.'

This service was free but anyone who chose to use the French broker would face administration charges, he said.

Rhone-Poulenc GB United Kingdom, EC P9611 Administration of General Economic Programs P2899 Chemical Preparations, NEC FIN Share issues CMMT Comment & Analysis P9611 P2899 The Financial Times London Page 21 406
Pension fund as financier to public sector deficit Publication 931103FT Processed by FT 931103 By BARRY RILEY

Europe's pension funds have neglected to cultivate a powerful democratic constituency which might offer protection against the whims of their political lords and masters. Will they now pay the price?

A month ago the trade association for Europe's occupational schemes, the European Federation for Retirement Provision, sent up distress signals from Brussels. The new directive on pension fund investment, progressing slowly through the European Commission, had been hijacked. Instead of delivering the promised freedom of investment policy the directive might impose new restrictions on funds in states where no serious constraints at present exist.

Now the British funds are getting into their own domestic panic ahead of the Budget on November 30. The UK's schemes in aggregate represent some 60 per cent of the European total (although the Dutch and Danish funds are bigger in relation to GDP). British funds were already hit for Pounds 600m last March in Norman Lamont's Budget, when he cut the tax they could reclaim on UK company dividends.

The initial lack of protest last March, when the pension funds at first dismissed the change as an unimportant technicality, has now made them into a soft target for a second raid. If tax relief on dividend income were totally withdrawn, possibly over two or three years, the eventual annual cost would be about Pounds 2.5bn.

Right across Europe, not only are governments reluctant to extend tax reliefs but they see pension funds, where they exist, primarily as vehicles to finance public sector deficits. Hence the row over freedom of investment. Even the normally tolerant Dutch government, which allows private sector funds to invest more or less how they please, has cavilled at the prospective loss of the giant civil servants' fund ABP as a captive bond investor.

It is easy for governments to dress up self-interested restrictions on the basis, for instance, that they promote prudence, and therefore protect pensioners. Even Norman Lamont was cheeky enough last March to claim that his dividend tax measures were introduced to help corporate cash flow.

The underlying rationale for funded schemes (as opposed to pay-as-you-go alternatives) is, however, that they create an extra flow of capital for investment. This will either raise the domestic economic growth rate or, if domestic opportunities are unattractive, will be channelled abroad and finance a pool of overseas assets. Either way, the burden of paying for future pensions will be reduced.

But only in the UK, where 57 per cent is invested in domestic equities and 30 per cent in overseas assets, has this been taken to anything like its logical conclusion. The Germans, true, plough large sums back into company balance sheets through the book reserve approach; but where separate funds exist in Germany they can invest no more than 30 per cent in equities and 5 per cent abroad.

But if pension funds buy government bonds there is little long-term justification unless the money is invested in physical infrastructure or, just arguably, human capital. The danger now is therefore that governments will view pension schemes as the convenient dumping grounds for otherwise unsaleable debt. Certainly the Pounds 50bn a year now being raised by the British government is almost entirely absorbed by current spending, with very little investment content. Already, however, there is a larger tax break for UK pension funds on government bonds than on equities, and the pensions directive, as currently drafted, would allow the British government to set upper limits on exposures to equities and overseas assets.

Some 23m Europeans are beneficiaries of funded pension schemes. Yet few make any connection between size of their pensions and the regime of regulation and taxation that governs the investment of the assets. It has suited the sponsors to design their schemes so that the members are kept ignorant and passive rather than knowledgeable and potentially troublesome.

But will half-hearted lobbying through official channels really be effective when the politicians will respond only to the sight of thousands of scheme members angrily on the march?

GB United Kingdom, EC XG Europe P6371 Pension, Health, and Welfare Funds CMMT Comment & Analysis P6371 The Financial Times London Page 21 703
Daimler says it may cut dividend Publication 931103FT Processed by FT 931103 By CHRISTOPHER PARKES FRANKFURT

DAIMLER-BENZ, Germany's largest industrial group, has warned that it may reduce its dividend for 1993, apparently in response to mounting discontent among the workforce.

Mr Edzard Reuter, group chairman, said in a radio interview that while the company would try to avoid 'bitter disappointments' for shareholders, employees could not be expected to be the only people to make sacrifices.

The prospect of a dividend cut was raised despite the company's claims for most of this year that it would try to hold the pay-out at last year's DM13 - drawing on reserves if necessary.

Daimler, embracing Mercedes-Benz, AEG electrical engineering and Deutsche Aerospace, has recently provoked anger among its workers with plans to extend an already heavy job cutting programme. The proposed closure of six Deutsche Aerospace factories, service and logistics centres led to widespread labour unrest, including demonstrations and warning stoppages.

All operating divisions are expected to incur heavy losses this year, and the final result will be worsened by a DM1.5bn (Pounds 600m) charge for rationalisation.

Daimler, reporting for the first time according to US accounting rules, incurred a net loss of DM949m in the first half of this year compared with a net profit of DM965m in the same period last year.

The group has ample reserves, including more than DM8bn in appropriated retained earnings revealed in connection with its recent listing on the New York Stock Exchange. Markets had been led to believe these would be used to maintain the dividend, bolstering the group's attractions in advance of a rights issue planned for next year.

It appears the board has now decided an unchanged payout would be inappropriate while 44,000 jobs were being cut.

Analysts suggested a DM3 reduction to DM10 would be 'psychologically' suitable while anything less would be cosmetic.

Daimler shares closed DM4.5 higher at DM752. Even so their progress lagged well behind the blue-chip Dax index which closed at a record of 2,095.58, and the gain was eroded in after-hours trading.

Lex, Page 20

Daimler-Benz DE Germany, EC P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories PEOP Labour CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 21 377
France and Germany set out economic convergence plans Publication 931103FT Processed by FT 931103 By JUDY DEMPSEY and DAVID BUCHAN BERLIN, PARIS

GERMANY and France yesterday jointly presented the broad outlines of proposals to bring their economies together as part of plans for European economic and monetary union by the end of this decade.

The joint presentation was designed to give some public impetus to economic convergence, prescribed by the Maastricht treaty which came into force on Monday.

However, it coincided with the emergence of serious differences within Germany's coalition over European integration. Mr Edmund Stoiber, Bavarian prime minister and a powerful political figure in the Christian Social Union, said the idea of Europe as a federal state was finished. The CSU is sister-party of Chancellor Helmut Kohl's Christian Democratic Union in the coalition.

The plans for economic convergence were released after a meeting of the Franco-German Economic and Financial Council in Berlin, comprising their finance and economics ministers and central bank presidents.

Mr Theo Waigel, German finance minister, said plans to converge the French and German economies by 1996 were 'crucial for the success of economic and monetary union' among European Community member states.

French and German finance ministers plan to give more details of the plans to their EC colleagues at a general discussion of European economic convergence on November 22.

Germany has made little change to its earlier plan to bring its budget deficit, currently the equivalent of 4 per cent of gross domestic product, to within the 3 per cent guideline laid down in the Maastricht treaty by 1995. By contrast, Mr Edmond Alphandery, the French economy minister, and Mr Nicolas Sarkozy, the French budget minister, set out for the first time yesterday their country's medium-term goals.

Mr Sarkozy said France intended to reduce its budget deficit, around 4.5 per cent of GDP, to about 2 per cent by 1997. The only previous indication which prime minister Edouard Balladur had given of his government's medium-term planning was a promise to reduce public borrowing to 2.5 per cent by 1997.

French and German ministers agreed that their economies should aim for 3 per cent growth from 1995 onwards. French ministers said they were assuming French growth would be between 2.8 and 3.5 per cent from 1995. They have predicted that the French economy will contract by 0.8 per cent this year, but expand by 1.4 per cent next year.

German growth is forecast at minus 1 per cent this year and plus 1.5 per cent in 1994.

According to the Maastricht treaty, EC governments would make their first assessment of whether their economies are ready for monetary union in late 1996.

Barvaria's PM exposes split on European union, Page 2

DE Germany, EC FR France, EC P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product CMMT Comment & Analysis P9311 The Financial Times London Page 20 479
The Lex Column: MEPC Publication 931103FT Processed by FT 931103

MEPC's shareholders may think it odd that just as the UK property market starts racing away with itself their company decides to buy two shopping centres across the Atlantic. Yet, MEPC is chiefly funding the deal with paper. Thankfully, it is retaining most of the proceeds from its recent Pounds 222m rights issue to refurbish its UK portfolio and make selective acquisitions.

Moreover, MEPC sees scope to lift the shopping centres' yield to more than 9 per cent, increasing their capital value. It suggests this can be achieved by raising leasing levels above 95 per cent and marketing the centres more effectively. Any pick up in California's dull economy would also help, given that rental payments are related to turnover. Yet many will doubt the ability of an overseas investor to make capital gains in the ferociously competitive US property market. The US has certainly proved a graveyard for many UK investors.

But if MEPC's shopping centres do disappoint they are unlikely to inflict much harm. The share issue will represent less than 6 per cent of its enlarged equity base. Besides, MEPC's shares - like those of most other property companies - are currently so highly rated that it would be a challenge to buy anything that did not enhance earnings and assets per share. That raises the suspicion that similar deals may follow. But it will be difficult to find many pension funds willing to sell properties at a discount to net asset value in exchange for paper which trades at a premium.

MEPC GB United Kingdom, EC US United States of America P6552 Subdividers and Developers, Ex Cemeteries CMMT Comment & Analysis COMP Mergers & acquisitions P6552 The Financial Times London Page 20 296
The Lex Column: Muramoto Publication 931103FT Processed by FT 931103

The Tokyo stock market barely flinched in its first trading session after the failure of Muramoto Construction, an unlisted company but one with bank debts of an estimated Y590bn (Pounds 3.7bn). Its insouciance may be partly explained by the fact that Muramoto's debts have been parcelled out evenly among its 50 or so lenders, so that none of them is in serious danger despite the write-offs.

Yet it is worrying that such a small company, only Japan's 24th largest construction group, can produce a collapse nearly half the size of Olympia & York and with so little warning. One can only guess at the liabilities hidden in contractors many times Muramoto's size. Clearly, Japan's banks need to root out problem loans and write them off fast, instead of seeking to disguise them in their accounts as they have done so often in the past.

Present incentives are inadequate. The Co-operative Credit Purchasing Company, which enables banks to speed up tax write-offs by selling bad loans and buying them back at a loss, is only attractive to larger banks with cash to spare. Financial market confidence also depends on support for smaller fry, like Nanto Bank, the regional lender which is among the most exposed to Muramoto. Perhaps the Bank of Japan should extend additional support in the form of cheap loans, or Japan's notoriously tight-fisted tax office could offer more generous tax treatment on write-offs.

Muramoto Construction JP Japan, Asia P1629 Heavy Construction, NEC P1542 Nonresidential Construction, NEC P1521 Single-Family Housing Construction P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P1629 P1542 P1521 P6081 The Financial Times London Page 20 283
The Lex Column: Daimler-Benz Publication 931103FT Processed by FT 931103

There is clearly plenty of pain to go round at Daimler-Benz. Mr Edzard Reuter, the company's chief executive, admitted as much when he said that shareholders as well as staff would have to suffer the pangs of restructuring. At one level that hint of a dividend cut might be viewed as a realisation of the depth of Daimler's difficulties. Yet the reasons for Mr Reuter's statement are perhaps themselves a concern. If his purpose was to soothe opposition from the workforce, then he may not have yet persuaded the staff that radical surgery is needed. Having allowed costs to drift for too long, Daimler can hardly afford protracted internal debate or lengthy industrial action.

Most of Daimler's markets remain depressed. Airline losses may be slowing, but new aircraft production is still being cut - particularly at Airbus - and defence spending continues to fall. AEG consumer goods business is wilting and its ICE train is losing out to the French TGV in export markets. Daimler-Benz cars are too expensive to produce compared to the competition. All of Daimler's operations suffer from the strength of the D-mark.

Besides, the company is hardly alone in its effort to cut costs. Its Japanese competitors face equally hard markets and are busy retrenching too. The risk is that most of the efficiency gains will be ceded to customers in lower prices. Even if the plan works and the company can get back to peak earnings of around DM 70 a share by 1996-97, the shares hardly look cheap. That, and a lower payout, should give investors pause for thought if the rights issue hat is passed round next year.

Daimler-Benz DE Germany, EC P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 20 313
The Lex Column: Massaging expectations Publication 931103FT Processed by FT 931103

The Bank of England has a delicate task in presenting its latest views on inflation. It would not presumably wish to risk a row with the chancellor if he asks for interest rates to be cut in connection with the budget. But the underlying rate of price rises has accelerated over the past three months and the bank has to admit to the chance of the government's inflation target being breached as a result of tax changes due to come into effect next April. So it must also be concerned about its credibility in the fight against inflation.

The report gets round this dilemma by forecasting that inflation will start to fall again in the middle of next year and that any rise meanwhile should be regarded as just a blip. That way the option is left open for a budget rate cut to offset any fiscal tightening, even if this goes against basic instincts. The bank's longer term forecasts, which show inflation slap in the middle of its target range, lead to the claim that rates are about right where they are.

Well, it would say that, wouldn't it? The main worry is that of preventing a higher headline rate translating into higher inflationary expectations with consequent pressure on wages. The bank admits that a higher real exchange rate as a result of interest rate cuts abroad would help reduce inflationary pressures. It follows that it would be reluctant to do anything which might cause the exchange rate to wobble. Since Britain's manufacturing base is so atrophied, it might easily think any possible contribution to growth from exports boosted by a lower exchange rate is not worth the risk of higher import prices.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Inflation CMMT Comment & Analysis P9311 The Financial Times London Page 20 317
De Benedetti under house arrest: Charge sheet describes Olivetti chairman as 'socially dangerous' Publication 931103FT Processed by FT 931103 By HAIG SIMONIAN MILAN

MR Carlo De Benedetti, one of Europe's best-known and wealthiest businessmen, was placed under house arrest shortly before midnight after being interrogated in prison by Rome magistrates investigating political corruption.

Earlier, a visibly shaken Mr De Benedetti was driven to the capital's Regina Coeli prison after giving himself up to police in Milan.

The detention followed the issue of a warrant at the weekend by Rome magistrates against the Olivetti chairman, who has been implicated in Italy's 18-month political corruption scandal. After two rounds of questioning lasting until late last night, Mr De Benedetti was allowed to leave jail for house arrest.

In the formal charge sheet prepared by Ms Maria Cordova, the investigating magistrate in charge of the case, Mr De Benedetti was described as 'socially dangerous' and accused of corrupting public officials for the past 10 years.

Until now, Mr De Benedetti has taken the line used by many other senior businessmen caught up in the corruption scandal: that kickbacks were paid only after repeated demands by public-sector officials and politicians, and were essential for their companies to win business from the state.

That line of defence satisfied Milan magistrates, who interrogated Mr De Benedetti in May. At that time, in a highly embarrassing admission just days after asserting the opposite to Olivetti shareholders at its annual meeting, Mr De Benedetti disclosed to Milan magistrates investigating post office corruption that Olivetti had paid bribes.

The case is now being led by magistrates in Rome, who, contrary to the decision of their Milan colleagues, have sought Mr De Benedetti's arrest.

The Rome magistrates say new evidence has come to light, suggesting that Mr De Benedetti has held back information.

According to widely leaked comments in the press, the Rome judges argue that Mr De Benedetti himself sought to corrupt officials. They claim to have unearthed new evidence that the kickbacks stretch back much further than Mr De Benedetti has admitted. Olivetti and Mr De Benedetti's lawyers have strenuously denied such claims.

However, his incarceration has once again highlighted differences between Milan and Rome magistrates in handling the political corruption scandal. Some observers have suggested that the Rome magistrates, previously attacked for dragging their feet compared with their northern counterparts, are now trying to show their commitment.

It has even been suggested that politically motivated magistrates in Rome have used a leading businessman such as Mr De Benedetti as a scapegoat to get back at Milanese colleagues.

Observer, Page 19

Olivetti et Cie IT Italy, EC P9211 Courts PEOP People P9211 The Financial Times London Page 20 450
Leading Article: Steady Eddie at the bank Publication 931103FT Processed by FT 931103

MR EDDIE George, appointed this summer as governor of the Bank of England, is working hard at his reputation. The new governor has assiduously cultivated an image as an inflation-hater. But words alone will not persuade the financial markets to forget the fact that his tenure as the Bank's deputy governor coincided with one of Britain's two most destabilising inflationary booms since the second world war.

Not that Mr George was personally responsible for the policy errors of the late 1980s. But the scars clearly run deep, as does his determination not to see the same inflationary mistakes repeated. Hence his warning, at the end of last week, that a further cut in interest rates might not be compatible with the government's target of keeping underlying inflation below 4 per cent a year. Now that the UK has a golden opportunity to lock into low inflationary growth, he is not going to see the opportunity thrown away.

Curiously, the same defensive caution does not shine through the pages of the Bank of England's latest inflation report. The Bank has clearly gained in stature over the past year, while the quality of its quarterly inflation report has boosted its analytical reputation in comparison with the Treasury's monthly monetary report. But the Bank's report does not, at least at first sight, appear to constitute the brief from which Mr George was reading last week. If the government was considering a further cut in interest rates to coincide with the Budget, it will find little in the report to deter it.

The inflationary outlook, the report suggests, looks promising. Labour market pressures are subdued, inflationary expectations have eased substantially since the early summer, monetary growth is consistent with the government's inflation objectives and there is room for several quarters of above-trend growth before the economy will show any signs of overheating.

'There is a slight possibility that in the first half of next year inflation will rise above the top of its target range,' the report acknowledges, citing the end of summer price discounting, the effects of increases in indirect taxes and the impact of the switch from the community charge to the council tax. But, 'excluding those taxes, inflation is expected to start falling in early 1994, and could reach a level close to the middle of the target range in 1995'.

The Bank's analysis highlights two risks: first, that the government will not take sufficient action to reassure bond markets by closing the fiscal deficit; and, second, that tax rises to close the deficit will prompt wage-bargainers to seek compensation and thus feed inflationary expectations. Reassuring the financial markets on the deficit is chancellor Clarke's territory.

Further fiscal tightening is almost certainly necessary, and the chancellor would be wise, both economically and politically, not to delay the medicine. But if he is considering a cut in interest rates to ensure that the recovery is not aborted in the process, then, with the necessary caveats about being prepared to react to future inflationary pressure, the report effectively gives him a green light.

Presumably Mr George agrees with the Bank's analysis. So his statement last week demands a more subtle interpretation. The governor is surely correct that a cut in interest rates, without a substantial fiscal tightening, would be a grievous error. But a cut in interest rates, balanced by tax increases and combined with a commitment to raise rates if wage inflation starts to pick up, would not jeopardise Mr George's anti-inflationary objectives. It is this option that Mr Clarke should take.

GB United Kingdom, EC P6011 Federal Reserve Banks P9311 Finance, Taxation, and Monetary Policy ECON Economic Indicators CMMT Comment & Analysis ECON Inflation P6011 P9311 The Financial Times London Page 19 633
On opposite sides of the great divide Publication 931103FT Processed by FT 931103

Marcy Kaptur from Ohio and Dave McCurdy of Oklahoma might seem prototypical Clinton new Democrats, write Nancy Dunne and Jurek Martin.

She is 47, the same age as the president, a House member since 1982, while he is 43, and from the class of 1980; like the president both studied at British universities, she doing town planning at Manchester, he economics at Edinburgh; she is from a union district, he from a union family; and both are ambitious: she has her eye on the Senate next year, while he has already considered running for the presidency and last year promoted himself for a post in the Clinton cabinet. Yet Nafta divides them absolutely.

Ms Kaptur, a leader of the opposition, regrets having to fight Mr Clinton. 'It would have been nice after 10 years here to have had a Democratic president who agreed with me on the most important issue in my district. Nafta, though, is a life and death issue to us,' she says, citing the job losses in her Toledo constituency.

She is proud of being a liberal and resents being called a protectionist. 'Trade can bring freedom,' she argues, 'but it can also bring exploitation. If people do not have fair wages, free elections, rights of assembly, a judicial system with fair trials, you have exploitation - and we will be a party to it.' She sees nothing wrong with hemispheric free trade, so long as it is linked to democratic reforms.

Her criticism of Mexico goes far beyond its democratic shortcomings. On two recent visits she was shocked by what she saw. 'They have no running water, no heat in winter, no electricity unless they have batteries.' Once, she says, Mexican government agents trailed a delegation of congresswomen on a tour south of the border and nearly ran one of them down.

To Dave McCurdy, a border state moderate like Mr Clinton, the Nafta debate is all about the past (ageing, uncompetitive industries) versus the future (a high-skilled, high-wage economy). 'The problem is that the protectionists, isolationists and xenophobes who are building the case against it are really basing it on fear of change and the unknown.'

Combative by nature, he was sufficiently unafraid in September to raid the home turf of the Nafta opposition - a local General Motors plant - to hand out leaflets. 'The management loved it. I'm not sure the workers did, but they'd been getting their information only from one side.' Ross Perot ran strongly in his district last year.

He has travelled a lot to South America, where he sees democracy taking roots, 'though some of the sprouts are fragile'. He is impressed by changes in Mexico. 'Ten years ago it was an anti-US command economy, socialist in nature.' President Carlos Salinas 'has taken on the old system with a great deal of courage. He deserves to be rewarded for that.'

He understands why some fellow Democrats find it hard to support Nafta, especially after the great budget battle this summer. 'Some caught a lot of grief back home and they're tired of explaining tough votes. But there are a few of us who are committed to these free trade principles.'

US United States of America P8651 Political Organizations PEOP People P8651 The Financial Times London Page 19 560
Party loyalties do not apply: The stakes are high in the battle to guide Nafta through the US Congress Publication 931103FT Processed by FT 931103 By JUREK MARTIN and NANCY DUNNE

'They'd sell off bits of the White House lawn for a vote if they could'

- Jim Jontz, head of the Fair Trade Campaign against Nafta 'It's one president, all the living former presidents, 41 governors, 14 Nobel Laureates and 284 economists versus Perot, Buchanan and Brown; it's your choice'

- Mickey Kantor, US trade representative

Barring the unforeseen, the latest addition to the matriarchy of all political battles will be finally decided on November 17 when 258 Democrats, 175 Republicans, and one independent in the 435-member House of Representatives (there is one vacant seat) vote on whether to approve the North American Free Trade Agreement linking the US, Mexico and Canada on January 1. A simple majority of 218 is all that is needed. If it passes, the Senate will almost certainly follow suit; if it fails, the upper chamber does not have to act.

The stakes are enormous - for the political credibility of President Bill Clinton early in his term and for the legacy of President Carlos Salinas as he nears the end of his, for the evolution of the Mexican and US economies, and for a global trading structure in which a Uruguay Round agreement scheduled to be reached by December 15 may be unattainable if Nafta goes down.

Conventional party lines are irrelevant in the intense retail political war now going on in pursuit of the 218-vote nirvana. More Republicans, perhaps as many as 120 according to congressman Jim Kolbe of Arizona, far fewer according to Mr Jim Jontz, a former congressman from Indiana, will vote for than against, not least because the original Nafta was negotiated by the Bush administration. This leaves Mr Clinton needing at most 40 per cent of his own party to triumph - and therein lies the problem.

For the Democratic coalition that just - by one vote - sustained the president in the great budget battle against unanimous Republican opposition, is in tatters. In July it was the 'new' Democrats, especially moderates from the south, who deserted Mr Clinton while the old liners - labour, liberals, blacks - held their noses and held fast. On Nafta, the positions are in good measure reversed.

According to Ms Lori Wallach, a leading co-ordinator of the 'anti-' campaign, the 'no' camp already numbers 208-210 'including some leaners'. Bill Daley, drafted from his Chicago domain to direct the 'yes' campaign, disputes this estimate, counts about 195 in favour and says that some 55 Democrats are still undecided. Mr Jontz disagrees, reckoning there are now more Republicans than Democrats on the fence. He thinks the freshman class - 66 Democrats and 48 Republicans - is particularly resistant to Nafta.

Both sides hail and blast each new convert. Democrat John Dingell of Michigan came out for the 'noes' this week, but Mr Daley counters that he could never understand why anybody thought he would do anything different. Ms Wallach is equally dismissive of the impact of the 'yes' declarations of Democrats Joe Kennedy from Massachusetts and Esteban Torres from California. The latter, she insists, probably could not carry the 18-member Hispanic caucus.

The politics of Nafta have produced uneasy dalliances among political heavyweights. In one bed lie the president, the Republican leadership, including Newt Gingrich, a fervent conservative, the Senate majority leader, the Speaker of the House, most leaders of big business, and some prominent environmental groups: in the other can be found the House majority leader (Richard Gephardt) and most of the Democratic House whips, including David Bonior of Michigan, the chief anti-Nafta strategist, plus Ralph Nader, the consumer advocate, most of the labour unions, Pat Buchanan, the right-wing ideologue, and Ross Perot, last year's independent presidential candidate.

Ms Wallach, who portrays the Nafta divide as one between 'populists and the elites', says there is little top-level contact with Mr Perot, who first spoke of the 'giant sucking sound' of US jobs going south to Mexico, but that his troops offer access to conservatives and small businesses. Mr Daley says that 'Perot's credibility is diminishing because he has become a politician', an assessment borne out by several recent opinion polls.

Both sides agree that the role played by President Clinton himself is crucial. 'He is my number one worry - never underestimate the power of the presidency,' says Ms Wallach. He got off to a slow start. In the summer he was consumed by the budget, and more recently distracted by healthcare, Haiti and Somalia. Meanwhile the opposition was off and running early.

The administration pinned a lot of its midsummer hopes on Nafta's 'side agreements', covering Mexican environmental and labour laws and guarding against import 'surges', meeting most objections. But these were only completed in mid-August, later than planned, and were only partly successful. Six prominent US environmental groups came out in favour, but union opposition became entrenched. Most important, Congressman Gephardt, whose backing could probably have ensured passage, declared he was not satisfied.

Mr Daley insists it does not matter that the president started late because 'in politics, decisions are only taken in the last few days'. Whatever the merits of this argument, there is no questioning that the pro-Nafta campaign is now in full swing, with plans that Mr Clinton himself do little other than argue for the agreement in the next two weeks.

Every day brings a new media show. Last week saw Products Day on the White House lawn, a display of 175 goods that would benefit from Nafta. Last weekend the president went to Boston to maintain that JFK would have been pro-Nafta. On Monday he appeared at an electronic 'town meeting' with members of the American Chamber of Commerce. Later this week he is in Louisville, Kentucky. On Sunday an hour-long TV interview is scheduled.

About twice a week he has 15-20 congressmen in his office for a Nafta exhortation. He works the phones constantly, and all members of his cabinet are fully engaged, sometimes inventively. Mr Kantor's latest pitch is that Japan is against Nafta and would, along with Europe, seek to profit from its defeat. The Nafta 'war room', operating out of the Old Executive Office building next to the White House, co-ordinates it all and makes sure that businessmen keep up the pressure on individual members.

Certain actions, both substantive and personal, get taken with Nafta in view. Last week's creation of the North American Development Bank, with its funds available for border clean-up, obviously helped Congressman Torres come off the fence. At the other extreme, Congressman E Clay Shaw, a Florida Republican, is demanding that the administration put pressure on Mexico for the extradition of an accused rapist. Mr Daley says: 'We have made our views known to the Mexican government on this, though they knew about it already.'

All this activity is matched with fervour and skill by the other side. Ms Wallach claims to have kept a lid on vote switching. She points out that Congressman Kweisi Mfume from Maryland, leader of the 38-strong black Democratic caucus previously so loyal to Mr Clinton, is helping Mr Bonior garner votes against Nafta, and that only one black congressman has come out in favour. On broader policy issues, both camps were bombarding the media with their respective spins after last week's Canadian election result. 'They've thrown everything at us, but it hasn't made a difference so far,' she insists.

With two weeks to go, neither side will publicly admit the possibility of defeat. Mr Daley says he will not sell the White House lawn, but seen crossing it yesterday was a gaggle of living Nobel Laureates, including Henry Kissinger, last seen being nice to Mr Clinton on Martha's Vineyard in August. The grass seemed in place.

US United States of America MX Mexico CA Canada P9721 International Affairs P8651 Political Organizations P9199 General Government, NEC CMMT Comment & Analysis P9721 P8651 P9199 The Financial Times London Page 19 1345
Observer: Illuminating Publication 931103FT Processed by FT 931103

The director of group public affairs at a UK multinational acknowledges that a PR man may not be needed to change a light bulb (vide Observer yesterday), but seeks to justify his existence by highlighting the need for such expert services when pointing the journalist in the direction of the light switch.

GB United Kingdom, EC P99 Nonclassifiable Establishments NEWS General News P99 The Financial Times London Page 19 76
Observer: Shopaholics? Publication 931103FT Processed by FT 931103

Japanese salarymen, believed to beat world records for workaholicism, may soon be legislated into relaxing more often.

Some members of the new Japanese government think that too much work could be a source of economic as well as personal exhaustion. So ministers agreed yesterday to study proposals by Koshiro Ishida, a cabinet member heading the management and co-ordination agency, to change the dates of national holidays to Mondays or Fridays.

The aim is to encourage people to take long weekends more often, so that they spend more money - badly needed in the recession - and 'enrich their lifestyles', Ishida says. Japanese staff would never dream of using even a mid-week public holiday as an excuse for an extra long weekend. Hence the need for government action.

However, do not expect any progress today. This is culture day, when people are encouraged to refresh their spirits with a good dose of art. But be sure all will be back to work on Thursday.

JP Japan, Asia P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 19 190
Observer: Just the ticket Publication 931103FT Processed by FT 931103

The city of Washington DC, whose depleted coffers are just a little fuller today after the Israeli embassy forked out Dollars 63,000 in parking fines, has Senator Jesse Helms to thank. For it was the ultra right-winger from North Carolina who attached a rider to this year's US foreign aid bill docking the amount of unpaid fines, plus a 10 per cent penalty, from the assistance given to all recipients.

Presumably the fact that Israel, the largest beneficiary of US aid, was the first to pay up was no mere coincidence. But, unfortunately for the impoverished city, it is not the worst parking fine offender by a long chalk. That accolade is reserved for the Russian embassy - even if much of its Dollars 3.8m bill was clocked up by Soviet diplomats in the old days. The Russians' excuse is that they are awaiting a new DC parking lot, given Moscow did the honours for the US embassy last year.

Next in line comes the Nigerian embassy, which is incensed at its Dollars 77,830 bill. 'We do not park on fire hydrants,' Nigeria's press attache Mohammed Sani complains.

'The bulk of the tickets are for expired meters. We are not parked at places wrongly. There is just nowhere to park.' Obviously the same problem applies in London. In 1992 Nigerian diplomats boasted 167 unpaid parking tickets, making them the fourth worst offenders, after Turkey, Russia and France.

US United States of America P9721 International Affairs NEWS General News P9721 The Financial Times London Page 19 264
Observer: Horse-trading Publication 931103FT Processed by FT 931103

Why should an Irish horse-trainer be standing in a bar in Melbourne reciting verses from A Bush Christening? Answer: it was Dermot Weld's damage-

limitation exercise in the wake of Vintage Crop winning the Melbourne Cup, an Irish victory for the first time in the cup's history.

Vintage Crop, a 14-1 outsider, trained by Weld at The Curragh and owned by Michael Smurfit, the Irish paper and packaging impresario, won by three lengths. To add insult to Australia's injury, Smurfit, who now lives in Monte Carlo, was not even in Melbourne to collect the ADollars 2m winnings, though his son and other members of the family were present.

Still, trainer Weld, who had obviously kissed the Blarney stone, impressed his audience with his enthusiasm for Australia - begun as a child when he was given a book of Banjo Paterson's verses, including The Man From Snowy River. Meanwhile, in time-honoured tradition, business life ground to a halt as all eyes turned to the finishing line. Who knows if it was the Irish victory, but the stock market closed lower for the first time in a week.

AU Australia P7948 Racing, Including Track Operation NEWS General News P7948 The Financial Times London Page 19 210
Observer: Phone home Publication 931103FT Processed by FT 931103

Hotels all over the world routinely over-charge guests for the cost of telephone calls. But it seems that the Montreux Palace Hotel in Switzerland has gone one better; it recently had the nerve to charge SFr10 for placing an international collect call.

Then again, perhaps that is not too surprising. Was the Montreux Palace not the venue almost half a century ago of the inaugural meeting of CEPT, the club of European telecommunications monopolies, which have been ripping off telephone users for years . . . ?

CH Switzerland, West Europe P7011 Hotels and Motels NEWS General News P7011 The Financial Times London Page 19 113
Observer: The foaming Tiber Publication 931103FT Processed by FT 931103

It was a visibly shaken Carlo De Benedetti who made his way yesterday to a grilling in Rome's Regina Coeli prison on the shores of the Tiber.

The Olivetti chairman, fighting a separate legal battle over a six-year sentence for his role in the collapse of Banco Ambrosiano in the 1980s, faced questions about kick-backs to win public sector contracts, for which the group allegedly paid about L10bn.

De Benedetti suffered the first embarrassment earlier this year after being forced to backtrack on previous denials that payments had been made; now, after the transfer of inquiries from magistrates in Milan to those in Rome, comes the stigma of an interrogation in jail.

But at least the venue is appropriate. De Benedetti's inquisitors are holding him in a prison that was once a convent - and both the investigating magistrate and the public attorney who want to lead him to the confessional for his putative sins are women.

Olivetti et Cie IT Italy, EC P9211 Courts PEOP People P9211 The Financial Times London Page 19 184
Leading Article: Handle with care Publication 931103FT Processed by FT 931103

WHEN NORTH Korea threatened to become the first country to pull out of the Non-Proliferation Treaty last March, alarm bells rang from Seoul to Washington at the prospect of a nuclear arms race in east Asia. Although Pyongyang withdrew its threat three months later after talks with the US, the alarm about its purported nuclear ambitions is far from over. On Tuesday, the UN General Assembly - by 140 votes to one - expressed concern that North Korea is still refusing to allow full monitoring of its nuclear facilities by the International Atomic Energy Agency. Today, Mr Les Aspin, US defence secretary, is in the South Korean capital to discuss what to do next about suspicions that North Korea is processing nuclear fuel into an illegal stockpile of plutonium.

Pyongyang's defiance presents the world with a tricky dilemma. On the one hand, it is vital to the credibility of international efforts against nuclear proliferation that the IAEA be allowed to conduct unlimited spot inspections of North Korean facilities. If not, suspicions that it is violating NPT commitments will persist, with the potential to disturb the regional strategic balance.

On the other hand, it is hard to see what more the UN can do to force rapid North Korean compliance. Short of a lightning bombing raid on suspect facilities - a course so perilous that no one is seriously contemplating it - economic sanctions are the weapon most frequently mentioned. But a sanctions resolution would almost certainly fall to a Chinese veto in the Security Council. And in any case, tightening the international noose on what is already a pariah state would be at least as likely to result in greater instability as to bring Pyongyang's paranoid leaders to their senses.

Resolving the issue is complicated by the fact that no one can be certain whether the North Koreans have any realistic prospect of building a bomb in the near future, or what they ultimately want. It seems unlikely that Pyongyang has stirred up the nuclear question purely for its own sake. More likely, it is seeking, in return for opening up its facilities to inspection, some concessions from the US: diplomatic recognition to match Russian and Chinese recognition of South Korea, perhaps, combined with cancellation of what Pyongyang sees as aggressive US military manoeuvres in the south.

If that is the real aim, it suggests that the US, Japan and other interested parties would be right to continue with their strategy of attempting to negotiate with Pyongyang, rather than piling on more direct forms of pressure.

KP North Korea, Asia P9721 International Affairs P9711 National Security CMMT Comment & Analysis P9721 P9711 The Financial Times London Page 19 458
Leading Article: Private motors Publication 931103FT Processed by FT 931103

THE LATEST problems with the proposed Renault-Volvo merger raise important points of principle. In effect, the French government and Volvo management are saying to the Swedish group's shareholders: trust us. We will conduct the merger in a rational way. We will then privatise the result as soon as possible.

Volvo's owners may be forgiven for hesitating: doubly so, given the French government's damaging volte-face last week over Air France, whereby it appeared to duck commercial realities in favour of political expediency.

From the Swedish viewpoint, consider what is at stake. The French government argues, with some show of reason, that merger must come first, privatisation second. Until the combination has been put in place, after all, it is hard to set a value on the operation. But this necessarily means the process will be at the mercy of politicians. This is not simply a matter of whether one company's interests will be preferred to another's: that might happen in any takeover. It is more a question of how far the merger will be structured in the interests of votes rather than profitability.

The French could argue that the industrial realities point the other way. Renault has undergone severe cutbacks since the mid-1980s. Between 1988 and the end of last year, it reduced its workforce by 32,000. Granted, non-French workers bore the brunt of these economies, but the Swedish unions are apparently anxious enough about their future to carry on backing the deal regardless.

The existence of a French golden share, which could in extreme cases reduce Volvo shareholders' voting rights, is not calculated to soothe Swedish sensibilities. But with a little good will, and some more concrete assurances from the French side, none of this need be insurmountable. The deal, after all, has one crucial argument in its favour: that its origins lie in industrial rather than political logic.

This bears out a wider point: that the whole Renault-Volvo argument shows why privatisation in Europe has become such an unstoppable force. Across a broad range of industries - cars, telecommunications, computers, chemicals, energy - mergers and joint ventures are becoming essential.

The reasons are various: recessionary pressure, the rising cost of R&D, or - as in telecoms - the changes brought by deregulation. In each case, nationalised companies - awkward in their structure, doubtful in their motivation - tend not to get invited to the party. The message for them is a simple one: privatise or perish.

Renault Volvo FR France, EC SE Sweden, West Europe P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories CMMT Comment & Analysis COMP Mergers & acquisitions P3711 P3714 The Financial Times London Page 19 454
Letters to the Editor: IDs: don't leave home without one Publication 931103FT Processed by FT 931103 From Mrs BARBARA GREEN

Sir, Liberty, the civil liberties group, is correct to suggest that personal identification cards could be used to discriminate against certain sections of society - those engaged in mischief. ('Plans for ID cards attacked,' October 25).

For nine years I have lived as a British expatriate in societies which have required me to carry their own identification papers. Magic] ID cards ensure a swift passage through immigration; facilitate bank transactions; produce registered mail from behind Post Office counters; smooth (as far as is possible) relationships with the tax man; and even provide proof of ownership for the dog's own, health-related, ID card.

IDs offer evidence of legal entry and authorised residence, and satisfy policemen who use spot checks to 'discriminate' against criminals, drug traffickers and illegal immigrants.

Resent my ID card? No. I wouldn't leave home without it.

Barbara Green,

Buzon 162,

Mijas-la-Nueva,

Mijas 29650,

Malaga, Spain

GB United Kingdom, EC P99 Nonclassifiable Establishments NEWS General News P99 The Financial Times London Page 18 183
Individual ways to coin it: Rising costs are forcing changes in the financing of different welfare systems Publication 931103FT Processed by FT 931103 By JOHN WILLMAN

There is no single model of the welfare state in modern capital-ist econo-mies. Different structures reflect the differing circumstances under which countries created their welfare systems.

It is not surprising, therefore, that the pressures straining welfare states across the world should manifest themselves in different ways. Each country faces its own particular problems in funding pensions, social security and health services.

Yet in dealing with the pressures, countries with very different benefits systems are adopting similar solutions. There may be many more similarities between the welfare arrangements of countries in the future than there are now.

Welfare states fall into three broad types, according to Professor Gosta Esping-Andersen, of the European university in Florence. He describes these as the conservative, liberal and social democratic models.

The conservative model involves the sort of social insurance schemes found in countries such as Germany, France and Italy. They were introduced by governments such as Bismarck's in Germany in the 1880s, to reinforce society and family life against the disintegrative pressures of the market economy.

Social insurance schemes focus mainly on employees, funding unemployment benefit, sick pay and pensions through employer and employee contributions. Strongly influenced by the social philosophy of the Catholic church, the conservative model emphasises the role of the family, with family benefits designed to encourage motherhood. Those outside the labour market, such as women caring for children, often had few individual welfare rights.

The liberal model is based on the safety net approach to welfare, providing state benefits for those in real need. Common in Anglo-Saxon countries such as the US, Australia and New Zealand, liberal welfare states offer subsistence benefits only to those whose means fall below minimum levels.

This reflects the belief of liberal economists that generous welfare benefits will interfere with the efficient working of labour markets. It also encourages the development of private welfare systems, with better-off individuals either negotiating welfare benefits at work, or buying them from insurance companies.

The third model is the Scandinavian social democratic welfare state, in which all citizens have rights to benefits provided by the state out of taxation. Benefit levels are usually generous. They are often related to income, so that even middle-class professionals can rely on them.

This type of welfare state is typically underpinned by some sort of employment guarantee, such as that, for example, which kept unemployment low in the Scandinavian countries until recent years.

The architect of the social democratic model was Sir William Beveridge, whose 1942 report provided the blueprint for a 'cradle to grave' welfare state in the UK. This would not only redistribute income between those in need and the better-off. It would also act as a savings bank, with individuals paying in at times of prosperity and drawing out when sick, unemployed or retired.

Yet shortage of funds is turning the UK social security system from a social democratic model to a liberal one. An increasing share of welfare support comes in the form of means-tested safety net benefits. These have been insufficient for the people on higher incomes to live off, encouraging private provision - particularly in pensions.

All three models of welfare state have run into problems as their costs have climbed.

The first to feel the heat was the liberal model. Although less generous than other types of welfare state, it is usually funded out of taxation. It has therefore been an early casualty of the tax revolt in which better-off voters have refused to support higher taxation to pay for the cost of a welfare state from which they increasingly opt out.

Similar pressures have emerged in the social democratic welfare state, which places enormous burdens on public funds. Countries such as Sweden were initially able to fend off taxpayer revolts by generous provision for higher-income groups. But the cost pushed tax rates to unsustainable levels, leading to the election of governments committed to reducing welfare benefits.

The conservative model is less susceptible to taxpayer pressure, since it is largely paid for by employee and employer contributions. However, employers have become concerned about the growing cost, which in Germany will next year reach almost 20 per cent of earnings for both employees and employers. Concerns over industrial competitiveness have forced such countries to launch reforms.

Early responses to rising costs have reflected the particular characteristics of the three models. The liberal system has found it easiest to cut costs, through greater use of means-testing. Countries such as the UK, US and Australia have also tightened up the rules for claiming benefits, with longer waiting periods and closer scrutiny of claimants. Unemployed people face more rigorous requirements to retrain and seek work. With healthy private pension sectors, these countries have found it easier to increase private provision.

Scaling down the demands of the social democratic welfare state has proved more difficult. There is opposition from the losers, who include many in the middle classes. Yet the level of benefits is being reduced in these countries, and waiting periods for claiming them lengthened. Increasingly, employers and employees are expected to make contributions to the cost of benefits, as in other welfare states.

Countries such as France, Germany and Italy with conservative welfare systems have attempted to control costs by weakening the social insurance principle. Benefits are being reduced and no longer paid out as of right - the unemployed must actively seek work to qualify. Coverage has been extended to those not in employment. Some of the cost is being shifted from social insurance to general taxation.

In the different types of welfare state, common themes are emerging as these reforms progress. One is a greater emphasis on ensuring that social security systems do not impede the reduction of unemployment. Lower benefits, requiring the unemployed to undergo training, and workfare-type policies involving work in return for benefits, are all designed to boost employment levels.

Another is increasing pressure for people to make their own provision for welfare. It is still largely the Anglo-Saxon countries that offer incentives for private provision. But reductions in benefits in other countries will encourage individuals to do more to provide for themselves. So, too, will moves to restrict indexation of pensions to retail prices, which reduces pensions as a proportion of average earnings.

A third theme is a widening of the funding base for public welfare schemes. Countries which relied on employer/ employee funding are shifting some of the burden to the government to control overall spending. Those that relied on taxpayers to fund welfare are asking employers and employees to pay more to reduce the fiscal pressures.

It is too soon to say that the welfare states of the advanced economies are converging on a single model of provision. But most OECD countries are looking to a mixture of welfare funding that includes contributions from the state, employers and employees. Welfare benefits will be extended to all citizens, though perhaps at less generous levels than in the past. Across the advanced economies, individuals will increasingly have to complement public welfare provision with their own resources.

This is the second article in a series on welfare states across the world. The first was published on October 25

XA World P8399 Social Services, NEC P9441 Administration of Social and Manpower Programs CMMT Comment & Analysis GOVT Taxes P8399 P9441 The Financial Times London Page 18 1245
Letters to the Editor: Arguments for auditors' limited liability do not hold water Publication 931103FT Processed by FT 931103 From Mr JOHN A NEWMAN

Sir, The government is facing pressure to limit the liability of auditors within the UK. This, it has been suggested, might be achieved by allowing an auditor to agree with the company and shareholders a fixed-figure limit for liability by repealing Section 310 of the Companies Act 1985.

The justification for this seems to be, first, the large number of big claims made in the US; second, the effect this has had on the global indemnity insurance market; and, third, that the offshore mutual insurance companies formed by the Big Six or Big Eight have been denuded by claims. These arguments do not hold much water on inspection. First, the particular legal structure and litigious nature of the US makes its experience inappropriate for an EC member state. Second, the professional indemnity market does take account of national differences, and, third, as the financial status of the mutual insurance companies is not publicly available, the validity of the last argument is not questionable.

Furthermore, the office of auditor is not like other contractual providers of services. Dry cleaners may limit damages that can be awarded against them on ruination of your Armani suit, but dry cleaners are not indirectly regulated by the Department of Trade and Industry, and do not owe their existence and income to government itself. The licensed monopoly on the function of auditor is a privileged status for which the government should continue to insist upon unlimited liability. A cap would devalue the judgmental nature of the 'true and fair' view.

When government interferes in the market, the effect on competition should be reviewed. Would the quality and the level of service be helped or hindered by a cap on audit liability?

The lack of a cap means one of the major firms could become insolvent leading to a major shakeout of that firm's clients and the ruination of the partners. Such an insolvency might be beneficial since medium-sized and other specialist players might be encouraged to enter the market for audit of listed companies. The collapse would also encourage the unbundling of services, and perhaps the level of standards of the remaining participants in the market would improve.

Proponents of capping think that the more risky type of enterprise might have set for it a high limit which would reflect the danger. The current, somewhat random basis of charging audit fees suggests this is wishful thinking. It seems to me that, the riskier the firm, the more likely the limit would be set at the minimum level.

In conclusion, my feeling is: 'If it ain't broke, don't fix it.' The present system has lasted well enough for more than 100 years, and there seems to be no real pressure for change from the business community or from the public. Parliamentary time could be well spent on simplifying legislation.

John A Newman,

Chantrey Vellacott,

chartered accountants,

Russell Square House,

10-12 Russell Square,

London WC1B 5LF

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services P6231 Security and Commodity Exchanges NEWS General News P8721 P6231 The Financial Times London Page 18 537
Rule by number not OK: Voting cannot change an ethnic identity, in Belfast or in Bosnia Publication 931103FT Processed by FT 931103 By EDWARD MORTIMER

My identity is 'national'. Yours is 'ethnic'. Those people over there are 'tribal'. No doubt there are text-books that define those three adjectives, and distinguish them by objective criteria. But in everyday usage they express a value judgment, or even a political prescription.

The word 'national' implicitly asserts a right to statehood. Irish nationalists, for example, are people who are proud to be, or think they really should be, citizens of an Irish state. A 'national minority' is a group whose members do not share the national identity of the majority of their fellow citizens. They may accept that situation as tolerable, but in their hearts they identify with another state - which may already exist on the other side of a frontier, or may as yet be only a dream.

If I call such a group an 'ethnic minority' I am implicitly distancing myself from those aspirations. By calling someone an 'ethnic Hungarian', for instance, I am saying: 'This chap likes to think of himself as a Hungarian, and we must respect his culture and identity, but of course he is a Romanian (or Slovak or Serbian) citizen and there is no question of that changing.'

So 'ethnic conflict' is something regrettable, in which the speaker is implicitly neutral; whereas a 'national struggle' is something heroic, in which there are goodies (a nation defending its right to exist and the rightful frontiers of its state) and baddies (an imperial power denying that right, or an aggressor violating those frontiers).

As for 'tribes', they are definitely uncivilised. A 'tribal' conflict is not merely regrettable but deplorable and irrational. If I refer to 'tribal' behaviour in a European context there is a strong overtone of racism: I am saying that people who behave like that are not truly European. And if I call a group's aspirations 'tribal', I imply that they need not be taken seriously.

Most English people think of Northern Ireland as tribal. They see the violence there as profoundly irrational; they make no distinction between the different groups engaging in it; they tend to see Northern Irish society and culture as producers of violence, more than as victims of it; and they have little patience with, or interest in, the political programmes of any of the Northern Irish parties.

Actually the issue in Northern Ireland is simple. It is a conflict between rival national or (if we wish to be superior and neutral about it) ethnic identities. One side feels Irish and would like to be part of a united Ireland, though it is deeply divided about how feasible that is as a political objective, and about what means are legitimate, or likely to be effective, in pursuing it. The other side is deeply confused about its national identity (British? Scots? 'Ulster'?) but is absolutely clear that it is not part of the Irish nation and does not want to be part of the Irish state.

The British instinct is that the matter should be settled in a sensible British way, by a show of hands. Thus successive British governments have said that Northern Ireland will remain part of the UK so long as that is what the majority wants, and at least twice this century referendums have been held to make sure that the majority has not changed its mind.

Ironically the same mistake was made, with even more disastrous consequences, by the European Community when it called for a referendum before recognising the republic of Bosnia and Hercegovina.

It is a mistake to suppose that such questions can be settled by majority vote, because the notion of a majority vote (and even more so that of majority rule) presupposes the prior consent of the minority to be bound by the result. In other words, both sides have to form part of a pre-existing political community, committed to stay together whichever way they go. If no such community exists, you cannot call it into existence simply by establishing that one side is more numerous than the other - a fact that both sides are usually well aware of already.

Democracy is not the same as demography. Even if, by virtue of differential birth and migration rates, the Protestants one day find themselves the minority in Northern Ireland, they will not thereby be convinced that they should accept Irish unity or that it is a good thing - any more than their grandparents were convinced by the fact that they were a minority in Ireland as a whole.

Indeed, it is probably the fear of such a scenario, rather than 'blind' revenge for IRA atrocities, that motivates the growing number of murders by Protestant paramilitaries. Mowing down innocent people in a village in County Londonderry, where Catholics and Protestants mix and Sinn Fein scarcely gets a vote, makes no sense if the object is retaliation against the IRA.

But it does make sense, in a horribly familiar way, if the object is to drive the two communities further apart, persuading both that they can feel safe only in ethnically homogeneous and militarily defensible territorial blocs. 'Ethnic cleansing' is the ghastly price some people are prepared to pay, or to make others pay, rather than let themselves be dragooned, even by the ballot-box, into a nation-state they do not recognise as theirs.

How wise, then, of Mr Dick Spring, the Irish foreign minister, to make the consent of the unionist community, rather than simply of a majority in Northern Ireland, one of the six 'guiding principles' for an agreement which he set out last week. The Irish conflict is not about majorities and minorities; it is about the co-existence, peaceful or otherwise, of people with sharply different national identities.

GB United Kingdom, EC P9721 International Affairs P8651 Political Organizations NEWS General News P9721 P8651 The Financial Times London Page 18 995
Letters to the Editor: The fight to close an unacceptable pay gap Publication 931103FT Processed by FT 931103 From Ms MERIEL SCHINDLER

Sir, Your article, 'Landmark equal pay ruling is welcomed' (October 28), highlights the immense difficulties faced by women who seek to bring equal pay cases. It is surely unacceptable that Dr Pamela Enderby has had to fight eight years even to establish her right to have her case heard by an industrial tribunal. Every year, women lose out because of sex bias in employment.

Women's work remains undervalued and underpaid. Across the board, women earn only two-thirds of a man's average wage. Women continue to earn less than men in both low-paid, low-status jobs and higher paid jobs. Equal pay legislation has been in place for more than 20 years, yet the pay gap persists, encouraged by a government which chooses inactivity over equality.

Meriel Schindler,

pay equity project,

c/o Liberty,

21 Tabard Street,

London EC1

GB United Kingdom, EC P8741 Management Services P9441 Administration of Social and Manpower Programs MGMT Management & Marketing P8741 P9441 The Financial Times London Page 18 183
Letters to the Editor: Chunnel link needs bold move Publication 931103FT Processed by FT 931103 From R M BOSTOCK

Sir, There can be no doubt that the planned high-speed rail link between the Channel tunnel and London could be a showpiece for the government's initiative of attracting private capital to public infrastructure projects ('Chunnel link', October 29).

We believe it is important for the government to come up with a scheme for introducing private sector entrepreneurial skills, management disciplines and capital into this transport infrastructure project at an early stage.

In October 1991, the secretary of state announced the government's preference for the route on the lines put forward by Ove Arup & Partners; this was a route approaching central London from an easterly direction. At the same time he requested British Rail to develop this route to a standard at which he could safeguard it. The route corridor has now been identified and largely accepted through a successful public consultation process carried out over the past six months by Union Railways, a subsidiary of British Rail.

For the high-speed rail link to progress without delay now requires some kind of joint venture between the private and the public sectors along the lines outlined by the Treasury in its March 1993 guidance notes. This has to be the most appropriate vehicle for the government to take the project forward through its parliamentary process. Such an arrangement would require the government to shoulder the political risks and the private sector participant to develop the business aspects. These would include proposals for full financing and would include the form and amount of the public sector contribution. All the project risks other than the political ones could be carried by the joint venture. The government's equity interest would be disposed of at the time of full financing after Royal Assent.

The challenge facing the Treasury is to devise a method for selecting an effective and credible private sector participant which would create strong ownership of the project with the government. Such a venture should be put in place now as the project goes to parliament in March 1994. Without a bold initiative, doubt will remain about the effectiveness of the government's intention of attracting private capital to public infrastructure projects.

R M Bostock,

director,

Ove Arup & Partners,

13 Fitzroy Street,

London W1P 6BQ

GB United Kingdom, EC P4111 Local and Suburban Transit TECH Services & Services use P4111 The Financial Times London Page 18 411
Arts: 'Stiffelio' at the Met - Opera Publication 931103FT Processed by FT 931103 By PAUL GRIFFITHS

At the Met, as at Covent Garden, early Verdi suddenly seems to matter. I Lombardi is to be presented by the company for the first time in December; Stiffelio has just opened in a production which, at least in textual terms, goes a step further than last season's Royal Opera House version towards restoring the work that the composer refashioned as Aroldo in 1856, after several years of having his original bowdlerised.

What we were hearing, indeed, was the first performance anywhere of what he wrote. At its premiere, in Trieste, the piece was stymied by censorship (unsurprisingly, given that it is set in Austria and puts clerics, albeit Protestant clerics, on the singing stage), and in subsequent revivals the minister Stiffelio became a prime minister, necessitating the wonderful new title of Guglielmo Wellingrode. The Aroldo adaptation has generally been regarded by Verdi experts as a desperate attempt to retrieve a messy situation, and certainly the resulting score remains the least loved of Verdi's post-Rigoletto operas.

According to those same experts, Stiffelio, written immediately before Rigoletto, is the real thing. For them, then, this will have been an occasion of some moment. Here at last is the piece, with the music not used in Aroldo - music long thought ditched or lost, and recoverable only from copies - played from a new edition that has benefitted from the rediscovery last year of the autograph material.

Whether Stiffelio will now become as familiar as La Traviata, or even La forza del destino, is, however, uncertain. It's a strange piece. Some of the orchestral writing seems frankly experimental - not so much in the overture, which is a miscellany (little wind pipings cruelly hard to play, a broad trumpet tune, a bright unashamed dance), but certainly at the start of the second act, where a moonlit churchyard calls up chromatic curlings from divided strings and a jamming of unlike themes, or in the third, where dissonance is an emblem of the doubt felt by two audiences - that in the church on stage, and that in the theatre - as to what Stiffelio will do and say when he goes up into the pulpit after the catastrophes that have abruptly befallen him: learning of his wife's unfaithfulness, and having his conciliation pre-empted by his father-in-law's murder of her lover.

Another curiosity of the opera is that these things aren't substantiated by what we see. The lover, Raffaele, is an exceedingly shadowy figure. In the first act he features prominently in just one tiny scene; in the second his main function is to prompt the lady, Lina, from her cantabile into her cabaletta; and in the third he gets killed almost without opening his mouth. One has the impression of a character who is refusing to take part for fear of incriminating himself. His silence, and his burying of himself in the work's majestic ensembles (other characters are buried there too: Dorotea and Federico), help to create the pall of guilt that gives the opera, right from the start, a quite particular colour.

Or maybe this is only the pall of our own ignorance of the work, though I doubt it, since Verdi seems here to be placing us quite actively in ignorance, so that we may sympathise with Stiffelio in his gradual awakening to the truth, and also in his moral resolve to deal with the present and not rake over the past.

The role is, again, unusual. Lyricism is the way Stiffelio behaves under delusion: in a beautiful barcarolle near the start, with an orchestra mellowed by horn tone, he tells of seeing an amorous escapade which he does not know involved Lina and Raffaele. Thereafter, along the line of his discovery and self-discovery, his big numbers are all duets and ensembles, and his vocalism becomes urgent, declamatory, baritonal. The part could have been made for Placido Domingo at this point in his career: what might otherwise be faults - the hefty projection, the top beginning to waver - become the means by which he conveys the man's solidity holding against extremes of pressure. There is no refuge here in piety: his great cry of 'Sacredote sono]' (perhaps not the likeliest words for Piave to have put into the mouth of a Protestant pastor) sounds out with the force not of self-restraint but of self-realisation.

The other leading principals in this production are Sharon Sweet as Lina and Vladimir Chernov as her father Stankar. Ms Sweet makes a big and often beautiful sound: she has no trouble in scaling above full ensembles, but she does have problems when something more gentle might be useful, or something more accurately on the note. Chernov, though asking our indulgence at the opening performance on account of a throat infection, gave a magnificent performance: his grey, severe tone was vigorously focused, his phrasing pliant and moving, his pacing of the large-scale third-act aria unerring.

James Levine, conducting, lets us enjoy the score's extravagances and even its banalities. The production is strong in both these categories too. Michael Scott provides sets in the Met's fossilized naturalist manner (a vast Gothick panelled library for most of the indoor action, a light-filled creamy church interior for the final scene); Giancarlo del Monaco's work as director is in the same vein.

GB United Kingdom, EC P7922 Theatrical Producers and Services NEWS General News P7922 The Financial Times London Page 17 916
Arts: Try the taste, for starters - Television Publication 931103FT Processed by FT 931103 By CHRISTOPHER DUNKLEY

The trouble with television these days is the sheer quantity. Take a break and when you come back there is so much to catch up on that the benefit of the holiday rapidly evaporates. You can expect no sympathy, of course, if you complain about being paid to watch television, yet a sense of panic can set in when you sit down with the Radio Times at the beginning of a week and realise just how much has to be watched. Even with three video recorders for evenings when there is a four-way clash at 9.30, you still find yourself hunched, red eyed on the old green sofa, zapping from one channel to another, forever convinced that you are missing a masterpiece somewhere. The danger is that in trying to get a taste of everything you do not get the true flavour of anything. Still, in Week 1 of the return there was really no choice: widespread sampling was a necessity.

MONDAY. BBC1's Watchdog under its new presenter Anne Robinson looks as though it may be turning into yet another example of a 'people show' instead of the consumer series it used to be, but we shall need to see more to be sure. BBC2's The Incredible Shrinking Politicians is presented, of course, by Martin Jacques. 'Of course' because nothing is so slavishly trendy as television and left winger Jacques has taken over from left winger Peter Kellner as flavour of the moment for political programmes. He is personable enough but currently ridiculously over exposed. Moreover his thesis here, that politics is in long-term decline, seems doubtful. More likely a blip on the historical graph.

TUESDAY. Anyone who thought that the Beadle shows reached the limits of cringe-TV ought to glance at The Hypnotic World Of Paul McKenna on ITV. It is difficult in a free society to defend the now defunct IBA rule banning hypnosis programmes; if the victims are willing and paid who are we to act as nanny? Yet I would no more watch this voluntarily than pelt a victim in the stocks. Without Walls on C4 has become just about the best culture series on television. The item 'Reith To The Nation' seems unsure whether to tackle the condition of the BBC or the weirdness of Lord Reith as revealed by Ian McIntyre's recent book, but it succeeds moderately in both. Tony Parsons' blast at Kubrick for banning A Clockwork Orange from British screens is an excellent example of the arts polemic we have come to expect from this series. It looks as though the second batch of Between The Lines will confirm this BBC1 production as much the best current police series . . . even if the idea of a cabinet minister removing his secretary's bra in front of a brightly lit un-curtained window is laughable. You might have thought it difficult to make a character as odd as Houdini vaguely boring yet Omnibus manages it. Pirates And Emperors - Who Is The Terrorist? on C4 has a single unoriginal point to make but makes it well: that today's vilified terrorist is tomorrow's respected government minister.

WEDNESDAY. The best comment about Margaret Hilda's appearance in Thatcher: The Downing Street Years is made by Kenneth Clarke during an engrossing Late Show on BBC2 which discusses history as print and as television. She is like a jet turbine, he says: while an internal combustion engine can work at various speeds, she is only capable of operating at 30,000 lb thrust. No book will ever achieve what BBC1's Thatcher series is managing in conveying the attitude, tone and presence of the former prime minister. On the other hand it is hard to see the value of The Almost Complete History Of The 20th Century on C4 which dubs 'funny' lines on to archive newsreel.

THURSDAY. The producers of The Music Game on C4 seem to have noticed that My Music was hugely popular for many years even though the participants were not great musical experts. Unfortunately they appear to have missed the fact that Muir, Norden and the others were charming, funny and unusually inventive. BBC2's Red Dwarf has always contained the sort of jokes which delight first year undergraduates after they have drunk 12 Budweisers and, judging from today's episode, this sixth series is not even up to that standard . . . yet who would miss it? Gags in deep space make such a refreshing change from Ding Dong Honey I'm Home. How splendid to discover that I did miss today's episode of Absolutely Fabulous on its first transmission: with Jennifer Saunders being so clever and Joanna Lumley proving not just outrageously fanciable but such a natural comedian it is a superbly entertaining series. Lumley's dismount from the motorcycle was the highpoint of the week. In World Chess why does C4 not tell us the score to date? Could it be such a disaster for Short that they do not dare? Having been away perhaps I shall never know.

FRIDAY. ITV's drama series Demob, starring Griff Rhys Jones and Martin Clunes as a couple of inept comedians in the postwar music hall, is workmanlike and contains a straight (well, semi straight) performance from the late, great Les Dawson. Yet the time drags and I cannot see myself watching next week's episode. Eurotrash on C4 with Antoine de Caunes and Jean-Paul Gaultier competing in zer farnee aggzents competition and items concentrating on sexual trivia (the pubic hair stylist, a new show at the Folies Bergere) is the sort of zany time-passing programme which you watch late in the evening when there is nothing worthwhile elsewhere. Late Night With Conan O'Brien on BBC2 proves that, with Johnny Carson gone and David Letterman switching networks, the American chat show is in deep trouble. O'Brien is awful and the show, because it seeks nothing from its guests, even worse. Pessimistic reports about Danny Baker's new show filtered back as far as Umbria, but surely his series must be better than this.

SATURDAY. It is. In fact, Danny Baker After All (BBC1) is very good Saturday night entertainment, and if they manage to find one guest in six who is as good a raconteur as Rik Wakeman today, this could become as big a draw as the early Parkinson. Earlier in the evening Harry looks like a too-carefully contrived vehicle in which Michael Elphick can merely carry on from his Boon character, this time as a rough diamond journalist; formula drama which may sustain the ratings but will never tell us anything we did not know about the human condition. DA Pennebaker's documentary on BBC2 about the Clinton election staff, The War Room, is good but not great. We have seen much of this sort of material and you have to do something more unusual to stand out nowadays.

SUNDAY. In the early evening there are three documentary series which could keep me hooked for weeks. Theatre School on BBC2 may be at its most fascinating in this opening episode with the auditions and some pretty brutal interviews, but it is very nicely edited and promises much. If, like me, you have bought and driven old German motorbikes then you will devour every minute of C4's Classic Motorcycles and if not you will probably be bored to tears; it seems to be dictated entirely by the availability of archive footage. Locomotion on BBC2, however, is not solely for steam train freaks since it seems far more concerned with the social implications of the development of the railways, which makes a change. With Scarlet And Black (what happened to the definite articles?) BBC1 faces a tough job: proving that it really is best when it comes to the classic literary adaptation. Stephen Lowe's decision to insert Napoleon into his dramatisation as a sort of Tinkerbell, flying around offering our hero terse advice, scarcely makes matters easy. But Stendhal was a good storyteller, the casting of Alice Krige as the beautiful young wife, ripe for a love affair, is spot on, and, apart from some nasty background music, all the ingredients are in place: carriages, outsize top hats, sylvan idylls straight out of a margarine commercial, and plenty of upstairs-downstairs jiggery pokery. A hit.

GB United Kingdom, EC P4833 Television Broadcasting Stations NEWS General News P4833 The Financial Times London Page 17 1406
Arts: The Madam of the Balconies - Theatre Publication 931103FT Processed by FT 931103 By ALASTAIR MACAULAY

What price beauty in times of poverty? Why work to revive the art of the past when deprivation is all around? With lyricism and with poignancy, this play by Mario Vargas Llosa addresses these questions. It has no answers; this is not (thank heavens) a didactic play. At times, indeed, it is hardly a play - more a great swelling funeral ode for the culture of the past. But one watches it with a very full heart. A work of art is a testament to the glory of the human spirit. How then can men so readily let art be destroyed? Alas, they do so all the time.

Professor Brunelli, 'the madman of the balconies', is an old Italian who lives in a scruffy old district of Peru and who, as old houses are destroyed to make way for modern high-rise tenements, dedicates his life to saving their balconies. Each old balcony is an example of artistic traditions that speak of generations of Spanish and Arab craftsmanship - that speak of the cross-cultural paths of culture itself. The professor leads a crusade of enthusiastic young boys and old women - a crusade that fails. Modern town planners reject the balconies as antiquated, native South Americans revile them as examples of cultural imperialism, the old ladies are scared away by the dangers of the slum districts, and the Professor's own daughter blames him for sacrificing her life to his cause.

This Gate staging has designs by Marjoke Henrichs of aching beauty - with shards of old-gold balconies in layer upon layer, foreground, midground, background, against dazzling azure. Hettie Macdonald, directing, has caught a sense of South American culture by qualities of intonation and gesture throughout her cast of 15. She fills the stage with such depth and breadth of character and colour that we are often contentedly suspended in a situation that is nearly plotless.

The performance is dominated by Peter Eyre, who makes the Professor as cultivated, as quaint, as significant, as one of his balconies. He rises to, and reveals, the lyric threnody of Llosa's text with the greatest vocal distinction. He employs an old tenor voice - now reedy, now mellifluous, now suddenly descending into a deep, mellow baritone - and effortlessly strings three or more sentences together on a single breath: all of which conveys not virtuosity but feeling. Much of the play consists of his soliloquies - which often are his tender address to the city of Lima itself, 'my little whore'.

I wish the Gate supplied its audience with more information about this play - its date of composition, its previous performances, and so on; but I can object to little else. The Gate's reputation is largely built upon its stagings of foreign plays by dead authors, and it is good that (since Llosa is alive and kicking) this production reminds us that the Gate also honours world drama of the present day. Llosa never tells us that his balconies symbolise anything. It is enough for him to make the Professor's world real to us: admirable. Still, we may certainly take those balconies as symbols. And among other things they symbolise the art of the Gate itself - the little theatre that in impoverished conditions struggles to revive the past, to enlarge our knowledge of cultures outside our nation, and to make us feel that other cultures are in fact ours too.

At the Gate, W11, 071-229-0706, until November 27

GB United Kingdom, EC P7922 Theatrical Producers and Services NEWS General News P7922 The Financial Times London Page 17 610
Arts: Today's Television Publication 931103FT Processed by FT 931103 By CHRISTOPHER DUNKLEY

If you happen to be a soccer fan (you are? Well, it takes all sorts ..es) you have your work cut out. Professional spitting, shin kicking and team-mate kissing will be featured in a two-hour Sportsnight Special (7.00) on BBC1 which covers Norwich v. Bayern Munich; in another two-hour slab on ITV, The European Match (7.10) showing Arsenal v. Standard Liege; and in a 60-minute programme, also called The European Match (ITV 10.40) which promises highlights from all over the place.

For people with a different taste, Bookmark sends out Julian Symons in search of traces of his elder brother AJ Symons who wrote 'The Quest For Corvo', still in print 60 years after it was written, though its author has been dead for 50 years (BBC2, 8.00).

Dispatches (C4, 9.00) appears to be aimed expressly at FT readers. It investigates the managers who run our pension funds and discovers 'how the unscrupulous can misappropriate funds entrusted to their care'.

BBC2 begins its four-part version of The Buddha Of Suburbia by Hanif Kureishi, who wrote 'My Beautiful Laundrette' (9.25).

GB United Kingdom, EC P4832 Radio Broadcasting Stations P4833 Television Broadcasting Stations P4841 Cable and Other Pay Television Services TECH Services & Services use P4832 P4833 P4841 The Financial Times London Page 17 223
Management: Rewards for the top performers - Lucy Kellaway asks if incentive plans are really all they are cracked up to be Publication 931103FT Processed by FT 931103 By LUCY KELLAWAY

Eat your greens and then you can have an ice cream. Do your homework and then you can watch television. Work harder and then you can have a bonus.

The notion of offering a reward for good behaviour is embedded in Anglo-Saxon culture. Parents do it and so do companies. Performance-related pay, bonuses or other forms of incentive scheme are used by most British and US companies. Those that do not are regarded as being in the managerial dark ages.

Imagine the outcry when a respected management theorist suddenly announces that all such reward systems are bound to fail and should therefore be removed. Writing in the latest issue of the Harvard Business Review, Alfie Kohn argues that at the heart of performance pay lies a mistaken view of what motivates people: rewards do not change attitudes or commitment to any task. They simply, and temporarily, change what we do.

Kohn draws on dozens of studies in the US which show that at best rewards buy short-term compliance. The more complicated the task, the more ineffective the reward. He argues that incentives are equally hopeless at motivating senior and junior employees. Both on the shop floor and in the boardroom rewards are powerless to increase results. Surveys have failed to establish any link between top pay and company performance.

Kohn cites the example of a mid-western manufacturing company, where an incentive system for welders was suddenly dropped. Productivity fell initially, but after a few months was back where it had been before.

Six reasons are advanced to support his thesis:

Pay does not motivate people. Studies have shown that if you halve somebody's pay you demotivate them, but if you double it the reverse does not happen. Moreover, if you ask people what matters to them most in their jobs, money usually comes well down the list.

Rewards are like punishment. Managers have long known that punishment is ineffective, but rewards are just as manipulative of employee behaviour. Those who do not get a reward may feel as if they have been punished.

Rewards destroy co-operation between employees in the scramble to compete for them. They also encourage people to suck up to the boss.

Rewards mask what is happening in a company. Managers frequently use rewards as a substitute for dealing with the problems that cause low productivity. It is easier to offer a reward than to treat workers well, to give them feedback, support and freedom.

Rewards discourage people from being imaginative and from taking risks. Instead, employees focus narrowly on the criterion for the reward, and may even falsify records to ensure the reward is theirs.

Rewards divert attention from the job in hand, by encouraging workers to concentrate on the reward rather than on the work. If the work is seen as a means to an end, it becomes less desirable.

Kohn is not a lone voice. Other management thinkers in the US - such as Robert Fritz, a composer turned management guru - are reaching the same conclusion. He argues that people are really looking for involvement, not for reward. 'If you have been raised to think: what's in it for me, you can't be involved. Companies should encourage people to play the game for its own sake,' he says.

Kohn's article, however, has drawn an angry howl from more traditional management thinkers. Those who make a living from selling such incentive schemes have been left apoplectic with rage. G. Bennett Stewart III of Stern Stewart, a financial advisory firm, fears the very future of capitalism is at stake. He has written to the Harvard Business Review protesting that: 'A world without A's, praise, gold stars or incentives? No thank you, Mr Kohn. Communism was tried and it didn't work.'

Jerry McAdmans of the US consultancy Performance Improvement Resources claims that 'Kohn's article is a provocative exercise in attention getting and niche marketing'.

Others have taken issue with parts of Kohn's thesis, while admitting that there is good sense in some of it. Andrew Lebby of the Washington DC-based consultants The Performance Group argues that although money is not a motivation it may be valued by employees as a sign that employers appreciate their work.

Still others dispute the notion that concentrating on money detracts from the job itself. One reader quotes the poet Anne Sexton: 'I am in love with money, so don't be mistaken. But first I want to write good poems. After that, I am anxious as hell to earn money and fame and bring the stars all down.' Another disagrees that incentives encourage employees to undermine each other, arguing that rewards for teamwork are the answer.

It is one thing to dismiss incentives, it is another to come up with an alternative system. Michael Beer, professor at Harvard Business School, assumes the answer cannot be to pay everyone the same and offers his own solution. Managers should not use pay as a means of motivating, but should pay people equitably. There should be no quarterly or annual bonuses. Instead, he argues, the best 10 per cent of employees should be rewarded for outstanding, long-term performance. The worst performers should be 'weeded out'. All the others should be praised and have their contributions recognised.

Rather than hand out rewards, Kohn believes companies should offer employees better job content, a share in the decisions and a climate of support. But there is no hope of that as long as they go on treating their people like pets.

GB United Kingdom, EC US United States of America P8741 Management Services P6231 Security and Commodity Exchanges CMMT Comment & Analysis MGMT Management & Marketing P8741 P6231 The Financial Times London Page 16 977
Management: Rewards for the top performers - The curious appeal of UK performance-related pay schemes Publication 931103FT Processed by FT 931103 By DAVID GOODHART

Performance-related pay in the UK is a puzzle. There is overwhelming scepticism about its effects on performance, yet its progress seems unstoppable.

Over the past few years this may owe something to government patronage as PRP has been, or is being, imposed on the civil service, the NHS, the education system and now the police force.

Yet government patronage is only part of the story. A 1991 study by the National Economic Development Office found that about half of all private-sector organisations in Britain were using PRP for some staff and more than one third had been doing so for more than 10 years.

Despite its long pedigree there is considerable muddle about what it is and how widely it has spread. PRP - not to be confused with profit-related pay, which attracts various tax advantages - could cover anything from piece work for manual workers, one-off merit pay schemes, or simply the promotion of good performers to higher-paid jobs. But in practice it has come to describe the linking of all, or part, of an individual's pay rise to a formal performance appraisal system.

The most recent research from the Institute of Manpower Studies finds that more than two-thirds of all UK organisations now have individual-based PRP for at least some of their staff. The majority of schemes apply to managers or valued 'core' staff, but the trend of the past few years has been for the system to trickle down to white-collar staff.

It is still relatively unusual for manual workers, although Nissan's British assembly plant is an exception, and the real extent of PRP can be easily exaggerated. A glance at the government's latest New Earnings Survey shows that productivity/incentive pay for all non-manual employees increased from 2.6 per cent of gross earnings to 3 per cent between 1992 and 1993.

It is difficult to tell how much of that 3 per cent is PRP as the NES does not break down incentive pay into different categories. But even if PRP accounted for a good part of it, it would still be far less than the productivity pay arrangements that in 1993 accounted for 5.3 per cent of manual workers' pay.

Also, although two-thirds of all organisations may have some form of PRP, when settlement groups within organisations are examined, as they are by the Industrial Relations Services pay databank of more than 1,000 such groups, PRP coverage falls to only 20 per cent.

Nevertheless, PRP is on the march in the private and public sectors, and most companies in sectors such as building societies, banks and insurers have PRP for all their staff and usually for the whole pay rise.

Little work has been done on evaluating the effectiveness of schemes but, according to the last IMS case studies, PRP does more to demotivate than to motivate staff and neither helps to retain high performers nor dispatch poor performers. Other studies find that the motivational effects of PRP are, at best, neutral.

What explains its continuing popularity? First, for government ministers and private-sector managers the introduction of PRP is a powerful signal for a broader change of business culture. And it is often accompanied by other moves towards individualising employer-employee relations - such as team-briefings, profit-sharing and health schemes.

Second, as organisations become 'flatter', stripping out layers of management, the ability to reward people through promotion becomes more complex. PRP, and a widening of pay scales, is one answer.

Third, as Louis Wustemann of IRS points out, although PRP companies often seem to make higher pay awards than non-PRP companies, many of them are actually making substantial savings in salaries. That is because a surprising number of companies in sectors such as finance and chemicals still have service increments which can pay people about 2 per cent a year, as they move up seniority scales, on top of an annual pay rise. With the introduction of PRP these service increments are usually abolished.

There are more traditional arguments in favour of PRP which few people disagree with in principle. Why pay the same rise to someone just avoiding the sack, as to someone who is making a substantial contribution? Also, it is inefficient to promote someone from something they are good at to something they might not be good at because it is the only way of paying them more.

The principle is fine but, as Wustemann says, PRP is something that is easy to do badly. The fair and accurate measuring of individual differences in performance is an art still in its infancy.

Most personnel managers say it is easier to measure performance for senior staff with some autonomy or for clerical staff with clearly defined functions. But for the growing number of middle-ranking, white-collar staff, things are more complex and many such employees believe themselves to be victims of bias in line-manager appraisals. There is also some doubt that individuals will increase their effort to gain more reward, especially as the sums involved are usually quite small.

Alan Wild, head of employee relations at Guinness, says 'PRP must be only one piece of the motivational matrix.'

Most practitioners believe PRP is not a reincarnation of the bogus productivity deals of the 1960s. There are, however, limits to its progress as teamwork for both blue- and white-collar workers switches attention to group reward systems. For senior staff it will, according to Wild, continue to play a useful role in 'focusing' efforts.

Further articles on PRP will appear in the next few weeks.

GB United Kingdom, EC P8741 Management Services P9441 Administration of Social and Manpower Programs P6231 Security and Commodity Exchanges MGMT Management & Marketing CMMT Comment & Analysis P8741 P9441 P6231 The Financial Times London Page 16 976
People: SIRA Certification Service Publication 931103FT Processed by FT 931103

Ian Knott, deputy md of Sira Test & Certification, has been appointed chief executive of SIRA Certification Service on the retirement of Terry Flanagan.

SIRA Certification Service GB United Kingdom, EC P8734 Testing Laboratories PEOP Appointments P8734 The Financial Times London Page 15 53
People: Pittencrieff Publication 931103FT Processed by FT 931103

Douglas Sinclair, group finance director of PITTENCRIEFF, has been appointed chief financial officer of Pittencrieff Communications, its US subsidiary.

Pittencrieff Communications Inc US United States of America P1311 Crude Petroleum and Natural Gas PEOP Appointments P1311 The Financial Times London Page 15 50
People: IPC Information Systems Publication 931103FT Processed by FT 931103

Keith Smith has been promoted to the post of UK sales director of IPC Information Systems.

IPC Information Systems GB United Kingdom, EC P7375 Information Retrieval Services PEOP Appointments P7375 The Financial Times London Page 15 46
People: KWO Kabel Gmbh Publication 931103FT Processed by FT 931103

Gerd Schlenzka has been appointed finance director of KWO Kabel Gmbh, a subsidiary of BICC CABLES; he will be based in Berlin.

KWO Kabel DE Germany, EC P3661 Telephone and Telegraph Apparatus PEOP Appointments P3661 The Financial Times London Page 15 51
People: Pepsico Publication 931103FT Processed by FT 931103

Michael Feiner has been appointed senior vice-president of personnel for Europe at PEPSICO; he will be based in London.

PepsiCo Inc GB United Kingdom, EC P2086 Bottled and Canned Soft Drinks PEOP Appointments P2086 The Financial Times London Page 15 48
People: Merieux Publication 931103FT Processed by FT 931103

Richard Stubbins has been appointed finance director of MERIEUX, the UK subsidiary of Pasteur Merieux Serums et Vaccins.

Merieux GB United Kingdom, EC P6719 Holding Companies, NEC PEOP Appointments P6719 The Financial Times London Page 15 44
People: Northern Ireland Electricity Publication 931103FT Processed by FT 931103

Noreen Wright has been appointed company secretary of NORTHERN IRELAND ELECTRICITY; she succeeds Gerald Nickell.

Northern Ireland Electricity GB United Kingdom, EC P4911 Electric Services PEOP Appointments P4911 The Financial Times London Page 15 44
People: Lucas Industries Publication 931103FT Processed by FT 931103

Mike Burgess, formerly finance director of Fisons' horticultural division, has been appointed director - internal audit of LUCAS INDUSTRIES; Peter Skeggs becomes group treasurer.

Lucas Industries GB United Kingdom, EC P3714 Motor Vehicle Parts and Accessories PEOP Appointments P3714 The Financial Times London Page 15 54
People: Cadbury Schweppes Publication 931103FT Processed by FT 931103

Ian Johnston, currently md of Schweppes Cottee's, a subsidiary of CADBURY SCHWEPPES in Australia, is appointed to succeed David Brooks as md of Cadbury when he retires on January 3.

Cadbury Schweppes GB United Kingdom, EC P2096 Potato Chips and Similar Snacks P2086 Bottled and Canned Soft Drinks PEOP Appointments P2096 P2086 The Financial Times London Page 15 67
People: Curry takes top meat job Publication 931103FT Processed by FT 931103

A Northumberland farmer by profession, Don Curry, 49, has been appointed by the government as acting chairman of the Meat and Livestock Commission; he had been deputy chairman of the MLC since December 1991. The MLC's former chairman, Geoffrey John, has moved to take up the post of chairman with Food From Britain.

Chairing the MLC is a three-day-a-week job. Besides his farming interests, Curry is chairman of a livestock marketing co-operative based in Ponteland, also in Northumberland. He first joined the MLC in 1986, having attracted ministerial notice through his work on the council of the National Farmers' Union.

Although not full-time, the MLC is nevertheless a demanding job, with 'a lot of public relations, meetings and committees to attend, representing the MLC at various events,' says Curry. He describes it as 'a very important body with an annual budget of Pounds 2m for research and development projects aimed at improving the long-term efficiency of the industry'.

Probably the most publicly visible activity of the MLC in recent months has been its controversial advertising campaign using the slogan 'Meat to live'. 'I don't think that is taking things too far,' says Curry. 'We take a responsible view of our advertising. There is a lot of nonsense talked about meat-eating. There is an awful lot of advertising which one could look at and ask if what it is saying is actually correct.'

Curry says that 'when and if' he was asked by the government to stay on permanently as chairman he would have to give it serious consideration. For the moment Gillian Shephard, the new agriculture minister, has just begun to get her feet under the table; the temporary nature of Curry's MLC post may well change once Shephard has sorted out a few sheep from goats.

GB United Kingdom, EC P9641 Regulation of Agricultural Marketing PEOP Appointments P9641 The Financial Times London Page 15 326
People: Newarthill Publication 931103FT Processed by FT 931103

The Hon David McAlpine and Cullum McAlpine have been appointed to the board of NEWARTHILL, holding company for Sir Robert McAlpine; Kenneth McAlpine has retired.

Newarthill GB United Kingdom, EC P6719 Holding Companies, NEC PEOP Appointments P6719 The Financial Times London Page 15 51
People: Constructive careers Publication 931103FT Processed by FT 931103

Paul Ahearn (below right), formerly md of Norwest Holst Construction, has been appointed a director of WILTSHIER.

Wiltshier Construction GB United Kingdom, EC P1521 Single-Family Housing Construction P1542 Nonresidential Construction, NEC PEOP Appointments P1521 P1542 The Financial Times London Page 15 50
People: Constructive careers Publication 931103FT Processed by FT 931103

Donald Bethune (below left) has been appointed director of technical services at the LONDON DOCKLANDS DEVELOPMENT CORPORATION; he succeeds Tom Hoke who was seconded from Bechtel as director of infrastructure programme.

London Docklands Development Corp GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries PEOP Appointments P6552 The Financial Times London Page 15 63
People: Constructive careers Publication 931103FT Processed by FT 931103

David McAlpine and Cullum McAlpine have been appointed to the board of NEWARTHILL, the holding company for Sir Robert McAlpine; Kenneth McAlpine has retired.

Newarthill GB United Kingdom, EC P6719 Holding Companies, NEC PEOP Appointments P6719 The Financial Times London Page 15 51
People: Constructive careers Publication 931103FT Processed by FT 931103

Chris Randle has been appointed md of JOHN MOWLEM Construction's Northern Region which comprises North Wales, North West England, Yorkshire and the North East.

John Mowlem Construction GB United Kingdom, EC P1629 Heavy Construction, NEC P1542 Nonresidential Construction, NEC PEOP Appointments P1629 P1542 The Financial Times London Page 15 58
People: Constructive careers Publication 931103FT Processed by FT 931103

Malcolm Eckersall, chairman of Amec Construction, has been appointed to the main AMEC board; he is responsible for the group's building and civil engineering activities throughout the world.

AMEC GB United Kingdom, EC P1629 Heavy Construction, NEC P1611 Highway and Street Construction PEOP Appointments P1629 P1611 The Financial Times London Page 15 61
Technology: Haunted by Britain's industrial heritage - A new report which proposes ways of cleaning up contaminated land Publication 931103FT Processed by FT 931103 By DAVID LASCELLES

The twin issues of environmental liability and contaminated land are fast becoming some of the most contentious for the business community in the UK. Yesterday's proposals from the Confederation of British Industry are part of an increasingly concerted effort by business, banking, insurance and the property sector to fend off what they fear could be crippling bills.

'Business interest in this issue is strong and rising,' said Howard Davies, the director general. The government is currently conducting a review of the problem after being forced by industry pressure to drop a plan for a contaminated land register earlier this year. This could lead to fresh proposals, possibly a green paper, next year.

The 32-page CBI report is blunt about the problem: 'Liability for remedying environmental damage may well become the key environmental challenge facing business in the 1990s,' it begins, making clear that the fundamental question is who pays for it. The report was assembled by a working party of CBI members headed by John Wybrew, the director of public affairs and planning at Shell.

As the CBI sees it, the UK has an exceptionally long industrial heritage and this has left it with more contaminated land than probably any other country. But the business community does not accept that it should bear the cost of cleaning it all up, or that every hectare of it even needs to be cleaned up to the same pristine standard.

The report is particularly critical of the legal and regulatory uncertainties that surround environmental liability, and specially an EC green paper issued last May that would try to harmonise it across the whole community on the basis of strict liability.

Wybrew warns that these uncertainties are causing land to be left derelict and deflecting demand for industrial sites into greenfield areas. 'We want to harness the wealth creation process to environmental improvement,' he said yesterday. The Royal Institution of Chartered Surveyors has already denounced the proposal as 'unfair and unpractical'.

There are also side issues about the extent to which banks would be liable to foot the bill for contaminated land owned by clients they lend money to and the role of pollution insurance.

The CBI accepts that business should pay for any environmental damage incurred in the future, provided there is a clear and fair legal framework. But the real problem lies with past damage affecting as much as 200,000ha, which would cost up to Pounds 1m per hectare to put right, or a total bill of Pounds 20bn. A lot of the pollution is historic: no one knows who was responsible, the land may have changed hands many times. Much of it was also legal when it occurred.

Here, the CBI makes a number of proposals.

First, the government should establish priorities for cleaning up contaminated land. Perhaps only 1 to 3 per cent of land needs urgent action. It should also set standards because the requirements for different types of land can vary widely. Dutch soil standards are widely used but these were designed for a particular set of national circumstances and also require land to be improved to a point where it can be put to any use, however sensitive. The CBI thinks that is going too far.

Second, the government can help by linking remedial action to the planning process and by encouraging development of new technology for measuring contamination and carrying out remedial action.

Third, the government and the EC should explore grants as a way of paying for clean-ups. 'Mixtures of public- and private-sector funding will be the most effective way to bring land back into use where it is most needed,' the report says.

But having made this statement, the report is strikingly vague about how the private sector should play its part. It offers no estimates of how big a contribution business might make, how it could be made and by whom, although the report lists in detail the government agencies who might be able to offer money and also gives a run-down of the amount of public money available for land reclamation.

The CBI has rejected the idea of a compensation fund. John Cridland, the environment director, said yesterday: 'The past is the consequence of our industrial heritage, therefore the only appropriate way to pay for it is through the exchequer. I cannot envisage any compensation arrangements that would be fair and equitable.'

This weakness in the report was quickly seized on yesterday by environmental campaigners who accused the CBI of trying to wriggle out of its responsibilities and push the cost on to the taxpayer. They also said that industry was effectively trying to secure a competitive advantage in Europe at the expense of the public and the environment.

Friends of the Earth said that a tax should be levied on all potentially polluting industries to create a fund to clean up land where the polluter cannot be found. It also favours a contaminated land register and strict liability.

But the picture is less clear cut than that. Local authorities, who are very close to the problem, have had difficulty forging a common position on who should pay.

'There are no easy answers' said an official at the Association of Metropolitan Authorities.

GB United Kingdom, EC P9511 Air, Water, and Solid Waste Management P9532 Urban and Community Development RES Pollution CMMT Comment & Analysis P9511 P9532 The Financial Times London Page 15 926
People: Ex-surgeon to correct the balance at UBS healthcare Publication 931103FT Processed by FT 931103

One of the more familiar names in the healthcare business has joined UBS as a director, corporate finance. John Heap trained as a surgeon, specialising ultimately in infertility treatments in obstetrics and gynaecology. But since 1980 his instruments have been rather more metaphorical than practical.

Heap has spent the past 13 years in a variety of senior European healthcare positions, all of which have primed him for his new role, which will be to assist UBS to steal a march on its competitors all fiercely engaged in staying in the middle of the new business stream being generated by mergers, floats and buy-outs in the now tightly squeezed pharmaceutical sector.

'One of the principal issues facing the pharmaceutical industry now is research and development costs, which cannot persist at the level they have reached,' says Heap. 'Globally, some Dollars 30bn is annually spent on R&D, which is an unsustainable figure when compared with generated sales of perhaps Dollars 130bn. The ratio is wrong. Pharmaceutical companies will either have to trim their R&D costs, re-focus their research, or increase sales enormously. The latter is very difficult, the first is very easy but ineffective. What needs to happen is for companies to re-focus their efforts and minimise their duplicated efforts,' argues Heap.

Heap's expertise has been gained through broad experience. On leaving the national health service, he joined the Belgian company Janssen Pharmaceuticals as a senior medical adviser. He went on to join the French company Merieux, as medical director, helping establish it in the UK.

In 1983 he joined Lorex Pharmaceuticals as the board director covering Italy, the Netherlands and the UK, and moved to Evans Healthcare in 1986.

UBS has busied itself in the healthcare market recently, recruiting a couple of analysts in London as well as one each in New York, Tokyo and Zurich. It recruited Heap in the belief that the pharmaceutical industry is about to undergo the same sorts of upheaval over the next decade as befell the computing industry in the past two.

UBS GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 15 371
Technology: A rebel among the copycats - A Japanese group's new printer may establish a trend Publication 931103FT Processed by FT 931103 By PETER KNIGHT

Buy a laser printer and help save the world. Strange as it may seem, newspaper readers throughout Europe are being urged to do just that in a series of advertisements placed by Kyocera, the Japanese company with a turnover of Y420bn (Pounds 2.6bn). Kyocera's core business is ceramics but it also makes a laser printer which it claims is environmentally more sound than those of its competitors.

The claims have caused scepticism among environmental campaigners and the electronics industry. The campaigners cite Japan's poor environmental record, especially its efforts to continue whaling and its high consumption of tropical timber. The trade thinks it is commercial suicide to try to sell products on their environmental credibility alone.

But Kyocera's printer, called the Ecosys, looks set to be in the vanguard of a wave of greener products from Japan, such as industrial environmental protection products and energy-saving devices. Consumer products are expected soon.

'Japanese industry is particularly sensitive to environmental issues because Japan has suffered from bad pollution in the past. The Minamata mercury poisoning is just one example,' says Yasuo Nishiguchi, Kyocera's senior managing director. 'I can understand that Japan is perceived as different because of the whaling. But the Japanese attitude is changing.'

It was Nishiguchi's decision to promote the Ecosys on environmental performance. He admits that some of his European distributors, especially those in Spain and Italy, think he is wrong.

'I was concerned in April 1992 when we started the promotion because everyone was saying that the printer's environmental performance was not enough to win market share. But our message to the market is now accepted and we have met our sales targets.'

Kyocera is a minnow in the worldwide office printer market, which is dominated by Hewlett-Packard, with Canon providing the core technology for most printers. The Ecosys is comparatively slower, more expensive and does not produce the same density of print as the latest models from leading competitors.

Kyocera decided that if it was to compete, it needed something to differentiate its product from the rest. Ecosys's design provided the unique selling point. Conventional printers use a replaceable cartridge that contains the toner and the printing drum. The whole cartridge is thrown away when the toner runs out.

While this gives high-quality printing, the throw-away design is both profligate and environmentally unacceptable. Canon and H-P have responded with recycling initiatives, but these have been largely ineffective because dealers are not obligated to take back used cartridges.

H-P is about to launch 're-engineered' cartridges and a take-back scheme for old printers, but its distributors are under no obligation to accept used products from customers.

Kyocera's design has a longer-lasting drum (using its ceramics technology) which is separate from the toner cartridge. The only part of the machine that has to be replaced regularly is the toner.

While marginally more expensive to buy, Kyocera claims the Ecosys is more economical to run. Each page produced costs two-thirds less than the industry average. By dispensing with the disposable cartridge the design holds the high environmental ground.

'Our printer differs from the rest because of its character that combines ecology with economy. Our competitors cannot address this,' says Nishiguchi.

The competitors, understandably, do not want to be drawn on these arguments. But it is clear they are doing everything possible to improve the environmental profile of their products. New models are, for example, far more energy efficient, are partly made from recycled materials, are packed in recyclable materials and accept recycled paper.

Pressure to improve environmental credibility comes from diverse directions. Certain government purchasing policies now insist on the best environmental option. Kyocera recently won a big order for 1,000 printers from the German Federal Office for the Recognition of Foreign Refugees in Germany, a subsidiary of the labour ministry.

The US's Energy Star labelling system, which promotes energy efficiency, has driven computer and printer makers to reduce the energy consumption of their products if they want to win federal government contracts.

Some big companies are also beginning to demand environmentally better products from their suppliers. Kyocera's heavy promotion - paid for by corporate headquarters to support its marketing in other countries - has underlined the issue in the printer market.

Nishiguchi says the Ecosys conforms with Kyocera's avowed commitment to make products that benefit society and 'make a positive contribution to planet Earth'.

'The Japanese have a desire to be leaders in everything they do and the environment is one such area. They are very sincere about it but they are also keen to extract competitive advantage,' says Alex Mayhook-Walker, a Japanese specialist with ERM, the international environmental consultancy.

Japanese trade organisations, backed by government funds, have recently commissioned research into environmental reporting, waste recycling and disposal methods for used electronic equipment. Much of this work, according to Mayhook-Walker, is linked to finding new markets.

Japanese companies clearly see opportunities to sell products into the emerging environmental markets in the west.

Kyocera's stab at capturing a small part of the printer market by extolling its green credentials could be an early warning to western manufacturers who feel the heat has gone out of the environmental market.

'A lot of new green products will come out of Japan soon,' says Nishiguchi.

Kyocera Corp JP Japan, Asia P3555 Printing Trades Machinery P9511 Air, Water, and Solid Waste Management P7331 Direct Mail Advertising Services MGMT Management & Marketing CMMT Comment & Analysis P3555 P9511 P7331 The Financial Times London Page 15 934
Construction outlook 'grim' Publication 931103FT Processed by FT 931103 By ANDREW TAYLOR, Construction Correspondent

FURTHER job losses and falls in output are expected in the hard pressed construction sector, according to a workload survey published today.

The Royal Institution of Chartered Surveyors, which published the survey, described the mood among its members as grim.

The institution's study of quantity surveyors' order books showed that workloads had fallen by 5 per cent during the three months to the end of September compared with the previous three months. Workloads over the year had fallen by 12 per cent. The institution said that 19 per cent of firms expected to shed labour during the next 12 months.

Much of quantity surveying work occurs early in the construction process. Order books therefore provide one of the best early indicators of future workloads in the industry.

The report prompted further pleas to the government not to cut capital investment in transport and housing when it announces its unified Budget at the end of this month.

Mr Christopher Vickers, a senior partner at EC Harris, one of the largest firms of quantity surveyors, said: 'The effects would be disastrous for the construction industry, causing more redundancies in a sector which has already lost more than 400,000 jobs since summer 1989.'

A joint letter to the chancellor from the Building Employers' Confederation and the Federation of Master Builders says that construction output, which has declined by 15 per cent in value since its peak, had fallen for 13 consecutive quarters. It says: 'Given this background we would urge the crucial importance in the unified Budget of maintaining current capital investment programmes.'

GB United Kingdom, EC P15 General Building Contractors P16 Heavy Construction, Ex Building P17 Special Trade Contractors P8713 Surveying Services PEOP Labour P15 P16 P17 P8713 The Financial Times London Page 14 305
Boost to engineers' managerial skills urged Publication 931103FT Processed by FT 931103 By ANDREW BAXTER

THE Institution of Mechanical Engineers is planning to expand sharply its links with industry in an attempt to make engineers more 'promotable' by helping them develop their non-technical skills.

Dr Richard Pike, who took over as director-general of the 76,000-member institution in September, wants it to work more closely with companies to resolve a problem widely seen as contributing to the UK's manufacturing decline - a shortage of well-rounded engineers.

The prevalence of engineers who lack wider financial, personnel or corporate planning expertise is often blamed on excessive specialisation in engineering courses at universities. But Dr Pike believes that engineering institutions should bear some of the blame.

The institution is planning a two-pronged approach to expanding links with UK industry. First, Dr Pike wants it to have contacts at a much higher level than previously, so that senior corporate executives understand the contribution which engineers with a broad range of skills can make.

He also wants to increase its industrial liaison officers - individual members who act as a link between the institution and a company - from 300 to several thousand.

Meanwhile, the Engineering Employers' Federation moved yesterday to fill the gap left by the surprise resignation of its director-general Mr Neil Johnson, who will be leaving at the end of this month. Mr Graham Mackenzie, president, will take on the additional role of chief executive from November 30. The federation said the arrangement would last for up to six months.

The forthcoming departure of Mr Johnson had threatened to leave the federation without a leader during a crucial period of discussions with the Confederation of British Industry over a possible link-up.

The federation said it remained fully committed to the talks, which will continue - as will consultation on the link with the EEF associations and member companies.

Numbers of apprentices recruited by the engineering industry are likely to fall by 24 per cent this year, says the Sheffield Association of the Engineering Employers' Federation.

The association, which covers the industry in South Yorkshire and the north Midlands, says its annual survey shows numbers of craft apprenticeships have dropped. But only 5 per cent of companies reported serious skill shortages.

However, engineering companies are taking on 26 per cent more graduates, while recruitment of trainee technicians is unchanged. The trends are thought to reflect the changing nature of engineering skills. Recruitment of manual operative and clerical trainees has also fallen.

GB United Kingdom, EC P8711 Engineering Services P3999 Manufacturing Industries, NEC PEOP People PEOP Labour P8711 P3999 The Financial Times London Page 14 439
Dedicated cable channel for London Publication 931103FT Processed by FT 931103

THE London Interconnect Group, a consortium of the capital's six largest cable television companies, confirmed yesterday that Associated Newspapers and SelecTV are to launch a cable television channel for London.

Channel One will be launched next April and will carry light entertainment, sports and news specially tailored for a London audience.

Associated Newspapers SelecTV GB United Kingdom, EC P4841 Cable and Other Pay Television Services TECH Services & Services use COMP Strategic links & Joint venture P4841 The Financial Times London Page 14 94
ITV Council chairman chosen Publication 931103FT Processed by FT 931103

MR LESLIE HILL, chairman and chief executive of Central Independent Television, has been elected to succeed Mr Greg Dyke of London Weekend Television as chairman of the ITV Council.

His appointment comes after suggestions from companies such as HTV and Meridian that an outsider should be appointed.

In the end Mr Hill, who has been associated with the campaign for a smaller number of more powerful ITV companies, was elected unanimously to the chairmanship of the trade association.

He and other industry executives will today meet Mr Michael Heseltine, trade and industry secretary, to discuss maximising the potential for exporting programmes.

The Independent Television Commission emphasised yesterday that of the 131 expressions of interest received about Channel 5 and the future of digital television, just 76 referred specifically to the options for Channel 5.

Central Independent Television GB United Kingdom, EC P4833 Television Broadcasting Stations P4841 Cable and Other Pay Television Services P9651 Regulation of Miscellaneous Commercial Sectors PEOP People P4833 P4841 P9651 The Financial Times London Page 14 179
Pay tribunal runs out of patience Publication 931103FT Processed by FT 931103

AN industrial tribunal has taken the unusual step of ordering a company to speed up its response to an equal-pay claim.

Vauxhall Motors has been told by the Bedford industrial tribunal to respond by the end of the month to an independent report into an equal-pay claim by sewing machinists at the company's Luton plant.

The company said last night that it had offered to respond at the end of December. The TGWU general union said it was 'delighted' that a timescale had been set.

The Equal Opportunities Commission argues that equal pay laws are ineffective because of the complexity and length of cases which puts off many potential applicants.

Vauxhall Motors GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Company News P3711 P3714 The Financial Times London Page 14 151
Jubilee Line contracts awarded Publication 931103FT Processed by FT 931103 By ANDREW BAXTER

LONDON UNDERGROUND yesterday awarded a further Pounds 400m of contracts for construction of the Pounds 1.9bn Jubilee Line extension, bringing to Pounds 800m the total value of contracts awarded in the past five days, Andrew Baxter writes.

Mr Hugh Doherty, project director, said about 60 per cent of civil contracts and more than 80 per cent of electrical and mechanical contracts would go to UK companies. Additional civil contracts would go to UK and overseas joint ventures. Further awards are expected in the next week.

'Even when contracts are with overseas firms, it is important to realise that the vast majority of the money - in excess of 90 per cent - will still be spent in the UK, contributing to the national economy,' he said.

Yesterday's contracts cover everything from tunnelling to ticket machines. Many of the construction-related contracts were already known.

These include two station and tunnelling contracts worth a total of Pounds 130m for the Aoki-Soletanche joint venture, which includes Japan's Aoki Corporation. John Mowlem, Wimpey and John Laing won other station and depot contracts as expected.

On the equipment side, GPT, the UK joint venture between GEC and Siemens, has won a Pounds 60m communications contract, while German-owned O&K Escalators will supply lifts and escalators worth more than Pounds 50m.

A Pounds 50m contract for power, cabling and conductor rail was won by GEC Alsthom, the Anglo-French engineering group which last week clinched a Pounds 250m deal to supply 59 six-car train sets for the project. The orders are a boost for the Anglo-French group after last month's defeat in the race to supply equipment to British Rail under a special Pounds 150m leasing facility granted by the government. The order went to ABB Transportation, which will supply trains for Network SouthEast.

Aoki-Soletanche GEC Plessey Telecommunications O and K Escalators GEC Alsthom ABB Transportation GB United Kingdom, EC P1622 Bridge, Tunnel and Elevated Highway P3743 Railroad Equipment P3534 Elevators and Moving Stairways P3661 Telephone and Telegraph Apparatus MKTS Contracts P1622 P3743 P3534 P3661 The Financial Times London Page 14 356
Notts colliery set to shut: Closure of 'reprieved' mine ends long wait for British Coal's strategy Publication 931103FT Processed by FT 931103 By MICHAEL SMITH

BRITISH COAL will today begin its long-awaited move to cut the UK coal industry significantly by announcing plans to close the Calverton colliery in Nottinghamshire.

The announcement will follow months of speculation that British Coal would close all 12 pits, including Calverton, that were reprieved by the government last March after a public outcry over their proposed closure.

In the five months to the end of British Coal's financial year in March, the corporation is likely to close at least a dozen pits. In contrast to last year's announcement of 31 closures, subsequently withdrawn, the corporation will move cautiously.

British Coal indicated in meetings with union leaders in Nottinghamshire yesterday that some of the 12 mines reprieved, but under renewed threat, could survive if they performed better than the 19 pits which have never been earmarked for closure.

The Calverton closure would be a blow for the Union of Democratic Mineworkers, which represents most miners in the region. The union had hoped for preferential treatment after it kept mines open in the 1984-85 pit strike.

British Coal executives underlined the extent of the industry's problems by disclosing that the amount of coal burnt in Britain's power stations this year is likely to be 7m tonnes lower than expected, down from an anticipated 64m tonnes. Coal consumption has fallen 20 per cent on last year as nuclear output has risen 12 per cent - equivalent to 3m tonnes of coal. Gas turbine stations have taken away the market for a further 4m tonnes of coal.

British Coal signalled its intention to close Calverton as it began consultations on the future of all 30 remaining pits under the industry's revived colliery review procedure.

At yesterday's meeting, called to discuss the future of the nine Nottinghamshire pits, British Coal said it was necessary to review further the Calverton colliery which employs 640 men and has made losses of Pounds 6.3m this year.

Miners and management at Calverton are to meet this morning.

At least one more pit closure is likely next week after British Coal holds a meeting next Tuesday to discuss Yorkshire region collieries.

In the following three weeks meetings will discuss Scotland, south Wales, Staffordshire and the north-east. The most vulnerable collieries in these areas are Silverdale, in Staffordshire, and Wearmouth, in the north-east.

Mr Neal Greatrex, UDM general secretary, accused British Coal of playing cat and mouse. 'Miners at Calverton will have to wait another 24 hours before they know finally whether their pit will close.'

The next meeting for Nottinghamshire pits under the modified colliery review procedure is scheduled for January.

British Coal Corp GB United Kingdom, EC P1222 Bituminous Coal-Underground RES Facilities COMP Disposals PEOP Labour P1222 The Financial Times London Page 14 480
Halifax says house price rises stalled Publication 931103FT Processed by FT 931103 By ANDREW TAYLOR

INCREASES in house prices stalled last month after rising during the summer, emphasising the fragile nature of the housing market recovery, Halifax, Britain's biggest mortgage lender, announced yesterday.

Halifax said that average prices, although unchanged between September and October, were still 1.5 per cent higher than in the corresponding period last year.

The society urged the government to do nothing in the Budget at the end of this month 'which might damage the confidence of potential house purchasers'.

On Monday Nationwide building society announced that prices had risen by 1.5 per cent in October, resulting in a year-on-year increase of 1.7 per cent.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COSTS Product costs & Product prices P6552 The Financial Times London Page 14 140
High-tech jobs for former pit Publication 931103FT Processed by FT 931103 By IAN HAMILTON FAZEY, Northern Correspondent

MORE THAN 600 high-technology jobs are to be created on the site of the Cortonwood colliery near Barnsley, South Yorkshire. The closure of this colliery sparked the national miners' strike nearly 10 years ago.

Tunstall Group will build an Pounds 11m factory to make electronic equipment for Mion Electronics, a wholly owned subsidiary. It will be partly financed by a Pounds 2.5m grant from the Department of Trade and Industry and a five-year European Community loan.

Tunstall already operates a factory at Whitley Bridge, Pontefract. During the past two years it has built up a business making electronic products under contract for other companies, such as domestic satellite decoders, energy-saving devices and telecommunications equipment.

The Cortonwood site is in the Dearne Valley between Barnsley and Doncaster, part of the core of the former South Yorkshire coalfield. The valley was one of the first 11 areas to receive funding for economic reconstruction through the City Challenge scheme devised in 1991 by Mr Michael Heseltine when he was environment secretary. Tunstall's factory will be part of a new 16-acre industrial estate.

Tunstall said it had chosen the site from several possibilities within the EC because of its good local labour supply and the government grant. Some 400 jobs should be filled by the end of the year. A further 211 will follow.

Mr Michael Dawson, Tunstall chairman, said contract manufacturing was now worth Pounds 1.4bn a year in the UK.

Tunstall Group Mion Electronics GB United Kingdom, EC P3661 Telephone and Telegraph Apparatus P3679 Electronic Components, NEC PEOP Labour RES Facilities RES Capital expenditures P3661 P3679 The Financial Times London Page 14 287
Critics of British Gas retreat from their success: The MMC report has received little support Publication 931103FT Processed by FT 931103 By DAVID LASCELLES and ROBERT CORZINE

THE consultation period for the Monopolies and Mergers Commission report on British Gas closes this week amid growing speculation that the government will reject its recommendations.

Mr Michael Heseltine, the trade and industry secretary, will probably give his decision by the end of the year.

In August the commission found that there was a conflict in British Gas being a gas supplier when it owned the pipeline network. It recommended that the company should be split by 1997, and that British Gas's monopoly of the tariff (domestic) market be phased out by 2002. The cost of the changes would be passed on to consumers, but they would gain as greater competition brought lower prices and better service.

But although the recommendations went much further than expected, they received little support in the gas industry. Even the departing gas industry regulator, Sir James McKinnon of Ofgas, who triggered the inquiry, said he did not believe that break-up was necessary to create competition. The consensus was that the government should give priority to phasing out the monopoly, leaving break-up as a later option if needed.

The independents want Mr Heseltine to bring forward the commission's recommended timetable for introducing competition, although they propose different target dates. Kinetica, a joint venture of PowerGen and the US oil company Conoco, wants competition opened to the 2m or so consumers who use more than 1,000 therms a year in 1995, with full abolition in 1998 to coincide with the introduction of competition into the electricity industry. But several other independents want access to the full tariff market of about 18m gas customers by 1996.

Consumer associations have also been lukewarm over a break-up. Both the Gas Consumers' Council and the National Consumer Council oppose the commission's recommendation that customers bear the costs of a British Gas restructuring.

Alliance Gas, a joint venture between BP and Statoil of Norway, also argues that increased competition is the main issue, but it believes that 'sustainable competition' requires a break-up. 'Chinese walls are not going to work,' said Mr Kristoffer Maroe, managing director. Only a break-up will result in a British Gas transport company which 'treats the independents as valued customers'.

British Gas itself remains one of the few other institutions which still favours break-up, in spite of its earlier bitter opposition. Mr Cedric Brown, chief executive, said: 'We don't think break-up is necessary for competition purposes, but given that the MMC recommended it we are prepared to work with the government to help bring it about.'

The attraction for British Gas is that it would be able to realise some gains for its shareholders who, it feels, have had a raw deal from a regulatory regime which has favoured the consumer.

But if Mr Heseltine opts for ending the monopoly first, he will have to satisfy himself on a number of points. The most important is that gas prices really will fall, as independent gas companies claim. Twelve independents recently claimed they could deliver average annual savings on gas bills of 8 per cent.

However, Dr John Wright, who specialises in utility regulation at accountants Price Waterhouse, warns that prices could go up, at least in the short term, as new competitors bid for supplies. Customers might also want to avoid locking themselves into a supplier once they can choose between several. This will create greater risks for gas suppliers, who will want to be compensated by higher prices.

British Gas believes small consumers could face higher bills because of the elimination of cross-subsidies. Mr Brown queries the calculations made in the independents' report. 'They say that prices will come down, but they're a bit thin on how they're going to do it. How can they make these claims without knowing what the gas transportation charges will be?'

Confusion over whether competition will lead to lower prices last week caused the Gas Consumers' Council to ask the government to delay any decision on the commission's report until it could quantify the likely impact on consumers of the various proposals.

The independents have made proposals which they say will ensure that security of supply and social obligations to the elderly and disabled are maintained. British Gas has commissioned Arthur D Little, the management consultancy, to prepare a report on how a competitive market might be organised, and how the transition should be made. It should be ready later this month, and will be passed to the Department of Trade and Industry.

There will also be continuing liaison between the DTI and Ofgas and its new director-general, Mrs Claire Spottiswood, who has yet to give her views on the report.

British Gas GB United Kingdom, EC P9631 Regulation, Administration of Utilities P4923 Gas Transmission and Distribution CMMT Comment & Analysis TECH Services & Services use COSTS Service costs & Service prices P9631 P4923 The Financial Times London Page 14 836
Rosyth workers warned of up to 40% job losses Publication 931103FT Processed by FT 931103 By JAMES BUXTON, Scottish Correspondent

THE WORKFORCE at the Rosyth naval dockyard could fall by nearly 40 per cent to 2,200 by the year 2005, employees were told yesterday.

Staff were warned that their present pay and conditions will have to be renegotiated as the yard reduces costs and is fully privatised.

Babcock Thorn, which operates the yard on the Firth of Forth, yesterday held the first of a series of meetings in which it is spelling out the yard's prospects to its 3,600 employees.

This follows the government's decision in June to award the contract for servicing Trident submarines to Devonport, while allocating Rosyth a workload of surface ships which will decline after 2000 and end in 2005.

Early next year the Ministry of Defence will seek tenders for the full privatisation of the two naval dockyards.

Mr Allan Smith, Babcock Thorn's managing director, said Babcock intends to bid for Rosyth without Thorn EMI and is negotiating to take over Thorn's 35 per cent stake.

The workforce was told that submarine work would continue to 1996 and would be followed by the refitting of two aircraft carriers as well as frigates and Type 42 destroyers. By 2000 the workforce was likely to fall to 2,800.

After 2000 Rosyth will have to compete for most of its naval workload and the labour force could drop to 2,200. The exact size depended on its success in improving efficiency and reducing costs.

The workforce was told that Rosyth's wage, salary and overtime costs were the highest in the ship refitting industry, and the company's contribution to the pension fund was twice that of most of its competitors. The yard was 'top of the league' for holidays, the employees were told.

Mr Smith said that Babcock Thorn had taken over a dockyard that enjoyed civil service conditions. Change would be necessary and would be discussed with the workforce.

The yard is to be reorganised to cope with the new workload. About 70 of 270 buildings on the site may be returned to the MoD and 90 may be demolished. Part of the site could be turned into an industrial estate.

The dock designed for Trident submarines could be used for constructing sections of the proposed second Forth road bridge.

Rosyth already gets about 20 per cent of its Pounds 165m turnover from non-MoD work, and would like to increase this to 30 per cent.

It refurbishes London Underground trains, builds boats and has a joinery division which makes furniture and supermarket counters.

Babcock Thorn GB United Kingdom, EC P3731 Ship Building and Repairing PEOP Labour P3731 The Financial Times London Page 14 454
Employers' body picks new chief Publication 931103FT Processed by FT 931103 By ANDREW BAXTER

THE Engineering Employers' Federation moved yesterday to fill the gap left by the surprise resignation of its director-general Mr Neil Johnson, who will be leaving at the end of this month.

Mr Graham Mackenzie, president, will take on the additional role of chief executive from November 30. The federation said the arrangement would last for up to six months.

The forthcoming departure of Mr Johnson had threatened to leave the federation without a leader during a crucial period of discussions with the Confederation of British Industry over a possible link-up.

The federation said it remained fully committed to the talks, which will continue - as will consultation on the link with the EEF associations and member companies.

The talks are exploring the potential for merging most of the federation's central activities with those of the CBI's National Manufacturing Council, creating the biggest UK lobbying group for manufacturing. A progress report on the talks will be discussed at the next federation meeting on November 17.

Significantly, the federation said the work and roles of its 14 autonomous regional associations would not be affected by any possible outcome to the talks. There has been some opposition from association members, particularly in the west Midlands.

Mr Johnson strongly supports a deal with the CBI, and is leaving to prevent the possibility of talks becoming bogged down in personality issues.

Mr Mackenzie was formerly chief executive of UES Holdings, the Rotherham-based engineering steels and forgings group, but lost his post in September after a reorganisation.

GB United Kingdom, EC P8621 Professional Organizations PEOP Appointments P8621 The Financial Times London Page 14 280
Government seeks Pounds 630m EC funds for Merseyside Publication 931103FT Processed by FT 931103 By IAN HAMILTON FAZEY and TIM COONE

THE government yesterday asked the European Community for about Pounds 630m over six years to help reverse the decline of Merseyside's economy.

It proposes to double the sum to Pounds 1.26bn by adding contributions from the public and private sectors.

The money, which has to be finally negotiated over the next six months, would go to Merseyside under the EC's Objective 1 status, which gives the poorest and most lagging areas special help. The EC is likely to press for the UK public and private sectors to give more than 50 per cent of the Pounds 1.26bn.

The strategy document asking for the money is likely to raise doubts about whether Merseyside's decline can be reversed. Growth would have to be 5.4 percentage points a year above the EC average to reach average EC gross domestic product per head of population by the end of the century.

This figure is thought unachievable by government ministers, civil servants and local authority leaders and officers. Even to reach 90 per cent of the EC average level, local growth would have to average 3 percentage points a year more than the rest of Europe.

With an unemployment rate twice the UK's national average of about 10 per cent, about 6,600 jobs a year would have to created by 1999 to reduce the jobless total to UK average levels - and 8,400 jobs a year to reach the EC average.

The hope is at least to halt decline and start the process of catching up. Merseyside appears to be falling behind faster than previously thought when Objective 1 status was first mooted earlier this year.

Merseyside's per capita GDP is expected to have fallen to only 73 per cent of the EC average when the figures for 1992 appear. In 1982 the figure was 95 per cent.

The region's population fell by 20 per cent to 1.37m between 1961 and 1991. The strategy document hopes the rate of exodus will decline, to give a stable population of 1.35m by 2001.

No specific projects are suggested at this stage. Nearly 47 per cent of total spending would go on human resources, principally training.

The Northern Ireland Office is to prioritise human resource development in its use of EC structural funds over the next six years, and emphasise the importance of cross-border links with the Irish Republic, Tim Coone writes.

Northern Ireland's Objective 1 status for EC funds will entitle it to more than Pounds 950m for the years 1994-99.

The office said there were three objectives: economic growth to achieve 'a meaningful degree of convergence' between Northern Ireland and the more successful regions of Europe'; promotion of internal cohesion by focusing on the development of human resources and reducing community divisions; and promotion of external cohesion to reduce the province's geographical isolation through improved transport and energy infrastructure.

Spending will be allocated under seven sectoral programmes with human resource development taking the lion's share of 28.5 per cent of the funds.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product ECON Employment & unemployment P9311 The Financial Times London Page 14 541
Fall in apprentice figures forecast Publication 931103FT Processed by FT 931103 By IAN HAMILTON FAZEY

NUMBERS of apprentices recruited by the engineering industry are likely to fall by 24 per cent this year, says the Sheffield Association of the Engineering Employers' Federation, Ian Hamilton Fazey writes.

The association, which covers the industry in South Yorkshire and the north Midlands, says its annual survey shows numbers of craft apprenticeships have dropped. But only 5 per cent of companies reported serious skill shortages.

However, engineering companies are taking on 26 per cent more graduates, while recruitment of trainee technicians is unchanged. The trends are thought to reflect the changing nature of engineering skills. Recruitment of manual operative and clerical trainees has also fallen.

GB United Kingdom, EC P8711 Engineering Services PEOP Labour P8711 The Financial Times London Page 14 136
House prices end summer increases Publication 931103FT Processed by FT 931103

HOUSE PRICES ground to a halt last month after rising during the summer, emphasising the fragile nature of the housing market recovery, Halifax, Britain's biggest mortgage lender, announced yesterday.

It said that average prices, although they remained unchanged between September and October, were still 1.5 per cent higher than the same time last year.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COSTS Product costs & Product prices P6552 The Financial Times London Page 14 87
Bank steps up plea for independence Publication 931103FT Processed by FT 931103 By PETER MARSH, Economics Correspondent

MR RUPERT Pennant-Rea, deputy governor of the Bank of England, yesterday stepped up the Bank's campaign to take control of interest rates.

He said this would improve the UK's inflation record and help businesses and householders plan their finances on a long-term basis.

Mr Pennant-Rea, giving evidence to the Commons Treasury and civil service committee, said if the government agreed to give the Bank responsibility for monetary policy it could be made accountable to parliament 'in an open and transparent way'.

Mr Pennant-Rea said Britain's poor inflation record since the 1940s was 'a consequence of having a non-independent central bank'. The government should re-constitute the Bank as an 'executive agency' charged with 'pursuing price stability', so removing political pressures from the job of setting interest rates.

Control over setting interest rates would put the Bank in a stronger position to influence the government over fiscal policy than the present role where it advises the chancellor. This is because the Treasury would be less capable of allowing a large fiscal deficit to be eroded over time by inflation after a period of low interest rates.

While Mr Eddie George, Bank governor, has already suggested making the Bank independent in monetary policy, Mr Pennant-Rea yesterday took the argument a step further by sketching out how the arrangement would work. Government ministers, however, are not convinced it would benefit the economy.

The Bank's case may be helped by the committee's report on its role, due early next month. Mr John Watts, the committee's chairman, said after yesterday's hearing that its members were 'moving in the direction' of suggesting Bank independence.

Mr Pennant-Rea said it would be 'undesirable' to give the Bank control of interest rates without involvement by politicians. So the broad statutory requirement over price stability should be supplemented by a specific strategic objective from 'government and parliament' to keep inflation within a specific band, for instance between zero and 2 per cent.

Mr Pennant-Rea said this target could be changed depending on economic circumstances. The government's current objective for underlying inflation is to keep this between 1 per cent and 4 per cent.

The deputy governor shrugged off a criticism from Mr Quentin Davies, a committee member, that by changing the inflation target government and parliament could loosen the Bank's grip on monetary policy.

After the hearing Mr Pennant-Rea said letting politicians alter the target would be 'prudent'. They would not be able to change it very much because this would infringe the Bank's statutory responsibilities.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Inflation CMMT Comment & Analysis P9311 The Financial Times London Page 13 454
Evidence of consumer-led upturn grows Publication 931103FT Processed by FT 931103 By EMMA TUCKER, Economics Staff

MONEY SUPPLY figures from the Bank of England yesterday added to evidence that consumer spending is the driving force behind the recovery.

Cash in circulation, or M0, rose a provisional, seasonally adjusted 5.4 per cent in the year to October, compared with 5.3 per cent in the year to September. This was the sixth consecutive monthly rise in the annual rate and the highest for three years.

The Bank said in its quarterly inflation report yesterday that a large part of the strength of M0 was attributable to the cut in interest rates over the past year, although it remains uncertain about the effect of this in the short term.

M0 growth has been above the upper limit of the government's zero to 4 per cent monitoring range since June, but the Bank said the range remained 'broadly consistent' with the inflation target of 1 per cent to 4 per cent.

Growth in narrow money tends to reflect a pick-up in retail sales. The rise in M0 in every month since May - when it was 3.5 per cent - has coincided with buoyant retail activity and the Bank yesterday described narrow money as a 'good and timely guide for nominal demand growth'.

Other indicators, including a steady increase in consumer borrowing, point to a consumer-led recovery.

Mr Nigel Richardson, economist at Yamaichi, the Japanese bank, said: 'What has been established very well as the year has progressed is that the recovery is largely one led by the consumer and these figures support it.'

For this reason, some economists are arguing that the government should be cautious about cutting interest rates.

M0 is one of a number of variables tracked by the Treasury to monitor inflationary pressures. Other monitored indicators have also picked up recently.

Yesterday's figures from the Bank confirmed that M4 - which consists of M0 plus bank and building society deposits - has lifted above the floor of its 3 per cent to 9 per cent monitoring range. The 12-month growth rate in September was 3.3 per cent.

The UK's official gold and foreign currency reserves rose by Dollars 507m last month, taking reserves at the end of October to Dollars 43,551m, compared with Dollars 43,044m at the end of September. The underlying increase in reserves was Dollars 32m.

The underlying change excludes a number of factors included in the total change, including the proceeds from the quarterly tender of three-year Ecu Treasury notes, proceeds from this month's tender of UK Ecu Treasury bills and maturing UK Ecu Treasury bills.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Inflation CMMT Comment & Analysis MKTS Sales P9311 The Financial Times London Page 13 463
Fall in company failures continues Publication 931103FT Processed by FT 931103 By ANDREW JACK

THE NUMBER of companies entering receivership or administration continued to decline last month, according to the trend in figures from the official London and Edinburgh Gazettes analysed by accountants Touche Ross.

The October figure of 240, although up from a one-off low of 184 in September, reflected a continuing fall in the number of company failures during the past six months. It brought the number of receiverships and administration orders to 2,808 for the first 10 months of the year, against 4,282 for the same period last year and 4,898 in 1991.

Touche Ross said the average size of businesses to which receivers are now being appointed has fallen from earlier in the recession. The proportion of appointments taken by the largest six accountancy firms declined to 45 per cent this year from 50 per cent during 1992.

GB United Kingdom, EC P9611 Administration of General Economic Programs P6231 Security and Commodity Exchanges ECON Economic Indicators P9611 P6231 The Financial Times London Page 13 177
Inflation outlook loses its gloss Publication 931103FT Processed by FT 931103 By PETER NORMAN, Economics Editor

THE Bank of England's latest inflation report provides little comfort for advocates of an early and substantial easing of UK monetary policy.

It also implies that Mr Kenneth Clarke, the chancellor, would face economic as well as political problems if he chose to raise or widen significantly the net of indirect taxes in his November 30 Budget.

The Bank believes that on present policies, both 'headline' inflation, as measured by the retail prices index, and the underlying rate of RPI minus mortgage-interest payments will rise until the middle of next year. 'There is,' the Bank says, 'a slight possibility that in the first half of next year inflation will briefly rise above the top of the target range' of 1 per cent to 4 per cent for underlying inflation in the life of this parliament.

Both underlying inflation and headline inflation have risen since the summer. Underlying inflation (dubbed RPIX by the Bank) was 3.3 per cent in September, having been 2.8 per cent in June. Over the same period headline RPI increased to 1.8 per cent from 1.2 per cent.

Information available since the last inflation report in August has led the Bank to revise upwards slightly its forecasts of the 12-month inflation rates to be expected over the next few months. The most likely path for RPIX is a small rise until the first quarter of next year, 'peaking at an annual rate above 3.5 per cent'. The Bank's central forecast is for inflation to stay within the target range provided earnings growth stays moderate and does not feed through into higher prices.

If inflation does break through the target ceiling this will partly be because of changes in indirect and local authority taxes. It is largely for this reason that the Bank would like commentators and wage bargainers to look at another underlying measure of inflation which it calls RPIY.

This measure, which excludes value added tax, local authority taxes and excise duties as well as mortgage interest payments, is expected to start falling early next year and could be close to the middle of the target range in 1995.

But it is unclear whether wage bargainers will be persuaded by such a measure. Headline inflation, which is the rate that employers and employees notice most, is expected to rise particularly sharply as past reductions in mortgage-interest payments fall out of the 12-month comparison and mortgage interest relief is restricted from next April.

By laying stress on RPIY, the Bank is indicating that it would not press for an increase in base rates if inflation rises through 4 per cent next spring. However, it could quickly change its mind if higher prices fed through into wages.

It believes that 'sustaining the credibility of anti-inflationary policies' will be important for ensuring that there is no inflationary wage-price spiral, and that the government must steadily reduce the budget deficit to achieve this. It draws comfort from a flattening of the yield curve for gilt-edged stock since the summer which, it says, suggests that longer-term inflation expectations now lie within the government's 1 per cent to 4 per cent range.

This last observation could leave open the possibility of an interest rate cut in the event of fiscal tightening in the November 30 Budget.

The Bank of England Inflation Report. The Bulletin Group, Economics Division, Bank of England, Threadneedle Street, London EC2R 8AH. Pounds 4.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Inflation CMMT Comment & Analysis GOVT Taxes P9311 The Financial Times London Page 13 605
E Midlands urges interest rate cuts Publication 931103FT Processed by FT 931103 By PAUL CHEESERIGHT, Midlands Correspondent

BUSINESS leaders in the east Midlands, one of the most diversified of the industrial regions, are demanding further cuts in interest rates to strengthen a weak and patchy economic recovery.

The latest regional survey of business performance shows that conditions have not improved to the extent expected last spring. Yet despite this finding the survey, produced by accountancy firm Price Waterhouse and Nottingham Business School, says that trading is better than it was a year ago.

Although 58 per cent of businesses reported higher sales during the past six months and 43 per cent an increase in profits, financial pressures continued.

Nearly two-thirds of companies reported either holding or decreasing their selling prices. The speed at which bills are paid does not seem to have increased.

The proportion of manufacturers using more than 90 per cent of capacity declined to 20 per cent from 27 per cent last spring.

Similarly, the regional chambers of commerce have reported a fall in the number of companies working at full capacity, alongside a flattening out of domestic orders and a decline in exports.

The regional Confederation of British Industry is warning Mr Kenneth Clarke, the chancellor, not to choke what it calls 'the relatively weak and patchy recovery' with his Budget later this month.

For individual businesses, however, the key stimulus to recovery would be a further fall in interest rates. This is seen as a priority by 65 per cent of companies in the Price Waterhouse sample.

The survey was drawn from a sample of 958 companies, 84 per cent of which employ fewer than 200 people.

East Midlands Business Survey, Autumn 1993. Nottingham Business School, Nottingham Trent University, Nottingham NG1 4BU. Pounds 75.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Inflation P9311 P9611 The Financial Times London Page 13 324
Bank forecasts low G7 growth Publication 931103FT Processed by FT 931103

ECONOMIC developments among Britain's leading trading partners offer 'little encouragement' to UK policy makers, the Bank of England says.

It points out that growth in the US, Japan, Germany, France, Italy and Canada is likely to average only 1 per cent this year.

While the Bank's quarterly bulletin sees little prospect of recovery stalling in the US, it warns that there are few signs of an upturn in Germany or Japan.

US United States of America JP Japan, Asia DE Germany, EC IT Italy, EC CA Canada FR France, EC P9311 Finance, Taxation, and Monetary Policy ECON Economic Indicators P9311 The Financial Times London Page 13 116
Judicial body may be delayed Publication 931103FT Processed by FT 931103 By DAVID OWEN

THE GOVERNMENT will probably decide against measures to set up an independent body to investigate alleged miscarriages of justice when its criminal justice bill is introduced early in the next parliamentary session.

Mr Michael Howard, home secretary, is understood to be anxious to keep the momentum of the law and order initiative going by securing a second Commons reading for a wide-ranging bill before Christmas.

The tight timetable and the complexity of the work needed before the proposed investigating body can be set up acts against its inclusion.

The Home Office is also hoping to secure a second reading for the Sunday trading bill before the new year.

A police bill will ensure there is a pronounced law and order theme in the new session.

If the investigating body is not included in the first draft of the criminal justice bill, it could possibly still be inserted either during that measure's committee stage or as part of the police bill. Neither is thought likely, however.

The establishment of an independent review authority to investigate alleged miscarriages of justice and refer cases back to the Court of Appeal was recommended by the royal commission on criminal justice in July.

GB United Kingdom, EC P92 Justice, Public Order, and Safety GOVT Government News P92 The Financial Times London Page 10 231
CBI attacks EC clean-up proposals Publication 931103FT Processed by FT 931103 By DAVID LASCELLES and BRONWEN MADDOX

EUROPEAN COMMISSION proposals to impose stricter liability on businesses to pay for pollution damage drew strong fire from the UK yesterday.

The Confederation of British Industry said they were 'ill-founded' and would only result in contaminated land being left derelict. Mr Howard Davies, director-general, said there was 'no case for harmonisation in this area'.

The CBI attack came as it issued a 32-page report on environmental liability. It singled out an EC green paper issued last May which proposed that EC environmental law be harmonised because pollution crosses geographical borders. The green paper argued for strict liability that would make owners responsible for cleaning up contaminated land regardless of whether they had caused the damage.

The CBI's stance was supported by Mr Tim Yeo, the environment minister. He said yesterday: 'I share the CBI's view that the EC role needs to be carefully regulated. I don't believe, on grounds of subsidiarity, that there should be harmonisation of EC policy, and the UK has responded to the European green paper saying that.'

Both the CBI and Mr Yeo also oppose suggestions that environmental groups should have the right to take polluters to court.

Mr Yeo said: 'It is important to limit the number of people who can bring civil action for loss. That would be a retrograde step.'

The CBI said that the government and the EC should rule out any moves to create retrospective liability for pollution damage, or widen liability.

Where the polluter could not be found, the clean-up would have to be paid for by a partnership between the public and private sectors, making use of regeneration grants.

The CBI report was sharply criticised by environmental groups. Friends of the Earth said the CBI was 'expecting the public to pay for the clean up of its members' industrial pollution legacy. The public has the right to expect the government to ensure that the cost of cleaning up is borne by the polluter, not the polluted.'

The commission and the European parliament will be holding joint hearings in Brussels today on the green paper when industry groups will put their points of view.

Mr Humphrey Norrington, vice-chairman of Barclays, will be among those testifying. Although he will be lobbying on behalf of EC banks, the UK banking industry has been leading opposition to the EC proposals. Bankers fear that they would be made liable for pollution costs incurred by their borrowers.

Mr Norrington said last night: 'Banks are keen to help their customers be good environmental citizens. But if the EC forces us into a straitjacket the result may be the exact opposite.'

Haunted by heritage, Page 15

GB United Kingdom, EC P9511 Air, Water, and Solid Waste Management RES Pollution P9511 The Financial Times London Page 10 475
Dublin expects rewards for concessions to north Publication 931103FT Processed by FT 931103 By TIM COONE DUBLIN

THE IRISH government goes into the Anglo-Irish conference meeting in Belfast today having made important concessions to unionist opinion but still determined to uphold parts of the nationalist agenda which are likely to prove unacceptable to unionist leaders.

Last week Mr Dick Spring, the Irish foreign minister, in announcing a six-point plan as a basis for renewed talks, conceded the principle of a unionist veto over constitutional change in the north. Ambiguity persists over whether this goes further than a straightforward majority veto, as set out in Article 1 of the 1985 Anglo-Irish agreement.

The Irish foreign ministry says that 'majority consent' and 'unionist consent' should be considered together and that Mr Spring's additional proposal for a 'covenant of rights' will flesh out guarantees for the unionists and protect their basic political rights even in the event of a change in sovereignty.

Irish government officials have indicated, though, that in addition to downgrading the republic's constitutional claim to Northern Ireland to an 'aspiration' to satisfy what is a key unionist demand, Dublin would also be prepared to incorporate the guarantee of a majority veto in the north over constitutional change there, into its own constitution.

The price Dublin expects to extract for these concessions is that they would form part of an overall package which would incorporate key nationalist goals and would be put to a simultaneous referendum north and south of the border.

The Irish constitution can only be amended by referendum. Dublin's objective is that any agreement on governing structures should be approved by a referendum in the north, while a simultaneous referendum in the republic would amend the Irish constitution and approve the agreement reached in the north.

Simultaneous referendums are a key element in the Hume- Adams peace initiative, and acceptance of them by the British government is thought to be the signal Sinn Fein is looking for as the minimum condition for the IRA ending its campaign of violence.

It is the concept of simultaneous referendums, which would acknowledge a say by the republic in the affairs of the north, which most alarms the unionists, along with another element of Mr Spring's six-point plan which states 'for many of us, of course, the freedom to determine our own future by agreement should ideally lead to the possibility ultimately of unity on this island'.

Hardline and moderate unionist opinion are united in wanting to close the door firmly and definitively on such an eventuality.

IE Ireland, EC GB United Kingdom, EC P8651 Political Organizations P9721 International Affairs NEWS General News P8651 P9721 The Financial Times London Page 10 448
Major orders review of Sinn Fein broadcasts Publication 931103FT Processed by FT 931103 By KEVIN BROWN, Political Correspondent

MR JOHN MAJOR, the prime minister, yesterday ordered a review of attempts by television stations to circumvent regulations on broadcasts by Sinn Fein spokesmen.

Downing Street said Mr Major called for a review of the broadcasting rules after seeing recent interviews with Mr Gerry Adams, president of Sinn Fein, the IRA's political wing.

Mr Major was said to have been disturbed by the use of actors reading synchronised scripts to get round the 1990 Broadcasting Act, which prevents transmission of Mr Adams' voice except during election campaigns.

In the Commons the prime minister told Dame Jill Knight, a vice-chairman of the Conservative backbench 1922 committee, that the use of actors 'stretched the present guidelines to the limit, and perhaps beyond'.

The review will be carried out by Mr Peter Brooke, the heritage secretary, who has primary responsibility for broadcasting law.

Mr Brooke, who is understood to have been given a free hand to recommend any changes he thinks necessary, is expected to consult Mr Michael Howard, the home secretary, and Sir Patrick Mayhew, the Northern Ireland secretary.

However, he is not expected to bow to demands from Dame Jill and other Conservatives to follow the lead of the Irish Republic, which bans all broadcast interviews with Sinn Fein.

In Belfast, police revealed that a man is to be charged in connection with the massacre of seven people in Greysteel, County Londonderry, on Saturday night. A second is likely to be accused of withholding information.

Five men were arrested in connection with the Greysteel massacre yesterday, but two were later released. Detectives are now questioning 11 people in connection with the shootings. A policeman shot in the neck by an IRA sniper died in hospital last night.

RUC reservist constable Brian James William Wood had been on traffic duty in the border town of Newry, Co Down, when he was ambushed on Sunday.

GB United Kingdom, EC P9721 International Affairs P4833 Television Broadcasting Stations NEWS General News P9721 P4833 The Financial Times London Page 10 351
Flat-owner plan fails to attract funds Publication 931103FT Processed by FT 931103 By ROBERT RICE, Legal Correspondent

THE GOVERNMENT is having difficulty attracting private-sector finance to set up an advisory service for flat-owners who want to buy a share of the freehold of their building.

Sir George Young, the housing minister, said in July that the government would be prepared to fund up to 50 per cent of the cost of the service through the special grants programme but the remainder would have to come from the private sector.

By the time the changes to leasehold law came into force on Monday there was still a significant shortfall in the contributions.

In response to a parliamentary question Sir George admitted that although a formal bid to run the agency had been received in early October, the initial contributions from private-sector bodies had been very disappointing. He said he had written to a number of the institutions again - many of which would expect to be closely involved in the enfranchisement procedures - seeking further financial support for the advisory service.

The Department of Environment said yesterday that it had not yet had any response from the banks and building societies to Sir George's letter, but the government still hoped to have the advisory service running by the end of the year.

The reforms, which give owners of long leaseholds of flats the right to club together and buy the freehold of their building and the individual right to extend their leases by 90 years at market price, are said to be complex and confusing.

Without freely available advice and assistance, lawyers and property specialists predict that the take-up of the rights of collective leasehold enfranchisement will be low.

GB United Kingdom, EC P9531 Housing Programs GOVT Government News P9531 The Financial Times London Page 10 304
Arms probe judge demands papers Publication 931103FT Processed by FT 931103 By JIMMY BURNS

LORD Justice Scott yesterday demanded additional documents from the Ministry of Defence after it emerged that ministerial notes relevant to the arms-for-Iraq inquiry have not been made available.

The absence of the notes was discovered by the judge as he questioned a senior MoD official about the approval of exporting defence-related machine tools to Iraq in apparent breach of the government's guidelines.

The official, Mr Alan Barrett, referred to a memo which he had written in January 1988 justifying the export of the machine tools on the grounds of intelligence protection. He said it had a hand-written note of approval by the private secretary to the then defence minister Lord Trefgarne. In the copy of the memo which has been made available to the inquiry by the MoD the handwritten note is missing.

In a sharp exchange with Mr Robert Keen, an MoD representative, the judge said he found the discovery of the missing note 'astonishing'. He said he thought the note was 'important' and asked that this and other relevant ministerial notes be produced if possible 'within 24 hours'.

Mr Paul Regan said last night on behalf of the inquiry that the judge's comment on the missing note reflected the 'seriousness' with which he was treating the issue.

It is the first time that the judge has complained in public about the withholding of information by a government department since the inquiry got under way in May.

Last night Mr Keen was unable to explain why a document that had been copied 20 times had not included the Scott inquiry in its circulation.

Earlier, Mr Barrett defended his advice to ministers justifying the export of machine tools in spite of intelligence warnings that they were going to be used for munitions manufacture. He said the inquiry was tending to judge events with the evidence of hindsight.

The hearing continues today.

GB United Kingdom, EC P9211 Courts NEWS General News P9211 The Financial Times London Page 10 340
TUC calls for training support Publication 931103FT Processed by FT 931103

THE Trades Union Congress said last night that Mr Kenneth Clarke, the chancellor, had indicated that this month's Budget would probably include extra support for training.

The TUC met Mr Clarke to argue for a Pounds 3.2bn programme of training and employment support, a one point cut in interest rates, and an end to the public-sector pay freeze.

GB United Kingdom, EC P8331 Job Training and Related Services P9441 Administration of Social and Manpower Programs NEWS General News P8331 P9441 The Financial Times London Page 10 96
New milk group under attack Publication 931103FT Processed by FT 931103

THE DAIRY industry yesterday accused Milk Marque, successor to the Milk Marketing Board compulsory purchasing scheme, of awarding itself an unfair advantage against competing buyers in the run-up to deregulation next April.

Many dairy companies plan to buy their milk direct from producers once the Pounds 3.3bn milk market is liberalised.

Mr Jim McMichael-Phillips, president of the Dairy Trade Federation, said the scheme would allow Milk Marque extensive access to confidential commercial information, previously held by the board, about individual farmers' milk production and quotas

Mrs Gillian Shephard, agriculture minister, said producers and purchasers should not feel pressured to sign contracts until they knew where they stood.

GB United Kingdom, EC P9641 Regulation of Agricultural Marketing NEWS General News P9641 The Financial Times London Page 10 136
Bank regulatory changes urged Publication 931103FT Processed by FT 931103

A BANK of England executive director yesterday told MPs that there could be a case for a single system of regulation for banks and building societies.

Mr Brian Quinn, giving evidence to the Commons Treasury committee's inquiry into the role of the Bank, argued that if restrictions on raising wholesale funds and making unsecured loans on building societies were changed, the case for maintaining two different regulatory regimes would need to be looked at again.

Mr Quinn argued strongly that banking supervision should remain with the Bank even if it gained more independence.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors P6021 National Commercial Banks P6162 Mortgage Bankers and Correspondents TECH Safety & Standards P9651 P6021 P6162 The Financial Times London Page 10 134
Standards authority faces criticism Publication 931103FT Processed by FT 931103 By CHARLES BATCHELOR

PLANS BY the British Standards Institution to make sweeping changes to its constitution are expected to provoke a heated debate at its annual meeting tomorrow, Charles Batchelor writes.

BSI, which co-ordinates the writing of standards for British industry, has announced plans to give stronger executive powers to its board, and to modify its charter and by-laws to give the board greater freedom to increase directors' fees and to award directors additional payments for duties carried out beyond their normal board responsibilities.

The proposed changes have prompted criticisms that BSI's board is seeking exceptional powers to the detriment of its members, the 29,500 companies and individuals who use its standards.

Mr Michael Sanderson, BSI chief executive until he resigned in June following a disagreement over policies and management, said the changes proposed were against the recommendations on good corporate governance proposed by the Cadbury committee. They would reduce the powers of ordinary members, he said.

Mr Vivian Thomas, non-executive chairman, said BSI's board had to respond rapidly when Mr Sanderson resigned. 'We faced a stark choice. We just didn't have the time to take a six-month holiday from executive action.'

BSI plans to recruit a chief executive next year but until then its affairs are being run by an executive board of three, headed by Mr Thomas.

Mr Thomas said the changes to give the board greater powers to decide its own remuneration would also bring it more into line with normal corporate practice.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors P8741 Management Services TECH Safety & Standards MGMT Management & Marketing P9651 P8741 The Financial Times London Page 10 284
Commons clears way for rail sell-off Publication 931103FT Processed by FT 931103 By KEVIN BROWN

THE GOVERNMENT'S compromise proposals for rail franchising were approved by the Commons last night, paving the way for the railway privatisation bill to become law.

British Rail fought the proposals to the end. A leaked memo released at Westminster revealed a ferocious behind the scenes battle between Mr John Welsby, BR's chief executive, and Mr Roger Freeman, the transport minister.

However, the government secured a comfortable majority in a series of votes on amendments limiting BR's ability to bid for franchises to routes where no credible private-sector bid emerges.

The main amendment, overturning an earlier Lords amendment giving BR unlimited freedom to bid for franchises, was approved by 316 votes to 282, a government majority of 34.

The government also had a comfortable majority for a further series of amendments watering down its obligations to the railway pension fund.

In the main vote, a government motion to overturn the Lords amendment was approved by 316 votes to 284, a majority of 32.

Lord Peyton, a former Conservative transport minister, has tabled further amendments to widen BR's right to bid for franchises, which are expected to be debated in the Lords today.

The amendments raise the possibility that the bill will have to return to the Commons again later this week if Lord Peyton wins the support of enough peers to reverse some of last night's Commons amendments.

However, ministers are confident that the Lords will not back his attempt to challenge the government.

The frosty state of relations between BR and the government became clear in documents leaked by Mr Hugh Bayley, Labour MP for York, which record conversations between Mr Welsby and Mr Freeman. The documents show that Mr Welsby warned the government strongly that its privatisation plans were fundamentally flawed and risked backfiring.

Mr Welsby said: 'You are in a hole and still digging. I don't see how there will be anything still to sell; certainly not the cake - just the cherries.'

The documents also reveal internal BR projections that trainload freight profits will fall to zero in 1995/96 from Pounds 103m last year.

British Rail GB United Kingdom, EC P9611 Administration of General Economic Programs P4011 Railroads, Line-Haul Operating P4111 Local and Suburban Transit GOVT Government News P9611 P4011 P4111 The Financial Times London Page 10 395
PM pledges reassessment of child maintenance Publication 931103FT Processed by FT 931103 By PHILIP STEPHENS, Political Editor

MR JOHN MAJOR yesterday acknowledged mounting cross-party concern about the operations of the Child Support Agency and pledged to review the formula used to assess maintenance payments by absent parents.

But the prime minister's comments, in response to a demand for changes from Mr John Smith, the Labour leader, came amid signs in Whitehall that Mr Peter Lilley, the social security secretary, is opposing any fundamental reforms.

Mr Smith demanded an immediate review to take account of 'widespread anxiety and dismay' over the 'rigid and inflexible' financial formula being imposed on absent parents for the maintenance of their children.

He also attacked the agency's priorities, pointing out that of the Pounds 530m the agency was set to raise in its first year, only Pounds 50m would be of direct benefit to children.

Mr Major defended the principles behind the agency, which from last April replaced the system for fixing maintenance by agreement between parents or through court orders.

He told MPs: 'The whole house recognises the need for both parents to contribute to the bringing up of their children. The purpose of the CSA is to ensure that fathers who desert their children face up to their responsibilities.'

But with many Conservative MPs as critical as the Labour leader of the way the agency makes its maintenance assessments, he acknowledged the need to review the fact that the formula takes no account of past property settlements or of the cost to an absent parent of exercising access.

Ms Ros Hepplewhite, the chief executive of the agency, told the Commons social security committee yesterday that the agency's chief priority during the first year of operation was to deal with new cases of maintenance.

But she acknowledged that in dealing with past cases it was giving priority to cases where the parent with care of the children was in receipt of income support and where maintenance was already being paid.

MPs have attacked the new system for failing to give priority to ensuring that absent parents paying no maintenance were the first to be dealt with.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 10 381
Anglo-Irish meeting may founder on nationalism Publication 931103FT Processed by FT 931103 By TIM COONE DUBLIN

WHEN Mr Dick Spring, the Irish foreign minister arrives in Belfast today for the Anglo-Irish governmental meeting, he can be confident that, having sidelined the Hume-Adams peace initiative, any new initiative worked out with the British will not bear the hallmarks of Sinn Fein.

But Dublin's attempts to uphold parts of the nationalist agenda leave substantial obstacles.

The Irish government's six-point plan says: 'The people living in Ireland, north and south, without coercion, without violence, should be free to determine their own future.' But confusion has arisen over how this fits with Mr Spring's statement last week that Dublin accepts the principle of a unionist veto over constitutional change in the north.

The Irish foreign ministry said that 'majority consent' and 'unionist consent' should be considered together.

Another question arises over the means by which the Irish may satisfy unionist demands over their claim to sovereignty of the north. The Irish constitution can only be amended by referendum. Dublin's objective, admitted by the government, is that any new agreement on governing structures should be approved by a referendum in the north, while a simultaneous referendum in the Republic would both amend the Irish constitution and approve the agreement reached in the north.

Simultaneous referenda are a key element in the Hume-Adams peace initiative, and acceptance of them is thought to be the signal Sinn Fein is looking for as the minimum condition for the IRA ending its violence.

GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 10 270
Unionists keen on bilateral talks Publication 931103FT Processed by FT 931103 By DAVID OWEN

ULSTER UNIONISTS could be ready to take part in talks on Mr John Major's proposed new peace initiative as long as Westminster does not insist on a round-table format for the discussions.

Senior Ulster Unionist party MPs indicated yesterday they would discuss whatever proposals ministers put forward in bilateral meetings.

Mr James Molyneaux, the party's leader, was yesterday still declining to comment on the initiative, but ministers have drawn comfort from what they see as the measured nature of his reaction.

Sir Patrick Mayhew, the Northern Ireland secretary, appeared willing earlier this week to go along with a bilateral approach - at least in the early stages of new talks.

But he seemed to view this as a preliminary to further round-table discussions. Bilateral talks, he said, could be a way to 'bank what is bankable from last time and to see what ultimately is a really serious obstacle. Then may be the time to sit around the table.'

A more serious barrier to a resumption of talks may come from the Democratic Unionists. Their leader, the Reverend Ian Paisley, again insisted yesterday that Mr John Hume, the Social Democratic and Labour party leader, must end his talks with Mr Gerry Adams, head of Sinn Fein.

'Mr Hume has to say that his talks with Gerry Adams are over,' Mr Paisley said. 'And until Dublin deals with Articles 2 and 3 (of its constitution which covers its claim to the North) there is no point in sitting down with them.'

Mr Paisley said the DUP was waiting for Mr Major's response to its proposals for 'breaking the logjam'. He said these dealt with both the cross-border relationship with Dublin and internal institutional questions in the province.

According to Mr John Taylor, the Ulster Unionist's spokesman on Europe, the British government should try to seize the initiative by discussing its plan in bilateral meetings with the province's four constitutional parties and then moving ahead to implement it.

Mr Taylor believes the plan's main elements should be the creation of a Northern Ireland assembly to administer laws that would continue to be made at Westminster and the formulation of 'some new basis of co-operation' between Belfast and Dublin.

If these structures could be made to work, he would expect the effectiveness of the 1985 Anglo-Irish agreement - which his party opposes for giving Dublin influence over part of the UK - to wither.

The Ulster Unionists' influence at Westminster has been strengthened by the fragility of Mr Major's Commons majority.

GB United Kingdom, EC P9721 International Affairs P8651 Political Organizations NEWS General News P9721 P8651 The Financial Times London Page 10 452
Major orders review of Sinn Fein broadcasting rules Publication 931103FT Processed by FT 931103 By KEVIN BROWN, Political Correspondent

MR JOHN MAJOR, the prime minister, yesterday ordered a review of attempts by television stations to circumvent regulations which restrict broadcasts by Sinn Fein spokesmen.

Mr Major also confirmed that he will meet the leaders of the four non-violent Northern Ireland parties shortly for a round of bilateral discussions on the peace process.

In Belfast police revealed that a man is to be charged in connection with the Hallowe'en massacre of seven people in Greysteel, County Londonderry. A second is likely to be accused of withholding information.

Downing Street said Mr Major called for a review of the broadcasting rules after seeing recent interviews with Mr Gerry Adams, president of Sinn Fein, the IRA's political wing.

Mr Major was said to have been disturbed by the use of actors reading synchronised scripts, to get round restrictions preventing transmission of Mr Adams' voice.

In the Commons the prime minister told Dame Jill Knight, a Conservative backbencher, that the use of actors 'stretched the present guidelines to the limit, and perhaps beyond'.

The review will be carried out by Mr Peter Brooke, the heritage secretary, who has primary responsibility for broadcasting law.

Mr Brooke, who is understood to have been given a free hand to recommend any changes he thinks necessary, is expected to consult Mr Michael Howard, the home secretary, and Sir Patrick Mayhew, the Northern Ireland secretary.

However, he is not expected to bow to demands from Dame Jill and other Conservatives for a ban on all broadcast interviews with Sinn Fein.

Downing Street said Mr Major would begin seeing Northern Ireland political leaders tomorrow. The first meetings are expected to be with Dr John Alderdice, leader of the moderate unionist Alliance party, and Mr John Hume, leader of the nationalist Social Democratic and Labour party.

The prime minister's office is trying to arrange meetings with the Reverend Ian Paisley, leader of the hardline Democratic Unionist party, and Mr James Molyneaux, leader of the Ulster Unionist party, the biggest unionist grouping.

The round of meetings is intended to stress Mr Major's availability to all political leaders in Northern Ireland who reject the use of violence.

It follows the prime minister's decision to accept a request for a meeting from Mr Hume, who wants to discuss his talks on prospects for peace with Mr Adams.

However, the meetings will also allow Mr Major to lay the groundwork for round-table talks at which the government has promised to set out fresh peace proposals.

Five men were arrested in connection with the Greysteel massacre yesterday, but two were later released. Detectives are now questioning 11 people in connection with the shootings at Gough Barracks, Armagh.

GB United Kingdom, EC P9721 International Affairs P4833 Television Broadcasting Stations NEWS General News P9721 P4833 The Financial Times London Page 10 482
Whitehall 'could save Pounds 15m on telecom bill' Publication 931103FT Processed by FT 931103 By ALAN CANE

POTENTIAL SAVINGS of Pounds 15m a year are at risk because Whitehall is failing adequately to monitor its expenditure on telecommunications, the National Audit Office says today.

The government's spending watchdog complains in a report that four years after it first recommended measures to improve the management of telecommunications in government departments, which could save up to 5 per cent of total expenditure a year, progress has been 'slow and piecemeal'.

'No department could provide a profile of telecommunications expenditure by location and type since 1989 or could identify the full scale of savings achieved,' the NAO says.

While there were specific cases where departments had managed to cut costs, often by substantial amounts, there had been no systematic attempt to check telephone bills or take full advantage of modern technological safeguards including call-logging and call-barring.

Whitehall spends more than Pounds 300m a year on telecommunications for day-to-day administration. The NAO investigated the Crown Prosecution Service, the Foreign Office, the Home Office and the Ministry of Agriculture. Together they account for about Pounds 22m of the total.

Where modern technology had been used, there had been considerable savings. Call-logging equipment installed in one Home Office building revealed that 78 of the 130 exchange lines to the site could be withdrawn without affecting the quality of service at a saving of Pounds 12,500 a year.

Detailed monitoring of telephone usage revealed overcharging on rental at the Ministry of Agriculture's office in Guildford, Surrey, extending over four years. Some Pounds 175,000 was subsequently recovered by the department. The NAO says, however, that it was concerned to find that departments did not know what savings, if any, they had achieved since the earlier report. 'In particular, departments and agencies need to be alive to the advantages on offer from continued technological developments and from the growth of competition,' it argues.

Its recommendations include the allocation of telephone management responsibilities and bill monitoring.

Management of Telephone Services. HMSO 931. Pounds 5.45.

GB United Kingdom, EC P9199 General Government, NEC GOVT Government News P9199 The Financial Times London Page 10 361
World Trade News: US hopeful on Uruguay Round talks Publication 931103FT Processed by FT 931103 By NANCY DUNNE WASHINGTON

US TRADE officials yesterday praised the revised offers to liberalise both goods and services trade recently tabled in the Uruguay Round, and expressed optimism about the likelihood of getting a Uruguay Round deal finished by the December 15 deadline.

'The Uruguay Round will not fail,' said Ms Charlene Barshefsky, deputy trade representative. 'The US feels upbeat about the range and level of commitments that countries will take at the end of the day.'

Speaking separately yesterday, Mr John Schmidt, the Uruguay Round co-ordinator, said thorny relations between the US and EC were 'mostly a passing phenomenon'. However, he said the EC's offer to reduce semiconductor tariffs from 14 per cent to 7 was insufficient and its market access offer on agriculture would actually reduce access.

Mr Schmidt said the US would continue to resist an EC 'fixation' that the US reduce all of its textile tariff peaks - those over 15 per cent - although it would reduce many.

The US must have changes in the negotiating text in the areas of anti-dumping, investment, and health and food rules. This procedure will begin on November 15, when the Trade Negotiating Committee begins meeting virtually in continuous session.

He also urged negotiation of a larger market access package than the 'minimal' deal agreed at the Tokyo economic summit. Australia needs a zero tariff pact in non-ferrous metals; the Asean countries, in electronics; and Sweden and Switzerland, in scientific instruments.

US United States of America QR European Economic Community (EC) P9721 International Affairs NEWS General News P9721 The Financial Times London Page 8 279
World Trade News: Airlines fight US call for deregulation Publication 931103FT Processed by FT 931103 By RICHARD TOMKINS DALLAS

AIRLINES from the less developed countries of Asia, Africa and Latin America yesterday united in a fierce attack on US calls for total deregulation of the world's airline market.

Air Botswana called the strategy 'a thug's charter,' and Royal Air Maroc, the Moroccan flag carrier, said it was a US attempt to boost its own airline industry's profitability at the expense of other countries' national interests.

The attack came at the annual meeting of the International Air Transport Association in Dallas as airlines responded to US calls for an 'open skies' policy allowing unfettered competition between the world's airlines.

Mr Rubel Thomas, chairman and chef eecutive of Varig Brazilian Airlines, said deregulation in the US had caused the demise of carriers such as Pan Am and Eastern and had brought combined industry losses surpassing Dollars 10bn in the last three years.

US United States of America P4512 Air Transportation, Scheduled P9721 International Affairs NEWS General News P4512 P9721 The Financial Times London Page 8 182
World Trade News: Israel quick to establish ties Publication 931103FT Processed by FT 931103 By JULIAN OZANNE JERUSALEM

ISRAEL and China are moving swiftly to establish trade and business ties, following the visit by Mr Yitzhak Rabin, Israeli prime minister, to China last month.

Bank Hapoalim, Israel's largest banking group, yesterday said it had established correspondent banking relations with China during a high-level Hapoalim mission to Beijing. The bank said the relations would help Israeli and foreign clients of Hapoalim wishing to invest in and trade with China.

Bank Hapoalim's announcement followed the signing in Jerusalem of a memorandum on agricultural co-operation between Israel and China. The memorandum, signed by Mr Liu Jiang, China's agriculture minister, and his Israeli counterpart, Mr Yacov Tzur, provides for the establishment of a standing Chinese-Israeli agricultural committee, exchange of experts and information, the strengthening of a joint training programme and the establishment of a joint Israeli-Chinese model farm near Beijing where Israeli agricultural experts can demonstrate Israeli technology to Chinese farmers.

During Mr Jiang's eight-day visit to Israel, which ends tomorrow, a Dollars 1.5m deal was also struck between Plastro G'vat of Israel and Beijing Plastic to sell irrigation equipment to China.

Israeli officials said strengthening economic ties between the two countries was a result of the Israeli-Palestinian peace agreement. China has always supported the Palestinians and held up ties.

Mr Dan Proper, president of the Israeli Manufacturers Association, who accompanied Mr Rabin to China last month, said yesterday further trade deals and joint ventures were in the pipeline, especially in advanced agricultural technology and irrigation, communications, telephones and electronics, food conservation, and chemicals such as potash.

Bank Hapoalim Plastro G'vat Beijing Plastic IL Israel, Middle East CN China, Asia P9721 International Affairs P6081 Foreign Banking and Branches and Agencies P01 Agricultural Production-Crops P02 Agricultural Production-Livestock P5083 Farm and Garden Machinery COMP Company News P9721 P6081 P01 P02 P5083 The Financial Times London Page 8 321
World Trade News: Yaohan expands in China Publication 931103FT Processed by FT 931103 By EMIKO TERAZONO and JOHN GRIFFITHS TOKYO

YAOHAN, a Japanese retailing group, plans to set up a big computerised distribution centre in Beijing with the Chinese government, to be completed in 1995.

Mr Kazuo Wada, Yaohan's chairman, who moved the group's headquarters to Hong Kong in 1990, said the plan was part of his strategy of establishing production, distribution and retail networks throughout China.

Yaohan, which has 432 stores worldwide, became the first foreign retailer to set up shop in China, opening department stores in Shenzhen and Beijing in 1991. It is also building a shopping centre with floor space of 108,000 sq m in Pudong, the special economic zone near Shanghai, to completed in 1995.

'China lacks proper wholesaling and distributing systems. It takes two to three months to replace a product after it has been sold,' said Mr Wada. He plans to set up distribution centres in 10 provinces, and wants to open 1,000 supermarkets in China by the year 2010.

Mr Wada reckons that the true purchasing ability of Chinese living in large cities is not reflected in the official statistics. Although the national average annual income is considered to be about Dollars 350 (Pounds 232) per person, 'In Shanghai it's about Dollars 2,000 and in Shenzhen about Dollars 3,000,' he said.

Rockwell International, the US automotive-to-aerospace multinational, is setting up a joint venture in China to develop and make a range of car body components for the fast-expanding Chinese vehicle industry, John Griffiths writes.

The venture, in which Rockwell will have a majority stake, is with Zhenjiang General Equipment Factory, based about 200 miles from Shanghai. It will operate under the name of Rockwell Chassis and Body System Zhenjiang Company.

Under the terms of the agreement, Rockwell will supply technology, processing equipment, systems and management expertise - as well as an undisclosed amount of investment capital - for the production of window regulators, door latches, handbrakes and similar products.

Rockwell has been active in China since the 1970s. 'The venture reflects Rockwell's overall strategy for investment in China, where there is a huge potential for passenger car growth,' according to Mr Donald Beall, its chairman and chief executive.

Rockwell already exports to China heavy-duty axles and brakes and components for off-highway construction equipment, avionics, telecommunications and automation equipment and printing presses.

Several of its existing motor industry customers, including Peugeot of France, are either starting up of expanding car production in China.

Yaohan Japan Corp Canon Inc CN China, Asia P5311 Department Stores P5199 Nondurable Goods, NEC P3861 Photographic Equipment and Supplies RES Facilities RES Capital expenditures P5311 P5199 P3861 The Financial Times London Page 8 453
World Trade News: Proton sets up European venture - Malaysian carmaker to produce left-hand-drive models for continental market Publication 931103FT Processed by FT 931103 By JOHN GRIFFITHS and KIERAN COOKE LONDON, KUALA LUMPUR

AN Anglo-Malaysian joint venture through which the Proton, Malaysia's national car, will be marketed in continental Europe from the middle of next year was formalised in Kuala Lumpur yesterday.

The venture, Proton Cars Europe, is between Proton itself, its Malaysian distributor, Edaran Otomobil Nasional, and Mr David Brown, who introduced Proton cars to the UK - which has subsequently become by far Proton's largest largest export market.

Mr Brown will have a 55 per cent stake, Proton 25 and Edaran 20. The initial sales target for the first year of operation is 8,000 units, although the long-term hope is for much larger sales as Proton's production capacity expands.

Proton has about 70 per cent of the Malaysian car market and is now making an aggressive sales push overseas. It has outline plans to set up an assembly plant in Vietnam and is considering an overseas manufacturing facility, possibly in Chile. Capacity at the plant, 20 miles outside Kuala Lumpur, is being increased to 150,000 units a year from the current 120,000 and the 80,000 with which the car project began in the mid-1980s.

This is to cope with both the introduction of new models and the start of manufacture of left-hand-drive vehicles for export to Europe from early next year.

Currently Perusahaan Otomobil Nasional Bhd, the Proton's manufacturer, makes only right-hand-drive cars. Malaysians drive on the left, reflecting the country's former colonial status, and exports hitherto have been confined to right-hand-drive markets.

The UK is by far the biggest export market, with just under 15,000 sold in 1992 and 16,000 projected for the current year. Another 2,000 annually have been sold in other right-hand-drive markets such as New Zealand, Australia, Bangladesh, Sri Lanka and other Commonwealth markets.

Proton is itself a joint venture company in which Japan's Mitsubishi Corp has a 17 per cent stake.

Proton Cars Europe will not, however, act as a conventional importer and distributor in continental Europe in the same way as Proton Cars operates in the UK. Instead, its role will be to research and recommend to Proton a network of national distributors for each European country, and to co-ordinate their activities after they have been appointed.

Proton Cars Europe Edaran Otomobil Nasional Perusahaan Otomobil Nasional GB United Kingdom, EC MY Malaysia, Asia P5511 New and Used Car Dealers P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Strategic links & Joint venture MKTS Production MKTS Foreign trade P5511 P3711 P3714 The Financial Times London Page 8 449
World Trade News: Israel quick to establish trade relations Publication 931103FT Processed by FT 931103 By JULIAN OZANNE JERUSALEM

ISRAEL and China are moving swiftly to establish trade and business ties, following the visit by Mr Yitzhak Rabin, Israeli prime minister, to China last month.

Bank Hapoalim, Israel's largest banking group, yesterday said it had established correspondent banking relations with China during a high-level Hapoalim mission to Beijing. The bank said the relations would help Israeli and foreign clients of Hapoalim wishing to invest in and trade with China.

Bank Hapoalim's announcement followed the signing in Jerusalem of a memorandum on agricultural co-operation between Israel and China. The memorandum, signed by Mr Liu Jiang, China's agriculture minister, and his Israeli counterpart, Mr Yacov Tzur, provides for the establishment of a standing Chinese-Israeli agricultural committee, exchange of experts and information, the strengthening of a joint training programme and the establishment of a joint Israeli-Chinese model farm near Beijing where Israeli agricultural experts can demonstrate Israeli technology to Chinese farmers.

During Mr Jiang's eight-day visit to Israel, which ends tomorrow, a Dollars 1.5m deal was also concluded between Plastro G'vat of Israel and Beijing Plastic to sell Israeli irrigation equipment to China.

Chinese technicians are already learning about the irrigation technology at Kibbutz G'vat.

Mr Jiang said Israeli irrigation equipment and other agricultural technology would be especially helpful in western China, which has a similar climate to Israel's. 'Your irrigation systems can contribute a lot to advance the co-operation between the two countries,' he said.

Israeli officials said strengthening economic ties between the two countries was a result of the Israeli-Palestinian peace agreement. China has always supported the Palestinians and held up ties despite establishing diplomatic relations with Israel two years ago.

Mr Dan Proper, president of the Israeli Manufacturers Association, who accompanied Mr Rabin to China last month, said yesterday further trade deals and joint ventures were in the pipeline, especially in advanced agricultural technology and irrigation, communications, telephones and electronics, food conservation, and chemicals such as potash.

Bank Hapoalim Plastro G'vat Beijing Plastic IL Israel, Middle East CN China, Asia P9721 International Affairs P6081 Foreign Banking and Branches and Agencies P01 Agricultural Production-Crops P02 Agricultural Production-Livestock P5083 Farm and Garden Machinery COMP Company News P9721 P6081 P01 P02 P5083 The Financial Times London Page 8 385
World Trade News: Rockwell in Chinese car parts agreement Publication 931103FT Processed by FT 931103 By JOHN GRIFFITHS

ROCKWELL International, the US automotive-to-aerospace multinational, is setting up a joint venture in China to develop and make a range of car body components for the fast-expanding Chinese vehicle industry.

The venture, in which Rockwell will have a majority stake, is with Zhenjiang General Equipment Factory, based about 200 miles from Shanghai. It will operate under the name of Rockwell Chassis and Body System Zhenjiang Company.

Under the terms of the agreement, Rockwell will supply technology, processing equipment, systems and management expertise - as well as an undisclosed amount of investment capital - for the production of window regulators, door latches, handbrakes and similar products.

Rockwell has been active in China since the 1970s. 'The venture reflects Rockwell's overall strategy for investment in China, where there is a huge potential for passenger car growth,' according to Mr Donald Beall, its chairman and chief executive.

Rockwell already exports to China heavy-duty axles and brakes and components for off-highway construction equipment, avionics, telecommunications and automation equipment and printing presses.

Several of its existing motor industry customers, including Peugeot of France, are either starting up of expanding car production in China.

Rockwell International Corp Zhenjiang General Equipment Factory Rockwell Chassis and Body System Zhenjiang Co CN China, Asia US United States of America P3714 Motor Vehicle Parts and Accessories COMP Strategic links & Joint venture P3714 The Financial Times London Page 8 247
World Trade News: Vision of unity for embattled central America - A commitment to freer trade and integration among six poor republics Publication 931103FT Processed by FT 931103 By EDWARD ORLEBAR

THE SIX small, poor republics of central America, still suffering the fallout from more than a decade of ruinous civil wars, huge foreign debts, and injudicious economic policies, made an important commitment last week to economic integration.

The six presidents signed an agreement on Friday which will set them on course for free trade within the area and lay the foundations for deeper political harmonisation - for those that want it.

It reflects the view of politicians and the business community that greater economic integration is essential if central America's 30m inhabitants are to avoid being swamped economically by extra-regional competitors.

While short on binding measures or concrete commitments, the agreement is an important statement of intent to strengthen regional integration in the new realities of central America.

The deal comes in the form of a protocol to the original 1960 General Treaty on Central American Economic Integration which created the Central American Common Market. The new model of integration with a common external tariff of 20 per cent replaces an import substitution one based on high external tariffs. With the exception of Panama, all the countries have already adopted this new regime.

The presidents also undertook to speed up the removal of the last of the internal non-tariff barriers that have been erected over the past decade or so.

Objections by Costa Rica to anything beyond merely trade initiatives forced the core group of four - Guatemala, Honduras, El Salvador and Nicaragua (Panama is something of a special case) - to make 'voluntary and gradual' the protocol's implementation.

Panama has only recently thrown its hat in with central America and is expected to move more slowly on integration.

Mr Rafael Rodriguez, the secretary general of Sieca, the technical body which has drafted the nuts and bolts of the agreement, admitted that he would have liked deadlines for the commitments in the protocol, but denied that its voluntary nature would diminish commitment.

'It is not a strait-jacket,' he said. 'There is an element of flexibility.' While the Costa Rican government insisted it supported free trade in the region, it would not accept a customs union, the free movement of labour or a commitment to a single currency.

'If we allowed free movement of labour, a million Nicaraguans would cross over our northern border to seek work,' Mr Roberto Rojas, the Costa Rican trade minister said in an interview recently.

Nor did Costa Rica, which receives 50 per cent of its fiscal revenue from import duties, wish to lose control over its collection, implied by a customs union, where any central American port would act as a point of entry to the region.

During the 1980s, civil wars in El Salvador, Guatemala, and Nicaragua, trade barriers, and mutual hostility between Nicaragua's left-wing Sandinistas and the region's right-wing military-dominated governments contributed to a drop in intra-regional trade from a peak of Dollars 1.1bn in 1980 to Dollars 450m in 1986. This year trade flows are expected to pass Dollars 1bn.

But the new vision of integration is not just about trade. Recently El Salvador, Nicaragua, Honduras, and Guatemala, abolished passport controls for their citizens, and plans are well advanced on connecting stock markets and allowing banks, brokerage houses and other financial institutions to operate in each other's country.

The region's governments, which by happy coincidence are at the moment cut more or less from the same ideological cloth, are endeavouring to co-ordinate macro-economic policy, adopting realistic exchange rates and the tight fiscal policies recommended by the international financial institutions.

Greater co-ordination on trade issues has already born some fruit. The five central American nations were the first to get together behind a plan to withhold 20 per cent of coffee exports to push up world prices, which came into effect on October 1.

Central America has also been told repeatedly by the US that its chances of reaching a free trade agreement would be greatly increased if it could negotiate en bloc, despite Costa Rica's efforts to cut its own deal.

Similarly the bloc has already negotiated so-called asymmetrical agreements which favour central America with Colombia, Venezuela and Mexico, and talks are under way with the Caribbean community.

But while the grand conflicts of the 1980s are nominally over, or have diminished to the occasional combat, the region's impoverishment continues to fuel unrest, which could undermine integration.

'If we can solve these problems, we can make a quantum leap,' says Mr Gert Rosenthal, the Guatemalan secretary general of the Santiago-based Economic Commission for Latin America and the Caribbean. 'If central America is to compete in the world economy it must integrate its economies.'

PA Panama, Central America CR Costa Rica, Central America XF Caribbean P9721 International Affairs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Economic Indicators P9721 P9311 The Financial Times London Page 8 836
World Trade News: Japan unhappy over rice tariffs Publication 931103FT Processed by FT 931103 By REUTER GENEVA

Japan told Gatt director general Peter Sutherland yesterday Tokyo would find it 'politically difficult' to accept replacing its rice import ban with tariffs under a Uruguay Round deal, a world trade body spokesman said, Reuter reports from Geneva.

At a one-hour meeting in Geneva, Farm Minister Eijiro Hata sought a special exemption for Japan. Mr Sutherland urged Japan to accept comprehensive import tarification.

JP Japan, Asia P9721 International Affairs P0112 Rice MKTS Foreign trade P9721 P0112 The Financial Times London Page 8 98
World Trade News: Dubai plans Arabic TV service Publication 931103FT Processed by FT 931103 By RAYMOND SNODDY

EMIRATES Dubai Television plans to launch next month what it says is the world's first 24-hour Arabic satellite television service.

EDTV, already available in the Middle East, hopes to reach 14m more Arabs living in Europe and North and Central America.

The service will be carried on the Eutelsat II satellite in Europe and on Galaxy satellite on the other side of the Atlantic, where it will be available from Canada to Venezuela.

The exporting of a television service from Dubai is the latest sign of the growing internationalising of the television market.

Next spring BBC World Service Television is to launch a news service in Arabic for the Middle East. EDTV plans a December 6 launch.

EDTV, which will use programmes, presenters, and technical staff drawn from all over the Middle East, plans to broadcast 70 per cent in Arabic and 30 per cent in English.

Emirates Dubai Television AE United Arab Emirates, Middle East P4841 Cable and Other Pay Television Services TECH Services & Services use P4841 The Financial Times London Page 8 192
Dollars 1.8bn issue launched to rebuild Beirut Publication 931103FT Processed by FT 931103 By MARK NICHOLSON CAIRO

MIDDLE EASTERN investors were yesterday invited to subscribe to one of the region's biggest public share issues - and in effect to buy a stake in Lebanon's future - with the launch of Solidere, a Dollars 1.8bn (Pounds 1.2bn) company designed to rebuild Beirut's city centre.

Subscription will be open to Lebanese and other Arab nationals on a scale of priorities determined by the company. The offer, of 6.5m shares at Dollars 100 each, closes on January 10. 'It is probably the largest private launch in the Middle East,' Mr Nasr al-Shamaa, Solidere's general secretary, said yesterday.

A successful launch would provide the biggest private investment tranche towards the ambitious rebuilding plans of Mr Rafik Hariri, Lebanon's billionaire businessman turned prime minister. Solidere's city centre project is a pivot of Mr Hariri's 10-year, Dollars 13bn programme to revive Beirut as the cosmopolitan hub of trade, finance and recreation it was before the 17-year civil war erupted in 1975.

The government already has aid pledges of more than Dollars 1bn for specific rebuilding projects from the EC, UN, the Opec Fund, Arab institutions and European countries.

But the share offer will be a test of private sector commitment to Mr Hariri's ambitions and, in particular, of his conviction that wealthy expatriate Lebanese will channel wealth back into their country. Lebanese expatriates are estimated to hold Dollars 30bn to Dollars 40bn in assets outside the country.

The issue represents 35 per cent of Solidere's equity, the remainder of which will comprise 11.7m class A shares distributed among 150,000 Lebanese in exchange for their title to property on which Solidere will rebuild. A government committee valued this land in central Beirut at Dollars 1.17bn - the value of shares to be issued to former property owners.

Additional class B shares in Solidere - its name being the French acronym for Lebanese Company for Development and Reconstruction of Beirut Central District - will be offered to these former landowners, other Lebanese residents, government agencies, Lebanese expatriates and Arab citizens - in that order of priority.

Paribas of France and Saudi American Bank, the Riyadh-based joint venture bank, will act as subscription agents for the sale outside Lebanon.

Lebanese Company for Development and Reconstruction of Beirut Central District (Solidere) LB Lebanon, Middle East P9532 Urban and Community Development FIN Share issues P9532 The Financial Times London Page 7 410
Palestinians suspend talks Publication 931103FT Processed by FT 931103 By JULIAN OZANNE

TALKS between Israeli and Palestinian peace negotiators broke down yesterday over the extent of Israeli troop withdrawal from the occupied Gaza Strip.

The Palestinian team, led by Mr Nabil Shaath, said it was suspending talks with Israel until next week and would consult Mr Yassir Arafat, chairman of the Palestine Liberation Organisation, before resuming the talks on the details of implementing the Israeli-Palestinian peace accord.

The disagreement over the extent of Israel's military withdrawal from Gaza, due to begin in less than six weeks, is the first real snag in the talks which are supposed to conclude a protocol on Israeli withdrawal from Gaza and the West Bank area of Jericho by the middle of next month.

On Monday Israel presented maps and plans for the withdrawal and redeployment of its soldiers, which leaves control of several roads used by the 5,000 Jewish settlers in Gaza in Israeli hands. Substantial Israeli forces would also remain in the settlements, on the beaches and on the roads even after a withdrawal was supposed to have been completed by April.

There would be full Israeli control over the border crossing from Gaza into Egypt, and plans to ensure the protection of Israeli settlers moving through the Gaza area.

Palestinians say the proposals contravene the peace agreement. They are particularly upset at Israel's insistence that it maintain a military presence over roads leading into the settlements which pass through Palestinians population areas.

After yesterday's breakdown Palestinians said they would demand complete Israeli troop withdrawal.

IL Israel, Middle East P8651 Political Organizations P9721 International Affairs NEWS General News P8651 P9721 The Financial Times London Page 7 282
Labour faces setback in Jerusalem Publication 931103FT Processed by FT 931103 By JULIAN OZANNE JERUSALEM

THE Labour party of Israel's prime minister Yitzhak Rabin appeared to have suffered an electoral setback in Jerusalem yesterday as Israelis voted across the country in the first test of public opinion since the signing of the Israeli-Palestinian peace agreement.

According to exit polls by Israel television, Mr Teddy Kollek, the 83-year-old Labour mayor of Jerusalem, was defeated by his Likud challenger, Mr Ehud Olmert, by 55 per cent of the vote to 41 per cent.

Elsewhere in the country, political analysts predicted before voting that Labour would marginally increase its control over local government, reducing the power of the right-wing Likud party which controls more councils than Labour. In Tel Aviv, where Mr Ronni Milo was aiming to retain Israel's commercial capital for Likud, exit polls showed the two parties running neck-and-neck with 45 per cent of the vote each.

Mr Kollek had headed the administration of Jerusalem, centre-point of the battle with Likud, for 28 years. Mr Olmert, an MP who opposes the peace accord, delivered a last-minute blow by cutting a deal for the support of the city's ultra-orthodox community. Under it, an ultra-orthodox candidate, Mr Meir Porush, agreed to drop out of the race and swing his votes behind Mr Olmert.

Forecasters had said that to win re-election Mr Kollek would need a heavy turnout from the city's 80,000 Palestinians living in Israeli-occupied Arab east Jerusalem. But turnout was reported by Israel radio at less than 1 per cent among Palestinian Jerusalemites.

Mr Kollek is a standard-bearer of peaceful co-existence between Arabs and Jews while Mr Olmert had campaigned on an aggressive policy of Jewish settlement throughout Jerusalem, including neighbourhoods which under Mr Kollek were reserved for Palestinians.

Palestinian politicians said yesterday a defeat for Mr Kollek would seriously set back talks between Palestinians and Israel on the future of the Holy City, due to begin within two years. But many Jewish voters believed Mr Kollek was too old to lead the city again.

IL Israel, Middle East P8651 Political Organizations NEWS General News P8651 The Financial Times London Page 7 359
Jordan's wider choice narrows the debate: The kingdom's first multi-party election Publication 931103FT Processed by FT 931103 By JAMES WHITTINGTON

SIX political heavyweights from Amman's Third District faced nearly two thousand voters in the ballroom of the Philadelphia Hotel and were quizzed for three hours on their campaigns leading up to Jordan's general election next Monday.

Questions ranged from women's rights to corruption, from Jordan's economic reform programme to its education system. The candidates included an ex-prime minister and three former ministers.

It was a rare display of political debate in a region not noted for freedom of expression. But it is unlikely to have changed the way members of the audience vote on November 8. Most have already made up their minds.

In Jordan's last elections in 1989, candidates ran as independents for the 80-member lower house of parliament. This time round more than 15 political parties and 555 candidates are officially registered to contest seats in the country's first multi-party elections since 1956.

The kingdom is festooned with posters, banners and campaign leaflets. And the 1.5m voters are seemingly spoilt for choice. But there is a distinct lack of enthusiasm.

Most people blame the controversial new election law - announced by King Hussein in August - which changed the rules to one person, one vote. Under the old system, the number of votes allowed equalled the number of seats in the district. Thus voters had two or three, and in one constituency, nine votes to play with.

This suited most candidates because if they lobbied hard enough and obtained the support of a majority of voters, even as the second or third choice, they stood a chance of being elected. This time round they have to be the first and only choice.

The effect has been a narrowing of political debate. The electoral change is purposely weighted in favour of those candidates with strong tribal affiliations and influential families, the bedrock of King Hussein's faithful. Their votes will be won out of obligation and loyalty, which take precedence over choice or preference in Jordanian society.

As a result, most candidates are campaigning to widen their private network of contacts on a limited range of local and personal issues. Manifestos generally consist of little more than vacuous slogans calling for national unity, Arab unity, a free Palestine, and democracy for all.

Campaigns are conducted in homes, over the telephone, and by buttering-up influential tribal and family figures.

Most of the parties have chosen to sell the attributes of individual candidates rather than the party itself. The expected losers are the new political parties which are largely based on woolly ideologies rather than useful tribal connections.

The exception is the Islamic Action Front (IAF), the political wing of the Moslem Brotherhood, which backed numerous candidates in the last election and won 21 of 80 parliamentary seats. This time the IAF has 36 candidates standing in 16 of 20 districts.

Its leaders say the new electoral system is weighted against them. Last week they met the prime minister to complain that their campaign was being targeted by the government. Until last weekend, when the High Court over-ruled the minister of the interior, they were banned from holding large-scale public rallies, and they say that their supporters in the civil service have been forbidden to campaign for the party.

The likely outcome is that the new parliament will be dominated by pro-government and tribal MPs. The expected decrease in the number of successful fundamentalist candidates would result in less opposition to government policies. And King Hussein would be able to continue with his agenda without worrying about a rowdy house of elected representatives.

JO Jordan, Middle East P8651 Political Organizations NEWS General News P8651 The Financial Times London Page 7 627
Spanish in Palestinian venture Publication 931103FT Processed by FT 931103 By TOM BURNS MADRID

BANESTO, the big Spanish commercial bank, said yesterday it had formed a Dollars 60m (Pounds 39.7m) joint venture with Israeli, Palestinian and Moroccan groups to fund development in Jericho and in the Gaza strip.

The venture, called Salam 2000, brings the Spanish bank together with Koor, the Israeli industrial and financial group, as well as Morocco's powerful Omnium Nord Africain (ONA) holding and with Palestinian investors lead by Mr Jawid Ghossein, the head of the Palestine National Fund, a para-governmental body that acts as the finance ministry of the Palestine Liberation Organisation.

Banesto, which did not disclose details of the shareholding in the joint venture, said Salam 2000's initial project would be to finance a cement factory in an unamed location. The bank said it intended to tap the US markets for a further Dollars 150m for more investments in the area.

It described the move as a pioneering investment in the Israeli-occupied territories where the Palestinians are being granted self-rule.

Earlier this year Banesto established close relations with JP Morgan, the US investment bank which is helping the Spanish group to raise its capital base through rights issues aimed at US institutions.

Banco Espanol de Credito Salam 2000 Koor Omnium Nord Africain IL Israel, Middle East MO Macao, Asia ES Spain, EC P6719 Holding Companies, NEC P6081 Foreign Banking and Branches and Agencies COMP Strategic links & Joint venture P6719 P6081 The Financial Times London Page 7 252
Burundi PM emerges Publication 931103FT Processed by FT 931103 By REUTER BUJUMBURA

MS SYLVIE Kinigi, prime minister of Burundi, the East African country's top official since President Melchior Ndadaye was killed in a coup, emerged from 12 days of hiding at the French embassy yesterday to hold talks with army chiefs, Reuter reports from Bujumbura.

'She came out of the embassy guarded by about 20 French soldiers,' a witness said.

Ms Kinigi has asked the United Nations and the Organisation of African Unity to send in about 1,000 foreign troops to help protect her and government members. The army opposed this and UN undersecretary general James Jonah last night rejected the idea. But the UN appealed for Dollars 17m (Pounds 11.2m) to provide urgent food and shelter to 675,000 Burundi refugees who have fled to three neighbouring states.

BI Burundi, Africa P9199 General Government, NEC P9721 International Affairs PEOP People P9199 P9721 The Financial Times London Page 6 157
Kenya may seek fresh deal on debt Publication 931103FT Processed by FT 931103 By LESLIE CRAWFORD NAIROBI

MR MUSALIA MUDAVADI, Kenya's finance minister, warned yesterday that Kenya might have to reschedule part of its Dollars 7bn (Pounds 4.7bn) external debt because of an accumulation of Dollars 700m in arrears resulting from the suspension of foreign aid.

Mr Mudavadi raised the probability of debt renegotiations as the World Bank and International Monetary Fund announced their support for a three-year programme of economic reforms designed to mend Kenya's estranged relations with the international donor community.

A policy framework paper, to be presented to donors, outlines Kenya's commitment to cutting the budget deficit, curbing inflation from its present 50 per cent a year, and rooting out corruption in the state sector.

The IMF's endorsement of Kenya's new economic policies is critical for the success of a donors' conference in Paris this month which will discuss the renewal of financial aid. However, there were no immediate signs that the IMF was preparing to resume financial assistance to Kenya.

It would be the first time Kenya has sought to refinance its foreign obligations with the Paris Club of creditor nations. Kenya took pride in its repayment record until donors, irked by corruption and economic mismanagement, suspended balance-of-payments aid in November 1991, worth about Dollars 40m a month.

'The arrears component of our foreign debt may require rescheduling,' Mr Mudavadi said in an interview. Kenya also faces a large balance of payments gap due to its trade deficit and heavy debt servicing obligations.

With foreign exchange reserves of just Dollars 260m, private-sector economists believe Kenya is heading for a balance of payments crisis unless donor governments are prepared to resume a measure of financial support.

KE Kenya, Africa P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs ECON Economic Indicators CMMT Comment & Analysis P9311 P9721 The Financial Times London Page 6 315
Abu Dhabi to face new BCCI demand Publication 931103FT Processed by FT 931103 By ANDREW JACK

LIQUIDATORS to the collapsed Bank of Credit and Commerce International are planning to move swiftly to negotiate a higher contribution for creditors from the government of Abu Dhabi, the majority shareholder in the bank.

They plan to push for payments higher than the originally negotiated Dollars 1.7bn (Pounds 1.1bn) in an effort to prevent complex litigation which could take many years and leave hundreds of thousands of creditors with little prospect of compensation.

It also emerged yesterday that the liquidators have negotiated a tax refund from the Inland Revenue in the UK of about Pounds 20m overpaid by the bank. The claim, which relates to incorrectly stated figures and tax deducted at source over several years as well as interest, was paid out in the last few weeks.

The liquidators' latest action follows the surprise decision by the Luxembourg courts last week to uphold an appeal by three creditors against the agreement between the liquidators and the government of Abu Dhabi.

In preliminary meetings this week the liquidators have tentatively decided not to appeal against the ruling. Neither do they favour the prospect of suing Abu Dhabi in the search for funds for creditors to BCCI, which was closed in July 1991.

The strategy has been developed in advance of a full meeting today and Thursday of the liquidators to the bank's principal companies in England, the Cayman Islands and Luxembourg.

Mr Brian Smouha, Mr Georges Baden and Mr Julien Rodin, the three liquidators to the main BCCI holding company in Luxembourg, in any case face difficulties in making an appeal because they are officials appointed by the courts.

They are awaiting written judgment from last week's appeal, but seem to have ruled out a possible option from Judge Raul Gretsch to re-submit their proposals in a modified form.

The Abu Dhabi government said its position remained unaltered and it had no plans to increase its offer agreed with liquidators in February last year.

This would have provided a contribution of at least Dollars 1.7bn to creditors in exchange for them waiving rights to sue, and would have allowed a payout of 15p in the pound next year.

Abu Dhabi has an estimated Dollars 2.2bn in preferential claims deposited with BCCI, and it could potentially counter-sue the bank to recover the money, which would wipe out any returns to other creditors.

Bank of Credit and Commerce International AE United Arab Emirates, Middle East P6081 Foreign Banking and Branches and Agencies COMP Company News P6081 The Financial Times London Page 6 436
Malaysia: furious growth continues: A look at the south-east Asian nation's optimistic outlook Publication 931103FT Processed by FT 931103 By KIERAN COOKE

MALAYSIA'S economy continues to expand at rates western countries dream about.

On Friday Mr Anwar Ibrahim, the finance minister, presented the 1994 budget and forecast that Malaysia's gross domestic product was likely to grow by 8.2 per cent this year.

'With this growth, the Malaysian economy would have experienced growth rates of 8 to 9 per cent for six successive years, an attainment which has never been achieved before,' said Mr Anwar.

Officials say Malaysia is on course to achieve its aim of becoming a fully industrialised country by the year 2020. 'We are moving into a period of sustainable economic development,' said one official. 'To achieve our goal we aim for 7 per cent growth in each of the next 27 years.'

While some might doubt that such high growth can be maintained, Malaysia is optimistic.

The Kuala Lumpur stock market, which has risen more than 50 per cent since the beginning of the year, largely due to a massive influx of foreign funds, reached a new all-time high in the aftermath of Mr Anwar's budget speech.

Despite a recession in many of its markets, Malaysia's export earnings are expected to grow by 16 per cent to MDollars 120bn (USDollars 47bn) this year, compared with a 10 per cent rise in 1992.

While Malaysia still runs a substantial deficit in its services account, a strong export performance is expected to result in a surplus in the balance of payments current account, the first since 1989.

Strong economic growth has brought an improvement in national finances. Foreign exchange reserves rose from MDollars 47.2bn at the end of 1992 to over MDollars 60bn and the country's debt service ratio has gone down to 5.2 per cent from 5.7 per cent of gross exports.

Despite a rise of 13 per cent in development spending in the 1994 budget, the government says an increase in revenues due to strong economic growth means that Malaysia is expected to achieve a balanced budget for the first time.

Meanwhile, there is zero unemployment in most parts of the country, annual per capita incomes have risen in the last 12 months by 11 per cent to MDollars 8,350 and the overall inflation rate has dropped to 3.7 per cent compared with over 5 per cent early last year.

But fast growth has resulted in infrastructure bottlenecks. As in other fast-emerging economies such as Thailand and Indonesia, Malaysia's roads are jammed with vehicles, ports are congested and its power industry lacks capacity.

'The present infrastructural constraints, especially in power and transport, have occurred too often and are now being addressed as a matter of urgency,' said Mr Anwar in his budget speech. Critics say that by not tackling these problems sooner, the government has put at risk further economic growth.

The other main problem area is investment. Much of Malaysia's recent economic growth is due to the government's success in luring investments from overseas.

Attracted by the country's political stability and its relatively low wages, multinational companies have poured millions of dollars into electronics and other industries.

In 1990-91 foreign companies invested about MDollars 17bn in Malaysia's manufacturing sector, representing well over half total investment. In the first seven months of this year foreign investments fell to MDollars 2.4bn.

In part the fall-off is because of the tough times being endured by many cash-strapped foreign companies. But it is also because Malaysia is facing stiff competition for investment from countries such as China and Vietnam.

'Every country in this region is trying to offer the best tax package for investors and we cannot be left behind,' says Mr Anwar. The 1994 budget cuts corporate tax by two percentage points to 32 per cent, with a further two-point reduction in 1995.

Under the present five-year plan (1991-95) the government's aim was to lessen dependence on foreign investment, with domestic concerns playing a greater role. But this has not happened, even though many Malaysian companies are cash-rich. Domestic investment fell by more than 50 per cent to MDollars 2bn in the first seven months of this year. The 1994 budget includes a number of tax and other incentives to encourage more participation in the economy by domestic concerns.

Malaysia's development is also being affected by skills constraints.

A comprehensive overhaul of the education system is planned, but there are those who wonder whether the government has delayed too long in taking action.

'Short-term, Malaysia will continue to be a success story,' said one local economist. 'But we've really only made it to the first development plateau. It's going to be a lot tougher from now on.'

MY Malaysia, Asia P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges ECON Gross domestic product CMMT Comment & Analysis MKTS Foreign trade ECON Balance of trade ECON Employment & unemployment P9311 P6231 The Financial Times London Page 6 828
National party ahead in NZ poll Publication 931103FT Processed by FT 931103 By TERRY HALL WELLINGTON

NEW ZEALAND'S ruling National party appears increasingly likely to win Saturday's general election, aided by a surprising late run from the third-ranking Alliance, according to the last national opinion poll to be conducted before the election.

The Heylen polling organisation yesterday confirmed other recent polls which showed that the Alliance is attracting votes from Labour supporters, reducing its prospects of victory. Up to a fortnight ago, Labour and National were attracting similar levels of support at around 40 per cent.

Mr Mike Moore, the Labour leader, worried by the loss of support, this week switched the focus of his campaign to fight on two fronts: attacking both the government and the Alliance.

The Alliance is led by Mr Jim Anderton, a dissident former Labour MP who as party president orchestrated Labour's landslide victory in 1984 before resigning over its move to the right.

Mr Anderton stitched together an apparently unlikely consortium of opposition groups, including left-wing trade unionists, former Labour party members, the Green party, the Social Credit party, and a Maori opposition group Mana Matahaki led by Mr Mat Rata, a former Minister of Maori Affairs in a past Labour government. They are united in wanting to overturn the 'monetarist' reform programmes followed since 1984 by both National and Labour parties in government.

The poll showed that National had increased its lead by one percentage point to 39 per cent. Labour was down two points to 32 per cent as support grew for the Alliance, especially in the key marginal Auckland seats which are expected to decide the outcome of the election. The Alliance was up one point to 17 per cent, and New Zealand First, led by Mr Winston Peters, a dissident former Maori MP, was down one point to 9 per cent.

Mr Moore remained the preferred prime minister with 22 per cent support. Mr Anderton was up five points to 15 per cent to match the prime minister, Mr Jim Bolger, while Mr Peters had 14 per cent support.

The poll also showed that voters were moving towards favouring a continuation of the Westminster-style first-past-the-post electoral system ahead of a referendum being conducted along with the election. Support for that system had increased to 41 per cent, while that for the German mixed member proportional option was down slightly at 46 per cent. This time last year only 20 per cent of voters favoured the UK method while 72 per cent wanted the German system.

NZ New Zealand P8651 Political Organizations NEWS General News P8651 The Financial Times London Page 6 440
Kenya may seek debt rescheduling: World Bank, IMF support economic reform package Publication 931103FT Processed by FT 931103 By LESLIE CRAWFORD NAIROBI

MR MUSALIA Mudavadi, Kenya's finance minister, warned yesterday that Kenya might have to reschedule part of its Dollars 7bn (Pounds 4.7bn) external debt because of an accumulation of Dollars 700m in arrears resulting from the suspension of foreign aid.

Mr Mudavadi raised the probability of debt renegotiations as the World Bank and International Monetary Fund announced their support for a three-year programme of economic reforms designed to mend Kenya's estranged relations with the international donor community.

The IMF's endorsement of Kenya's new economic policies is critical for the success of a donors' conference in Paris this month which will discuss the renewal of financial aid. However, there were no immediate signs that the IMF was preparing to resume financial assistance to Kenya.

It would be the first time Kenya has sought to refinance its foreign obligations with the Paris Club of creditor nations. Kenya took pride on its repayment record until donor governments, irked by corruption and economic mismanagement, suspended balance-of-payments aid in November 1991, worth about Dollars 40m a month.

'The arrears component of our foreign debt may require rescheduling,' Mr Mudavadi said in an interview with the Financial Times. Apart from the issue of arrears, Kenya also faces a large balance of payments gap due to its trade deficit and heavy debt servicing obligations.

Mr Mudavadi declined to put a figure on the balance of payments shortfall, which will form the basis of Kenya's appeal for the resumption of financial assistance. To avoid disappointment, Mr Mudavadi said he was not going to Paris with a shopping list of demands.

But given the central bank's foreign exchange reserves of just Dollars 260m, private-sector economists believe Kenya is heading for a balance of payments crisis unless donor governments are prepared to resume a measure of financial support.

Mr Hiroyuki Hino, head of the IMF delegation to Kenya, said the economic programme which had his blessing would be presented at the donors' meeting in Paris.

The policy framework paper outlines Kenya's commitment to cutting the budget deficit, curbing inflation from its present 50 per cent a year, and rooting out corruption in the state sector.

The economic programme will be an important factor in the discussions with donors, but by no means the only one. Donor governments have recently voiced concern over the rising level of ethnic violence in Kenya, and the government's apparent indifference to the plight of thousands of displaced peasants in the Rift Valley.

There are also concerns despite recent government moves to clamp down on financial improprieties in the banking sector, not a single wrong-doer has been brought to justice. Mr Mudavadi said it was the government's intention to investigate all cases of corruption and to bring them to justice. But his priorities were to seal the loopholes that had been abused.

This was the aim of all his recent reforms, including the abolition of import licences, the merging of the official and market foreign exchange rates and the deregulation of the maize trade which was previously a state monopoly.

KE Kenya, Africa P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs ECON Economic Indicators CMMT Comment & Analysis P9311 P9721 The Financial Times London Page 6 551
Warning over Somalia pullout Publication 931103FT Processed by FT 931103 By REUTER NAIROBI

Ethiopia and Kenya said yesterday that a pullout of US troops from Somalia before a peace settlement could plunge the country back into anarchy, Reuter reports from Nairobi.

Kenya's President Daniel arap Moi and Ethiopia's President Meles Zenawi, ending two days of talks in Nairobi, called for an urgent African solution in Somalia.

Washington has 10,000 troops in the UN-led multinational force of about 30,000, sent to Somalia to disarm rival warlords. President Bill Clinton plans to pull troops out by March.

Mr Robert Oakley, the US envoy in Mogadishu, began meeting clan leaders yesterday.

SO Somalia, Africa P9721 International Affairs NEWS General News P9721 The Financial Times London Page 6 123
Venezuela lets foreign bankers in Publication 931103FT Processed by FT 931103 By JOSEPH MANN CARACAS

FOREIGN investors will be allowed a place in Venezuela's financial system in the most sweeping legislation the country's banks have faced in 20 years.

President Ramon Velasquez yesterday signed a law reforming banking and finance.

The reform, which takes effect from the start of next year, is the last big element in an ambitious economic adjustment programme initiated in early 1989. Among the main provisions are: foreign financial institutions may hold majority stakes in Venezuelan banks.

the Superintendency of Banks, the government supervisory agency for financial institutions is given independence and new authority.

stiffer capital requirements for banks are established.

financial institutions are provided with a modern legal framework.

VE Venezuela, South America P6081 Foreign Banking and Branches and Agencies NEWS General News P6081 The Financial Times London Page 4 144
Ruling brings Death Row hope Publication 931103FT Processed by FT 931103 By ROBERT RICE, Legal Correspondent

MORE than 100 prisoners on death row in the Caribbean could have their sentences commuted to life imprisonment following a ruling by seven Law Lords in London yesterday.

The British judges sitting as the Judicial Committee of the Privy Council, which remains the final court of appeal for 16 Commonwealth countries including Jamaica, allowed the appeal of two Jamaicans, Mr Earl Pratt and Mr Ivan Morgan, who have been under sentence of death since 1979.

Commuting their sentences to life imprisonment the judges said it was 'an inhuman act to keep a man facing the agony of execution over a long extended period of time'.

On three occasions the death warrant had been read to the men and they had been removed to condemned cells next to the gallows. This alone was sufficient to bring home to people of normal sensitivity and compassion the agony these men had been through over 14 years, the judges said.

There was 'an instinctive revulsion' against the prospect of hanging a man after he had been held under sentence of death for many years.

The Law Lords said that in future, where an execution was to take place more than five years after sentence, the case should be referred to the Jamaican Privy Council with a recommendation that the sentence should be commuted to life imprisonment.

There are now 23 prisoners on death row in Jamaica who have been awaiting execution for more than 10 years.

The Law Lords said they were conscious that the Jamaican government faced great difficulties with a high murder rate and limited financial resources, but warned: 'Nevertheless, if capital punishment is to be retained it must be carried out with all possible expedition.'

JM Jamaica, Caribbean P9223 Correctional Institutions NEWS General News P9223 The Financial Times London Page 4 315
Pained Senate weighs harassment charges Publication 931103FT Processed by FT 931103 By JUREK MARTIN WASHINGTON

FOR the second day running Senator Bob Packwood, the Republican from Oregon, yesterday tried to persuade his colleagues in the Senate to accept a compromise whereby he would hand over some, but not all, of his possibly incriminating private diaries.

The Senate ethics committee is seeking approval for a subpoena for all the diaries, dating back to 1969, as part of its investigation into charges that Mr Packwood sexually harassed more than 25 women.

Senator Richard Bryan of Nevada, Democratic chairman of the committee, announced last week that extracts perused so far suggested Mr Packwood may also have engaged in other improper but unspecified activities.

Mr Packwood's compromise would make available all the diaries relevant to the harassment accusations and to the additional charge, reported in an Oregon newspaper over the weekend, that he tried to persuade lobbyists to hire his former wife. The rest would be turned over to an independent arbiter who would pass on what he considered relevant.

Far more notable than the substance of Mr Packwood's offers has been the intense embarrassment, even pain, that his performance on the Senate floor has caused his saddened and grim colleagues. Leaping constantly to his feet to interject, sometimes incoherently and contradictorily, he has given the appearance of a man at the end of his emotional tether.

Privately many wish Mr Packwood would simply resign and go away, or that the voters of Oregon would try to recall him. But in a long political career as a quintessential Republican moderate, the senator has always been known as a man to fight his corner, be it politically or personally.

He was narrowly returned to a fifth six-year term a year ago. Shortly thereafter the Washington Post published details of the sexual harassment accusations against him. Mr Packwood initially blamed his problems on alcohol but has shown no signs of resigning his seat. In fighting back he has intimated knowledge of extra-marital affairs by other members of Congress.

There has been some sympathy for his contention that the ethics committee staff should not be given licence to 'rummage through' his personal papers and some criticism of Mr Bryan for having spoken of possible criminal charges.

But the sentiment of the Senate seems clearly behind its own ethics committee and its arguments for a subpoena. Senator Barbara Mikulski, the Maryland Democrat and a committee member, maintained with some force that 'we are not the committee on voyeurism'.

Senator Patty Murray, the Washington Democrat, also reminded colleagues that sexual harassment charges against a sitting senator were not to be taken lightly, especially after the embarrassing spectacle of the Senate's grilling of Professor Anita Hill two years ago during the hearings on the nomination of Judge Clarence Thomas to the Supreme Court.

US United States of America P8651 Political Organizations PEOP People P8651 The Financial Times London Page 4 489
US data point to solid growth in next half year Publication 931103FT Processed by FT 931103 By GEORGE GRAHAM WASHINGTON

NEW government economic data yesterday showed the US economy to be gaining strength, lending weight to predictions of solid growth in the next two quarters.

The Commerce Department's index of leading economic indicators, published yesterday, showed a rise of 0.5 per cent in September after a 0.9 per cent gain in August.

The leading index, designed to predict movements in economic activity, climbed to reflect an expanding money supply and buoyant orders for consumer goods, and higher share prices and increase demands for building permits.

The index fell in the first half of this year, stabilised in June and July and climbed in August and September.

At the same time, the Commerce Department said sales of new homes rose by 21 per cent in September to their highest level in seven years. New home sales jumped to an annual rate of 762,000, 13 per cent higher than a year earlier.

Home sales have benefited from mortgage interest rates at their lowest level in 25 years. Rates averaged 6.91 per cent in September and have since slipped a little lower.

Most regions showed large increases, with sales rising 28 per cent in the south, 24 per cent in the Midwest and 15 per cent in the west. Only the northeast showed a decline in sales of 7 per cent.

Last week, the National Association of Realtors said sales of existing homes also jumped in September.

Mr Ed Yardeni, economist with brokers CJ Lawrence, said this pace of home sales was probably not sustainable, and the rate would be likely to decline in October.

'Nevertheless, housing activity is clearly stronger, and will add to economic growth this quarter,' he said.

Economists said both the index of leading economic indicators and the home sales statistics were consistent with forecasts for stronger growth in the second half of the year.

Initial government estimates of GDP published last week showed growth in the third quarter at an annual rate of 2.8 per cent, and some economists now predict the economy will expand at a rate above 4 per cent in the fourth quarter, before subsiding in the new year.

'Our current fourth-quarter estimate is 4.2 per cent, and the risk to that number is probably on the upside,' said brokers Merrill Lynch.

Mr Allen Sinai, chief economist with Economic Advisors, a Boston consulting firm, is more cautious, predicting growth of around 3.0 per cent in the fourth quarter and lower growth in the first half of next year.

US United States of America P9311 Finance, Taxation, and Monetary Policy P6552 Subdividers and Developers, Ex Cemeteries ECON Economic Indicators MKTS Sales CMMT Comment & Analysis ECON Gross domestic product P9311 P6552 The Financial Times London Page 4 470
States win approval for welfare reform plans Publication 931103FT Processed by FT 931103 By GEORGE GRAHAM

THE US administration has given the go-ahead for pilot plans to reform welfare benefits in Wisconsin and Georgia that could serve as experiments for the broader overhaul of the welfare system promised by President Bill Clinton.

The Wisconsin plan would cut off cash payments under the principal welfare programme, known as Aid to Families with Dependent Children, after two years, although it would continue to provide food stamps and health coverage. The pilot scheme will be started in two counties in 1995.

Republican Governor Tommy Thompson has made Wisconsin a pioneer in welfare reform, with experiments such as Schoolfare, which cuts welfare payments to teenage mothers who do not go to school.

In Georgia, the state does not plan a time limit on benefits, but wants to reduce welfare payments to able-bodied adults who refuse offers of work and deny increases in payments to families on long-term welfare who have more children.

The federal government, which has to grant waivers to states wishing to depart from normal US welfare rules, is also considering proposals from Florida and Vermont for time limits on welfare benefits, and White House officials have said that a two-year limit will be a central feature of Mr Clinton's own welfare reform plans.

The promise to 'end welfare as we know it' was an important theme in Mr Clinton's election campaign. Although he named a welfare reform task force in June, the reform has been held up by delays in passing the budget and is now expected to be delayed until the ambitious reform of the healthcare system has passed Congress.

US United States of America P9411 Administration of Educational Programs P9611 Administration of General Economic Programs GOVT Government News P9411 P9611 The Financial Times London Page 4 306
Violence and distrust mark Colombia polls: Politicians duck bombs while they battle with voter disillusionment at corruption Publication 931103FT Processed by FT 931103 By SARITA KENDALL

POLITICS is not a safe profession in Colombia. Yesterday the campaign offices of the governing Liberal party's presidential candidate was dynamited, injuring one person. Last month, guerrillas blew up an electoral registry office and a political party campaign office.

Over the last five years, five of the top six presidential candidates in next May's presidential election have variously survived shootings, a kidnap, a grenade attack and bombings. Politicians acknowledge that it is too dangerous to campaign in some parts of the country.

On top of this, Colombia's 14 presidential contenders are having a difficult time overcoming disillusionment with party politics and corrupt political practices.

So many candidates might be expected to produce wide-ranging programmes and choice, but the early stages of the campaign have been marked by moral skirmishes rather than debates about violence, social problems or the economy.

The 1994 electoral calendar is a heavy one for apathetic voters: congressional elections take place in March and Colombians will vote for president in May. If no candidate polls more than half the ballots there will be a run-off between the winner and runner-up. Then local government elections - which excite much greater enthusiasm now that budgets and responsibilities have been decentralised - follow in October.

The two candidates leading the opinion polls by a big margin - Mr Andres Pastrana of the Conservative New Democratic Force and Mr Ernesto Samper of the Liberal party - will probably fight it out in the second round of the election. Both are under 50 years, firmly entrenched in the political establishment and neither would represent an abrupt change of direction.

Mr Pastrana, the son of a former Conservative president, was the first elected mayor of Bogota and is now a senator. Keeping his distance from the campaign scramble - he has yet formally to declare his candidacy - appears to have done Mr Pastrana's popularity no harm, though some commentators are becoming impatient with his reticence.

Although Mr Samper was minister for economic development at the beginning of President Cesar Gaviria's government he has criticised the speed of the liberalisation process. His emphasis on jobs and social spending does not, however, imply an about-turn in economic policy.

As a strong party man Mr Samper has had the time to build up a big parliamentary and regional following. But in a country where a third of the mayors and more than 15 congressmen are being investigated for irregularities ranging from misuse of public funds to collaboration with the guerrillas, this is not always an advantage.

A few weeks ago Mr Samper used the 'ethical code' developed for his campaign to expel three congressmen from his movement because they had attended a political meeting with someone accused of drug trafficking.

Despite much talk about clean campaigns and the vetting of contributions, the incident took most people by surprise. Not only did Mr Samper risk losing some 50,000 votes controlled by the congressmen but, politicians asked anxiously, where would such purges end?

On the outskirts of Bogota, in the poorer barrios of Usme, people are sceptical about candidates and voting procedures. Neglected by the local administration, the inhabitants took matters into their hands and organised a strike in June. As a result, some teachers have been appointed, water pipes put in and pot-holes filled.

'Last time about 20 per cent of the potential electorate voted. There are two positions - either people vote because they are offered housing subsidies or school places for their children or some other bribe. Or they don't vote at all, because there's no real difference between the candidates,' said Mr Nelson Cruz, a founder of the Usme civic movement.

The murders in the last campaign of two left-wing presidential candidates and Senator Luis Carlos Galan, who was expected to win the election, fuelled distrust of the process. At least four candidates are standing on largely anti-corruption platforms.

General Miguel Maza, former head of the secret police, is one of them: "People want change . . . . Drug trafficking has brought a distortion of moral values. We have to fight this. The surrenders and negotiated sentences have been a failure.'

Like most of the candidates, Gen Maza is against the legalisation of drug use or trade. But the issue is being debated more frequently as successive administrations fail to find other solutions and as the infiltration of key state institutions by traffickers is exposed.

Without doubt, the biggest disaster of President Gaviria's four-year term was the escape from jail last year of Pablo Escobar, the leader of the Medellin cocaine cartel. Any candidate with an outside chance must be hoping that the drug chief will be dead or back in prison before the new presidential term begins next August.

CO Colombia, South America P8651 Political Organizations P9199 General Government, NEC P9721 International Affairs NEWS General News P8651 P9199 P9721 The Financial Times London Page 4 839
Croats and Serbs talk in Norway Publication 931103FT Processed by FT 931103 By LAURA SILBER and REUTER BELGRADE, SARAJEVO

CROAT authorities and Serb separatists have been holding secret talks in Norway on brokering a ceasefire, a Serb official revealed yesterday.

Mr Hrvoje Sarinic, Croatian security chief, headed the Croatian delegation, and met Mr Goran Hadzic, 'president' of Krajina, and his 'foreign minister', Mr Slobodan Jarcevic, at the three-day talks, said diplomats.

Observers immediately began drawing parallels between the clandestine negotiations and the Palestinian-Israeli talks held in Norwegian farmhouses, which ended in a milestone peace agreement.

But Serb officials yesterday said the two sides remained far apart despite leaked reports that Mr Franjo Tudjman, the president of Croatia, would meet Mr Slobodan Milosevic, his Serbian counterpart, in Oslo later this week.

'We can gain absolutely nothing, because at this time neither side is willing to back down,' said Mr Branko Filipovic, 'foreign ministry' official of Krajina, the self-styled Serb state which covers one-third of Croatia, cutting the republic in half and isolating Croatia's Dalmatian coast from the country's heartland.

The Bosnian army's chief-of-staff and two other senior officers, including one commanding a district hit by Moslem separatism, were dismissed yesterday, Sarajevo radio said, Reuter reports from Sarajevo. The radio said General Sefir Halilovic and the commanders of 4th Corps and 5th Corps, based in Mostar and Bihac were discharged.

NO Norway, West Europe BA Bosnia-Hercegovina, East Europe P9721 International Affairs NEWS General News P9721 The Financial Times London Page 3 248
Yeltsin urges ministers to speed reform Publication 931103FT Processed by FT 931103 By JOHN LLOYD MOSCOW

PRESIDENT Boris Yeltsin of Russia yesterday told his government ministers that they were dragging their feet on reforms and ignoring the social needs of the population.

In a stiff rebuke he said that those who took part in the Moscow demonstration a month ago which culminated in armed clashes round the parliament and the TV stations were 'not just criminals and bandits, but also desperate people,' deprived of benefits and wages.

The Russian president said that a separation of powers embodied in the presidency and a new parliament - to be elected on December 12 - was essential, in spite of what he described as the growing affection of some officials and ministers for an authoritarian system. It was, he said, 'a crude mistake' on their part to doubt the need for different levels of authority.

Mr Yeltsin said that steps must now be taken to make the rouble convertible 'stage by stage,' building on its stable rate against the dollar in the past few months. He said, however, that the state must be actively involved in the management of the economy - instancing the need to develop an efficient mechanism of land sales following his decree last week allowing Russians to buy and sell land freely. Also speaking to the enlarged meeting of the cabinet with regional leaders, Mr Viktor Chernomyrdin, the prime minister, said that Russia now had the 'blueprint for a market economy' - and forecast a slowing of inflation and the fall in production in the coming months.

Figures in a report considered by the ministers yesterday pointed to a continued fall in Russia's gross domestic product, by 11 per cent in the first nine months of 1993 compared with the same period the previous year. Industrial production fell by 17 per cent and capital investment by 10 per cent - while inter-enterprise debt grew to Rbs11.300bn and national income fell by 15 per cent - an index of the rapid rise in poverty.

The budget deficit for the year is put at Rbs17,000bn, with a fourth quarter deficit of Rbs5,500bn - Rbs4,500bn of which will be financed by central bank borrowing and the remainder by the issuing of government bonds. Mr Chernomyrdin, however, said 'the worst is now over,' and inflation - now around 20-25 per cent a month - should come down to 16 per cent by next March and end next year at around 5 per cent.

The trade surplus for this year is expected to be around Dollars 21bn, after drastic pruning of imports.

Both the president and the prime minister criticised - without naming names - members of the cabinet who are now engaged in election campaigns as leaders of their various parties.

RU Russia, East Europe P9199 General Government, NEC P9311 Finance, Taxation, and Monetary Policy GOVT Government News ECON Gross domestic product ECON Inflation P9199 P9311 The Financial Times London Page 3 498
Get-rich game nears end in Transylvania Publication 931103FT Processed by FT 931103 By VIRGINIA MARSH BUCHAREST

ION Popescu is something of an exception in the Transylvanian city of Cluj, home of Caritas, the Romanian money-spinning scheme which has drawn in more than 3m investors and created a new class of Lei millionaires in the town.

'I sincerely hope Caritas collapses and soon. It's a terrible thing. I'm a private businessman and I can't get anyone to work for me. People here have so much money they won't work for normal salaries any more,' he says.

Mr Popescu may not have long to wait. The scheme works like a chain-letter game and has become a nationwide craze. However, it has drawn warnings from opposition critics, and even from President Ion Iliescu, that it could spark a financial crisis or riots when the chain breaks down.

For two days this week, Caritas, which promises investors a seven-fold return on their money in around 100 days, failed to pay out to depositors for the second time in a month. Caritas blamed the first interruption on a computer problem and this time around 'organisational problems.' The organisers have been quoted as saying the pay-out period has now been extended from three months plus nine days to three months and 24 days.

But these days, not even the miners, who earn on average four times as much as other Romanian workers, are sinking much cash in the scheme. Business is already slack in the mining town of Petrosani, some 300 km south of Cluj, where Caritas's owner, Mr Ioan Stoica, last week opened a new branch with the help of Mr Miron Cosma, the miners' leader who led his men on anti-reform riots in Bucharest in 1990 and 1991.

In Cluj, a local lawyer says: 'The town is booming. People here are content. They have already made a lot of money out of Caritas because they started playing last year.' Analysts attribute the popularity of the game to Romania's deteriorating economic situation which has caused real incomes to drop by 40 per cent since 1989 and annual inflation to surge to nearly 300 per cent.

Others say Caritas is a product of incomplete reforms in a country where conservative politicians have held up the creation of a stockmarket or a modern banking system. Many fear a backlash against reform and market initiatives once the inevitable collapse comes.

But opposition politicians say the government, a weak left-wing minority, has not intervened for fear of losing the support of the Romanian National Unity party (RNUP), upon which it relies to stay in power. Mr Gheorghe Funar, the mayor of Cluj, is also RNUP president and one of Caritas's most enthusiastic backers. He has often appeared with Mr Stoica to drum up support for the flagging scheme.

However, Mr Funar's opponents hope the scheme's collapse will provide a backlash against the mayor, for through it Mr Funar has claimed he can provide 'solutions' for the people. One critic said: 'People there have already been enriched. It's the laggards in the rest of the country who put their money in later who will suffer.'

RO Romania, East Europe P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 3 544
Ukraine to keep grip on industry Publication 931103FT Processed by FT 931103 By JILL BARSHAY KIEV

UKRAINE yesterday published a presidential decree continuing its state ordering system into 1994 and opening the door for a tightening of control over key industrial sectors.

The decree, signed by President Leonid Kravchuk on October 28, requires agricultural, consumer goods and military enterprises to sell part of their production to the government at state-determined prices.

It dashes hopes that Mr Kravchuk might try introducing market reforms before parliamentary and presidential elections next year.

Of particular concern is the fact that the decree not only obliges state-owned enterprises - comprising most of Ukraine's industry - to satisfy state orders, but also applies to quasi-private companies that rent space and equipment from the government.

Exclusively private companies are not required to comply with state orders. However, the fate of companies that could be privatised next year is unclear. Large-scale privatisation has yet to be initiated in Ukraine.

The exact portion of production to be sold to the government at fixed prices is still to be determined.

While President Kravchuk's decree is aimed at 'stabilising production' in Ukraine, where gross domestic product is falling at 20 per cent annually, the result is likely to be a further outflow of funds and the continued support of inefficient state enterprises.

UA Ukraine, East Europe P9611 Administration of General Economic Programs GOVT Government News P9611 The Financial Times London Page 3 240
Rouble zone faces more breakaway pressure Publication 931103FT Processed by FT 931103 By GILLIAN TETT MOSCOW

THE disintegration of the Russian rouble zone appeared to be gathering pace yesterday after officials in Uzbekistan said they intended to issue a joint currency with Kazakhstan in an attempt to merge their economies and break away from Moscow's fiscal control. Mr Fakhtiyar Khamidov, Uzbek vice-premier, speaking in Tashkent, said that talks with Moscow to create a new rouble zone were now 'deadlocked,' forcing the republic to develop its own currency.

'The conditions of Russia are enslaving. Uzbekistan and Kazakhstan are now planning to introduce a new currency,' Mr Zafar Ruziev, foreign ministry spokesman, was quoted as saying.

The Kazakh government in Alma Ata yesterday denied that any concrete plans had been agreed with Uzbekistan for a new currency.

But in the wake of a bitter attack by Mr Nursultan Nazarbayev, Kazakh president, on Russia's rouble policy, the republic appears to be moving closer to breaking away from the rouble zone.

Earlier this week Turkmenistan, the gas rich central Asian republic, became the fifth republic to formally issue its own currency, joining the Baltic states and Kyrghystan which have broken out of the rouble zone over the last year.

RU Russia, East Europe UZ Uzbekistan, East Europe KZ Kazakhstan, East Europe P9311 Finance, Taxation, and Monetary Policy ECON Economic Indicators P9311 The Financial Times London Page 3 232
Balladur warns Moscow Publication 931103FT Processed by FT 931103 By REUTER MOSCOW

France's prime minister, Mr Edouard Balladur, said yesterday that President Boris Yeltsin's Russia had a big role to play in Europe's future but made it clear there should be no retreat from democracy, Reuter reports from Moscow.

Mr Balladur told a Moscow news conference that Mr Yeltsin's leadership 'incarnates democratic legitimacy' and France's goodwill would embrace the parliament which emerged from next month's elections.

Mr Balladur was the first western head of government to visit Moscow since Mr Yeltsin used tanks to crush an armed revolt on October 4 in a dramatic showdown with hardline deputies who had blocked his market reforms. The French prime minister used his two-day visit to press his country's initiative for a proposed pact on European security which received backing from the European Community at the summit in Brussels last week.

He said that he had told Mr Yeltsin and the prime minister, Mr Viktor Chernomyrdin, that Russia would be 'an essential partner' for the success of this initiative. Mr Balladur was at pains to say nothing that could be construed as interference in the run-up to Russian elections on December 12.

RU Russia, East Europe P9199 General Government, NEC P8651 Political Organizations NEWS General News P9199 P8651 The Financial Times London Page 3 220
Pravda returns to the struggle Publication 931103FT Processed by FT 931103 By JOHN LLOYD

'WE'RE BACK,' said the headline over the front-page editorial in Pravda yesterday. After a month's ban, the Soviet Union's most famous paper, founded on May 5, 1912, by Lenin, is out again - and, says the leader: 'We're not changing our convictions.'

If not its convictions, the paper has at least changed its tactics. Once absolutely required reading for 20m Soviet communists, it must now compete in a raucous marketplace of publications in which its pre-ban circulation of just under 500,000 will be hard to maintain.

It has had to compromise with the authorities to get back on the streets. The former, hardline editor, Mr Gennady Seleznev, has been sent upstairs to the editorial board: in his place his former deputy and one-time New York correspondent, Mr Viktor Linnik - a clever man of 49 who has in the past year attended seminars in Moscow on press freedom and who said flatly yesterday: 'We are against extremism and violence of all kinds - on the left as well as on the right.'

Nothing illustrates that better than its attitude to the parliamentary elections called for December 12. In a front-page article, Mr Viktor Trushkov says that boycotting the elections in the hope that the required number of voters would not turn out was rendered futile by the presidential decree establishing 25 per cent as the minimum turnout, down from the previous 50 per cent.

'This means that for opposition supporters to boycott these elections would have only one result: the federal assembly (parliament) would be absolutely in the pocket (of the president), and it would have no deputies committed to defending the interests of the working man. No, we must go to the elections in December.'

Pravda, switching editors and eschewing extremes, is the only one of the banned papers to return: the nationalist (and more extreme) papers Sovyetskaya Rossiya (daily) and Den (weekly) are still banned, as is the popular '600 Seconds' television programme presented by Alexander Nevzorov - who has turned up among the leading candidates of the right-wing Constitutional Democratic party. While the main Communist party will take part in the elections, many of the smaller Leninist and Communist groups, some of them still banned, have refused.

Pravda's reappearance has many ironies - none sharper than its eager endorsement of the complaints of foreign human rights organisations against the Russian government's bans, organisations it would, it its heyday, have dismissed as interfering in the internal affairs of the Soviet Union.

A letter from Mr Jiri Leber of the New York-based Helsinki Watch Committee, expressing concern on the press bans, is displayed on the front page - and in the foreign section, correspondents from Paris, Vienna and Washington report on the support for Pravda's freedom to publish.

With only four (broadsheet) pages, a restricted circulation, short of funds and newsprint and with Lenin no longer the draw he was, Pravda has returned not just to the streets, but to its origins in the opposition and in struggle. But - for now - within constitutional limits.

RU Russia, East Europe P8651 Political Organizations NEWS General News P8651 The Financial Times London Page 3 537
Bavaria's PM exposes split on European union Publication 931103FT Processed by FT 931103 By QUENTIN PEEL BONN

SERIOUS differences have emerged in Germany's governing coalition over European integration within a day of the Maastricht treaty on European union coming into force.

Leading foreign policy spokesmen in the coalition yesterday denounced the views of Mr Edmund Stoiber, Bavaria's prime minister, who said the idea of Europe as a federal state was finished.

Mr Stoiber is the most powerful political figure in the Bavaria-based Christian Social Union (CSU), sister party of Chancellor Helmut Kohl's Christian Democratic Union (CDU) in the coalition. His outburst is likely to seriously embarrass his party leader, Mr Theo Waigel, finance minister and a co-signatory of the Maastricht treaty.

In a hard-hitting interview with the Suddeutsche Zeitung, Munich's main newspaper, Mr Stoiber called for the integration process to be slowed. He implied that Mr Kohl's passionate commitment to European union was out of date.

'We are no longer striving for a European federal state,' he said.

'Europe is more than the European Community. I want a simple confederation. That means that the nation states maintain their dominant role, at least as far as internal matters are concerned.'

The danger of Mr Stoiber's views for the coalition is that they undoubtedly reflect growing doubts in the German population. Those doubts are likely to see defections at next year's European elections to the far-right parties such as the Republicans, who openly exploit anti-European sentiment.

Among rank-and-file members of the CSU and the CDU there is a growing feeling that Mr Kohl's passionate commitment to Europe may be a vote-loser.

In a comprehensive opinion survey published yesterday by the interior ministry, only 18 per cent of west Germans and 12 per cent of east Germans said they could see real advantages for the country in EC membership. A majority believed advantages and disadvantages were equally balanced.

On the other hand, most voters still believed that most difficulties - with the important exception of employment policy - could best be resolved at European level.

Mr Stoiber's ideas were criticised sharply by Mr Peter Kittelmann, EC spokesman for the CDU in the German parliament. He said they went against an agreed CDU and CSU policy paper agreed only last week and could be explained only in terms of provincial Bavarian politics. He was referring to the threat of a rise in support for the far-right Republicans in the state, campaigning on an overtly anti-European platform.

On the very same day, Mr Kohl issued a statement reiterating his European convictions, although he too stopped short of defining Europe as a federal state.

DE Germany, EC P8651 Political Organizations P9721 International Affairs GOVT Government News P8651 P9721 The Financial Times London Page 2 457
Deutsche Bank prepares to open wide the doors on its past: The secretive institution plans 'no-holds-barred' history Publication 931103FT Processed by FT 931103 By DAVID WALLER

TOWERING above Frankfurt's financial district are the twin skyscrapers of Deutsche Bank's headquarters. The buildings are made of of steel and glass: blue reflective glass which is eye-catching but not designed to let anyone look inside.

This lack of transparency has long been a characteristic of the bank, Germany's most powerful financial institution with profits as big as those of its three main competitors combined. Deutsche Bank has been at the heart of German capitalism since shortly after it was founded in 1870, and has always been highly secretive in its dealings with the outside world.

A portion of the veil, however, is set to be lifted. To celebrate the bank's 125th anniversary in two years' time, Deutsche has commissioned a 'no-holds barred' history of the bank from five leading economic historians, each concentrating on a particular period. The bulk of the material has already been completed and was presented to international scholars in Frankfurt last month. The history itself will be published in German and English in 1995.

The historians, at work on the project since 1988, have more recently been able to draw on the bank's archives for the years 1870-1945. These only became available after German reunification in 1990; before then they were held in the east German city of Potsdam.

With a budget of DM1m (Pounds 400m), the project was initiated by Mr Alfred Herrhausen, the former chief executive of the bank killed by terrorists in 1989. It has the active support of his successor, Mr Hilmar Kopper, who makes a point of finding time amid his frantic schedule to attend the meetings of the committee co-ordinating the project.

According to Prof Manfred Pohl, the bank's in-house historian, the aim is to take the writing of corporate history to new levels of academic excellence. All too often, he says, corporate histories diminish their intellectual authority by their desire to present an unremittingly positive view of the company in question.

For the Deutsche Bank, as for other German financial and industrial institutions, there is one area of obvious potential embarrassment when scrutinising the past - collaboration with the Nazi regime in the 1930s and assistance with the war effort in 1939-1945.

Last time the Deutsche Bank published a history, to celebrate its 100th anniversary in 1970, the issue was not confronted. Barely a mention was made of a report by the finance division of the Office of Military Government, United States Finance Division (OMGUS) which described how the bank, in common with other large financial institutions, financed the war effort, facilitated its industrial customers' use of slave labour, expanded its branch network into the territories occupied by the Wehrmacht, and participated in the Arianisation of German business.

This time, there will be no fudge: the bank is intending to stare this unpleasant aspect of the past directly in the face. It demonstrated this commitment last month when it held a seminar on the bank's role in financing Universum Film, Germany's film monopoly in the 1920s and 1930s which developed into a central organ of Goebbels' propaganda machine during the Third Reich.

The company was founded in 1917 at the initiative of Mr Emil Georg von Strauss, a director of the bank, and Deutsche owned a stake in the organisation during the twenties when it made a made a number of early film classics such as Fritz Lang's 'Metropolis'. The bank sold out in 1927.

Moreover, says Prof Pohl, the commitment to objectivity has been underscored by the decision to appoint Prof Harold James, an Englishmen now at Princeton University, to cover the most sensitive period of all: 1933-45. Prof James is the official historian of the International Monetary Fund and writes on German affairs.

The OMGUS team reported that Deutsche Bank and Dresdner Bank, Germany's second biggest bank then and now, had too great a concentration of economic power. They recommended that the banks should be wound up and their senior executives tried as war criminals and barred from taking up positions of responsibility in post-war Germany.

The winding-up did not happen. Broken down into regional organisations by the allies, the banks were reformed in 1957 and soon developed for themselves a central role in post-war capitalism.

Nor did bank personnel find themselves excluded from office, as witnessed by the career of the legendary Mr Hermann Josef Abs, Deutsche's first chief executive after the war. He joined the board of the Deutsche Bank in 1938 and although he was never a member of the Nazi party, and provided personal help to Jewish businessmen and their families during the war years, he was roundly criticised by the OMGUS investigators.

Mr Abs is today 92 and still able to prosecute his causes with a flavour of the old doggedness - nowadays in the art world rather than in the boardroom. After brief internment after the war, he went on to be one of the chief architects of Germany's economic revival.

The Abs theme is likely to be of special interest to readers of the official history. But the narrative from the more distant past should also provide insight into the mysteries of present-day German capitalism. For example, the chapters covering 1870-1914 and 1914-33 will deal with the bank's role in sponsoring companies such as Siemens, AEG, Daimler-Benz and Mannesmann in their early years. Its links with these companies are still close.

Deutsche Bank DE Germany, EC P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P6081 The Financial Times London Page 2 941
Setback in Portuguese wage talks Publication 931103FT Processed by FT 931103 By REUTER

THE Portuguese government's attempt to forge a social pact for next year with the country's unions and employers were set back yesterday when the Socialist-led UGT trade union confederation rejected a government pay offer of 4 per cent, Reuter reports. Talks have been going on since July.

The UGT leader, Mr Jose Manuel Torres Couto, said before the meeting that failure to reach agreement would be no 'big drama for the country.' Secretary of state for the budget, Mr Manuela Ferreira Leite, said afterwards that employees would have to ask their unions why they rejected the government proposal.

PT Portugal, EC P9441 Administration of Social and Manpower Programs P8631 Labor Organizations PEOP Labour P9441 P8631 The Financial Times London Page 2 133
French fingers crossed as the economy shows signs of revival Publication 931103FT Processed by FT 931103 By JOHN RIDDING PARIS

FRANCE'S economy minister is cautiously optimistic. Despite the steady rise in unemployment the French economy is beginning to show signs of revival from one of the deepest recessions since the second world war.

'It is clear that take-off has still to take place,' says Mr Edmond Alphandery. 'But the economic climate is moving in the right direction.' He bases his view on a series of statistics released over the past 10 days showing encouraging trends from industrial production to exports to consumer spending.

The figures lend weight to Mr Alphandery's argument that the economy has stabilised after a sharp contraction which set in at the end of last year. But the big question is whether the improvement in economic indicators is sustainable, and whether it is strong enough to lift the economy from its slump.

The biggest surprise in the latest batch of data has been consumption, the Achilles heel of the economy in the first six months of 1992, but which rose by 2.1 per cent in the third quarter over the second.

'The pattern of consumption was stronger than had been expected,' said Mr Jean-Francois Mercier, economist at Salomon Bros. Most economists had forecast that an increase in social security contributions which took effect in July together with a rise in indirect taxes on cigarettes, alcohol and petrol, would persuade consumers to keep their hands in their pockets.

Industrial production, too, has been stronger than forecast. In July and August, lumped together because of the relatively quiet holiday period, it rose by 1.3 per cent over June. A survey of French business leaders by Insee, the national economics institute, revealed confidence that production at their companies had also increased in October.

On the international front, French industry is resisting the effects of recession in many of its principal markets and the increased competitiveness of rivals in Britain, Italy and Spain, which have benefited from currency depreciation. Trade statistics announced last Friday showed a surplus of FFr10.4bn (Pounds 1.21bn) in July, including a surplus of FFr4bn with EC trading partners. Total exports in the month amounted to FFr96.8bn, compared with FFr94.9bn in June.

'If you take all these indicators together, the effect is encouraging,' says one merchant bank economist. 'But I wouldn't open the champagne yet.'

The French government is similarly guarded. 'The economy is ripe for recovery,' said Mr Edouard Balladur, the prime minister, last week. 'But it is better to err on the side of caution than be too optimistic.'

Such caution is justified by the uncertain prospects for the current quarter. Economists are divided about whether the improved indicators will be repeated or whether they are merely a blip.

Salomon Bros' Mr Mercier believes a double dip recession, with a contraction in the fourth quarter, remains a possibility. He expects gross domestic product to expand by just 0.5-0.6 per cent next year; the government is forecasting 1.4 per cent growth. Some economists are more optimistic. Mr Robin Hubbard at Paribas Capital Markets, for example, thinks a 1.5 per cent rise in GDP next year is 'eminently feasible'.

The principal factors in the economy's performance over the next quarter are likely to be the strength of consumer spending and exports. According to the optimistic scenario, household consumption will be sustained by a rise in real disposable income and a fall in the savings ratio. This view is supported by the low level of inflation and the rise in labour productivity, increasing by about 2 per cent per annum, and by the historically low level of interest rates which reduce the incentive to save.

Such forecasts, however, are weakened by the continued impact of the rise in unemployment. In addition to reducing disposable incomes among the proportion of the population with the largest propensity to consume, the prospect of joblessness has a powerful psychological effect on spending. With unemployment forecast to breach 12 per cent by the end of this year and to continue to rise through the first quarter of 1994, any recovery will be constrained.

On the external front, exports will be boosted by the weakening of the franc, on a trade-weighted basis, since the collapse of the European exchange rate mechanism in the summer. But recession in Germany, France's largest trading partner, and the slow pace of recovery in the UK and US will continue to depress international demand for French goods.

The overall result is likely to mean a gradual but fragile rise from recession. It is unlikely to mean a shift from existing economic policies. French economic officials argue that the benefits of a strong franc policy are evident in the competitiveness of industry and are illustrated by the latest trade figures. An aggressive cut in short-term interest rates now, they claim, would simply raise long term borrowing costs. This would threaten, rather than nurture, the first shoots of recovery.

FR France, EC P9311 Finance, Taxation, and Monetary Policy ECON Industrial production ECON Gross domestic product CMMT Comment & Analysis P9311 The Financial Times London Page 2 853
German output marked down Publication 931103FT Processed by FT 931103 By CHRISTOPHER PARKES FRANKFURT

WEST GERMAN industrial output fell by a provisional 2 per cent in September, according to price and seasonally-adjusted figures published by the economics ministry yesterday.

The ministry, which said it expected the final figure to be adjusted upwards by a 'good two points' later, noted that the result had been decisively affected by a 2.5 per cent drop in manufacturing production.

Total industrial output, which includes mining, construction and energy, stood 7.6 per cent lower than a year earlier, although the ministry's statement suggested the final outcome would be a year-on-year decline of around 5.5 per cent. This would be unchanged from August, when production increased by a revised 2.2 per cent.

The statistics support other indications that the worst of the recession is past, although heavy industry in particular is still struggling and consumer goods production was also markedly lower than it was a month earlier.

According to yesterday's figures, combined output in August and September was 0.5 per cent higher than in the previous two months and 6.2 per cent lower than in the same period a year earlier.

According to this two-month measure, construction - up 2.4 per cent - was the only sector showing any year-on-year improvement. Production of investment goods was 11 per cent lower.

According to the Federation of German Industry (BDI), industrial output will decline further, although only marginally, in the coming months. Prospects for a reversal of the trend seem dim, it says in its latest monthly report.

Consumer demand will expand very slowly. Public demand will remain weak because of spending cuts, and there is little reason to expect a boost to capital spending because of heavy investment in the recent past, the BDI adds.

DE Germany, EC P9311 Finance, Taxation, and Monetary Policy ECON Industrial production P9311 The Financial Times London Page 2 316
Europe's high-fliers a down to earth lot Publication 931103FT Processed by FT 931103 By DANIEL GREEN

THE average European business traveller is a family man, often careless with his health, more inclined to sleep than eat on long-haul flights and occasionally prepared to play computer games on his portable computer.

The portrait is revealed today in a survey by Official Airline Guides, a publisher of airline timetables.

It also records national differences in attitudes to air travel. The French are most inclined to ignore in-flight catering and the British most likely to drink alcohol, and the Germans like to both eat and drink.

Women business travellers, just 7 per cent of the total, are the most industrious. Some 69 per cent say they preferred to work on short-haul flights, compared with 61 per cent of men.

More than a third of all passengers polled did not take out full medical insurance and less than half made sure they had the necessary inoculations against disease.

The British were the most conscientious on inoculations, and Germans the worst. One in five passengers usually carried condoms, of which most were married men. One in 12 women travelling also carried condoms, the survey found.

Frequent flyer schemes - in which loyalty to an airline is rewarded with points that can be exchanged for free trips - emerge as an important determinant in airline loyalty.

Some 82 per cent of survey respondents were members of such schemes and two thirds of members said that given a choice of carriers on a route they would choose one to whose frequent flyer programme they belonged.

Ironically, the free flights earned from such schemes were of little importance to the frequent traveller. Top of the list of perks conferred by membership of such schemes, nominated by 92 per cent of respondents, is to be given priority in the waiting list for full aircraft.

Their desires are probably the result of the need to make late changes in itineraries: 30 per cent of business travellers said they did this 'very frequently.'

By contrast, only a minority of travellers had redeemed any frequent flyer points, perhaps not surprising when only 10 per cent said enjoying leisure time was more important than work or family life.

XG Europe P4512 Air Transportation, Scheduled MGMT Management & Marketing P4512 The Financial Times London Page 2 391
Strike ends at Austrian Airlines Publication 931103FT Processed by FT 931103 By PATRICK BLUM VIENNA

PILOTS and cabin crews at Austrian Airlines yesterday voted overwhelmingly to end their strike, which had crippled the national carrier for five days, writes Patrick Blum from Vienna. The decision follows a compromise giving the unions a say in any future restructuring plans.

The militant flight employees' union abandoned its initial demand for the resignation of the management board.

The strike was called in protest at plans to cut the 4,500 workforce by 500 in an effort to trim expected loses of Sch830m (Pounds 49m) this year. Services are expected to return to normal today.

Austrian Airlines AT Austria, West Europe P4512 Air Transportation, Scheduled PEOP Labour MGMT Management & Marketing P4512 The Financial Times London Page 2 133
Call to remove Tapie immunity Publication 931103FT Processed by FT 931103 By ALICE RAWSTHORN PARIS

A French judge yesterday asked for the parliamentary immunity of Mr Bernard Tapie, the controversial French politician who is chairman of the Olympique-Marseille football club, to be lifted so he can be questioned over his suspected involvement in a bribery case against the club, writes Alice Rawsthorn from Paris.

Olympique Marseille FR France, EC P7941 Sports Clubs, Managers, and Promoters PEOP People P7941 The Financial Times London Page 2 84
None of the Burgers wants to be Meister Publication 931103FT Processed by FT 931103 By JUDY DEMPSEY BERLIN

LESS than a month before local government elections, the eastern German state of Brandenburg is having a spot of bother: attracting candidates. In 300 of the state's 1,700 towns and villages, Germany's political parties cannot find people willing to stand as mayors.

'Who wants to stand for mayor when the councils are virtually bankrupt,' one official from the Brandenburg government said yesterday. Most of the city and town councils in eastern Germany are running budget deficits as high as 70 per cent. This means that any promises by prospective mayors about opening libraries, kindergartens, or building swimming pools, are sheer flights of fancy.

But it is not only the councils' financial state which provides a disincentive to any prospective candidate. Brandenburg, led by Mr Manfred Stolpe, is the only eastern state in the hands of the opposition Social Democratic party (SPD). The established parties all admit that they are finding it difficult to create local elites in the five eastern states. For 40 years, eastern Germans were 'politicised' to the extent that they had to participate in a political system ranging from waving the Red Flag to joining the Youth Movement. 'It takes time to overcome a system in which political participation was compulsory,' explained Mr Wolfgang Thierse, an SPD member of the Bundestag, or Lower House, who represents a constituency in east Berlin.

Voters in eastern Germany have also become rapidly disappointed with their new politicians, as the initial euphoria of unification has collapsed with the mass unemployment that it has brought to some regions.

There is also a deeper sense of distrust. The electorate in Brandenburg has seen how Mr Stolpe, who before 1989 had close connections with the Lutheran Church and had tried to defend them, is now pilloried for his alleged connections with the Stasi, the former state security apparatus under the communist regime. 'You need to be strong to tolerate non-stop scrutiny of your past,' said an official from Potsdam, the capital of Brandenburg. Ms Regine Hildebrandt, Brandenburg's minister for labour, health and women, says she can understand these anxieties.

However, she insists: 'We must pull the people out of their lethargy. They just can't sit back and let other people make decisions for them.

'That's what it was like in the former days.

'They must get up and become politically engaged and let their voice be heard, otherwise eastern Germany will be a political wilderness,' she added.

DE Germany, EC P8651 Political Organizations P9199 General Government, NEC GOVT Government News P8651 P9199 The Financial Times London Page 2 441
Camera work Publication 931103FT Processed by FT 931103 By REUTER ROME

Silhouetted photographers form a backdrop at Cinecitta studios in Rome where Italian film-maker Federico Fellini lies in state. Marcello Mastroianni and Anita Ekberg, stars of his 1960 classic 'La Dolce Vita', were among those who paid their respects.

IT Italy, EC P99 Nonclassifiable Establishments NEWS General News P99 The Financial Times London Page 2 64
Italian group gains right to buy Ekostahl: Riva to put plans for German steel plant to Commission Publication 931103FT Processed by FT 931103 By JUDY DEMPSEY BERLIN

THE Treuhand privatisation agency has granted sole negotiating rights to Riva, the Italian steel group, to buy Ekostahl, eastern Germany's largest steel mill despite strong competition from German manufacturers.

However, the European Commission will need to be convinced that the Riva plan for Ekostahl will not lead to more over-capacity in the German steel industry, that its investments contain no hidden subsidies, and that its plan is economically viable.

Riva is expected to submit its proposals to the Commission later this week, and the Commission should then recommend its findings to the Council of Ministers on November 18.

Under the plan, Riva, the Milan-based privately-owned company, will buy 60 per cent of Ekostahl, while the Treuhand will hold the remaining 40 per cent stake. Together, they will invest DM1.2bn in building a hot rolling mill, the equivalent of a mini-mill, with an annual capacity of about 900,000 tonnes.

Riva will also guarantee 3,600 jobs, of which 1,700 will be directly employed at the steel mill. Before 1990, Ekostahl employed more than 12,000 workers, most of whom live in Eisenhuttenstadt, Brandenburg, close to the Polish border. The mill was producing more than 2.1m tonnes a year.

Mr Hans Kramer, a board member of the Treuhand, said yesterday that the Riva plan took precedent over its competitors because 'it would make Ekostahl economically viable and competitive.' Ekostahl is running annual losses of over DM100m on a turnover of DM1bn.

'We hope the EC will accept the plan because Riva's 60 per cent stake is private capital,' a Treuhand spokesman said. The agency will use its 40 per cent stake to modernise the mill. It is unclear if that stake will be sold once the restructuring and modernisation plans are completed over the next five years.

But Mr Ruprecht Vondran, president of the German Steel Federation said in a statement that the Treuhand's decision 'was highly problematical' and it would add further pressures on overcapacity in the industry.

Riva's German competitors, which included a consortium led by Thyssen and Preussag, and Hamburger Stahlwerke, had rejected the idea of building a modern hot rolling mill, largely because they did not want another competitor entering the steel sector, or increase the country's annual capacity.

Thyssen and Preussag had offered to buy 50 per cent of Ekostahl's cold-rolling mill and close down the hot-blast furnace within the next three years. It would also create 1,000 new jobs in Eisenhuttenstadt through its subsidiaries.

Riva Finanziaria Ekostahl IT Italy, EC DE Germany, EC P3312 Blast Furnaces and Steel Mills COMP Mergers & acquisitions RES Capital expenditures RES Facilities PEOP Labour P3312 The Financial Times London Page 2 466
Ulster peace talks may proceed without Paisley Publication 931103FT Processed by FT 931103 By DAVID OWEN and KEVIN BROWN

THE BRITISH government is to press ahead with plans to put forward its own proposals for a lasting peace in Northern Ireland even if Mr Ian Paisley's hardline Democratic Unionist Party decides not to return to the negotiating table.

Ministers' determination to proceed irrespective of possible DUP objections emerged last night as Mr John Major, the prime minister, confirmed he will shortly meet the leaders of all four constitutional Northern Ireland parties - including Mr Paisley - for bilateral talks.

The meeting with Mr Paisley, who yesterday spelt out two conditions for rejoining the talks, will focus on the DUP's proposals for 'breaking the logjam' and consequently is not regarded at Westminster as part of the formal process.

News of the fresh round of talks came on the eve of today's Anglo-Irish conference in Belfast, which will try to put renewed impetus behind the government's efforts.

The detail of Mr Major's proposals is not expected to become clear for some time and may initially be presented to those participating in the talks in further bilateral sessions and in private.

The plan is, however, believed to focus on the establishment of a Northern Ireland assembly and the revitalisation of local government, which has been moribund since the imposition of direct rule in 1974.

Downing Street said Mr Major would begin seeing Northern Ireland political leaders tomorrow. The first meetings are expected to be with Dr John Alderdice, leader of the moderate unionist Alliance party, and Mr John Hume, leader of the nationalist Social Democratic and Labour party.

The prime minister's office is trying to arrange meetings with Mr Paisley and Mr James Molyneaux, leader of the Ulster Unionist party, the biggest unionist grouping.

It follows the prime minister's decision to accept a request for a meeting from Mr Hume, who wants to discuss his talks on prospects for peace with Mr Gerry Adams, head of Sinn Fein.

Mr Paisley yesterday insisted Mr Hume must end his meetings with Mr Adams, before the DUP would re-enter talks. 'And until Dublin deals with Articles 2 and 3 (of its constitution which covers its claim to the North), there is no point in sitting down with them,' he added.

Review of Sinn Fein broadcasting rules, Page 10

GB United Kingdom, EC P9721 International Affairs P8651 Political Organizations NEWS General News P9721 P8651 The Financial Times London Page 1 412
Arbitrageur barred after Pounds 1.7m loss at Kleinwort Publication 931103FT Processed by FT 931103 By NORMA COHEN, Investments Correspondent

A DEALER at Kleinwort Benson who had incurred heavy personal losses at a financial bookmaker and subsequently lost Pounds 1.7m of his firm's money has been banned indefinitely from the securities business by the City's investment watchdog.

This is the first time the self-regulatory Securities and Futures Authority has taken such action. The SFA refused to disclose the name of the firm, but merchant bank Kleinwort last night confirmed it had employed the dealer and suffered the loss.

The arbitrage dealer, Mr Kevin Reed Morgan, had repeatedly taken on far more risk than he was allowed when employed by two separate investment banks between July 1991 and March 1993, the SFA said. Arbitrage dealers try to exploit the differences between different markets and financial instruments.

Mr Morgan began increasing his risk after incurring heavy losses in 1990 on his personal account at a firm of financial bookmakers. Financial bookmakers allow individuals to bet on a stock market index, such as the FT-SE 100, or on a bond contract in the same way that bets are laid on sporting events.

According to the SFA, in July 1991, Mr Morgan, who had worked successfully as a derivatives arbitrageur in a large City investment bank, joined a new firm. In the 10 days he was employed there, he heavily exceeded his position limits, three times causing small losses to the bank. The last occasion came after he had received a written warning. He was dismissed and the incident reported to the SFA.

After being asked to resign, the SFA said, Mr Morgan sought to pay off the debt to the financial bookmaker but some of his cheques bounced. He was served with a bankruptcy petition in November 1992 and was ad-judged bankrupt with debts of over Pounds 300,000 in April 1993 - two months after joining another City firm, which had been told of his earlier dismissal. Mr Morgan, the SFA said, did not tell this firm of his financial position.

In a three-hour period one day in March 1993 he exposed his firm to Dollars 400m of risk in US government bond interest rate futures though he had agreed to have no more than Dollars 5m of risk at one time. Mr Morgan misjudged the direction of US interest rates, costing his employer Pounds 1.7m.

The SFA said Mr Morgan had not been permanently barred from the industry but 'in the medium term there's no hope of him obtaining authorisation'.

'The SFA takes a particularly serious view of Mr Morgan's conduct in view of the risk to which he exposed his firm and has reminded SFA members that they should be aware of any personal account dealing that their employees undertake with other brokers,' the SFA said.

Last night Kleinwort said it had reviewed its procedures following the incident.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors PEOP People P9651 The Financial Times London Page 1 504
Stock and Currency Markets Publication 931103FT Processed by FT 931103

------------------------------------------------------------------------ STOCK MARKET INDICES ------------------------------------------------------------------------ FT-SE 100: 3,164.1 (-0.3) Yield 3.72 FT-SE Eurotrack 100 1,382.36 (+7.05) FT-A All-Share 1,562.3 (+0.0) FT-A World Index 170.09 (+0.3%) Nikkei 19,381.24 (-57.00) New York: Dow Jones Ind Ave 3,697.64 (+5.03) S&P Composite 468.44 (-0.66) ------------------------------------------------------------------------ US RATES ------------------------------------------------------------------------ Federal Funds: 3 1/16% (3 1/8%) 3-mo Treas Bills: Yld 3.168% (3.115%) Long Bond 101 9/16 (103 1/16) Yield 6.058% (6.022%) ------------------------------------------------------------------------ LONDON MONEY ------------------------------------------------------------------------ 3-mo Interbank 5 3/4% (5 13/16%) Liffe long gilt future: Dec 113 13/16 (Dec 113 23/32) ------------------------------------------------------------------------ NORTH SEA OIL (Argus) ------------------------------------------------------------------------ Brent 15-day (Dec) Dollars 15.91 (16.03) ------------------------------------------------------------------------ Gold ------------------------------------------------------------------------ New York Comex (Dec) Dollars 363.6 (362.1) London Dollars 361.0 (362.75) ------------------------------------------------------------------------ STERLING ------------------------------------------------------------------------ New York: Dollars 1.4735 (1.482) London: Dollars 1.4825 (1.481) DM 2.5125 (2.5075) FFr 8.77 (8.78) SFr 2,225 (2.2225) Y 158.25 (160.25) Pound Index 80.9 (same) ------------------------------------------------------------------------ DOLLAR ------------------------------------------------------------------------ New York: DM 1.70325 (1.6957) FFr 5.9325 (5.931) SFr 1.5085 (1.50235) Y 107.75 (108.205) London: DM 1.6945 (1.6935) FFr 5.915 (5.9275) SFr 1.5005 (1.501) Y 107.5 (108.2) Dollar Index 66.4 (66.7) Tokyo close Y 108.17 ------------------------------------------------------------------------

US United States of America GB United Kingdom, EC DE Germany, EC FR France, EC CH Switzerland, West Europe JP Japan, Asia P1311 Crude Petroleum and Natural Gas P339 Miscellaneous Primary Metal Products P6231 Security and Commodity Exchanges COSTS Commodity prices COSTS Equity prices P1311 P339 P6231 The Financial Times London Page 1 240
Major issues clear warning of tax rises and spending cuts Publication 931103FT Processed by FT 931103 By PHILIP STEPHENS

MR JOHN MAJOR yesterday gave the clearest signal yet that his government is planning further tax increases in the November 30 Budget, writes Philip Stephens.

In spite of agreement to freeze public spending in real terms for the next three years, Mr Major indicated that tough controls on spending and resumed economic growth would not do enough to curb government borrowing.

His comments coincided with signs of an upsurge of concern on the Conservative back benches about the impact of the tax increases already impending after the March budget.

Under plans announced by Mr Norman Lamont, the former chancellor, the tax burden is set to rise by more than Pounds 6bn next year and by more than Pounds 10bn in 1995-96.

But Mr Major told the Commons that the government needed to make a 'steady and sustained' move to reduce borrowing. That could be done in several ways. Controlling public expenditure was one, and economic growth would also help. But in a clear reference to tax increases, the prime minister added that 'other matters' would also contribute.

Downing Street conceded that he was referring to tax increases but officials argued that the reference was to the plans announced by Mr Lamont. That explanation failed to convince ministers and Conservative MPs who had been listening to Mr Major.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9199 General Government, NEC GOVT Taxes P9311 P9199 The Financial Times London Page 1 259
Senior civil servants fight off moves to reform jobs Publication 931103FT Processed by FT 931103 By JOHN WILLMAN, Public Policy Editor

TOP civil servants appear to have fought off attempts to open their jobs to greater competition and to introduce fixed-term contracts of employment.

A year-long study of career management and succession planning for senior civil servants has rejected proposals for advertising all vacancies in the top 600 Whitehall jobs.

The study, carried out by the Cabinet Office efficiency unit, has also rejected the idea of fixed-term contracts for those in the three most senior civil service grades.

The unit's recommendations will be presented to Mr John Major, the prime minister, at a seminar in No 10 Downing Street this morning. Mr William Waldegrave, the public services minister, will also attend with top mandarins such as Sir Robin Butler, head of the home civil service, and Sir Terry Burns, Treasury permanent secretary.

An early draft of the efficiency unit report recommended open competition for all vacancies in the three top grades. Where possible, it said vacancies should be advertised outside the civil service, as already happens with some specialist jobs and management posts in executive agencies. Jobs likely to be filled by career civil servants - such as policy advisers and parliamentary draughtsmen - would still have been advertised, but internally.

Subsequent drafts have been watered down in the face of implacable opposition from Whitehall's top mandarins who currently select candidates for promotion.

Acceptance of the early draft would have brought top civil servants more into line with other parts of the public sector, such as local government and the health service, where all senior jobs must be openly advertised.

Advocates of change in the civil service have included Sir Peter Levene, the businessman and former civil servant who is the prime minister's efficiency adviser, and Mr Graham Mather, the influential president of the European Policy Forum, an independent think-tank.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs PEOP Labour P9441 The Financial Times London Page 1 339
Clarke puts strict limit on relief of VAT on fuel bills: Compensation 'substantially less' than hoped Publication 931103FT Processed by FT 931103 By ROLAND RUDD and JAMES BLITZ

THE GOVERNMENT appears ready to confront a threatened backbench rebellion over the imposition of VAT on domestic fuel by announcing substantially less compensation than the Pounds 500m demanded by many Tory MPs.

In spite of the outcry among the government's supporters over the impact on its traditional voters of the controversial tax, Mr Kenneth Clarke, the chancellor, has decided to limit severely the amount available to sweeten its effect.

He has insisted that extra payments to offset the cost of higher heating bills should be limited to those qualifying for income support.

That in effect excludes the 'nearly poor' - many of whom are Conservative supporters - with modest incomes and savings who do not qualify for state benefits. In the wake of the government's disastrous defeat in the Christchurch by-election in the summer, several ministers joined backbench critics of the tax in demanding that this group should be compensated.

It had been widely assumed at Westminster that Mr Peter Lilley, social security secretary, had won more from the Treasury to help this vulnerable group.

Last night, Mr Andrew Bowden, Tory co-chairman of the all-party parliamentary group for pensioners, warned of 'serious trouble' on the backbenches if the compensation package was below expectations.

One of the arguments that is believed to have convinced the Treasury not to provide more in the present public-spending round revolves around the difficulty of implementing a bigger compensation package.

Ministers believe it would be almost impossible to find a simple method of providing compensation for those not on income support.

The decision to limit compensation is expected to be approved at tomorrow's session of the cabinet, which will confirm the level of public spending to be announced in Mr Clarke's unified Budget on November 30.

The cabinet is also expected to confirm proposals to cut defence spending which, officials say, will not lead to a reduction in operational capability of the armed services or a lowering of manpower levels.

In particular, officials suggest that the effect of cuts in the defence budget over the next three years might be offset by sales of land and other military assets that have no direct operational role.

On domestic fuel, Mr John Major and Mr Clarke seem determined to stick by the government's original plan to impose 8 per cent VAT next April and to raise that to 17.5 per cent in 1995, but no final decision has been taken.

According to MPs close to Mr Lilley, the social security secretary does not see the decision on fuel as a personal defeat. It is understood he always believed it to be perfectly proper that the Treasury, which decided to impose VAT on fuel, would settle the compensation.

In the longer term, some minsters do not believe that compensation for the tax on fuel can go on indefinitely, particularly since electricity privatisation has meant lower electricity bills.

Mr Lilley has taken an active role in looking at ways to cut his own Pounds 78bn budget, such as slimming the Pounds 5.5bn budget for invalidity benefit. Ministers have now agreed to shave hundreds of millions of pounds off this benefit.

On defence cuts, some of the 20 Conservative MPs who have threatened to rebel against the government said they were still unsure whether they would approve the Treasury's proposals.

Several of the MPs discussed the government's proposals with Mr Clarke on Monday night. They told him of their concern that the Treasury had been reluctant to allow the MoD to make new orders for Challenger tanks and for the EH101 helicopter.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy GOVT Taxes P9311 The Financial Times London Page 1 637
World News in Brief: Officer sentenced Publication 931103FT Processed by FT 931103

Lieutenant Nicholas Tod, 25, an officer at one of the Army's main infantry training centres, was sentenced to 15 months' imprisonment and ordered to be dismissed the service in disgrace for ill-treating recruits.

GB United Kingdom, EC P9211 Courts PEOP People P9211 The Financial Times London Page 1 59
World News in Brief: Kidnap family freed Publication 931103FT Processed by FT 931103

The family of Jim Lacey, head of National Irish Bank, was freed by police in Dublin after being kidnapped at gunpoint early yesterday. Police believe it was the work of a criminal gang rather than terrorists. A senior police officer said a ransom had been paid.

GB United Kingdom, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 78
World News in Brief: New peak for Dow Jones Publication 931103FT Processed by FT 931103

After early losses, US share prices rallied to end the day at or close to record highs, with the Dow Jones Industrial Average finishing up 5.03 points at an all-time peak of 3,697.64.

US stocks, Page 41

US United States of America P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 1 71
Inflation rate may exceed official 4% target, Bank warns Publication 931103FT Processed by FT 931103 By PETER NORMAN, Economics Editor

THE BANK of England warned yesterday that inflation will rise in the months ahead, with a 'slight possibility' that it will briefly exceed the government's 1 per cent to 4 per cent target range in the first half of 1994.

The forecast, in the bank's latest quarterly Inflation Report, helps explain recent statements by Mr Eddie George, the Bank governor, and Mr Kenneth Clarke, the chancellor, damping expectations of an early cut in bank base rates from 6 per cent.

The report also made clear that interest rates will not have to increase to offset any short-term rise in inflation next year, provided the higher price level does not push wages higher. The expected acceleration of inflation in 1994 will largely reflect the impact of higher indirect taxes and changes to local authority taxes, announced in the March Budget.

Indeed, the Bank appeared to give a green light to further tax rises in the November 30 Budget. It urged the government to take action that would steadily reduce the Budget deficit.

That, it said, was crucial to sustaining the credibility of the government's anti-inflationary policies. 'It needs to be understood,' it said, 'that one-off boosts to the level of prices, for instance, from higher indirect taxes, do not mean any slackening of anti-inflationary policy, and should not be regarded as permanent increases in the underlying rate of inflation.'

Mr George and Mr Clarke will meet today for confidential discussions on the present stance of monetary policy and the likely implications of the November 30 Budget for Bank policy.

In its report yesterday, the Bank noted that most year-on-year measures of 12-month inflation had risen since its last report in August. 'Headline' retail prices inflation rose to 1.8 per cent in September from 1.2 per cent in June while the underlying rate, which excludes mortgage interest payments and is targeted by the government, advanced to 3.3 per cent from 2.8 per cent.

But it said that slack in the economy, with moderate growth in demand and slow growth in broad money and credit, pointed to the possibility of further reducing inflation over the medium term, with growth of output picking up. Excluding tax changes, the Bank expects that inflation will start falling early next year and may reach a level close to the middle of the government's target range in 1995.

The Bank's report provided no indication of whether it and the Treasury would lower interest rates in the event of a substantial tightening of fiscal policy in the Budget.

Report details, Page 13 Bank steps up plea for independence, Page 13 Editorial Comment, Page 19 Lex, Page 20

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Inflation GOVT Taxes P9311 The Financial Times London Page 1 478
Top civil servants ward off job reforms Publication 931103FT Processed by FT 931103 By JOHN WILLMAN, Public Policy Editor

TOP civil servants appear to have fought off attempts to open their jobs to greater competition and to introduce fixed-term contracts of employment.

A year-long study of career management and succession planning for senior civil servants has rejected proposals for advertising all vacancies in the top 600 Whitehall jobs.

The study, carried out by the Cabinet Office efficiency unit, has also rejected the idea of fixed-term contracts for those in the three most senior civil service grades.

The unit's recommendations will be presented to Mr John Major, the prime minister, at a seminar in No 10 Downing Street this morning. Mr William Waldegrave, the public services minister, will also attend with top mandarins such as Sir Robin Butler, head of the home civil service, and Sir Terry Burns, Treasury permanent secretary.

An early draft of the efficiency unit report recommended open competition for all vacancies in the three top grades. Where possible, it said vacancies should be advertised outside the civil service, as already happens with some specialist jobs and management posts in executive agencies. Jobs likely to be filled by career civil servants - such as policy advisers and parliamentary draughtsmen - would still have been advertised, but internally.

Subsequent drafts have been watered down in the face of implacable opposition from Whitehall's top mandarins who currently select candidates for promotion.

Acceptance of the early draft would have brought top civil servants more into line with other parts of the public sector, such as local government and the health service, where all senior jobs must be openly advertised.

Advocates of change in the civil service have included Sir Peter Levene, the businessman and former civil servant who is the prime minister's efficiency adviser, and Mr Graham Mather, the influential president of the European Policy Forum, an independent think-tank.

Earlier this year, the forum published proposals to put all senior civil servants on to five-year contracts, with clear work targets and pay linked to performance. It also proposed advertising all vacancies at permanent secretary, deputy secretary and undersecretary level.

Mr Waldegrave was believed to have been attracted to the idea of clearer targets and a greater emphasis on performance pay for top policymakers. He was also encouraged by reports of the success of reforms in New Zealand, where all top civil servants are on fixed-term contracts.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs PEOP Labour P9441 The Financial Times London Page 1 424
International Company News: Atlas Copco buys US group Publication 931102FT Processed by FT 931105 By CHRISTOPHER BROWN-HUMES STOCKHOLM

ATLAS Copco, the Swedish industrial components group, has agreed to buy the European standard compressors business of Indresco, the US group.

The purchase, on undisclosed terms, will strengthen Atlas Copco's leading position in the European compressors market and broaden its product range and distribution network.

The operations being acquired are based in Meru in France and are marketed under the names, Creyssensac and Worthington.

They have annual sales of Dollars 50m and about 240 employees. The most important markets are France, Spain, Italy and the UK.

Atlas Copco Indresco SE Sweden, West Europe US United States of America P3563 Air & Gas Compressors COMP Mergers & acquisitions P3563 The Financial Times International Page 22 125
International Company News: Hafslund nine-month profits increase 5% Publication 931102FT Processed by FT 931103 By KAREN FOSSLI

HAFSLUND Nycomed, the Norwegian group best known for its radiology products, yesterday reported a 5 per cent increase in nine-month pre-tax profits to NKr1.18bn (Dollars 168.6m) from NKr1.13bn in the same period last year. It was helped by the strength of the US dollar and Japanese yen.

Hafslund said it would reduce costs in the fourth quarter, and channel more resources into research and development and strengthen its marketing network.

Group sales in the first nine months of this year rose by NKr357m to NKr4.17bn as operating profit, before research and development costs, slipped by NKr47m to NKr1.68bn. R&D costs increased by NKr67m to NKr527m. The group posted financial gains of NKr35m against charges of NKr138m in the same period last year.

Hafslund lifted net profit in the first nine months of this year by NKr33m to NKr830m.

Hafslund Nycomed NO Norway, West Europe P2834 Pharmaceutical Preparations FIN Interim results P2834 The Financial Times International Page 22 174
President's loose talk worries Guyana businessmen: The former Marxist is confusing investors Publication 931102FT Processed by FT 931103 By CANUTE JAMES

THERE is peace, for the moment, between the office of Guyana's President Cheddi Jagan and the city council of Georgetown, the capital, which is dominated by the opposition party.

Mr Jagan recently referred to the councillors as 'rascals'. The councillors said they did not fit the dictionary's definition of the word, and asked for a public apology from the president. They got it.

But some of Mr Jagan's public statements are leaving a more lasting and confusing impression. He has described his own administration as a 'working class government guided by the ideology of the working class, which is Marxism-Leninism . . . and not the philosophy and practice of capitalism'.

The statement created some consternation among local and foreign business, which had happily accepted Mr Jagan's undertaking to continue with the open market economic policies which he inherited a year ago when his People's Progressive party won an election and ended 28 years of government by the People's National Congress.

Mr Jagan's later elaboration - to the effect that while the PPP was guided by Marxism-Leninism, the government which it had formed was not - did not temper concerns about the real direction of economic policy in the English-speaking country of 850,000 people on the north-east shoulder of South America.

'We in Guyana understand President Jagan, and we do not take this statement seriously, but people outside the country will,' said Mr Hans Barrow, president of the Chamber of Commerce. 'We have simply elected a leader who speaks like this.'

Mr Barrow said, however, that local business leaders would understand why foreign investors and potential investors would be worried, and would wait before commiting themselves when the president made such statements about ideology. He said there must be a two-way flow of business confidence.

Dr Jagan, a 74-year-old dentist and once an avowed Marxist, moved towards moderation just before taking office.

The concern among local business leaders is that, although such statements about ideology might not reflect the government's economic policy, they could derail the expansion of an economy which, by any standard, has been doing remarkably well.

Several consecutive years of contraction ended in 1991 with growth of 6 per cent.

According to Mr Asgar Ally, the finance minister, the growth continued into the first half of this year, and he has forecast expansion of 7.8 per cent for this year. Mr Ally said this was the result of expansion in mining and agriculture. Once-billowing inflation is projected at 6 per cent this year, helped mainly by stability of the currency following a 64 per cent depreciation which followed the floating of the currency in 1991.

Mr Ally said higher export receipts, foreign investments and funds for balance of payments support had led to an improvement of Dollars 52.4m in net international reserves in the year ended last June.

All this has not impressed the opposition PNC, which described the government's first year as 'a failure'. Mr Desmond Hoyte, the opposition leader, said the economy had lost its momentum and vibrancy. 'Business confidence has receded, there has been no new major investment, vital development projects initiated by my administration have been stalled, and . . . there is a marked paucity of disbursements from international financial institutions,' he said.

'There have been 33 new private investment projects valued at Dollars 26.1m in agriculture, mining and financial services since the government took office,' argued Mr Ally.

There is continuing uncertainty, however, over the government's commitment to the programme of divestment of state enterprises inherited from Mr Hoyte's administration. It suspended the programme soon after taking office, saying it would investigate earlier deals. Mr Ally has since said the government is committed to divestment, and has listed 30 companies, including the national airline and the sugar company, which it wants to sell.

GY Guyana, South America P9721 International Affairs P9199 General Government, NEC NEWS General News P9721 P9199 The Financial Times International Page 5 674
Salinas calls for civility in elections Publication 931102FT Processed by FT 931103 By DAMIAN FRASER MEXICO CITY

PRESIDENT Carlos Salinas yesterday called on all Mexico's political parties to sign a pact of civility to ensure 'transparent and exemplary' presidential elections next August.

In his annual state of the nation address, President Salinas promised the contenders 'full respect, abiding by the terms of the law, and proper conditions for them to present their options to Mexicans in full freedom'.

Mexico's 1988 presidential election, which brought Mr Salinas to power, was widely held by observers to have been marred by ballot-rigging.

Mr Salinas's government has recently passed new democratic reforms, but they have been dismissed as inadequate by the main opposition candidate, Mr Cuauhtemoc Cardenas, and some foreign and domestic observers.

Despite the call for an electoral pact, Mr Salinas suggested there would no more significant concessions to the opposition.

The president appeared to rule out the possibility of foreign observers participating in the electoral process, saying 'only Mexicans' would be the guardians of 'our' democracy.

The president announced that Mexico's reserves rose to Dollars 23.017bn at the end of October, from Dollars 22.597bn. The high level of reserves seems to dispel fears that there has been an outflow of capital provoked by uncertainties over the North American Free Trade Agreement.

The executive branch is due soon to send the Mexican Congress legislation that will make the central bank independent.

The legislation may be in place, and possibly the head of the bank named, before the vote on Nafta expected on November 17 in the US Congress.

MX Mexico P9199 General Government, NEC P8651 Political Organizations NEWS General News P9199 P8651 The Financial Times International Page 5 284
Japanese contractor seeks protection with Dollars 5bn debts Publication 931102FT Processed by FT 931103 By WILLIAM DAWKINS TOKYO

MURAMOTO Construction, a little-known contractor, became Japan's biggest financial failure for more than 45 years yesterday when it filed for protection from its creditors, unable to pay debts of Y590bn (Dollars 5.57bn).

This is by far the biggest single potential loss facing Japan's banking system since the collapse in asset prices started two years ago, sending the economy into recession.

Of the 50 banks exposed to the group, the leading creditor is Nanto Bank, the main regional bank in Nara prefecture, western Japan, where Muramoto, the country's 24th-largest general construction group, is based. It has Y56bn of loans to Muramoto, which compares with the bank's Y3,000bn deposit base.

Nanto is followed by Daiwa Bank, which has led creditors' negotiations with the company, with loans of Y45bn; Long Term Credit Bank of Japan, with Y38bn; and Dai-Ichi Kangyo Bank, with Y28bn.

Muramoto's collapse would cause 'adverse effects' for its creditor banks, but they can absorb the loss between them, a senior official of the Bank of Japan, the central bank, said. Creditors had secured collateral for their loans, and had approved the move in advance, a finance ministry official added.

However, the move may increase Japanese banks' caution at a time when lending is already sluggish, one of the factors contributing to the recession.

Until yesterday, Japan's largest corporate collapse since 1945 was that of Sanko Steamship, which filed for bankruptcy in 1985 with debts of Y520bn.

Teikoku Databank, the private credit research agency, attributed Muramoto's collapse to the failures of property companies with which it had undertaken joint developments. Like other property companies, they suffered in the prolonged decline in property prices.

Muramoto, an unlisted company capitalised at Y2.4bn and with sales of Y291.5bn last year, specialises in public works projects, but it diversified into golf course construction and property development in the late 1980s. Its difficulties are thought to have started with the collapse of a property company that had ordered a golf course from the construction group. One of its property development partners, Daito, then went bankrupt.

Muramoto yesterday found it was unable to pay its bills after the majority of its creditors had rejected a rescue plan put together by Nanto Bank and Daiwa Bank. It filed for protection under Japan's corporate reorganisation act.

Muramoto Construction JP Japan, Asia P6081 Foreign Banking and Branches and Agencies P1542 Nonresidential Construction, NEC P1629 Heavy Construction, NEC COMP Company News P6081 P1542 P1629 The Financial Times International Page 1 427
World News in Brief: Four feared dead in Corsican storms Publication 931102FT Processed by FT 931103

Ten people were missing and four feared dead in flash floods which struck the Mediterranean island of Corsica.

FR France, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times International Page 1 52
World News in Brief: New newspaper for Hong Kong Publication 931102FT Processed by FT 931103

The publisher of Hong Kong's biggest Chinese daily, Oriental Press Group, confirmed it is setting up an English-language paper to challenge the dominant South China Morning Post. The Eastern Express will be launched in January.

Oriental Press Group HK Hong Kong, Asia P2711 Newspapers TECH Products & Product use P2711 The Financial Times International Page 1 71
World News in Brief: Space shuttle sets record Publication 931102FT Processed by FT 931103

Space shuttle Columbia landed in California with seven astronauts and a cargo of laboratory rats, after a 14-day mission that set a US flight endurance record for the longest of all 58 shuttle missions.

US United States of America P9661 Space Research and Technology NEWS General News P9661 The Financial Times International Page 1 67
International Capital Markets: New warrants launched Publication 931102FT Processed by FT 931102 By TRACY CORRIGAN

TWO NEW warrant issues reflect increasing activity in emerging market debt derivatives, writes Tracy Corrigan.

Societe Generale launched an innovative issue of 400 'down-and-out' call warrants on Vnesheconombank's US dollar-denominated syndicated loans. The warrants expire if the value of the loans falls below a pre-determined level on or before the exercise date of July 22 1994, which is also the expiry date.

Salomon Bros issued 1,200 call warrants on a basket of emerging market debt comprising Republic of Argentina collateralised fixed-rate bonds due 2023, Republic of Brazil IDU bonds due 2001, Republic of Nigeria par bonds due 2020 and Republic of Venezuela collateralised fixed-rate bonds due 2020.

Societe Generale Salomon Brothers Inc FR France, EC US United States of America P6211 Security Brokers and Dealers COMP Company News P6211 The Financial Times London Page 33 150
International Capital Markets: Spain heads European performance tables Publication 931102FT Processed by FT 931102 By TRACY CORRIGAN

GOVERNMENT bond markets continued to post positive returns in October, as European bond markets benefited from the Bundesbank's cut in key interest rates.

According to JP Morgan's government bond index, Spain was the strongest performer in local currency terms, posting returns of 3.3 per cent over October. Spanish 10-year bond yields reached a historic low of 8.43 per cent, following a cut of 75 basis points in the Bank of Spain's repo rate over the course of the month.

German bunds offered gains of a relatively modest 1.58 per cent, while the US Treasury market came bottom of the league table with returns of 0.32 per cent. For the year to date, Spain and Italy are each offering around 28 per cent.

For unhedged US dollar-based investors, the appreciation of the dollar against most currencies, with the exception of the Australian and Canadian dollars, held down returns. The Australian bond market posted the strongest returns for an unhedged US dollar based investor, with 5.39 per cent in October.

The Australian market performed even better for sterling-based investors, according to Kemper Investment Management's government bond market index, which shows a 6.05 per cent return in sterling for October.

SIXTY per cent of UK company treasurers believe sterling's suspension from the European exchange rate mechanism is favourable for their companies, according to a survey of 70 treasurers by Record Treasury Management, which advises on currency risk.

Only 10 per cent consider sterling's exit from the ERM unfavourable, compared with 25 per cent in last year's survey. However, 69 per cent would support rejoining in a different structure, either using 'wide' bands (45 per cent) or as a move to a single currency (25 per cent).

An overwhelming 96 per cent oppose controls to curb currency speculation.

ES Spain, EC DE Germany, EC GB United Kingdom, EC IT Italy, EC P9311 Finance, Taxation, and Monetary Policy MKTS Market data P9311 The Financial Times London Page 33 339
Midlands freight depot proposed Publication 931102FT Processed by FT 931102 By PAUL CHEESERIGHT, Midlands Correspondent

ABBCOTT Estates, a private property company half-owned by Severn Trent Water, yesterday asked Daventry District Council for planning permission to build a rail freight terminal with 2.3m sq ft of associated manufacturing and distribution floorspace.

The move emphasises the search for land in the Midlands to develop distribution depots close to the M1, M6 and M42 motorways. It reflects the assumption that rail freight traffic will increase after the Channel tunnel opens next year.

The Abbcott scheme, covering 160 acres five miles south of the M1/M6 interchange, would cost Pounds 140m to complete, but the terminal could start operations after an investment of Pounds 35m on infrastructure.

The Daventry terminal could open in November 1995, depending on planning procedures. It is then likely to be in competition with the terminal at Landor Street, Birmingham, operated and recently expanded by Railfreight Distribution, a British Rail subsidiary.

Abbcott Estates GB United Kingdom, EC P1542 Nonresidential Construction, NEC RES Facilities P1542 The Financial Times London Page 10 179
London Stock Exchange: New highs and lows for 1993 Publication 931102FT Processed by FT 931102 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

NEW HIGHS (160).

AMERICANS (4) Dun & Bradstreet, Lockheed, Malvy Tech., US West, CANADIANS (2) Can. Pacific, Hawker Siddeley Can., BANKS (4) HSBC (HK), Nat. Australia, Standard Chrtd., Westpac, BREWERS (2) Matthew Clark, Vaux, BLDG MATLS (4) Blue Circle 7 5/8 pc Pf., Sharpe & Fisher, Shaw (A), Sheffield Ins, BUSINESS SERVS (1) Hutch Whmp, CHEMS (1) Yorkshire, CONGLOMERATES (3) Gieves, Jardine, TT, CONTG & CONSTRCN (3) CALA, Eve, Fairbriar, ELECTRICALS (3) Dewhurst, Kenwood, Sony, ELECTRICITY (2) China Light, Scottish Power, ELECTRONICS (7) Diploma, Eurotherm, Farnell, Nesco, Polar, Psion, Tunstall, ENG GEN (4) FKI, Fenner, Neepsend, PCT, FOOD MANUF (1) Grand Central, HEALTH & HSEHOLD (4) Amersham, Reckitt & Colman, Do 9 1/2 pc Cv., Utd. Drug, HOTELS & LEIS (1) Mandarin Oriental, INSCE COMPOSITE (1) FAI, INV TRUSTS (49) MEDIA (4) Anglia TV, Flextech, Greenwich Comms., Reed Intl., MERCHANT BANKS (3) Close Bros., Kleinwort Benson, Warburg (SG), MISC (3) Kershaw (A), Nobo, Rhino, MOTORS (2) BBA 6 3/4 pc Pf., Evans Halshaw, OIL & GAS (7) Aminex, BP, Calor, Norsk Hydro, Pittencrieff, Victoria, Woodside, OTHER FINCL (5) Govett, Mercury Asset Mgmt., Ocena Cons., Sharelink, Swire Pacific, OTHER INDLS (4) BH Prop., Baynes (C) 5.8pc Pf., OMI, Whitecroft, PACKG, PAPER & PRINTG (1) API, PROP (13) Chesterfield, Daejan, HK Land, Helical Bar, High-Point, INOCO, Lend Lease, Peel, Prop. Partnership, Saville Gordon, Shaftesbury, Smith (J), Warnford Inv., STORES (1) Courts, TELE NETWORKS (5) Cable & Wireless, Do 7pc Cv., Securicor, Do. N/V, Security Servs., TEXTS (2) Lamont, Rexmore, TRANSPORT (2) Forth Ports, TNT, WATER (2) Cheam A, Do B, PLANTATIONS (1) Highlands, MINES (9) Ayer Hitam, CRA, Gopeng Berhad, Malaysia Mining, Nth. Bkn. Hill, St Helena, Sons Gwalia, Western Areas, Willoughbys Pf.

NEW LOWS (26).

BRITISH FUNDS (6) Exch. 12 1/2 pc 1994, Exch. 13 1/2 pc 1994, Treas. 10pc 1994, Treas. 12pc 1995, Treas. 14 1/2 pc 1994, Treas. 8 1/2 pc 1994, AMERICANS (1) Woolworth, BREWERS (1) Merrydown, ELECTRICALS (1) Maddox, ENG GEN (1) Clayton Son, FOOD MANUF (2) Berisford, Northern, FOOD RETAILING (4) Kwik Save, Low (Wm), Morrison (Wm), Sainsbury (J), MEDIA (1) Birkdale, MISC (2) Ashley, FII, OIL & GAS (1) Midland & Scott., PACKG, PAPER & PRINTG (3) Elswick, St Ives, Wentworth, PROP (1) Ascot, TRANSPORT (1) Tiphook, MINES (1) Northam.

Other statistics, Page 33

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 48 420
London Stock Exchange: Wellcome slides Publication 931102FT Processed by FT 931102 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

Anxiety in the drugs sector, triggered last week by Wellcome's results, continued to pull stocks lower. Few investors came to the rescue of pharmaceuticals and shares slipped almost across the board.

The flagging sentiment was not helped by Kleinwort Benson's move from overweight to neutral on the sector and a shift from buy to a hold on Glaxo. Its shares fell back 8 1/2 to 674p, while Fisons gave up 2 to 159p, Zeneca 17 to 756p and SmithKline Beecham 'A' 7 to 413p. Wellcome lost 15 to 675p, with 2.6m shares traded.

But as bearish stances hardened across the sector, one analyst stood out to say that the profit-taking on the stocks had been something of an over-reaction. He said the harsher climate that gripped pharmaceuticals should lead to lower expectations of growth, and therefore Wellcome's figures should not be seen as extremely as the market had done. 'The sector has turned the corner but the fundamentals are just not as good as they used to be.' He also pointed to Wellcome's yield and suggested that that would soon prove to be a pull for investors.

British Petroleum's rehabilitation continued yesterday, the shares creeping up a further 3 to 352 1/2 p - their highest close since October 17, 1991 - ahead of next Thursday's third-quarter numbers. 'No-one wants to be short of BP, which is now seen as well set on the road to recovery,' said one analyst.

BP shares slumped to a record low of 185 1/2 p in August 1992. after the group cut its dividend.

The leisure sector was enlivened by a number of features which acted to keep most of the stocks in positive territory. Thorn EMI surged on weekend press comment on the bright outlook for the multi-media market, with interesting hints on the prospects for mergers and takeovers - BT notwithstanding. Thorn shares added 13 at 964p, albeit in dull turnover of 1.1m.

An announcement from Stanley Leisure that trading in its casinos and betting shops was 'considerably ahead' for the first six months of the current year compared with the same period a year ago lifted the shares and impacted on related stocks. Stanley made the revelation along with the purchase of a regional betting group for Pounds 6m. The shares moved ahead 20 to 249p.

Stanley's good news helped Rank Organisation, which gained 6 at 847p. Bass, owner of the Coral Racing chain, put on 2 at 490p. The group also announced that it was buying a stake in the Czech Republic's second largest brewer. Ladbroke, however, remained friendless and was down a penny at 172p.

The dullness in Ladbroke was also connected with the continuing revelations over the fall of Queens Moat Houses, which kept hotel stocks under a cloud, Forte slipping 2 1/2 to 219p. Compass Group appreciated 5 to 570p on announcing a deal with Burger King.

After last week's rally, Guinness softened a penny to 434p. Two US-owned brokers have been recommending the stock in the past week and analysts say support will probably be forthcoming prior to a visit to the group's Greek operations by institutions and brokers.

Turnover among food retailers returned to normal after the hectic activity seen last week, fuelled by talk of a price war and worries over discount operators.

NatWest Securities in its latest research note adopted a 'neutral' stance on the sector and said J. Sainsbury, a half-penny firmer at 396p, Asda, steady at 54p, and Kwik Save, off a penny at 641p, held good value. The broker downgraded Argyll Group and went from 'buy' to 'hold'. The shares receded 3 1/2 to 292 1/2 p.

In a weak food manufacturing sector, Unilever's good run continued, the shares climbing 15 to 1166p. Strauss Turnbull was again recommending the stock. Agency broker James Capel was said to be behind a rise in Tate & Lyle of 5 to 387p.

Trouble in its pig rearing division was blamed by Cranswick for a profits warning, which sent the shares plunging 32 to 159p.

Buoyed by US support and interest sparked from well publicised reappraisals of the Globex futures trading system, Reuters moved up strongly, recording a rise of 28 at 1662p.

Fears over the possible imposition of VAT on newspapers in this month's Budget continued to nibble away at the price of publishing stocks. Telegraph shares suffered additional nervousness ahead of third-quarter figures due in two weeks' time and the price lost 5 to 677p. United Newspapers gave up 3 to 539p, News International 2 to 293p and Mirror Group a penny to 160p.

Standard Chartered moved up 13 to 1071p, an all-time high, with marketmakers citing Continental buying interest, which uncovered a stock shortage, as responsible for the strong rise in the shares. Hong Kong's latest upsurge also accounted for some of the rise.

SG Warburg was the outstanding performer in merchant banks as expectations of bumper interim profits saw the shares gain 6 more at 930p, after touching a record 932p.

Legal & General fell to 511p before settling 9 down on balance at 516p, allbeit in thin trading of only 843,000 shares, amid persistent worries about Lautro's investigations into the industry.

Pittencrief forged ahead 31 more to 436p, still boosted by revaluations of its US telecoms interests.

Hopes that British Aerospace will gain a satisfactory outcome from its crisis talks with the Taiwan authorities this week helped the stock advance 8 to 434p.

Steel group ASW saw its shares tumble after issuing a profits warning. They closed 41 down at 147p.

Wellcome Glaxo Holdings British Petroleum Stanley Leisure Organisation Guinness J Sainsbury Unilever Tate and Lyle GB United Kingdom, EC P6231 Security and Commodity Exchanges P2833 Medicinals and Botanicals P1311 Crude Petroleum and Natural Gas P5411 Grocery Stores P2099 Food Preparations, NEC CMMT Comment & Analysis MKTS Market data P6231 P2833 P1311 P5411 P2099 The Financial Times London Page 48 1000
London Stock Exchange: BT wanted Publication 931102FT Processed by FT 931102 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

The spotlight was turned on BT shares at the outset of trading as the market reacted firstly, and crucially, to news of a significant price war initiative whereby BT intends cutting the cost of weekend calls.

Secondly, dealers were keen to see the reaction of the big institutions to a story in the weekend press suggesting that BT was stalking Thorn EMI with a view to a potential takeover of the latter. The Thorn story was immediately disregarded by market analysts - 'the first I have heard of it and an unlikely tie-up,' was the view of one top-rated specialist.

The price-cutting initiative was not viewed as damaging by telecoms and general market analysts, who continued to view BT as one of the market's best defensive stocks.

BT is scheduled to report second-quarter numbers on Thursday. NatWest Securities is forecasting a 9.75 per cent increase in the interim dividend to 6.75p and for profits to come out at Pounds 715m - up 66 per cent from the comparable figure last year - to make first-half profits of Pounds 1.472bn.

At the close of trading, BT shares were 3 1/2 higher at 465 1/2 p on relatively low turnover of 4.5m, while the partly-paid were 1 1/2 firmer at 214 1/2 p.

British Telecommunications GB United Kingdom, EC P4813 Telephone Communications, Ex Radio CMMT Comment & Analysis P4813 The Financial Times London Page 48 252
London Stock Exchange: Vodafone nears record Publication 931102FT Processed by FT 931102 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

THE BEST individual perform-ance in the FT-SE 100 Index came from Vodafone, the cellular telephones group, which jumped 25, or 4.5 per cent, to 578p, within a penny of the stock's all-time high. The move followed the announce-ment of the group's highest ever monthly new subscriber figures.

Telecoms analysts were not surprised by the new gross subscriber levels, which they said were triggered by the recent burst of aggressive marketing efforts by both of the UK cellular phone groups, Vodafone and BT. One leading telecoms analyst described Vodafone's new numbers as 'extremely pleasing, even more so because two-thirds of the gross increase has come from the more lucrative business subscriber tariff'.

Mr Marshall Whiting, telecoms specialist at Swiss Bank Corporation and a long-term bull of Vodafone, said: 'The cellular market remains good value and Vodafone will participate in its growth.' The shares peaked at the end of August when a wave of US money moved into the UK market, focusing on the then current American favourites such as Vodafone and Reuters.

Vodafone Group GB United Kingdom, EC P4812 Radiotelephone Communications CMMT Comment & Analysis P4812 The Financial Times London Page 48 211
London Stock Exchange: Early losses reduced in thin volume Publication 931102FT Processed by FT 931102 By TERRY BYLAND, UK Stock Market Editor

A STRONG warning against optimism on domestic interest rates from the chancellor of the exchequer failed to depress UK equities for long yesterday. The early part of the session saw some selling and the stock market was also upset by the temporary closure of the London International Financial Futures Exchange (Liffe) because of a fire scare. But shares rallied strongly just before the close when both sterling and government bonds appeared to steady from their early worries over base rates.

However, traders stressed that sluggish trading volume presented the chief characteristic of the first session of the new equity trading account. Equity business was about 41 per cent down from Friday's level and most significant share price movements reflected individual company concerns rather than across the board investment pressures from the big fund management houses.

Shares reacted quickly to the UK chancellor's comment, on a Sunday morning television programme, that he saw no need for a base rate cut at present. His remarks provided a discouraging backcloth to the stock market's interpretation of the latest predictions in the City of the likely content of the UK Budget to be presented at the end of the month.

At its worst the FT-SE 100 Index was down 23.1 to just under 3,148 and remained subdued for most of the session. But at the very end of the trading day, it bounced smartly to close at 3,164.4, with the day's loss trimmed to only 6.6 points. At 3,520.5, the FT-SE Mid 250 Index was off 7.6 points as the second line stocks were largely left on the sidelines.

The weakest sector was again the pharmaceuticals, where last week's reaction to Wellcome's results continued to drag down share prices. Losses among retail shares, the most closely linked to base rate prospects, were minimal by the close of business.

The market is expected to focus on the latest leading indicators on the US economy, due today, for evidence that the American economy is continuing to grow more strongly. 'The US booms, while Europe slumps,' commented the economics team at Yamaichi.

Data on the British economy is limited this week but London analysts will be scrutinising the list of statistics from Germany. Little is expected from the Bundesbank council meeting on Thursday, and news of a further fall in manufacturing output and a rise in unemployment are feared.

Seaq volume fell to only 465.5m shares, from 800.9m on Friday, when retail worth of Pounds 1.63bn indicated the continued underlying strength in equities.

Dealers ascribed the fall-off in business to a pause in activity by managers of the multi-national funds prompted by holiday closures yesterday in several continental European financial centres.

There was also some caution ahead of publication today of the Bank of England's Quarterly Bulletin which, some analysts fear, may express further concern that inflation prospects are deteriorating.

This would add further uncertainty to the equation over prospects for both base rate cuts and tax increases in this month's Budget. 'Room for manoeuvre on rate cuts without a tight Budget is fast disappearing,' commented Mr Kevin Adams, UK bond strategist at BZW.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 48 557
London Stock Exchange: Equity futures and options trading Publication 931102FT Processed by FT 931102 By CHRISTINE BUCKLEY

THE chancellor's dampening of interest rate cut hopes permeated through the Footsie futures sector during yesterday morning, although later trading brought a recovery which limited the final damage, writes Christine Buckley.

With fears also circulating over taxation moves on pension funds, the December contract on the FT-SE 100 was quick to fall back after opening at 3,179 - the day's high.

Midway through the contract's morning slide there was a fire scare at the London International Financial Futures Exchange. But the evacuation of the trading floor for about half an hour was said to have had little effect on the day's dealing.

As traders contended with a background of gloom provided by poor short sterling and gilts markets, the low of the day came just before lunchtime. Selling, said to have been mainly driven by independent traders, pushed the December contract down to 3,151. But a bouncy Wall Street added a little vigour to the afternoon and a convincing rally was mustered. December finished at 3,171, nearly two points ahead of its fair value premium to the cash market. The premium now stands at about 8 points. At 8,934 lots, volume was steady.

Traded options were quiet, with index options accounting for a substantial chunk of the action. Total volume was 25,552 contracts, with 9,816 dealt in the FT-SE 100 option.

GB United Kingdom, EC US United States of America P6231 Security and Commodity Exchanges P6221 Commodity Contracts Brokers, Dealers MKTS Market data P6231 P6221 The Financial Times London Page 48 267
World Stock Markets (America): New peak for Dow on bullish economic news Publication 931102FT Processed by FT 931102 By PATRICK HAVERSON NEW YORK

Wall Street

AFTER trading slightly lower in early dealings in spite of positive economic news, investors set aside their concerns about rising bond yields and pushed share prices to new highs, writes Patrick Harverson in New York.

The Dow Jones Industrial Average ended 12.02 up at 3,692.61, eclipsing the previous record of 3,687.86 set last week. The Standard & Poor's 500 gained 1.27 at 469.10, the American SE composite added 1.13 at 482.57 and the Nasdaq composite was up 4.51 at 783.77. New York SE volume was 256m shares and advances outscored declines by 1,071 to 958.

Trading got off to a slow start, with investors troubled by early declines in bond prices which were triggered by a stronger than expected report on October manufacturing activity from the National Association of Purchasing Management. The latest in a string of positive economic data, the report pushed the benchmark 30-year bond down three-quarters of a point, lifting the yield back above 6 per cent.

But the purchasing managers' report was bullish for stocks. The NAPM said its index of manufacturing activity rose from the 49.7 seen in September to 53.8 in October. Any reading above 50 is taken as evidence that the manufacturing sector is expanding. Strong readings in manufacturing orders and production, and lack of growth in manufacturing prices, were seen as particularly encouraging.

After a slow start, the figures eventually proved bullish enough to lift equities out of their morning doldrums, and in spite of continued concern on Wall Street about overvalued stocks, blue chip and cyclical shares moved into record territory late in the day.

McDonnell Douglas jumped Dollars 4 3/8 to Dollars 98 1/8 in busy trading after the aircraft manufacturer and defence supplier reported net income of Dollars 142m for the third quarter, an impressive turnround from the Dollars 42m loss incurred in the same period a year ago. The company's earnings were boosted by a one-off tax-related gain of Dollars 41m.

Car manufacturing issues remained in demand in the wake of strong third-quarter earnings reports.

Forestry product stocks, hit late last week by negative comments from a brokerage analyst, rallied strongly. International Paper advanced Dollars 2 1/2 to Dollars 61 3/4 , Georgia-Pacific Dollars 2 3/8 to Dollars 66 5/8 and Louisiana-Pacific Dollars 2 1/4 to Dollars 38 3/8 .

Dean Foods rose Dollars 1 1/2 to Dollars 27 1/8 after stating that it would be acquiring the Birds Eye vegetable business from Kraft General Foods for about Dollars 140m. Compaq put on Dollars 1 1/4 at Dollars 68 3/4 in busy trade after the computer group announced further price cuts in its leading products.

Canada

TORONTO followed a five-day winning streak with a mixed performance yesterday in moderate trading. The TSE 300 index receded 7.5 from its record high to 4,248.0, but rises led falls by 405 to 384 after volume of 57.6m shares.

Nine of the 14 stock groups rose, led by transportation, up 2.99 per cent. But gold shares fell 3.44 per cent after the gold bullion price sank in sympathy with silver, which plummeted after Xerox unveiled a new graphic arts film this weekend which does not use silver.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 571
World Stock Markets (Europe): Volkswagen enlivens Frankfurt's quiet day Publication 931102FT Processed by FT 931102 By Our Markets Staff

HOLIDAYS in several European countries and in three German states reduced bourse activity, writes Our Markets Staff.

FRANKFURT saw volatility in individual stocks although the DAX index slipped 6.88 to 2,062.12, most leading stocks had a very quiet day and turnover fell from DM9.5bn to DM4.1bn.

The blue chip exception was Volkswagen, up DM4.30 to DM398.30 on the session, and by another DM4.20 to DM402.50 in the post bourse. Mr Peter Bohnke, of Bank Julius Bar in Frankfurt, said that many traders liked to short VW, and had to cover after a major buyer emerged yesterday.

Some smaller stocks shot up on a combination of the thin market and investment buying. Porsche climbed DM51 to DM868, the pharmaceuticals and dietics group, Altana, by DM34 to DM625 and the papermaker, PWA by DM6 to DM193.

AMSTERDAM closed at the day's high, with activity remaining concentrated in the options and futures exchanges. The CBS Tendency index put on 0.6 to 136.5, with a stronger dollar helping to lift sentiment.

In a week in which a number of the major companies release interims, Philips, out on Thursday, gained 40 cents to Fl 39.50 and its Polygram unit Fl 1.60 to Fl 72.30. KLM, also due out on Thursday, added 90 cents to Fl 40.60, picking up some of Friday's losses on fears that the Alcazar talks might have run into difficulty. Hoare Govett has put out a sell note, forecasting net profit of Fl 105m for the second quarter compared with Fl 154.6 in the same 1992 period.

ZURICH experienced an uncertain session. However, late demand for the dollar sensitive Roche and Ciba-Geigy reversed the trend and the SMI index picked up from the day's low of 2,708.1 to close 3.9 higher at a record 2,727.1.

Ciba-Geigy bearers, recent underperformers, added SFr15 to SFr815 while Roche certificates rose SFr40 to SFr5,790.

Nestle, the most active issue, dipped SFr3 to SFr1,184, after a low of SFr1,170. Profit-taking in cyclicals left Alusuisse registered shares SFr16 easier at SFr527, while among mixed to lower financials, Swiss Re shed SFr100 to SFr3,770.

ISTANBUL fell sharply, the composite index losing 565.4 or 3.9 per cent to 13,935.2, following the decision at the weekend to raise the basic rate of VAT from 12 per cent to 15 per cent. Although the move was widely expected, it illustrated the difficulties faced by the government, which is also under pressure because of an increase in Kurdish violence.

ATHENS fell by more than 1.5 per cent on a further round of profit-taking, and disappointment over recent interim results. The general index lost 12.82 to 833.61 in turnover of some Dr2.7bn. TEL AVIV was another market where investors took profits, following its climb to record levels on Sunday. The Mishtanim index lost 2.4 to 238.81 in turnover of Shk392m, having risen to 241.21 on Sunday.

Commentators said that the rally had been triggered by a statement from President Hosni Mubarak of Egypt in which he hoped that Israel and Syria would sign a peace agreement by the year end.

Written and edited by William Cochrane, John Pitt and Michael Morgan.

------------------------------------------------------------------------ FT-SE ACTUARIES SHARE INDICES ------------------------------------------------------------------------ November 1 (Partial) THE EUROPEAN SERIES ------------------------------------------------------------------------ Hourly changes Open 10.30 11.00 12.00 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1374.03 1374.00 1374.19 1374.03 FT-SE Eurotrack 200 1440.06 1440.34 1439.79 1439.12 ------------------------------------------------------------------------ Hourly changes 13.00 14.00 15.00 Close ------------------------------------------------------------------------ FT-SE Eurotrack 100 1373.83 1373.86 1375.07 1375.31 FT-SE Eurotrack 200 1438.18 1437.82 1439.55 1440.75 ------------------------------------------------------------------------ Oct 29 Oct 28 Oct 27 Oct 26 Oct 25 ------------------------------------------------------------------------

FT-SE Eurotrack 100 1374.61 1369.48 1367.82 1377.10 1378.69 FT-SE Eurotrack 200 1439.46 1435.53 1430.55 1437.92 1442.09 ------------------------------------------------------------------------ Base value 1000 (26/10/90) ------------------------------------------------------------------------ High/day: 100 - 1375.94; 200 - 1441.81 Low/day: 100 - 1373.06 200 - 1434.92 ------------------------------------------------------------------------

DE Germany, EC NL Netherlands, EC CH Switzerland, West Europe GR Greece, EC FR France, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 671
World Stock Markets (Asia Pacific): Nikkei loses 1.3% as region continues to set records Publication 931102FT Processed by FT 931102 By EMIKO TERAZONO and FARHAN BOKHARI TOKYO

PROFIT-TAKING in East Japan Railway dampened sentiment, and the Nikkei average lost 1.3 per cent on arbitrage linked selling, writes Emiko Terazono in Tokyo.

The 225-issue average ended 264.73 off at 19,438.24 after opening at the day's high of 19,656.97 and slipping to a low of 19,375.24 in the afternoon. Volume was a thin 200m shares, against 297.6m. Declines led rises by 594 to 363, with 182 issues unchanged. The Topix index of all first section stocks shed 10.84 to 1,619.75, and in London the ISE/Nikkei 50 index eased 3.11 to 1,283.67.

Traders said individual investors and second tier brokers were selling JR East. Meanwhile, much of the downward pressure came from arbitrage selling linked to Nikkei 225 futures. Mr Yasuo Ueki at Nikko Securities commented: 'The market is not going to turn up until JR East rises above its initial trading price of Y600,000.'

JR East receded Y28,000 to Y492,000, slipping below the psychological support level of Y500,000 for the first time since its debut last Tuesday.

Technical analysts hope the Nikkei index will be supported at its 52-week moving average of 19,200. 'That is the lowest it is likely to fall in the near term,' said a Japanese broker.

Margin buyers sold Sumitomo Metal Mining, which fell Y30 to Y836, and NEC, down Y2 at Y949. High-technology shares, which gained last week on the rise in the dollar against the yen, declined on profit-taking.

Large-capital issues also eased on profit-taking: Nippon Steel dipped Y8 to Y326 and NKK Y4 to Y269. Banks were lower as a leading Japanese brokerage house sold Nikkei 300 linked shares: Industrial Bank of Japan lost Y20 to Y3,340 and Dai-Ichi Kangyo Bank Y40 to Y2,360.

Carmakers, on the other hand, firmed on foreign buying. Toyota Motor, the most active issue of the day, rose Y20 to Y1,900, while Honda Motor moved ahead Y20 to Y1,610. NTT advanced Y3,000 to Y834,000 on bargain hunting.

In Osaka, the OSE average declined 110.54 to 21,511.11 in volume of 7.9m shares. Small-lot selling was one reason; and railway stocks lost ground in tandem with JR East.

Roundup

FOREIGN buying brought further records to the Pacific Rim.

HONG KONG continued to be propelled higher by further strong US and Japanese demand, although the advance slowed towards the end of the session with the emergence of profit-taking. The Hang Seng index ended 300.10, or 3.2 per cent, up at a record 9,629.19, after establishing an all-time intraday high of 9,710.08.

BANGKOK finished its most active trading day ever at another historic high as foreigners continued to pour funds into the market.

The composite index rose 65.25, or 5.2 per cent, to 1,326.16 in turnover of Bt28bn, against the previous record of Bt27bn set on October 7.

NEW ZEALAND registered its seventh consecutive advance with the NZSE-40 capital index 35.52, or 1.6 per cent, ahead at 2,199.50 - its highest level since August 1989.

AUSTRALIA climbed to another six-year peak, encouraged by a narrowing in the current account deficit, a 9 per cent jump in exports and a rise in building approvals. The All Ordinaries index added 20.2 at 2,132.4.

SEOUL advanced in brisk trading as buying interest in large-capitalisation export-oriented issues gained momentum. The composite index closed 11.04 higher at 761.76 in turnover of Won866.32bn.

JAKARTA was firmer in active trading, with both local and foreign investors focusing on banking and property stocks. The official index finished 2.95 ahead at 469.10.

KARACHI saw the KSE 100 index recover 12.14 to 1,540.08, writes Farhan Bokhari. The market had turned lower on profit-taking during the previous two days.

However, after official predictions of a bumper 12m-bale cotton crop this year, there was concern over new estimates from some officials and businessmen who predicted between a 10 and 15 per cent shortfall from the estimated figure due to recent pest attacks in central Punjab.

BOMBAY relinquished further ground as brokers continued to wind down positions ahead of December 1 when new capital adequacy norms will be applied. The BSE index shed 52.46 to 2,621.28.

KUALA LUMPUR was dragged lower by a retreat in Telekom Malaysia. The KLSE composite index dipped 4.94 to 967.05 as Telekom fell 80 cents to MDollars 20.80.

JP Japan, Asia HK Hong Kong, Asia TH Thailand, Asia NZ New Zealand AU Australia KR South Korea, Asia ID Indonesia, Asia PK Pakistan, Asia IN India, Asia MY Malaysia, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 771
World Stock Markets: Global investors remain intent on Pacific Rim Publication 931102FT Processed by FT 931102 By JOHN PITT

The attention of the world's investment community remained firmly fixed on Hong Kong and the Pacific region's other emerging markets last week. But weakness in some of the mature equity markets, including Japan and France, kept the advance in the FT-Actuaries World index to a minimum.

The enthusiasm for Hong Kong - it is the world's third best performing market in dollar terms so far this year after Malaysia and Finland, according to the FT-A data - is not shared by everyone. Mr Albert Edwards, global strategist at Kleinwort Benson, supports an overweight position on the Pacific Rim but he argues the case against investment in Hong Kong.

'One of the main arguments used to justify the heavy inflow of money into the Far East is that it is a rapid growth area. We have no quarrel with that view; but what we would point out, however, is that mature economies such as the US and UK are generating earnings growth that compares favourably with the Far East'.

He adds that while rapid earnings growth in the west may be unsustainable in the long term, it will drive p/e ratios down to levels which will look favourable compared to the Pacific Rim: 'the prospective UK p/e is now actually below that of Hong Kong.'

As the emerging markets in the Far East become ever more popular, especially with US investors, a popular game to play at the moment is in identifying those countries which remain ripe for for-eign investment. According to one UBS global strategist, arranging markets by their market capitalisation reveals that the Philippines, Thailand and even Taiwan have some way to move before reaching the level of Hong Kong, which is now bigger than that of Italy.

Japan was one of last week's disappointments, and the market's drift downwards continued yesterday. The listing of East Japan Railway, which had been expected to drive the Nikkei higher, did the opposite.

The market's drift has caused no surprise for Nomura's strategy team, which advised a cautious approach back in May. While still sympathetic to a bullish appraisal of Japanese equities, Nomura suggests that a lot of the good news has already been priced into shares.

For example, 'an imminent package of Y5,000bn in income tax cuts has been the market gossip for some time, leaving prices vulnerable to disappointment over both timing and size'.

Europe's equity markets showed a divergence of performances over the past week, with both France and Italy falling back as domestic worries took hold.

The decline of the French market, says Nikko Europe's Mr Michael Woodcock, was due more to the government's climbdown over a package of austerity measures proposed for Air France, the state-run airline, than concern over the slow pace of interest rate cuts.

Mr Woodcock suggests that the Air France saga - which ended on Friday after a 16-day stoppage of the airline's operations - called into question the government's privatisation programme, given that a number of those companies lined up for sell-off are in need of similar cost-cutting. If the government's resolve broke once, might it not happen again?

The level of European interest rates and the likely scenario for further reductions remain uppermost in investors' minds.

Warnings last week from Mr Hans Tietmeyer, the Bundesbank president, against expecting further interest rate reductions following the surprise 1/2 percentage point cut on October 21 may have dulled some appetites; but others remain unconvinced.

Hoare Govett forecasts a further 50 basis-point cut before the end of the year, probably in December, with a further full percentage point off in the first half of 1994.

------------------------------------------------------------------------ MARKETS IN PERSPECTIVE ------------------------------------------------------------------------ % change % change in % change in local currency** sterling** US Dollars** 1 Week 4 Weeks 1 Year Start of Start of Start of 1993 1993 1993 ------------------------------------------------------------------------ Austria +0.76 +9.48 +32.97 +33.69 +30.97 +28.59 Belgium +0.82 +5.15 +24.71 +24.06 +15.58 +13.47 Denmark +0.88 +6.25 +46.41 +37.98 +30.29 +27.93 Finland +1.06 +12.80 +122.64 +99.10 +84.17 +80.84 France -1.62 +3.35 +29.12 +21.54 +16.31 +14.19 Germany +0.18 +8.54 +37.18 +33.68 +31.29 +28.90 Ireland +1.05 +5.44 +57.68 +47.98 +30.66 +28.29 Italy -1.94 -3.24 +47.16 +39.02 +27.92 +25.61 Netherlands +0.32 +8.10 +37.29 +33.55 +31.22 +28.83 Norway +1.15 +11.45 +54.24 +41.74 +36.43 +33.95 Spain -0.69 +7.26 +60.51 +44.58 +25.62 +23.33 Sweden +0.54 +7.85 +81.03 +41.62 +25.22 +22.94 Switzerland +1.15 +9.20 +43.70 +31.66 +32.43 +30.02 UK -0.83 +4.02 +22.66 +12.99 +12.99 +10.94 EUROPE -0.44 +5.34 +33.00 +24.07 +20.91 +18.71 ------------------------------------------------------------------------

Australia +2.97 +7.45 +44.40 +31.40 +29.73 +27.37 Hong Kong +7.23 +22.12 +47.80 +68.00 +71.41 +68.30 Japan -1.47 +1.31 +27.79 +25.09 +46.76 +44.08 Malaysia +3.47 +13.93 +82.39 +78.29 +85.78 +82.41 New Zealand +3.05 +12.02 +69.95 +45.52 +59.88 +56.98 Singapore -0.28 +8.54 +66.60 +46.51 +54.25 +51.45 ------------------------------------------------------------------------ Canada +2.83 +8.56 +19.32 +19.95 +17.59 +15.45 USA +0.91 +1.10 +10.60 +7.05 +9.03 +7.05 Mexico -0.98 +9.21 +28.24 +10.68 +12.44 +10.40 ------------------------------------------------------------------------ South Africa +1.37 +5.52 +35.41 +25.62 +47.55 +44.85 ------------------------------------------------------------------------ WORLD INDEX +0.05 +2.95 +22.81 +18.07 +23.93 +21.68 ------------------------------------------------------------------------ ** Based on October 29th 1993. Copyright, The Financial Times Limited, Goldman, Sachs & Co, and NatWest Securities Limited. ------------------------------------------------------------------------

HK Hong Kong, Asia JP Japan, Asia PH Philippines, Asia TH Thailand, Asia TW Taiwan, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 45 894
World Stock Markets: South Africa Publication 931102FT Processed by FT 931102

A FALL in the bullion price to Dollars 364 an ounce led the gold shares index down 55, or 3.1 per cent, to 1,700. In the sector, Kloof shed R3.25 to R39.50. The industrials index gained 7 at 4,539, while the overall index lost 9 to 3,907.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market shares P6231 The Financial Times London Page 45 76
Foreign Exchange: Boost for dollar and pound Publication 931102FT Processed by FT 931102 By PETER JOHN

WELL received data suggest-ing a pick-up in manufacturing activity in the US gave a lift to the dollar yesterday. Dollar strength helped sterling, which also received an initial boost from comments on interest rates by the UK chancellor, writes Peter John.

With many European financial markets closed for the All Saints' Day holiday, the US currency continued a rally that began on Friday and carried on during Tokyo trading.

The dollar was firmer against the yen in Tokyo in spite of comments from Mr Fred Bergsten, a US economist visiting Japan, who said it needed to stay below Y110 to the yen in order to reduce Japan's large external trade surplus.

In European trading, the dollar was helped by the National Association of Purchasing Managers' index for October, which reflects optimism over manufacturing activity. The index rose to 53.8 per cent, against an expectation of some 51.8 per cent and a previous figure of 49.7 per cent. The latest data on US construction also encouraged the market.

Mr Jim' O Neill, economist with Swiss Bank who has had a very negative forecast on the dollar, changed his estimate for the US currency's floor against the D-Mark to DM1.6750 in the short term from DM1.56 previously. But he still believes it will be back to DM1.60 by the year-end.

The dollar came very close to DM1.70 yesterday, its highest point since August. At that level many investors were taking their profit on the big rally of the past two weeks and moving funds into sterling and yen. There was also nervousness that the Bundesbank might be selling the US currency.

At the close of European trading, the dollar reached Dollars 1.4810 against sterling, up from Dollars 1.4865 previously, but Y108.20 to the yen, down from Y108.40. It maintained its strength against a D-Mark weakened by the Bundesbank's recent interest rate cuts and closed at DM1.6935, up from Friday's DM1.6795.

In New York the dollar ended at Y108.20 and DM1.6957 and the pound at Dollars 1.4820.

Sterling also rose smartly against the D-Mark at the start of trading as Mr Kenneth Clarke, the UK chancellor, added his voice to attempts by the governor of the Bank of England on Friday to dampen speculation of an early rate reduction.

The pound broke through DM2.50 for the first time since the end of August, and the index which shows sterling against a basket of leading currencies rose to 81.1 before closing marginally firmer at 80.9.

Gains were pared at midday but then the pound picked up in the afternoon as investors switched out of the dollar. Sterling closed a pfennig up on the day at DM2.5075. A dealer said belief that sterling had broken through to a new chart-bound range could push it higher still. 'If it stays above DM2.50 for more than 24 hours, the technical boys will move and we could see it hit DM2.55.'

US United States of America JP Japan, Asia GB United Kingdom, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P6231 The Financial Times London Page 39 529
Money Markets: Rate nerves hit shorts Publication 931102FT Processed by FT 931102 By PETER JOHN

A DOUBLE dose of official caution over the prospect for lower interest rates in the UK unsettled the markets yesterday and short sterling fell sharply, writes Peter John.

First, Mr Eddie George, the governor of the Bank of England, sought on Friday to dampen speculation over an early cut in base rates, but the market largely shrugged off his views.

Then on Sunday, Mr Kenneth Clarke, the chancellor, voiced his support for Mr George by saying that there was no need to cut interest rates 'as of now'. The opinion of many economists and dealers was 'well, he would wouldn't he,' but they were in no mood to take chances.

Although most dealers remained convinced that the chancellor will have to reduce rates by at least 1/2 percentage point at or soon after the Budget, the short sterling futures contract which expires on December 15 was marked down by some 17 basis points to 94.38 at the outset of dealing.

In the event of a half-point reduction the December contract was looking very cheap, and there was good buying at the lower levels which took it back to 94.42 by the close on turnover of more than 50,000 contracts.

Meanwhile, interbank oper-ations were very tight, and an unwillingness by commercial banks to provide bills in exchange for the Bank of England's offer of assistance saw overnight rates pushed as high as 14 per cent at one stage.

Traders discounted rumours that the central bank might be responding to the governor's comments by sending signals that interest rates would not fall. They pointed out that the Bank offered help at each opportunity and at the established rates.

The Bank offered early assistance after forecasting a liquidity shortage of around Pounds 950m, later revised to Pounds 1.1bn, but there were no takers.

More than half of the shortage represented bills for repurchase by the market.

The Bank did not operate in the money market at midday and provided only Pounds 55m of assistance in the afternoon.

The bulk of the shortage was dealt with via Pounds 930m of late assistance. Dealers said that as late help is traditionally provided for a very short period - usually one or two days - yesterday's help was likely to lead to tight monetary conditions later in the week.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 39 416
Survey of Corporate Treasury Management (7): Following at snail's pace - Jonathan S. Schwarz discusses tax regimes' imperfections Publication 931102FT Processed by FT 931102 By JONATHAN S. SCHWARZ

TAX LAWS follow several steps behind business innovation. While financial institutions have developed and marketed sophisticated and inventive financial instruments, tax systems have adapted at a snail's pace.

Comprehensive tax regimes for foreign exchange gains and losses and financial instruments designed to manage currency and interest rate risks are still in their infancy. As a result, tax authorities and payers alike struggle to adapt existing tax rules to these transactions.

Not only are results obtained unsatisfactory, but the tax consequences of legitimate transactions are often uncertain. On the other hand, tax authorities are uneasy because of potential revenue losses arising out of the use of increasingly sophisticated and complex instruments.

The US has shown the way with tax legislation specifically on foreign currency transactions. The US Tax Reform Act of 1986 and subsequent amendments codified numerous aspects of foreign currency transactions. Regulations are used to clarify certain aspects of the taxation of a number of financial risk-management instruments, such as notional principal contracts including many hedging instruments.

Although London is one of the three key international financial centres, it is only in 1993 that UK legislation codifying the taxation of financial risk management transactions has appeared. There has thus been pressure on multinational corporate groups to move profitable treasury functions to tax-favoured locations such as the Dublin Docks or Belgian co-ordination centres.

In the UK, tax on foreign-currency gains and losses has until now been taxed under general principles. The traditional distinction between income and capital has caused numerous difficulties in this area. Revenue receipt or expenses are included in computing taxable income, while capital gains or losses on capital assets are determined separately.

Capital gains and losses are not recognised generally for tax purposes until realised. In addition, gains and losses arising in respect of capital liabilities are outside the tax system. Transactions that fit together commercially may be awkwardly asymmetrical once tax has been taken into account.

Difficulties in relation to currency gains and losses have long been recognised. In 1989, the Inland Revenue issued a consultative document on the tax treatment of foreign exchange gains and losses. It proposed symmetry in taxing exchange gains and losses on the same basis with respect to timing methods and amounts. It tentatively proposed the abolition of the distinction between capital and income in respect of foreign exchange, gains and losses arising in the course of trade.

In March 1991, the Inland Revenue issued a further consultative document on the reform of the tax treatment of currency gains and losses. This formed the basis for measures included in the 1993 Finance Act.

The new law deals primarily with gains and losses on monetary assets and liabilities. Generally, qualifying assets and liabilities are those debts not convertible into equity, contracts to acquire foreign currency and foreign currency itself. The rules which are contained in more than 50 sections and four schedules to the Act provide that exchange differences on monetary items are to be included in taxable profits on a translation basis. They will fall outside the capital gains regime.

Currency contracts are subject to tax as if the currencies were acquired when the contract is entered into. Fluctuations over the life of the agreement in relation to sterling are taxable or deductible.

Complex transitional rules determine the applicability of the new regime. Given the fact that a number of areas are still to be clarified by regulation and the necessary overlap between these rules and the rules relating to financial instruments, it will be some time before its impact can be fully assessed.

There are few provisions under current UK tax law specifically dealing with financial instruments. The rules have been unco-ordinated and unfocused. Corporate users of financial instruments are faced with different rules for traded futures and options, as opposed to other futures and options for example. Similarly, swaps with UK banks or swap traders are treated differently from any other swaps.

In 1989, the Inland Revenue issued a consultative document on the taxation of financial instruments for managing interest rate risks. The document focused specifically on swaps. Then, current practice tended to discriminate against non-bank entities in the UK swap market. Under the proposals, recurring swap fees would be assimilated to interest. Because swap payments were assimilated to interest, other rules would apply such as thin capitalisation rules and treaty provisions dealing with interest.

A further consultative document was issued by the Inland Revenue on financial instruments in 1991. The government objectives were to recommend how payments and receipts should be characterised for tax purposes, to include as many instruments as possible that are commonly used for managing interest-rate risk, and to provide rules for the timing of recognition of payments and receipts for tax purposes that are consistent with ordinary commercial accounting. Specific anti-avoidance measures to protect the Exchequer were proposed.

These proposals are broadly enacted in new draft clauses, released on August 20 this year, and are expected to be included in the next Finance Bill. The draft clauses are designed to dovetail with the new currency regime. It therefore applies to companies, but excludes several entities taxed as companies, such as unit trusts and offshore funds. Special rules are provided for special taxpayers such as insurance and mutual trading companies.

Taxation may be on a 'mark to market' basis. This taxes payments and receipts in each accounting period and changes in the value of the underlying instrument over its life. Alternatively, an accrual basis method may be adopted.

Payments and receipts under all swaps and financial hedging instruments are to be treated as income, and therefore deductible and taxable accordingly.

Most instruments primarily used for currency and interest-rate risk management are covered. They include swaps and other instruments involving periodic payments which are either fixed or determined by reference to the application of an interest rate to a notional principal amount. These include interest-rate caps, collars and floors. There must be at least one receipt or payment determined by a variable interest rate. Single period instruments are also included. These include forward rate agreements, interest-rate futures and options, as well as currency futures and options.

Clearly, the Inland Revenue is suspicious that sophisticated financial instruments may be used to confer unintended tax benefits. As a result, several anti-avoidance provisions are included.

Withholding tax will apply to payments made by UK resident companies to parties in tax haven countries or in territories where there is no interest article in an applicable tax treaty.

It is ironic that, while the tax rules relating to instruments for the management of interest-rate risks have moved towards an accrual based system, the rules relating to the taxation of interest have not. The UK continues to apply the old-fashioned cash basis.

A number of key international issues remain unsolved. Although the UK has opted to treat payments on qualifying financial instruments as interest, it is unclear whether such payments will always be interest for tax treaty purposes. There is a strong body of opinion that the definition of interest for treaty purposes must follow the definitions in specific treaties. Payments under swaps, for example, are often classified as 'other income,' which commonly escapes taxation under many tax treaties. In some circumstances, they may also be regarded as 'business profits,' which escape taxation in the absence of a permanent establishment. This will be of particular importance in relation to those treaties where withholding tax on interest is not entirely eliminated.

In the European Community, the Commission is arguing that the Parent Subsidiary directive be extended to interest payments. The directive eliminates withholding tax on dividends from companies at least 25 per cent owned by a parent in another member state. This would be a step forward, but would only solve the problem for related party transactions. A single market in financial instruments will not emerge in the EC until withholding tax barriers have been eliminated.

The risks of double taxation, or indeed double non-taxation, as a result of inconsistent categorisation of financial instruments, traps and opportunities arising from differences in timing of recognition of income and deduction and withholding tax problems continue. Transfer pricing will continue to be a crucial issue where centralised treasury functions are carried out for group companies in multiple jurisdictions.

Jonathan S. Schwarz is editor of the Financial Times World Tax Report and a partner at Paisner & Co, City solicitors.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MGMT Management & Marketing P9311 The Financial Times London Page 38 1444
Survey of Corporate Treasury Management (8): Alcos provide an 'engine-room' - Banks' management of balance-sheet risk Publication 931102FT Processed by FT 931102 By PETER CARTY

BALANCE SHEET risk is now commonly managed by banks and building societies through central committees. Though sometimes known as risk committees, or balance sheet management committees, the popular label is 'the asset and management liability committee' - or Alco.

Members represent each part of the balance sheet. The committee will often include the treasurer, the heads of lending and fund acquisition departments, the head of corporate planning and managers from international divisions.

The main function is to maximise earnings through overall management of acquisition and allocation of funds. Strategy is laid down through monitoring asset and liability distributions and maturities, earnings margins and appraisal of liability and loan pricing policies across a bank's portfolio of businesses.

Alcos originated in the 1980s in the US. Growth in financial markets was accompanied by an increase in the range and complexity of financial products available. Risks consequently increased and new ways of taking and avoiding risk mushroomed. Banks realised that top-level management was required, hence the genesis of the Alco.

The committee's remit typically extends to the setting of high-level limits, with board approval, in the key areas of interest-rate risk, currency risk, liquidity risk, equity price risk and settlement risk. In some banks country and industry, portfolio risk is also managed by the committee.

Royal Bank of Scotland set up its Alco last year. 'We recognised as a bank that we needed an engine-room to effectively manage the risk that was arising across the bank's business strategies,' says Mr Peter HanIon, head of group asset and liability management 'It was to make sure that everybody put their group hats on, so to speak, rather than their divisional hats.' Up to then, the bank had a decentralised approach to risk management.

As well as ensuring that divisional strategies result in a balance sheet that the group is comfortable with, RBS's Alco also acts as a communication conduit, educating different parts of the group on market and credit risk. The committee meets monthly and deals with high-level decisions. 'It's not concerned with housekeeping,' says Mr HanIon.

Price Waterhouse partner, Mr Andrew Stott, is involved in setting up and advising on the running of asset and liability management units and the committees they report to. He estimates that three quarters of British banks and building societies now have an Alco, but doesn't think that this means asset and liability risks are necessarily being properly dealt with. 'Just having an Alco doesn't mean that you're effective in managing your balance sheet,' he warns.

A particular problem is undue influence of one part of a bank over the Alco. Ideally, the committee should be chaired by the chief executive, but this may not happen in practice. In particular, in smaller banks and building societies asset and liability risk management may be run from the treasury, due to the fact that the expertise required to analyse structural risk is often far more developed in treasury than other areas.

First Consulting recently conducted a survey of the operations of Alcos in 19 British banks and building societies. 'There are people who say they are an Alco - they say they are looking at the whole balance sheet - but actually their conversations in their monthly meetings are predominantly about treasury issues,' says First Consulting's Magnus Spence.

Treasuries are commonly geared to short-term structural risk, while the Alco needs to assess risk against a bank's long-term goals. 'There could be conflicting risk strategies,' says Mr Stott, at Price Waterhouse.

need not arise if the two functions are clearly separated within a treasury with clear individual objectives, but that this is easier to ensure if personnel are within different divisions.

A key issue for RBS's Alco is liability sourcing. For all banks, low interest rates have produced outflows from customer accounts. RBS has a policy of moving towards more stable retail deposits, and the Alco aims to provide incentives for the process and speed it up.

The TSB has been running its Alco - known by the less catchy title of 'group balance sheet management committee' - for around five years in its current form, and has devised strategies for tackling the same problem.

'You're looking to put on basically more fixed mortgages and more personal loans,' explains Mr John Ashenhurst, director of TSB's group balance sheet management unit and secretary of the UK Asset and Liability Association.

One approach is to vary price sensitivity from account to account, and for interest-rate tiers within accounts. 'The old way was that you said that everything was either sensitive or insensitive. What we're saying is that it might be sensitive today, but it may not be tomorrow,' says Mr Ashenhurst.

Changes in rates alter structural risk and policy. 'If interest rates go up, you will probably have to reprice the liabilities so that they won't be exposed,' says Mr Ashenhurst. 'It's timing and getting it right that is the main issue.'

As well as increased marketing of fixed-rate mortgages and personal loans, TSB is hedging the exposure from low-interest rate tiers in customers' accounts by investments in gilts and swaps. Moves by depositors into equities inevitably means that banks are looking to the interbank market for funds. This changes the balance sheet's risk profile, notably for liquidity risk, and presents Alcos with another set of policy decisions.

A battery of instruments are available to banks for redistribution of risk. 'Depending on their expectations, they could use interest rate derivatives, for example,' explains Andrew Stott.

A key function of the Alco is the co-ordination of competing demands by a bank's different operating units for a share of the balance sheet. Return on capital, adjusted for the various kinds of risk, is a fundamental performance indicator. 'You invest your capital in the highest performing business units,' explains Peter HanIon. 'It's an incremental approach based on bidding and competing.'

An important back-up to the Alco is the data provided by a balance sheet simulation model. The effects of different capital allocation strategies and of the use of new products can be predicted. Developed in the US, they have been widely purchased by UK banks and building societies. 'It gives you a dynamic dimension to your balance sheet,' says Mr HanIon.

GB United Kingdom, EC P6021 National Commercial Banks P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis MGMT Management & Marketing P6021 P9311 The Financial Times London Page 38 1088
Survey of Corporate Treasury Management (6): In pursuit of yield as recession ends - Simon London explains how liquidity is monitored to ensure cash flow is in good health Publication 931102FT Processed by FT 931102 By SIMON LONDON

IT IS not only pensioners that suffer a drop in income when interest rates are low. Companies with large cash balances are finding interest income squeezed, and face pressure to either make cash work harder or return the surplus to shareholders.

Organisation of cash management within a company can help to increase returns without any change of investment strategy. Squeezing the most out by reducing working capital, cutting debtor days and stocks is an obvious place to start. As the economy pulls out of recession, though, the pressure will be in the opposite direction.

Bringing the surplus cash resources of a group together in one centrally-managed fund is a self-help strategy favoured by many companies.

'Centralised cash management produces the best returns by concentrating expertise, increasing the size in which we can deal and avoiding the position where idle cash balances are spread around the group,' said Philip Wood, director of treasury at Reuters, which had Pounds 700m cash at its last financial year end, although it has since spent Pounds 350m buying-back its own shares.

Reuters' approach also demands close involvement of tax planning in investment decisions. 'We are always trying to maximise the after-tax returns to shareholders. Investors measure us in terms of earnings per share, and that is how we judge ourselves,' commented Mr Wood.

But good housekeeping and careful planning can only work so far. The search for higher yield almost inevitably involves a greater degree of risk. As many local authorities found out to their cost, deposits placed with the Bank of Credit and Commerce International offered higher returns than those placed with clearing banks for a reason. In the light of the BCCI collapse, many companies have tightened controls and do not place deposits with banks below a certain credit quality.

For Reuters, the threshold is normally set at a credit rating of single-A from one of the big rating agencies. This applies to swaps contracts and exposures other than deposits. Different types of exposure to each institution are added to give an aggregate exposure.

But credit ratings are not the only guide. Many company treasurers have been wary of buying mortgage-backed securities following the financial problems faced by National Home Loans, a prominent issuer. In fact, the credit quality of asset-backed bonds originated by NHL and others remained reassuringly stable through such problems. But prices fell as investors edged away from the market.

'It is partly a question of self-protection. It is easier to go to the main board to justify buying plain-vanilla government bonds. None of them are likely to understand mortgage-backed bonds, and most will react with suspicion,' commented the treasurer of one large company.

Another way of chasing additional yield when short-term interest rates are low is to move into longer-maturity instruments. The 100-year bonds issued in the US by companies such as Coca-Cola are the most extreme examples, offering a yield comfortably above the benchmark 30-year US treasury bond.

The danger is that very long-dated instruments tend to be more sensitive to changes in interest rates and expectations of inflation than shorter maturity stocks. Credit risks may be no greater than short-dated paper, but the market risks can be difficult to manage.

The same might be said of investment in foreign currency instruments. Some UK companies prefer to keep cash in sterling - the currency in which shareholders funds are denominated and earnings per share is measured. Others invest in currencies which are a broad match for their spread of underlying business, or which help off-set exposures to help smooth earnings per share.

Derivative financial instruments are used to help offset interest-rate or foreign-currency risks. The philosophical view of companies which prefer sterling-only investment, though, is that the cost of hedging eats into additional yield gained from the underlying investment.

Reuters invests mainly in sterling instruments. It aims for a compromise on interest-rate exposures by identifying a core cash position which is likely to be maintained for at least three years and locking into interest rates of around this maturity. Not all of this core cash position is held in instruments of three years maturity, but interest-rate swaps are used to lock into rates of around three years. Cash outside the core is likely to fluctuate - with acquisitions, or other corporate needs - and is treated separately.

Companies point out that neither short-term nor long-term interest rates are especially low in real terms, when measured against inflation. A real return on bank deposits of around 4 per cent represents a reasonable real yield by historic standards.

Even so, low nominal interest rates make it difficult for companies to justify holding cash which is unlikely to be channelled into productive investment. Most industrial companies demand a nominal return of at least 15 per cent from investment in new plant and machinery. Ronnie Hampel, ICI's chief executive, has said that an average return of 20 per cent through the economic cycle will be demanded of new investment in the chemicals business. Set against such stiff targets, holding excess cash can act as a drag on a company's rate of return on capital.

Reuters' decision to implement a share buy-back programme is a symptom of such pressure. Glaxo's decision to pay a higher than expected dividend this year also reflected the growth of its cash pile - from Pounds 1.3bn to Pounds 1.8bn, despite spending Pounds 850m on research and development - and pressure from investment institutions to stem the rising tide.

But Glaxo has no immediate plans to return the bulk of its cash to shareholders. Cash-rich companies, such as GEC, equally show little enthusiasm for making a one-off payment. Like other companies which face an uncertain trading environment, Glaxo argues that cash gives it the flexibility to react to a changing market. On that view, cash always has value above and beyond the yield it is currently earning.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 37 1037
Survey of Corporate Treasury Management (5): Banks may be over-estimating the effect - New US rules will shake up securities accounting Publication 931102FT Processed by FT 931102 By LAURIE MORSE

A NEW accounting rule that comes into effect in January in the US will require banks and corporate treasurers to take a closer look at securities held in portfolio, and account for them according to the institution's long-term investment intentions.

The rule is expected to shift a large number of debt securities out of the historical amortised cost basis accounting into market value. Many capital-sensitive companies, particularly banks, are already shuffling portfolios in response to the rule, trading off potentially volatile long-dated debt in favour of short-dated securities.

The concern over bond price volatility is considerable, since the Federal Reserve Board in August grudgingly decided to follow up on the accounting rule, known as Federal Accounting Standards Board statement 115, by requiring banks to adjust their equity capital to reflect unrealised gains or losses for securities they hold for sale.

FASB 115 establishes three classes of debt securities. Securities that are to be held to maturity can continue to be reported at amortised cost. However, if the institution believes the security might be sold under some circumstances - say, to create liquidity to meet seasonal loan demand - the security must be classified as 'available for sale,' and be valued at the market on a quarterly basis, with unrealised gains and losses affecting the institution's equity position.

Securities held for trading purposes, the third category, are reported at market, with unrealised gains and losses going straight to the income statement.

Bankers say that many securities traditionally considered as held to maturity will shift to the 'available for sale' category, because the rule discourages the sale of a security classed as held for maturity. The rule says transfers between classifications must be rare and unusual, and any transfers must be accounted for as a sale and repurchase at market.

In addition, because FSBE 115 is asymmetrical, and deals only with the asset side of an institution's balance sheet, a security must be classed as 'available for sale' if its price risk is hedged, or if it might be sold to implement an asset-liability management strategy.

A sizeable amount of long-term debt that had been safely amortised under the investment category will soon be subject to the whims of the market, which bank managers say will have near-term and intermediate effects on capital.

The current environment of low interest rates and rapidly appreciating stocks in the US should benefit a bank's capital position when the initial market valuation occurs. 'Almost anyone who's holding a long bond has a profit in it these days,' notes one institutional money manager. As a result, few companies are expected experience immediate equity mark-downs.

However, the lofty levels of both the US bond and stock markets makes these profitable investments highly vulnerable to a market reversal, and introduces the very real risk of capital volatility.

Bankers fear that depositors and regulators who use capital as a measure of a bank's soundness will misinterpret market-based capital swings. In fact, even the Fed believes that the rules will force banks to manage their portfolios to avoid dramatic capital shifts, at the expense of profitability or managing interest rate risk.

The belief is well-founded. Bankers, when given the choice, invariably choose capital preservation over higher portfolio returns. A secondary concern for US banks is that a variety of regulatory actions, including the price of bank deposit insurance, is linked to an institution's capitalisation level.

'We're concerned that, by forcing capital to rise and fall, FASB's action could trigger a variety of unnecessary penalties and unwise business decisions,' said Mr Donald Ogilvie, executive vice-president of the American Bankers Association.

In fact, the bank lobby could be overestimating the effects of the new accounting rule. Many of the smallest US banks continue to act as traditional bankers - making money by lending deposits at higher rates than they pay depositors. If lending is the primary business, a bank's securities portfolio can rightly be classed as investment, and held to maturity, and avoid market valuation.

The nation's largest banks will also be prepared for the rule, with many intending to use derivatives to manage market risks and to adjust the maturities in their 'held for sale ' securities.

However, many managers are shortening debt maturities. Securities with maturities of four years or less can be put in the 'held to maturity' category with more confidence than a 30-year bond. In the 'available for sale' bucket, a short-dated note is less exposed to a capital shock than a long bond.

One unexpected result of the accounting rule may be to shut traditionally long-term municipal borrowers off from their usual investors, and prevent communities from locking in historically low long-term interest rates.

In communities where local banks are active buyers of municipal debt, the effect of these portfolio shifts could be to force municipalities to issue short-term debt to finance long-term projects.

US United States of America P6081 Foreign Banking and Branches and Agencies P6211 Security Brokers and Dealers P8721 Accounting, Auditing, and Bookkeeping Services CMMT Comment & Analysis TECH Safety & Standards P6081 P6211 P8721 The Financial Times London Page 37 876
Survey of Corporate Treasury Management (3): Swaps gain popularity with users and producers - Robert Alldis discusses new approaches to commodity risk Publication 931102FT Processed by FT 931102 By ROBERT ALLDIS

COMMODITY SWAPS have been with us for nearly 20 years. But until three years ago, few raw material consumers or producers were actively using swaps to hedge their exposure to changes in commodity prices.

Today, the interest in commodity swaps is rapidly gaining momentum, but there is still some way to go before this interest is turned into widespread use.

The total value of deals done is still small. The International Swaps and Derivatives Association (Isda), in its first analysis of commodity swaps, reckons they were worth, at the end of 1992 in notional principal terms of those outstanding, Dollars 18bn - and of those, only Dollars 3bn were non-energy swaps. But the market for total interest-rate swaps in the same period was far larger - valued at Dollars 3,850bn, with currency swaps worth Dollars 860bn. Still, having come from nothing a few years ago, the growth in use of commodity swaps is significant: they are a useful cost-effective and tailor-made vehicle, for users and producers of raw materials to manage their exposure to price risk of an individual commodity.

In the swap, the commodity consumer normally pays fixed and the producer floating, protecting the latter from any drop in the commodity's price. Usually, only payment streams are exchanged, rather than physical delivery taking place. And as the swap is tailored to the particular commodities being used/produced, the basis risk of using an imperfect substitute, say for jet fuel, when hedging in the futures market, is eliminated. But this still does not answer the main reason why the rise in the total value of the commodity swap market has happened now.

Price factor: Base metal prices have hit six-year lows in recent months; this has put a limit on downside risk. The cash price for copper currently trades at around Dollars 1,675 a tonne, near its six-year low when it touched Dollars 1,571. And nickel is also at levels not seen since June 1987, when it traded at Dollars 4,451 a tonne (currently, nickel is trading around Dollars 4,675 a tonne).

With base metal prices so depressed, there is a fair chance that their next move will be up. 'If I were a consumer, I would fix prices now as prices are so low. But if something happens, these prices would go higher quicker than you know it - that's why we're seeing such a lot of activity,' says Robert Miller, vice-president of commodity risk management at Chase Manhattan Bank in London. And since commodity prices have a habit of being highly volatile (acutely felt during the Gulf war), it is good time for raw material consumers who want to capture contango to lock in at current price levels.

Understanding: Corporate treasurers are becoming increasingly familiar with the use of derivatives to manage their interest rate and currency exposures. A survey by Greenwich Associates, a Boston-based business strategy consultancy, found that 52 per cent of European and Middle Eastern institutions in early 1993 were hedging their currency exposure by using forwards of less than one year, and that 39 per cent used non-dollar interest rate futures or exchange-traded options. And, says Mr Per Sekse, vice-president responsible for commodity derivatives marketing in Europe for Chemical Bank, London, corporate treasurers seem increasingly willing to deal over-the-counter with the investment banks, rather than run their own hedging operations.

The banks can also offer a wide range of tailor-made services and structures, says Keith Murphy, vice-president and head of commodity derivatives at J P Morgan, London: 'They are looking at very customised products, such as indices or baskets of commodities of the very specific exposures that they have.'

The more exotic commodity swaps have tended to be used by heavy energy users to hedge their fuel costs. Ed Speal, head of commodity transactions at Banque Paribas in New York, says he has done swaps on specific pipelines for natural gas and different grades of fuel oil. Also, by embedding options into the swap, he has been able make an even more attractive and flexible product. But for widespread use of the complex vehicles for all raw materials, a senior US investment banker says: 'The derivatives industry will get there, embedding four or five different risks into the one vehicle. Within the next year or two you will see the 'multi-risk swap'.'

But the derivatives boffins have never been short on innovation. For most corporates, however, the plain vanilla structures remain the rule of thumb. And the majority of commodity swap vehicles tend to be settled against the monthly average price of the raw material. These Asian (or average-rate) products are particularly well suited to commodities.

'If an airline is buying jet fuel every day for a year, it is not worried by the specific price of the fuel on a specific day, but is more concerned by its average price,' explains Mr Miller. But in the currency markets, 'as I know when apayment is coming in on a particular day, I am worried by the exchange rate on that particular day.' Average priced swaps account for virtually all the energy swaps Mr Miller does, and around 75 per cent of metal swaps.

Depth and maturity: As the number of banks involved and the amounts of swaps outstanding increase, liquidity in commodity swaps has risen and generally spreads have narrowed. And with higher liquidity in the market, longer-dated vehicles are now being seen.

'Commodity hedges on the exchanges a couple of years ago were only going out three to six months forward. Now, in the OTC market, hedges are extending one, two and three years forward and beyond, which has had a fundamental impact on the forward curve,' says Mr Murphy, at J P Morgan.

A strong and active domestic futures market is also important for the banks to lay off their own counterparty risk.' A liquid futures market is not essential to structure a commodity hedge. But if we move away from products that don't have a good underlying futures market, then we get into basis risk, and our prices have to reflect this,' says Mr Sekse, at Chemical Bank. And if there are options on the future, he/she can buy and sell volatility and do his/her own delta hedging without fear of getting squeezed. But even though commodity swaps can provide a relatively cost-effective and flexible method to hedge raw material prices, some corporates are still wary.

For example, Mr Sekse advised photographic film manufacturers on the benefits of hedging the silver price when prices were low. But as soon as prices picked up, they quickly saw the new levels as unsustainable and backed-off the hedge, expecting the next move in prices to be down.

Mr Sekse had more success with frozen orange juice swaps used by fruit juice processing companies. The juice processors locked in at a rate of just under Dollars 1.00 a lb earlier this year, against a price now of around Dollars 1.30 a lb. But some of the manufacturers wanted to take profits, despite having hedged for 1994, believing again the higher price wouldn't be sustained.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 36 1229
Survey of Corporate Treasury Management (2): ERM upset causes new anxieties - Antonia Sharpe examines foreign exchange risk Publication 931102FT Processed by FT 931102 By ANTONIA SHARPE

MOST COMPANIES think nothing of paying large premiums year after year to insure their factories or offices even if, so far, they have never burnt to the ground.

Yet many are only just coming round to the idea of paying similar amounts to protect their earnings against events beyond their control, such as volatility in the foreign exchange markets.

European companies were starting to think that currency fluctuations were a thing of the past while the European exchange rate mechanism (ERM) was performing in line with their expectations.

However, the exit of sterling and the lira from the ERM in September 1992 and the virtual collapse of the system in August this year, when some currency bands were widened to 15 per cent, has sent many corporate treasurers back to the drawing board.

'Companies are now worrying more about foreign exchange risk than before the collapse of the ERM,' says Mr Albert Maasland, the European head of foreign exchange sales and marketing at Chase Investment Bank in London.

While the ERM was running under its old format, companies were content to use the D-Mark as their main hedging currency against the other leading global trading currencies, since the German currency was effectively the proxy for all the other European currencies.

But after the ERM bands widened, this was no longer the case and companies could not take it for granted that the ERM would provide them with adequate protection. Consequently, they are having to hedge themselves against a far bigger number of currencies.

This has led to a big increase in the trading volume between the leading world currencies and the less active European currencies. For example, trading in the yen against the Belgian franc has increased substantially in the last few months.

The improved volume is actually working in favour of companies, because the greater liquidity in such currency crosses has improved pricing and the execution of larger transactions.

In addition, now that the ERM no longer provides blanket protection against a wide range of currencies, banks have developed various derivative products which are designed to do just that.

Bankers report that volume in derivative products has increased dramatically, because corporate treasurers agree that it is probably more dangerous to do nothing about a currency exposure than to devise appropriate hedging strategies.

In addition, there is a consensus that the heavy currency-related losses suffered by Allied-Lyons, Shell and Adam and Co, the private bank since taken over by Royal Bank of Scotland, highlighted the inadequate controls at those companies and not that the hedging instruments were at fault.

These derivative products, which tend to be traded more actively over the counter than on the exchanges, can be tailor-made to each company's individual needs. Their main attraction is that they offer companies a cheaper and more efficient way to hedge themselves against several currencies.

One product which is becoming increasingly popular is the 'basket' option, which has been used for many years in the equity markets. It has since been developed to provide a lower-cost hedge for multiple currency exposures against one or more 'base' currencies.

Such products are also being used by European companies which are trading more actively in the emerging markets, especially in Asia. Bankers say there is active two-way business in this area, because companies in the emerging markets are also keen to use derivatives to hedge themselves.

Even companies that only do business in their domestic market are increasingly exposed to fluctuations in the foreign exchange market following the collapse of the ERM.

UK companies were among the first to become aware of the indirect danger to their earnings, shortly after sterling started to fall against other European currencies.

Although sterling's depreciation was seen as a godsend for the country's exporters, it has created a series of problems for companies in the domestic sector.

Mr Les Halpin, managing director of Record Treasury Management, a UK company which advises corporate clients on how to manage currency risk, gives the example of confectionery manufacturers who are having to pay far more for their raw material, sugar.

The intervention price of sugar in the European Community is denominated in the European currency unit (Ecu). Sterling's fall against the Ecu, combined with changes in the EC's agro-monetary regime, resulted in UK confectionery manufacturers having to pay more for their sugar.

However, they were unable to pass on their higher raw material costs to their customers, because of the pricing war among the various supermarkets. Their profit margins suffered as a result.

'These companies suddenly woke up to the fact that they faced foreign exchange risks even though they were totally focused on the UK domestic market,' says Mr Halpin.

One solution offered to a company in this situation was to undertake a series of foreign exchange deals, whereby it would be short of sterling when the currency was going down and be in a neutral position when sterling was going up.

'By using straightforward financial instruments these, companies can create a suitable risk profile,' says Mr Halpin.

Some manufacturing companies that export their products neutralise any competitive disadvantages resulting from foreign exchange fluctuations by buying parts for their products in the countries of their principal rivals.

For example, a UK car company is known to buy German gear boxes, one of the most expensive components in a car, so that it can compete on a more equal footing with German car companies both at home and in the export market.

Companies which have been doing business in many countries for decades have not been greatly affected by the turmoil in the ERM, because they have been structured in such a way as to minimise the impact of foreign-exchange movements on their earnings.

For example, BAT Industries, the Anglo-American tobacco and insurance group, has decentralised its operations, to enable most currency transactions to be handled locally.

'BAT tends to be fairly large in the local economies, so we have the ability to take quality decisions locally,' says Mr Richard Desmond, the group's corporate treasurer. 'As a result, our exposures are not great.'

However, BAT also has a centralised 'netting' process, so that its foreign subsidiaries can set off any currency exposures which they might have against one another. 'We have an information system which lets us know exactly what the general exposures are in the group,' says Mr Desmond.

BAT's non-remitted profits are not hedged, since they are kept by the local companies to build up their asset base. However, cashflows to the centre are managed actively by BAT's in-house treasury team of five professionals. BAT uses an average rate to translate foreign exchange earnings, but also uses options strategies to help reduce risk.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy MGMT Management & Marketing CMMT Comment & Analysis P9311 The Financial Times London Page 36 1165
Survey of Corporate Treasury Management (4): Lower rates bring new problems - Debt management Publication 931102FT Processed by FT 931102 By ANTONIA SHARPE

UK COMPANIES breathed a huge sigh of relief when interest rates started to come down late last year, but at the time only a few believed that rates would fall as far as they did.

One of the main advantages of a low interest rate environment is that companies have been able to make substantial savings by re-financing old, high-coupon debt with cheaper debt.

Investor demand for long-dated paper has also enabled companies to extend the maturity of their debt profiles. By issuing long-dated bonds and redeeming short-dated debt, many companies have achieved an average life for their debt of more than five years at the lowest interest rates in 20 years.

At the same time, the lack of supply of corporate debt, especially in the UK bond market where demand has been great, has resulted in a dramatic tightening in the spread on such paper, that is, the premium which issuers have to pay above the yield on government bonds.

Many companies have also shifted the balance of their fixed-rate and floating-rate debt in favour of floating-rate debt, in order to make the most of further falls in interest rates.

Although the benefits to companies of lower interest rates cannot be under-estimated, the sheer pace of the fall in rates has created a new series of problems for company treasurers to solve.

Companies which find themselves in the most difficult position are those with a high proportion of their debt fixed at a rate well above the current interest rate.

Since they are having to pay more than the market rate to service their debt, this places them at a competitive disadvantage to their rivals who have a far greater proportion of their debt with a floating or market rate. Each time rates fall, the competitive disadvantage becomes greater.

'It hurts to admit that you are paying well above the going interest rate for your debt,' says a banker at a leading investment bank.

As a result, banks are noticing a rise in demand from companies for derivative products that enable them to cut the cost of servicing their fixed-rate debt, says Mr Paul Ward, director in the fixed-income department at Salomon Brothers in London.

The derivative product designed to help companies in this situation is called an 'interest-rate swap'. Using this structure, the company enters an agreement with a counterparty, usually the derivatives unit of an investment bank, to swap the fixed rate on its debt for a floating rate.

It is likely that the company will end up having to pay a substantial margin above the London interbank offered rate (Libor), because of current market conditions.

However, it will reap the benefit of the swap when Libor falls, because its interest costs will decline accordingly. Had the company decided to stay with fixed-rate debt, its borrowing costs would have remained the same.

Falling interest rates also harm companies which relied on the interest income generated by their cash mountains during the period of high interest rates. 'Corporates do not usually buy protection against falling interest rates,' says Mr Marco Ferrazzi, senior vice-president at Chase Manhatten Bank in London.

One solution for a company in this situation would be to enter a swap which allows it end up receiving a fixed rate on its cash mountain. In return it pays a floating rate to the counterparty. This is effectively the reverse of the swap taken out by a company looking for a solution to its fixed-rate debt problem.

Mr Ferrazzi says that another way that a company can insure itself against falling interest rates is to buy a 'floor' or a minimum interest rate, which it will continue to receive on its cash even if rates go below the level specified by the floor.

Alternatively, the company can sell a 'cap' or a maximum interest rate against its cash, whereby it gives up any potential returns above the cap in return for a fee.

Companies also use swaps as an efficient way to adjust the fixed-rate/floating-rate split of their debt portfolio depending on the trend in interest rates.

Mr Arthur Burgess, group treasurer at British Gas, says that British Gas aims to have three-quarters of its debt in fixed rate and one-quarter in floating rate, but that the split can vary to half-and-half depending on the company's view on interest rates. 'We use the swaps market to switch from fixed to floating,' he says.

Derivatives are becoming an increasingly important part of a company's strategy to manage debt. Indeed, a recent court decision in the US has potentially opened the door for directors to be sued for failing to use derivatives to protect their companies against volatility in the financial markets.

The Indiana court of appeals (Brane v Roth) held that the directors of an agricultural co-operative had been negligent in not considering the possibility of hedging their company's grain holdings by using the futures market.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 36 861
Survey of Corporate Treasury Management (1): Purse strings are tightened - Volatility in European currency markets and fear of foreign exchange dealing losses have forced companies to strengthen controls and re-assess their approach to hedging. Institutional investors are also demanding greater disclosure. Publication 931102FT Processed by FT 931102 By TRACY CORRIGAN

WHILE THE advantages of a strong treasury function have become much more widely appreciated by companies in recent years, so too have the potential risks associated with a poorly managed treasury operation.

The loss of Pounds 150m in foreign exchange dealings by the treasury department of Allied-Lyons, the UK foods group, in 1991 triggered a wave of concern about internal management procedures.

Since then, as well as tightening up controls, many companies have also started to pay more attention to broader policy issues. In particular, the unexpected volatility of European currencies over the past year has forced a number of companies to reassess their approach to hedging.

For example, many UK companies had stopped hedging their exposure to European currencies, because they thought that they were protected by the exchange rate mechanism. When some currencies fell outside the system, they were taken by surprise.

'Many boards have been requiring the treasurer to be much more rigorous in deciding the hedging programme,' said Mr Derek Ross, a partner at Touche Ross who advises companies on treasury management.

There is a growing tendency to take shorter-term decisions on currency hedging; for example, hedging two to three months ahead, rather than 18 months, so that if the market turns, the company is not locked in at a disadvantageous rate for a long period.

Company board members are less likely these days to dismiss treasury officials as bureaucrats, and more likely to have an idea of what actually goes on in their company's treasury operation.

The other issue which has brought corporate treasury into the limelight has been a growing chorus of demands by institutional investors for greater disclosure of corporate treasury policies in companies' accounts.

The Association of Corporate Treasurers (ACT), a grouping of UK company treasurers, has produced an exposure draft of guidelines for disclosure. In the current climate, in which companies are being bombarded with new disclosure requirements, some companies are rather unenthusiastic, while others take the view that the guidelines should go further.

Again, currency volatility has highlighted this issue. Analysts or investors looking at, for example, a UK company which has a large US operation could expect that company's results to improve as a result of a stronger dollar. However, if that exposure to dollar earnings has been hedged, this will not be the case. Analysts would like to know not only whether the exposure is hedged, but also what rate the company has locked in.

Only a few UK companies, including RTZ and Courtaulds, describe their treasury activities, including interest-rate and currency exposure management policies, in any detail.

Among companies themselves, there has been a renewed focus on cash management. 'If you can manage Dollars 10m of liquidity better, that is fundamental to the business,' points out one treasury adviser. The stronger emphasis on performance management, as well as tough times at many companies, has focused attention on an area that was often ignored in the 1980s.

But the emphasis on internal controls remains strong. The Allied-Lyons loss was incurred by the writing of currency options, creating huge positions which were concealed from senior management.

In the wake of that loss, the ACT issued a set of guidelines urging tighter internal controls, regular audits and full disclosure of risk management strategies.

However, companies have continued to report losses stemming from treasury operations. Most have been on a much smaller scale, though a few have been substantial.

Most recently, Showa Shell Sekiyu, the Royal Dutch/Shell group's Japanese affiliate, revealed in February that traders in its treasury department had run up some Dollars 1bn in unrealised foreign exchange losses.

A Dollars 6.44bn forward exposure to the dollar at the end of last year was incurred in secret by a group in Showa Shell's treasury, which had erroneously believed the US currency would rise against the yen. Announcing its first-half results in August, Showa Shell described progress in unravelling the exposure as encouraging, but said there was a 'longish tunnel' of two to three years before it would emerge from the episode.

This latest loss points to a particular area of danger for large multi-national companies, which lies in the difficulty in keeping tabs on all areas of business. Most large multi-national companies now have centralised dealing operations, rather than treasury functions attached to each offshoot.

'Generally, there has been quite a big improvement in the amount of attention that top management has given to internal control,' said Mr Ross, who is also chairman-elect of ACT. 'But for many groups that is primarily exercised in head office. Quite often, problems arise in some far-flung branch or associated company.'

For companies concerned about the efficacy of their internal controls, there are a number of important checks to be implemented, such as making sure that the company's board agrees with policy, that there is complete segregation of duties between dealing, confirmation settlement and reporting functions, and that all transactions are marked to market value. These procedures should also, of course, apply to financial institutions.

For example, Sumitomo Finance International incurred a Dollars 2-3m loss on its interest-rate options book last autumn, after a desk manager had concealed his real trading position from senior management.

The manager of the interest-rate options desk had to record the value of his positions in management reports submitted to his chief executive, but he gave falsely inflated values in order to hide his true position. He then persuaded an employee with another firm, which he knew was used by Sumitomo's accounts department to check those valuations, to quote inflated prices that corresponded with those in his own internal management reports.

'In my experience, there are a lot of banks where a trader, believed to be of exceptional quality, reports direct to the top,' said Mr Ross, who advises banks and securities firms in this area. 'It's easy to develop a culture which allows the trading-room to develop without controls.'

Since the Allied-Lyons losses were reported, there has also been a general move to upgrade computer systems, as technology has advanced and costs have fallen. Sophisticated systems are particularly important in certain areas of risk containment; for example, in marking to market. 'But the key features of internal controls are not systems issues,' Mr Ross said.

While a collusive fraud may still be hard to detect, controls involving a range of different functions in the trading, settlement and reporting process at least reduce the opportunities for positions to be hidden.

'You can't stop somebody doing an unauthorised trade,' admits Mr Ross. 'But you can make sure it can be closed out the following day.'

While there is still a strong emphasis on keeping controls in place in the treasury department, the emphasis on managing financial risk is also spreading away from the treasury function, according to some management consultants.

Consultants at Coopers & Lybrand point out that many of the notorious losses at companies in recent years stem from inadequate management of financial risks in other areas of the business - production quality failure in the case of Perrier, marketing failure in the case of Hoover, for example.

What these losses have in common, according to Coopers, is that, like Allied-Lyons' Dollars 150m hit, they were not expected by top management and they could have been avoided by proper financial risk management.

'Financial risk is being redefined,' says Mr Howard Lovell, a partner of C&L. 'Should companies have a risk management function, over and above the Treasury department?' For example, a finance director could be given the task of managing the risks facing the company in a broader context.

For all the importance of interest-rate management, interest-rate risk is relatively small, compared with other risks to the company which could wipe them out, he argues, adding that some companies have already taken this point on board.

Mr Lovell takes his argument a step further. 'Is treasury going to be called treasury in five years time? Or will it be called risk management?'

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P8721 Accounting, Auditing, and Bookkeeping Services CMMT Comment & Analysis MGMT Management & Marketing P9311 P8721 The Financial Times London Page 35 1405
Commodities and Agriculture: India backs sugar re-export plan - The country's proposals for retaining credibility as a supplier and, below, on moves to let coffee growers sell their crop abroad Publication 931102FT Processed by FT 931102 By KUNAL BOSE

THE INDIAN federal government is favourably disposed to a proposal by the Indian Sugar and General Industry Exim Corporation to import raw sugar this season for re-export, after processing, as white sugar.

The corporation has suggested the export-linked import of 250,000 tonnes of raw sugar during the 1993-94 season. India, which re-entered the sugar export market in 1990-91 after a gap of six years, will not have any exportable surplus in the current season.

The initial sugar production forecast for 1993-94 is 11m tonnes, compared with actual production of 10.6m tonnes last season and 13.4m tonnes in 1991-92. In spite of last year's serious setback in production, India could export 411,000 tonnes of sugar as the 1992-93 season opened with very comfortable stocks of over 4.9m tonnes. Indian exports in 1991-92 were 562,000 tonnes, up from 223,000 tonnes in 1990-91.

The Exim corporation has also recommended the import of another 550,000 tonnes of raw sugar in the current season to be refined for domestic consumption. These import would be made on condition that the same amount was exported in the following season, when production is expected to improve.

The Indian Sugar Mills Association has warned the government that India will lose 'credibility as a dependable source of supply' if it suspends export in the current season. 'The now on, now off approach to export has not helped us in the past,' an ISMA official said recently. 'We have made a considerable effort to develop a market for Indian sugar in the neighbouring countries. This we do not want to lose.'

Moreover, importing raw sugar for processing into white sugar would enable the Indian industry to use capacity that would otherwise remain idle.

In the meantime, the mills association has taken strong exception to a government move to liquidate the buffer stock of 500,000 tonnes of sugar created six months ago. It argues that not only should the buffer be maintained but its size should be expanded whenever there is an opportunity to ensure regularity of export, irrespective of variations in domestic sugar production.

According to ISMA, Indian sugar production will once again be low as the area under cane has not increased. What it finds most disturbing is that the area under cane in Maharashtra, India's most productive cane growing state, has shrunk, while 'the condition of the crop in the drought affected Maharashtra is far from satisfactory'. Floods have affected the standing crop in Bihar and a few other places.

Total supply of sugar in the current season, which opened with stocks of 3.2m tonnes, will be 14.2m tonnes at most. As domestic consumption will be more than 12m tonnes, compared with 11.9m tonnes last year, the next sugar season is likely to open with disturbingly low stocks.

IN India, Asia P2061 Raw Cane Sugar MKTS Foreign trade P2061 The Financial Times London Page 34 514
Commodities and Agriculture: Xerox breakthrough worries silver market Publication 931102FT Processed by FT 931102 By KENNETH GOODING, Mining Correspondent

SILVER'S BIGGEST market could be threatened in the long term if Xerox Corporation's claim to have developed a silver-free film process is justified, analysts suggested yesterday.

Worries about the Xerox breakthrough forced silver's price in London down by 15 cents a troy ounce, or 3.4 per cent, to 423.5 cents by the close yesterday. The sharp movement unnerved the rest of the precious metals market and gold fell to Dollars 362.75. down by Dollars 6.05 an ounce.

Xerox announced its new product, VerdeFilm, at the weekend. It is aimed solely at the graphic arts market and substitutes for the silver-halide films used to make mastering plates for high-quality photography used in many magazines, newspapers and commercial printing. Xerox said there seemed to be no way yet for the process to be applied to consumer photography.

However, the US group claimed that in graphic arts applications its patented technology 'surpasses traditional silver-halide in quality and costs and addresses a pressing environmental concern' as VerdeFilm did not require any toxic processing chemicals.

Graphic arts used about 1,300 tonnes of silver last year, or one-fifth of the 5,800 tonnes used for photography and about 7 per cent of total silver consumption - 18,300 tonnes in 1992 - according to the Silver Institute, a Washington-based promotional organisation.

'This development could give silver a bad image,' said Mr Andy Smith, analyst at Union Bank of Switzerland. He suggested Xerox's announcement could have a depressing impact on sentiment in the silver market in the same way as two other relatively recent revelations - news that Ford had developed a non-platinum car catalyst and that some central banks had been selling from their gold hoards - dented other precious metals markets. 'These are things that the market said would never happen. And now some of the conventional wisdom in the silver market is being challenged.'

Mr Tony Warwick-Ching of the Commodity Research Unit consultancy group, like Mr Smith, said he spoke without knowing the full details of Xerox's technology or the costs of using it. But if the quality problems usually associated with non-silver film had been overcome, 'this could threaten silver in the long term'.

Mr Smith said the fall in the silver price towards Dollars 4 an ounce would be a good test of demand in the Middle and Far East where 'they take no notice of technological developments'. Demand there would probably prevent the price falling much further.

Xerox said it would start commercial deliveries of its new product in the second quarter of 1994. Its process uses selenium, produced mainly as a by-product of electrolytic copper refining. About 30 per cent of the 2,000 tonnes of selenium produced each year goes to the electronic and photocopier industries.

Xerox Corp US United States of America P3861 Photographic Equipment and Supplies P1044 Silver Ores CMMT Comment & Analysis COSTS Equity prices P3861 P1044 The Financial Times London Page 34 503
Commodities and Agriculture: Coffee growers to taste foreign trade Publication 931102FT Processed by FT 931102

IN AN important move towards liberalisation of coffee marketing, the Indian federal government is to allow growers to export the commodity independent of the Coffee Board.

Encouraged by the success of its earlier scheme to allow the growers to retain 30 per cent of the crop for marketing within the country, the government has now given in to their demand to participate in the export trade.

According to the new scheme, described as free sale quota (FSQ), growers will keep 50 per cent of the crop for marketing inside and outside the country.

The scheme will, however, become operational only when certain amendments have been made to the Indian Coffee Act of 1942. As the Indian Parliament is not in session now and the government wants the scheme to be operational soon, the changes in the Act will be made through an ordinance.

The growers will make over the remaining 50 per cent of the crop to the Coffee Board.

It is now clear that the government will progressively increase the size of FSQ, reducing the marketing role of the board and placing a question mark over the future of many of its 4,000 employees. According to growers' organisations the Coffee Board, in common with other commodity boards, should be concerned with research and development and promotion of the beverage, particularly in India.

In the meantime, growers are confident that they will be able to realise a better unit value from export sales than the board.

In fact, the stagnation in domestic coffee prices has already been broken after the introduction of privately organised auctions.

There is a general sense of relief that a large-scale change in the coffee trade will coincide with an expected bumper coffee harvest of more than 225,000 tonnes in 1993-94, up from 161,500 tonnes last year.

IN India, Asia P0179 Fruits and Tree Nuts, NEC MGMT Management & Marketing MKTS Foreign trade P0179 The Financial Times London Page 34 338
Commodities and Agriculture: LCE raw sugar contract hit by volume slump Publication 931102FT Processed by FT 931102 By ALISON MAITLAND

TRADING volume in the London Commodity Exchange's new raw sugar futures contract has slumped after a buoyant start.

Volumes in the contract, launched on October 1, fell from 1,655 lots on the first day to as low as 15 lots on October 26, giving an average for the month of 370 lots a day.

Mr Robin Woodhead, LCE chief executive, said: 'Whilst we want to see much greater levels than currently, it's still very early days and there would still seem to be a high level of support from the trade.

'We remain optimistic that volumes will increase once the physical market becomes more active.'

The premium contract was launched to take advantage of dissatisfaction with the raw sugar contract traded on the Coffee, Sugar and Cocoa Exchange in New York. Many traders disagreed with a decision to allow Brazilian crystal sugar to be delivered against the New York contract, saying it should not be classed as raw sugar.

ED& F. Man, the London trading house, said the downward trend in volume must be causing concern to the LCE. But Ms Angela Mutton, sugar researcher with Man, pointed out that volumes had been subdued in New York as well as London last month.

Mr Chris Pack, sugar analyst at C. Czarnikow, another London trade house, said the contract faced a 'catch-22 situation', with volumes unlikely to pick up until the physical trade began to show interest.

'The sugar producers are looking for volume, and until they're in there, there won't be the volume.'

GB United Kingdom, EC P2061 Raw Cane Sugar CMMT Comment & Analysis MKTS Market data P2061 The Financial Times London Page 34 294
Commodities and Agriculture: Pakistan's cotton crop may be 15% below target Publication 931102FT Processed by FT 931102 By FARHAN BOKHARI ISLAMABAD

PAKISTAN'S cotton output may be as much as 10 to 15 per cent lower than this year's target of 12m bales because of pest attacks in central Punjab, senior government officials say in their latest assessments.

The new estimates may be a setback to Islamabad's efforts in recovering from last year's large-scale damage due to severe floods and a subsequent virus attack. Output fell then to 9m bales from the expected 12m bales.

Mr Zahoor Ahmed, head of Pakistan's leading cotton research station, in Multan, said yesterday: 'The cotton crop could be 10m bales.'

Recent pest attacks in the Faisalabad division of central Punjab may have damaged as much as 50 per cent of the crop in that area, he added. The final estimates for this year's crop are expected to be made available in the next couple of weeks.

Meanwhile, legislators elected from Pakistan's cotton belt in Southern Punjab are expected to ask the government for special relief if the crop damage is spread over an area which is larger than current estimates.

One member of the newly elected National Assembly - the lower house of parliament - said: 'What I have seen out in the fields is certainly no indication of the bumper crop that we hoped to have. It's a sad story of last year's calamity of floods being followed by this year's viral infection.'

Stock prices on Pakistan's largest stock market, the Karachi stock exchange, have risen in recent weeks, partly because of expectations of a large cotton crop and so a cheaper raw material, which would be likely to increase the profitability of textile factories.

But with the latest damage assessments, which may raise cotton prices in the local market, it is not yet clear if the forward movement on textile shares will continue.

However, an official of the Pakistan Central Cotton Committee said the rumours of pest attacks could be intended to boost prices, which have dropped in recent weeks on reports of a good crop this year. 'It is too early yet to discuss the damage, if any, to the crop,' he said.

Prices for fresh crop cotton have fallen sharply to 950 rupees a maund (37.32 kg), from about 1,100 rupees a month ago.

PK Pakistan, Asia P0131 Cotton MKTS Production COSTS Commodity prices P0131 The Financial Times London Page 34 409
Commodities and Agriculture: Oil wavers in run-up to output and demand news Publication 931102FT Processed by FT 931102 By ROBERT CORZINE and REUTER LONDON

OIL MARKETS are likely to remain unsettled in the run-up to the release later this week of demand forecasts for consuming countries and publication of official figures on October production levels by members of the Organisation of Petroleum Exporting Countries, analysts said yesterday.

Prices for Brent Blend for December rose to Dollars 16.10 in late London trading yesterday after falling below the psychologically important Dollars 16 a barrel level last Friday.

The weak prices prompted Mr Gholamreza Aqazadeh, the Iranian oil minister, to suggest at the weekend that Opec, which meets in Vienna later this month, might have to re-examine its production ceiling of 24.52m barrels a day in order to stabilise prices.

But Mr Peter Bogin, of Cambridge Energy Research Associates in Paris, said yesterday that 'it would be very difficult for Opec to go below' the current ceiling, which was set in September and which is due to run until the end of March next year.

'Everybody is surprised at how weak prices are, but we just have to assume that there is too much supply for present demand,' he said.

International Energy Agency figures on likely oil demand in the main consuming countries are due out at the end of the week.

'If the IEA cuts its demand forecast again then it will reinforce the bearish market,' said Mr Bogin.

Other factors behind the recent price weakness include reduced demand from Asia, especially Japan. Asian buyers are normally the first to take advantage of low crude oil prices, but they are 'not leading the way' because of the economic slowdown in important economies, said Mr Vahan Zanoyan, a director of the Washington DC-based Petroleum Finance Company.

He also pointed to an overhang of crude oil stocks, sharply increased production from the North Sea, the possibility of Iraq's reaching an agreement with the United Nations which would allow it to resume oil exports and some 'minimal' Opec output in excess of the production ceiling as additional factors depressing the markets.

Some unofficial estimates have placed OPEC's October output at more than 24.9m b/d. The Middle East Economic Survey yesterday described such estimates as high, but said they had 'severely undermined' market confidence.

Mr Zanoyan said Opec may simply have to hope for an early cold spell in the northern hemisphere to prop up prices. 'A few weeks of temperatures several degrees below normal in November or early December can have a disproportionate impact on prices.'

The flow of crude oil through the Brent pipeline system in the North Sea has been cut to 60 per cent of capacity due to maintenance on a pump Reuters reports from London.

A Shell/Expro spokesman said the pump on the Cormorant Alpha platform was taken out of service over the weekend.

'Production levels are being maintained using available platform storage,' he said.

Cormorant Alpha is the hub of the Brent pipeline system through which crude oil from nine other fields passes on its way to the Sullom Voe terminal in the Shetland Islands, where Brent Blend crude is mixed.

GB United Kingdom, EC XA World P1311 Crude Petroleum and Natural Gas COSTS Commodity prices P1311 The Financial Times London Page 34 552
World Commodities Prices: Tea Publication 931102FT Processed by FT 931102

Landed north Indians met good competition with best liquoring sorts irregular and coloury mediums fully firm and often dearer, reports the Tea Brokers' Association. Plainer lines were about steady. Selected best liquoring east Africans held values but others were 10 to 15p down, sometimes more. Mediums were, on the other hand, well supported at last rates. Brighter Ceylons were occasionally dearer with the remainder firm. Offshore: continuing good demand at last rates. Quotations: quality 200p/kg, good medium 140p/kg, medium 122p/kg, low medium 103p/kg. The highest price realised this week was 236p/kg for a Rwanda pf. 1.

GB United Kingdom, EC P0831 Forest Products COSTS Commodity prices P0831 The Financial Times London Page 34 122
Commodities and Agriculture: Indian Coffee Board sub-committee to investigate Nestle India allegation Publication 931102FT Processed by FT 931102 By KUNAL BOSE

A SUB-COMMITTEE of the Indian Coffee Board is inquiring into an allegation that Nestle India, an important presence in the country's domestic and export trade in coffee, has diverted a portion of the coffee bought in export auctions into the domestic market, writes Kunal Bose.

While the company maintains that no diversion of coffee meant for export has been made to the domestic market, the sub-committee, which is unsatisfied with the returns submitted by Nestle for purchases made at export auctions between October 14 1992 and June 9 1993, thinks there is reason to debar it from participating in future export auctions.

The commerce ministry does not, however, favour the idea of keeping Nestle out of the export auctions. Its main concern is to step up exports as the country heads for a bumper coffee crop in 1993-94.

Nestle India IN India, Asia P0179 Fruits and Tree Nuts, NEC COMP Company News P0179 The Financial Times London Page 34 180
World Commodities Prices: Market report Publication 931102FT Processed by FT 931102 By REUTER

ALUMINIUM prices dropped to fresh eight-year lows on the London Metal Exchange yesterday, tumbling to Dollars 1,037 a tonne at one stage before a short-covering rally took the three-month price back up to Dollars 1,045.2, down Dollars 22 a tonne from Friday's close. Aluminium's collapse depressed sentiment in other metals, particularly COPPER, which sagged back towards six-year lows. However, traders said there was some underlying support near Dollars 1,620 a tonne. NICKEL was lower from the outset and prices subsided below Dollars 4,600. Silver's fall (see story above) dragged down precious metals and GOLD tested support at Dollars 362 before closing in London Dollars 6.05 a troy ounce down at Dollars 362.75. PLATINUM fell by Dollars 5.15 to Dollars 369.35 an ounce. 'Having failed on the upside last week, silver gave us the excuse to take it (gold) down to test lower levels,' said one dealer. Another said platinum 'has not acted independently for weeks; it is just mirroring movements in gold and silver'. COCOA prices clawed back some of their early losses, with the March contract closing at Pounds 964, down Pounds 6, in routine trading, after dipping to Pounds 955 following a slump in New York.

Compiled from Reuters

GB United Kingdom, EC P1021 Copper Ores P1061 Ferroalloy Ores, Ex Vanadium P1099 Metal Ores, NEC P0179 Fruits and Tree Nuts, NEC COSTS Commodity prices P1021 P1061 P1099 P0179 The Financial Times London Page 34 248
International Bonds: Offerings from Andalucia, Depfa in the pipeline Publication 931102FT Processed by FT 931102 By ANTONIA SHARPE

ISSUANCE in the international bond market was minimal yesterday as many financial centres in continental Europe were closed for All Saints' Day.

However, some interesting Eurobond offerings are expected this week. The Spanish region of Andalucia is expected to raise FFr1.3bn through an offering of 10-year Eurobonds. Paribas, Banco Central Hispano and Commerzbank are arranging the deal.

The bonds are likely to be priced to yield 20 to 25 basis points over underlying French government bonds. Andalucia last tapped the Eurobond market in February when it raised DM400m through an offering of five-year Eurobonds.

Depfa, the German mortgage bank, is expected to launch a French franc Eurobond issue next week.

The 10-year offering, to be jointly led by BNP and SBC, is expected to raise between FFr2bn and FFr3bn.

Among yesterday's issues, China Travel, a mainland Chinese freight and holiday company which is listed in Hong Kong, launched a Dollars 125m offering of five-year convertible bonds, via Merrill Lynch.

The indicated coupon is between 4.25 per cent and 4.75 per cent and the indicated conversion premium is between 19 per cent and 23 per cent. The deal is expected to be priced later this week.

Banco Bradesco, Brazil's largest private-sector bank, raised Dollars 50m through an offering of three-year Eurobonds. The bonds were priced to yield 355 basis points over the 4 3/8 per cent US Treasury due 1996. When the bonds were freed to trade, they were quoted at par bid, according to lead manager Salomon Brothers.

STANDARD & Poor's, the US rating agency, has raised its credit ratings on GPA Group, the troubled Irish aircraft leasing company which has been rescued by GE Electric of the US. About Dollars 2bn worth of debt is affected.

GPA's ratings have also been removed from S&P's credit-watch, where they were placed in November 1992. By contrast, GPA's ratings remain on Moody's watch list where they were placed in May this year.

S&P said that the upgrade was based on GPA's improved liquidity and deferral of cash commitments arising from the completion of an extensive financial restructuring.

However, S&P said that the outlook on GPA was 'developing' which indicated that its ratings could be raised if the company was able to achieve the aircraft sales needed to meet remaining debt maturities and lowered if it failed.

S&P raised GPA's unsecured senior debt ratings to triple C from triple C minus, while the ratings on equipment trust certificates are raised to B minus from triple C plus. Both ratings are below investment grade.

GPA Group CN China, Asia BR Brazil, South America IE Ireland, EC JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy P7359 Equipment Rental and Leasing, NEC CMMT Comment & Analysis MKTS Market data P9311 P7359 The Financial Times London Page 33 480
Government Bonds: Treasuries ease on purchasing managers' data Publication 931102FT Processed by FT 931102 By PATRICK HARVERSON and TRACY CORRIGAN NEW YORK, LONDON

THE US bond market eased at both ends of the maturity spectrum yesterday after dealers and investors sold Treasury securities following a stronger-than-expected October purchasing managers' report.

In late trading the benchmark 30-year government bond was down 25/32 at 103 1/8 , yielding 6.018 per cent. At the short end of the market, the two-year note was down 1/8 at 99 5/8 , to yield 4.056 per cent.

After a subdued opening, prices turned lower when the National Association of Purchasing Management reported that its index of manufacturing activity rose to 53.8 in October from 49.7 in September. Analysts had expected the NAPM index to rise to 50.9 per cent.

Investors and dealers reacted badly because they fear the economy may be finally picking up after languishing for most of this year. They were particularly concerned about strength in manufacturing production and orders.

The only bright spot in the figures was the lack of growth in the NAPM's index of prices. Analysts said that manufacturing output was growing because of productivity improvements, which bode well for future inflation.

The market was also buffeted by speculation about the contents of the next quarterly refunding round, which will be announced tomorrow.

Although the Treasury has said that 30-year bonds will not be part of the November refunding, dealers were still speculating yesterday that the government would sell bonds later this month along with new three-year and 10-year issues that may be larger than expected.

MOST European markets were closed for a holiday, but those that were open took their lead from the US.

GERMAN bond prices fell around 1/4 point in low volume. Although Hesse, the state in which Frankfurt is located, was open yesterday, most other German states were closed for All Saints' Day.

'The market has run into a bit of profit-taking of late, but overall it is extremely well supported,' said Mr Nigel Richardson, an economist at Yamaichi International. 'The currency was weak today, which may have caused a bit of a sell off.'

THE UK gilts market fell about 3/8 point as it continued to take its cue from continental Europe. Dealers were disheartened by chancellor of the exchequer Mr Kenneth Clarke's comments, in a weekend interview, that he sees little immediate pressure to reduce interest rates further. He said he agreed with Bank of England governor Mr Eddie George's view that UK interest rates should not fall below their current 6 per cent level, if there is a risk of increasing underlying inflation.

Traders had been discounting further rate cuts around the time of this month's budget, in order to compensate for any tax increases. 'I wouldn't say the market has written off an interest rate cut, but there is an underlying mood of caution,' said Mr Richardson of Yamaichi.

JAPANESE government bond prices rose more than 1/4 point, with heavy volume in the futures market due to continued speculation on interest rate cuts. With 3 1/2 per cent 10-year yields in sight, the market's pursuit of this target is being encouraged by continued economic weakness.

Futures volume may have been partly boosted by the opening of the new securities subsidiaries of two trust banks, Sumitomo and Mitsubishi, dealers said.

US United States of America DE Germany, EC GB United Kingdom, EC JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy MKTS Market data CMMT Comment & Analysis P9311 The Financial Times London Page 33 590
International Capital Markets: Ball denies resignation was linked to US probe Publication 931102FT Processed by FT 931102 By PATRICK HARVERSON

MR George Ball, who has resigned as senior executive vice-president at Wall Street brokers Smith Barney Shearson, denied that his departure was linked to the US government's investigation of a scandal at Prudential Securities, the firm he once led.

Prudential has agreed to pay at least Dollars 371m in fines and restitution to clients who bought billions of dollars of high-risk property and energy limited partnerships in the 1980s after they had been wrongly told by Prudential brokers that they were low-risk investments.

Mr Ball was chief executive of Prudential, then known as Prudential-Bache, between 1982 and 1991. Investigators are reported to be considering civil proceedings against former Prudential executives.

Although reports said Mr Ball was ousted from his post at Smith Barney because of concern that the firm's reputation would be harmed if such a high-profile figure faced charges relating to the Prudential scandal, Smith Barney said Mr Ball had informed them of his plans to leave several months ago.

Smith Barney Shearson US United States of America P6211 Security Brokers and Dealers PEOP People P6211 The Financial Times London Page 33 203
International Capital Markets: Pechiney loan oversubscribed Publication 931102FT Processed by FT 931102 By ANTONIA SHARPE

A LARGE syndicated loan for Pechiney, the state-controlled French aluminium group which is earmarked for privatisation, has been oversubscribed, reflecting the dearth of quality corporate borrowers looking to raise funds in this market.

The lack of borrower demand for syndicated loans this year has resulted in a considerable erosion in margins as banks compete more aggressively for new loans business.

Pechiney was looking to raise Dollars 800m, but bankers involved in the deal said that more than Dollars 1bn had been raised during the course of syndication. The borrower is expected to take a decision in the next few days on whether to increase the loan.

The loan, jointly arranged by Barclays Bank, BNP, Societe Generale and CS First Boston, will be divided into two tranches. One tranche of Dollars 400m will have a relatively long maturity of seven years, while the other Dollars 400m tranche will have a life of five years.

Pechiney, which is unrated but is perceived by the market as a single A credit, is paying an interest margin of 55 basis points over Libor for the first five years, on both tranches. The spread over Libor will rise to 60 basis points for the final two years of the loan.

The commitment fee is 27 1/2 basis points for the first five years, rising to 30 basis points in the last two years. The participation fee is 17 1/2 basis points on Dollars 40m for lead managers and 12 1/2 basis points on Dollars 20m for managers.

Pechiney FR France, EC P3334 Primary Aluminum P3353 Aluminum Sheet, Plate and Foil COMP Company News P3334 P3353 The Financial Times London Page 33 291
International Company News: Ankor share issue to raise HKDollars 215.8m Publication 931102FT Processed by FT 931102 By AP-DJ HONG KONG, KUALA LUMPUR

ANKOR Group, the Hong Kong vehicle distribution and service company and exclusive local distributor for Saab cars, said it would raise HKDollars 215.8m (USDollars 27.9m) in an issue of new shares, AP-DJ reports from Hong Kong.

A total of 195.5m shares at HKDollars 1.38 each are being offered, placing 25 per cent of the company in the hands of the public. The issue values the company at HKDollars 1.08bn, with an adjusted net tangible value of 45 cents a share.

Proceeds will be used to finance the purchase of a vehicle service and storage centre.

Aokam Perdana, Malaysian timber group, reported a 76 per cent jump in pre-tax profit to MDollars 54.4m (USDollars 21.8m) for the year to June 30. Aokam's timber processing facilities lifted turnover, AP-DJ reports from Kuala Lumpur.

Revenues rose 88per cent to MDollars 136m from MDollars 72.4m, and net earnings 86 per cent to MDollars 55m from MDollars 29.5m.

Ankor Group Aokam Perdana HK Hong Kong, Asia MY Malaysia, Asia P5012 Automobiles and Other Motor Vehicles P2421 Sawmills and Planing Mills, General FIN Share issues FIN Annual report P5012 P2421 The Financial Times London Page 32 212
International Company News: Samsung ambitions jeopardised by state Publication 931102FT Processed by FT 931102 By JOHN BURTON SEOUL

DECISIONS taken last week by the South Korean government are likely to jeopardise plans by Samsung, South Korea's second-largest business group, to enter the passenger car industry.

Samsung's ambitions to become a car manufacturer aroused controversy after it appeared to be preparing a hostile takeover bid for Kia Motors, the country's second-biggest motor company.

Samsung has long sought to add vehicle production to its operations, which include electronics, shipbuilding and construction.

It recently increased its shareholding in Kia to 9.6 per cent, making it Kia's second-biggest shareholder after Ford Motor of the US.

However, Samsung agreed to reduce its shareholding under pressure from Kia management and the government, which wants to curb the expansion of conglomerates such as Samsung.

The government last week introduced shareholding rules making it impossible for Samsung to attempt a takeover bid.

It ordered that institutional investors associated with conglomerates must reduce their voting stake in other companies from the current 10 per cent ceiling to 5 per cent by the end of June.

Samsung's stake in Kia was mainly held through Samsung Life Insurance.

The government action represented a reversal of its previous plans to lift all shareholding restrictions next year, a measure seen as paving the way for mergers and acquisitions in Korea.

Samsung's interest in taking over Kia was belived to be in its car-production facilities. A takeover would have averted the need for heavy capital spending on factories of its own, estimated to have costed up to Dollars 2bn.

Samsung Kia Motors Samsung Life Insurance KR South Korea, Asia P3711 Motor Vehicles and Car Bodies P6311 Life Insurance P6719 Holding Companies, NEC COMP Mergers & acquisitions P3711 P6311 P6719 The Financial Times London Page 32 301
International Company News: Challenge Bank back in black Publication 931102FT Processed by FT 931102 By NIKKI TAIT

CHALLENGE Bank, the Perth-based regional bank which acquired the retail banking assets and liabilities for NatWest Australia in South Australia and Western Australia in June, yesterday reported a ADollars 21.4m (USDollars 14.3m) after-tax profit in the year to end-September.

The figure compares with a loss of ADollars 43.2m in the previous year. Challenge said non-performing loans fell from ADollars 68m to ADollars 53m during the year. Lending increased to ADollars 1.45bn, including ADollars 1.04bn for owner-occupier and investment housing.

Total assets rose by 25 per cent to ADollars 4.2bn.

The banking group said it believed there were 'consistent signs that Australia is emerging from recession'. It said Western Australia looked 'particularly promising'.

In September, the company announced a ADollars 67.5m convertible note issue, by way of rights to existing shareholders, and a non-underwritten placement of up to ADollars 15m.

Yesterday, it said that the full placement was likely to be made, and that the capital raised should increase the bank's risk-weighted capital ratio to about 12 per cent.

Challenge Bank AU Australia P6081 Foreign Banking and Branches and Agencies FIN Annual report P6081 The Financial Times London Page 32 206
International Company News: Foster's sells meat interest to US group Publication 931102FT Processed by FT 931102 By NIKKI TAIT SYDNEY

THE STREAM of non-core asset disposals by Foster's Brewing Group, the Australian brewing company which owns Courage in the UK, continued yesterday when the company announced the sale of a 45 per cent interest in Australia Meat Holdings, a meat processing business, for about ADollars 100m (USDollars 66.6m).

The stake is being bought by ConAgra, the large US food group, and Australian interests associated with the D. R. Johnson group.

ConAgra already owns a 50 per cent stake in Australia Meat Holdings, which it acquired when Foster's sold a package of agri-business assets - also including brewing materials and wool - for around ADollars 300m.

That sale, two years ago, left Fosters with a 45 per cent interest in Australia Meat, and D. R. Johnson, a New South Wales abattoir company, holding the remaining 5 per cent.

Foster's, which now has a stated policy of concentrating on its main brewing business, said it expected to book a profit of around ADollars 47m on the sale of the remaining stake in AMH.

The brewing company also said yesterday AMH had bought the group's Portland abattoir, which AMH had been operating since 1989 and leasing since 1991, in a separate deal.

The latest deal, which is subject to various regulatory procedures including a green light from the Foreign Investment Review Board, means Foster's has now garnered about ADollars 536m from non-core asset disposals since its June year-end.

This follows asset sales of around ADollars 650m in the previous financial year.

Funds raised from this process are being used to pay down group debt.

Fosters Brewing Group Australia Meat Holdings ConAgra Inc AU Australia US United States of America P2082 Malt Beverages P2011 Meat Packing Plants COMP Disposals COMP Shareholding P2082 P2011 The Financial Times London Page 32 315
International Company News: Wharf plugs in to a guaranteed success - Hong Kong's first cable TV franchise has been worth the wait Publication 931102FT Processed by FT 931102 By SIMON DAVIES

PATIENCE is a virtue rarely appreciated by Hong Kong's investment community. However, for Wharf (Holdings), which has just accomplished its six-year struggle to deliver cable television to the colony, the rewards of perseverance could be substantial.

A Wharf-led consortium was first awarded the cable TV franchise in 1989. It collapsed a year later, amid accusations that the government had breached an exclusivity agreement by allowing Hutchison Whampoa, flagship of the diversified Cheung Kong Group, to launch satellite broadcaster Star TV in Hong Kong.

Further delays were caused by China's insistence on approving all franchises straddling 1997. But eight years after the government first examined the feasibility of cable television in Hong Kong, the system has finally gone ahead, and the outlook is far more positive for Wharf than when it signed up in 1989.

Hong Kong is arguably one of the most attractive sites for cable television in the world. According to Credit Lyonnais Securities, the cost-per-household of installing a cable system there will be USDollars 50, compared with around USDollars 300 in the US. This is because of the vertical nature of Hong Kong's urban core.

The colony has per-capita GDP higher than the UK, and 99 per cent of households own a television. Despite this, the Chinese population - accounting for a vast majority of the colony's 5.9m inhabitants - is served by only two Cantonese-language television channels.

Experience elsewhere in the western world suggests this represents a potential gold mine for a cable television company introducing 11 channels to a wealthy population starved of choice.

Mr Stephen Ng, managing director of Wharf, predicts that by the year 2000, Wharf Cable will have turnover of HKDollars 4bn (USDollars 517.5m) and an operating profit of HKDollars 1.6bn.

Investment analysts are more cautious, but the consensus is that the business should provide an average annual return on the HKDollars 5bn investment of between 20 and 25 per cent before interest and depreciation, during the 12 years of its franchise.

Mr Ng said the market was better prepared for the service than in 1989, while recent technological advances have enabled Wharf to improve the system, while maintaining the initial costs budgeted in 1989.

It is also guaranteed exclusivity until June 1996, providing sufficient time to pick up critical mass to prevent anything other than niche competition; and it has unrestricted access to government-owned housing estates, accounting for 960,000 households.

Jardine Fleming Securities estimates the system will have close to 600,000 subscribers by the end of 1996, and will break even during that year. However, this will depend on the quality of programming, an area in which Wharf has no expertise. If the quality is not there, even a HKDollars 198-per-month subscription fee will seem excessive.

The number of channels to be offered on the new system is already a sensitive issue. Wharf is offering an initial package of eight, but it was also to carry three of Star TV's existing channels, and a further four 'premium' channels to be added by the satellite broadcaster.

The two groups failed to resolve an argument over the details of this preliminary agreement before Sunday's launch. An accord is extremely important, since it prevents significant competition between the two groups.

Whatever the impact on television viewers, however, the network still offers vast potential for Wharf. The company is keen to emphasise the investment as a television project, but there has always been a hidden agenda: the group's ambitions to set up a telecommunications network.

Wharf is bidding for a licence to compete with Hongkong Telecommunications (HKT) when its monopoly on domestic telephony runs out in 1995. In 2006, HKT's international monopoly also disappears, and one of the world's most lucrative telephone franchises will be up for grabs.

Wharf suggests the existence of its cable TV network would shave around HKDollars 1bn off the costs of a telephone network; it would also provide entry into most Hong Kong homes, creating potential for home banking and other interactive services. Wharf is considered certain to receive a licence.

Mr Edmund Brandt, investment analyst at Jardine Fleming, said: 'Wharf Cable as a stand-alone project is a viable investment and it should contribute up to 15 per cent of Wharf's total cash flow by the year 2000. But the potential synergies with a telecommunications network make it that much more exciting.'

Despite writing off HKDollars 107m against its 1989 investment in cable television, Wharf's ambitions have already proven lucrative. It purchased the consortium's headquarters and will realise a substantial profit from it. Second time around, however, the returns could be far more impressive.

Wharf Holdings HK Hong Kong, Asia P4841 Cable and Other Pay Television Services TECH Services & Services use CMMT Comment & Analysis P4841 The Financial Times London Page 32 823
International Company News: Mitsubishi Materials pre-tax profit slides 66% in first half Publication 931102FT Processed by FT 931102 By ROBERT THOMSON TOKYO

MITSUBISHI Materials, the Japanese copper, cement and industrial materials supplier, yesterday blamed the appreciation of the yen and weak demand from manufacturers for a 66.5 per cent fall, to Y2.02bn (Dollars 18.6m), in first-half pre-tax profit.

Sales for the period from April until September fell 9.1 per cent to Y342.8bn. The company said demand has been particularly sluggish from the construction, car, and electronics industries.

It said the recent fall in Japanese interest rates should stimulate the economy, but the continued strength of the yen was likely to hinder growth.

For the full year, pre-tax profit is forecast at Y4bn, compared with Y9.8bn last year, on sales of Y700bn, down from Y743bn.

Sumitomo Metal Mining, a copper and gold producer, reported an 89.1 per cent plunge to Y692m in pre-tax profit, on a 15.8 per cent slide in sales to Y192.3bn.

The company had an operating loss of Y4.9bn, compared with a profit of Y2bn last year. It said sales of securities holdings enabled it to report a pre-tax profit.

Many Japanese companies are using sales of securities to bolster profits this year, raising questions about the future of some long-term cross-shareholdings.

Company officials indicated that an increase in capital spending in the past two years had pushed up depreciation charges this year.

This added to the difficulties caused by the yen's strength and the continuing decline in demand from industrial Japan.

For the full year, Sumitomo has forecast a pre-tax profit of Y1.5bn, a sharp fall from last year's Y8.5bn, on sales of Y370bn, down from Y444bn. Capital spending this year is expected to be Y12.2bn, compared with Y25.8bn last year.

Mitsubishi Materials JP Japan, Asia P1021 Copper Ores P1041 Gold Ores P3339 Primary Nonferrous Metals, NEC FIN Interim results P1021 P1041 P3339 The Financial Times London Page 32 322
International Company News: Hectic start to trading in Singapore Telecom shares Publication 931102FT Processed by FT 931102 By KIERAN COOKE KUALA LUMPUR

SINGAPORE Telecom (ST), the island republic's telecommunications and posts utility, made its debut on the Singapore stock market yesterday, quickly dwarfing other companies and accounting for about half the total valuation of the market.

The Singapore government has floated about 11 per cent of ST, setting a price of SDollars 1.90 or SDollars 2 on its shares. At one stage yesterday ST shares rose to a high of SDollars 5, giving the group a market valuation of more than SDollars 70bn (USDollars 44bn), and a p/e ratio in the mid 60s.

The combined capitalisation of companies on the Singapore exchange, excluding ST, is SDollars 140bn. 'Investors are not bothering to look at fundamentals any more,' said one local broker. 'There's more than a bit of craziness in the market right now, with too much money chasing too few quality stocks.'

At the close of trading, ST's shares were SDollars 4.14, still well above market expectations.

The Singapore government had issued shares in three tranches. Group A and B shares - about 50 per cent of the shares on offer and priced at SDollars 1.90 and SDollars 2 respectively - were reserved for Singaporeans only.

Group C shares were available to both Singaporean and foreign buyers on a tender basis. The strike price for the C shares, announced last Friday, was set at SDollars 3.60.

The feeling in Singapore is that local, rather than overseas, investors are responsible for the aggressive ST performance.

'We are still waiting for a correction,' said a foreign fund manager. 'No-one doubts ST is a good company, but at present price levels it looks very, very expensive.'

Market analysts said the absence of foreign buyers meant the first day's trading in ST was not as exciting as expected.

The Singapore stock exchange had doubled its trading hours in anticipation of hectic trading. However, late yesterday it announced trading would revert to the normal six and a half hours tomorrow.

Singapore Telecom SG Singapore, Asia P4813 Telephone Communications, Ex Radio FIN Share issues CMMT Comment & Analysis P4813 The Financial Times London Page 32 369
International Company News: Blockbuster plans 12.6m share sale Publication 931102FT Processed by FT 931102 By REUTER

BLOCKBUSTER Entertainment of the US plans an underwritten sale of 12.6m shares, Reuter reports.

Blockbuster said it intended to use the proceeds to reduce debt.

It added that the shares being offered represent about 5.2 per cent of its outstanding stock.

Blockbuster Entertainment Inc US United States of America P7841 Video Tape Rental FIN Share issues P7841 The Financial Times London Page 31 79
International Company News: Petro-Canada continues turnround Publication 931102FT Processed by FT 931102 By ROBERT GIBBENS MONTREAL

PETRO-Canada, now partially privatised, continued its turnround in the third quarter helped by strong gas sales and downstream rationalisation, writes Robert Gibbens in Montreal.

Net profit was CDollars 55m (USDollars 41.6m), or 22 cents a share, against a loss of Dollars 56m, or 26 cents, including special items. Revenues were Dollars 1.17bn, against Dollars 1.2bn.

Nine months' profit was Dollars 126m, or 51 cents, compared with a loss of Dollars 18m, or 8 cents a share.

Revenues were Dollars 3.44bn, against Dollars 3.47bn.

Petro-Canada CA Canada P1311 Crude Petroleum and Natural Gas FIN Interim results P1311 The Financial Times London Page 31 118
International Company News: Bahamian hotel sold to German group Publication 931102FT Processed by FT 931102 By CANUTE JAMES KINGSTON

THE Casino Management Group of Berlin has bought an 81 per cent stake in one of the largest hotels in the Bahamas from the Carnival Corporation of the US for Dollars 65m, writes Canute James in Kingston. Carnival Corporation will maintain a minority interest in the 867-room hotel and casino, which will be refurbished by the German company to become an up-market destination for European tourists.

Carnival, which operates Carnival Cruise Lines, began searching for a buyer for the hotel last year, after it recorded a Dollars 33m loss in 1991. The company will use Dollars 25m of the sale price to liquidate debts on the three year-old hotel.

Casino Management Group DE Germany, EC BS Bahamas, Caribbean P7011 Hotels and Motels P7999 Amusement and Recreation, NEC COMP Mergers & acquisitions RES Facilities P7011 P7999 The Financial Times London Page 31 160
International Company News: US defence cuts mean 1,150 jobs go at Raytheon Publication 931102FT Processed by FT 931102 By AP-DJ

RAYTHEON, the US electronics group, is to cut 1,150 jobs in Massachusetts, as part of a plan to reduce costs to cope with shrinking US military spending, reports AP-DJ.

The group said the job losses would follow a voluntary retirement programme that has already trimmed the payroll by 800 jobs, 600 of them in Massachusetts.

The combined cuts will bring the company's Massachusetts work force down to 21,050, compared with a peak of 31,100 in 1989.

Raytheon and other military contractors have been forced to retrench as the federal government slashed the defence budget in the post-Cold War era.

Among the sites suffering cuts will be Raytheon's Andover plant, which makes the Patriot missile that came to prominence in the Gulf War. It will lose nearly 400 jobs.

Despite the falling defence budget, Raytheon has remained profitable, not only by cutting costs, but also by focusing on other businesses such as energy and environmental services.

Raytheon US United States of America P3812 Search and Navigation Equipment PEOP Labour P3812 The Financial Times London Page 31 195
International Company News: Placer Dome sharply lower in third quarter Publication 931102FT Processed by FT 931102 By ROBERT GIBBENS MONTREAL

LOWER gold output and lower average prices for gold and copper depressed profits of Placer Dome, the Canadian international mining group, in the third quarter and first nine months of 1993.

Third-quarter profit was USDollars 13m, or 6 cents a share, down sharply from Dollars 33m, or 14 cents, a year earlier, on revenues of Dollars 229m, against Dollars 264m, including investment income of Dollars 10m, against Dollars 20m.

For the first nine months of the year, profit was Dollars 45m, or 19 cents a share, against Dollars 68m, or 29 cents, on revenues of Dollars 699m, against Dollars 834m. Both periods include special items.

Gold output was 450,000 oz in the third quarter, down from 508,000 oz and in the nine months 1,354,000 oz, a decline 8 per cent from 1,473,000 oz a year earlier.

Cash production cost in the nine months was Dollars 189 per oz, compared with Dollars 192 in the same period last year, while the average realised price of gold in the nine months was Dollars 376 oz, slightly above the average market price.

Gold output declined due to lower grades and a reduced stake in the big Porgera mine in New Guinea and the sale of several mining interests. Eight of Placer's 13 producing mines reduced their cash costs.

Placer Dome Inc CA Canada P1021 Copper Ores P1041 Gold Ores FIN Interim results P1021 P1041 The Financial Times London Page 31 257
International Company News: Upjohn survival hopes rest on new medicines - The expiry of four drug patents has troubled the US drugs group and brought R&D into sharp focus Publication 931102FT Processed by FT 931102 By PAUL ABRAHAMS

UPJOHN, America's 12th largest drugs group, has been one of the best-performing US pharmaceuticals stocks this year. Its shares have risen 11 per cent over the past 12 months, compared with an 11 per cent decline by other health and household stocks.

Upjohn's performance is based on the belief that the Kalamazoo-based group has become a takeover candidate. Like other pharmaceuticals companies, it is suffering from an increasingly hostile healthcare environment that has reduced growth of the US pharmaceuticals market to only 3 per cent during the first half of the year.

But Upjohn is in a worse plight than most. Its predicament has been exacerbated by a series of patent expiries in the US, its most important market.

Three of the group's leading drugs have lost their American patents over the past 12 months. Those protecting Ansaid, an anti-arthritic, expired in February. Earlier this month, Xanax, an anti-anxiety drug and Halcion, a sleeping pill, lost their patent protection. Next May, patents for a fourth drug, a diabetes treatment called Micronase, also expire.

Mr Ley Smith, chief operating officer, admitted last month that earnings next year would be lower than in 1993. A combination of the patent expiries, new legislation affecting the tax charge for its Puerto Rico manufacturing facilities, and a faster-than-expected increase in the power of bulk purchasers of health will affect the group's bottom line.

The expiries are highly damaging - Xanax is the group's most-important drug and accounted for 30 per cent of its American healthcare sales in the first nine months this year.

Brokers Wertheim Schroder estimate the medicine generated 35 per cent of Upjohn's operating income last year. Altogether, generic competition for the four drugs could affect between a quarter and a third of Upjohn's 1992 earnings per share by 1994, estimate the brokers.

Just when the group needed firm leadership, its misfortunes were compounded when chairman Theodore Cooper died of cancer in April. Since he started leading Upjohn in 1987, he had helped increase sales by nearly 50 per cent.

Since Mr Cooper's death the composition of the board has been unsettled. In August vice-chairman Mr Mark Novitch announced his decision to step down. The following month, Mr William Parfet, another vice-chairman and member of the Upjohn family, stepped down as an executive director. His departure increased the possibility the family might be willing to sell its substantial stake.

Mr Smith, also acting chairman, insists the company will remain independent and has a strategy to deal with the patent expiries.

'When you register a patent you know when it's going to expire. We've had plenty of time to plan for this,' he says.

However, what Mr Smith does not have immediately to hand are new products capable of compensating for the lost sales, which is partly a research and development failure.

'We didn't make enough of the products we had and we missed some good opportunities to license in some subsequently successful medicines,' admits Mr Smith.

The top R&D management has been changed and the new team is racing to bring products through the development pipeline. Most promising is Freedox, a treatment for stroke and head injuries. The medicine is in a class of steroids called Lazaroids, discovered by Upjohn and named after the Biblical character Lazarus who was raised from the dead.

Freedox should be registered with the US Food and Drug Administration for its first indication before the end of the year, says Mr Smith, and could be launched by the middle of next year. Some analysts believe it could generate Dollars 500m annual sales.

Other compounds in development include fluvoxamine, a treatment for obsessive compulsive disorder, which is being co-marketed with Solvay of Belgium. Just licensed is a drug for cancer from Japan that could become the largest or second-largest drug on the cancer market.

The group is also working on a blood substitute and treatments for HIV.

Nevertheless, these new drugs will take time to build up sales. In the meantime, Mr Smith is trying to defend Upjohn's off-patent products. 'We expect to lose between 40 per cent and 60 per cent of these drug's sales. The question is how fast they erode,' he said.

The company has an agreement with Geneva Pharmaceuticals, a subsidiary of Ciba, which will market generic versions of Xanax, Halcion, Micronase and Ansaid. Upjohn will manufacture the product for Geneva, which avoids the group's production facilities standing idle.

Like some other pharmaceuticals groups, Upjohn is also trying to expand its over-the-counter (OTC) non-prescription drug business. This will allow it to extend the product life of its medicines, such as the hair-loss treatment Rogaine, by selling them direct to patients without a prescription. The group's OTC business has increased 300 per cent since 1986, but with sales of only Dollars 200m a year the operations do not have critical mass, admits Mr Smith.

'The problem is whether to form an alliance and, if you do, how to keep control, or whether to make an acquisition. We have no presence in Europe, and we need to reinforce the US operations, particularly in the dermatological area,' he says.

To minimise the fall in earnings next year Mr Smith is slashing costs. The patent expiries forced Upjohn to cut costs earlier than most other US pharmaceuticals groups, and last week it announced its third restructuring package at a cost of Dollars 255m.

By the end of 1994 the group will employ 17,500 people, down from 21,100 at the beginning of 1989.

Upjohn is also cutting 14 production pharmaceuticals, chemicals and agricultural products manufacturing sites, although Mr Smith refuses to give details. The entire cost-cutting programme should generate annual savings of Dollars 150m by 1995, he says.

Mr Smith insists he will not cut R&D spending, which is running at 18 per cent of turnover - a high figure by industry standards. R&D is the life-blood of the company, he says.

'We could match 1993 earnings next year by cutting R&D spending, but we just have too many good ideas that are getting too close to fruition,' he explains.

Upjohn's management is gambling on the success of its development pipeline, and in particular the Lazaroids. The question is whether they will be as effective at resuscitating Upjohn as stroke victims.

Upjohn US United States of America P2833 Medicinals and Botanicals P2834 Pharmaceutical Preparations CMMT Comment & Analysis RES R&D spending TECH Products & Product use P2833 P2834 The Financial Times London Page 31 1112
International Company News: Transamerica sells TIG stake Publication 931102FT Processed by FT 931102 By RICHARD WATERS and ROBERT GIBBENS NEW YORK, MONTREAL

TRANSAMERICA, the San Francisco-based insurer, is close to leaving the property/casualty business with the sale of its remaining 27 per cent stake in TIG Holdings.

Based on yesterday's share price, the sale of 17.3m TIG shares would be worth Dollars 417m.

The insurer floated TIG as a separate company on the New York Stock Exchange earlier this year as part of a move to concentrate on life insurance and financial services.

Ahead of the flotation, it was expected to retain a substantial stake in TIG for some time before being able to complete the disposal at a favourable price.

However, a turn in the property/casualty underwriting cycle has led to higher premiums in some parts of the market, bolstering profits in recent months and adding to investors' interest in insurance companies.

TIG, which was floated at Dollars 22 5/8 a share, closed yesterday at Dollars 24, up Dollars 1/8 , after the news.

'We had indicated at the time (of the flotation) that we had intended to reduce our holding of the common stock as promptly as possible,' Transamerica said yesterday.

The insurer has exercised an option under an agreement made at the time of the flotation to sell its remaining shares.

A registration statement for the sale is expected to be filed with the Securities and Exchange Commission within the next two weeks, TIG said.

Transamerica's share price rose by Dollars 5/8 on the announcement to close at Dollars 57 5/8 .

Edper Enterprises, a key company controlled by the Peter and Edward Bronfman interests of Toronto, plans a convertible preferred share issue to be distributed by way of rights, writes Robert Gibbens in Montreal.

Edper Enterprises is minority-held by the public and senior managers of the Edper-Hees group.

It controls Brascan, a financial services holding company; Hees International Bankcorp, a holding company; and Carena Development, a property group.

Transamerica Corp TIG Holdings Edper Enterprises US United States of America P6311 Life Insurance P6331 Fire, Marine, and Casualty Insurance COMP Shareholding COMP Disposals FIN Share issues P6311 P6331 The Financial Times London Page 30 367
International Company News: Asea Brown Boveri sets up US investment fund Publication 931102FT Processed by FT 931102 By MARTIN DICKSON NEW YORK

ASEA BROWN Boveri, the European manufacturer of power plant and industrial systems, announced yesterday that it is setting up a fund with six US investment institutions to provide equity and subordinated debt to help finance major industrial and power projects in America.

GE Capital, the financial services arm of power equipment manufacturer General Electric, already provides equity capital for power projects, but ABB believes its move will give it a lead in other industrial areas served by the company, such as petrochemicals and paper and pulp.

Mr Arun Nayar, head of ABB project and trade finance in the US, said that it meant the group could stay 'in house' to fund the equity element of a project, as well as the debt portion.

The partners in the investment vehicle, which has several hundred million dollars of capital, include US West Financial, Heller Financial, and Ridgewood Energy of New Jersey.

Asea Brown Boveri US United States of America P6159 Miscellaneous Business Credit Institutions COMP Company News P6159 The Financial Times London Page 30 194
International Company News: Kaiser Aluminum incurs Dollars 21m loss in third quarter Publication 931102FT Processed by FT 931102 By LAURIE MORSE and ROBERT GIBBENS CHICAGO, MONTREAL

KAISER Aluminum of the US posted a net loss of Dollars 21m or 42 cents per share in the third quarter. The company is the latest in a series of US aluminium manufacturers reporting losses as a result of a worldwide oversupply of the metal.

Kaiser said that historically low aluminium prices and weakness in prices for rolled aluminium used to make aircraft bodies and beverage cans would force a restructuring at its Trentwood plant in Spokane, Washington.

This would result in a fourth-quarter pre-tax charge against earnings of between Dollars 30m and Dollars 40m.

Kaiser's third-quarter loss compares with income of Dollars 3.9m, or 6 cents per share, in the same period a year ago. Third-quarter sales fell to Dollars 428.4m from Dollars 458.5m a year earlier.

Kaiser's customer shipments of primary and fabricated aluminium fell to 148,200 metric tons in the third quarter, down from 164,700 tons in the third quarter of 1992. Alumina shipments to customers advanced to 576,900 in the quarter, from 469,300 last year.

For the first nine months of the year Kaiser, which is 68 per cent owned by the natural resources company Maxxam, reported a loss or Dollars 57m, or Dollars 1.05 per share, before extraordinary charges.

This compares with profits of Dollars 24.3m, or 42 cents per share for the first nine months of 1992. Sales for the first nine months of the year were Dollars 1.3bn, down from Dollars 1.4bn last time.

Maxxam reported a net loss of Dollars 33.3m or Dollars 3.42 for the third quarter, compared with income of Dollars 7m or 7 cents in the third quarter of 1992. Sales for the quarter were Dollars 506.5m, down from Dollars 531.7m a year ago.

For the first nine months Maxxam reported a loss of Dollars 68.5m, or Dollars 7.24 per share, excluding special charges, compared with income of Dollars 3m or 32 cents a year earlier.

Alcan Aluminium, facing the deepest and longest post-war recession in ingot and fabricated products prices, will become smaller and leaner, warns Mr Jacques Bougie, president and now chief executive, writes Robert Gibbens in Montreal.

Alcan's downstream businesses must 'demonstrate clear potential' if they are to get further investment, Mr Bougie said in the company's internal magazine.

Mr Bougie suggested that a new round of cuts will focus on Alcan affiliates making end products. Those that do not measure up or lack a sound profitable future will be sold.

Kaiser Aluminium and Chemical Corp Maxxam Inc US United States of America P3334 Primary Aluminum FIN Interim results P3334 The Financial Times London Page 30 456
International Company News: Tenneco chief gets all clear on brain tumour Publication 931102FT Processed by FT 931102 By MARTIN DICKSON NEW YORK

MR MICHAEL Walsh, the architect of a two-year turnround at US conglomerate Tenneco and one of the most highly regarded executives in the US, said yesterday that a tumour discovered on his brain last January was beginning to break up. He said his doctors expected him to live a normal life span, barring unforeseen circumstances.

The news will be welcomed by shareholders and employees of Tenneco, where Mr Walsh, 51, is only part of the way through a restructuring of the company to restore earnings momentum and boost the stock price.

Mr Walsh, who turned round the Union Pacific railroad before joining Tenneco, announced the discovery of the brain tumour last January and said then that the median survival rate for patients with this condition, detected at an early state, was about five to six years.

Yesterday, Mr Walsh said that his doctors had assured him that the tumour had stopped growing and that recent tests had revealed no active tumour lesions anywhere in his brain.

He said he was working a normal schedule but would continue to have residual physical symptoms - a weakness on the left side of his body - until time allowed the break-up and removal of dead tumour tissue.

'The programme of accelerated radiation, combined with aggressive chemotherapy, has been tough, but it has worked,' Mr Walsh said.

He said that he would continue with a full regimen of chemotherapy through to next spring, a treatment intended to prevent a recurrence of the tumour.

'Obviously my family and I could not be more delighted.' Mr Walsh added. 'Thank God for modern medicine.'

Tenneco Inc US United States of America P3523 Farm Machinery and Equipment PEOP People P3523 The Financial Times London Page 30 310
International Company News: Charge pushes Cigna into the red Publication 931102FT Processed by FT 931102 By RICHARD WATERS

A Dollars 244m after-tax charge to cover asbestosis and environmental claims pushed Cigna, the US insurer, into the red during the third quarter of the year.

The company also took a Dollars 107m charge to cover 1,400 redundancies in its health and property/casualty businesses, which have already been reported, as well as a further 800-1,000 job losses expected in the next 18 months.

The latest charges led Cigna, one of the leaders in the US health and life insurance businesses, to report a net loss of Dollars 94m, or Dollars 1.31 a share, for the period, compared with a net profit of Dollars 50m, or 70 cents, a year ago.

The scale of the loss was reduced by a Dollars 48m benefit from the change in the US corporate tax rate.

The results a year before had been struck after one-off items which led to a net benefit of Dollars 42m.

Operating results during the period in health, pension and life businesses had been strong, said Mr Wilson Taylor, chief executive.

Despite a reduction in catastrophe insurance losses, which were reduced from Dollars 139m to Dollars 36m, Mr Taylor said underlying performance in the property/casualty business remained poor.

Cigna Corp US United States of America P6331 Fire, Marine, and Casualty Insurance FIN Interim results P6331 The Financial Times London Page 30 239
International Company News: Compaq launches new products Publication 931102FT Processed by FT 931102 By LOUISE KEHOE SAN FRANCISCO

COMPAQ Computer yesterday launched an array of new personal computer products and slashed the prices of some its models by 10 to 23 per cent.

The large number of new models reflects increasing segmentation in the personal computer market, with separate product lines aimed at different distribution channels and types of customers, from individual purchasers to large corporate buyers.

Other PC companies, including Apple and IBM, are following a similar strategy with different 'brands' or lines of products targeted at various segments of the market.

Compaq's new products for business users include high performance desktop PCs based on Intel's latest Pentium microprocessors, with prices starting at Dollars 2,799.

Other new models include energy-saving features that can significantly cut electricity consumption and costs in offices. New ProLinea models, with built-in PC networking capabilities start at about Dollars 1,350.

Compaq also stepped up its presence in the rapidly-growing consumer PC market with the introduction of 10 new models to its Presario family. These include models with stereo sound and video capabilities and pre-installed software. Prices start at about Dollars 1,650.

'With the launch of these new PCs for home and business users, Compaq continues to play a key strategic role in the emergence of these two distinct, but equally important PC markets,' said Mr John Rose, vice-president and general manager, desktop PC division.

The company, which recently reported a 64 per cent rise in 1993 third-quarter revenues to Dollars 1.75bn and net income more than doubled to Dollars 107m, also said yesterday that its third-quarter sales in Japan had increased by 350 per cent.

Compaq Computer Corp US United States of America P3571 Electronic Computers TECH Products & Product use COSTS Product costs & Product prices P3571 The Financial Times London Page 30 309
International Company News: Canadian Pacific result shows continuing recovery Publication 931102FT Processed by FT 931102 By ROBERT GIBBENS MONTREAL

CANADIAN Pacific, the transport and resource group, continued its underlying turnround in the third quarter but the results were dragged down by special charges. The improvement is expected to continue, despite a slow Canadian economy.

The fast-expanding PanCanadian Petroleum, 87 per cent-owned, and Fording Coal, a western exporter, made sharply higher contribution in the third quarter and nine months. The rail unit did better in the second and third quarters.

CP Ships, CP Trucks and CP Hotels improved their performance.

Third-quarter income from continuing operations was CDollars 1.7m (USDollars 1.3m), up from CDollars 1.6m a year earlier, but after special items the overall loss came out at CDollars 106.8m, or 33 cents, against a loss of CDollars 205.6m or 64 cents. Revenues were CDollars 1.7bn, from CDollars 1.6bn.

The first nine months showed income from continuing operations ahead at CDollars 160.3m, from CDollars 95.3m, but after special items the loss was CDollars 73.1m or 23 cents a share, compared with a deficit of CDollars 224.3m or 70 cents a share. Revenues were CDollars 4.8bn, against CDollars 5.5bn.

The special items included losses on the sale of the Forest Products unit, CP's share of Laidlaw's special charges, partly offset by gains on asset sales. The 1992 result included heavy write-offs for CP Rail's restructuring.

The group recently sold control of Canadian Pacific Forest Products, one of North America's biggest newsprint producers, to reduce its debt and to make its earnings less volatile.

Mr William Stinson, chairman, said steps were being taken to reduce losses at the 48 per cent-owned Unitel telecommunications affiliate and a restructuring charge was possible in the fourth quarter.

Canadian Pacific CA Canada P4011 Railroads, Line-Haul Operating P4424 Deep Sea Domestic Transportation of Freight FIN Interim results P4011 P4424 The Financial Times London Page 30 316
International Company News: Alcan Aluminium plans further round of cuts Publication 931102FT Processed by FT 931102 By ROBERT GIBBENS

ALCAN Aluminium, facing the deepest and longest post-war recession in ingot and fabricated products prices, will become smaller and leaner, warns Mr Jacques Bougie, president and now chief executive.

Alcan's downstream businesses must 'demonstrate clear potential' if they are to get further investment, Mr Bougie said in the company's internal magazine.

Mr Bougie suggested that a new round of cuts will focus on Alcan affiliates making end products. Those that do not measure up or lack a sound profitable future will be sold.

The group will concentrate on primary smelting and sheet and fabricated products and is seeking to lower its alumina costs further. It has already introduced cuts at its Irish alumina plant, near Shannon. Alumina is derived from processing bauxite and becomes a white powder and the primary material in aluminium smelting.

Alcan has 49,000 employees worldwide, down from nearly 70,000 nearly a decade ago. It operates more than 20 units making a wide variety of aluminium products, used mainly in construction and transportation and including cable. Some periphery units have already been sold.

The company has cut about USDollars 500m from its cost base, mainly in North America, in its struggle to become a low cost producer, and effective yesterday realigned its main business groups. It recently received a large US consultants' study of its worldwide organisation.

Alcan Aluminium Corp US United States of America P3334 Primary Aluminum COMP Company News P3334 The Financial Times London Page 30 260
International Company News: Telecoms venture to be reshaped Publication 931102FT Processed by FT 931102 By PHILIP GAWITH JOHANNESBURG

SIEMENS, South Africa's Reunert and GEC of the UK are to rationalise their South African telecommunications activities with the aim of strengthening their position in the local market and improving export prospects.

A new company, Siemens Telecommunications, will be created to focus on providing infrastructure.

Telephone Manufacturers of South Africa (TMSA), an existing joint venture between the three groups, will be restructured and concentrate on making terminals, pay-phones and key systems.

Siemens Telecommunications will be 51 per cent owned by Siemens of German, 27.5 per cent by Reunert and 21.5 per cent by GEC. TMSA will be 41 per cent owned by Reunert, 33 per cent by GEC and 26 per cent by Siemens, compared to equal one-third stakes before the deal.

The companies are responding to the prospect of greater competition in the local market after international liberalisation of the telecommunications sector and technological developments which have forced rationalisation among equipment suppliers.

The lifting of economic sanctions against South Africa will only enhance competition further, with companies previously prohibited from doing business there, such as Ericsson from Sweden, now free from restrictions.

Siemens Telecommunications will have annual turnover of about R800m (Dollars 190m) while TMSA's sales will be around R400m.

Siemens Reunert General Electric Co Siemens Telecommunications ZA South Africa, Africa GB United Kingdom, EC DE Germany, EC P3661 Telephone and Telegraph Apparatus COMP Company News COMP Strategic links & Joint venture P3661 The Financial Times London Page 30 258
International Company News: Produce replaces payouts in Japan Publication 931102FT Processed by FT 931102 By EMIKO TERAZONO TOKYO

FORCED to cut dividends as earnings are hit by the economic slowdown, Japanese companies are starting to compensate shareholders with produce.

With most companies expecting an earnings decline for the fourth successive year, more shareholders are being deprived of dividends.

Comson, a farming machinery maker listed on the Osaka stock exchange, says that instead of dividends it sent its 1,900 shareholders bags of fertiliser made from manure and sludge, while Nippon Pulp and Paper gave 24 rolls of toilet paper to every stockholder.

Workers are already sacrificing bonuses to help their employers. NEC managers last year accepted vouchers that can be swapped for computers and television sets instead of year-end payments.

Some companies hope the gifts will help restore confidence, especially among retail investors disheartened by stock market scandals and last year's plunge of the Nikkei average to a six-year low.

The government had hoped that the flotation of East Japan Railway (JR East), the partially privatised regional railway operator, would bring retail investors back into the stock market. However, profit-taking in JR East shares clogged the Tokyo stock exchange's computers, sending the market below 20,000 for the first time in three months.

Since Japan's traditionally low payout levels have never been much of an incentive for investors - the current average yield for the Tokyo market is about 0.7 per cent - companies also hope to lure investors with products. In the late 1980s, holders of Tokyo Electric Power shares were presented with electric kettles.

Amid anxiety surrounding a shortage of rice due to this year's bad summer, Shinden, an electric appliance discounter based in Niigata, is sending shareholders bags of premium brand rice.

JP Japan, Asia P6231 Security and Commodity Exchanges COMP Shareholding NEWS General News P6231 The Financial Times London Page 28 312
International Company News: McDonnell Douglas posts record third-term earnings Publication 931102FT Processed by FT 931102 By MARTIN DICKSON NEW YORK

MCDONNELL Douglas, the US aerospace group, yesterday reported record third-quarter earnings of Dollars 142m. It forecast it would top Wall Street's expectations for the full year, in spite of the sharp downturn in US defence spending and a recession in the civil aviation industry.

The results underscore a year-long financial recovery at McDonnell Douglas, helped by a large cost-cutting programme. Its shares surged Dollars 4 3/8 on the New York Stock Exchange, to end at Dollars 98 1/4 .

The earnings worked through at Dollars 3.62 a share, compared with a loss of Dollars 42m, or Dollars 1.09, in the same period of last year, when McDonnell Douglas took a Dollars 167m after-tax charge on the controversial C-17 military transport aircraft, which it has been developing for the Pentagon. Revenues dipped to Dollars 3.43bn from Dollars 3.89bn.

Its military aircraft operations made Dollars 142m, compared with a Dollars 166m loss. Commercial aircraft made Dollars 16m, down from Dollars 37m, and missiles made an unchanged Dollars 65m, in spite of a Dollars 51m pre-tax charge for electronic systems problems.

The figures were affected by various special items, resulting in a net unusual gain of Dollars 41m. Stripping this out, the company made Dollars 101m, or Dollars 2.57 a share in the quarter, and Dollars 308m, or Dollars 7.85 in the first nine months of the year.

The period saw further improvement in the company's balance sheet, with debt of its manufacturing side falling Dollars 369m to Dollars 1.97bn, 29 per cent lower than at the start of 1993.

Mr Herb Lanese, finance director, said that the company's self-imposed aims of cutting debt to Dollars 1.8bn by year-end and generating Dollars 1bn in 1993 cash flow, now appeared conservative.

So too were Wall Street forecasts that the group would earn Dollars 10.78 from operations for the full year, or Dollars 2.93 a share in the final quarter. The company expected to top the record Dollars 3 a share it earned in the final quarter of 1988.

These figures exclude any charges the company might make as a result of discussions with the Pentagon for settlement of their dispute over the C-17.

McDonnell announced last week that such a settlement could mean a Dollars 450m pre-tax charge against earnings but would not mean a significant cash impact and would allow the C-17 programme to continue.

Congressional officials have suggested the initial programme size could be cut to 40 aircraft from 120.

McDonnell Douglas Corp US United States of America P3721 Aircraft P3724 Aircraft Engines and Engine Parts FIN Interim results P3721 P3724 The Financial Times London Page 28 455
International Company News: Volvo union leader urges meeting delay Publication 931102FT Processed by FT 931102 By HUGH CARNEGY STOCKHOLM

A SENIOR Swedish trade union leader yesterday called on Volvo to postpone next week's vote by shareholders on the proposed merger of its car and truck operations with France's Renault. Mr Peter Nygards, head of the white-collar union SIF, says more time is needed to assess the deal.

The SIF has more than 5,000 members employed at Volvo. Mr Nygards was the first national trade union leader to publicly voice doubts about the merger, which has run into stiff resistance from the Swedish institutional shareholders who will decide the issue at a special shareholders meeting called for November 9.

'(Postponement) is the only reasonable way, as there are today too many large uncertainties about how the merger will function in practice,' Mr Nygards said.

Union support has been extremely important to Volvo because many top labour figures sit on the boards of shareholder institutions.

The SIF leader is a member of the board of the Fourth Fund state pension fund, which is the second-largest Volvo shareholder after Renault, with 7.5 per cent of the voting capital. The Fourth Fund is due to announce tomorrow how it will vote on the Renault-Volvo merger. Its decision is widely reckoned to be a key indicator of whether the deal will stand or fall.

Mr Nygards is also on the board of the insurance group SPP, which has 4.5 per cent of Volvo's voting capital and is also due to announce its final decision this week.

Volvo was under strong pressure from shareholders yesterday to provide further clarification of how it will secure its interests in the merged company.

Volvo will have a 35 per cent share. However, Swedish shareholders are concerned by a lack of guarantees that state-owned Renault will be privatised as promised.

Volvo Renault SE Sweden, West Europe P3711 Motor Vehicles and Car Bodies COMP Mergers & acquisitions P3711 The Financial Times London Page 28 333
International Company News: Philips alters ownership link with Grundig Publication 931102FT Processed by FT 931102 By RONALD VAN DE KROL AMSTERDAM

PHILIPS, the Dutch electronics group, is to make changes to the structure of ownership at Grundig, the German consumer electronics company in which it has a 31.6 per cent stake.

However, Philips stressed that the move would have no effect on its relations with Grundig, over which it has exercised management control since 1984, nor on the level of its Grundig holding, which will remain at 31.6 per cent. Philips fully consolidates loss-making Grundig in its annual accounts.

The Dutch company said it planned to spend a sum of less than Fl 1m (Dollars 525,000) on buying out three German and Swiss banks which own shares in Grundig Verwaltungs GmbH. This company is the managing partner in another company, Grundig EMV & CO KG, which acts as a corporate control and profit transfer company for Grundig AG.

Philips Electronics Grundig Verwaltungs DE Germany, EC NL Netherlands, EC P3651 Household Audio and Video Equipment RES Capital expenditures P3651 The Financial Times London Page 28 184
International Company News: Fokus Bank returns to profit Publication 931102FT Processed by FT 931102 By KAREN FOSSLI OSLO

FOKUS Bank, Norway's third biggest commercial bank, yesterday reported that it had bounced back to pre-tax profit of NKr246.8m for the nine-month period of this year from a loss of NKr399.7m in the same period last year, writes Karen Fossli in Oslo.

Fokus attributed the sharp improvement to a 50 per cent increase in credit losses, lower costs, and an improvement in securities and foreign exchange gains.

Group net interest income slipped to NKr821m from NKr868.4m in spite of a 50 per cent reduction in interest costs to NKr1.23bn from NK2.46bn.

Operating profit, before credit losses, rose to NKr500m from NKr193m as credit losses were cut by more than half to NKr301.1m, or 1.33 per cent of gross loans, from NKr620.4m.

Fokus said the volume of non-performing loans had declined by 33 per cent since end of last year but attributed the distribution of loan losses to 74 per cent by the corporate sector and 26 per cent by private customers.

'It is with satisfaction we announce that positive developments in our result have continued. Even without income from securities and foreign exchange operations the bank shows a profit after losses,' Fokus said.

The bank achieved securities gains of NKr131m against losses of NKr76.5m during last year's nine-month period as foreign currency gains more than doubled to NKr46.8m from NKr20.2m.

Fokus returned a net profit of NKr246.8m against a net loss of NKr432.2m last year. Group operating costs were cut to NKr770.2 from NKr1.01bn.

'The bank is now seeing the results of a major turnround operation and we will continue to reduce operating costs,' Fokus said.

Fokus Bank NO Norway, West Europe P6081 Foreign Banking and Branches and Agencies FIN Interim results P6081 The Financial Times London Page 28 307
International Company News: Greece to sell casino licences for Dr80bn Publication 931102FT Processed by FT 931102 By KERIN HOPE ATHENS

THE Greek government hopes to raise at least Dr80bn (Dollars 343m) from the sale of eight new casino licences to international operators by the end of this year.

Although the new socialist government has halted most projects included in its predecessor's privatisation programme, the casino scheme is to go ahead as planned, according to the economy ministry.

Hyatt International, Sheraton, and Conrad Hilton are among 16 bidders shortlisted to set up and manage casinos in Athens, Thessaloniki and the resort islands of Corfu, Crete and Mykonos.

Under the licensing terms, the Greek state will take a 20 per cent cut of the casinos' earnings. Remaining profits will be taxed at the local corporate rate of 35 per cent. The licences will have a 15-year duration.

In addition to producing estimated revenues of at least Dr120bn yearly, the casino project will upgrade Greece's tourist industry by ensuring investment in luxury hotel facilities.

Under the terms of the licence, the casino operators would construct or refurbish hotels or resorts where the casinos are to be located.

Hyatt Casino Corporation, the group's gaming subsidiary, would invest Dollars 200m in a luxury hotel and casino on a greenfield site in an Athens suburb. ITT Sheraton is bidding to acquire Ionian Hotels, the state-controlled company which owns the Athens Hilton.

Conrad Hilton of the US, would invest up to Dollars 300m in building a casino complex and new hotel at a state-owned resort at Vouliagmeni near Athens. The company has signed a contract to manage the resort, in association with the Alex Spanos group, a California-based property developer.

Greece's three existing casinos, which are operated by the state tourist authority, would shut down to make way for the private operators.

Hyatt Casino Corp GR Greece, EC P7999 Amusement and Recreation, NEC TECH Patents & Licences P7999 The Financial Times London Page 28 327
UK Company News: Norway banks see a brighter day - Lower interest rates helped Christiania Bank and DnB return to health a year after they were on their knees Publication 931102FT Processed by FT 931102 By KAREN FOSSLI

Christiania Bank and Den norske Bank, Norway's two biggest banks, were forced to their knees last year under the burden of large losses. In desperation, the state threw them life-lines in the form of funding to enable capital adequacy requirements to be met.

One year later, the banks are on the road to recovery and planning share issues which could net the state large windfall gains.

Analysts have warned the government against dumping its shares in the market at the same time as the banks' issues are launched.

At current prices, the state's shareholdings in the two banks are worth about NKr17bn (Dollars 2.4bn).

According to Mr Ole Lund, DnB's chairman, the bank is approaching the 'sunny side of life' but is not yet there. DnB's high volume loan losses and non-performing loans are still lingering at unacceptable levels.

Hopes are to reduce the level of credit losses during the next 1 1/2 years by 50 per cent to about NKr1.3bn.

On Tuesday, DnB published a record result since being formed from a merger in 1990 between Den norske Creditbank and Bergen Bank. Pre-tax profit of NKr720m for the nine months to September was achieved, against a pre-tax loss of NKr2.45bn last year. CBK is due to report nine-month results on November 4 and could, on the same day, announce the details of its planned share issue.

The sharp improvement in the banks' health is due mainly to the low level of domestic interest rates, a marked rise in the domestic stock market, steady recovery of Norway's economy and emerging results of the past five years' hard slog of consolidation and restruc-turing.

'Nobody last autumn would have believed we would have had the level of interest rates which we see today and if it had been suggested, the forecaster would have been quickly escorted to the nearest hospital for examination,' Mr Lund said.

Norway's central bank has cut the important overnight lending rate 13 times this year, to 7 per cent from 11 per cent.

The three-month domestic money-market rate has fallen by nearly 50 per cent in the past year to 5.6 per cent after hitting a high last December of 21.6 per cent during turmoil within the ERM.

Mr Lund concedes that last autumn was a low point for the banks. 'We had tremendous losses, turmoil in the currency and stock markets and the collapse of UNI Storebrand (Norway's biggest insurer) and Investa (the Bergen-based investment group).'

However, the banks' operating environment has since brightened.

Inflation is at 2.3 per cent, its lowest level in three decades, and economic growth is forecast to accelerate to 3.0 per cent next year from 1.3 per cent in 1993.

The two banks' planned share issues will have to be co-ordinated carefully so as not to destroy the market. And there is the matter of what the state intends to do with its shareholdings in the banks and its rights to convert preference capital to shares.

Analysts have forecast that DnB would try to raise up to NKr2bn in one issue but that CBK would make an initial issue and seek a listing in an attempt to improve the bank's market valuation before a second tranche is launched.

CBK earlier this year said it intended to launch a public offering before 1994 but Mr Lund says DnB will have to first publish 1993 accounts and, preferably, have first-quarter results behind it before making a similar move.

DnB wants to expand the bank's foreign ownership quota to 33.3 per cent from 12.5 per cent.

Domestic and foreign analysts believe it advantageous for DnB to be the first off the mark because it is stronger and better known internationally than CBK and has the added benefit of a listing on the Oslo bourse.

DnB's A-shares have increased five-fold to about NKr20 each since the end of 1992 as the Oslo bourse bank sub-index soared by 160 per cent during the same period.

At current share prices the state's DnB stake is worth about NKr3.5bn, excluding preference capital which, if converted to 350m shares at the bank's current share price, would be worth about NKr7bn.

The state's shareholding in Den norske Bank thus equals about NKr10.5bn compared to the NKr6.4bn which it has injected into the bank.

On the other hand, analysts say, if CBK's share issue is a success the likelihood of DnB achieving good fortune with its issue would be bolstered.

The state holds a 69 per cent stake in DnB which would be increased to above 80 per cent on a fully diluted basis if preference capital was converted to shares.

The state virtually owns CBK, but the 7 per cent held by private investors is traded outside the bourse at about NKr17 a share.

A sale, even at this price, would net the state a handsome return. It would underline how light has pierced the gloom of Norwegian banking in the past five years.

Christiania Bank Den norske Bank NO Norway, West Europe P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P6081 The Financial Times London Page 28 888
International Company News: McInerney Properties cuts loss to IPounds 1.77m Publication 931102FT Processed by FT 931102

McInerney Properties, the Dublin-based housebuilder and property developer which has leisure-related construction developments in Spain and Portugal, reduced pre-tax losses to IPounds 1.77m (Pounds 1.67m) in the first half of 1993. Losses last time were IPounds 1.84m.

The result, on turnover of IPounds 12.9m (IPounds 15m), was struck after exceptional provisions of IPounds 753,000 (IPounds 950,000).

The Four Seasons resorts in Portugal and Spain reported a good sales performance but incurred losses. Good progress was being made in Germany.

The company said it would incur a further loss in the second half but hoped to return to profit in 1994.

Losses per share amounted to 1.47p (3.31p).

McInerney Properties IE Ireland, EC P1521 Single-Family Housing Construction P1531 Operative Builders FIN Interim results P1521 P1531 The Financial Times London Page 27 146
International Company News: Unions agree to staff cuts at Aer Lingus Publication 931102FT Processed by FT 931102 By TIM COONE DUBLIN

AGREEMENT was reached yesterday between management and unions at Aer Lingus, the Irish Republic's troubled state-run airline, on IPounds 21m (Pounds 19.8m) of payroll cuts being sought by the company, out of a total of IPounds 50m in a cost-pruning rescue plan to bring the airline back from the brink of financial disaster.

The agreement accepts 800 job losses from the airline's 5,500 workforce, and 'radical' changes to work practices. The deal has still to be approved by the workforce in a secret ballot of union members, but union officials yesterday acknowledged that they would be unable to get better terms from the company.

A clearly relieved Mr Bernie Cahill, the airline's executive chairman, said: 'A few months ago there was no future for the airline. Now there is. I believe the rescue plan will work, I have no doubt about that.'

Mr Paul O'Sullivan, the negotiating official for Siptu, the trade union representing the bulk of the Aer Lingus workforce, described the negotiations as the toughest he had ever been through in an industrial relations dispute.

He said it was 'heartbreaking' to negotiate away 800 jobs and that 'the changes being asked of the workforce are enormous, but are necessary to create an airline capable of competing in a deregulated market.'

The airline was seeking cuts of 1,280 man-years in labour costs, but received acceptances for only 800 voluntary redundancies. Management then argued that only 300 of these could be released, unless there were major changes in work practices. These have now been conceded by the unions.

Still to be negotiated are IPounds 14m cuts in labour costs from the airline's aircraft maintenance subsidiary, Team, and IPounds 15m in non-labour overheads.

The company said that more rapid progress was now expected in those areas, with the core agreement now settled with staff in the main airline business.

Two obstacles still lie in the path of finally wrapping up the rescue plan, assuming the secret ballot approves the deal.

First, management and unions have agreed to go to arbitration over pay settlements for the coming year - the airline management says no pay award can be made next year.

Second, a IPounds 175m equity injection promised by the government in the event of IPounds 50m of cost savings being achieved, is still dependent upon approval by the EC Commission.

Aer Lingus's rivals on the intensely competitive Dublin-London route are waging a lobbying campaign in Brussels to block approval, arguing that the government support would create unfair competition for their operations. Without the IPounds 175m support, yesterday's deal with the unions will come unravelled.

The airline is currently losing about IPounds 1.2m a week and last month reported a pre-tax deficit of IPounds 190.7m for the year ending March 31 1993 on turnover of IPounds 817m.

With net debt of IPounds 540m at the last financial year-end, gearing was 533 per cent. In the summer, the airline's bank creditors threatened to shut off lines of credit to the airline unless a viable rescue plan was put in place by the autumn.

Aer Lingus IE Ireland, EC P4512 Air Transportation, Scheduled PEOP Labour MKTS Market shares P4512 The Financial Times London Page 27 552
UK Company News: Vinten Group Publication 931102FT Processed by FT 931102

VINTEN GROUP has completed the sale of the UK electro-optics business of its subsidiary, Vinten Electro-Optics Ltd, to Coherent Optics (Europe), an offshoot of Coherent, the US laser and optics company. Consideration is an estimated Pounds 996,000, payable in cash.

Vinten Electro-Optics Coherent Optics (Europe) Vinten Group GB United Kingdom, EC P3827 Optical Instruments and Lenses COMP Mergers & acquisitions P3827 The Financial Times London Page 27 78
UK Company News: Southern Water Publication 931102FT Processed by FT 931102

SOUTHERN WATER has acquired the ERG Environmental Resource Group for Pounds 2.25m. The consideration, in part via the issue of 311,858 new ordinary shares, is subject to adjustment. In 1992 ERG achieved a turnover of Pounds 7m, of which a third was derived from outside the UK.

Southern Water ERG Environmental Resource Group GB United Kingdom, EC P4941 Water Supply P4952 Sewerage Systems COMP Mergers & acquisitions P4941 P4952 The Financial Times London Page 27 86
UK Company News: Russell (Alexander) Publication 931102FT Processed by FT 931102

RUSSELL (ALEXANDER) has sold its concrete block and concrete block pavior business, Russell Concrete Products, to Marshalls Mono, a subsidiary of Marshalls, for Pounds 2.73m. RCP incurred a pre-tax loss of Pounds 452,000 for the year to end-December 1992. The sale was part of Russell's policy of disposing of under-performing assets and reducing borrowings.

Russell (Alexander) Russell Concrete Products Marshalls Mono GB United Kingdom, EC P3271 Concrete Block and Brick COMP Disposals COMP Mergers & acquisitions P3271 The Financial Times London Page 27 94
UK Company News: Kelt Energy Publication 931102FT Processed by FT 931102

KELT ENERGY: As a result of the subscription and open offer Kelt will issue 12.5m new ordinary shares of which CP International Securities will subscribe for 12.14m, representing 14.4 per cent of the company's enlarged share capital. Applications under the open offer were received in respect of 353,154 new ordinary shares.

Kelt Energy GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas FIN Share issues P1311 The Financial Times London Page 27 84
UK Company News: Harris (Philip) Publication 931102FT Processed by FT 931102

HARRIS (PHILIP) has acquired the Birmingham-based occupational health supplies business of Surgicon Reside Group and Surgicon for Pounds 632,000 cash, plus stock and debtors at valuation estimated at Pounds 350,000. The business makes operating profits of about Pounds 100,000 on sales of Pounds 1.3m.

Harris (Philip) Holdings Surgicon Reside Group Surgicon GB United Kingdom, EC P5122 Drugs, Proprietaries, and Sundries COMP Mergers & acquisitions P5122 The Financial Times London Page 27 82
UK Company News: Enterprise Oil Publication 931102FT Processed by FT 931102

ENTERPRISE OIL has received elections for its enhanced scrip dividend alternative in respect of 455.8m existing ordinary shares, representing 95.3 per cent of its issued ordinary share capital. The cash offer has been accepted in respect of 176m existing ordinary, representing 38.6 per cent of elections. The cost of the 1993 special interim will be Pounds 2.1m against Pounds 45.4m if all shareholders had received the full 9.5p cash dividend. Also, some Pounds 12.6m has been saved in ACT.

Enterprise Oil GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas COMP Company News P1311 The Financial Times London Page 27 112
UK Company News: Britannia Group Publication 931102FT Processed by FT 931102

BRITANNIA GROUP: Rights issue taken up as to 8.84m shares (77.6 per cent). Figure includes acceptances in respect of 7.39m new ordinary shares, being the renounced entitlements of certain directors and major shareholders (64.8 per cent), which were placed with institutions and two other directors. The balance will be taken up by sub-underwriters.

Britannia Group GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Share issues P6552 The Financial Times London Page 27 86
UK Company News: Bass acquires 34% of Prague Breweries Publication 931102FT Processed by FT 931102 By PHILIP RAWSTORNE

BASS, the UK's leading brewer, has agreed to acquire a 34 per cent stake in Prague Breweries, the second largest brewer in the Czech Republic, for Pounds 9m.

The deal is Bass's first overseas brewing venture since it sold its interest in Lamot, the Belgian brewer, 12 years ago.

Mr Ian Prosser, Bass chairman and chief executive, yesterday described the Prague deal as 'an important first step' in the group's search for opportunities for international expansion.

It offered good prospects for further development in the Czech market and for increased exports, he said.

The Prague group, which will have net assets of Pounds 30m after the deal is completed, plans to invest Pounds 50m over the next five years in expanding and modernising its three breweries. It has a 10 per cent share of the Czech beer market which is about a quarter the size of that of the UK.

Prague's sales of Pounds 36m last year included a significant contribution from exports, mainly to eastern and central Europe.

Bass will introduce Prague's leading premium lager, Staropramen, into the UK and a number of other international markets next year.

The UK brewer will have four seats on the Prague board and a number of senior managers will be seconded to the group.

Bass Prague Breweries GB United Kingdom, EC CZ Czech Republic, East Europe P2082 Malt Beverages COMP Shareholding P2082 The Financial Times London Page 27 254
UK Company News: Cranswick shares drop 32p on warning Publication 931102FT Processed by FT 931102

A WARNING yesterday from the directors of Cranswick that interim profits would be below their previous expectations sent the company's shares down by 32p to 159p.

Following an 'extremely disappointing' performance from the pig rearing activities in the second quarter they expected pre-tax profits for the half year to September 30 to be about Pounds 700,000 compared with Pounds 968,000 previously.

However, the interim dividend was expected to be held at 2.4p when the results are announced early next month.

The directors blamed the second quarter setback on a 'substantial and unforeseen fall in pig prices throughout August and September, compounded by higher feed costs resulting from flooding in the US and a late harvest in the UK.'

They pointed out that pig prices had continued to fall in October and would have an impact on that month's profitability.

The group's other activities, grain and feed, 'were continuing to trade satisfactorily' with most performing ahead of budget.

Cranswick GB United Kingdom, EC P0219 General Livestock, NEC COMP Company News P0219 The Financial Times London Page 27 191
UK Company News: Bolton falls to Pounds 142,000 after Langho losses Publication 931102FT Processed by FT 931102

Pre-tax profits at Bolton Group, the property investor, fell from Pounds 202,000 to Pounds 142,000 in the year ended April 30.

The result was struck after losses relating to the Langho Nursing Centre, which had been disposed of, the directors said, as it required a disproportionate amount of management time and would not gen-erate the target return required.

Since the year end the decision has also been taken to dispose of certain investment properties, which will result in a reduction in debt of about Pounds 5m.

Turnover was Pounds 2.46m (Pounds 1.83m). Net interest took more at Pounds 1.24m (Pounds 1.13m) and earnings per share came to 1.6p (2.2p).

Bolton Group GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Annual report P6552 The Financial Times London Page 27 148
UK Company News: Stanley Leisure upbeat and buying bookmakers chain Publication 931102FT Processed by FT 931102 By PEGGY HOLLINGER

SHARES IN Stanley Leisure rose 20p to 249p yesterday as the betting shops and casino group issued an upbeat trading statement and announced the Pounds 6m acquisition of the bookmakers chain Selwyn Demmy (Racing).

The company said yesterday that after the first six months, 'the trading performance in both the betting shop and casino divisions are considerably ahead of the same period last year.'

Analysts revised their forecasts for the year to the end of April from Pounds 9m to Pounds 10m.

Stanley is buying 49 betting shops in the north-west of England through the acquisition of Demmy Investments, which owns Demmy Racing. Demmy's 49 shops bring the number of outlets operated by Stanley's racing division to 401.

The company said that it expected to make significant savings from the integration of Demmy's shops with its own.

Stanley is paying Pounds 6m for Demmy Investments. This figure will be adjusted however, subject to Demmy's net asset position.

The consideration will be satisfied by the issue of 589,520 Stanley Leisure shares at 229p, Pounds 250,000 in cash and the balance in loan notes repayable within three to five years. The vendor has agreed not to sell the Stanley shares for at least one year.

Demmy Racing returned profits of Pounds 247,000 for the year to February 27, on sales of Pounds 25.2m. However, this was before charges of Pounds 242,000 for interest on loans to the company by directors, depreciation of goodwill, and executives remuneration.

Demmy Investments is expected to show a debt of Pounds 1.65m to Mr Selwyn Demmy, which will be repaid in cash on completion.

Last year Stanley Leisure returned annual profits of Pounds 8.05m, a rise of 3 per cent, in spite of foregoing an estimated Pounds 300,000 profit on the Grand National debacle at Aintree when the race was declared void after two false starts.

Sales for the 53 weeks were Pounds 218.4m, against Pounds 203.3m in 1992.

Stanley Leisure Organisation Selwyn Demmy (Racing) GB United Kingdom, EC P7999 Amusement and Recreation, NEC COMP Mergers & acquisitions CMMT Comment & Analysis P7999 The Financial Times London Page 26 371
UK Company News: Lloyds Chemists in Scottish buy Publication 931102FT Processed by FT 931102

Lloyds Chemists has acquired John Hamilton Pharmaceuticals for Pounds 4.65m in cash.

Hamiltons is an established pharmaceutical wholesaler, operating from a 45,000 sq ft freehold site at Clydebank, north of Glasgow.

In the year to May 31 1993 it reported turnover of Pounds 45.4m.

Lloyds Chemists John Hamilton Pharmaceuticals GB United Kingdom, EC P5912 Drug Stores and Proprietary Stores P5122 Drugs, Proprietaries, and Sundries COMP Mergers & acquisitions P5912 P5122 The Financial Times London Page 26 90
UK Company News: Seafoods buy for Perkins Foods Publication 931102FT Processed by FT 931102

Perkins Foods has acquired the Cromer Crab Company, a Norfolk processor and supplier of crabs and shellfish for a consideration to be satisfied by the issue to the vendors of 130,952 new ordinary 10p shares.

Perkins Foods Cromer Crab GB United Kingdom, EC P2091 Canned and Cured Fish and Seafoods P2011 Meat Packing Plants COMP Mergers & acquisitions P2091 P2011 The Financial Times London Page 26 80
UK Company News: Allen to acquire Andrew Sykes arm Publication 931102FT Processed by FT 931102

Allen is acquiring Centahire, a tool hiring subsidiary of Andrew Sykes Group, for an estimated Pounds 713,000.

Centahire, based in Peterlee, County Durham, has six depots in the north east. In the year to March 31 1993, it made an operating loss of Pounds 97,777 on turnover of Pounds 1.16m.

Allen Centahire GB United Kingdom, EC P1521 Single-Family Housing Construction P1799 Special Trade Contractors, NEC P7353 Heavy Construction Equipment Rental COMP Mergers & acquisitions P1521 P1799 P7353 The Financial Times London Page 26 98
UK Company News: London Secs in asset talks with Nu-Swift Publication 931102FT Processed by FT 931102

London Securities, the property investment company, has begun preliminary talks on acquiring certain of Nu-Swift's property assets.

Nu-Swift, which holds a 29.2 per cent stake in London Securities, provides fire protection equipment and services and cleaning and maintenance services.

London Securities Nu-Swift GB United Kingdom, EC P6798 Real Estate Investment Trusts P7349 Building Maintenance Services, NEC COMP Company News P6798 P7349 The Financial Times London Page 26 83
UK Company News: TR Far East net assets improve Publication 931102FT Processed by FT 931102

TR Far East Income Trust had a net asset value of 160.9p at August 31 compared with 91.6p a year earlier. Fully diluted, the value was 151.6p and 93.8p respectively.

Net revenue for the year improved from Pounds 2.12m to Pounds 2.44m for earnings of 5.25p (4.56p) per share. A fourth interim dividend of 1.3p (1.2p) is declared making a total of 5p (4.5p). The directors have forecast a dividend for the current year of not less than 5.2p.

TR Far East Income Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 26 117
UK Company News: Loss at Westminster Scaffolding rises Publication 931102FT Processed by FT 931102

Losses at the USM-quoted Westminster Scaffolding Group rose from Pounds 524,000 to Pounds 1.66m pre-tax for the half year to April 30. The deficit per share rose by 1.9p to 3.2p.

In consideration for the purchase from the Rigblast Group of scaffolding worth Pounds 150,000 Westminster is issuing 1.5m new ordinary 10p shares at par. The issue represents 2.8 per cent of the ordinary equity.

Westminster Scaffolding GB United Kingdom, EC P1791 Structural Steel Erection FIN Interim results P1791 The Financial Times London Page 26 99
UK Company News: Pex losses deepen to Pounds 744,000 Publication 931102FT Processed by FT 931102

Pex, the reorganised hosiery manufacturer which is now concentrating on its children's brands, increased pre-tax losses from Pounds 405,000 to Pounds 744,000 for the half year to July 31.

Turnover was down at Pounds 5.9m (Pounds 6.41m).

The operating loss on continuing operations deepened to Pounds 476,000 (Pounds 42,000), but there was a profit on the sale of fixed assets of Pounds 36,000 (Pounds 153,000). Interest charges were cut to Pounds 304,000 (Pounds 516,000). Losses per share were 3.89p (2.12p).

Pex Group GB United Kingdom, EC P2251 Women's Hosiery, Ex Socks P2252 Hosiery, NEC FIN Interim results P2251 P2252 The Financial Times London Page 26 120
UK Company News: Grand Central falls Pounds 745,500 into red Publication 931102FT Processed by FT 931102

Grand Central Investment Holdings, the food group with interests in Asia Pacific, fell Pounds 745,500 into the red in the six months to June 30.

That compared with a profit of Pounds 1.01m last time and was struck on turnover up from Pounds 29.8m to Pounds 32.9m.

The decline was due to the closure of the Singapore manufacturing plant and its relocation to Malaysia and Indonesia coupled with the continued downturn in performance of commodity-related operations, the directors said.

Losses per share were 1.27p (1.47p earnings). There is no dividend this time (0.45p).

Grand Central Investment Holdings GB United Kingdom, EC P2066 Chocolate and Cocoa Products FIN Interim results P2066 The Financial Times London Page 26 132
UK Company News: BM continues disposal programme Publication 931102FT Processed by FT 931102

As part of its continuing restructuring, BM Group, the construction equipment combine, has signed an agreement for the sale to Komatsu America Corporation of its shareholding in Linder Industrial Machinery for Dollars 13.4m (Pounds 9m).

A further payment of up to Dollars 1.5m is dependent on the net assets of Linder at completion. BM expects to incur a deficit of about Pounds 1.5m on the disposal.

Linder, a North American distribution company, was acquired by BM as part of its purchase of Blackwood Hodge in November 1990.

BM Group Komatsu America Corp Linder Industrial Machinery US United States of America GB United Kingdom, EC P3531 Construction Machinery P3599 Industrial Machinery, NEC COMP Disposals COMP Shareholding P3531 P3599 The Financial Times London Page 26 136
UK Company News: Roskel sells plant hire arm for Pounds 1.28m Publication 931102FT Processed by FT 931102

Roskel, the specialist suspended ceilings contractor and partitioning and ceilings distribution group, is selling the business and assets of Access Rental, its plant hire arm, to Nationwide Access Platforms for Pounds 1.28m in cash.

The proceeds will be used to reduce Roskel's debts and the group's gearing is expected fall from 45 per cent to 20 per cent by the year end.

At end-1992 Access incurred losses of Pounds 896,000 and had net liabilities of Pounds 2.5m.

Roskel Access Rental Nationwide Access Platforms GB United Kingdom, EC P1799 Special Trade Contractors, NEC P7353 Heavy Construction Equipment Rental COMP Mergers & acquisitions COMP Disposals P1799 P7353 The Financial Times London Page 26 128
UK Company News: MIM Holdings buys UK zinc smelter Publication 931102FT Processed by FT 931102

MIM Holdings, the Australian metals group, has finalised the purchase of a zinc smelter and manufacturing plant at Avonmouth for Pounds 47.6m.

The Imperial Smelting Process smelter, which employs some 600 people, was bought from Pasminco, and is designed to give MIM downstream zinc processing capacity.

MIM directors said that the smelter could have particular strategic significance once output from the McArthur River mine project comes on stream in a couple of years' time.

The smelter has the capacity to produce 120,000 tonnes of zinc and 55,000 tonnes of lead bullion, while the associated manufacturing plant at Bloxwich produces a range of value-added zinc products.

MIM Holdings Pasminco GB United Kingdom, EC P3339 Primary Nonferrous Metals, NEC COMP Disposals RES Facilities P3339 The Financial Times London Page 26 143
UK Company News: Hartwell disposes of Ford dealership Publication 931102FT Processed by FT 931102

Hartwell, the motor distribution group, has sold its Ford dealership in Lincoln to Pendragon Group.

Hartwell will retain the freehold of the site and it is planned that the dealership will relocate in a year's time.

Hartwell Pendragon GB United Kingdom, EC P5012 Automobiles and Other Motor Vehicles COMP Mergers & acquisitions COMP Disposals P5012 The Financial Times London Page 26 75
UK Company News: Malaya pays Pounds 1m for dealership Publication 931102FT Processed by FT 931102

Malaya Group, the motor retailer, has paid Pounds 1m cash for the Mann Egerton dealership at Colchester, Essex. Additionally, vehicle stocks will be bought at agreed values.

The company also announced that Mr Ronnie Lancaster, founder of the Lancaster group, and Mr John MacArthur, chairman of MacArthur & Co. and a former director of Kleinwort Benson, were to join the board as non-executive directors.

Malaya Group Mann Egerton GB United Kingdom, EC P5012 Automobiles and Other Motor Vehicles PEOP Appointments COMP Mergers & acquisitions P5012 The Financial Times London Page 26 106
UK Company News: Abtrust Emerging issue oversubscribed Publication 931102FT Processed by FT 931102

Valid acceptances totalling 54.8m shares were received by Abtrust Emerging Economies Investment Trust in respect of the 50m ordinary shares offered for subscription with warrants attached.

The basis of allocation is: up to 10,000 shares in full; 10,500 to 25,000 shares, 85 per cent; 28,000 to 50,000 shares, 80 per cent; 52,000 to 100,000 shares, 75 per cent; 120,000 to 173,000 shares, 70 per cent; 250,000 shares, 50 per cent; 500,000 to 750,000 shares, 25 per cent; and 1m shares and over, 15.25 per cent.

Abtrust Emerging Economies Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC COMP Company News P6726 The Financial Times London Page 26 121
UK Company News: GR Holdings incurs loss and cuts final Publication 931102FT Processed by FT 931102

GR Holdings, which has the Grayshott Hall health hydro, property dealing and sheepskin manufacturing as its principal activities, made a pre-tax loss of Pounds 438,000 for the year ended June 30, against a profit of Pounds 193,000 last time.

Turnover was down from Pounds 5.45m to Pounds 4.33m.

After increased tax of Pounds 640,000 (Pounds 208,000) there was an attributable loss of Pounds 1.08m (Pounds 15,000) and losses per share of 9.4p (1.3p).

A final dividend of 1.4p (1.6p) is proposed, making a 1.8p (27p) total. The comparative dividend included a 25p special payment.

GR (Holdings) GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Annual report P6552 The Financial Times London Page 26 132
UK Company News: Mid Kent Holdings buys Linkclever Publication 931102FT Processed by FT 931102

Mid Kent Holdings, the water supply company, has acquired the Linkclever group of companies, including CRI - its radio and telemetry data collection, transfer and control arm.

The maximum possible cost of the purchase is Pounds 4.4m. However, on current profit projections, the board estimates that the actual amount will be about Pounds 3.3m in cash.

MKH will pay Pounds 2.5m - Pounds 2.1m on completion with a balance of up to Pounds 400,000 dependent on the audited net asset value of CRI at the completion date. Thereafter, a profits-related payment of up to Pounds 1.9m is payable.

CRI estimates that the additional amount will not exceed Pounds 800,000.

Mid Kent Holdings Linkclever GB United Kingdom, EC P4941 Water Supply COMP Mergers & acquisitions P4941 The Financial Times London Page 26 145
UK Company News: Courtaulds expands in Indonesia Publication 931102FT Processed by FT 931102

Courtaulds, the chemicals company, is continuing its development in the Far East with the opening of a Pounds 7m coatings factory in Jakarta, Indonesia.

The factory is owned by PT Courtaulds Coatings Indonesia, a joint venture between Courtaulds, with an 80 per cent stake, and Dharmala, an Indonesian group, with 20 per cent.

Courtaulds Courtaulds Coatings Indonesia ID Indonesia, Asia P2295 Coated Fabrics, Not Rubberized RES Facilities P2295 The Financial Times London Page 26 87
UK Company News: Trinity acquires Argus newspapers Publication 931102FT Processed by FT 931102

Trinity International, the Chester-based publisher of the Liverpool Daily Post and Echo, is acquiring the 27 local newspapers owned by Argus Press. The move follows last week's approval of the deal by the Department of Trade and Industry.

Trinity is paying Pounds 20.7m in cash for the south of England pre-paid and free titles. In addition, Trinity will pay a further estimated Pounds 1.5m cash for stock, reimbursement for the benefit of pre-payments and to assume trade creditors. In the year ended March 31 1993, the assets being acquired made a net profit of about Pounds 600,000 on turnover of Pounds 25m, with a net book value of about Pounds 5.7m.

The deal gives Trinity a presence in the south of England for the first time and furthers its strategic aim of expanding and diversifying its regional newspaper interests.

Trinity International Holdings Argus Press GB United Kingdom, EC P2711 Newspapers COMP Mergers & acquisitions P2711 The Financial Times London Page 26 174
UK Company News: Morgan Grenfell Equity Income Publication 931102FT Processed by FT 931102

The net asset value per share of Morgan Grenfell Equity Income Trust stood at 139.7p at the September 30 year end, against 122.8p six months earlier and 94.15p at the previous year end.

Available revenue for the year amounted to Pounds 1.25m (Pounds 922,000) for earnings of 5.13p (3.78p) per share.

An increased final dividend of 2.5p (2.45p) is proposed, making a total for the year of 4.5p (3.45p).

Morgan Grenfell Equity Income Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 26 105
UK Company News: Wilton cuts losses to Pounds 785,000 Publication 931102FT Processed by FT 931102

WILTON GROUP, the USM-traded toys, hardware and electrical goods concern, cut pre-tax losses to Pounds 785,000 in the first half of 1993. This compared with Pounds 2.51m last time, which was after a Pounds 2m provision for future losses on discontinued operations.

Losses included Pounds 463,000 attributable to Glenchewton, in which Wilton held a 70 per cent stake until August 1993, when it was reduced to 34 per cent. In accordance with FRS 3, Glenchewton's results have been reported as relating to discontinued activities.

Total turnover for the period fell from Pounds 14.67m to Pounds 8.85m, of which Pounds 481,000 (Pounds 462,000) related to continuing operations. Net interest charged was Pounds 253,000 (Pounds 819,000) and losses per share came out at 0.12p (0.37p).

Wilton Group GB United Kingdom, EC P5064 Electrical Appliances, Television and Radios P5092 Toys and Hobby Goods and Supplies FIN Interim results P5064 P5092 The Financial Times London Page 26 168
UK Company News: Ruberoid bounces back to the market - Flotation completes Tarmac's programme of disposals Publication 931102FT Processed by FT 931102 By CATHERINE MILTON

RUBEROID yesterday announced a return to the stock market almost five years to the day that Tarmac fought and won a bitter nine-week battle to take over the roofing materials company with rival bidder Raine Industries.

The flotation, which is likely to value a now substantially smaller Ruberoid at about Pounds 70m, completes Tarmac's programme of disposals intended to strengthen the building materials and construction company's balance sheet weakened by recession.

About 65 per cent of the new issue, sponsored by Robert Fleming, is likely to be placed firmly with institutions and 35 per cent placed subject to clawback in an open offer. The company does not expect to raise a significant amount of new money.

Tarmac's Pounds 141.3m bid, described in 1988 as a classic white knight operation, engaged the City for weeks as Mr Thomas Kenny, Ruberoid's then chairman, engaged in a pointed public debate with Mr Peter Parkin, Raine's chief executive.

Mr Ian McPherson, who is stepping into the top job at the new Ruberoid company, said: 'I know Ruberoid will be remembered. It has only been off the market since 1988.'

Ruberoid currently generates about 60 per cent of its sales from contracting, of which 70 per cent comes from less cyclical refurbishment work. The balance is in manufacturing bituminous waterproofing systems predominantly for the construction industry and distributing them from warehouses in Lancashire, Dundee and Enfield.

The company, which Tarmac roughly halved through disposals, has been on the market for trade buyers since April but the parent said no realistic price was suggested during preliminary talks with potential purchasers.

This made the prospect of seeking a listing on today's high market, with investors now generally willing to pay more than trade buyers, all the more attractive to both Tarmac and Ruberoid's management.

Mr Neville Simms, chief executive of Tarmac, said: 'Of course you take advantage of the fact that there is a more obvious and visible value to the people who are running the business.'

Mr McPherson, who is quitting the post of president of Tarmac America to become chief executive of the new company, said: 'They are good businesses and they always have been.' He said: 'Personally I have always wanted to run a plc company because I have done everything else. I have lived with a huge division inside a big group which has all of the disadvantages of a plc and none of the advantages.' To fulfil this ambition he is bringing the waterproofing businesses of Ruberoid and Tarmac to the market, of which the main companies are Ruberoid, Permanite, Briggs Amasco, NEBI and ATAB.

Mr McPherson claims for the Ruberoid businesses a 25 per cent share of the UK roofing market and a 16 per cent share of the country's specialist roofing contracting market. The large shares might have given any trade buyer difficulties with the Office of Fair Trading.

ATAB in Belgium and NEBI in the Netherlands are leading manufacturers of waterproofing products as well as roofing and cladding contractors.

The businesses brought together for the flotation made pre-tax losses of Pounds 12.8m (losses of Pounds 6.7m) in the year to December 31 on turnover of Pounds 280.4m (Pounds 263.8m).

The deficit was struck after provisions of Pounds 11.3m (Pounds 6.9m) with the bulk against redundancy and reorganisation as well as some to cover poor contract results. There was also a notional interest charge of Pounds 6.1m (Pounds 6.8m).

There are no exceptional items forecast for 1993 and the interest charge for the current year is likely to be just below Pounds 1m following a refinancing which should ensure an average gearing of about 10 per cent during the year.

Mr McPherson said: 'The current order position supports our forecasts: we don't yet see any major upturn in the UK: we think the market will be strong by 1995.'

He said the board's strategy would be to 'major on the brand names' such as 'all the Permas and Rubers' which, he said, had become for builders as generic as Hoover. The company expects to capitalise from roofs which have been neglected during the recession.

Mr McPherson plans to hold equity in the company as do all the directors: 'We are going to put our money where our mouth is,' he said.

Ruberoid GB United Kingdom, EC P3251 Brick and Structural Clay Tile P3259 Structural Clay Products, NEC FIN Share issues CMMT Comment & Analysis P3251 P3259 The Financial Times London Page 26 767
UK Company News: ASW shares fall 41p after profits warning - Margins squeezed by rising scrap metal costs Publication 931102FT Processed by FT 931102 By ANDREW BAXTER

SHARES IN ASW Holdings plunged by 41p to 147p yesterday after the Wales-based steel products group issued a profits warning because of rising scrap prices and reduced selling prices in the recession-hit continental European market.

Analysts had been predicting pre-tax profits ranging from Pounds 7.5m to Pounds 15m or more, but yesterday one said he had 'pencilled in' a downgraded forecast of Pounds 2m for 1993. Last year, the company suffered a pre-tax loss of Pounds 10.8m.

ASW had warned at the interim stage in September that the price of scrap, its main raw material, had risen sharply in June. Yesterday it said the price had fallen in August but had since risen again.

The company said that as a result of this, together with weak selling prices for ASW's principal products in continental Europe, margins had declined significantly from those experienced in the second quarter, with weak selling prices for principal products in Europe adding to pressure.

Provided that market conditions did not change substantially, the group's steel activities would stay in profit during the second half, but profits would be lower than the Pounds 5.7m achieved in the steel business in the first six months, the company said.

ASW's steel businesses were the star performer in the first half, rebounding from profits of just Pounds 900,000 a year earlier, and a loss of Pounds 4.4m for all 1992.

In contrast, ASW's much smaller construction systems business suffered a Pounds 2.5m loss for the first half, but is expected to reduce its deficit in the current half. Overall, ASW had a first-half pre-tax profit of Pounds 1.5m.

Mr Alan Cox, ASW's chief executive, said in September that he was 'more confident than for a long time' about the company's main steel business. But he was cautious about the outlook for steel margins.

Yesterday ASW said that, given the volatility of European margins, it was too early to make any comments about 1994 - when some analysts were expecting big rises in profits.

Mr Ian Lowe at Smith New Court has downgraded his 1993 profits forecast from Pounds 11.7m to Pounds 1m, reflecting reduced losses in construction systems as much as the problems in the steel business. 'These have some longevity about them,' he said.

His 1994 prediction is reduced from Pounds 20m to Pounds 9m.

ASW said that, in the absence of unforeseen circumstances, it intended to pay an unchanged final dividend of 3p a share, making a total of 6p, also unchanged, for 1993.

ASW Holdings GB United Kingdom, EC P3313 Electrometallurgical Products P3316 Cold Finishing of Steel Shapes CMMT Comment & Analysis P3313 P3316 The Financial Times London Page 26 470
Capital Cities in stock buy-back Publication 931102FT Processed by FT 931102 By FRANK MCGURTY NEW YORK

CAPITAL Cities/ABC has offered to buy from its shareholders up to about 12 per cent of its existing common stock which could cost the cash-rich group between Dollars 1.18bn and Dollars 1.26bn (Pounds 851m).

The move stands in contrast to the current emphasis within the US media industry on building new technological alliances though acquisitions and joint ventures.

Capital Cities, which owns the ABC television network, also announced yesterday that its president and chief executive, Mr Daniel Burke, 64, would retire in February. Mr Thomas Murphy, chairman, will assume the duties of chief executive while continuing in his present position.

The enhanced role for Mr Murphy, who is 68, is surprising. Industry observers had expected Mr Robert Iger, who as president of the television network helped increase the profitability of its prime-time programming, to be given at least one of Mr Burke's titles.

Under terms of the tender offer, Capital Cities has invited shareholders to specify a price - within a range of Dollars 630 to Dollars 590 a share - at which they are willing to sell their stock.

Assuming the offer - known as a Dutch auction - generates sufficient interest, the company will then determine the lowest price at which it would be able to buy 2m shares and proceed with the purchase of all shares offered at or below that price.

On Wall Street early yesterday, the shares were Dollars 5 3/8 higher at Dollars 615 in light trading.

Capital Cities said it had decided to make the offer because it was the most attractive use for its cash surplus of about Dollars 1.2bn.

'Acquisitions have not been available at prices the company believes would result in attractive returns for its shareholders.' It said that after the stock repurchase it would have ready access to sufficient capital to pursue any attractive investment opportunities that might arise.

The company added it had paid off all its long-term debt available for repayment, including Dollars 500m in liabilities this year.

Mr Peter Appert, an analyst with CJ Lawrence, the New York securities house, said the offer 'shows Capital Cities is going to stick with its financial discipline and not get sucked into the euphoria over consolidation and acquisitions'.

Capital Cities/ABC Inc US United States of America P4833 Television Broadcasting Stations CMMT Comment & Analysis COMP Shareholding P4833 The Financial Times London Page 25 410
B&B to build German operation Publication 931102FT Processed by FT 931102 By ALISON SMITH

BRADFORD & Bingley, the UK's seventh largest building society, has become the first non-German institution to be given permission to set up a Bausparkasse, the German equivalent of a building society.

The society said yesterday that it would establish two operations in Hamburg: a Bausparkasse and a marketing company. The latter would distribute the B&B Bausparkasse tariffs, or contracts, through brokers and sales companies. It would also target independent insurance and investment houses, which could add B&B products to their ranges. Most German societies are owned by insurance companies or by banks with a link to an insurance company.

The move marks a further stage in UK societies' interest in developing businesses in continental Europe.

Halifax, the largest society, has been granted a licence to take retail deposits for mortgage lending in Spain and will open a bank in Madrid later this month.

The B&B Bausparkasse will open in January and take deposits for 18 months before issuing loans. B&B believes the project will make a small profit in its first full year.

It aims to win 1 per cent of the market. The 34 existing Bausparkassen accounted for DM4.5bn (Pounds 1.8bn) in net lending in 1991 - some 15 per cent of the total, according to the Bundesbank. About 17m Germans have contracts with Bausparkassen.

Formerly, the German home loans market has been served almost exclusively by domestic institutions, apart from loans made by foreign-owned banks.

While the relatively low level of home-ownership - 40 per cent of Germans are owner-occupiers compared with 67 per cent in the UK - makes the German market attractive, regulatory requirements have deterred other societies from establishing operations.

Mr John Smith, B&B's finance director, said the German system of fixed rates for lenders and savers had benefits for both sides, and gave an extra stability to the arrangements.

The move represented 'a good way into a major market without any great balance-sheet risk', he said.

B&B also believes that the operation will enable it to market a range of financial services. It should leave it well placed for the opening up of the life insurance industry when the EC's third life directive comes into effect next July.

Lex, Page 24

Bradford and Bingley Building Society DE Germany, EC P6162 Mortgage Bankers and Correspondents MKTS Market shares RES Facilities P6162 The Financial Times London Page 25 406
Companies in this issue Publication 931102FT Processed by FT 931102

----------------------------------- COMPANIES IN THIS ISSUE ----------------------------------- UK ----------------------------------- ASW 26 Abtrust Emerging 26 Aer Lingus 27 Allen 26 Andrew Sykes 26 BM 26 BT 48 Bass 27 Bolton 27 Bradford & Bingley 25 British Petroleum 48 Bull UK 20 Courtaulds 26 Cranswick 27 GR Holdings 26 Grand Central Inv 26 Haden LacLellan 20 Hartwell 26 Linkclever 26 Lloyds Chemists 26 London Securities 26 Malaya 26 McInerney Props 27

Mgn Grenfell Equity 26 Mid Kent 26 Mt Charlotte Thistle 20 Perkins Foods 26 Pex 26 Queens Moat Houses 25 Roskel 26 Ruberoid 26 Stanley Leisure 48,26 TR Far East Income 26 Thomas Cook 20 Thorn EMI 48 Trinity Intl 26 Vodafone 48 Wellcome 48 Westminster Scaffold 26 Wilton Group 26 ----------------------------------- Overseas -----------------------------------

Alcan Aluminium 30 Ankor 32 Asea Brown Boveri 30 Australia Meat Hldgs 32 Canadian Pacific 30 Capital Cities/ABC 25 Challenge Bank 32 Christiania Bank 28 Cigna 30 ConAgra 32 Conrad Hilton 28 Den norske Bank 28 Fokus Bank 28 Foster's Brewing 32 Grundig 28 Hyatt International 28 Kaiser Aluminum 30 MIM Holdings 26 McDonnell Douglas 28

Mitsubishi Materials 32 Muramoto 25 Philips 28 Placer Dome 31 Prague Breweries 27 Raytheon 31 Samsung 32 Sheraton 28 Singapore Telecom 32 Sumitomo Metal M'ng 32 Tenneco 30 Transamerica 30

Upjohn 31 Volvo 1 Wharf (Holdings) 32 Xerox 34 -----------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 25 242
Banking system feels a chill wind: Muramoto Construction's fall Publication 931102FT Processed by FT 931102 By WILLIAM DAWKINS

Yesterday's collapse of Muramoto Construction, Japan's largest since the second world war, sends a chill through the banking industry at the worst possible time.

The big question hanging over the Japanese banking system yesterday was whether the damage from Muramoto would be localised, or whether the harm to its 50 bank lenders would trigger more collapses among construction industry suppliers. Bank of Japan and finance ministry officials last night played it down, predicting the collapse was unlikely to destabilise Japan's financial system.

'The total is so large that adverse effects to creditor banks will be inevitable. But overall, I think they can absorb the loss in their financial strength,' said a senior central bank official. The Bank of Japan would monitor the effects on lending banks and on the general economy, but did not expect 'any significant adverse impact', he said.

Muramoto struggled on after other over-extended property groups collapsed two years ago, only to hit the banking system at a moment when banks are already cautious about lending, in the middle of the worst recession since the 1973 oil crisis.

A mark of the seriousness of the construction industry's recession came yesterday with the announcement of the steepest decline in construction orders among the top companies for 19 years - down 22.3 per cent in the six months to September, according to the Japan federation of construction contractors.

Yesterday's failure can hardly encourage banks. It was unclear yesterday exactly what triggered Muramoto's banks to withdraw their support, in contrast to other shaky construction and property companies kept afloat by banks.

Muramoto began work on a debt restructuring last April, with its two main creditors Daiwa Bank and Nanto Bank, the main regional bank in Nara prefecture where the company is based. The main bank creditors put their own management into Muramoto, in line with Japanese banking practice, and proposed to change the company's president and liquidate its assets. However, other lenders opposed the restructuring, and Muramoto found itself unable to honour its bills.

Teikoku Databank, a private credit research agency, believes the discovery of large off-balance sheet loans by Muramoto to its own contractors prompted banks to withdraw support. Failures of property companies in joint developments with Muramoto contributed to a sharp rise in bad debts, said Teikoku.

Muramoto would not comment and Nanto Bank simply said it judged that further support would not improve Muramoto's fortunes. If Teikoku's theory is true, then the Muramoto collapse could be localised, rather than be read as a more worrying sign that banks were unable to afford the continuing risk.

Until yesterday, Muramoto was an obscure unquoted family controlled company, Japan's 24th largest construction group, and largely unknown outside Nara prefecture, where it is a pillar of the industrial establishment. Founded in 1908, it has 2,200 employees and recorded sales of Y291.5bn in the year to last June, on which it made a Y2.8bn loss.

Muramoto lawyers were yesterday quoted as saying it would take 10 to 15 years to restructure the construction group.

Muramoto Construction JP Japan, Asia P1622 Bridge, Tunnel and Elevated Highway P1623 Water, Sewer and Utility Lines P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P1622 P1623 P6081 The Financial Times London Page 25 557
Queens Moat House shareholders consider legal action Publication 931102FT Processed by FT 931102 By PEGGY HOLLINGER

SHAREHOLDERS in Queens Moat Houses are considering legal action against former directors and advisers, writes Peggy Hollinger. A lobby group formed by Mr Denis Woodhams, a former QMH hotel manager, is seeking legal advice following news that the heavily indebted company would have to complete a severely dilutive debt for equity swap in order to survive. QMH owes more than Pounds 1bn .

Mr Woodhams' action group aims to establish 'the reasons for the decline of the company, whether any persons or body can be held responsible for the losses, and the likelihood of successfully obtaining compensation'.

Mr Peter Bruton-Phillips, the solicitor who, with consultant Mr Michael Harkavy, of Alvechurch, Worcester, is representing shareholders' interests, said yesterday there were very important issues to be investigated. Meanwhile, the London Stock Exchange confirmed it was investigating alleged breaches of the Companies Act.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels MGMT Management & Marketing P7011 The Financial Times London Page 25 178
Debts sink Japanese builder Publication 931102FT Processed by FT 931102 By WILLIAM DAWKINS

MURAMOTO Construction yesterday became Japan's biggest financial failure for more than 45 years when it filed for protection from its creditors, with debts totalling Y590bn (Pounds 3.7bn).

This is the largest single potential loss to hit Japan's banking system since the collapse in asset prices began two years ago, sending the economy into recession.

Leading creditor among the 50 banks exposed to the group is Nanto Bank, the main regional bank in Nara prefecture, western Japan, where Muramoto, the country's 24th largest general construction group, is based. Nanto has Y56bn of loans to Muramoto, compared with a deposit base of Y3,000bn.

It is followed by Daiwa Bank with Y45bn, which has led creditors' negotiations with the company, Long Term Credit Bank of Japan with Y38bn and Dai-Ichi Kangyo Bank with Y28bn.

Muramoto's creditor banks could absorb the loss, a senior Bank of Japan official said. However, the move could increase banks' caution when lending is already sluggish.

Teikoku Databank, the private credit research agency, attributed Muramoto's collapse to the failures of property companies with which it had undertaken joint developments. Like other property companies across Japan, they were hit by the prolonged decline in property prices.

Muramoto, an unlisted company capitalised at Y2.4bn and with sales of Y291.5bn last year, specialised in public works projects. However, it diversified into golf course construction and property development in the late 1980s.

Muramoto Construction JP Japan, Asia P1622 Bridge, Tunnel and Elevated Highway P1623 Water, Sewer and Utility Lines COMP Company News P1622 P1623 The Financial Times London Page 25 270
Red bookfails to explain red ink: Divergent valuations of the QMH chain Publication 931102FT Processed by FT 931102 By ANDREW JACK and MICHAEL SKAPINKER

Ask chartered surveyors about property valuations and - in the spirit of Chairman Mao - they raise their little red book of professional guidelines. This revered text - just like that of the former Chinese leader - has been called into question following the widely divergent valuations given to the assets of Queens Moat Houses, the hotels group.

In the audited accounts of QMH for the year to December 31 1991, Weatherall Green and Smith, a leading firm of chartered surveyors, valued the company's properties at Pounds 2bn. One year later, a draft valuation by the same firm offered a figure of Pounds 1.35bn. QMH opted instead for a rival valuation from Jones Lang Wootton, for the 1992 accounts, which was still lower at just Pounds 861m. QMH's assets include 22,000 rooms in 189 hotels - mainly three and four-star hotels in the UK, as well as interests in Germany, France, the Netherlands, Belgium and the US.

The size of the discrepancies has become a talking point in the profession. One surveyor said yesterday: 'It doesn't help our reputation, but there are very few incidents where you have a disagreement as large as this.'

Mr Terry Knight, senior partner of Weatherall, would not discuss the QMH valuation in detail on the grounds of client confidentiality, but said his firm stood by its figures. Jones Lang Wootton also refused to comment.

The Royal Institution of Chartered Surveyors, which produces the red book, has launched an investigation into the differences and requested the valuation certificates produced by the two firms for QMH. Officials were keen to stress yesterday that they needed to gather more information. There was no evidence the two firms had breached its valuation guidelines.

A number of factors may account for the divergent figures. The hotel sector was in decline during 1992, which could account for the fall between the 1991 and the draft 1992 Weatherall valuations - although the downward trend may have been detectable as far back as late 1989.

In contrasting the two firms' figures, Weatherall's 1992 estimates were prepared several months before those made by Jones, by which time even more pessimistic views on the market had developed.

Equally, it is unclear whether the two sets of figures were prepared on the same assumptions. Jones may have been asked to estimate a worst-case for sale of hotels in the current depressed market; while Weatherall may have assumed the hotels did not need to be sold and could remain more in line with its previous figures.

The UK's other principal hotel groups were yesterday keen to reject suggestions that they needed to reduce the value of their assets any further in response to the position at QMH.

Mr Donald Main, finance director at Forte, said the group revalued its entire portfolio last January - cutting the total by Pounds 344m - against its normal practice of revaluing a third each year. Ladbroke, which owns the Hilton International chain, said the book value of its hotels had been reduced by Pounds 195.6m last year and by Pounds 56m the previous year.

Speaking on the position at QMH, Mr Andrew Cherry, senior valuation partner with Healey & Baker, and immediate past chairman of RICS' assets valuation standards committee, says: 'If both valuations are in accordance with the red book, what we have is a genuine difference of opinion. Professional judgment counts for an awful lot.'

That may suggest that the RICS guidelines - notably the seven pages of statement of asset valuation practice 12 - need to be more tightly drafted. Mr Russell Kett, an associate with the hotel and leisure consulting division of Touche Ross, says: 'The reason that many hotels have gone into receivership in the last two years is as a result of properties being ascribed values which have proved unsupportable against their debts.'

That has led to the insolvency arm of Touche Ross reputedly becoming one of the largest hotel operators in the country. It has also led to consideration by RICS of new guidelines, as well as a draft statement of recognised accounting practice on valuation from the British Association of Hotel Accountants, of which Mr Kett is chairman.

What is less likely to change is the commercial pressures - to which surveyors admit only in private - to deliver figures in line with what the directors of a company may want.

There have been no public statements and just a handful of confidential reprimands of RICS members related to asset valuations. A more likely pressure for change may come from litigation. Mr Kett says his firm alone is acting in three imminent legal battles where banks are suing surveyors on the basis that their figures were too optimistic.

Lex, Page 24

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels P8731 Commercial Physical Research FIN Annual report TECH Safety & Standards P7011 P8731 The Financial Times London Page 25 843
Supreme Court to review California's unitary tax: Surprise decision appears to favour Barclays Bank Publication 931102FT Processed by FT 931102 By GEORGE GRAHAM WASHINGTON

THE US Supreme Court placed the Clinton administration in a painful quandary yesterday by announcing that it was going to review the constitutionality of California's unitary tax system - which taxes multi-national corporations on the basis of their worldwide income.

The nine-member court said it would review both the case brought by Barclays Bank of the UK, questioning California's right to apply the unitary system to foreign-owned companies, and a parallel case brought by Colgate-Palmolive raising similar issues in relation to US-owned businesses.

Together, the two cases may affect about Dollars 4bn in tax revenues that California has either collected or assessed.

Fulfilling a campaign pledge, President Bill Clinton reversed the policy of the last three administrations by backing California's argument that the case should not be heard. The administration is anxious that California, politically crucial and virtually bankrupt, should not lose the Dollars 4bn (Pounds 2.6bn) at stake.

At the same time, the Clinton administration is unwilling to stand forthrightly against its foreign partners - especially the UK - who have unrelentingly criticised unitary taxation as contrary to the internationally accepted arm's length system.

In a brief filed with the Supreme Court last month, the US solicitor-general argued that although the decision by the California Supreme Court upholding the unitary system was 'subject to serious question', there was no practical need for a review because of changes California made last month to its tax law to meet foreign objections.

The unitary method assesses tax on a proportion of a group's worldwide income, whereas the arm's length system taxes only the revenues of the companies doing business in the state.

Yesterday's announcement surprised many legal experts and appeared to shift the odds of victory strongly in Barclays' favour, but Mr Jerome Libin, a lawyer representing the UK government in the case, cautioned against any such prediction.

Mr Brad Sherman, a member of the California franchise tax board who was active in promoting the changes to the unitary tax system, said he was disappointed by the Supreme Court's decision.

In reviewing the Barclays and Colgate cases, the Supreme Court will revisit its 1983 decision in a case brought by Container Corp, in which it upheld the fairness of the unitary system.

Barclays' argument against the unitary method is that by running against the grain of internationally accepted tax practice, it interferes with the federal government's authority over foreign commerce, enshrined in the US constitution.

Barclays Colgate Palmolive US United States of America P9211 Courts COMP Company News P9211 The Financial Times London Page 24 447
Ealing owner plans revival of film-making at studios Publication 931102FT Processed by FT 931102 By RAYMOND SNODDY

PLANS were announced yesterday to revive film-making at the birthplace of classic British films such as Passport to Pimlico, Whisky Galore and Scott of the Antarctic.

The new owners of Ealing Studios - where nearly 100 films were made between 1929 and its purchase by the BBC in 1957 - hope to use Business Expansion Scheme funds to make Ealing a fully operational studio again. The aim is to make up to 10 films a year.

After the era of Sir Michael Balcon, the most famous Ealing producer, the BBC made television programmes there, including The Singing Detective, Fortunes of War and Colditz.

Mr David Bill's BBRK group, which owns scenery, lighting and special-effects companies, bought the studios from the BBC for Pounds 6m last December.

'We have a huge responsibility here,' Mr Bill said. 'When we're not aware of the ghost of Michael Balcon, the shadow of the BBC looms large. Some of their greatest work was done here.'

The group hopes to raise Pounds 750,000 to develop Ealing movies. The BES scheme allows tax-free investments ranging from Pounds 500 to Pounds 40,000.

Possible ventures include a thriller about Lord Lucan and a children's film directed by actor Bob Hoskins. The studio has entered into a trading relationship with Screen Partners, which will provide deficit finance.

Although BES funds have helped finance films such as Henry V and Leon The Pig Farmer, Ealing Studios said yesterday it was the first time they had been used for a studio-based development.

The money will be invested in Ealing Studios Productions and investors are being promised stakes in a 'varied five-year portfolio' of films.

Last night Hollywood director Martin Scorsese, speaking of his career at a London lecture - paid tribute to the effect of the Ealing influence.

BBRK GB United Kingdom, EC P7812 Motion Picture and Video Production COMP Company News P7812 The Financial Times London Page 24 334
Baltic Exchange to sell London head office Publication 931102FT Processed by FT 931102 By RICHARD LAPPER

THE WORLD'S oldest shipping market, the Baltic Exchange, is to sell the freehold site of its City of London headquarters and move to alternative accommodation in the City.

The Baltic will also look at other proposals to develop the grade 2 listed building, which was badly damaged in an IRA bomb attack in April 1992.

Mr Jim Buckley, chief executive of the Baltic, said the 91-year-old exchange, referred to as the 'cathedral of shipping', no longer meets the needs of the shipbrokers, who buy and sell space on ships for bulk cargoes, ranging from oil to phosphate.

The exchange's decision to leave the building follows two tough years. Last year's bomb destroyed many of the small offices that surrounded the trading floor, severely reducing the exchange's rental income and leading to a sharp reduction in staff numbers.

Even before the bombing, a growing number of brokers had started to conduct business by telephone, making the exchange uneconomic. Only about 400 brokers regularly work on the trading floor, compared with about 1,000 20 years ago.

Hillier Parker, the estate agent, has been appointed to find a buyer for the 40,000 sq ft site. Mr Nick Baucher, partner at Hillier, is confident of making a sale, even though a buyer will have to pay between Pounds 12m and Pounds 15m to complete restoration work, including the rebuilding of a granite facade.

Mr Baucher, who expects at least part of the site to be used for an office block or hotel, said: 'We are selling a piece of land that is in a very good position in the City.'

The marble-clad 13,000 sq ft exchange with its Rhodesian walnut floor is a 'wonderful space' that could be converted for use as a food hall or night club.

With land prices now about a fifth of their levels of five years ago, Mr Baucher expects UK property companies and institutional investors to show interest. Hillier Parker will also market the property overseas.

Hillier Parker will advise the exchange in its search for new premises, which will provide members with better information technology facilities and other services.

The Baltic's 1,700 individual members, representing 600 companies, earn Pounds 800m of commission income a year on deals worth tens of billions of pounds. The exchange accounts for more than half the world's bulk cargo chartering business - buying and selling space in oil tankers and in dry-cargo vessels carrying commodities - and an even larger share of ship sale and purchase contracts.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries RES Facilities COMP Disposals P6552 The Financial Times London Page 24 451
The Lex Column: Bradford & Bingley Publication 931102FT Processed by FT 931102

The rules on German mortgage lending look so advantageous to lenders that one is surprised that Bradford & Bingley is the first building society to open a Bausparkasse there. Not only does Bausparkasse lending carry a guaranteed margin of 2 per cent. The minimum loan-to-value ratio of 80 per cent means the risk of bad debts is smaller than in the UK where B&B is currently lending up to 95 per cent of a property's value. Besides, Bausparkasse borrowers must save with the institution for at least 18 months before taking out a loan.

Nothing comes without a price, of course. B&B has jumped the first hurdle of obtaining its licence. Now comes the struggle to acquire a share of a market which is pretty well stitched up by established operators. B&B reckons its German operation can become profitable on the basis of a 1 per cent market share. That, though, would hardly constitute a meaningful diversification for Britain's seventh largest building society. Yet B&B deserves applause for having latched on to the long-term opportunities in a market that is opening up, particularly to insurance products. Exploiting these opportunities will require patience, but quick-fix efforts at diversification can easily end in tears, as Abbey National's humiliating foray into French commercial lending shows.

Bradford and Bingley Building Society DE Germany, EC P6162 Mortgage Bankers and Correspondents CMMT Comment & Analysis P6162 The Financial Times London Page 24 248
The Lex Column: UK budget Publication 931102FT Processed by FT 931102

There is a timeliness to BZW's warning of possible action in the budget to remove the institutions' tax credit on dividends. Other options for raising revenue by pushing up indirect taxes look less attractive, given the strength of political opposition and worries about their impact on the headline rate of inflation. Mr Norman Lamont's initial attack on the credit in April passed with minimal protest. Granted, the equity market fell as it adjusted to lower yield horizons, but that has long been forgotten in the dizzy heights reached subsequently.

There is a beguiling argument that, by removing the credit, the government would be creating a level playing field where institutions receive the same return as other investors. In reality, its main purpose would again be to raise revenue. One way or another, companies would end up paying, most probably through an early end to pension holidays such as BT and Guinness have already announced. That would have the same effect on their cash flow as an increase in corporation tax.

Nor is there much consolation in the thought that increased pension fund contributions would find their way back into equities. The chances are that an increasing proportion would flow into higher-yielding gilts to meet actuarial requirements on return. Mr Clarke might be deterred by the desire to avoid his first budget being greeted by a slumping stock market. Then again, he would doubtless be delighted if the counterpart was a rising gilt market - in which he will still have to fund a large deficit next year.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 24 288
The Lex Column: Queens Moat Houses Publication 931102FT Processed by FT 931102

It is a fair bet that Weatherall Green and Smith will not be seated next to Jones Lang Wootton at the chartered surveyors' Christmas bash. The striking disparity in the two firms' valuations of Queens Moat Houses' hotels has caused a furore among property valuers. It is of particular alarm to the owners of QMH's Pounds 215m mortgage debenture stock. They previously believed their stock was generously secured on several of QMH's hotels. They now discover that the revised value of that property no longer covers the nominal value of the outstanding debenture stock.

Undoubtedly, there are particular difficulties in valuing hotels. A hotel's income stream can vary enormously depending on market conditions, and future forecasts rely on subjective opinion. How that income stream is capitalised to give a present value is also fraught with difficulties. In QMH's case, these calculations were perhaps especially tricky. The fixed fees QMH derived from many of its hotels may have induced a false sense of security about future income flow.

Nevertheless, the Royal Institution of Chartered Surveyors should urgently review its valuation procedures if the profession is to retain credibility. As for debenture holders, they will always depend on vigilant and active trustees to protect their interests. But that task would be greatly simplified if borrowers were obliged to provide prompt and full disclosure about valuation criteria. That may raise issues of commercial sensitivity. But it would also provide its own rewards: those revealing such information should be able to secure funds more cheaply.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels P8713 Surveying Services CMMT Comment & Analysis P7011 P8713 The Financial Times London Page 24 289
The Lex Column: BT's cheap chatline Publication 931102FT Processed by FT 931102

BT's decision to turn price cuts required by the regulator into a marketing drive deftly makes a virtue of necessity. Its RPI-7.5 per cent price control is a heavy ball and chain to carry. BT was also a little unfortunate that the low inflation rate in the month when the irons were clamped on has made the burden heavier - the company has to cut prices by Pounds 500m this year. Yet it chose to announce only Pounds 150m of the reduction yesterday. From a marketing perspective, it perhaps makes sense to spin out the good news and ram home one message at a time. It soothes the profit and loss account to go slow on the implementation of lower tariffs, as the regulator has already noted. BT is well within its rights. Yet upsetting Oftel might be unwise.

The weighting of price cuts is significant. BT has focused on domestic customers as competition from Mercury and cable companies increases. Since competition in business services has already cut margins, defending or acquiring domestic customers is the logical next step. Further initiatives will probably be in a similar vein. Such price initiatives may blunt the erosion of BT's domestic base and slow Mercury's advance. Yet if the focus is away from the business market, its impact on Mercury's profitability should be limited.

As Mr Michael Hepher, BT's managing director, points out, telephone systems have high fixed costs. They also require high capital spending. Any increased use of the system is thus welcome. To prosper, BT is going to need to use good marketing to stimulate those domestic call volumes now that the watchdog is biting and the competitive wolf is at the door.

British Telecommunications GB United Kingdom, EC P4813 Telephone Communications, Ex Radio CMMT Comment & Analysis COSTS Product costs & Product prices MKTS Market shares P4813 The Financial Times London Page 24 325
Big chopper falls with a thud: The trials of China's reformists as they try to cool an overheating economy Publication 931102FT Processed by FT 931102 By TONY WALKER and EDWARD BALLS

Mr Zhu Rongji, China's economic supremo, can scarcely have encountered more testing times than these in his stewardship of the Chinese economy. Nor can China itself have entered a more critical phase in seeking to expand its economic reforms.

When Mr Zhu surfaced in Shanghai a few days ago to open a bridge, it marked one of the very few recent public appearances for a man rarely out of the news in the first half of this year. China's senior vice-premier has had much on his mind, and on his plate, since he unveiled in July a 16-point austerity programme to control China's over-heating economy. For the measures - which have raised interest rates, curbed speculative real estate investments and imposed a credit squeeze on state enterprises - have antagonised entrenched interests in the central bureaucracy, and among powerful local officials.

Under pressure from the provinces, and from the state enterprise lobby at the centre, Mr Zhu, who in June assumed the role of governor of the People's Bank, the central bank, has begun to ease monetary policy. The bank loosened credit restrictions in August and September, allowing money in circulation to grow by Yuan10bn (Dollars 1.75bn) compared with Yuan1.46bn in the same period last year.

As the Communist party prepares for the crucial third plenary session later this year of its 14th Central Committee, an important policy-making body, there are two questions: have Mr Zhu and his reformist colleagues managed to preserve the integrity of measures advanced to cool an overheating economy; and perhaps more important, have they laid the groundwork for progress towards the next phase of the economic reform programme.

At this preliminary stage it appears that Mr Zhu, having weathered harsh criticism over some aspects of his austerity package, is close to seeing a fairly ambitious programme for reform of the banking, finance, and trade sectors adopted by the third plenum. China is planning to stiffen the regulatory functions of the People's Bank to enhance its authority over monetary policy and enable it to concentrate primarily on fighting inflation; to unveil a radical reform of the taxation system, including the introduction of a new revenue-sharing formula between the centre and the provinces; and to further liberalise trade to satisfy requirements for accession to the General Agreement on Tariffs and Trade. However, reform of crumbling state enterprises remains a murky area, and Mr Zhu may well have been obliged to back away from measures that would bring further hardship to loss-making industries.

Little has emerged publicly of the heated debate within the Chinese leadership over the way ahead, but interviews conducted by the Financial Times with influential figures in economic policy-making have given a flavor of the intensity of discussions. Mr Zhu, at a series of stormy private meetings in Beijing and the provinces, has been forced to defend his actions, especially those that have squeezed funds for state enterprises, some of which are encountering wage difficulties.

Mr Dong Fureng, a member of the standing committee of the National People's Congress (which acts like the UK cabinet), and a leading economist, was surprisingly forthright. 'Personally, I think Zhu Rongji's macro-control measures should be more flexible. Banks should quicken steps to provide loans to troubled enterprises. The negative effects are growing. If he is more flexible now, the economy will pay a lower price in the end.'

Other prominent officials such as Mr Ye Sen of the Commission for Economic Restructuring were more circumspect, although they made little attempt to disguise their misgivings. 'It is very necessary to have macroeconomic controls, but we have to distinguish different situations - we cannot just cut with one big chopper,' he declared.

Mr Zhu's 'big chopper', a reference to the heavy-bladed kitchen utensil wielded by Chinese cooks, has certainly fallen heavily. But it has fallen less discriminately than Mr Zhu may have wished. His credit restrictions were aimed at recalling loans made to the 'hot money' areas of the economy, such as speculative property ventures. Commercial banks have since struggled to recover real estate loans, so instead have recovered funds from profitable state enterprises, which depend on bank credit to finance their working capital.

A significant proportion of the new credits that the government has released since September have been directed to state enterprises, many of them faltering industries which need continuous cheap loans to stay afloat. Such a move may make political sense, but hardly squares with Mr Zhu's policy of redirecting investment towards profitable enterprises. Commercial bank portfolios are bulging with what the Chinese classify as 'overdue' loans, but are, in effect, non-performing.

In defence of his measures, Mr Zhu is likely to have argued that initial gains in restraining unsustainable economic activity, and puncturing what had become known as the speculative 'bubble economy', vindicate his approach.

His 16-point plan has, in effect, put an end to illegal interbank lending through financial intermediaries such as bank-controlled trust and investment companies - so-called 'triangular debt'; drawn funds back into the banking system by clamping down on the issuance of enterprise bonds; and stabilised the exchange rate in currency trading houses known as 'swap centres'. The exchange rate slipped to nearly Yuan11 to the US dollar in June, while the black market rate depreciated even further. But higher interest rates and central bank intervention have since stabilised the exchange rate at about Yuan 8.7 to the dollar, while some exporters complain that it is increasingly hard to sell their foreign exchange.

The austerity package has also taken some of the steam out of inflation. Annual inflation in the 35 main urban centres was 20.7 per cent in September, down from 23.3 per cent in July. Prices of commodities are also down sharply. For instance, steel prices fell by 34 per cent in the third quarter. Retail sales growth has also moderated.

Mr Zhu has also managed to find the money for infrastructure projects which were starved of funds in the first half of the year and, perhaps more important, he has ensured that restive farmers are being paid promptly for produce acquired by the state. Delays in honoring commitments to peasants had provoked political unrest.

In the six months to June, only 19 per cent of big construction projects under the present 1991-95 five-year plan were being adequately funded. The figure had risen to 70 per cent by September. However, fixed asset investment fell by more than 10 per cent in August over July, although the heady capital spending of the early part of the year resulted in a nearly 70 per cent increase in the eight months to August compared with last year.

But Mr Zhu is not out of the woods yet. World Bank officials express concern that monetary policy has been loosened, even though inflation remains high and industrial output and retail sales are both rising by more than 20 per cent a year. Meanwhile, senior leader Deng Xiaoping's recent reported intervention in the economic policy debate to urge a commitment to reform and to continued economic growth was seen as a possible strike against party conservatives.

The reformists are engaged in a delicate balancing act: they must exercise continuing restraint over an economy expected to grow by 13 per cent this year; at the same time they must confront the political difficulties associated with pressing further ahead into the uncharted waters of China's reform process. Mr Zhu will be worried that in his attempts to restrain activity he risks a hard landing, which may impede his ability to implement the reforms necessary to avoid another boom-and-bust cycle; but if he yields too much ground to those urging an easing of credit he risks a resurgence of inflation.

'Zhu Rongji has a much bigger agenda than slowing the economy,' said a western official in Beijing. 'Without the next stage of reforms of the institutions of macroeconomic policy, he knows that China will continue to run the risk of excess demand and instability . . . He is trying to put the thread through the eye of a very small needle.'

CN China, Asia P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Inflation ECON Industrial production P9311 The Financial Times London Page 23 1397
Leading Article: Russian land Publication 931102FT Processed by FT 931102

PRESIDENT BORIS Yeltsin's decree last week, giving Russia's collective and state farm workers the right to buy, sell, lease and pass on their share of the land, is an unambiguously good move. It gives Russian peasants a long-awaited right - and one long blocked by the now defunct Russian parliament - to emancipate themselves from state-serfdom and to become farmers, or to sell that right to others.

Privatisation of farmland is one of the most essential steps towards building a market economy, but in Russia it has been particularly problematic, thanks to the conservatism of farm directors and to the inertia of the peasants themselves. Subsidies to inefficient state farms are a huge burden on the state budget. Privatisation will push them into the free market, which is already growing as the more enterprising make deals for their produce with traders and middlemen.

But this is only the beginning. People long ago forced into a style of agriculture that emphasised dependence on the state and which criminalised initiative cannot suddenly become efficient producers of food. Like Soviet industry, Soviet agriculture has been pounded into its present shape over decades: that shape is visible in the vast acreage of most farms, in the huge obsolescent tractors and combines and, most of all, in the inadequate storage facilities and hopeless roads via which a quarter of all production is lost.

The Nizhny Novgorod region, test bed for reform in association with the International Finance Corporation, shows how much preparation is needed for a successful transition. There, the owners are being guided towards auctions in a week's time which should see the emergence of a group of medium-sized farms run by farmworkers and bosses, with privatised machinery bases providing them with services. This approach will no doubt serve as a model, but will not be available in many parts of Russia.

The state must thus play an active role for some time to come - backing up the right to buy and sell, ensuring that conservative directors do not render it meaningless. Mr Yeltsin's decree creates a state inspection service with this task: like the relatively successful state property committees, this must gird itself for prolonged and potentially disruptive conflict with vested interests, region by region.

Most contentious of all will be the sale of land to foreign companies - though the decree clearly allows this, in association with Russian partners. The taboo has to be broken if foreigners are to be encouraged to become part of Russian reform. The first signs of confidence are returning to foreign companies after the roller-coaster of the past two years. Provided it is properly implemented, this measure could do more than any other to strengthen it, and at last begin to raise the Russian economy from its sickbed.

RU Russia, East Europe P9611 Administration of General Economic Programs P07 Agricultural Services P6552 Subdividers and Developers, Ex Cemeteries CMMT Comment & Analysis P9611 P07 P6552 The Financial Times London Page 23 503
Personal View: Nuclear answers need right questions Publication 931102FT Processed by FT 931102 By IAN FELLS and NIGEL LUCAS

The government review of the UK nuclear industry, scheduled for 1994 and then brought forward to 1993, is getting off to a slow start. The Treasury, the Department of Trade and Industry and the Department of the Environment disagree about the scope of the terms of reference and discussions are stalled awaiting the decision on whether the Thorp reprocessing plant is to go ahead.

The terms of reference could be narrow, as Mr Tim Eggar, energy minister, hinted in June, when he identified the central question as: 'Would new nuclear power stations be commercially viable in the UK . . . without any subsidy from government or taxpayer.' A narrow review is unlikely to do more than conclude that the industry may build new plant if it can find private capital. With such terms of reference the review will be futile.

None the less, this is apparently the route that government would like to take, because it is consistent with the market-led energy policy, stoutly reaffirmed in the White Paper, The Prospects for Coal. The danger of a market-led policy is that it is at the mercy of market distortions. These distoritons are serious in the energy sector, and have led to the perverse closure of viable coal mines and power stations while gas-fired plant are opened at higher costs. Taking the same approach to the nuclear industry is likely to have the same effect.

The situation is pressing. The ageing and obsolescent Magnox plant and, very soon, the first of the advanced gas-cooled reactors must be replaced if the nuclear industry is to have a future, and if it is to continue to make the 20 per cent contribution to UK electricity supply wisely proposed by the then energy secretary, Cecil Parkinson, when he designed the privatisation of the electricity supply industry.

Many advantages of nuclear power are not expressed in the marketplace. Supply is secure compared with natural gas, which in the next few decades will have to be brought from ever-more remote areas. Nuclear electricity is one of the few energy forms which pays its environmental costs. If the idea of climate change arising from the greenhouse effect is taken seriously, then it is important to be able to express this benefit in decision-making.

In the US, Congress has written into the 1992 Energy Policy Act the idea of integrated resource planning, which will provide the means to measure the social impact of energy planning. Something similar is needed in the UK. The review offers the opportunity to develop acceptable means of incorporating non-market factors into decision-making to establish a balanced portfolio of cost-effective, clean and secure energy sources.

It is one thing to establish what should go into this portfolio; it is another to achieve it in a sector that is largely privatised and market-oriented. The City would not buy nuclear generators the first time round. In the event, Nuclear Electric and Scottish Nuclear performed well, with output per employee rising by more than 50 per cent in three years, and costs falling and profits rising rapidly.

But the fundamental obstacles to privatisation remain; the perception of possible liabilities from decommissioning, fuel reprocessing and waste disposal are intimidating for private investors. There is still uncertainty about the cost of electricity from any new nuclear plant. We believe that electricity from a Sizewell C can be competitive with gas, but it is a question of convincing prospective investors. The main economic advantage of nuclear is that, once built, the fuel costs are low and stable and, therefore, so is the price of electricity.

A new nuclear plant is unlikely without government support. Government must find mechanisms that are coherent with Brussels' competition policy.

Instruments are available. Funding could be by issuing hypothecated government-backed bonds; access to markets could be facilitated by obliging regional electricity companies to contract part of their requirement over, say, 30 years; licences for construction of power stations could be auctioned, with conditions specifying fuel choice, giving government influence over the type of fuel burnt, while maintaining competition.

But the best answers will not be found without asking the right questions. The first step is a broad review seeking the methods of measuring the social impact of energy choices and then the means of implementing the desirable choices.

The authors are, respectively, professor of energy conversion, University of Newcastle-upon-Tyne, and professor of energy policy, Imperial College of Science, Technology and Medicine

GB United Kingdom, EC P4911 Electric Services P2819 Industrial Inorganic Chemicals, NEC CMMT Comment & Analysis P4911 P2819 The Financial Times London Page 23 779
Observer: Blindingly obvious Publication 931102FT Processed by FT 931102

How many PR men does it take to change a light bulb? 'None that I am aware of, but that's a personal view.'

GB United Kingdom, EC P99 Nonclassifiable Establishments NEWS General News P99 The Financial Times London Page 23 48
Observer: Panoramic view Publication 931102FT Processed by FT 931102

Former KGB major-general Oleg Kalugin had reason to fear arrest throughout most of his eminent spying career, not least during his stint as a Soviet agent in the US. His escape from punishment at the hands of the KGB itself, when he publicly exposed its ruthless methods in 1990, was also something of a feat. So he can't have been expecting the handcuffs to snap shut at Heathrow airport over the weekend as he tried to slip into Britain on a brief visit.

Kalugin may not have been up to his old spying tricks, but the British authorities could have been unsettled by his latest counter-espionage mission - taking up the invitation of the BBC's Panorama programme to talk about MI6.

Perhaps they were serving Kalugin, who was later released, a none-too-subtle hint that the kind of frankness he had demonstrated in exposing the KGB's deeds was less than welcome in the west.

Alternatively, Kalugin's troubles may date back to the interview he gave to The Mail on Sunday in April. Therein, he took it upon himself to spill the beans as to how the KGB had supplied Bulgarian 'colleagues' with the infamous umbrella that fired poisoned pellets to kill a dissident in London 15 years ago.

Kalugin described the weapon in detail; he also revealed that it had been tested by his department first on a horse, which died, and on a man, who didn't.

GB United Kingdom, EC P9721 International Affairs PEOP People P9721 The Financial Times London Page 23 260
Observer: Stationary Publication 931102FT Processed by FT 931102

More klaxons wailing in the long-running offensive between Northumbria Ambulance Service's chief executive Laurie Caple and his critics.

Labour MPs from the north-east, bitterly opposed to Caple's management style and his enthusiasm for commercial income-generation schemes, have tabled an early day motion drawing attention to the latest in a series of tussles over subjects ranging from employees' conditions and dismissals, to the auditing of NAS accounts and the purchase of personalised NAS number-plates.

It transpires that the Pounds 70,000 American-made Chevrolet ambulances ordered by NAS do not fit into some of its more modestly proportioned garages.

'There's an element of farce about it all, but it clearly calls into judgment the competence of the original decision to buy the vehicles,' says Newcastle Central MP Jim Cousins.

But NAS will have none of it. We've only ordered six, it says, and they will happily fit into 19 of the 24 garages.

Observer just hopes that the right ambulance will be in the right garage at the right time.

GB United Kingdom, EC P4119 Local Passenger Transportation, NEC PEOP People P4119 The Financial Times London Page 23 192
Observer: Lack of the Irish Publication 931102FT Processed by FT 931102

The London office of the European Parliament, doing its bit to celebrate the onset of Maastricht, yesterday invited an expat from each of 10 states of the European Community - sorry, Union - to talk to the press about their new-found rights both to vote in next year's Euro-elections as well as to participate in local polls at a later stage. Somehow missing from the line-up was Ireland.

Joelle Garriaud-Maylam, elected representative of the French community in the UK and Ireland, went on the defensive by explaining that, while Ireland's ambassador had been invited, the Irish did not actually need to take part in this particular celebration since 'for historical reasons' they have had the vote in the UK for many years.

But this failed to satisfy one Irish member of the audience, who suggested that they could have hastily substituted 'any Irish building labourer' in the event of the ambassador's no-show. 'But I suppose alongside all those lawyers and actors, that would have been a bit embarrassing.'

GB United Kingdom, EC P99 Nonclassifiable Establishments NEWS General News P99 The Financial Times London Page 23 195
Observer: Sir Peter, QED Publication 931102FT Processed by FT 931102

One might have thought Sir Peter Middleton, donnish former permanent secretary to the Treasury, would have delighted Bank of England directors last week with his wholly unexpected remarks about the desirability of Bank independence. But the terms in which he couched his remarks have done nothing to endear the waspish ex-mandarin to several directors of the court.

In evidence to the Commons Treasury and Civil Service Committee last week, Sir Peter opined that the composition of the court would have to be changed if the Bank were to assume control in setting interest rates. In particular, all the members would have to be committed to fighting inflation, he went on, 'unlike the present mob who look rather like a pressure group in the opposite direction'.

Sir Peter, who did not return telephone calls to elaborate on this statement, was doubtless referring to the widespread assumption that many industrialists are less than fanatical about keeping inflation at bay, believing that a degree of price pressure may oil the wheels of the economy.

False, cry the outside directors. Sir Christopher Hogg, chairman of Reuters, says he considers the remarks 'very strange', while Sir John 'Chips' Keswick, chairman of Hambros Bank, says he has 'never met an industrialist either on the court or off it who doesn't think inflation is appalling'. Another court member thought Sir Peter was being 'fatuous'. The longest-serving Bank non-executive, Sir Adrian Cadbury, termed Sir Peter's comments 'totally incorrect'.

Sir Peter does have the occasional tendency to upset people, which may have been one of the things that counted against him when he was supposedly in the running for the governorship of the Bank before Eddie George was chosen.

GB United Kingdom, EC P6011 Federal Reserve Banks NEWS General News P6011 The Financial Times London Page 23 307
Leading Article: Airbus Ltd Publication 931102FT Processed by FT 931102

TO THE Anglo-Saxon eye, the structure of Airbus Industrie is an oddity. The four-nation aircraft group is not an ordinary limited company with its own balance sheet and profit-and-loss account but a marketing consortium, whose shareholders own the group's assets and share out the lion's share of the manufacturing contracts. To outside observers, its accounts are opaque and its manufacturing decisions often seem excessively influenced by political considerations.

Airbus's shareholders - especially France's state-owned Aerospatiale - have in the past argued that this structure was essential in the group's start-up phase. They say it enabled the company to operate on a trans-European basis and establish itself as a competitor to Boeing, the world's largest aircraft group. But now some insiders have again begun to question the structure. British Aerospace and Deutsche Aerospace - two of Airbus's shareholders - argue it should convert to a more conventional company structure which owns its assets and awards contracts on a commercial basis. Last week, Mr Jean Pierson, the group's managing director, who is on secondment from Aerospatiale, gave his backing to speedy reform.

Whatever the pros and cons of Airbus's consortium structure in its infancy, the arguments in favour of reform are compelling now that it has matured into the world's second largest civil aircraft supplier. One reason is that an ordinary corporate structure would provide greater transparency in its accounts. This should enable Airbus's ultimate owners to judge whether further investment provides value for money. It should also reduce the threat of a trade war with the US, which is able to argue that foggy accounting practices act as a channel for subsidies.

A second, equally important reason for converting to a limited company is that it would help improve efficiency and so enhance Airbus's chances of competing successfully in world markets. If Airbus owned its assets, it would find it easier to control costs. It would also have greater freedom to follow commercial considerations in awarding contracts to suppliers.

At a time of deep recession in the airline market, the need to compete aggressively for orders is particularly strong. Boeing has already embarked on a far-reaching efficiency drive. Airbus's partners are doing the same, but not uniformly or with the same vigour. One worrying sign is that Airbus has suffered a fall in net orders so far this year, while Boeing's order book is still rising.

Although Mr Pierson has now been persuaded of the case for speedy reform, this does not mean that the political battle has been won. The French government, in particular, will be reluctant to lose influence over Airbus's operations. But if greater freedom is necessary to secure Airbus's future, that is a price worth paying.

Airbus Industrie FR France, EC GB United Kingdom, EC DE Germany, EC P3721 Aircraft P3724 Aircraft Engines and Engine Parts CMMT Comment & Analysis P3721 P3724 The Financial Times London Page 23 491
Leading Article: Tip of Japan's debt iceberg Publication 931102FT Processed by FT 931102

IT WOULD be churlish not to be generous in praise of the Japanese authorities' macroeconomic management over the past three years. The Bank of Japan has succeeded, using both interest rate cuts and arm-twisting, in maintaining financial order following the 1990 Tokyo stock and property market collapse. The Ministry of Finance, after some prompting, has used both administrative measures and three fiscal injections to put a floor under share prices and prevent a slump. Faced with similar problems, the US, UK and Scandinavian countries have all suffered recessions. Japan, by contrast, has just about kept growth alive.

It is against this background that the significance of the bankruptcy of Muramoto Construction should be judged. The collapse of the Japanese property contractor, leaving Y590bn in unpaid debts, may be the largest bankruptcy in Japan since the second world war. What is surprising is that there have been so few Muramotos, given the scale of Japan's property market collapse.

Yet Muramoto Construction represents the tip of a large iceberg. Last March, official Japanese government figures put the total of 'non-performing' loans at the top 21 city banks at Y12,700bn, a little over 3 per cent of outstanding loans. But government sources also acknowledge that, when the debts of non-bank subsidiaries are included, the true figure is at least three times the official level, raising the ratio of bad debts to loans to Scandinavian levels. Even the official stock of non-performing loans represents four times last year's operating profits of the 21 city banks. Meanwhile, the Co-operative Credit Purchasing Company (CCPC), the agency set up last year without public money in order to remove non-performing loans from bank balance sheets, is moving at a slow pace. Between February and the end of September, it purchased loans with a face value of a mere Y1,050bn.

Of course, as the Bank of Japan points out, the evidence that Japan is currently facing a credit crunch is far from conclusive. Yes, bank lending is falling and the broad money supply is barely growing. But, with Japanese companies themselves restructuring after the over-investment of the late 1980s, the demand for credit is hardly buoyant.

Moreover, the Bank of Japan is probably right to claim, citing the Muramoto Construction liquidation as an example, that the disposal of these non-performing loans can occur gradually, in orderly fashion, without a risk of systemic crisis in Japan's financial markets. And the bank is understandably worried that a publicly financed bail-out of the banking industry would generate moral hazard problems, although a few more resignations by senior bank officials would help.

Yet unless the Bank of Japan provides funds to capitalise the CCPC, it will take years rather than months for Japan's bad debt iceberg to thaw and melt. And until the banks are restored to health, the prospects for economic recovery will remain poor.

JP Japan, Asia P9311 Finance, Taxation, and Monetary Policy P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P9311 P6081 The Financial Times London Page 23 513
Letters to the Editor: Picture of Belarus prospects not so bleak Publication 931102FT Processed by FT 931102 From Ms ROBERTA FELDMAN

Sir, Matthew Kaminski's and Anthony Robinson's article, 'Belarus finds breaking up is hard to do' (October 12), may paint too bleak a picture of reform there. In fact, many economic officials at both the local and national levels are anxious to implement reforms and ready to listen to advice.

For example, the International Finance Corporation's small-scale privatisation assistance project in the city of Brest, begun in June, resulted in Belarus's first open auction on September 29, ahead of schedule. Cities and regions all over Belarus are now requesting privatisation assistance from IFC, and the government of Belarus has requested advice on rationalising privatisation legislation, including the voucher law.

Reformers in Minsk and the provinces often want and welcome assistance. Unfortunately, western experts have so far largely overlooked Belarus in favour of its neighbours.

Roberta Feldman,

task manager, small-scale

privatisation in Belarus, Russia and Ukraine,

International Finance

Corporation,

Washington DC

US United States of America P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 22 190
Why judges are jumping Publication 931102FT Processed by FT 931102 By JOE ROGALY

As Britain's elected politicians become less judicious, the country's judges become more political. It is not surprising that the judiciary is expanding its influence. The government thinks only of its day-to-day survival; the opposition is immobilised by fear of upsetting anyone. Our politicians are a sorry lot. The courts are presided over by some of the brightest minds in public life. Like it or not, the latter are doing their best to compensate for the deficiencies of the former.

We have seen much evidence of this over the past few years. The modern half of the story begins in 1987, when the then new Lord Chancellor, Lord Mackay, intimated that judges could decide for themselves whether they wished to address the general public by talking to the media. He thus abolished the convention established in a letter written to the BBC by one of his predecessors, Lord Kilmuir, in 1955. The essence of the 'Kilmuir rules' was that, in order to keep the judiciary 'insulated from the controversies of the day', their lordships should keep their honourable traps shut when off the bench.

Two years later the judges rewarded Lord Mackay's liberalism by publishing their objections to his proposals for reform of the legal profession. Senior judges handled the back-up campaign on TV. The result is instructive. The Mackay reforms have been, shall we say, modified on legal advice. Call it a positive result of open government.

It is not possible to be so kind about the government's strategies for the control of crime, the dispensation of punishment, and the administration of justice. The 1991 Criminal Justice Act was in need of urgent repair the day after it became law. Prisoners rioted at Strangeways; Lord Woolf was asked to find out why. His subsequent report awaits implementation. Spectacular miscarriages of justice were revealed. Lord Runciman was asked to make recommendations. His report, delivered in July, has been used as a bran-box from which to pick measures that suit the home secretary's mood.

Enter Lord Taylor. At the end of April 1992, a few weeks after one of the most ill-starred administrations since 1979 had been returned to office, the erstwhile Sir Peter Taylor became Lord Chief Justice. Unlike his predecessor, Lord Lane, the new top judge is willing, anxious even, to speak his mind. Just 18 months on, he has become a serious player in the political game. He appears at social events around town, cheerful and chatty. His demeanour is that of a public office holder campaigning to reshape parts of the law.

The new Lord Chief Justice led the assault on Lord Mackay for the latter's parsimony with legal aid. Result: zilch. He demanded more judges, and got them. He was critical of the 1991 Criminal Justice Act; his points of substance will doubtless be incorporated in a bill to be presented next month. The Judges Party is determined that Britain shall incorporate the European convention on human rights into domestic law; if not by Parliament, then by judicial stealth. Lord Woolf, a fellow crusader for better governance, recently slipped. In an otherwise brilliant address on the inadequacy of merely building more jails which produce more criminals, he spoke of prosecuting property owners who failed to burglar-proof their houses or cars. Enemies of the Judges Party trained their fire upon him.

Outspoken judges are not unique in British history. A biography* of Lord Denning by Iris Freeman, just published, will convince you of that. Still alive at 94, the former Master of the Rolls was in his time the most popular jurist anyone could recall. He stayed on the bench too long and made some silly mistakes towards the end of his career, but prior to that he was outstanding, the most brilliant legal mind of the century.

A grammar school boy like Lord Taylor, Lord Denning used the law creatively in order to change it. His views were made plain in many books and speeches, but he owed his appointment as Master of the Rolls to Lord Kilmuir, he of the Trappist rules for judges. 'In general,' says Freeman, 'Tom agreed with the rules for others, if not for himself . . .' He was most effective on the bench, where, ever the opportunist, he grabbed at cases that he could manipulate to make a particular point. His first-class mind and encyclopaedic memory enabled him to devise fresh interpretations of both statute and, more particularly, common law.

The present generation of reforming judges may have profited from the Denning example, which, of course, they all know by heart. Like him, many of them have learnt to speak plain English, without pomposity. Unlike him, they are not absolutely in tune with common opinion - although, to be fair, we live in a more heterogeneous society. Tom Denning, born to a Hampshire draper in 1899 and a believing Christian, could be ever the English pragmatist. His successors must grapple with Europe, the break-up of the family, the decline of the inner city, and the social chaos we all know and love.

Lord Denning led a frontal assault on the iron rule of precedent, which obliged judges to deliver patently absurd verdicts. The Law Lords freed themselves, but not lower courts, from the rule. He insisted on reading past the text to establish what legislators intended. Today judges may at least consult Hansard. He extended the law of negligence, and defended the ordinary subject's right to compensation from ministers. He was a corkscrew: finding against a Labour trade union law here and a Conservative one there. Catholics, Jews, the Irish, blacks and others may feel slighted by some of the references in this otherwise sympathetic book. My reading of it is that, if Lord Denning harboured the prejudices of his fellow Englishmen, he did not allow them to influence his judgments.

Iris Freeman gives us a great many facts. She lists all the Dennings' travels and refers to more than 150 cases. She does not, however, spend much space putting his legal achievements in context. Perhaps it is too soon. We cannot yet know which judges will have turned out to be the most effective: the cunning maverick Denning, or the more overtly political Taylor & Co. Meanwhile, if you're worried about judge-made law, elect better politicians.

*Lord Denning, by Iris Freeman, Hutchinson, 449 pages, Pounds 25

GB United Kingdom, EC P9211 Courts CMMT Comment & Analysis P9211 The Financial Times London Page 22 1086
Europe's metal fatigue: The threat from Japan's machine tool makers Publication 931102FT Processed by FT 931102 By ANDREW BAXTER

The pile of aluminium castings bore little resemblance to car wheels. But after two minutes each inside an innovative Japanese machine tool - which can replace the three normally used by wheelmakers - they were the real thing.

The Yamazaki Mazak machine was one of many examples at the recent Emo machine tool fair of new products aimed at helping their customers find better, more efficient ways of cutting, drilling and shaping metal.

In a neighbouring hall from the Japanese company's stand in Hanover, there were five machines on show from Traub, the big German producer of turning machines, or lathes. But no amount of smartly painted equipment can disguise the fact that Traub and its fellow European producers are worried.

While some of them can match the Japanese on the flow of new products, they find it hard to compete with their rivals' financial muscle. Japanese manufacturers' higher sales volumes enable them to weather recessions more easily and support a more aggressive global manufacturing and marketing policy. Hitachi Seiki, for example, has started producing in Germany, and has recently slapped its first 'Made in Europe' sticker on a machining centre produced in a joint venture with the Klockner industrial group.

Traub, meanwhile, announced in September that it is receiving a capital injection from banks and its main family shareholders to reduce its debts by DM80m (Pounds 32.5m). It is also receiving help from the Treuhand, the agency charged with privatising east German industry, to buy Heckert, an east German producer of milling machines, in a deal that broadens its product range.

The question of the competitiveness of the European machine tool industry is the main talking point among producers. There are about 1,450 machine tool builders in Europe, and their problems are summed up by Cecimo, the umbrella body for national associations from Europe's 12 main machine-tool countries.

It says companies making standard machinery are too numerous and too small to compete effectively in the world market. And builders of more specialist machines lack the financial power to create a global presence and survive recessions. For many, this recession has been the worst - over the past three years, the value of machine tools sold in the European market has fallen by 20 per cent to Pounds 8.6bn.

In spite of this bleak analysis, the share of total world production of machine tools by Cecimo countries has risen from 40 per cent in 1990 to 47 per cent last year. Europe has maintained a trade surplus in machine tools, albeit down from Pounds 2.45bn in 1989 to Pounds 1.92bn last year, as sales to growing markets in China and south-east Asia offset the collapse of traditional markets such as the former Soviet Union.

But Europe is still seeking a long-term solution through a two-pronged strategy to resolve the problems of an industry which has lost 32,000 jobs - 17 per cent of its workforce - over the past two years. First, Cecimo is asking the European Commission to adopt industrial and trade measures that would help the industry cope with its competitors.

Among its requests are: action to reduce the financial and employment costs for European producers, relative to those of the US and Japan: financial incentives for customers to buy machine tools whenever the market is in a severe downturn; a programme to help small and medium-sized companies take part in EC research and development programmes; a positive conclusion of the Gatt trade negotiations; and a co-ordinated EC policy to promote exports.

The aim, according to Mr Yves de Boisfleury, Cecimo's president, is to correct what he sees as the 'flagrant imbalances' between the costs of doing business in Europe, compared with those of Japan and the US. Cecimo claims that 'social costs' in Germany - salaries, benefits and other employee-related expenses - are 27 per cent higher than in Japan and 37 per cent more than in the US.

Such pleas might be dismissed as another unrealistic wish list from industrialists struggling in a recession, were it not for the fact that the industry has accepted the need for restructuring through mergers, takeovers and co-operation deals. This is the second plank in its survival strategy.

The recession can be credited for the new note of realism. 'I have been through four recessions, but none has been as bad as this,' says Mr Walter Trick, Traub's export manager.

For German machine tool makers, the crucial competitive battle is with Japan. The two countries account for 47 per cent of total global machine tool production, and Germany has far more producers competing head on with the Japanese than is the case in the rest of Europe.

Mr Hans-Joachim Holstein, sales and marketing director at Traub, speaks of a 'vicious circle' in which the company is entwined in the system of high German labour costs and at the same time is the victim of cost pressures among its domestic customers.

'If we have cost cuts, then we have a chance to continue manufacturing here in Germany,' he says. Traub already manufactures in France, Italy and Brazil, and plans to reduce manufacturing in western Germany from 80 per cent of total production to 50 per cent over the next 12 months.

It needs to reduce the cost of its high-volume standard machines by up to a quarter over the next year or so, says Mr Holstein, or else make them outside western Germany. Such an admission would have been unusual three years ago but is now common among leading European producers.

Cecimo says the problem of high labour costs is not confined to Germany. Only if the European industry can reform its cost structure will it be able to respond to customers who are increasingly looking for value for money rather than technical wizardry.

According to Mr Hans-Jurgen Marckzinski, general commissioner at the Hanover show and chief executive of Dortmund-based Thyssen Maschinenbau, customers want equipment that is 'as good as it needs to be', rather than 'as good as possible'.

Giving customers what they want cannot be a strategy which relies for help on the European Commission. Producers are increasingly aware that they should take the future into their own hands rather than wait for concrete proposals. The response from the Commission to Cecimo's plea has so far been cautious, although it clearly recognises that Europe's machine tools could unlock increased manufacturing productivity.

Mr Daniele Verdiani, a senior official at the Commission's industry directorate, says: 'The Community can always make business conditions more favourable', but adds pointedly: 'The microeconomy cannot be regulated by a magic wand.'

DE Germany, EC P3541 Machine Tools, Metal Cutting Types P3542 Machine Tools, Metal Forming Types CMMT Comment & Analysis MKTS Market shares TECH Products & Product use P3541 P3542 The Financial Times London Page 22 1148
Letters to the Editor: Strong argument for relaxed management style Publication 931102FT Processed by FT 931102 From Dr GEORGE FIELDMAN

Sir, The psychological research published in the FT (Recruitment, October 27) on problem-solving styles indicated that a goal-orientated or telic approach is less productive than an interest-orientated or paratelic approach. This finding is fascinating indeed and, if confirmed by other studies, has important implications both for managers and for management training.

It is a powerful argument for relaxed management styles which encourage staff to follow their own insights and intuitions, at least for tasks which involve problem-solving. Such an approach is also likely to reduce psychological strain in staff which, in turn, should promote their physical and psychological well-being.

So much then for the dogged Thatcherite influence upon management. In this view external pressure was seen as the principal means of promoting British economic productivity; what an appalling waste that may have turned out to be. Of course, the notion that people can be brow-beaten into world-class performance always lacked credibility.

George Fieldman,

St George's Hospital Medical School,

Department of Psychology,

Cranmer Terrace, London SW17

GB United Kingdom, EC P8741 Management Services MGMT Management & Marketing P8741 The Financial Times London Page 22 202
Letters to the Editor: Short-term rate cut no long-term answer Publication 931102FT Processed by FT 931102 From Mr JEREMY HALE

Sir, Your leader 'Monetarism in retreat' was confused. If monetarism really lives on in Paris, as you claim, French interest rates should now be much lower. The authorities' broad money aggregate, M3, continues to grow very slowly (0.7 per cent year on year in August) and thus to undershoot targets (4-6.5 per cent). Predictably, nominal gross domestic product growth is also now close to zero. Why are short-term interest rates still above 6 per cent, or 3.5-4 per cent in real terms? Because the French authorities believe not in monetarism but, even now, in an exchange rate target.

Further evidence of the dangers of targeting exchange rates, not of monetarism, n'est-ce pas?

Jeremy Hale,

senior international economist,

Goldman Sachs International,

Peterborough Court,

133 Fleet Street,

London EC4A 2BB

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 22 167
Letters to the Editor: Short-term rate cut no long-term answer Publication 931102FT Processed by FT 931102 From Mr LAURENS VAN DEN MUYZENBERG

Sir, Your editorial 'Monetarism in retreat' (October 30/31) states: 'France is defiantly refusing to enter the pro-growth era. It has refused the significant cut in interest rates that France's low inflation rate allows.'

This is a statement typical of a continuous stream of articles in the British press, with very little resonance on the Continent. Why? The franc one-year interest rate is 6 to 5 7/8 per cent as compared with sterling 5 1/2 to 5 7/16 per cent. A difference of 1/2 - 1/8 percentage point. This result has been achieved by keeping the franc owners almost 20 per cent wealthier than the sterling owners.

The other side of the ocean, David Mullins, vice-chairman of the US Federal Reserve, said last week: 'I think you have to be very careful with rapid short-term rate cuts. There is a great risk that long rates react in the opposite way.'

The French, English and German unemployment problems are not caused by high interest rates, but by the combination of business globalisation and lack of European competitiveness and flexibility. The jobs that have disappeared will not come back. They have migrated to other countries.

The container and the fax, which make it possible to carry out any task where best value for money is delivered, will not disappear. Investments will only be made, and so jobs created, when there is much greater flexibility in increasing and decreasing company size, working hours, compensation, geographical mobility, acceptance of new technologies and work practices, etc.

This flexibility, combined with stable currencies and entrepreneurial enthusiasm, can solve the unemployment problems, but not another short-term interest rate cut, in France or in the UK. That is a commonly held view on the other side of the Channel.

Laurens van den Muyzenberg,

management consultant,

MMC,

1 Queens Terrace,

Windsor SL4 2AR

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 22 344
Letters to the Editor: High earner an asset Publication 931102FT Processed by FT 931102 From Mr MICHAEL SPENCER

Sir, Eyebrows may indeed be raised in Downing Street and elsewhere at the remuneration received by Mr Alamouti, head of arbitrage trading at Tokai Bank in London ('Arbitrage dealer defies recession to earn Pounds 9m', October 27). However, before the cynics get into a lather, it is worth considering what benefits, if any, Mr Alamouti contributes to the British economy.

First, there is the obvious point that he has highly transportable skills and could, with a phone and Reuters screen, practise his chosen trade in New York, Frankfurt, Paris or Tokyo pretty much as easily as he can in London. The fact that he works here not only helps the City in maintaining its pre-eminent position in the global financial markets but also benefits the Exchequer not immaterially. His income tax bill and Tokai's increased corporation tax liability no doubt add up to a tidy sum.

Second, arbitrage is itself an economically important activity. Without it, price imperfections and illiquidity would disadvantage market users and make the process of risk transfer less efficient. As the layers of mystery behind financial derivatives are stripped away, Mr Alamouti will find increased knowledge and competition making arbitrage less profitable and the markets more efficient. But by then, no doubt, he will either have retired or moved on. In the meantime we need more, not fewer, Alamoutis.

M A Spencer,

Intercapital Brokers,

16 Finsbury Circus,

London EC2M 7DJ

GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP People P6211 The Financial Times London Page 22 269
Letters to the Editor: Unit trust buying practice at heart of system Publication 931102FT Processed by FT 931102 From SHEILA A NICOLL

Sir, Mr Landman (Letters, October 26) has misunderstood the roles both of unit trust managers and of stockbrokers and marketmakers in running principal positions.

Far from being punished, as he suggests, such behaviour is at the heart of the trading system at the London Stock Exchange and many other financial markets, where liquidity is provided by firms which are willing to take a risk using their professional judgment of the market and buying and selling for their own account.

When unit trust managers take principal positions (which they have to do, for example, if they are to deal on a historic basis, a service appreciated by many private investors), the interests of investors are fully safeguarded.

The price which an investor pays for units or receives for selling them is carefully regulated through detailed pricing rules drawn up and imposed by the regulatory authorities. The price will be within the same parameters regardless of whether units are created or cancelled with the trustee or the manager sells on units which have previously been sold back to him.

The independent corporate trustee who must be authorised under the Financial Services Act 1986 holds the unitholders' assets and has a responsibility to ensure that investors' interests are kept paramount.

If there is a fall in the market, the manager takes a loss and if he sells, the price he receives is again calculated according to the pricing regulations: he will receive the cancellation price applicable at that time. Investors are unaffected.

Sheila A Nicoll,

director, legal and fiscal affairs,

Association of Unit Trusts and Investment Funds,

65 Kingsway,

London WC2B 6TD

GB United Kingdom, EC P6211 Security Brokers and Dealers P6726 Investment Offices, NEC NEWS General News P6211 P6726 The Financial Times London Page 22 314
Arts: A prize commitment to painting / Review of the 18th John Moores exhibition at the Walker Art Gallery, Liverpool Publication 931102FT Processed by FT 931102 By WILLIAM PACKER

Despite all the brouhaha about the Turner Prize, the televised dinner, speeches and fuss with envelopes, it is still the John Moores Liverpool Exhibition that artists want to win. Perhaps this is because the John Moores was the first of the open submission prize exhibitions; and the peculiar affection in which this competition is held reflects the late Sir John's personal enthusiasm and support for it over many years following its creation in 1957.

Of course there will be grumbles and speculations about the collective interests and judgments of the jury, and disappointed incredulity afterwards, as much at failure to get in as at the disposition of the awards. But the Moores is the talking point among artists, who show a degree of interest and involvement much greater than they do for the Turner Prize.

Sir John Moores' recent death at 97 has naturally cast this exhibition, the 18th, as his memorial, while throwing some doubt on its future. The doubt was quickly put to rest, however, when the Moores family said it would continue to support the exhibition in principle. Although the form might change, this is good news. The Moores has often modified itself in any case, and its current limitation to paintings and but the lowest of reliefs is a long-standing grief and irritation to sculptors. I am firmly on the side of the painters and see little need for change. The commitment to painting in particular, in a time when it seems to be increasingly discounted by the orthodox apologists and promoters of the institutional avant-garde, is its greatest strength.

In an intriguing essay in the catalogue, Andrew Brighton, one of this year's jurors, dilates upon the ever-shifting relationship that the Moores has enjoyed with its critics. It began 36 years ago as an opportunity for the more advanced artists, who were at that time excluded by the Royal Academy, to set themselves against their peers. Ironically, it has now become the one serious opportunity to remind the avant-garde itself of one of the principal disciplines in the great tradition of art, putting paint on canvas.

There is nothing of controversy to this year's Moores, nothing of the conceptual bias or feminist agenda of last time or the time before. And it is precisely its disengagement, its lack of controversy that makes it useful. It is a straightforward survey of current British painting, the 54 works that the jury considered the best of the 2,013 submitted. There are, in proportion, more figurative paintings than I can remember, and inevitably particular inclusions, indeed prize-winners, that I find inexplicable. But overall the emphasis is placed, as it should be, on good painting of whatever kind.

Little in this exhibition is objective, that is derived from direct observation of the real and visible world. Sarah Raphael's small portrait of a friend, Joshua, is the outstanding example of that sort and certainly deserved a prize. There is no landscape or interior that is not to some extent photo-based in its reference (Paul Winstanley, Geoff Stalker, Martin Greenland), or schematic (Adrian Berg, Adrian Henri). Perhaps this is nothing more than fair reflection of the submission, but, by my own experience as juror on the Moores, I doubt it.

The first prize of Pounds 20,000 has gone unexceptionally to Peter Doig for his large and characteristically elegant and mannered amplification of a photograph of a man standing on ice - or perhaps in a puddle - in a winter forest landscape. But the best of the painting is, perversely, abstract, notably Trevor Sutton's minimal roundel; a low relief panel in white and gold that is as physical as it is seductive, by Stephen Buckley, a former prize-winner; and Simon Callery's large, allusive, exquisitely reticent canvas worked in horizontal bands of pink and grey, red and violet. Best of all is Michael Ginsborg's sharply cursive, linear image, as taut as a carriage spring, pale red on paler pink and orange. I would have given it the prize.

Am I damning this Moores with faint praise? Not at all. 'Has the Moores become an exhibition of, perhaps, relatively sophisticated, consensual (sic) painting?' asks Mr Brighton. 'Or can it still within its limitations . . . attract . . . work which is part of the tradition of modern art? Which is the case and which desirable seems to me the general issue . . . now for critics to address.' This seems to miss the point. I only wish that the Moores would embrace a wider scope to take in that more objective strain, worked direct from model or landscape that sustained Cezanne, Matisse, Giacometti, Balthus, Freud. Even so, by its very sophistication, and the professional consensus it celebrates, the Moores still and most effectively displays work that is indeed truly 'part of the tradition of modern art'.

John Moores Liverpool Exhibition 18: Walker Art Gallery, Liverpool, until January 23.

GB United Kingdom, EC P8412 Museums and Art Galleries NEWS General News P8412 The Financial Times London Page 21 863
Arts: Down but not out - Sponsorship Publication 931102FT Processed by FT 931102 By ANTONY THORNCROFT

After years of steady growth, expenditure on arts sponsorship came to a halt in 1992-93. Against the odds it had risen by an impressive 14 per cent in 1991-92, to Pounds 64.4m, encouraging the belief that somehow sponsorship was recession proof. But when the Association for Business Sponsorship of the Arts announces the most recent figures later this week they will show a fall, not a mammoth fall, but enough to force the sponsorship industry to reassess its approach.

The smaller, regional, first-time sponsors are still joining up with enthusiasm, but the large commitments from the major traditional sponsors are harder to find.

* * *

On cue, two of the great British arts sponsorships, the Royal Insurance support for the Royal Shakespeare Company, and the Digital Dance Awards come to an end next month.

Royal Insurance pumped Pounds 3.5m into the RSC over six years and both sides gained tremendously from the link. The RSC is now seeking a similar big backer. In the meantime it is having some success finding sponsors for individual new productions. Unilever subsidiaries, Lever Bros and Van den Bergh's, will put their brand names behind the new Macbeth opening in December, and there is a first-time sponsor, JBA International, a Stratford-based computer company, for the new Moby Dick. This has attracted a top-up grant from the Business Sponsorship Incentive Scheme administered by ABSA.

The RSC still has one long-term admirer in English Estates, which has given Pounds 200,000 towards the small venue tour of Julius Caesar, currently on the road. But next year English Estates disappears into the Urban Regeneration Agency and no one knows whether it will continue its imaginative approach of bringing the arts to culturally starved areas of the country.

The RSC has one big attraction for sponsors. It has an enthusiastic chairman in the Prince of Wales. On Thursday night its main sponsors and some prospective friends were invited to Buckingham Palace for a Shakespearean soiree.

Although dropping the Digital Dance Awards, Digital Equipment Corporation, the computer company, is sticking with sponsorship, and with dance. In six years it invested Pounds 700,000 in 70 new dance works. It now feels that dance, and dancers, are better able to stand on their own feet. However, it is keeping the Pounds 30,000 Premier Award for an individual, the biggest cash sum in the field, and is spending a further Pounds 180,000 in 1994 on training and the development of dance projects for larger venues. So the investment in dance has actually increased.

At the international level, Digital is reorganising. Its long-term support for the European Community Youth Orchestra has come to an end, but a future global sponsorship will not be decided upon for a year or so, by which time Digital's financial position should have improved.

* * *

Next week, Lloyds Bank will announce a Pounds 500,000-a-year sponsorship in the film area. The bank, which in 1994 will spend over Pounds 2m in sponsorship, believes that film is an under-exploited art form. It already backs the Lloyds Challenge for young scriptwriters and directors.

If fashion counts as art then Lloyds rivals BT as the leading British sponsor of the arts. Along with its involvement in film and fashion it also supports the Young Musician of the Year contest, which will fill BBC screens again next spring. Apart from a bias towards youth all its links have one thing in common: they attract television coverage. Next year, Lloyds is expecting more than 15 hours of prime-time television to be devoted to events it supports.

* * *

Substantial one-off sponsorships of costly new opera or ballet productions are rare these days, but PowerGen came up with Pounds 110,000 for Sylvia, David Bintley's new work for the Birmingham Royal Ballet, which opened last week. But even here the sponsor is being hard-headed. If the ballet is a success, and stays in the BRB repertoire, PowerGen will raise its support to Pounds 150,000. Fortunately for BRB, the initial reaction was favourable.

* * *

Two unusual new sponsors are Jigsaw, the fashion retailers, and Elisabeth the Chef. Jigsaw is sponsoring a tour of a new dance work by the Harlemation Dance Company choreographed by Bunty Matthias. The Company will visit regional towns where Jigsaw has shops; and the dancers' costumes were designed by Maria Cornejo, a Jigsaw consultant.

Elisabeth the Chef is a Leamington Spa based supplier of bakery products to supermarkets. One of its largest clients is Sainsbury, and inspired by the sponsorship programme of its important customer, it has funded a Pounds 5,000 postgraduate art student award. The winner of the New Art Award will be announced on Wednesday.

* * *

Beck's, the brewers, is one of a growing number of sponsors that want to be associated with the avant-garde. (It is a myth that sponsors only support the tried and tested: many companies think they can quickly acquire a go-ahead image if they back the experimental.) Beck's latest commitment, a mummified concrete house constructed by conceptualist Rachel Whiteread in East London, was unveiled last Monday. It will stand for just a few weeks. Working with Artangel, an organisation devoted to placing art in unorthodox settings, Beck's will contribute Pounds 60,000 over three years to create an annual landscaped creation, built to disappear.

* * *

Sponsorship may be faltering in the UK but there is still plenty of potential for international connections. The Orchestra of the Age of Enlightenment embarks in February on its first European tour, thanks to Pounds 50,000 from Goldman Sachs, which, as a first-time sponsor, should attract a substantial uplift from the BSIS. The American-owned bank wants to show off its European credentials.

Conversely, Banco Santander, along with the Royal Bank of Scotland, is generously backing the Spanish Arts Festival in London next spring. Between them they are putting almost Pounds 300,000 into the Festival, helped by a Pounds 35,000 BSIS grant for the Banco.

GB United Kingdom, EC P792 Producers, Orchestras, Entertainers MGMT Management & Marketing P792 The Financial Times London Page 21 1024
Arts: Garbarek at his best - Jazz Publication 931102FT Processed by FT 931102 By GARRY BOOTH

What with World Cup soccer wins, his country's stock exchange riding at a three-year high and the diplomatic coup in bringing the PLO and Israelis to a peace accord, you would think that Norway's Jan Garbarek would cheer up a bit. His most recent album Twelve Moons (ECM 519 500-2), which set the searing vocals of folk singing against his own plaintive reeds, has heaped success on success and yet he remains an old gloomy boots.

This was the gist of a conversation overheard at the Festival Hall last week mid-way through the saxophonist's chilly set. But in this marvellous small group with sidemen Rainer Bruninghaus (keyboards), Eberhard Weber (bass), and Marilyn Mazur (percussion), the ascetic Garbarek is at his atmospheric best. Sparse arrangements of hypnotising melodies are worked up into landscapes of uniquely north European complexion. Where the accompaniment is bleak, the soloists scorch a path through. The ensemble playing is both elemental and transcendental.

Garbarek's band balances perfectly in an unorthodox way. Denmark-born Marilyn Mazur stands behind a kit which combines traditional drums with a hanging garden of exotic shakers and bells. In contrast to this natural rhythm, at the other end of the stage Bruninghaus creates a fine synth mist embedded with twinkling notes. Centre stage and alongside Garbarek, Weber at the electron-bass (a hybrid of upright fiddle and bass guitar with a delay pedal) weaves plangent lines with the bow in sympathy with Garbarek's keening soprano.

But the second set brought a new, airborne tenor sound from the leader. Enlivened by Mazur's brilliant, dervish-like performance behind the shakers and more angular, discordant phrasing from Weber, Garbarek took off, quoting Gilberto and leading the group out of the fog and into an almost jolly Norwegian funk - if such a thing is possible.

GB United Kingdom, EC P7922 Theatrical Producers and Services NEWS General News P7922 The Financial Times London Page 21 330
Arts: Today's Television Publication 931102FT Processed by FT 931102 By ANTONY THORNCROFT

Writer Michael Frayn is a great fan of Prague and he manages to excite our interest in the city in Omnibus: Magic Lantern (BBC 1, 10.20). The Czech capital has escaped extensive war damage, and Communist poverty has further hindered re-development.

The result is a city that is an architect's dream, with every historical period well represented from the baroque to art nouveau.

More wholesome diversion is First Tuesday (ITV, 10.40). Johnny Kingdom is a countryman who has spent his life on Exmoor. But he is modern enough to own a video camera and has built up his record of the region. It will be a treasure trove for a late 21st century historian.

This is National Library Week and Channel 4 is doing its bit with short dramas from five works of fiction, Blow Your Mind (8.00). If you enjoy your brief taster you will be directed to the local library for more. Among the authors included are James Joyce and Edgar Allen Poe.

Big film of the night is that classic of Grand Guignol, Whatever happened to Baby Jane? (BBC1, 11.20), with Bette Davis and Joan Crawford.

GB United Kingdom, EC P4832 Radio Broadcasting Stations P4833 Television Broadcasting Stations P4841 Cable and Other Pay Television Services TECH Services & Services use P4832 P4833 P4841 The Financial Times London Page 21 233
Arts: Andsnes's Grieg - Concert Publication 931102FT Processed by FT 931102 By JOHN ALLISON

Sunday afternoon's piano recital by Leif Ove Andsnes formed a coda to the Barbican's weekend celebration of the Grieg 150th anniversary. The 23-year-old Norwegian had launched this on Friday, playing the original version of Grieg's Piano Concerto, and here the composer was represented as centrepiece of the programme.

Grieg was above all a master of small-scale forms, and Andsnes offered a string of miniatures - the fourth Albumblatte and six of the Lyric Pieces. One had to admire him for playing pieces some might regard as too insubstantial for a major recital. Simple only on the surface, they require fluent technique to be brought off as enchantingly as they were here.

Andsnes's selection proved very satisfying, like a series of delicate water-colours. He proved sensitive to their varying moods and vivid characterisation, capturing his country's folklore in the Hardanger fiddlers of the Albumblatte, and the humour in the 'March of the Trolls'. Other highlights were a glistening 'Butterfly', the impressionistic 'Bell-ringing', and the touching simplicity of 'At Home'. Where other pianists might have turned heavy-handed, he maintained an easy dexterity, investing quieter dynamics with colours of extraordinary subtlety.

To leave the audience in no doubt of his virtuoso credentials, Andsnes framed his Grieg with Liszt and Chopin. He opened with a bravura account of the former's second Ballade, cogently argued, but Andsnes showed his serious intent best of all in an elegant performance of the Chopin Third Sonata - the Largo radiant, the outer movements majestic yet measured with an inward calm which spoke of the interpreter's astonishing maturity.

Although the Grieg remained longest in the memory, this was a well-balanced recital. An all-Grieg programme would have been too obvious, and this versatile young Norwegian is right to avoid being typecast so early in his career.

GB United Kingdom, EC P792 Producers, Orchestras, Entertainers NEWS General News P792 The Financial Times London Page 21 327
People: Crawford moves up at Bull UK Publication 931102FT Processed by FT 931102

The vacancy at the top of Bull UK and Ireland caused by the elevation of George McNeil to the presidency of Bull Europe has been filled by Philip Crawford, formerly managing director of the UK company's services operations.

Crawford, 41, represents the new face of Bull as the French computer manufacturer struggles to restore growth and profitability. He is young even by computer industry standards and says he has 'a lot of energy'.

For the past five and a half years he has been developing Bull's services business, now seen as a principal plank in the company's strategy. Starting from virtually nothing, he built it up to a Pounds 30m business this year out of the UK company's total turnover of about Pounds 200m. He sits on Bull's worldwide council for services strategy.

Crawford trained as a metallurgist at Sheffield Polytechnic and worked initially at GKN Contractors in the US where he learned about manufacturing automation. He moved into the computer industry as a manufacturing consultant with the then leading software house Management Science America, now absorbed into Dun & Bradstreet Software.

'Bull', he says drily, 'is not short of challenge', but he speaks warmly of the freedom the company allows for local managers to make their own decisions. Whether this is likely to continue under new chairman Jean-Marie Descarpentries is something he will learn shortly when the two have their first meeting.

Bull UK GB United Kingdom, EC IE Ireland, EC P3571 Electronic Computers P3577 Computer Peripheral Equipment, NEC PEOP Appointments P3571 P3577 The Financial Times London Page 20 273
People: Astec (BSR) Publication 931102FT Processed by FT 931102

Michael Smith, president of Astec's custom power division, has been appointed chief operating officer of ASTEC (BSR) on the resignation of Walter Sousa.

Astec (BSR) GB United Kingdom, EC P3613 Switchgear and Switchboard Apparatus PEOP Appointments P3613 The Financial Times London Page 20 52
People: London International Group Publication 931102FT Processed by FT 931102

David Whitewood has been appointed divisional md for Europe, Middle East and Africa for LONDON INTERNATIONAL GROUP; he was formerly finance director of that division. Gareth Clarke, formerly md of LRC Products, is appointed divisional md, Regent Hospital Products worldwide; he is replaced by Andrew Slater, formerly md of London International, Germany.

London International Group Regent Hospital Products GB United Kingdom, EC P3069 Fabricated Rubber Products, NEC P3842 Surgical Appliances and Supplies PEOP Appointments P3069 P3842 The Financial Times London Page 20 92
People: Meridian Broadcasting Publication 931102FT Processed by FT 931102

John Cresswell, formerly controller of finance, has been promoted to finance director of MERIDIAN BROADCASTING.

Meridian Broadcasting GB United Kingdom, EC P4833 Television Broadcasting Stations PEOP Appointments P4833 The Financial Times London Page 20 43
People: Watson & Philip Publication 931102FT Processed by FT 931102

Mervyn Blakeney, a non-executive director of WATSON & PHILIP, is taking over as interim chairman while the chairman and chief executive, Ian Macpherson, is in hospital; David Bremner, group md, becomes acting chief executive.

Watson and Philip GB United Kingdom, EC P5084 Industrial Machinery and Equipment PEOP Appointments P5084 The Financial Times London Page 20 65
People: Citigate Communications Publication 931102FT Processed by FT 931102

Leo Cavendish, the former chairman of CITIGATE COMMUNICATIONS, has joined corporate and financial PR consultancy Fishburn Hedges as a director.

Fishburn Hedges GB United Kingdom, EC P6282 Investment Advice PEOP Appointments P6282 The Financial Times London Page 20 47
People: Allied Leisure Publication 931102FT Processed by FT 931102

Damien Harte has been appointed finance director at ALLIED LEISURE; Duncan Moss has left the company to set up his own business.

Allied Leisure GB United Kingdom, EC P5812 Eating Places PEOP Appointments P5812 The Financial Times London Page 20 49
People: Toyota (GB) Publication 931102FT Processed by FT 931102

Brian Truscott, formerly dealer development director, has been appointed sales director of TOYOTA (GB); he replaces Tony Newnham, who moves to parent company Inchcape.

Toyota (GB) Inchcape GB United Kingdom, EC P5511 New and Used Car Dealers P6719 Holding Companies, NEC PEOP Appointments PEOP People P5511 P6719 The Financial Times London Page 20 62
People: Thomas Cook Publication 931102FT Processed by FT 931102

Thomas Cook, the travel agency chain and financial services group, has appointed Ian Johnson as its new finance director. Johnson, 47, was previously finance director of Noble Lowndes, the employee benefits consultancy. He will also look after planning and information technology at Thomas Cook.

Johnson replaces Nigel Reed, who played a central part in the sale of Thomas Cook from Midland Bank to Westdeutsche Landesbank. Reed wanted to work for a company with a UK listing; he is to be finance director of Haden MacLellan Holdings, the industrial conglomerate.

Thomas Cook Travel GB United Kingdom, EC P4724 Travel Agencies PEOP Appointments P4724 The Financial Times London Page 20 117
People: Checking in Publication 931102FT Processed by FT 931102

Peter Bates, who has been sales and marketing director of the Savoy group of hotels and restaurants for the past five years, is moving next month to do the job with the same title at Mount Charlotte Thistle Hotels.

To those who might be puzzled by the move and think the Savoy is about as grand as you can get, Bates' riposte is that the Savoy has just six hotels and an annual turnover of Pounds 75m; Mount Charlotte Thistle, meanwhile, had a turnover in 1992 of Pounds 217m and 112 hotels. 'It's a much bigger job and therefore a great challenge,' he says.

Mount Charlotte, which is 70 per cent owned by Brierley Investments of New Zealand, could be floated in the next couple of years. Bates' previous experience with the privatisation of Gleneagles Hotels in Scotland and the flotation of the Mandarin Oriental Hotels in Hong Kong could come in handy.

Bates, 42, is also keen to scotch rumours that his move is in any way linked to the enthusiasm Rocco Forte has expressed in the past for his Forte group to acquire the Savoy.

Peter Haigh, currently regional director of sales and marketing UK and Ireland for Marriott Hotels and Resorts, takes over from Bates. Haigh, 45, was with Marriott for 14 years, working in both the UK and US and has been responsible for sales and marketing throughout Europe, the Middle East and Africa.

Bates also happens to be a director of Isis, an executive search agency specialising in the hospitality and travel industry, a connection which came in handy when it was time to look for his successor. Haigh was recruited through Isis, although Bates himself landed his new job 'after an invitation to breakfast', he says.

Mount Charlotte Thistle Hotels GB United Kingdom, EC P7011 Hotels and Motels PEOP Appointments P7011 The Financial Times London Page 20 322
People: Non-executive directors - David S. Smith (Holdings) Publication 931102FT Processed by FT 931102

Daniel Piette, group executive vice-president of LVMH, at DAVID S. SMITH (HOLDINGS).

David S Smith Holdings GB United Kingdom, EC P2752 Commercial Printing, Lithographic PEOP Appointments P2752 The Financial Times London Page 20 47
People: Non-executive directors - Bletchley Motor Group Publication 931102FT Processed by FT 931102

Alan Marsh has resigned from BLETCHLEY MOTOR GROUP.

Bletchley Motor Group GB United Kingdom, EC P5012 Automobiles and Other Motor Vehicles PEOP People P5012 The Financial Times London Page 20 43
People: Non-executive directors - Unidare Publication 931102FT Processed by FT 931102

Ronald Somerville at UNIDARE.

Unidare IE Ireland, EC P3699 Electrical Equipment and Supplies, NEC PEOP Appointments P3699 The Financial Times London Page 20 34
People: Non-executive directors - South West Water Publication 931102FT Processed by FT 931102

Sir Geoffrey Chipperfield, recently retired permanent secretary at the department of energy, at SOUTH WEST WATER.

South West Water GB United Kingdom, EC P4941 Water Supply PEOP Appointments P4941 The Financial Times London Page 20 48
People: Non-executive directors - Albany Investment Trust Publication 931102FT Processed by FT 931102

John Leigh, recently retired director of Rathbone Brothers, at ALBANY INVESTMENT TRUST, which is a client of Rathbones.

Albany Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC PEOP Appointments P6726 The Financial Times London Page 20 51
People: Non-executive directors - Watson & Philip Publication 931102FT Processed by FT 931102

Lord Sanderson of Bowden, former minister in the Scottish Office and chairman of Scottish Mortgage and Trust, and Barbara Thomas, legal affairs director of News International, at WATSON & PHILIP.

Watson and Philip GB United Kingdom, EC P5084 Industrial Machinery and Equipment PEOP Appointments P5084 The Financial Times London Page 20 64
People: Non-executive directors - Lorne Stewart Publication 931102FT Processed by FT 931102

Bill Boulton, former chairman of BET Plant Services, as chairman of LORNE STEWART.

Lorne Stewart GB United Kingdom, EC P1711 Plumbing, Heating, Air-Conditioning PEOP Appointments P1711 The Financial Times London Page 20 44
People: Non-executive directors - Inchcape Publication 931102FT Processed by FT 931102

Sir Peter Baxendell is retiring from INCHCAPE.

Inchcape GB United Kingdom, EC P6719 Holding Companies, NEC PEOP People P6719 The Financial Times London Page 20 36
People: Non-executive directors - Maiden Outdoor Publication 931102FT Processed by FT 931102

Martin Boase, chairman of Omnicom, as chairman at MAIDEN OUTDOOR.

Maiden Outdoor Advertising GB United Kingdom, EC P7312 Outdoor Advertising Services PEOP Appointments P7312 The Financial Times London Page 20 42
People: Non-executive directors - TR Smaller Companies Investment Trust Publication 931102FT Processed by FT 931102

Max Taylor, chairman and chief executive of Willis Faber & Dumas, at TR SMALLER COMPANIES INVESTMENT TRUST.

TR Smaller Companies Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC PEOP Appointments P6726 The Financial Times London Page 20 54
People: Non-executive directors - Second Alliance Trust Publication 931102FT Processed by FT 931102

Sir Douglas Hardie has retired from SECOND ALLIANCE TRUST.

Second Alliance Trust GB United Kingdom, EC P6726 Investment Offices, NEC PEOP Appointments P6726 The Financial Times London Page 20 42
People: Non-executive directors - Selectv Publication 931102FT Processed by FT 931102

Roger Gilbert, a director of Associated Newspapers, at SELECTV.

SelecTV GB United Kingdom, EC P4833 Television Broadcasting Stations PEOP Appointments P4833 The Financial Times London Page 20 38
People: Non-executive directors - Gibbs Mew Publication 931102FT Processed by FT 931102

Tom Hedderson as chairman at GIBBS MEW.

Gibbs Mew GB United Kingdom, EC P2082 Malt Beverages PEOP Appointments P2082 The Financial Times London Page 20 37
People: Non-executive directors - Foreign and Colonial Investment Trust Publication 931102FT Processed by FT 931102

Lord Kingsdown, former governor of the Bank of England, at FOREIGN AND COLONIAL INVESTMENT TRUST.

Foreign and Colonial Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC PEOP Appointments P6726 The Financial Times London Page 20 52
Management (The Growing Business): Support for the small firm - In a Nutshell Publication 931102FT Processed by FT 931102

The role of trade associations and similar small-firm support bodies is discussed in a 37-page booklet* which has just become available.

Written by Ray Parr, previously manager of the Department of Trade and Industry's Small Firms Information Centre in the Midlands and now a volunteer counsellor in a local enterprise agency, it sets out to help readers choose the most appropriate representative organisation. It details the cost of membership as well as listing the services provided.

Parr believes the value of support is often overlooked.

'All too often attention is concentrated on that essential and often necessary trip to the accountant, bank manager and solicitor, but that should not obscure the potential of a fourth leg to the support framework.'

*'Any other Body' is published as a private venture, price Pounds 2.95. It can be ordered from Caterpiller Publishing, Caterpiller House, 19 Donnington Drive, Christchurch, Dorset BH23 4SZ

GB United Kingdom, EC P2721 Periodicals NEWS General News P2721 The Financial Times London Page 19 182
Management (The Growing Business): Revising standards for UK managers - In a Nutshell Publication 931102FT Processed by FT 931102

Senior management standards developed by the Management Charter Initiative are to be adapted so that they can be applied to small and medium-sized organisations.

The MCI, an independent body set up by employers and backed by the government, seeks to improve the performance of UK managers.

Vlad Stanic, the MCI development director, said it was felt necessary to apply draft senior management standards to the particular needs of smaller organisations.

GB United Kingdom, EC P8741 Management Services MGMT Management & Marketing P8741 The Financial Times London Page 19 106
Management (The Growing Business): Changing terms for commercial agents - In a Nutshell Publication 931102FT Processed by FT 931102

Businesses which use commercial agents have been giving them notice to avoid the impact of European Community regulations.

The regulations, which cover the legal relationship between the parties and come into effect on January 1, generally strengthen the position of agents. In particular they provide for compensation where an agreement is terminated by the principal other than for breach of contract (for fuller discussion see FT Growing Business page, 27 July).

Stephen Sidkin, of London solicitors Fox Williams, reports that some manufacturers and suppliers are reappointing their agents as distributors or franchisees, buying and selling goods for their own accounts. Others are offering them direct employment.

'In brief they are taking on liability as employers as opposed to facing the quasi-employee benefits which agents will soon enjoy.'

The Department of Trade and Industry issued a draft compliance cost assessment in September which estimated that annual compensation costs could be anything between Pounds 5,000 and Pounds 80,000 per sales force.

Sidkin points out that unless the notice brings the contract to an end on or before 31 December, companies will have to honour their existing terms as well as comply with the new regulations.

GB United Kingdom, EC P8741 Management Services NEWS General News P8741 The Financial Times London Page 19 228
Management (The Growing Business): Firms fail to benefit from single market - In a Nutshell Publication 931102FT Processed by FT 931102

The European single market appears to have been a non-event for most small and medium-sized UK manufacturing businesses. According to Pera International, the management and technology consultant, 70 per cent of those interviewed for a survey* said they had derived no business benefits since borders were formally removed on 1 January 1993.

The research demonstrates that British reluctance to exploit new opportunities stems from continued export difficulties, additional expenses and the effects of the recession. Less than half of all UK respondents found transportation or paperwork easier since the start of this year; one quarter stressed the difficulty of meeting new EC technical quality standards.

*Opportunity or Threat: The Single Market Reality for SMEs, available from Ann Fitzgerald, Pera International, Pembroke House, Lydiard Millicent, Swindon, Wiltshire, SN5 9LS. Tel: 0793 772555.

GB United Kingdom, EC P9611 Administration of General Economic Programs NEWS General News P9611 The Financial Times London Page 19 171
Management (The Growing Business): A challenge to the chancellor / A look at proposals for a private-sector, long-term credit institution in the UK Publication 931102FT Processed by FT 931102 By RICHARD GOURLAY

Medium-sized UK companies have long yearned for the sort of secure, long-term finance available to Germany's Mittelstand. If proposals presented by the Small Business Bureau to Cabinet ministers ahead of this month's Budget are accepted, they may soon get it.

The idea is for the creation of an independent, private-sector funded, long-term credit institution similar to Germany's Kreditanstalt fur Wiederaufbau (KFW), which would disburse fixed-rate, seven-year loans.

This so-called Enterprise Fund, its supporters claim, would provide funds for expansion on substantially easier terms than anything currently available to UK small and medium-sized manufacturing firms.

Even if the proposal does not make it to Kenneth Clarke's dispatch box - and most pre-Budget ideas floated by the small business lobby do not - the idea is being studied as part of the review of business financing being undertaken by Anthony Nelson, the Treasury economic secretary.

The Enterprise Fund is the creation of Peter Hanratty and Mark Gheerbrant*, bankers at Industrial Bank of Japan International, and is one of five proposals** which will be announced by the Small Business Bureau this week.

The new institution would issue 10-year eurobonds guaranteed by the UK government. The authors envisage an initial Pounds 2bn being raised over five years, a figure which seems less ambitious set beside the Pounds 7bn lent by the KFW in Germany in 1991.

The fund would lend to companies introduced by UK commercial lending institutions, which would jointly administer the scheme. The draft proposal suggests banks would start by taking 25 per cent of the credit risk; the fund, and ultimately the government at the time the bonds were repaid, would bear the remaining 75 per cent.

The authors say banks would be encouraged to approach the fund because clients would be pressing for access to seven-year, fixed-rate money (probably at an all-in cost of about 10 per cent after a 330-basis point profit for the bank).

Established businesses with sales of at least Pounds 3m and up to Pounds 50m would be the target, effectively positioning the Enterprise Fund above the cut-off level for the government's Loan Guarantee Scheme.

Because the fund is a private-sector institution, the authors believe the government's guarantee would not affect the size of the PSBR, a concern that torpedoed proposals for a long-term credit institution two years ago. It is far from clear, though, that this hurdle has been overcome.

The key attraction of the proposed plan is that it would reduce one important area of risk in the expansion of a business - the risk of commercial banks withdrawing credit. Barry Baldwin, head of the Small Business Bureau policy unit, says many businessmen decide not to invest for expansion because bank covenants are too extensive.

They do not allow for quite normal deterioration in financial ratios at times when either the trade or economic cycle has turned down.

Enterprise Fund money would be structured, the authors say, with the minimum of onerous covenants. Only in exceptional circumstances would loans become repayable before maturity.

Academics have welcomed the initiative. They argue the UK has suffered from the absence of a KFW or Japan's three long-term credit institutions, which played a big role in post-war economic reconstruction.

But there could be considerable resistance from the commercial banks, without whose co-operation the fund would get nowhere. Crucially, they would need to be convinced the new institution could work alongside them and would not compete for business.

Given the chequered history of the Loan Guarantee Scheme, where default rates have been relatively high, the government would also need to be persuaded it is not being asked to guarantee what are effectively unbankable propositions.

* Mark Gheerbrant - 071 489 6843.

** Road to Recovery - Small Business Bureau, 071 976 7262.

GB United Kingdom, EC P6019 Central Reserve Depository, NEC CMMT Comment & Analysis P6019 The Financial Times London Page 19 674
Management (The Growing Business): Happy to be cut down to size Publication 931102FT Processed by FT 931102 By LISA WOOD

Sean Titterington confides that his friends thought him adventurous, if not foolhardy, when he joined a small, impecunious company after 19 years with a UK clearing bank. When he opted for redundancy from the Royal Bank of Scotland, rather than relocate, he had been looking for an employer of a similar size.

Titterington, a marketing manager, assumed his temperament and experience would be better suited to a big company.

One hundred failed applications later he welcomed the opportunity to join Laser Grafix, a small Hertfordshire-based company employing 16 people. Today he admits those previous assumptions were incorrect ones. Although he gets frustrated at times, particularly over the lack of formal structure, he enjoys the challenge of a business that has to respond quickly to changing customer tastes.

Titterington is one of the thousands of managers who have successfully moved from a big company to a much smaller one. But according to Oliver Johnston, national campaign leader for economic development at the Industrial Society, most people making the transition can benefit from professional training.

There are many sources of such expertise - business schools, for example - but one of the most recent is a scheme called Connect for Growth funded by London's Training and Enterprise Councils (TECs) and run by Enterprise Partnership, a London-based training and management consultancy.

The scheme matches the skills of professionals and managers who have been unemployed for six months with the needs of small companies. After two weeks of training, managers are hired on short-term contracts and may be offered full-time employment at the end of the placement. Previous courses have had success rates of over 50 per cent.

Linda Stoker, managing director of Dow-Stoker, a small business which provides training courses including ones for redundant executives, says: 'I've hired a few people who had worked in big companies and some have failed. They have not been able to roll up their sleeves. We had one person who when we moved to new offices over a weekend was conspicuous by her absence. She was also very status conscious and suggested that all the parking spaces in the new offices went to managers. We don't do that sort of thing.'

Managers making the move should be prepared to leave behind not only the perks but also many of the qualities that made them successful in a big company, according to the Industrial Society. 'An individual may have had up to a 10-year time-frame for planning and been good at it,' observes Johnson. 'In a small business decisions may have to be taken in 10 minutes.'

Some managers, meanwhile, feel insecure in organisations where there may not be formal performance assessment. Geoffrey Burn, a former director of information systems with a large retailing organisation, says: 'In my old company I knew exactly where I was. We had clearly defined objectives and formal systems of appraisal. In my new company we have none of that. One can feel insecure.'

The suspicion may be mutual. Owner-managers are often alarmed by professional managers, says Mike Anyon, who now works as sales director with RS Colour, a Manchester-based printing company employing 70 people. He used to work for Du Pont and Philips Electronics. 'It has to be a two-way learning process. But I am getting a lot of satisfaction from teaching a very enthusiastic sales force the best practice in the business.'

GB United Kingdom, EC P874 Management and Public Relations MGMT Management & Marketing P874 The Financial Times London Page 19 600
Technology: Science turns to ancient diets Publication 931102FT Processed by FT 931102 By CLIVE COOKSON

Archaeologists and water scientists are joining forces to identify the diet and diseases of people living thousands of years ago, by studying their semi-fossilised faeces.

The Institute of Archaeology at University College, London, is working with Thames Water's Spencer House laboratory in Reading to develop the new gene amplification technique of polymerase chain reaction (PCR) for use on 'paleo-faeces'.

According to Mark Spigelman of the Institute of Archaeology, these are quite common in dry parts of the world.

'In the southwestern US, there are cave-fulls of the stuff,' he says. 'My oldest specimen is from a 19,000-year-old campsite in Egypt.'

Spigelman, who has already used PCR to find traces of tuberculosis bacteria in ancient skeletons, believes that paleo-faeces contain enough surviving genetic material (DNA) to be detected by the technique.

He hopes to identify fragments of genes both from disease-causing bacteria and from the plants and animals in the ancient diet.

Colin Fricker, Thames Water microbiology manager, has an obvious professional interest in identifying traces of human faeces, in order to test water quality.

'We have been developing new methods of detecting E. coli, a bacterium found in faeces, for some time, so it was an incentive to improve the sensitivity and accuracy of these tests,' he says.

The latest PCR test for E. coli, developed by Thames Water, picks out a bacterial gene for an enzyme called beta-glucuronidase.

The scientists plan first to look for this gene in ancient faeces and then move on to others.

Recent experiments have shown that the DNA molecule is far more robust than scientists had imagined a decade or so ago.

PCR has recently been used to extract and amplify traces of genetic material from insects trapped in amber more than 100m years old.

GB United Kingdom, EC P8731 Commercial Physical Research NEWS General News P8731 The Financial Times London Page 18 323
Technology: Power to the people - The UK's National Grid has just invested in a sophisticated control network Publication 931102FT Processed by FT 931102 By ANDREW FISHER

The sight of Chris Waddle missing a vital penalty at a World Cup soccer semi-final three years ago may not appear to have much to do with electricity use, but the behaviour of television viewers after England lost to Germany led to a record surge of power that night.

The management of power demand is a complex task. To ensure it continues to be handled smoothly, from times of normal use to emergencies such as hurricanes, the National Grid - which distributes electricity in England and Wales - has spent Pounds 32m on a computerised energy management system it believes is the biggest and most modern in the world.

Electricity demand in the area covered by the National Grid can vary between 16,000 megawatts early on a summer morning to nearly 48,000 MW on a very cold winter evening. Power consumption also rises sharply after popular TV soap operas or blockbuster films. Viewers get up after a long evening's viewing, switch on the lights and put on the kettle for a cup of tea.

This is what happened after Waddle and his team-mate missed the deciding penalties at the end of one of the most exciting matches of the championship, televised from Italy. Electricity use briefly shot up by as much as 2,800 MW after the game, equivalent to the output of a very large power station.

On an average day, enough electricity is used in England and Wales to keep 10m kettles boiling round the clock; in winter, the equivalent is 17m. This is what the National Grid's new system, formally opened last month after 100 days in faultless operation, is designed to manage. From the new control centre at Wokingham, Surrey, with the help of four area centres in St Albans, Birmingham, Leeds and Bristol, electricity is routed around the 7,000km of the country's transmission routes.

By spending some Pounds 80m on its new control network (including the energy management system), the National Grid has streamlined its activities and closed two regional sites at Manchester and East Grinstead. It now has an array of new computers and sophisticated software capable of evolving in line with future advances in technology.

The previous system dated from 1970, when the national control centre was at London's Park Street, south of the River Thames. Its Argos computers made by Ferranti of the UK - now the subject of a humiliating 1p a share bid from General Electric Company of the UK - were kept running until earlier this year, although new equipment was also added over the past two decades.

'In the early 1980s, we realised we needed to get to the next level of technology,' says John Tomlinson, system control manager. After going out to tender, National Grid narrowed the choice down to Ferranti and Minnesota-based Empros Power Systems Control, then owned by Control Data of the US but now part of Siemens, the German industrial group.

Having decided on Empros, which has more than 400 energy systems installed around the world, the National Grid went to great lengths to ensure its systems would be as error-free as possible. It subjected the hardware and software to 14 different audits each. Testing was so rigorous that the test plans took up 45 feet of paper.

As a result, the company believes it has a system which is as reliable as it is possible to obtain. Roger Hunter, EMS project manager, is suitably cautious, however, when he says: 'As far as we know, at the present time, there are no errors.' The system was also delivered on time and within budget, a rarity for such big computer projects.

The National Grid went to such lengths to ensure both quality and robustness because it wanted a system which could do much more than its previous one. The Empros system, with its host of computers, workstations, display units and 4m lines of software code (capable of running 46 applications and 40,000 displays) is not just designed to switch energy around the grid system, including the import of power from Scotland (where distribution is handled by the generating companies) and France. It also has a far greater capacity to deal with emergencies such as freak storms or terrorist bombs.

To ensure the utmost degree of fail-safe security, each centre has three big Cyber computers from Control Data for normal, stand-by and emergency use. If a disaster causes the Wokingham centre to go down, national control can be switched to St Albans which controls the London region.

Here, there is a fourth Cyber, normally used for training - faults such as those caused by the 1981 blizzards have been modelled into the simulator with frightening realism - but which can be switched to run the whole grid. 'You can't have a day off while you put something right,' says Tomlinson.

In the old system, this degree of integration did not exist. Nor was it able to perform advanced applications at a level far beyond the normal ones of monitoring power flows, voltage levels and other daily functions.

With the Empros equipment, says Hunter, the grid system can be subjected to 'limits and capabilities never before possible.' Readouts on any aspect of the grid system can be obtained in seconds rather than minutes; 22,000 separate items of information are checked every five seconds.

This vast flow of data is needed not only to update the rate of daily power flows from the privatised energy groups to the regional electricity companies (who own the National Grid), but also to deal with the unexpected.

'This system can handle the most onerous of power station conditions,' adds Hunter. The Empros system was tested to see how it would stand up to all types of use from normal demand to the impact of lightning strikes and hurricanes.

Now its system is in operation, the National Grid is keen to work with Empros and Siemens, on foreign contracts. 'The whole market place is worth nearly Dollars 1bn (Pounds 714m),' says Tim Kenealy, general manager of Siemens Empros, which has a share of around 20 per cent. He sees strong possibilities in eastern Europe and other developing areas, despite scarce funds, as well as in industrialised countries wanting to update electricity distribution.

National Grid GB United Kingdom, EC P4911 Electric Services CMMT Comment & Analysis RES Capital expenditures P4911 The Financial Times London Page 18 1088
Technology: The world's data at your fingertips - A new a software system which will aid analysts Publication 931102FT Processed by FT 931102 By NANCY DUNNE

In 1990, China spent Dollars 2m (Pounds 1.4m) on US motor vehicles. The figure for this year totals as much as Dollars 230m for the first six months alone.

US vehicle sales have been rising throughout Asia. Between January and June, sales increased in Japan by 4 per cent over the same period of 1992. In Taiwan, they jumped by 11.4 per cent, but in Hong Kong they soared by 543.7 per cent.

These trends were gleaned from US Commerce Department data. Normally, they would take weeks to spot, but a new computer software system called World Trade Atlas now brings the figures to trade analysts and exporters in seconds.

Donald Brasher, president of Global Trade Information Services (GTI) of Columbia, South Carolina, wrote the program.

As a trade consultant to Thailand and Bangladesh, he saw the need for increased access to international trade data through computer technology and improved data for policy decision-making.

One of his clients recently requested information about the US wood trade in the wake of the spotted owl controversy, which froze logging on many federal lands. A few seconds of key pushing revealed a 53 per cent increase in the value of rough wood exports to Japan and one of 56 per cent to China in the first half of this year, while the volume of exports remained flat. The conclusion was that price rises, averaging more than 50 per cent, had failed to depress demand.

The development of CD-Rom technology and subsequent price reductions which make it available to small entrepreneurs are driving the information revolution, says Brasher. The World Trade Atlas is a prime example.

'Anyone can publish a CD-Rom,' he says, noting that CD-Rom players are rapidly becoming standard personal computer peripherals. After six months on the market, Brasher predicts sales of between Dollars 200,000 and Dollars 300,000 this year.

He has only 15 subscribers, but they are important ones.

They include the US Chamber of Commerce, the American Association of Exporters and Importers, the International Footwear Association and the Retail Industry Trade Action Coalition. Their numbers are growing. Brasher expects to have between 40 and 50 clients by the end of this year and at least 100-200 by the end of 1994.

GTI is signing leading international distributors to market the program globally. Next year, he expects to add EC and Japanese trade data to the program and he may include numbers from Chile and Canada.

Each month, Brasher updates the software from data acquired from US government computer tapes. It is reorganised and sent to subscribers by express mail on a CD-Rom disc.

The World Trade Atlas provides information for a three-year time comparison. By hitting a key, subscribers can: display product and country information; sort data by market share or percentage change; switch from country to product sequencing; compare quantity and average unit price data among countries; shift between export and import data; and check the balance of trade data for the world and individual countries.

The service is particularly helpful for exporters, Brasher says.

Brasher learned the ways of Commerce Department data production when, as a young analyst there, he helped to reconcile the differences between US import statistics and Hong Kong's export figures. Now, the Commerce Department is his chief competitor. It sells a system which transmits information electronically. Although it cannot produce trends in seconds like the World Trade Atlas, it has become more accurate since the introduction of an automated interface that reduces data entry errors.

The atlas is sold by GTI on a subscription basis for Dollars 4,920 a year (Dollars 2,880 for educational institutions).

US United States of America P7372 Prepackaged Software TECH Products & Product use P7372 The Financial Times London Page 18 646
Business and the Law: Light in arbitration's obscure corners - A H Hermann examines the Steyn committee's draft bill Publication 931102FT Processed by FT 931102 By A H HERMANN

English arbitration law, probably the best system in the world, is far from perfect. But it is made worse than it need be by the unjustified assumption of most arbitrators and lawyers that they are bound to follow the adversarial and predominantly oral procedures developed in the English civil courts.

This shortcoming, together with other orthodoxies which drive arbitration away from London to friendlier and cheaper shores, has been tackled in a draft arbitration bill, drawn up by the Departmental Advisory Committee on Arbitration, chaired by Sir Johan Steyn, the Appeal Court judge.

If adopted, it would improve English arbitration law and make it more understandable. With those objectives in mind the committee entrusted the drafting of the bill to a privately financed group (although it was revised by a parliamentary draftsman) and instructed it to follow the structure of Uncitral's Model Law of Arbitration, now followed by the legislation of 16 states.

Many of the substantive provisions of the bill would make English arbitration law more acceptable internationally. For example, recent decisions by the Court of Appeal have reversed the orthodox view that disputes as to whether a contract was invalid from its beginning always fell outside the arbitration clause. The Appeal Court decisions confirm that the arbitration clause is separable and survives an invalid contract. To make sure that this useful advance is not overturned by the House of Lords, the committee has included a separability clause in the bill.

But the committee was not so daring when it came to the question of the arbitrator's power to decide that he has jurisdiction to hear a case.

The arbitrator's decision can always be appealed to a court. That is as it should be. However, the process is greatly abused by parties who wait to see whether the result of the arbitration is to their liking before launching an appeal.

A decision, at the end of a long arbitration procedure, that an arbitrator did not have jurisdiction makes the resolution of a dispute unnecessarily expensive. For this reason the Uncitral Model Law requires that any appeal against the arbitrator's exercise of jurisdiction must be made at the beginning. The committee, however, shrank from following the Model Law on this.

Explaining this and other aspects of the draft bill at the Freshfields arbitration lecture recently, Sir Johan, agreeing with a recent Law Commission report, said he did not see why arbitrators should be obliged to follow the courts' technical rules of evidence.

This was particularly true in relation to the labelling of technical and production records as 'hearsay' evidence. Appellants without a proper issue of law on which to base an appeal often argued that such records were 'hearsay' and not admissible evidence, and that lack of evidence was an issue of law on which they could base an appeal.

The bill would avoid all this by providing that 'the tribunal shall determine all procedural matters including the admissibility, relevance, materiality and weight of any evidence'.

This provision of the bill also ought to do away with the widely held assumption of English arbitrators and lawyers that they are bound to adopt the purely adversarial and predominantly oral procedures peculiar to common law jurisdictions but unknown in half the industrialised world.

Sir Johan said he could see no justification for such an assumption, either in statutory law or in precedent. If adopted, the bill would make the English arbitration procedure both faster and cheaper.

The committee did not, however, adopt any recommendation on the crucial difference between the English and most other arbitration systems which allow awards to be made according to a perception of fairness or on the basis of internationally recognised principles of law. The orthodox English view is that arbitration clauses allowing the arbitrator to go by his conscience rather than by the law - clauses commonplace in civil law countries - are invalid in England.

Sir Johan appears to sympathise with the Model Law where it provides that, if parties agree, the arbitrator may decide according to what appears to him to be right and fair.

The Court of Appeal moved in this direction and towards the recognition of the lex mercatoria - the free floating 'international law of merchants' - when it held in the 1987 Deutsche Schachtbau case that it was not against public policy to enforce in England a Swiss arbitration award applying 'internationally accepted principles of law governing contractual relations' - lex mercatoria for short.

If this is not against public policy in the case of a foreign award, why should it be against public policy in the case of an English award? To adopt the Model Law approach would bring English arbitration closer to the conciliation procedures favoured not only in civil law countries but also in the Far East and particularly in China, with its fast-growing economy reaching out for more intensive international trade. The Steyn committee has not dared go this far - yet.

The author is D J Freeman senior research fellow in international trade law at the Queen Mary and Westfield College, University of London

GB United Kingdom, EC P8111 Legal Services CMMT Comment & Analysis P8111 The Financial Times London Page 17 894
Business and the Law: Burst of competitive energy - The European Commission's intervention in plans for a Portuguese power plant Publication 931102FT Processed by FT 931102 By MICHAEL SMITH

The European Commission has demonstrated through its intervention at a Portuguese power plant that it will pursue its ambitions to liberalise the European electricity market in spite of strong opposition.

Using European competition law, it has restricted to 15 years the period in which Electricidade de Portugal, the state-owned monopoly, will have exclusive rights to the electricity that will be produced from a power plant at Pego which is due to be completed in 1995.

The consortium building the plant, including the UK's National Power, had expected to have 28 years of exclusivity. It says it will not be hurt by the change, owing to a compromise deal with the Commission. But the EC intervention has set a precedent that, say EDP's lawyers, could affect the funding of future power stations in Europe.

The Pego case comes at a time when the Commission is fighting hard to gain acceptance for its 'third-party access' plans, which are aimed at liberalising the European gas and electricity markets. It argues that a free market in all goods throughout the Community can be achieved only if energy is traded without restrictions imposed by monopolies. Competition would force a reduction in electricity prices, it believes.

Most of Europe's electricity companies, and in many cases the states that own them, have put forward arguments against the Commission's proposals. Unbridled cross-border competition along the lines proposed by the Commission, they say, would endanger security of supply. It would also reduce incentives for companies to invest in transmission systems.

Large sections of the European Parliament agree. MEPs have tabled 324 amendments to the 30 articles in the third-party access directive. If the directive is adopted, it is likely to be in a much diluted form.

However, the Commission has made it clear that it will use existing law to ensure that monopolies cannot exert what it considers to be too much influence over markets. Its chief tool is competition law, including article 85 of the Treaty of Rome prohibiting restrictive agreements which distort trade between states. The Commission's interpretation is that an exclusive supply obligation of more than 15 years is restrictive.

Ironically, the Portuguese electricity system is making considerable progress in introducing competition in energy generation and supply along the lines the Commission hopes to achieve through its third-party access directive.

The Pego plant, which may eventually supply about 10 per cent of the country's electricity, is being built by a consortium that includes National Power, Electricite de France and Endesa - the UK, French and Spanish utilities - as well as EDP. Most European countries would baulk at providing such an inroad for foreign companies.

The Commission therefore apparently tried to avoid damaging Portugal's progress. It agreed that, after a 15-year exclusive agreement, Tejo Energia, the company set up by the consortium to operate Pego, will be able to sell surplus capacity to third parties providing EDP does not need it.

That harms none of the deal's participants, since EDP will be provided with all the electricity it needs from the plant, and the consortium is likely to find ready buyers in other countries, including Spain, for any excess.

But such a compromise may not be so easily achieved elsewhere. Countries without the capital to build the power capacity they need - especially in southern Europe - may find it more difficult to gain funding from the private sector. 'Banks want the certainty of a strong revenue stream over a long period if they are to provide funds. The danger is that the Commission's approach will restrict the way that finance is raised,' says Mr David Marks, a partner with McKenna & Co, a law firm that advises on big power projects including Pego.

The Pego decision and others that follow are likely to prove fertile ground for merchant banks and the lawyers.

Electricidade de Portugal PT Portugal, EC P4911 Electric Services MKTS Market shares TECH Safety & Standards CMMT Comment & Analysis P4911 The Financial Times London Page 17 693
Business and the Law: Employers must justify unequal pay - European Court Publication 931102FT Processed by FT 931102 By BRICK COURT CHAMBERS BRUSSELS

The European Court of Justice ruled last week that the equal pay provisions of the EC treaty require employers to demonstrate an objective justification of the existence of appreciable differences in pay between male and female workers doing work of equal value.

The Court's ruling was made in a case referred by the English Appeal Court involving a female speech therapist, who brought an action against her employers for sex discrimination.

Mrs Pamela Enderby claimed that her pay, in a profession that is overwhelmingly staffed by women, was less than that for members of comparable professions, such as clinical psychologists or principal pharmacists, which are largely staffed by men.

The European Court of Justice was first asked whether employers were bound under the EC treaty provisions to justify objectively differences in pay such as those which had occurred in this case.

The Court said that, although normally the onus of proving alleged facts in support of a claim lay with the claimant, the burden should shift when it was necessary to avoid depriving workers, who appeared to be victims of discrimination, of any effective means of enforcing their rights to equal pay.

It then said that, in spite of the fact that the circumstances of the present case did not constitute de facto discrimination, they did constitute a prima facie case of discrimination.

Given that workers would be unable to enforce their rights to equal pay before national courts if evidence of a prima facie case of discrimination did not shift the burden to the employer of showing that the difference was not in fact discriminatory, the Court ruled that, in circumstances such as those of the present case, it was for the employer to show that an objective justification existed for the difference in pay.

The Court was also asked whether it was sufficient justification for the difference in pay if the rates of pay for the jobs in question had been decided by collective bargaining processes. It said the fact that rates of pay had been decided by such processes did not preclude a finding of prima facie discrimination, where the results of the collective bargaining showed that two groups with the same employer and the same trade union were treated differently.

The third question asked by the English Appeal Court was whether or to what extent the fact that the differences in pay were attributable to a shortage of candidates for one job and the need to attract them by higher salaries could serve as objective justification for the pay differential.

The Court said that such a finding of fact was for the national court. However, it made it clear that, if the national court was able to determine what proportion of the increase in pay was attributable to market forces such as those suggested, the pay differential would be objectively justified to the extent of that proportion.

If, on the other hand, the national court had not been able to determine the particular proportion, then it would have to assess whether the role of market forces in determining the rate of pay was significant enough to provide objective justification for part or all of the difference.

C-127/92: Enderby v Frenchay Health Authority and health secretary, ECJ FC, October 27 1993.

Application to reopen Commission merger proceedings inad-missible

An application by third-party shareholders for the annulment of a decision by the European Commission refusing to reopen its merger proceedings in relation to a particular transaction has been ruled inadmissible by the European Court of Justice.

The Court said the applicants had failed to demonstrate that they were directly and individually concerned as required by the Rome treaty provisions.

The Commission's decision that the transaction between the two companies did not fall within the scope of the merger regulation did not of itself affect the substance or extent of the shareholders' rights.

T-83/92: Zunis Holding SA and others v Commission, CF1 2CH, October 28 1993.

GB United Kingdom, EC BE Belgium, EC P8741 Management Services P9211 Courts NEWS General News P8741 P9211 The Financial Times London Page 17 702
Survey of The Slovak Republic (8): An amicable divorce - Anthony Robinson traces the tortuous road to Slovak independence Publication 931102FT Processed by FT 931102 By ANTHONY ROBINSON

SLOVAKIA may be a state without a history, but the grounds for its divorce from the Czech republic have deep historical roots.

The disintegration of Yugoslavia and Czechoslovakia mark, in their very different ways, the liquidation of the last multi-ethnic compromises to survive the collapse of the Hapsburg and Ottoman empires 75 years ago.

In former Yugoslavia the principle of ethnic purity, absurd and tragic given centuries of intermarriage, is being pursued to its bloody end through the mass transfer of people accompanied by systematic rape and pillage. The emergence of separate Czech and Slovak states, by contrast, came about through a negotiated divorce and legal division of state property.

The underlying historical and cultural differences between the Czech and Slovak peoples are almost as great, or as small, as those between Serbs and Croats. The contrast is due principally to the total absence in the Czech and Slovak case of any tradition of violent conflict between two ethnically and linguistically linked peoples.

The re-emergence of Serbia has revived memories of the medieval Serb kingdom, subjugated by the Ottomans 500 years ago, while the rebirth of the Czech republic has restored, in essence, the Kingdom of Bohemia. The latter was assimilated into the Hapsburg Empire after the fateful battle of the White Mountain near Prague in 1618 at the outset of the Thirty Years War.

Slovakia and Croatia, by contrast, were both junior partners in their former federations and share a long history of domination by Hungary. While Croatia enjoyed periods of semi-independence, however, Slovakia was never a sovereign state, except as a Nazi puppet during world war two.

Slovakia, including its former large Jewish and gypsy minorities and smaller Ruthenian, Saxon, Ukrainian and other populations, remained under Hungarian domination for almost a millennium. Much of the sometimes almost hysterical tone of Slovak-Hungarian relations is inexplicable without reference to this past relationship.

The Slovak leaders who took their country into the first Czechoslovak republic after the first world war did so because they felt too weak to survive on their own. Even in 1919 they wanted Czechoslovakia to be a federal state in which Slovakia would have enjoyed considerable autonomy. Only reluctantly did they accept the unitary state insisted on by Jan Masaryk and the Czech fathers of the republic, rather than risk a return to Hungarian rule.

It was a wise choice. In contrast with the 19th century, when millions of Slovaks had emigrated to America, or sought work as masons and builders elsewhere in Europe, the inter-war years of this century enabled Slovaks to strengthen their economy and build up cultural and educational standards with assistance from Prague.

The Slovak search for recognition and cultural awareness took systematic form in 1863 with the creation of Matica Slovenska, the Slovak cultural foundation. But Slovaks found their nightmares come true in 1939 as Hungarian power moved back into eastern and southern Slovakia following Hitler's rape of Czechoslovakia.

Even Kosice, the second biggest city in Slovakia, passed back under the control of Hungary's crypto-fascist regime while nominal autonomy over the rump of Slovakia was given to a clerico-fascist regime led by Father Jozef Tiso. The spectacle of Hungary's Admiral Miklos Horthy riding on a white horse in triumph through the streets of Kosice cheered on by its ethnic Hungarians is still remembered by older residents and recounted to their children.

More than 60,000 Slovak Jews were deported to concentration camps along with unknown thousands of gypsies during the Tiso regime. Those who lived in the Hungarian occupied regions met the same fate in 1944, after Hitler seized power from Admiral Horthy and imposed direct rule on his former ally. As Soviet forces advanced from the east a sometimes bloody settling of scores took place. Thousands of ethnic Hungarians were deported from eastern and southern Slovakia, mirroring the expulsion of 3m ethnic Germans from the Czech Sudetenland.

During the war the Nazis built up Slovakia as a powerful centre of arms production. Central Slovakia in particular was out of range for allied bombers but conveniently close to the Russian front. As the Cold War developed and Stalin tightened his hold on Czechoslovakia after the Prague Coup of February 1948 the tightly centralised communist regime continued to invest heavily in big arms factories.

In the 1960s the the East Slovakian Steel Works (VSZ) was built outside Kosice by Czech engineers with Czech equipment. The completed plant used iron ore transported over 1,000kms from Krivoi Rog in Ukraine. Its steel was needed for the arms industry and the other heavy engineering plants set up in what was still a largely rural country before the war.

The close integration of the Slovak economy with the Soviet military machine and the Comecon market was reinforced by construction of the Slovnaft oil refinery at Bratislava, the main terminal of the Druzhba oil export pipeline. Moscow's refusal to risk losing its strategic control lay behind the crushing of the Prague spring in 1968 and the humiliating removal from power of Alexander Dubcek, the Slovak communist who endeared himself to Czechs and Slovaks alike by his espousal of 'socialism with a human face'.

Vladimir Meciar, the current prime minister, was among those purged from the communist party in 1969 as the Slovak apparatchik Gustav Husak was appointed by Moscow to 'normalise' Czechoslovakia and create a phoney federal state which gave greater autonomy, but only on paper, to Slovakia.

After 20 years of 'normalisation' the loose anti-communist coalition calling itself 'People against Violence' celebrated the victory of the velvet revolution in Bratislava as its Czech counterpart, the Civic Forum, spearheaded by the writer Vaclav Havel, celebrated the downfall of communism in the streets of Prague.

The superficial unity of both coalitions soon broke apart, however, accompanied by a bitter dispute over the economic impact in Slovakia of decisions made by high-minded politicians in Prague and over the name to be given the newly democratic Czechoslovak state.

For months debate raged over a hyphen. Was it enough, as most Czechs argued, to call the new state the Czecho-Slovak Federal Republic or was it to be called the Czech and Slovak Federal Republic. Behind the war of words nationalist and separatist emotions were whipped up by new politicians in both countries who sought new ways to identify themselves and their movements or parties.

The defining moment came with the elections of June 1992. Czechs voted for rapid market reforms and integration into Europe under the leadership of Vaclav Klaus while Vladimir Meciar's ill-defined nationalist-populist Movement for a Democratic Slovakia (HZDS) and the avowedly separatist Slovak National Party won the elections in Slovakia.

Since that date the two nations have moved rapidly apart. After six months of detailed, top level negotiations between the Czech and Slovak leaders and their closest advisers, the two nations formally divorced on January 1, 1993. Slovakia gained its sovereignty and independence under Mr Meciar, whose espousal of Slovak nationalism only really took off in 1991 after he was removed as premier of the first elected post-communist government.

Six weeks into independence the political divorce was followed by the division of the former common currency into separate Czech and Slovak crowns. Six months later the once invisible border was clearly demarcated, institutionalised and patrolled by armed border guards. Suddenly, and unintentionally, Slovakia found itself on the wrong side of what has become in effect an East-West border, thanks to a deal worked out by Bonn with its immediate neighbours, the Czech republic and Poland to help implement Germany's tougher new asylum laws.

It has been a rough start for the new Republic, made worse by a collapse in bilateral trade with the Czech republic, rising unemployment and recession in western markets. But, aware that there is no turning back, Slovaks have to press ahead with building their new state into a viable member of a future enlarged European Community.

SK Slovakia, East Europe P9311 Finance, Taxation, and Monetary Policy P9199 General Government, NEC CMMT Comment & Analysis P9311 P9199 The Financial Times London Page 16 1363
Survey of The Slovak Republic (9): Unwanted tanks - Patrick Blum visits an unemployment blackspot Publication 931102FT Processed by FT 931102 By PATRICK BLUM

IN A large industrial area on the outskirts of Martin, a small town lying on the foothills of the Lower Tatra mountains in picturesque north-western Slovakia, a sprawling group of factories is fighting for survival.

Martin, population 60,000, is home to ZTS, one of Slovakia's biggest companies and heart of the country's once thriving military-industrial complex. But military production, which represented about half of ZTS Martin's output, collapsed in the wake of the 1989 revolution that ended communism, and the company's future looks uncertain.

Turning the tanks made at ZTS Martin into ploughshares is more easily said than done. The decision taken in Prague during the heady days of the velvet revolution to abandon the 'dirty' trade in armaments has had a catastrophic impact on Slovakia's industry and economy, causing much local bitterness. Between 1988 and 1992, military production which accounted for about 32 per cent of the output of Slovakia's engineering industry declined by almost 90 per cent.

'It was the hardest blow', says Mr Jaroslav Kubecka, economy minister. 'Armament production was virtually liquidated in the course of two years without any replacement.'

At the time, around 40 major plants were involved in military production. Many have been closed down, and some 60,000 jobs have gone, and many more in related industries.

Ironically, the decision that devastated a major part of Slovak industry has since been reversed in the Czech Republic whose government is now seeking export markets for its own military hardware. The Slovak authorities, who encouraged the conversion of military facilities to civilian production, now believe they can re-enter the market, albeit under much more difficult conditions and on a smaller scale than in the past.

It will not be easy. 'No country in the world is able to rebuild all its main industries in two years. Restructuring requires enormous capital investment beyond the capacity of local resources,' Mr Kubecka says.

ZTS Martin provides a striking example of the efforts and costs involved. In the 1980s, about half of military production in the former Czechoslovakia - which then ranked among the world's top 10 exporters of weaponry - and about 80 per cent of Slovak military production came from ZTS Martin which specialised in heavy equipment, notably tanks, most of which were sold to the former Czechoslovak and Warsaw Pact armies.

In 1988, the company produced military and civilian equipment worth SK14bn (Dollars 450m); it had 13,000 employees, and made a SK1.6bn profit. Last year production was down to SK6bn, its workforce was cut to 9,000, and it made an operating profit of SK32m, but this was wiped out by restructuring costs and mounting debts.

Mr Josef Skrko, the company's financial director, will not disclose the volume of debt, but says one third is primary debt and two thirds is caused by non-payment by customers. He says about SK1bn of the debt was the result of conversion.

The social consequences for the people of Martin have been dire. 'Every family in town used to have a worker here,' says Mr Skrko.

The pain is not over. The company has borrowed SK2bn to modernise production lines to improve productivity and develop new products, but there have been more lay-offs since the beginning of the year. Short-time working has been introduced on some lines, and the marketing and strategy department closed recently to save costs. The buildings badly need repairing, and new markets are difficult to find even for new products such as diesel engines produced under licence from Lombardini of Italy for sale only in former Comecon markets,

The agreement with Lombardini was signed in 1990 with production starting that year on existing lines. The objective was to manufacture up to 40,000 engines a year, rising eventually to 60,000. New equipment and machinery worth SK1.3bn was imported to develop a new production line which is now almost completely installed. Current capacity is 15,000 engines, but even that smaller number is proving difficult to sell as shown by the stocks of new engines lined up in the factory warehouse.

The ZTS company now produces a wide range of engines, is improving the range of its tractors, and producing bulldozers and loaders under licence from Hanomag of Germany with the hope of establishing a joint venture with the German company in the near future. Large engines of 1,000 horse power used in giant trucks are produced under licence from a French company while other products include forest tractors. Production of the latter, however, is down to about 150 a year, compared with exports of more than 1,000 such tractors a year to the former Soviet Union.

Overall, military production at ZTS Martin declined from SK10.3bn in 1988 to SK2.7bn last year, but production of the heavy T-72 tank and other armaments has resumed. 'As far as we could see, other countries including members of the Conference on Security and Cooperation in Europe continued to sell their armaments, and nobody really helped us to convert our factories. We think we should do what we are able to do, though the situation now is more difficult because we have lost our former markets to competitors,' Mr Skrko says. Foreign interest in the T-72 tank remains high, especially from potential third world buyers with little cash.

ZTS Martin SK Slovakia, East Europe P3483 Ammunition, Ex for Small Arms, NEC P3795 Tanks and Tank Components CMMT Comment & Analysis P3483 P3795 The Financial Times London Page 16 927
Survey of The Slovak Republic (5): Odd man out with a will of steel / Profile of Vladimir Meciar Pioneered Slovak statehood - now he must make it work Publication 931102FT Processed by FT 931102 By ANTHONY ROBINSON and PATRICK BLUM

VLADIMIR MECIAR will take his place in the history books as the man who led Slovaks to independent statehood.

But 11 months after jubilant crowds ushered in the Slovak republic the stocky 51 year old Prime Minister's opinion poll rating is languishing as doubts accumulate over his ability to lead this nation of 5.3m towards a prosperous, secure and democratic future.

Last month, in an ornate, gilded room in the former Archbishop's palace which now functions as the seat of government, Mr Meciar parried questions about his ability to retain loyal support and political allies, his attitude to ethnic minorities and more powerful neighbours, his prospects for the economy and his vision of Slovakia's future.

On the hustings he jabs the air with his finger, cracks jokes and extracts belly laughs from the crowd. In private he is extraordinarily immobile, big but not tall, with a strong handshake and expressionless face in which only his eyes seem to move. During 90 minutes of conversation there were no flashes of inspiration, no vivid phrases, no clear vision of the future Slovakia. Just flat words.

'We have four priorities; to establish a democratic system and democratic institutions; introduce market mechanisms; guarantee the security of the state and ensure integration with the European Community.' Slovakia, he adds, is in transition from one system to another 'in the midst of a dangerous river and moving from one bank to another'. It might take five years to get to the other side, he adds.

Buoyed up by the strong showing of the former communist-era parties in the recent Polish elections, the Party of the Democratic Left (SDL), led by the youthful Mr Peter Weiss, is pressing for early general elections and hoping to administer the coup de grace to the current prime minister and his demoralised HZDS.

Is Mr Meciar worried by the left-wing threat? Would he be prepared to become, say, Minister of Transport, in a future coalition government led by the former communists in which the HZDS was relegated to a junior role?

He is not amused by the question. 'All this talk of elections is premature. If there are to be elections I will decide the timing, and the results will not turn out as my opponents think. The HZDS is a pragmatic, non-ideological party of the centre. It is true we are under attack from left and right, but we are a stabilising factor in Slovak politics.

'At the last election my opponents accused me of being an StB and a KGB agent and a rapist of small children, but my party went on to become the largest party with 38 per cent of the vote and we formed the government, not them.'

His reply revealed the kind of steely will to power which his various political opponents have underestimated at their peril before. Mr Meciar has shown in the past that he is never more dangerous than when his back is against the wall. A former close political aide describes him as ' a genius at outmanoeuvering his rivals, a player without rules who cannot tolerate peers and is driven by his complex personality into a confrontational approach both at home and abroad.'

Appointed as premier of the Slovak part of the Czech and Slovak Federal Republic after the June 1990 elections, he was deposed nine months later when he lost a vote of confidence in the Slovak parliament. Behind the vote lay dislike of his authoritarian ways among the liberal and Christian Democratic members of Slovakia's People against Violence, the anti-communist equivalent to the Czech Civic Forum, and disquiet in Prague at the increasingly separatist tone of his pronouncements.

Deprived of power, Mr Meciar became an implacable foe of the new government led by Mr Jan Carnogursky, and whipped up growing popular resentment against both the 'morally superior' attitudes displayed by the federal President, Mr Vaclav Havel, and the Bratislava government which he portrayed as unable to stand up for Slovak economic and political interests.

As unemployment in the Slovak arms factories and other big plants dependent on Comecon trade soared to four times the Czech level, the tireless Meciar barnstormed the country, whipping up nationalist fervour and promising to raise Slovakia's status in the world, complete the controversial Gabcikovo dam project on the River Danube and improve the economic and moral wellbeing of its people.

Portraying himself as a martyr sacrificed on the altar of Czech arrogance and Slovak government weakness, the one-time boxer and largely self-educated enterprise lawyer, reached a peak of popularity at the general elections of June 1992 after addressing packed crowds in pre-electoral meetings.

After his first post-election meeting with Mr Vaclav Klaus, the victor in the Czech elections of the same date, it became clear that the self-assured, fanatically pro-market Czech leader preferred a quick divorce from Slovakia to endless recriminations and a loose confederal arrangement which would have left the Czech republic footing much of the bill for Slovakia's greater internal autonomy and higher profile abroad.

Both men had a unique opportunity to appraise the other. Whatever his private thoughts Mr Klaus has taken care never to criticise his Slovak counterpart in personal terms, and makes it understood that, whatever his reservations, he fears that whoever comes after Mr Meciar could well be worse.

Mr Klaus, who has a Slovak wife and campaigned for Slovak votes during the 1992 election campaign, recognised that Mr Meciar faced a harder task, with far fewer resources, in building his new state.

The Slovak leader acknowledges that 'founding the new state brought many problems. The Czechs started preparing the technical basis for the divorce in January 1991 but Slovakia only began from July 1992, While the Czechs inherited the federal institutions there were no equivalents to these Prague based institutions in Slovakia.' At the same time the divorce left the new Slovak state with a legacy of over-sized arms, heavy engineering and consumer goods factories orientated towards the defunct Comecon market.

Since January, he points out, the government has gained international recognition, joined a raft of international institutions, including the IMF, World Bank and EBRD, set up a new independent central bank, created a separate national currency, and forged a national army.

But, after recounting the achievements of the last few months, Mr Meciar complained that all this had been done against the background of what he described as 'a campaign of hatred against Slovakia and a wave of hostile propaganda which assaulted Slovakia and its official representatives'. When questioned about Slovakia's image, however, Slovak diplomats ruefully concede that in many cases the problem has been created by Mr Meciar's own abrasive style. The issues which have provoked most international criticism include the unilateral decision to go ahead with completion of the Gabcikovo dam despite Hungarian objections, and insensitivity to the human and other rights of ethnic Hungarian and gypsy minorities. These are all complex issues with no easy solution. They cry out for quiet diplomacy and a search for reasonable compromise.

But subtle diplomacy and a desire for compromise are not easily associated with Mr Meciar's confrontational approach to political problems. Like most of the grey men in his cabinet and Mrs Anna Nagyova, his blonde special adviser on international as well as domestic issues, Mr Meciar speaks no foreign languages, apart from the closely related Czech and a smattering of Russian. But he insists on representing Slovakia abroad whenever possible.

In an international setting he always looks the odd one out, even among a gathering of fellow leaders from post-communist Europe. At this year's annual international get-together in Davos, Slovak diplomats watched in despair as the Mr Meciar and his group sat talking among themselves in Slovak as other leaders split into ever-changing informal groups exchanging gossip and building informal ties.

At a recent summit meeting in Budapest of the Central European Initiative, the 10 nation grouping which includes Italy and Austria as well as eight central European states, the Slovak leader fiddled constantly with a recalcitrant translation machine as Mr Klaus, the Czech leader, replied to questions in fluentGerman and English.

On his return from Budapest Mr Meciar announced his intention to obtain new fighter aircraft from Russia to counter-balance similar purchases by Hungary, raising the prospect of a mini arms race between states with ethnic minorities on both sides of the border.

Mr Meciar does not compare well with the founders of the original Czechoslovak state. Having led the move to independence he seems to lack the human and political skills needed to inspire Slovak citizens of all ethnic groups to make the best of their difficult inheritance. What is more, having won independence, he seems to underate the importance of building bridges in this potentially dangerous region for a small country with suspicious neighbours.

SK Slovakia, East Europe P9199 General Government, NEC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis PEOP People Valdimir Meciar, Prime Minister, Slovakia P9199 P9311 The Financial Times London Page 15 1537
Survey of The Slovak Republic (7): Key Facts Publication 931102FT Processed by FT 931102

------------------------------------------------------------------- KEY FACTS ------------------------------------------------------------------- Area 49,035 sq km Population 5.3 million President Michal Kovac Currency (since Feb. 1993) Slovak Crown (SK) Exchange rate (Czechoslovak crown) 1991 Dollars 1=29.48 CSK 1992 Dollars 1=28.29 CSK ------------------------------------------------------------------- ECONOMY 1991 1992 ------------------------------------------------------------------- Real GDP growth (%) -15.8 -6.0 Annual average % growth in Consumer prices (%) 56.0 10.3 Industrial production (%)* -25.4 -14.0 Convertible currency trade** Current account balance (Dollars m) na 175 Exports (Dollars m) na 3,420 Imports (Dollars m) na 3,635 Trade balance (Dollars m) na -205 ------------------------------------------------------------------- (1) Until 1991, companies with more than 100 employees, (1) and from 1992, companies of all sizes. (2) 1992 figures are estimates ------------------------------------------------------------------- Source: Deutsche Bank Research -------------------------------------------------------------------

SK Slovakia, East Europe P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product ECON Industrial production MKTS Foreign trade ECON Balance of trade P9311 The Financial Times London Page 15 158
Survey of The Slovak Republic (6): The centre is strained - Politics Publication 931102FT Processed by FT 931102 By ANTHONY ROBINSON

THE victory in Poland of leftwing political parties with communist roots only four years after the collapse of communism throughout eastern Europe is leading to a reappraisal of political probabilities throughout the former communist world, writes Anthony Robinson.

The Polish left's turnabout has aroused particular interest in Slovakia, Poland's southern neighbour, where the Party of the Democratic Left (SDL), led by Mr Peter Weiss, closely resembles Poland's Democratic Left Alliance guided by Mr Alexander Kwasniewski.

In Poland, the election results were as much a defeat for the fragmented anti-communist parties of the Solidarity-era opposition as a victory for the re-packaged communist-era politicians.

There are similarities in Slovakia where the centre stage is tenuously held by the Movement for a Democratic Slovakia (HZDS). This movement, a loose alliance bound together more by the personality of Mr Vladimir Meciar than any ideological cement, was formed in 1991 after the disintegration of Slovakia's 'velvet revolution' alliance called People Against Violence (VPN).

To its left the HZDS is challenged by the neo-communists, to its right by the Christian Democrat party (KDH), led by Mr Jan Carnogursky, the Slovak National Party (SNS) led by Mr Ludovit Cernak, and smaller parties representing ethnic Hungarians.

But the ability of the HZDS to command the centre ground has been undermined by the inability of the government to deliver the promised economic recovery and growing disillusionment with the suspicious, combative personality of its leader.

The erosion of confidence in the HZDS and deep, often personal animosities, between leaders of the non-communist parties has inevitably rebounded to the benefit of the former communist SLD. Like their Polish counterparts, Mr Weiss and key aides such as Mr Pavel Kanis, the SLD deputy chairman, have spent the last four years trying to shed the stigma of the Soviet-imposed communist past, and present themselves as a respectable, democratic party, eligible for membership in a future government coalition.

At the last elections in June 1992 the SLD already emerged as the second largest party with 28 seats in the 150 seat Narodna Rada, the single chamber Slovak parliament. The SLD was dwarfed by the HZDS which won 74 seats won but came out well ahead of the Slovak Nationalist Party (SNS), which was the only party to stand unambiguously in favour of Slovak independence. The SNS won only 15 seats and agreed to become a junior coalition partner in the post-election HZDS-SNS government.

This government collapsed last March when Mr Ludovit Cernak, the SNS leader, took his party out of the coalition after attacking Mr Meciar for his alleged authoritarian style and his closeness to politicians such as the Defence and Culture Ministers with shady political antecedents and ties to Czechoslovakia's Moscow-dominated past.

Last month, however, Mr Cernak agreed in principle to take his party back into the government, mainly because his reluctance to risk early elections which the former communists might win proved stronger than personal and political antipathy to Mr Meciar.

A renewed HZDS-SNS coalition, still to be finalised at the time of writing, would create a secure parliamentary majority and ensure passage of next year's budget. It would give a reprieve to Mr Meciar whose shaky minority government has been dangerously weak since Mr Milan Knazko, a former actor who was a popular idol of the VPN movement in 1989, was sacked as foreign minister five months ago. Mr Knazko left the HZDS after fierce arguments with Mr Meciar over policy towards ethnic minorities and neighbouring states. He has since formed his own breakaway party, the Alliance of Independent Democrats, with eight seats in parliament.

The new alliance patches up the government but does not reduce the underlying challenge from the former communist SLD or the risk of sharing the fate suffered by Poland's Solidarity era parties. But Slovakia does not share Poland's deeper political culture or its self-confidence as one of the historic nations of eastern Europe. The reform communists, who form the frontline of the Polish Democratic Left Alliance, were committed to reformist politics before being swept from power in 1989 and have been able to attract support from the new business class which has since emerged.

Slovakia has no so such self-confident past. The communists who ran Czechoslovakia in the Stalinist years and after the Soviet invasion of 1968 were, almost to a man, grey mediocrities who showed an insensitivity bred of ignorance to tradition and theenvironment.

Nowhere was the deliberate destruction of the creative and productive middle class more complete than in former Czechoslovakia which before the war, together with its large German and Jewish minorities, formed perhaps the most successful democracy in continental Europe. And the Slovak part of the old republic, singled out for investment in heavy industry, suffered the most.

Given this history, the risk of a return to power of parties with their roots in Slovakia's communist past is a sobering one. The men who lead the party seem bright and intelligent. But with Slovakia's slow record of reform to date, many of the old nomenklatura bosses are still running the various bureaucracies, the big state owned factories and the security forces. Several former communists are already in the HZDS government. It is difficult to escape the conclusion that once the reformed communists regained power in their own right it might be difficult to remove them.

Ironically the widespread sense that the former communists represent the most likely alternative to the HZDS, together with the personal rivalries and relative inexperience of the non-communist opposition parties, are the main factors keeping Mr Meciar in power.

'Meciar is a confrontationalist. With him Slovak politics cannot be brought to the level needed to modernise the economy and society,' says Mr Igor Uhrik, vicepresident of the SNS and one of a handful of expatriate Slovaks who have returned to contribute their skills and foreign experience to building up the new state. But Mr Meciar is in charge, and while he remains that way he will be the one to choose the timing of the next election to his greatest advantage.

SK Slovakia, East Europe P9199 General Government, NEC GOVT Government News P9199 The Financial Times London Page 15 1041
Survey of The Slovak Republic (4): A model from Frankfurt - The banks have been organised at top speed Publication 931102FT Processed by FT 931102 By PATRICK BLUM

THE creation of viable banking and financial institutions has emerged as a top priority throughout the former communist world. But in Slovakia this has entailed the additional burden of creating a new central bank at the apex of the system which unexpectedly had to assume the additional task of introducing and managing an independent national currency.

Finding staff at all levels with the necessary experience and knowledge of modern central banking principles, including the vital supervisory functions, has been complicated by the fact that before the divorce central bank functions were concentrated in Prague.

'The federal state had its administration in Prague. The whole of the state machinery stayed in Bohemia after the split. Very few Slovaks worked in important positions in Prague, and most of them stayed there. We had to start from scratch and this inevitably had an impact. That is the price we had to pay for independence,' says Mr Jozef Magula, head of the finance ministry's financial and economic policy department.

What is more, the new central bank had to be established and personnel had to be found for a wide range of state institutions including the finance ministry in competition with the banks and a new stock exchange, not to mention private companies.

Before the divorce on January 1 the central bank's presence in Slovakia was limited to a small branch of the State Bank of Czechoslovakia in Bratislava. The newly founded Slovak National Bank (SNB) struggled to get organised in the weeks following the breakup of the federation. It received help from the British know-how fund and the Austrian National Bank which provided training courses for staff, many of whom had little experience. Only one of 10 senior employees working in the federal bank came back to Bratislava - and became head of the SNB's dealing department.

As if these handicaps were not enough, the bank was soon put through its paces with the collapse of the currency union with the Czech Republic in February, accompanied by a run on reserves. As originally conceived, the two countries planned to run a joint currency for at least six months after the divorce. But the precipitate drop in bilateral trade as the frontiers were established accelerated the need to establish a new independent currency under strong pressure from the markets, and the IMF, to devalue. These pressures were resisted until July.

As the first year of independence draws to a close the dust is beginning to settle, and the central bank is looking forward to a more stable environment. But Mr Marian Jusko, deputy governor, says that only five of eight positions on the bank's ruling council have been filled. The total number of employees, however, has doubled from the initial 200 to more than 400.

In principle the central bank enjoys an independent status modelled on the German Bundesbank. This is enshrined in its founding statutes and last July's devaluation was formally decided by the central bank rather than the finance ministry which had taken the lead in resisting devaluation pressures for seven months.

The bank's principal tasks are to maintain control over monetary policy and inflation, to ensure currency stability, and to supervise the banking system.

For their part, the commercial banks are having to learn to live with tight supervision and growing competition. They have had more time to adapt than the central bank during three years of radical reforms that began in 1990.

As in the Czech Republic, the pace of change has been dramatic, transforming the banking system beyond recognition from its former role as a conduit for money distributed under a central plan into a western style financial sector.

The number of commercial banks has grown from two in 1991 to 26 today, with new specialised financial institutions including 17 universal banks - six of which have foreign currency licences - and nine foreign bank branches.

Foreign institutions represented in Slovakia include the Credit Lyonnais, and Banque Paribas of France, Creditanstalt and Oesterreichische Volksbanken of Austria, and the Internationale Nederlanden Bank of the Netherlands, as well as banks from Germany, the Czech republic and Russia. At the end of June total subscribed bank capital was SK11.8bn with foreign participation of SK1.6bn.

Although legislation has been brought into line with western practice, Slovak banks continue to face difficulties in modernising their operations and introducing new technology and services.

There are other problems. The concentration of deposits with savings banks exacerbates a general liquidity shortage throughout the banking system and the economy. At the same time, doubtful loans to military and other state industries made under the communists are forcing the banks to sharply raise their bad debt provisions.

Mr Jan Jansta, senior deputy chairman of Vseobecna Uverova Banka (VUB), the largest commercial bank, says: 'The problem is that no institutional investor or company is depositing money with any bank for a period of more than one year.'

VUB was established on January 1, 1990, when the Czechoslovak State Bank was broken up to form new commercial banks. At the time it had 30 branches and about 85 per cent of the Slovak credit market. Since then the VUB network has expanded to 40 branches including one in Prague, and 180 small retail outlets serving more than 800,000 customers. Initially its customers were mainly state institutions. Now they represent less than 70 per cent of its portfolio and VUB, like other Slovak banks, must raise provisions for bad debts from both the state and the often shaky private sector.

Like a giant jigsaw puzzle, the pieces are slowly falling into place for Slovakia's young banking sector, but as the country moves towards a market economy, it faces a more urgent problem, Mr Jansta says. 'The greatest need is for new capital, not more banks.'

SK Slovakia, East Europe P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis TECH Services & Services use P6081 The Financial Times London Page 14 1016
Survey of The Slovak Republic (3): Comecon's unhelpful legacy - Economy has a weak base Publication 931102FT Processed by FT 931102 By PATRICK BLUM and ANTHONY ROBINSON

THE economic basis for Slovakian independence is shaky.

Czechoslovakia as a whole was deeply integrated into the Comecon and Warsaw pact system, but Slovakia with its concentration of heavy engineering and arms plants as well as large scale shoe, textile and other consumer goods factories, was much more orientated towards the east than the more variegated Czech economy. Slovakia therefore suffered more from the break-up of the old Comecon trade links and the collapse in military orders which followed the end of the Cold War and Prague's post 'velvet revolution' dictum about the immorality of the arms trade.

Slovakia's historical development as a supplier of steel and semi-finished components for finishing and sale in the Czech republic has also made it more vulnerable to the collapse in bilateral trade which followed the division of the country and the disintegration of the 74 year-old Czechoslovak economy. The Czechs, with their geographical proximity to western Europe and experience in selling finished products, have found it much easier to switch to EC markets, especially Germany.

Coping with these two severe shocks - the loss of the Comecon and then much of the Czech market - in quick succession has been traumatic. A return to economic growth is not likely before 1995.

The scale of the problems is illustrated by a single statistic - since 1989, Slovakia's gross domestic product has declined by 30-40 per cent. The arms industry has been decimated; agriculture, accounting for about 20 per cent of GDP, has been severely disrupted; and service industries such as tourism have also suffered from the inadequacy of the existing facilities to cater for western tastes.

In the first six months of the new state's existence Slovak GDP fell by a further 6.2 per cent compared to the same period in 1992 while unemployment rose to 12.5 per cent of the workforce. Inflation rose to 14.2 per cent.

Officials say the introduction of value added tax last January added about 9 percentage points to inflation, while a 10 per cent devaluation in July, and additional tax increases introduced during the summer, will have a further negative impact on the consumer price index. Inflation is now forecast to rise to around 25 per cent on an annual basis by the end of the year. Over the whole year GDP could fall by 8 per cent.

Next year the government hopes to reduce inflation to around 10-15 per cent, but expects the economy to continue to contract. The GDP is expected to fall by a further 3-4 per cent in 1994 while unemployment will rise further to around 20 per cent. A resumption in growth is not expected until 1995.

On the positive side, imports and exports are now roughly balanced at an overall lower level, and the current account is expected to show only a small deficit this year of around 1-1.5 per cent of GDP, according to Mr Marian Jusko, deputy governor of the National Bank of Slovakia. Foreign debt - both public and private - stands at a relatively low Dollars 2.78bn, due partly to a successful Dollars 240m bond issue raised in September and Dollars 90m borrowed from from the International Monetary Fund as the first tranche of a Dollars 180m structural transformation facility agreed in the summer.

Thanks to foreign borrowing and balanced external accounts the National Bank's foreign exchange reserves, which fell to below Dollars 140m in February when the currency union with the Czech Republic came to an abrupt end, rose to Dollars 566m by mid-September. Total foreign assets held by commercial banks and the National Bank, including gold, rose to Dollars 1.67bn. The long expected devaluation of the Slovak Koruna in July has helped.

Officials say there is no need for further devaluations, but independent analysts say this will depend on maintaining tight monetary control. The authorities are aware of this. The national bank is keeping a sharp daily watch on government revenues and expenditures to ensure that the government keeps to its July agreement with the IMF to keep the deficit to within a SK14bn-16bn range, representing about 5 per cent of GDP.

But with revenues slashed by the recession, insufficient manpower to collect taxes, and rising expenditure on unemployment benefits, the authorities will be hard put to keep to the target. The size of the social security budget is a particularly onerous constraint. About one third of this year's SK158bn budget will be spent on unemployment benefits, health and other social benefits, compared with an OECD average of 9/10 per cent. Reducing this burden is politically difficult.

Officials believe the government will manage to keep to this year's deficit target, and will be able to decrease it next year as national insurance is taken off-budget as part of a broader reform of government finances and improvements in tax collection. Higher income from privatisation, to be accelerated next year, should also help boost revenue.

There are still many potential pitfalls, however. Bankruptcies are expected to rise next year under the impact of a new bankruptcy law which aims to clear an estimated SK 80bn in inter-company debt. Privatisation has been prone to delays, and the private sector still only accounts for about 10 per cent of GDP, though the proportion is growing 'from month to month', says Mr Jaroslav Kubecka, economy minister.

Restructuring the still largely state-run economy into a viable market economy will need substantial amounts of capital investment, the bulk of which can only be provided by foreign investors who have been deterred by fears of political instability.

SK Slovakia, East Europe P9311 Finance, Taxation, and Monetary Policy P3312 Blast Furnaces and Steel Mills P348 Ordnance and Accessories P2299 Textile Goods, NEC P314 Footwear, Ex Rubber CMMT Comment & Analysis ECON Gross domestic product P9311 P3312 P348 P2299 P314 The Financial Times London Page 14 996
Survey of The Slovak Republic (2): Austrians head the queue - Foreign investors study pace of privatisation Publication 931102FT Processed by FT 931102 By PATRICK BLUM

THE collapse of traditional markets in the former Comecon trade bloc was felt more acutely in Slovakia than in most of its neighbours.

Short of raw materials and energy sources, and with many of its biggest companies geared to serve highly specialised markets for heavy engineering products in central/eastern Europe and the former Soviet Union, Slovak industry faces an uncertain future without heavy investment beyond the capacity of local resources.

With only about Dollars 320m disbursed since 1990, Slovakia has attracted only a tiny share of foreign investments in the region. But interest is growing, especially from neighbouring Austria, and more investments are said to be on the way.

Faster privatisation is one of the keys to greater foreign investment. But the sacking of Mr Lubomir Dolgos, the former privatisation minister, without a replacement being appointed has raised question marks about the commitment of the government to recovering the momentum lost after the divorce from the rapid privatisation-orientated Czechs.

Government officials dispute the complaints of opposition parties and businessmen that privatisation has ground to a virtual halt after the first round of coupon privatisation which was set in train while Slovakia was still part of Czechoslovakia. 'We believe we should privatise more quickly as it is a basic prerequisite for restructuring our economy,' says Mr Ivan Lexa, state secretary in charge of privatisation.

He rejects criticism that the privatisation process has been slow and prone to bureaucratic delays. 'Speed is relative. Seen from the perspective of the World Bank and the IMF, privatisation in Slovakia is considered among the best. The pace and range of privatisations compare well with other post-communist countries, but we are looking at improving and speeding up the process,' he claims.

Since 1990, state assets worth SK120bn (Dollars 4.1bn) have been sold including about 500 companies with a book value of more than Dollars 3.1bn which have been disposed of through mass voucher privatisation. The voucher privatisation programme was launched in 1992, but it is only being completed now because of delays caused by the division of the former Czechoslovak state.

As with the neighbouring Czech Republic, Slovakia's voucher privatisation was considered a success by western analysts, and a second wave of voucher privatisation is planned for next year. But the government has shifted emphasis, intending to resort more extensively to standard methods of privatisation.

Shares in Slovak companies may also be floated on the Prague and Vienna stock exchange once company accounting has been harmonised with Austrian requirements, says Mr Lexa.

The new privatisation programme provides for the planned sale of 600 companies with a book value of about SK210bn (Dollars 7.2bn) of which voucher sales will only account for assets worth SK50bn-SK70bn. Furthermore, voucher privatisations will only take place in the third quarter of next year. Until then the government will seek to sell as many companies as possible by direct sales and public tenders.

'Voucher privatisation resulted in too great a dispersal of shareholders with small stakes who are not always committed to further investment in their companies,' Mr Lexa says to explain the shift in emphasis. 'There was just a change of ownership, but it brought nothing to the state or the companies. With the second wave we aim to accelerate restructuring. Slovak industries need new technologies and they must modernise their production. This requires a lot of money and can only be done with foreign capital,' he says.

The importance of attracting foreign investors is underlined by the shortage of capital of the Slovak banks which exhausted their funds in the first wave of state disposals. Foreign investors will be able to buy up to 100 per cent of a company's shareholding, and benefit from a wide range of tax and other incentives. But the authorities will seek a commitment by investors on further investments to modernise and develop their companies.

Mr Lexa says interest has picked up this year after a slow start. 'In 1992, and early 1993, opinion about Slovakia was not favourable. We were seen as backwards and politically unstable, but since then the IMF, the World Bank and the EBRD have helped to give us recognition. We are also much more active at targeting investors abroad, and people are getting a clearer picture of opportunities in Slovakia.'

Officials are trying to market Slovakia as a convenient production and trading centre with a relatively good transport infrastructure and good access to both western and eastern markets. Telecommunications, which are currently very poor, especially inside the country, are being upgraded through an Ecu227m modernisation programme. The European Bank for Reconstruction and Development (EBRD) is providing Ecu44m and Slovak Telecommunications Ecu122m with the remaining Ecu61m coming from export credit agencies.

The project will improve services for 414,000 existing customers and bring in 200,000 new subscribers. By 1995 all main cities should have a digital telephone network. Bratislava will be equipped with a combined local, transit and international exchange and be the focus of a nationwide optical fibre backbone system.

A recent EBRD study of some 400 small-to-medium size Slovak companies with 500-1,000 employees, identified more than 50 with good prospects for potential investment in a wide range of sectors. 'People are finding much greater scope for investment than they expected.' a western consultant says.

The EBRD, which is playing a catalytic role in attracting foreign investment to Slovakia, is considering investing Ecu10m in a proposed Ecu20m fund to invest in such companies. It will work alongside the European Community which plans to put up Ecu5m through its Phare programme, with the rest coming from elsewhere.

The EBRD is also providing a total of Dollars 125m for the completion of a new aluminium smelter at Ziar nad Hronom. Over Dollars 185m had been spent on the 65 per cent finished plant before construction was suspended five years ago because of lack of funds. The new financing will allow the plant to be completed with the installation of state of the art technology from Norsk Hydro which is also taking a Dollars 15m equity stake in Slovalco, the operating company. The EBRD is also taking a Dollars 15m equity stake in the company, but the bulk of its commitment is a Dollars 110m loan which will be used to finish construction, buy the equipment and also close down the existing, heavily polluting, smelters.

Other investors so far include Volkswagen, with a Dollars 32.5m investment in an assembly plant near Bratislava for its Passat model; K-Mart of the US with a Dollars 30m investment in the Prior retail chain stores; Rhone Poulenc (Dollars 20m); and Samsung (Dollars 11m). Volkswagen is reported to be planning a further Dollars 25m investment at Bratislava.

The close proximity of Bratislava to Vienna - just over an hour's drive away - has encouraged Austrian investors, including Siemens' Austrian subsidiary. With more than 1,000 Austrian companies established in Slovakia and Dollars 76m invested, Slovakia's western neighbour has both the largest number and volume of investments, representing about 30 per cent of total foreign investments. Complex negotiations are continuing with OMV, the Austrian energy group, which is seeking an important stake in Slovnaft, the Slovak oil and petrochemical company.

With Austrian plans to up-grade transport and rail links between Bratislava and Vienna, Austrian investment is likely to continue to grow. The Austrian commercial office in Bratislava says that in the first half of the year it has had some 7,000 inquiries, two-thirds from Slovak companies seeking foreign partners. These developments offer hope for an economy in its fourth year of deep recession.

SK Slovakia, East Europe P9611 Administration of General Economic Programs P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis RES Capital expenditures P9611 P9311 The Financial Times London Page 14 1308
Survey of The Slovak Republic (1): Adventure in statehood - Slovaks were wary when their 74 year-old 'marriage' with the Czechs ended peacefully at the start of 1993. Now caution has been replaced by a quiet determination to succeed. Anthony Robinson describes the new Republic's problems and prospects Publication 931102FT Processed by FT 931102 By ANTHONY ROBINSON

ON New Year's day, 1993, Slovaks sloughed off a thousand year subservience to Hungary and seven decades as the junior partner in Czechoslovakia and celebrated the birth of a sovereign, independent, internationally recognised republic.

But only six months earlier most Slovaks went into the crucial general elections of June 1992 intending to negotiate a new and looser union with their richer and more numerous Czech cousins, but not to be divorced from them.

Opinion polls showed that divorce was only sought by a small minority in both the Czech lands and Slovakia. Many Slovaks were in favour of seeking greater political and cultural autonomy, but fewer than 10 per cent voted for the openly separatist Slovak National Party (SNS). The 600,000 ethnic Hungarian minority was virtually unanimous in opposition to breaking ties with Prague as were the less politically organised Gypsy, Ukrainian, Ruthenian and other minorities living mainly in the east and south of the country.

But the election results put political power into the hands of politicians with incompatible ideas about acceptable terms for cohabitation in a common state. The Czech leader, Mr Vaclav Klaus, made clear from the outset that a clean divorce was preferable to a messy, protracted squabble over the terms of cohabitation. As the Czechs were the richest and the most populous members of the 74 year-old Czechoslovak state Mr Klaus was able to determine the subsequent course of events.

Mr Vladimir Meciar, the pugnacious Slovak leader who turned his Movement for a Democratic Slovakia (HZDS) into the dominant force in Slovak politics by his attacks on Czech arrogance and insensitivity to Slovakia's needs, found himself with no alternative but to negotiate the best terms for divorce.

In contrast with Yugoslavia, where the number of states, nationalities and cultural and ethnic groups involved was much greater, and where past violent conflicts over borders and between groups had left indelible scars, the Czech and Slovak divorce negotiations were tough but amicable.

But a mere 10 months of separate existence have already brought about palpable changes in perspective. On both sides of what is now an international border between the two states apprehension about the possible unforeseen consequences of separation has been largely replaced by a determination to make independence work. Both states insist on their European vocation and their desire for the fastest possible integration into a suitably extended European Community and revamped Nato.

A young Slovak diplomat from the east of the country, the part which was most opposed to the idea of rule from Bratislava and gave the lowest votes to Mr Meciar, summed up the reaction of many of her generation. 'We did not want to be cut off from Prague and the Czech part of our country. We felt nervous about being alone in this part of the world. But now I am amazed to find how little we have in common with the Czechs and how tied up we are in trying to solve our own problems here in Slovakia.'

For Prague, the divorce meant the end of an implicit economic subsidy to Slovakia, at the cost of a 30 per cent loss of trade between the two new states. It also freed the Czechs from entanglements inherited from the inter-war republic whose borders were drawn to include a large Hungarian minority at the end of the first world war.

For Bratislava, independence promised the psychological and spiritual satisfaction of permitting the majority ethnic Slovaks the opportunity to develop and assert their own national personality at home and abroad after a millennium as a largely ignored or subservient people.

But it has required an enormous effort to build up the institutions and trappings of a sovereign state. For more than 70 years many of the most able Slovaks moved to senior jobs in Prague, and few were prepared to return to Bratislava to create a new state, especially under the political conditions created by the HZDS victory in the elections.

In spite of the difficulties, however, Slovakia now has an independent central bank, a national currency (hastily introduced in six weeks instead of the expected six months after the divorce), a national army and security forces and diplomatic representation abroad. It has obtained international recognition and membership of a wide range of international institutions, including the IMF, the World Bank and the EBRD. It has also signed a separate association agreement with the EC and gained membership of the Council of Europe, after the last minute withdrawal by Hungary of objections linked to the rights of ethnic Hungarians. Both economically and strategically, however, the new Slovakia inherited substantial real and potential problems. Already hard hit by the collapse of Comecon markets and the end of the Cold War, the disintegration of the highly integrated Czechoslovak economy has led to a sharp drop in trade with the Czech republic at a time when recession in western markets has reduced the already limited ability to shift to OECD markets. Unemployment is high and foreign investment remains low while the pre-divorce wave of Czechoslovak privatisation has not been followed by a similarly determined all-Slovak version. Without rapid privatisation and higher foreign investment Slovakia's ability to build a less energy and raw material intensive economy more attuned to international trade will remain in doubt.

The potential certainly exists for a successful transformation of the economy, given the high level of technical skills and current low wage rates. In the service sector tourism also has good prospects, once the unfriendly, rigid state hotel structure is replaced by small scale private and local tourist initiatives. This year Slovakia is expected to earn only Dollars 200m from tourism, a fraction of what could be earned by creative exploitation of a rich natural endowment which includes the high and low Tatra mountains, much untouched countryside and a plethora of castles, churches and cultural treasures.

A lot depends on Slovakia's ability to project itself properly as a peaceful, stable, democratic country, at ease with its neighbours and not only open to foreign investment but able to create the banking, legal and institutional framework that potential investors can feel familiar with. This is not always the case and some small investors have found difficulty seeking redress for alleged irregularities.

But the main question hangs over Slovakia's ability to forge a mutually satisfactory relationship with Hungary. This is highlighted by the dispute over Slovakia's unilateral decision to go ahead with completing the Gabcikovo dam on the River Danube, and irritating resistance to the ethnic Hungarian minority's desire for dual Hungarian-Slovak place names in areas of Hungarian settlement and the right not to use the Slovak suffix added to female Hungarian surnames.

The dam issue, which aroused greater passions in Hungary than merited by the controversial ecological issues alone, is currently under adjudication by the International Court at the Hague. The Slovak side points out that it was Budapest which first acted unilaterally by pulling out of the joint scheme. Mr Jozef Moravcik, the foreign minister, also compares the high degree of cultural and linguistic autonomy enjoyed by Slovakia's Hungarian minority with the assimilation pressures to which ethnic Slovaks have been subjected in Hungary.

Wise heads in Bratislava have tried to defuse potential tensions by quiet diplomacy, fearing that the intemperate words sometimes used by Mr Meciar when referring to both the Hungarian and Gypsy minorities could inflame passions and contribute to the re-ignition of latent ethnic tensions throughout the wider Carpathian region. The rise of nationalist parties in Hungary and Romania underlines the risks involved in playing the ethnic card.

Opinion polls indicate that Mr Meciar still retains a core following in his home territory of central Slovakia, in the scenically attractive villages of the Vah valley and the Tatra mountains. These are the areas economically hardest hit by the collapse of the arms industry and the loss of Comecon markets on which Slovakia was so heavily dependent before the death of the Soviet system.

It is far harder to find supporters in Bratislava, the capital which is tucked away at the extreme south west of the country, only 65kms from Vienna, or in Kosice, the regional capital of eastern Slovakia, even though unemployment and the attendant social pains are lower in these two big cities.

Mr Meciar may not be the ideal politician to lead Slovakia into independence, but his latest deal with the Nationalist Party (SNS) should give him the parliamentary majority needed to get next year's tough budget approved and fight off left wing opposition demands for early elections. The international financial institutions are helping to fund investment projects, pending the hoped for awakening of foreign private investment.

The next years will not be easy. But independence seldom comes cheap.

SK Slovakia, East Europe P9311 Finance, Taxation, and Monetary Policy P9199 General Government, NEC CMMT Comment & Analysis P9311 P9199 The Financial Times London Page 13 1533
Male managers 'block progress for women' Publication 931102FT Processed by FT 931102 By RICHARD DONKIN

A SIEGE mentality among male junior and middle managers is continuing to block the progress of women in the workplace, a leading campaigner for women's employment rights said yesterday.

Lady Howe, chairman of Opportunity 2000, the Business in the Community initiative, told the organisation's second anniversary celebrations that lack of awareness among men in lower management turned them unwittingly into 'benign saboteurs'.

She was backed by Ms Kay Struth of the surveyor-personnel management unit at Customs and Excise, who said: 'There are some men who do not want to accept that women can be equal in some areas.'

Mr David Sainsbury, chairman and chief executive of supermarket group J. Sainsbury and a founder member of Opportunity 2000, said his company had not felt a backlash from promoting career opportunities for women.

'It makes commercial sense to encourage women to progress to higher management positions,' he said. 'For every woman at section manager level who leaves because her wish for development is frustrated, we estimate it costs us Pounds 5,000 to find and train a new recruit to the same standard. For store managers and their deputies the figure is nearer Pounds 10,000. No business can afford this level of waste.'

Lady Howe said the campaign's membership had doubled to 216 in the past year. She said members were beginning to change their employment cultures, bringing greater opportunities for women.

As examples of good practice she cited part-time working opportunities introduced this year by the Metropolitan Police, a personal development programme for women at clerical level at Barclays Bank, and senior job-sharing at British Airways.

She said more than a third of the campaign's members had said that the recession had restricted their scope to alter the balance of their workforce.

GB United Kingdom, EC P8741 Management Services NEWS General News P8741 The Financial Times London Page 12 321
TGWU warns it may cut MP funding Publication 931102FT Processed by FT 931102 By DAVID GOODHART

MR BILL MORRIS, the general secretary of the TGWU general union, has given his starkest warning yet to the Labour party that as his union seeks to improve its efficiency it will be examining all political payments to see if they provide value for money.

Although the TGWU has just endorsed its sponsorship of all its 38 Labour MPs, including leading Labour modernisers such as Mr Tony Blair who was under threat from the left, Mr Morris has questioned the union's policy. 'Would it make any difference to us if we sponsored 10 Labour MPs instead of 38?' he said in an interview with the Financial Times. Mr Morris's comments suggest that the level of sponsorship will not prevail indefinitely.

Mr Morris, who tomorrow opens a TGWU computer centre in Newcastle upon Tyne, claimed that since he took over the reins from Mr Ron Todd at the end of 1991 'we have changed the culture'. He said that at the political level the old 21-17 left-right split on the executive had been broken down, and that in terms of organisation his main ambition was to leave behind a 'highly professional outfit, but one which has not abandoned its culture and values'.

Mr Morris said the organisation had been too hesitant about adopting modern business methods, for example in the way that people pay for membership. 'It is absurd that I can buy almost anything I want from my armchair except for membership of the TGWU,' he said.

The computer centre will cost Pounds 1m but is meant to save the union Pounds 500,000 a year in running costs. Mr Morris says it establishes a 'state of the art' network linking the union's self-standing personal computers to a central computer.

The network, being masterminded by Mr Peter Regnier, the TGWU's new chief executive, will help to give the union a much clearer profile of its 1m members.

Mr Morris said that Mr Regnier had already made a big difference to the union's bargaining power with its banks and suppliers. He added that the union had decided to break with the company which had been doing all its property business since 1972. The company has since closed as the TGWU was its only customer.

After a record Pounds 12m deficit in 1991, following smaller deficits in 1989 and 1990, the union had to start eating into its assets which fell from Pounds 76m in 1988 to Pounds 53m in 1991.

Last year the union made a small surplus, having increased its subscriptions by 11 per cent and having cut expenditure from Pounds 67m to Pounds 60m.

GB United Kingdom, EC P8631 Labor Organizations NEWS General News P8631 The Financial Times London Page 12 466
Union abandons BT strike ballot Publication 931102FT Processed by FT 931102 By DAVID GOODHART, Labour Editor

THE MAIN UNION at British Telecommunications has backed away from a fight over this year's pay offer of 1.9 per cent after consulting local officials.

The National Communications Union, led by a leftwing executive since June, had rejected the offer and decided to recommend strike action in a ballot of its 140,000 members.

But local officials strongly advised that union members were far more concerned about job security than pay.

Although the 1.9 per cent will now be accepted, it is not clear whether union members will also receive the extra Pounds 20 BT had originally offered as an inducement to union officials to recommend acceptance - it was withdrawn after they refused.

The pay rise will take the pay of a top-grade technical officer from Pounds 17,770 to Pounds 18,108, and a lower-grade clerical worker from Pounds 10,700 to Pounds 10,903.

The union and BT both fear that some conflict may be unavoidable over the company's aim to shed a further 15,000 employees next year after two years of heavy, but voluntary, job-shedding. Unions have received a strong endorsement from Sir Colin Marshall, chairman of British Airways.

In the GMB general union's magazine, Sir Colin says unions help motivation and play a 'good role' at British Airways.

'British Airways is happy to work with the unions and there is no question of derecognising them,' he says. 'Unions play an important role in the company because they collectively represent the interests of the workforce.'

His comments were reinforced by Mrs Rhiannon Chapman, director of the Industrial Society. Writing in the society's newsletter, published today, she urges employers to resist the temptation to de-recognise unions and says it is easy to underestimate the value of a good, experienced union representative in 'oiling the wheels' and solving day-to-day problems.

Lex, Page 24

British Telecommunications British Airways GB United Kingdom, EC P4813 Telephone Communications, Ex Radio P4512 Air Transportation, Scheduled PEOP Labour P4813 P4512 The Financial Times London Page 12 343
National Library Week Publication 931102FT Processed by FT 931102

To mark National Library Week, the British Library's reading room at the British Museum was opened to the public yesterday for the first time since it was built in 1857. The 10m books in the library, founded in 1753, will soon be moved to the new British Library building on Euston Road in north London, and the vacated room will be used for British Museum exhibits

GB United Kingdom, EC P8231 Libraries TECH Services & Services use P8231 The Financial Times London Page 12 92
Cells crisis looms, prisons chief says Publication 931102FT Processed by FT 931102 By ALAN PIKE, Social Affairs Correspondent

POLICE CELLS, former military camps and a floating prison may be used to tackle a growing accommodation crisis in Britain's jails, Mr Derek Lewis, director-general of the Prison Service, said yesterday.

He told the service's conference in Blackpool that he was 'on the verge' of using emergency accommodation.

Mr Stephen Shaw, director of the Prison Reform Trust, said Mr Lewis's statement was 'the clearest warning to the home secretary of the dangers he is running with his prison policy'. Mr Michael Howard, home secretary, has called for a law-and-order crackdown, claiming at the Tory party conference last month that 'prison works' and that his plans were likely to increase the prison population.

Mr Lewis said pressure on accommodation would lead to delays in some of the service's plans to refurbish prisons. Decisions on which projects would be deferred would be made during the next few weeks.

He warned that overcrowding increased the risk of security and control problems. Recent incidents of unrest in prisons had shown that 'there are limits to how far or fast we can push the service without incurring unacceptable risks'.

The service, he said, had a duty to accommodate those sent to prison by the courts. But it had an equal duty to make it clear if it believed the size of the prison population, resources or any other factor made it impossible to achieve its goals. The rate of growth in the population threatened the Prison Service's ability to look after prisoners with humanity and help them lead law-abiding lives, he said.

Bibby Line, the shipping company, said it had been discussing the possibility of floating prisons with the government for the past couple of months. 'We have been discussing with the government as one of the many options they are looking at.' But it added: 'There has been no firm decision. We have also been looking at possible sites.' Two Bibby ships are already being used as prisons in New York.

Bibby Line Group GB United Kingdom, EC P9223 Correctional Institutions RES Facilities P9223 The Financial Times London Page 12 364
Female corporal awarded Pounds 17,000 Publication 931102FT Processed by FT 931102

A WOMAN sacked by the Army after becoming pregnant, but now serving again as a corporal thanks to a rule change, will receive Pounds 17,000 for the 16-month gap in her career, it was agreed today.

Corporal Kim Castledine, had told a Newcastle upon Tyne industrial tribunal that she was unfairly dismissed, and claimed sexual discrimination. But after discussions behind closed doors, the Ministry of Defence accepted liability and she withdrew her application.

After the hearing, Corporal Castledine, from North Shields, Tyne and Wear, said she would receive Pounds 17,000 through the agreement.

Her case was the first of 19 involving women claiming unfair dismissal against the MoD after losing service jobs through pregnancy that are due to be heard in north-east England tribunals over the next fortnight.

Corporal Castledine, now earning Pounds 12,000-a-year, said: 'I felt bitter when, due to an unplanned pregnancy, I was told I couldn't stay on in August 1989, but I am pleased with the way things have turned out and I have no hard feelings.'

The case follows last month's Pounds 33,000 award to Ms Deborah Miller, a former RAF woman dismissed after becoming pregnant. The previous month, in an out-of-court settlement, Ms Jackie Thornber, a former RAF medical assistant, received Pounds 22,000 after her dismissal.

GB United Kingdom, EC P9711 National Security NEWS General News P9711 The Financial Times London Page 12 239
Limit on bias case payouts to end Publication 931102FT Processed by FT 931102 By RICHARD DONKIN

THE GOVERNMENT is to abolish the Pounds 11,000 compensation ceiling on both race and sex discrimination cases, it announced yesterday.

The decision to remove the ceiling in cases of sex discrimination was forced on the Government by the European Court of Justice, which ruled in August that Britian's statutory ceiling was unlawful.

The government has gone further than the EC law required in deciding also to abolish the limits for racial discrimination, and for religious discrimination in Northern Ireland.

Announcing the government's decision in reply to a parliamentary question from Mr Iain Duncan-Smith, Tory MP for Chingford, Miss Ann Widdecombe, the employment minister, said: 'The government believes that all types of unlawful discrimination should be liable to the same penalties.'

Mr David Hunt, the employment secretary, said he hoped that regulations to abolish the compensation ceiling for sex discrimination cases would come into force later this month.

Amending the penalties for other forms of discrimination will take longer, since it requires primary legis-lation.

The move has generated speculation that the government may have to concede at some stage that the Pounds 11,000 limit on industrial tribunal cases of unfair dismissal is no longer tenable.

Mr David Pannick QC, who has been examining the implications of the European Court ruling, said there was nothing in EC law that barred an upper limit for unfair dismissal claims.

However, he said 'There is a strong argument that no rational distinction can be drawn between unfair treatment of one sort and unfair treatment of another. You should get compen-sation to fit the loss you suffered.'

GB United Kingdom, EC P9199 General Government, NEC GOVT Government News P9199 The Financial Times London Page 12 294
Unusual comrade at Transport House / A look at why the country's biggest union has appointed a former finance director of Rover to be its new chief executive Publication 931102FT Processed by FT 931102 By DAVID GOODHART

SORTING out a troubled trade union is much the same as dealing with a declining business. Both require cost control, improved sales (or membership), better services to customers and better information flows.

So says someone who should know: Mr Peter Regnier, formerly a finance director at carmaker Rover and chairman of the Pounds 100m-turnover Chloride Electronics, who is now chief executive of the million-strong Transport and General Workers' Union.

It is an unusual journey from the boardroom to Transport House, the union's headquarters, and it has not been without controversy. Mr Regnier, 48, is the son of an east London clerical worker who joined the Labour party when he was 16. His political views did not change as he climbed the greasy pole and he recalls the pain of having to face beaming boardroom colleagues in the mornings after successive Labour election defeats.

In spite of taking a large pay cut to go to the TGWU he has disturbed internal differentials by being paid a lot more than anyone else in the organisation - including Mr Bill Morris, the general secretary. There has also been grumbling from the left about the fact that he once reported to Sir Michael Edwardes at BL and was indirectly involved with a union conflict at Chloride.

Such sniping has not prevented Mr Regnier feeling at home in the TGWU. He could be mistaken for a TGWU official. He already talks about 'surplus' rather than profit and says that the obstacles to efficiency are no greater than in a hierarchical, profit-driven company.

'You do not have the same authority as in a company,' he says. 'That means you have to persuade rather than command. But when people have been persuaded it runs very well. It's rather Japanese.'

Before his arrival Mr Morris had made a start with the shake-up of the union by commissioning a consultancy report from Mr Adam Klein, a specialist in trade unions.

The Klein report resulted in a reduction in the number of TGWU regions from 11 to eight and a 'clustering' of the 100-plus district offices.

That was the easy part. Mr Regnier's challenge, signposted in the Klein report, is to establish proper financial disciplines and a suitable information technology system in what has been one of Britain's most politically divided and poorly managed unions.

At least the union's finances are now more respectable and it is no longer living off its assets. Mr Regnier is also modernising its cashbook accounting system and using the union's purchasing muscle more effectively.

But the real challenge, according to Mr Regnier, is for the TGWU to 'see itself strategically'. And to do that it needs a new approach to information technology and a new political culture.

The ethos of collective bargaining, says Mr Regnier, has been so dominant (only about 2 per cent of union members are not covered by collective bargaining) that it has not sold its other services well. For example, it recovers more than Pounds 70m a year for the 35,000 members with industrial injuries.

The fact that the administration of membership has been done at regional level means the union has not had a proper national profile of its members. 'We have used information technology for administrative purposes and not to understand our members,' he says.

But in 1992 118,000 people left the union and only 32,000 were recruited. 'To stop that drain we have to communicate with people and identify the benefits of membership. We've got to start being proactive and our new computer network can help us do that,' says Mr Regnier, who reckons he will be at the union for another three years helping this become reality.

GB United Kingdom, EC P8631 Labor Organizations CMMT Comment & Analysis PEOP Appointments Mr Regnier, P Chief Executive Transport and General Workers Union P8631 The Financial Times London Page 12 678
Tory peer keeps up pressure over rail sell-off Publication 931102FT Processed by FT 931102 By ROLAND RUDD

LORD PEYTON, the former Conservative transport minister, warned he would continue to oppose any watering down of the government's obligations to the railway pension fund, as the government cut short its Commons debate on rail privatisation.

Mr Tony Newton, leader of the House, last night unexpectedly announced that debate was not going beyond 10pm and that debates today would be 'guillotined' through a timetable measure.

Mr Tim Rathbone, a Tory backbencher and potential rail rebel, warned that the government risked losing 'quite a considerable amount of good will' if it did not allow sufficient time tomorrow for discussion of key changes decided by peers.

The government plans to change the Lords amendment to the bill in order to require BR bids to be vetoed if there are 'credible alternatives'.

Mr Nicholas Winterton, another potential rail rebel, said he would abstain in tomorrow's vote on the Lords change to the franchise rules. He said the government's legislation was 'misguided'.

While the government is not expected to lose the vote, its problems over rail privatisation were exacerbated by last night's intervention by Lord Peyton. He has already been instrumental in forcing ministers to retreat over their initial refusal to allow BR to bid for any franchises.

Ministers hope to overturn a Lords amendment tabled by Lord Peyton, reimposing an obligation on the government to secure the pension trustees' written agreement before altering the government's financial commitments.

The government believes the amendment would in effect give the pension-fund managers a veto over government expenditure. However, Lord Peyton said he would continue to oppose the government measures. 'The whole thing has been a messy process and is typical of the mess the government has got itself into over its rail proposals.'

Earlier in the day the government outlined its plans to encourage BR management buy-out teams to bid for franchises in co-operation with private-sector companies.

Mr Roger Freeman, transport minister, said priority would be given to bids where railway employees had a substantial interest. 'We are talking about the management and staff of BR, either alone or in conjunction with other private-sector companies, joining to bid for franchises.'

The government amendment ensuring priority for BR staff with a 'substantial interest' in any franchise was backed by 321 votes to 283, a government majority of 38.

British Rail GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P9611 Administration of General Economic Programs P6371 Pension, Health, and Welfare Funds COMP Company News P4011 P9611 P6371 The Financial Times London Page 12 432
Liverpool Bay contract awarded Publication 931102FT Processed by FT 931102

HAMILTON OIL yesterday awarded the first big contract for the Liverpool Bay oil and gas development. THC Fabricators of Hartlepool won a Pounds 45m contract which includes construction of a 7,500-tonne central processing deck and associated equipment.

THC Fabricators GB United Kingdom, EC P1389 Oil and Gas Field Services, NEC MKTS Contracts P1389 The Financial Times London Page 12 69
Amec to update BP refinery Publication 931102FT Processed by FT 931102

BP OIL has awarded Amec Engineering a Pounds 60m contract to install new equipment at its refinery at Grangemouth in Fife. The work will enable the complex to meet new European Community standards for sulphur content of diesel fuel.

The installation of the hydrofiner will allow the refinery to reduce the sulphur content of its diesel fuel from 0.2 per cent by weight to the new EC standard of 0.05 per cent by 1996. About 250 construction jobs will be created.

Amec Engineering GB United Kingdom, EC P1799 Special Trade Contractors, NEC MKTS Contracts P1799 The Financial Times London Page 12 112
National print talks may resume Publication 931102FT Processed by FT 931102

NATIONAL negotiations in the printing industry look set to return next year after being suspended this year. The GPMU print union said last night that talks with the British Printing Industries Federation had 'proved positive'.

The union added: 'Whilst a number of difficulties still remain, both the GPMU and BPIF representatives believe that there are sufficient grounds to commence national negotiations in 1994.'

A report on the informal negotiations will be made to both the GPMU's executive council and the BPIF national board of management on November 17. Another announcement is expected after that meeting.

The union has threatened to withdraw from all its national agreements with printing employers if industry-wide bargaining is scrapped.

GB United Kingdom, EC P27 Printing and Publishing NEWS General News P27 The Financial Times London Page 12 142
Subcontractors' lobby formed Publication 931102FT Processed by FT 931102

AN UMBRELLA organisation has been established to represent the interests of specialist construction subcontractors, which perform the largest value of work done by builders.

The Constructors' Liaison Group will bring together trade organisations acting on behalf of plumbers, electricians, structural steel contractors and plasterers.

The move will meet demands from Mr Michael Heseltine, trade and industry secretary, who wants access to ministers and civil servants to be restricted to a smaller number of better resourced and more powerful trade organisations in each industrial sector.

The liaison group said that although specialist sub-contractors were often small businesses, together they accounted for more than 44 per cent of all staff and operatives in the construction industry.

The group wants to increase sub-contractors' representation on the Joint Contracts Tribunal, responsible for developing standard forms and conditions for the construction industry.

It will also seek improved arrangements with main contractors and clients to ensure that subcontractors and their suppliers are paid on time.

GB United Kingdom, EC P8711 Engineering Services P1799 Special Trade Contractors, NEC NEWS General News P8711 P1799 The Financial Times London Page 12 190
Ford cuts Escorts by up to Pounds 1,370 Publication 931102FT Processed by FT 931102 By KEVIN DONE

FORD, the leader of the UK new car market, has cut the prices of some of its Escort range by up to Pounds 1,370, Kevin Done writes.

Ford, which has been heavily criticised in recent weeks by the retail motor trade for 'forcing registrations' and 'distorting' the true state of the new car market, said it was 'moving away from dealer incentives towards more customer-focused incentives'.

The Escort was the best-selling car in the UK for the first nine months of the year on aggregate, but came under pressure in September when it fell to fourth place with the rival Vauxhall Astra coming second. Ford's market share fell to 18.8 per cent in September.

The company said yesterday that it was launching a 'One Price' programme for the Escort range, offering the saloon, hatchback or estate models at one maximum price in each of three specification levels.

The Escort LX range, for example, previously at Pounds 10,890 to Pounds 12,260, will now have a maximum list price of Pounds 10,890 regardless of body style or engine capacity.

Ford Motor GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies COSTS Service costs & Service prices P3711 The Financial Times London Page 12 219
Lively week for libraries Publication 931102FT Processed by FT 931102

TO MARK National Library Week, the British Library's reading room at the British Museum was opened to the public yesterday for the first time since it was built in 1857.

The library, founded in 1753, holds 10m books. They will soon transfer to the new British Library on Euston Road in north London, and the vacated room will be used for British Museum collections.

National Library Week, organised by the Library Association, a government-backed charity, involves events around the country. Dickens characters have abseiled on the front of Newcastle upon Tyne Central Library. Birmingham Central Library, the biggest public library in Europe, will open all night, with music and drama.

GB United Kingdom, EC P8231 Libraries TECH Services & Services use P8231 The Financial Times London Page 12 137
Midlands rail freight depot proposed Publication 931102FT Processed by FT 931102 By PAUL CHEESERIGHT, Midlands Correspondent

ABBCOTT Estates, a private property company half-owned by Severn Trent Water, yesterday asked Daventry District Council for planning permission to construct a rail freight terminal with 2.3m sq ft of associated manufacturing and distribution floorspace.

The move emphasises the growing importance as sites for distribution depots of Midlands open land or surplus industrial sites close to the M1, M6 and M42 motorways. It reflects the assumption that rail freight traffic will increase after the Channel tunnel opens next year.

The Abbcott scheme, covering 160 acres five miles south of the M1/M6 interchange, would cost Pounds 140m to complete, but the terminal could start operations after an investment of Pounds 35m on infrastructure.

The Daventry terminal could open in November 1995, depending on planning procedures. It is then likely to be in competition with the terminal at Landor Street, Birmingham, operated and recently expanded by Railfreight Distribution, a British Rail subsidiary.

Railfreight Distribution has been examining sites in the Midlands to secure long-term facilities after Landor Street reaches full capacity. It is awaiting the result of a public planning inquiry over a proposed terminal and business village at Hams Hall, east of Birmingham.

Abbcott Estates GB United Kingdom, EC P1542 Nonresidential Construction, NEC RES Facilities P1542 The Financial Times London Page 12 227
Unions receive strong endorsement from BA chairman Publication 931102FT Processed by FT 931102

UNIONS have received a strong endorsement from the Sir Colin Marshall, chairman of British Airways.

In the GMB general union's magazine, Sir Colin says unions help motivation and play a 'good role' at BA.

'British Airways is happy to work with the unions and there is no question of derecognising them,' he says. 'Unions play an important role in the company because they collectively represent the interests of the workforce.'

His comments were reinforced by Mrs Rhiannon Chapman, director of the Industrial Society. Writing in the society's newsletter, published today, she urges employers to resist the temptation afforded by legislation to de-recognise unions and to treat them instead as a 'valuable avenue' for solving problems.

She says it is easy to underestimate the value of a good, experienced union representative in 'oiling the wheels' and solving day-to-day problems.

GB United Kingdom, EC P8631 Labor Organizations NEWS General News P8631 The Financial Times London Page 12 167
Farming budget set for heavy cut Publication 931102FT Processed by FT 931102 By ALISON MAITLAND

NEXT YEAR'S agriculture budget is likely to suffer significant cuts as a result of the public spending round, with new measures for environmentally sensitive farming and support for hill farmers both under threat.

Most of the Ministry of Agriculture's Pounds 2.77bn budget for next year will go on Common Agricultural Policy spending and cannot be touched. But the Treasury is expected to examine the domestic part of the budget, due to reach Pounds 826m.

Conservationists and farmers are concerned that the start of the so-called agri-environment programme, announced only three months ago, may be put off for a year.

A delay would be embarrassing for Mrs Gillian Shephard, agriculture minister, who has committed herself to ensuring more widespread adoption of 'green' policies in farming.

The programme, costing Pounds 30m over three years, is part of the reform of the Common Agricultural Policy agreed by the European Community last year.

'This is a bad thing for two reasons,' said Ms Melinda Appleby, agriculture policy officer for the Royal Society for the Protection of Birds, which was closely consulted by the government on the package. 'The introduction of these schemes is the minimum the government need to do anyway, and there's a fear when schemes like these are put off that it weakens the confidence the farming industry will have in them.'

Hill farmers are worried about further sharp cuts in government support after a reduction of Pounds 20m last year. Payments, which amount to about Pounds 130m this year, go to 66,000 farmers in difficult upland areas, particularly in Scotland and Wales. But the farmers have seen their incomes soar this year by 40 per cent to 50 per cent on average as a result of increased support from Brussels, falling interest rates and the devaluation of the pound, which pushed up the Ecu-based prices they receive.

Mr Michael Jack, fisheries minister, yesterday said the government was planning changes to the new rules to restrict from January the number of days that fishermen can spend at sea. He said an announcement would be made after a High Court application, which began yesterday, by the National Federation of Fishermen's Organisations for a judicial review on the rules.

The federation rejected the changes. It said the government was suggesting only minor alterations and not abandoning the policy.

GB United Kingdom, EC P9641 Regulation of Agricultural Marketing NEWS General News P9641 The Financial Times London Page 11 417
Ex-MoD man 'acted properly' Publication 931102FT Processed by FT 931102

THE CASE against a former Ministry of Defence official accused of accepting 'backhanders' from overseas arms companies rests on innuendo, Snaresbrook Crown Court heard yesterday.

Mr Gordon Foxley, who led the MoD's ammunition procurement directorate, acted properly as he awarded contracts for mortar fuses, rockets and tracer rounds, said Mr Roy Amlot QC, defending.

He said the retired civil servant, who denies 12 charges of corruptly receiving commission totalling Pounds 1.5m, had never 'pushed' for the deals to be given to the companies said to have been paying him.

'If you are going to bribe someone in life, human nature being what it is, there must be a reason for doing so,' Mr Amlot said. 'You do it to undermine their integrity and loyalty and affect their position improperly.'

But in this case there was clear evidence that Mr Foxley had done nothing 'underhand, wrong or improper'.

On one occasion he had even recommended 'dual sourcing' to meet one of the orders so that a company that the prosecution said was one of his secret paymasters would not capture the market. 'What is the point of corrupting a man who is not doing your bidding?' asked Mr Amlot.

The prosecution's case 'reeked of speculation', and suffered from an 'astonishing' lack of witnesses. The only live evidence came from two MoD police officers.

The prosecution had sought to rely almost exclusively on documents. Nobody had been called from the ministry, or the companies which allegedly paid out money. There had been no evidence that Mr Foxley lived extravagantly.

The trial continues today.

GB United Kingdom, EC P9211 Courts NEWS General News P9211 The Financial Times London Page 11 286
US nuclear fuel move may threaten Dounreay plant Publication 931102FT Processed by FT 931102 By JAMES BUXTON, Scottish Correspondent

MOVES by the US government to persuade Belgium not to send spent nuclear fuel for reprocessing in Britain are causing alarm at the UK Atomic Energy Authority's plant at Dounreay in Caithness, which sees the US action as a serious threat to its reprocessing operation.

Dounreay has a contract worth about Pounds 3m with a Belgian research nuclear reactor to take 144 rods of spent fuel and reprocess them, separating uranium from other waste and returning it all to Belgium.

But the US Department of Energy is understood to have offered the Belgian authorities a highly advantageous price for taking the spent fuel and storing it in South Carolina. It is also believed to have offered to indemnify the Belgians against legal action from Dounreay for breach of contract.

In order to allow the speedy import of the spent fuel into the US, the US Energy Department has waived the rule requiring an environmental impact study to be carried out before it can be imported.

The Dounreay plant, where the experimental fast-breeder reactor is due to close next year, is concerned that the US could make similar moves with other consignments of spent nuclear fuel in Europe, wiping out Dounreay's reprocessing business.

It hopes to win a contract to reprocess a further 500 rods from Belgium, giving it a total of Pounds 15m-worth of business. It now fears it might have to close the reprocessing plant with the loss of 40 jobs.

The Clinton administration opposes reprocessing because it increases the stock of weapons-grade uranium.

The Studiekentrum voor Kernenergie, which operates the BR2 reactor at Moll in Belgium, is close to deciding whether to accept the US offer, which is understood to involve a price of about Dollars 4,000 (Pounds 2,700) per rod compared with the Dollars 20,000 cost of reprocessing it.

AEA Technology GB United Kingdom, EC P2819 Industrial Inorganic Chemicals, NEC P2869 Industrial Organic Chemicals, NEC MKTS Contracts COMP Company News P2819 P2869 The Financial Times London Page 11 350
Lamont hits at 'fantasy' of EC union Publication 931102FT Processed by FT 931102 By PHILIP STEPHENS, Political Editor

MR NORMAN LAMONT, the former chancellor, warned yesterday that Britain was in danger of being drawn into a new 'bout of fantasy' by its European Community partners as the new European Union received a low-key reception at Westminster.

As Mr John Major told MPs that last week's EC summit had confirmed a new spirit of 'realism', Mr Lamont attacked the decision to press ahead with the creation in January of the European Monetary Institute.

Confirming his position as one of the leading sceptics on the backbenches, the former chancellor said the timetable for economic and monetary union drawn up in the Maastricht treaty had been shown to be totally unrealistic.

But by giving its consent to the establishment of the European Monetary Institute in Frankfurt, the government was 'in danger of being drawn into a further bout of fantasy by the European Community from which we will find it difficult to extricate ourselves'.

Acknowledging the timetable for economic and monetary union as unrealistic, Mr Major insisted nevertheless that Britain's agenda for the Community was now centre-stage.

Every leader had agreed that the highest priority was to 'restore sustainable non-inflationary growth and increase employment'.

Mr Major, who made no explicit reference in his prepared remarks to the establishment of Maastricht's three-pillared union, said that he also expected concrete proposals next month from the European Commission to give force to the principle of subsidiarity, or decentralisation of decision-making.

Brussels officials said the Commission would consider tomorrow a radical list of Community directives that might be repealed under the subsidiarity provision. But Britain's claim to authorship of the principle drew a laconic response. During the negotiations that preceded Maastricht, Mr Major had originally opposed German suggestions that subsidiarity be incorporated in the treaty, the officials said.

Britain's fears that its planned white paper on growth, competitiveness and employment might be used by the Commission as an excuse to propose rises in spending were partially allayed.

A draft of the paper does suggest a significant expansion of trans-European networks to give force to the single market. But it concentrates on a range of measures - many of them tax changes - through which governments could make their economies more 'employment-friendly'.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 11 403
Unionist party welcomes peace moves Publication 931102FT Processed by FT 931102 By TIM COONE and DAVID OWEN

MEMBERS of the Ulster Unionist party yesterday welcomed the announcement that the British government would put forward its own proposals for bringing about a lasting peace in Northern Ireland.

But they poured cold water on the notion that round-table talks were the right format for discussing the proposals. The UUP's preferred structure would be bilateral meetings between the UK government and the province's constitutional parties.

Mr Ken Maginnis, UUP deputy leader and security spokesman, said the party would not sit with Mr John Hume, the leader of the Social Democratic and Labour party, as long as the latter continued his talks with Mr Gerry Adams, the Sinn Fein leader.

Mr Maginnis called on Downing Street to take a firmer line on terrorism if it expected to get unionists back to the negotiating table.

In the wake of one of the worst weeks of sectarian violence in Northern Ireland for two decades, 'the greatest danger now is in doing nothing about terrorism, not doing nothing about talks', he said.

Speaking from Peru, where he is official UK observer to the constitutional referendum, Mr Maginnis warned Mr John Major not to be 'panicked into new political measures'.

He rejected the Dublin government's six-point plan, announced by Mr Dick Spring, the Irish foreign minister, last week, as a basis for resuming negotiations.

'The Irish government will try to seize the initiative, and if we move forward solely on the basis of the Spring principles, this opens the door to all sorts of interpretations and which will only increase the level of violence,' he said.

A long-time advocate of selective internment of key paramilitary cadres, he said that if internment measures were taken to 'disrupt the command and control structures of the paramilitary organisations, the government would get a very positive response from unionists'.

Mr Ian Paisley, leader of the Democratic Unionist party, made no direct reference to the possible resumption of round-table talks in Commons remarks that were interpreted as surprisingly conciliatory. But he said many in Ulster were 'alarmed' by some of the Spring plan's contents.

Mr John Taylor, UUP Europe spokesman, welcomed Downing Street's intention to bring forward its own proposals but described round-table talks as 'a mistaken formula'.

Pressure for such talks to resume was 'misplaced', Mr Taylor argued, calling for new British proposals to be discussed instead in bilateral meetings between Downing Street and the province's constitutional parties.

Mr William Ross, UUP chief whip, said the time for talks was past and action was now needed. He joined Mr Maginnis in calling for the government to give 'careful consideration' to selective internment. The aim should be to 'behead' terrorist organisations of their command and control centres, he said. Enough of the terrorist 'godfathers' were identifiable to make a difference.

Sir James Kilfedder, the Ulster Popular Unionist MP, said it would be 'sensible and desirable' for talks between the province's constitutional parties to resume as soon as possible. He also called for unequivocal support for the security forces.

Mr James Molyneaux, the UUP leader, has so far refrained from commenting in public on the increased pressure on his party to join round-table talks. According to his office he will not do so until Wednesday at the earliest. The party's nine Westminster MPs plan to hold their weekly meeting on Thursday as usual.

In Dublin, the foreign ministry expressed disappointment at the unionist reaction to its proposals, but said: 'We must wait for Mr Molyneaux to respond.'

GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 11 609
Think-tank attacks utility regulators' power Publication 931102FT Processed by FT 931102 By DAVID LASCELLES, Resources Editor

THE regulators of privatised utilities are too powerful and should be made more accountable, says a report from the Adam Smith Institute, the free-market think-tank.

The institute says their style of regulation is confused, secretive and ruled by personality cults. One of the worst features is that regulators take advantage of the absence of a require-ment to justify their decisions, in order to avoid court challenges of weak arguments.

This leaves utilities in the dark about the regulator's thinking and the direction of policy. Serious mistakes are made, imposing heavy costs on the utilities and their customers. The power of the regulators could also be used by an incoming government in effect to renationalise the utilities.

The report calls for a radical rethink of the 10-year-old regulatory system for gas, water, electricity, telephones and airports. These utilities should be subjected to greater competition and the role of the regulators scaled back accordingly, while being made more accountable to parliament.

But Who Will Regulate the Regulators? Adam Smith Institute, 23 Great Smith Street, London SW1P 3BL. Pounds 25.

GB United Kingdom, EC P9631 Regulation, Administration of Utilities NEWS General News P9631 The Financial Times London Page 11 211
Forth road bridge scheme attacked Publication 931102FT Processed by FT 931102 By JAMES BUXTON, Scottish Correspondent

THE GOVERNMENT'S conser-vation body in Scotland yesterday urged the Scottish Office to consider alternative options to building a second Forth road bridge.

Scottish Natural Heritage said that a second road bridge could have serious effects on the 'natural heritage'.

The Scottish Office is expected to announce early next year whether it wants to go ahead with the bridge.

However the office it has already invited construction companies to register interest in building a privately funded bridge, and says it believes a second bridge will be needed in the next century.

Scottish Natural Heritage said moves to build a second bridge reflected a policy of accommodating projected growth in road traffic rather than exploring alternatives under an integrated transport policy. It said a new bridge would increase dependence on cars and boost emissions of carbon dioxide.

It said only a comprehensive review which included the option of not building a second bridge and looked at transport, economic activity, settlement patterns and environmental quality would provide an adequate context for a decision on the Forth crossing.

The heritage body was set up by the government last year to administer nature conservation in Scotland.

Its shot across the government's bows over the bridge came on the day of the formation of an alliance of environmental and transport groups which condemned plans for a new bridge.

ForthRight proposed higher tolls on the existing bridge, more money for public transport in the Edinburgh and south Fife areas, and road improvements both north and south of the Forth.

GB United Kingdom, EC P1622 Bridge, Tunnel and Elevated Highway P9621 Regulation, Administration of Transportation RES Facilities P1622 P9621 The Financial Times London Page 10 292
House prices are up on year, says society Publication 931102FT Processed by FT 931102 By ANDREW TAYLOR, Construction Correspondent

HOUSE PRICES have recorded an annual increase for the first time since Nationwide started its house price index in 1990.

The building society said yesterday that an average house price of Pounds 53,932 during October was 1.7 per cent higher than in the corresponding month last year.

Nationwide said the comparisons had been distorted partially by large price falls which occurred last autumn when sterling left the European exchange rate mechanism.

Nationwide is the second building society to announce that prices have begun to rise year-on-year.

Halifax, Britain's biggest building society, reported a 1 per cent rise in the 12 months to the end of September, the first annual increase since January 1991. Halifax is due to publish its October house price figures tomorrow.

Despite the improvement, the industry says the housing recovery remains fragile.

Mr Brian Davis, Nationwide's operations manager, said yesterday: 'Although conditions for a more substantial recovery in activity are in place, the market remains muted to some extent, perhaps because of uncertainty ahead of the Budget.

'Our estate agents report that in many areas there is a shortage of good-quality, reasonably priced property available as potential sellers delay putting their houses on the market. Even so, the market is less volatile than it was a year ago.'

Nationwide said prices had risen by 1.5 per cent between September and October, an increase of Pounds 783 in the average price.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COSTS Product costs & Product prices P6552 The Financial Times London Page 10 274
Submissions for Channel 5 grow Publication 931102FT Processed by FT 931102 By RAYMOND SNODDY

THE Independent Television Commission has received 131 expressions of interest in future options for a new Channel 5 in the UK.

The number compares with the 30 submissions sent in three years ago when the ITC was first thinking of advertising a new national television channel. In the end the ITC turned down the only resulting bid from a consortium led by Thames Television, mainly on the grounds of insufficient investor commitment. Under the 1990 Broadcasting Act the commission is obliged 'to do all it can' to get such a channel off the ground.

Seventy-six of the most recent submissions dealt with the three main options for Channel 5 - re-advertisement of the original licence, using the frequencies for digital broadcasting and a more local city-based service that would require new legislation.

The total included 24 submissions from community groups interested in more local broadcasting in Scotland. The further 55 submissions were in response to an earlier ITC consultation documention the future of digital television.

The ITC declined to break down the Channel 5 submissions into support for the three options. 'We do not want to give any more information without context,' it said.

Those who have expressed an interest in a re-advertised Channel 5 include Lord Hollick's Meridian Television, Thames Television (part of the Pearson group, which owns the Financial Times), FiveTV and Time Warner. Associated Newspapers, publisher of the Daily Mail and the Evening Standard, is believed to have won a contract for the first London-wide cable television channel.

The channel will be carried on the London-interconnect system, which links the main cable television franchises of London. The linking of the franchises of six major cable television operators makes such a channel viable for the first time.

Associated Newspapers GB United Kingdom, EC P4841 Cable and Other Pay Television Services P4833 Television Broadcasting Stations MKTS Contracts TECH Patents & Licences P4841 P4833 The Financial Times London Page 10 334
Legal right to interest on late debts is urged Publication 931102FT Processed by FT 931102 By RICHARD GOURLAY

INDUSTRIALISTS, business people, bankers and opposition politicians yesterday joined a campaign for legislation to give suppliers the right to receive interest on overdue trade debts.

Launching a 1,200-strong register of supporters, the Forum of Private Business called for legislation to 'give businesses the money that is theirs'.

Supporters of the Prompt Payment Register include Sir Richard Greenbury, chairman of Marks and Spencer; Lord Alexander, chairman of NatWest Bank; and Midland Bank as well as opposition MPs.

The Department of Trade and Industry said it had not ruled out legislation to tackle the problem of late payment, but it was concerned that legislation had not been shown conclusively to work. For example, measures in some Continental countries had 'not improved things very much'.

Mr Robin Cook, shadow trade and industry secretary, said the government had spent 15 years studying the issue since the Law Commission first called for legislation, and should now act.

Lord Ezra, Liberal Democrat spokesman and former chairman of the National Coal Board, said the UK should enjoy the kind of legislation most continental European countries already had in place.

Mr Stan Mendham, founder of the Forum of Private Business, said 89 per cent of small and medium-sized companies in the UK were paid late. On average, these businesses were paid 81 days after the invoice, or 51 days after the average due date.

Dun and Bradstreet, the business information company which is also a supporter of the register, says UK companies have to wait on average 20 days longer after the due date than their counterparts in France, the next-worst payers in Europe.

Writing in the Financial Times in September, Lord Alexander said more than Pounds 15bn of trade debts to small and medium sized businesses were overdue at any one time. 'Too many businesses consider it acceptable, and some even consider it astute practice, not to pay their bills on time,' he wrote.

By setting up a national register, the Forum of Private Business hopes to demonstrate that pressure for legislation has wide support from businesses and their pressure groups.

The forum wants the government to focus on late payment, the main problem facing small businesses, rather than the issue of non-payment or disputes.

Mr Mendham said a central element of legislation should be provision for statutory rights to interest payments after the agreed due date. These should be collected after the principal had been paid, and should be collectable up to six years after the interest liability was first incurred.

Mr Steve Hill, insolvency partner of Coopers & Lybrand, the accountancy firm, called late payment 'the Aids virus of the commercial community' and 'economic madness'.

Marks and Spencer said it had found that paying promptly led to better service from its suppliers.

GB United Kingdom, EC P6231 Security and Commodity Exchanges P6021 National Commercial Banks P8651 Political Organizations NEWS General News P6231 P6021 P8651 The Financial Times London Page 10 502
Top civil servants seek new ethics code Publication 931102FT Processed by FT 931102 By JIMMY BURNS

CIVIL SERVANTS are to press Lord Justice Scott to consider proposals for a new code of ethics for Whitehall in the light of evidence emerging in the arms-for-Iraq inquiry.

The Association of First Division Civil Servants, which represents middle and high-ranking civil servants, is submitting a report to the judge underlining the need for greater 'clarity and openness' in the relationship between officials and ministers.

Ms Elizabeth Symons, the union's general secretary, said last night that the submission had been prepared at the request of 'a lot of our members' who were concerned about issues of accountability and responsibility that have emerged in the Scott inquiry.

Yesterday Mr Alan Barrett, a senior Ministry of Defence official, told the inquiry that he had no choice but to go along with a decision by ministers not to announce to parliament a relaxation to the curbs on arms sales to Iraq.

'We may have been playing with words, but once ministers had decided what we were going to publish or not publish we had no choice,' he said.

Other Whitehall officials have told how they prepared advice for their ministers which glossed over the extent to which the export of dual-use equipment contravened declared policy.

A wide-ranging inquiry into the role of the civil service is to be published early next year by the Commons Treasury and civil service committee.

It is hoped that the judge will focus on the role of policymakers in Whitehall and on the responsibility of ministers to parliament.

The association has advanced the case for a code of ethics which would in effect supersede the notes of guidance, drawn up in 1985 by Sir Robert Armstrong, then head of the civil service. The notes state that civil servants owe their first duty to the government. The association, however, argues that its members have a wider duty towards the democratic system.

Yesterday Mr Barrett said MoD officials had been forced on the defensive regarding policy towards Iraq in the face of the opposition to the government guidelines pursued by Mr Alan Clark, defence minister from 1989 to last year.

The hearing continues today.

GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 10 386
Decline reported in export losses Publication 931102FT Processed by FT 931102 By DAVID DODWELL, World Trade Editor

NCM, Britain's leading export credit insurer, yesterday said it had detected tentative signs of economic recovery in continental Europe.

In its latest report on the export outlook it says fewer exporters are suffering losses because of non-payment, and payment delays have become less severe.

The quarterly study by Cardiff-based NCM Credit Insurance shows that non-payment problems eased in 11 of the 12 EC markets in the year to end-September compared with the year to end-June. The exception was Luxembourg, which is not a significant export market for the UK.

Payment delays increased by 12 per cent in the year to September, but this marks a significant improvement from the picture three months earlier, in which NCM reported a worsening of 52 per cent year-on-year.

'Our findings suggest that in some parts of continental Europe the recession may have bottomed out,' said Mrs Connie Randall, NCM's director for business strategy and reinsurance.

She nevertheless warned that bankruptcies were expected to be high in Germany and business conditions uncertain in Belgium, France and Greece. 'In the short run, the outlook for UK exports to Europe remains bleak,' she said.

NCM, which provided insurance cover for Pounds 14bn of UK exports last year, accounting for 80 per cent of the market, reported a dramatic deterioration in payment delays in Italy - 72 per cent up in the year to end-September. In Spain and France delays were reduced by 10 per cent and 18 per cent respectively. Whereas one in five exporters to France experienced payment defaults in the year to end-June, just one in 11 reported defaults in the year to end-September.

GB United Kingdom, EC LU Luxembourg, EC BE Belgium, EC FR France, EC ES Spain, EC FR France, EC IT Italy, EC P9311 Finance, Taxation, and Monetary Policy MKTS Foreign trade P9311 The Financial Times London Page 10 323
Grocery prices 'down 11%' Publication 931102FT Processed by FT 931102

THE average price of a basket of 40 common grocery items has fallen by 11 per cent in the past year, the latest quarterly pricing survey by Verdict, the retail consultancy, has found.

GB United Kingdom, EC P20 Food and Kindred Products COSTS Product costs & Product prices P20 The Financial Times London Page 10 64
Purchaser sought for Belfast airport Publication 931102FT Processed by FT 931102

THE GOVERNMENT yesterday issued invitations to 'pre-qualify' to potential purchasers of Belfast International Airport. Applications must be submitted by December 1 to Touche Ross, the accountancy firm acting for the government.

In its last full year, the airport had a turnover of Pounds 23m with after-tax profits of Pounds 2.5m.

Belfast International Airport GB United Kingdom, EC P4581 Airports, Flying Fields, and Services COMP Company News P4581 The Financial Times London Page 10 84
Partnership for Midland Metro Publication 931102FT Processed by FT 931102

JOHN LAING, the construction group, is joining Ansaldo Trasporti, the Italian transport equipment and systems group, to build and operate Midland Metro, the proposed Pounds 100m light rail system to run between Birmingham and Wolverhampton.

Ansaldo and Laing are paying Centro, the operating arm of the West Midlands Passenger Transport Authority, Pounds 10m for the right to operate the line for 20 years.

John Laing Ansaldo Trasporti Centro GB United Kingdom, EC IT Italy, EC P1629 Heavy Construction, NEC P4111 Local and Suburban Transit COMP Strategic links & Joint venture MKTS Contracts P1629 P4111 The Financial Times London Page 10 110
Growth expected in coal exports Publication 931102FT Processed by FT 931102

BRITISH COAL is asking for a government subsidy after securing an order to export 50,000 tonnes to Stadtwerke Bremen in west Germany. It expects to export 1m tonnes this year against 600,000 tonnes last year.

The corporation has also concluded an agreement with the National Health Service to supply about 200,000 tonnes to 76 hospitals.

British Coal Corp DE Germany, EC P1221 Bituminous Coal and Lignite-Surface P1222 Bituminous Coal-Underground MKTS Contracts P1221 P1222 The Financial Times London Page 10 90
New powers for child agency Publication 931102FT Processed by FT 931102

SINGLE MOTHERS struggling to bring up children on benefit may be able to jump a three-year queue for maintenance assessments, the government announced yesterday.

The controversial Child Support Agency, set up in April, has been given new powers to deal with urgent cases.

The announcement from Mr Alistair Burt, social security minister, received a lukewarm welcome from pressure groups. They said the reforms of the agency - responsible for the assessment, collection and enforcement of maintenance payments from fathers - had not addressed fundamental flaws.

The Commons social security committee is to examine claims that the agency concentrates on fathers who already pay towards the upkeep of their families, rather than chasing runaway fathers.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 10 145
Goodison backs financial regulator Publication 931102FT Processed by FT 931102

SIR NICHOLAS GOODISON, president of the British Bankers' Association and TSB group chairman, yesterday supported the establishment of the Personal Investment Authority, the proposed self-regulating body for retail financial services.

Sir Nicholas argued that improvements in regulation need not await the possibility of new legislation to revise the Financial Services Act.

He also renewed his call for the Bank of England to lose its responsibility for consumer protection and to acquire responsibility for the capital adequacy of non-banking institutions.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors NEWS General News P9651 The Financial Times London Page 10 108
US court rejects Names' appeal Publication 931102FT Processed by FT 931102

A GROUP of US Names, the individuals whose assets support the Lloyd's insurance market - yesterday failed in their attempts to have a case against the insurance market's authorities heard in the US.

The US Supreme Court yesterday refused to hear an appeal by a group of more than 100 Names who alleged that Lloyd's had breached US securities laws.

The group of US names had claimed that the market's authorities, along with some syndicates and brokers, had breached US securities law by failing to disclose liabilities on pollution and catastrophe-related policies.

The court said agreements signed by the Names required them to pursue their case in the UK.

Lloyd's of London US United States of America P6411 Insurance Agents, Brokers, and Service COMP Company News P6411 The Financial Times London Page 10 144
The secret art of disguising tax rises: Emma Tucker explains what fiscal tricks Kenneth Clarke may have up his sleeve Publication 931102FT Processed by FT 931102 By EMMA TUCKER

THERE IS an art to disguising tax increases which the UK government has started to refine. Tax increases announced in the March Budget amounted to the equivalent of an extra 7p on the basic rate of income tax, a fact which escaped the notice of most taxpayers.

So whatever else happens on November 30, an increase in the basic rate from 25p to 26p or more should be ruled out. But that does not mean Mr Kenneth Clarke, the chancellor, cannot raise revenue through higher income tax.

One option, potentially lucrative and harder to interpret than a rise in the basic rate, is to alter the present system of personal tax allowances.

All taxpayers currently receive a certain part of their income tax-free. For single taxpayers below the pension age, that personal allowance is Pounds 3,445 a year.

The value of the tax relief that this provides is determined by the taxpayers' marginal tax rates. So those paying tax at the rate of 40 per cent receive relief worth Pounds 1,378 - 40 per cent of Pounds 3,445. Bottom rate taxpayers get only 20 per cent, or Pounds 689.

The Institute for Fiscal Studies has calculated that restricting the personal allowance to the lowest 20 per cent rate for all taxpayers would generate revenue of more than Pounds 5bn a year.

Such a move would lead, in effect, to all individual tax bills being calculated as if the allowance did not exist. The bills would then be reduced by Pounds 689 - 20 per cent of Pounds 3,445.

People who pay only the bottom rate of tax would thus be no worse off. High earners would be hit hardest as the threshold at which the top rate of tax starts to be paid would be reduced. The 40 per cent band now cuts in at Pounds 27,145 (after the tax-free Pounds 3,445, the next Pounds 2,500 is taxed at 20 per cent and the next Pounds 21,200 at 25 per cent). With the allowance restricted to 20 per cent, the top rate of tax would be paid on any income over Pounds 23,700. But as the institute points out: 'A reform of this sort would represent a very hefty increase in taxation, especially if it were to be imposed on top of the tax increases already announced.'

To soften the blow, Mr Clarke could spend some of the revenue raised on widening the 20 per cent income tax band, due to be widened to Pounds 3,000 in April next year. The institute reckons that half the revenue raised through restricting allowances to 20 per cent would be enough to widen the 20 per cent tax band to about Pounds 5,250.

Such a move would look good coming from an administration that insists it is still aiming for a 20p in the pound basic rate of income tax. Even after doing this, the package would raise more than Pounds 2.5bn.

'If restricting the value of allowances were to be presented as part of a move towards a 20 per cent standard rate of income tax, then widening the 20 per cent band would add credibility to this claim and would also reduce some of the cash losses,' the institute said.

More adventurous, and politically easier to sell, would be to 'give back' some of the Pounds 5.7bn raised by restricting allowances in the form of a basic rate tax cut.

According to the institute, a cut in the basic rate to 24 per cent from 25 per cent would reduce the additional revenue earned from the restricted personal allowance scheme to about Pounds 3bn. A more drastic cut - to 23 per cent - would leave only about Pounds 400m net additional revenue.

Whichever way the chancellor chooses to play it, both packages would generate more revenue than the unpopular decision, announced in the March Budget, to levy value added tax on domestic fuel, which next financial year will raise a paltry Pounds 950m. Restricting allowances would also be less regressive.

The government is unlikely to go as far as restricting the personal allowance to 20 per cent in this Budget, even with the sweeteners. On top of the measures announced in March, it would eat heavily into the pay packets of top-rate taxpayers. A simpler and more palatable option is to freeze the value of the personal allowance rather than increasing it in line with inflation. When this happens taxpayers do not see the amount they take home at the end of the month decrease even though, in real terms, they are worse off.

According to the institute, freezing allowances, coupled with freezing the point at which higher-rate tax starts to become payable, would raise an extra Pounds 670m a year.

'With low inflation this is a relatively inconspicuous and painless way of raising income for tax,' the institute says.

Tinkering with tax allowances thus offers the government a potentially lucrative source of revenue. It also has the advantage of being harder to grasp than a straightforward rise in the basic rate.

As Mr Chris Giles of the institute puts it: 'You would notice the bottom right hand corner of your pay package go down, but generally you wouldn't understand why.'

--------------------------------------------------------------------- INCOME TAX READY RECKONER --------------------------------------------------------------------- Measure Estimated annual yield --------------------------------------------------------------------- Restrict personal allowances to 20% Pounds 5.7bn --------------------------------------------------------------------- Restrict allowances to 20%, widen 20% band to Pounds 5,250 Pounds 2.8bn --------------------------------------------------------------------- Restrict personal allowances to 20% and cut basic rate to 24% Pounds 3bn --------------------------------------------------------------------- Restrict personal allowances to 20% and cut basic rate to 23% Pounds 400m --------------------------------------------------------------------- Freeze personal allowances and basic rate limit Pounds 670m --------------------------------------------------------------------- Restrict personal allowances to 25% Pounds 1.2bn-Pounds 1.4bn ---------------------------------------------------------------------

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 10 999
Ceiling on bias payouts to end Publication 931102FT Processed by FT 931102 By RICHARD DONKIN

THE GOVERNMENT is to abolish the Pounds 11,000 compensation ceiling in race and sex discrimination cases, Richard Donkin writes.

The decision was forced on the government by the European Court of Justice, which ruled in August that Britain's statutory ceiling was unlawful. The government has gone further than the EC law required and decided also to abolish the limits for racial discrimination, and for religious discrimination in Northern Ireland.

Mr David Hunt, employment secretary, said he hoped that regulations to abolish the compensation ceiling for sex discrimination would come into force later this month. Amending the penalties for other forms of discrimination will take longer, since it requires primary legislation.

The move prompted speculation that the government may have to concede at some stage that the Pounds 11,000 limit on Industrial Tribunal cases of unfair dismissal is no longer tenable.

Mr David Pannick QC, who has been examining the implications of the European Court ruling, said there was nothing in EC law that barred an upper limit for unfair dismissal claims. He added: 'There is a strong arguement that no rational distinction can be drawn between unfair treatment of one sort and unfair treatment of another.'

GB United Kingdom, EC P9211 Courts NEWS General News P9211 The Financial Times London Page 10 226
Joint bids for rail franchises allowed Publication 931102FT Processed by FT 931102 By ROLAND RUDD

THE GOVERNMENT is to allow British Rail management buy-outs to bid for franchises in co-operation with private sector companies, Mr Roger Freeman, transport minister, announced yesterday.

He said priority would be given to bids where railway employees had a substantial interest. 'We are talking about the management and staff of BR, either alone or in conjunction with other private sector companies, joining to bid for franchises.'

Some of the proposed franchises cover large parts of the BR network. Some critics of the railways bill, which returned to the Commons yesterday after its passage through the House of Lords, believe buy-out teams will only be interested in bidding for smaller rail franchises.

The government also plans to bolster buy-outs by weakening a Lords' amendment to the bill which seeks to allow BR itself to bid for franchises.

The government's change would require the franchise director to veto a BR bid if there was a 'credible alternative'.

Mr Freeman believes subsidies would make loss-making Regional Railways and Network SouthEast attractive to bidders. Almost half their operating costs would be met by the government over seven years.

The government has now said bidders could be awarded franchises that last as long as 15 years, more than twice the length previously expected. This may attract more private bidders.

However, it emerged yesterday that British Rail's advisers fear the Treasury may not allow the Department of Transport to transfer subsidies over the long term to franchises running loss-making services.

The government yesterday denied that short-term franchises would make it difficult for bidders to finance operations.

Ministers believe franchises would not need large amounts of working capital because they would have revenues from operations or a government subsidy if the ventures were loss making.

Mr Nick Harvey, Liberal Democrat transport spokesman, said 'virtually nobody' was showing any interest in bidding for franchises.

British Rail GB United Kingdom, EC P4011 Railroads, Line-Haul Operating P4111 Local and Suburban Transit COMP Company News COMP Buy-in & Buy-out P4011 P4111 The Financial Times London Page 10 351
World Trade News: Lloyd's to study Bosporus safety Publication 931102FT Processed by FT 931102 By JOHN MURRAY BROWN

LLOYD'S Register of London has been commissioned by a group of western oil companies to study shipping safety in the Bosporus.

Lloyd's confirmed it had been commissioned by unnamed US oil concerns to present findings on environmental and navigational safety by mid-December as western oil companies expanding in Azerbaijan and Kazakhstan seek Turkish government support for an early decision on the export route. The latest move is apparently aimed at assuaging Turkish concern at the dangers posed by the projected increase in tanker traffic.

Separately, a study by Murray & Fenton of London commissioned by the Turkish-led pipeline consortium concluded that limited increases in tanker traffic could be accommodated with a new radar system.

The Turkish Transport Ministry has an outstanding tender for a computerised system, for which Marconi of the UK and Thompson CSF of France have made proposals.

Murray and Fenton AZ Azerbaijan, East Europe TR Turkey, Middle East KZ Kazakhstan, East Europe P4499 Water Transportation Services, NEC NEWS General News P4499 The Financial Times London Page 8 188
World Trade News: US warns of action to defend rights of airlines Publication 931102FT Processed by FT 931102 By RICHARD TOMKINS DALLAS

MR Federico Pena, the US transportation secretary, yesterday delivered a strongly worded threat that the US would 'vigorously defend' US airlines against foreign competitors whose governments discriminated against US carriers.

He said the US would take action 'through all available means' against airlines whose governments failed to honour the rights of US airlines under bilateral agreements. 'We reserve the timing and force of our actions to our own judgment,' he said.

'No one should underestimate our resolve in this regard.'

Mr Pena, addressing the world's airline industry at the annual meeting of the International Air Transport Association, said the strong defence of existing bilateral agreements was part of the US strategy of moving towards full airline liberalisation.

Protectionism, he said, imposed 'huge' costs on the travellers and businesses in the very countries that attempted it.

By protecting inefficient carriers instead of prodding them to adjust, governments harmed every other sector of their own economies and constrained the entire world economy.

Mr Pena singled out for attack the efforts of 'a group of airlines in the east Asian markets' to curb the access of US carriers to the world's fastest growing aviation market, accusing their governments of 'playing with fire'.

'The US is weary of running chronic, multi-billion-dollar trade deficits with nations whose governments lecture Americans on the need to produce more efficient, more desirable products,' he said.

'Let me be direct: US air carriers are providing exactly the sort of highly efficient, competitive services that Asian customers will buy - if only their governments would let them.'

Mr Pena said the US planned to explore the formation of a global coalition of like-minded, free-market-oriented nations that recognised the benefits to citizens and national economies of expanded air travel.

US United States of America P4512 Air Transportation, Scheduled MKTS Market shares P4512 The Financial Times London Page 8 328
World Trade News: Speed up talks, says Gatt director Publication 931102FT Processed by FT 931102 By FRANCES WILLIAMS GENEVA

MR Peter Sutherland, director-general of the General Agreement on Tariffs and Trade, yesterday urged the 116 nations taking part in the Uruguay Round of trade liberalising talks 'to speed up progress in the negotiations' in order to conclude the round by the agreed deadline of December 15.

Pointing out that there were only 45 days left, he told the top-level trade negotiations committee that he believed it was 'still within our grasp'. However, he warned against leaving too many unresolved issues on the table for the final phase of the negotiations.

Talks on improving access to markets for farm and industrial goods have made slower progress than hoped.

Mr Sutherland said there had been some positive moves over the past month but criticised the 'lamentable failure' of the Quad nations - the US, the European Community, Japan and Canada - to nail down the details of the tariff-cutting package agreed in principle in Tokyo last July.

He said the Quad, especially the US and EC, had a particular responsibility to provide leadership in the market access negotiations.

'Mutual recrimination is neither useful nor helpful,' he added.

Trade officials present at the meeting said a number of delegations had also lambasted the US for creating other difficulties in the negotiations.

They were particularly critical of Washington's intention to take a blanket exemption for taxation under the proposed services accord, which would allow it to discriminate against foreign companies in tax matters in breach of fundamental Gatt principles.

The US also came under fire over financial services, where it plans to bar Japan and developing countries from improved market access to its banking and insurance markets, and over its opposition to a strong Multilateral Trade Organisation to succeed Gatt.

Under the present negotiating schedule, the hope is still to have 'a well-defined approximation of the content, size and final shape of the overall market access package by November 15', alongside revised texts on the MTO and disputes settlement.

CH Switzerland, West Europe P9721 International Affairs NEWS General News P9721 The Financial Times London Page 8 361
World Trade News: Azerbaijan in Caspian Sea oilfields deal Publication 931102FT Processed by FT 931102 By JOHN MURRAY BROWN ISTANBUL

AZERBAIJAN has agreed terms with a consortium of western oil companies to develop oilfields in the Caspian Sea, in a contract worth more than Dollars 7bn (Pounds 4.6bn).

An official for the consortium, led by British Petroleum, Statoil of Norway and the US companies Unocal, Pennzoil and Amoco, confirmed yesterday that an agreement in principle had been signed in Baku to develop the Azeri and Chirag fields.

The agreement was initialled by the team set up by the Azeri authorities and the consortium members. It still has to be ratified by the Azeri parliament and approved by the government, but it would appear to end months of deadlock as the Azeri government of Mr Gaidar Aliyev sought to renegotiate the contract terms. It is understood the consortium will split the proceeds with the Azeri authorities on a 20:80 production-sharing basis, after development and loan costs have been deducted. The larger share would go to the Azeris.

The consortium is to pay the Azeris a signature bonus of Dollars 500m, half paid when the agreement is ratified by parliament, the rest when an export pipeline deal is finalised.

The two fields, which are expected to be in production by 1996, comprise about 3bn barrels of known reserves.

The original negotiations included a third field at Gunashli, which is already in production and operated by Socar, the state oil company. Gunashli accounts for close to a third of Azerbaijan's current total output.

The latest deal will spur negotiations about a possible export route for the oil. Turkey is urging Baku to use a proposed pipeline to its Mediterranean coast, avoiding congestion in the Bosporus if the Black Sea route is chosen.

British Petroleum Statoil Unocal Corp Pennzoil Co Inc Amoco Corp AZ Azerbaijan, East Europe P1311 Crude Petroleum and Natural Gas MKTS Contracts RES Natural resources P1311 The Financial Times London Page 8 331
World Trade News: Germany wins Russian steel plant contract Publication 931102FT Processed by FT 931102 By QUENTIN PEEL BONN

A GERMAN consortium headed by the big plant contractor SMS Schloemann-Siemag has won the contract for a DM1bn (Pounds 406.5m) steel plant at Magnitogorsk, in the heart of Russia's Urals steel industry.

The cold reduction mill will have a capacity of about 2m tonnes of sheet metal a year, and will come into production at the beginning of 1997, according to an announcement from SMS company head-quarters in Dusseldorf yesterday.

The 10-member consortium includes Siemens, the engineering conglomerate, Hochtief, the Essen construction company, and MAN Gutehoffnungshutte, as well as Magnitostroy, the construction company in Magnitogorsk.

The contract is worth DM300m to SMS, which has just announced a 54 per cent drop in profits for 1992/93, to DM39m on a turnover of DM1.968bn, because of the worldwide slowdown in investment plans, especially in the steel industry.

The company is involved in three other big projects in Russia, including another cold reduction mill (with Siemens) at Novo-Lipetsk, the modernisation of a hot rolling mill at Novo-Lipetsk, and the modernisation of an aluminium plant at Samara.

A spokesman said yesterday that the contract was on a cash basis, and would be financed by revenues from steel exports of the Magnitogorsk Metallurgical Kombinat (MMK).

It does not have any export credit guarantees from Hermes, the German export credit agency.

With production capacity of 16m tonnes and a workforce of 65,000 people, MMK is one of Russia's biggest steel makers.

SMS Schloemann-Siemag RU Russia, East Europe P1541 Industrial Buildings and Warehouses MKTS Contracts P1541 The Financial Times London Page 8 274
World Trade News: Texan to invest DM550m in new Berlin complex Publication 931102FT Processed by FT 931102 By JUDY DEMPSEY BERLIN

A PROMINENT Texan property developer will invest more than DM550m (Pounds 223m) in building a new office, hotel and residential complex in the heart of Berlin's cultural centre despite the federal government's repeated delays in moving the entire administration to the capital.

Hines Interests Limited Partnership, which has been responsible for complexes ranging from Postal Square, Washington, to the 30th Street Station, Philadelphia, will develop the area around the Gendarmenmark. Now east Berlin's cultural centre, it was the city's banking quarter before the second world war.

This is the first time Hines has moved into the European property development market. Mr Gerald Hines, its chairman, said Berlin provided 'a unique opportunity. This is an untapped sector. It is also a crucial axis between eastern and western Europe. There is no other city which offers so much potential.'

In addition to developing over 50,000 sq metres of property on 8,400 sq metres of land, the company has been chosen by Sony to design the interior of its new European headquarters on Potsdamer Platz, which straddled the eastern side of the Berlin wall.

Unlike other property developers who arrived in Berlin after the wall was pulled down four years ago this month, Mr Hines has not encountered big difficulties over outstanding property claims. Instead of dealing with each individual case, the company bought the entire property from the Senate, or government of Berlin, which in turn will compensate any claimants.

Since 1990, property developers have already invested DM11bn in this part of the Mitte, or centre of old Berlin. The other prominent developers include Tischman Spier, which is building a Galeries Lafayette shopping and office complex, and the American Business Centre backed by Mr Ronald Lauder, heir to the US cosmetics magnate.

Hines Interests Limited Partnership DE Germany, EC P6552 Subdividers and Developers, Ex Cemeteries RES Capital expenditures P6552 The Financial Times London Page 8 334
World Trade News: Fiat gears up to boost Polish operation Publication 931102FT Processed by FT 931102 By KEVIN DONE, Motor Industry Correspondent KRAKOW

FIAT, the Italian carmaker, is to expand its operations in Poland, with the local assembly of its Uno small car set to start early next year.

Initially Fiat will carry out the final assembly of the cars at its plant at Bielsko Biala in southern Poland from SKD (semi-knocked down) kits supplied from Turin.

The Italian group, which has established a dominant position in the Polish car industry following its takeover last year of FSM, the former Polish state-owned car producer, will supply fully welded and painted Uno car bodies and other important components from Italy.

Production of the Uno is planned to begin in January, with output likely to total around 20,000 in 1994.

Fiat is also conducting a feasibility study into the building of a new paint plant at its outdated Bielsko Biala factory as part of its plans to invest around Dollars 840m (Pounds 565m) in its Polish operations from 1993 to 1996.

The new paint plant would allow the assembly capacity of the Bielsko Biala factory to be raised and would enable Uno production in Poland to move later to more sophisticated full CKD (completely knocked down) kit assembly, in which the Uno car bodies would also be welded and painted in Poland.

Overall Fiat car production in Poland this year is expected virtually to double to around 280,000 from 144,000 in 1992, according to Mr Paolo Marinsek, managing director of Fiat Auto Poland.

Fiat's takeover of FSM, which was originally agreed with the Polish authorities in May last year, was finally completed six weeks ago, when the Italian carmaker assumed full operating control in the biggest privatisation deal ever reached in Poland and one of the biggest ever undertaken in eastern Europe.

The former FSM, which has now been renamed Fiat Auto Poland, is Fiat's sole production location in the world for its smallest cars, the outdated 126, which is sold only in Poland, and the Cinquecento, which has been launched in the last 18 months for sale throughout Europe.

Fiat's strong local production presence had also allowed it to raise sharply its share of the Polish market for imported cars, said Mr Marinsek.

The Polish new car market was expected to total more than 200,000 this year compared with 198,000 in 1992 and Fiat expected to account for around 55 per cent of all new car sales compared with 39 per cent last year, he said.

It expected to control around 31 per cent of all imported new cars and 65 per cent of sales of domestically produced cars.

Overall Fiat production in Poland should be running by December at 1,090 cars a day (280,000 a year) at its two plants, compared with 850 at the end of 1992 and only 350 a day in September 1991, when it began the restructuring of the FSM operations.

Fiat PL Poland, East Europe P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories MKTS Production MKTS Market shares RES Capital expenditures P3711 P3714 The Financial Times London Page 8 528
World Trade News: Devaluation - and Asia - lift Italian exports / A remarkable expansion into the newly industrialised countries Publication 931102FT Processed by FT 931102 By ROBERT GRAHAM

MR PAOLO BARATTA has the rare distinction of possessing the one problem-free portfolio in the Italian government.

As minister of foreign trade, he is presiding over the most remarkable export growth any industrialised country has seen in the past two decades. On average the value of exports in the first half of the year is up 19 per cent compared with the same period in 1992. They are also up more than 7 per cent in volume terms.

The growth is across the board. Italian exporters have been quick to switch away from the stagnant markets of the main industrialised economies into the fast growing economies of Asia and Latin America. But thanks to the free float of the lira, which has seen it depreciated by about 20 per cent since September 1992, Italy has also managed to increase its share of EC markets, notably in Germany.

One reason for the sharp rise is the fact that exporters are no longer under-declaring sales in the wake of the lira devaluation. In the two previous years exporters had taken advantage of an over-valued lira to under-invoice.

'Devaluation obviously has been important but I don't share the view that this is the sole reason,' says Mr Baratta. 'One has to ask why British exports, which have enjoyed a similar competitive advantage from devaluation at the same time as the lira, have not performed nearly as well.'

Among the strongest sectors of Italian exports have been industrial machinery and mechanical goods, the core of which are machine tools. This industry, which has shrunk in the UK for instance, has remained well-rooted in central and northern Italy.

'These are not big groups producing very large sophisticated machinery like the Germans and the Japanese; but they are small and medium-sized, very flexible and ideal for finding niches between what the Germans and Japanese can offer,' says Mr Baratta.

He believes both the size and flexibility of Italian engineering groups adapt well to the specific needs of the fast modernising economies of the Far East, where the demand for machinery is rising exponentially. Their less complex technology makes it easier to train people, both on the spot and in intensive sessions.

China is a case in point where exports this year are set to double to more than L4,000bn (Pounds 1.6bn), accounting for nearly 3 per cent of total exports. The bulk of this is accounted for by machine tools and engineering goods, especially machinery for the textile industry.

Such are the business prospects in China that the ministry, in conjunction with its Chinese counterpart, is to set up a series of 'base camps' there. These will be geared to small and medium-sized exporters, offering them space near industrial zones for logistical support, parts storage space and training facilities.

There is also strong demand for Italy's consumer products as a result of the new income being generated in the fast growing economies. Clothing, shoes, luxury goods and furniture and top-range household goods are all doing well. They are competing less on price than they are on brand labels, design and quality.

Trade with non-OECD countries in the first half this year was 26 per cent of total exports compared with 18 per cent for 1992 and 15 per cent in 1990. If this trend continues, non-EC exports will soon be more important than those of the Community. So far this year Italy's exports to the EC account for 54 per cent of the total. Two years ago they were close to 60 per cent.

At the same time, with depressed domestic demand, Italy has seen its import bill drop in spite of the devaluation. Thus in the case of Germany, Italy has recorded a first half trade surplus of L2,734bn compared with a L3,995bn deficit in the same period in 1992. A similar trend was evident with France its second trade partner and to a lesser extent with the UK.

Italy's real exchange rate is now back to the level of the 1970s, when the current account was broadly in balance. In the latter part of the 1980s and in 1990-91 exports lost their momentum and the trade balance deteriorated. The annual growth in 1991 exports was down to 3 per cent.

This reflected a combination of an over-valued lira and a period of sustained high increases in production costs, especially wages. Having long risen above inflation, wages for the past two years have been below inflation in the main manufacturing sectors. So far this year wage rises have been held down to at least one percentage point below inflation, which has averaged 4.4 per cent a year. Exporters believe an agreement with the unions in July, which abolished the indexation of wages and linked rises to productivity, has introduced an important element of wage cost stability.

IT Italy, EC P3599 Industrial Machinery, NEC P3541 Machine Tools, Metal Cutting Types P3542 Machine Tools, Metal Forming Types P3552 Textile Machinery MKTS Foreign trade CMMT Comment & Analysis ECON Balance of trade P3599 P3541 P3542 P3552 The Financial Times London Page 8 872
US industrial growth continues for October Publication 931102FT Processed by FT 931102 By JUREK MARTIN

THE current US expansion in manufacturing continued in October, but with little evidence of a wave of job creation, according to the National Association of Purchasing Management.

Its monthly index of economic activity, based on reports by purchasing executives, rose to 53.8 per cent last month from the 49.7 per cent of September. Any reading over 50 per cent indicates expansion.

Production was at the highest level since last March, with 15 of the 20 industrial sectors covered reporting improvement over September. The new orders index jumped to 60.8 per cent compared with 50.3 per cent in the previous month and was the highest since the 67.2 per cent recorded in January.

The backlog of orders increased significantly in October, with new export orders rising for the third consecutive month. Both inventories and prices also fell.

The NAPM, noting that its main index had averaged 51.8 per cent over the first 10 months of this year, said a continuation of October's levels for the final two months would imply an overall real growth in gross domestic product for 1993 of about 2.6 per cent.

However, despite this expansion, manufacturing employment fell again in October, although by a much smaller amount than the previous month. The employment index stood at 45.5 per cent, up one point from September and the highest since last March.

A reading below 48 per cent indicates no net growth in jobs. But the current employment figures do also imply measurable gains in productivity.

The only industries reporting growth in employment in October compared to September were furniture, fabricated metals, plastics and rubber, leather and transportation equipment.

Meanwhile, the Commerce Department yesterday said spending on new construction projects rose by 0.8 per cent in September.

US United States of America P152 Residential Building Construction P16 Heavy Construction, Ex Building P25 Furniture and Fixtures P30 Rubber and Miscellaneous Plastics Products P33 Primary Metal Industries P9311 Finance, Taxation, and Monetary Policy ECON Industrial production ECON Gross domestic product ECON Employment & unemployment P152 P16 P25 P30 P33 P9311 The Financial Times London Page 6 359
Industry may face Dollars 4bn bill to clean US rivers Publication 931102FT Processed by FT 931102 By LISA BRANSTEN WASHINGTON

THE US Environmental Protection Agency proposed tough new regulations on pulp and paper makers yesterday in an attempt to clean up US rivers.

The regulations, which might cost US industry more than Dollars 4bn (Pounds 2.6bn) in capital expenditure, would call upon pulp and paper mills to 'virtually eliminate' dioxin discharges to rivers and cut toxic air emissions by 70 per cent.

Dioxin enters the human food supply when it is absorbed by fish in contaminated rivers. Under the terms of the Clean Water Act, the EPA must take both economic and public-health effects into account when setting environmental policy.

EPA officials estimate that 350 mills might be affected by the proposals.

Environmentalists and industry leaders were quick to criticise the new plan yesterday.

The paper industry opposed the regulations, saying they would hurt the economy, cost jobs and threaten the fledgling recycling industry.

The American Forest and Paper Association estimated that the regulations would close 30 mills, leaving 19,000 mill workers without jobs and possibly causing the loss of 250,000 related jobs.

Mr Red Cavaney, president of the AFPA, said the proposed changes would divert resources from capital expansion and productivity improvements for 'insignificant environmental benefits'.

Mr David Bailey, a lawyer with the Environmental Defence Fund, said the regulations would not go far enough to prevent dioxin from entering food supplies and water life, and that the EPA standard for allowable emissions was still too high.

US United States of America P9511 Air, Water, and Solid Waste Management P2611 Pulp Mills P2631 Paperboard Mills TECH Safety & Standards P9511 P2611 P2631 The Financial Times London Page 6 287
Dinkins struggles in NY race Publication 931102FT Processed by FT 931102 By JUREK MARTIN and PATRICK HAVERSON WASHINGTON

MR Rudolph Giuliani, the Republican-Liberal candidate, remains the slight favourite to oust Mr David Dinkins, the Democrat, as mayor of New York today in the most eye-catching of dozens of elections across the United States.

The latest polls put the two men on a virtual dead-heat, but this may understate the extent of support for Mr Giuliani, the former federal prosecutor.

Four years ago Mr Dinkins beat Mr Giuliani by only 2 per cent, having taken an apparent double-digit advantage into polling day. Voter turnout among the city's minorities, especially blacks, will be pivotal.

In other closely watched races, Mr James Florio, the Democratic governor of New Jersey, still leads Mrs Christine Todd Whitman, the Republican challenger, though by nothing like the 10-15 point margin he was accorded two weeks ago.

This race is seen as a mini-referendum on the policies of the Clinton administration. Both President Bill Clinton and his wife have campaigned for Mr Florio, whose tax increases three years ago reduced his popularity to near oblivion.

In the governor's race in Virginia, Ms Mary Sue Terry, the Democrat, is still trailing Mr George Allen, the Republican son of a famous football coach.

Mr Michael Farris, the even more conservative Republican candidate for lieutenant governor, appears headed for defeat.

Changes are also expected at the helm of several troubled US cities, partly brought about, as in Detroit and Atlanta, by the retirement of the old generation of Democratic black urban leaders. Contests in Cleveland, Seattle and Minneapolis will be closely watched.

So, despite its different racial composition, will be the outcome in Miami, where Mr Stephen Clark, an older white Democrat who speaks no Spanish, is favoured over a Cuban exile and an outspoken black. Mr Clark, however, is endorsed by the outgoing mayor, Mr Adolpho Suarez.

In California, Proposition 174 would provide education subsidies, in the form of vouchers worth about Dollars 2,600 (Pounds 1,750) a head, useable at private schools.

In spite of the support of former President Ronald Reagan and leading national and religious conservatives, it is expected to lose today because of an effective campaign against it by Mr Pete Wilson, the incumbent Republican governor, and by Mr Clinton.

But a more modest version could well carry the day in the future.

In Washington state, two initiatives, 601 and 602, are designed to force rollbacks in state spending. Public opinion on both seems evenly divided.

The Wall Street securities house Kidder, Peabody has agreed to keep its headquarters and 3,000 employees in New York city in return for Dollars 31m in tax incentives from the municipal government, writes Patrick Harverson.

The decision was a victory for Mr Dinkins, as the loss of Kidder would have been a blow to the city's shrinking tax base and his re-election hopes.

Kidder Peabody International US United States of America P9111 Executive Offices P6211 Security Brokers and Dealers NEWS General News COMP Company News P9111 P6211 The Financial Times London Page 6 512
Washington builds bridges to Beijing Publication 931102FT Processed by FT 931102 By ALEXANDER NICOLL, Asia Editor

A SENIOR US defence department official is in Beijing for talks which mark the end of Washington's four-year ban on high-level military contacts and are the latest sign of a revitalisation of its policy towards China.

The discussions being held by Mr Charles Freeman, assistant secretary of defence for regional security affairs, with the People's Liberation Army follow separate visits to Beijing in recent weeks by Mr Mike Espy, the agriculture secretary, and senior State Department and trade officials.

Also indicating an improvement in relations, Mr Li Peng, China's premier, said in remarks published yesterday that this month's meeting in Seattle between President Bill Clinton and Mr Jiang Zemin, China's president, 'is a good thing and is of great significance'.

Officials of both sides have, however, been careful not to raise hopes that significant Sino-US agreements could be reached in Seattle.

The recent visits by US officials to Beijing represent an attempt by Mr Clinton to broaden the relationship between the two countries, which has been tense and restricted since the 1989 killings in Tiananmen Square. Recently relations have been further clouded by heightened US pressure on China over human rights and weapons sales.

The new US strategy is to maintain insistence on improvement in these areas but at the same time to engage China in a much broader range of discussions so that the issues in dispute cease to dominate the bilateral relationship.

'We are now embarked on a policy of re-engaging,' a US official said. 'We are no longer denying ourselves the possibility of talking to the Chinese at the level necessary.'

The hope is that a broader dialogue would make it easier for the US to explain where it found Chinese policies to be objectionable and to ob-tain changes acceptable to China.

However, US officials are in no doubt that Mr Clinton may revoke China's most favoured nation (MFN) trading status next year if progress is not seen on several fronts.

Mr Warren Christopher, secretary of state, told businessmen recently: 'I don't believe we can sustain the position for MFN for beyond next June unless we see some improvement in the human rights field by the Chinese, as well as reform in connection with trade practices and progress in the non-proliferation front.'

He made clear that Washington wanted changes soon rather than at the last minute before Mr Clinton's decision next year.

China dismisses US linkage of human rights and trade as a relic of the Cold War and has called for greater US-China contacts. It says MFN is normal practice rather than a favour to be granted by the US.

CN China, Asia US United States of America P9721 International Affairs NEWS General News P9721 The Financial Times London Page 6 470
Cofan tribe force workers at a Petroecuador site to stop drilling Publication 931102FT Processed by FT 931102 By RAYMOND COLITT QUITO

ABOUT 50 Indians from the Cofan tribe, armed with spears and shotguns, forced workers at a Petroecuador site in Ecuador's Amazon forest to stop drilling last week, in a protest at planned oil exploration, writes Raymond Colitt from Quito. The Indians later agreed to a temporary resumption of the exploratory work if Petroecuador's director came to the area for further negotiations. President Duran Ballen authorised drilling at the well in the Cuyabeno nature reserve in September. but the work has since been surrounded by controversy.

Petroecuador EC Ecuador, South America P1311 Crude Petroleum and Natural Gas RES Natural resources P1311 The Financial Times London Page 6 127
Kidder, Peabody agrees to keep headquarters in New York Publication 931102FT Processed by FT 931102 By PATRICK HARVERSON

The Wall Street securities house Kidder, Peabody has agreed to keep its headquarters and 3,000 employees in New York city in return for Dollars 31m in tax incentives from the municipal government, writes Patrick Harverson.

The decision was a victory for the city's mayor, Mr David Dinkins, as the loss of Kidder would have been a blow to the city's shrinking tax base, its fragile morale and the mayor's re-election hopes.

Kidder Peabody International US United States of America P6211 Security Brokers and Dealers COMP Company News P6211 The Financial Times London Page 6 112
Salinas calls for poll civility pact Publication 931102FT Processed by FT 931102 By DAMIAN FRASER MEXICO CITY

PRESIDENT Carlos Salinas yesterday called on all Mexico's political parties to sign a pact of civility to ensure 'transparent and exemplary' presidential elections next August.

In his annual state of the nation address, President Salinas promised the contenders 'full respect, abiding by the terms of the law, and proper conditions for them to present their options to Mexicans in full freedom'.

Mexico's 1988 presidential election, which brought Mr Salinas to power, was widely held by observers to have been marred by ballot-rigging. Mr Salinas's government has recently passed new democratic reforms, but they have been dismissed as inadequate by the main opposition candidate, Mr Cuauhtemoc Cardenas, and some foreign and domestic observers.

Despite the call for an electoral pact, Mr Salinas suggested there would no more significant concessions to the opposition.

The president appeared to rule out the possibility of foreign observers participating in the electoral process, saying 'only Mexicans' would be the guardians of 'our' democracy.

The president announced that Mexico's reserves rose to Dollars 23.017bn (Pounds 15.2bn) at the end of October, from Dollars 22.597bn.

MX Mexico P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 6 209
Iraqi N-arms 'neutralised' Publication 931102FT Processed by FT 931102 By REUTER NEW YORK

IRAQ'S clandestine nuclear weapons programme has either been destroyed or neutralised, with no 'big pieces' missing, Dr Hans Blix, head of the International Atomic Energy Agency, said yesterday, Reuter reports from New York.

Dr Blix told the UN General Assembly that after 21 inspection missions gaps still had to be filled in about Iraq's nuclear supply channels and sources of scientific information. But, at a news conference following his speech, he said: 'Through a piecing together of the evidence we have found, we have a consistent and coherent picture of the nuclear programme. There are no big pieces missing.'

He said declared non-irradiated highly-enriched uranium had been removed in November 1991 and a schedule set up to remove declared irradiated highly-enriched uranium.

Iraq has not yet agreed to a long-term monitoring programme to ensure it does not reacquire weapons of mass destruction.

IQ Iraq, Middle East P9721 International Affairs NEWS General News P9721 The Financial Times London Page 4 171
N Korea slated over inspection Publication 931102FT Processed by FT 931102 By MICHAEL LITTLEJOHNS NEW YORK

NORTH KOREA'S failure to comply with international nuclear safeguards 'has been widening' and continuity of some data was already damaged, the head of the UN inspection's body said yesterday, writes Michael Littlejohns in New York.

Dr Hans Blix, director-general of the International Atomic Energy Agency, said the longer verification was blocked the less assurance there could be that even North Korea's 'declared facilities' were for peaceful uses. Reporting to the UN General Assembly, he rejected Pyongyang's attempt at piecemeal verification, saying that inspection must be an integral whole.

As he addressed the UN, the North Korean delegation published the text of a message agreeing to inspection 'for the purpose of maintenance and replacement of the safeguards' equipment.' As for routine and random inspections proposed by IAEA, these would depend on progress in talks now being held with the US and on the agency's own attitude, which currently was one of 'partiality and injustice'.

With North Korea casting the sole negative vote, the General Assembly urged Pyongyang, by 140 votes to 1, to co-operate immediately with the IAEA.

KP North Korea, Asia P9721 International Affairs NEWS General News P9721 The Financial Times London Page 4 209
Hyundai founder guilty of fraud Publication 931102FT Processed by FT 931102 By JOHN BURTON SEOUL

MR CHUNG JU-YUNG, the founder of South Korea's Hyundai business group, yesterday received a three-year suspended prison sentence for illegal campaign practices during his failed presidential bid last year, writes John Burton in Seoul.

Mr Chung, now honorary chairman of Hyundai, was convicted of embezzling Dollars 64m (Pounds 43m) from Hyundai Heavy Industries (HHI), the group's shipbuilding unit, to finance his presidential campaign. He was also found guilty of forcing Hyundai employees to work on the campaign.

Mr Chung said the money from HHI was from the sale of his shares in the company and was not corporate funds as alleged by the government. Hyundai employees who campaigned for him did so as volunteers. The Seoul district criminal court said it would not imprison Mr Chung because of his advanced age - he is 78 - and his contribution to the nation's economic development as head of Korea's biggest conglomerate.

The allegations about Mr Chung's use of illegal campaign funds surfaced in the closing days of last December's presidential election and played a crucial role in his poor third-place finish behind the victor, Mr Kim Young-sam. Mr Chung's United People's party subsequently virtually collapsed.

Hyundai Heavy Industries KR South Korea, Asia P9211 Courts PEOP People P9211 The Financial Times London Page 4 227
Japanese new car sales show steep decline Publication 931102FT Processed by FT 931102 By MICHIYO NAKAMOTO TOKYO

THE SEVERITY of the downturn in Japan's car market was underlined yesterday by registration figures for October which showed that sales of new cars were down 11.3 per cent on October last year.

The figures, from the Japan Automobile Dealers Association, represent the seventh consecutive monthly decline in new car sales, and a 15.5 per cent fall from September. Vehicle sales in October amounted to 374,227 units, while car sales were nearly 10 per cent down to 253,516 units.

The gloomy figures, which came despite the opening of the biennial Tokyo Motor Show last month and the recent launch of several new models by Japanese manufacturers, reinforced growing concerns in the country's motor industry about the timing of a possible upturn.

Nissan Motor, which on Friday announced a pre-tax loss of Y28.9bn (Pounds 180.6m), over double its loss in the previous first half, said it was becoming extremely difficult to keep to its goal of breaking even this fiscal year and returning to profit in fiscal 1994.

While the company was still pinning its hopes on stronger demand during the winter bonus season, the growing possibility that Japanese employees would receive lower bonuses this year casts a cloud over that scenario. 'The recovery may not come until next year,' Nissan conceded.

Honda, which saw its sales in October, excluding imports from the US, drop 28.4 per cent, said it was becoming very difficult to read the market.

Other Japanese carmakers are expected to confirm the difficult trading environment when they announce figures for the six months to September in the weeks ahead.

Meanwhile the rise of the yen is leading one Japanese carmaker after another to raise prices in the US market, a trend which many of them fear could result in a loss of market share.

Mazda became the latest company to announce a price rise, of 2 per cent, yesterday, following a 4 per cent increase in September.

JP Japan, Asia P3711 Motor Vehicles and Car Bodies MKTS Sales MKTS Foreign trade COSTS Product costs & Product prices P3711 The Financial Times London Page 4 363
Kuwait ponders radical action Publication 931102FT Processed by FT 931102 By MARK NICHOLSON CAIRO

KUWAIT is considering unprecedented moves to trim a KD1.5bn (Pounds 3.3bn) budget deficit for the current year, including charging fees for public services, allowing foreign participation in upstream oil operations and possibly levying taxes on its citizens.

Mr Nasser al-Rodhan, Kuwait's finance minister, told the local Al-Seyaaseh newspaper that the 'decision is approved' to charge for some services, though he did not specify which, or when fees would begin. Kuwaitis enjoy considerable subsidies on power, water and local telephone services.

Mr Al-Rodhan said the fees would be introduced only after consultation with the Gulf state's parliament, which reconvened last week, and that low-income Kuwaitis would be exempt.

The minister also said that allowing foreign oil companies to participate with the state Kuwait Oil Company in drilling and exploration was 'under study', adding: 'The motives behind such decisions are economic.'

Kuwait has since the Gulf war entered joint contracts with BP for technical support and Union Carbide for construction of a petrochemicals plant. But upstream activities have been kept in state hands since Kuwait became the first Gulf state to buy control of its oil production industry in 1975.

Diplomats in Kuwait City said talks between KOC and some oil groups had already begun on possible opportunities, which Mr al-Rodhan said would offer Kuwait both fresh foreign expertise and, more particularly, foreign capital.

The government is doing more than ever to trim outgoings in the face of a budget deficit of KD1.49bn - including statutory expropriations for the Reserve Fund for Future Generations - and under the close eye of the country's increasingly economically sophisticated parliament. The true deficit in Kuwait's public finances is almost certainly bigger than the published figure, which does not include all Kuwait's military spending or foreign debt repayments.

Mr al-Rodhan said that 'until now and with our financial resources we can cope with the demands', but added: 'The situation in the next stage will make it necessary for us to start thinking seriously of taxation.'

Mr al-Rodhan's remarks follow leaks in Kuwaiti papers of an International Monetary Fund report, handed to the government in late August, which recommended cuts in subsidies, shrinkage of the public sector and other revenue-raising measures, including limited privatisation.

Economists in Kuwait reckon that service fees could raise KD300m a year.

Kuwait Oil KW Kuwait, Middle East P9311 Finance, Taxation, and Monetary Policy P1311 Crude Petroleum and Natural Gas ECON Economic Indicators CMMT Comment & Analysis COSTS Service costs & Service prices RES Natural resources P9311 P1311 The Financial Times London Page 4 435
Israeli poll is test for peace drive Publication 931102FT Processed by FT 931102 By JULIAN OZANNE JERUSALEM

ISRAELIS go to the polls today to vote for new municipal authorities in the first test of nationwide public political sentiment since the signing of the historic Israeli-Palestinian peace accord.

Although the 3.3m registered voters will be influenced by a range of issues from education to rubbish collection, political analysts say the poll will also indicate national feeling about the unfolding peace process. Mr Yitzhak Rabin, prime minister, has said he views the elections as a vote of confidence by the public in his peace drive.

The two greatest electoral battles, and the ones which are most likely to provide a political weather vane, are in Jerusalem and Tel Aviv.

In Jerusalem Mayor Teddy Kollek, an 83-year-old veteran of Mr Rabin's Labour party, has been fighting a tough race to keep control of the Holy City against competition from Mr Ehud Olmert, a member of parliament from the right-wing Likud party.

Opinion polls show the two neck and neck after a campaign marked by personal attacks and questions about whether Mr Kollek is fit enough to stand another term of office.

Jerusalemites, who live on the fault-line of the Israeli-Palestinian conflict, are deeply concerned about security issues particularly for the massive Jewish settlements nearby and the future status of the city.

Both candidates in Jerusalem agree on the unity of the Jewish West with the Arab East of the city and both back Jewish development of East Jerusalem.

But Mr Olmert favours a much more aggressive settlement policy, with Jews moving into neighbourhoods reserved under Mr Kollek's administration for Arabs.

Palestinians say a victory by Mr Olmert would exacerbate Arab-Jewish tensions in the city and make a compromise on its final status - such as joint or international administration - much more difficult. However, the 80,000 registered Palestinians living in occupied East Jerusalem are divided about whether to vote in the poll, even if to do so would ensure victory for Mr Kollek.

In Tel Aviv, usually a more liberal and secular city than Jerusalem, Mr Ronni Milo, a former Likud police minister, is fighting Mr Avigdor Kahalani, a war hero from the Labour party, to succeed Mr Shlomo 'Chich' Lahat, the long-time mayor.

Defeat for Labour in both cities could be a serious setback to the peace process and bolster the right-wing opposition, which has seemed increasingly divided and marginalised by Mr Rabin's initiatives.

IL Israel, Middle East P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 4 429
Corruption probe jeopardises Kenya aid Publication 931102FT Processed by FT 931102 By LESLIE CRAWFORD NAIROBI

KENYA'S donors are investigating financial mismanagement and allegations of corruption involving more than Dollars 125m (Pounds 82.7m) at the state-owned Kenya Post and Telecommunications Company.

Further irregularities have been revealed by a former manager of KPTC, now living abroad, who told the Financial Times that an inventory check last year on stock worth Dollars 250m on paper produced 'huge discrepancies'.

Donor officials believe that some of the funds were channelled to a group of local banks which lent the money on to government officials or supporters of the ruling Kanu party.

These banks are already under investigation by the government, acting with the encouragement of donors.

Negotiations for a new International Monetary Fund agreement and plans for a donor conference in Paris this month could be jeopardised unless the government of President Daniel arap Moi takes urgent steps to overhaul KPTC, one of Kenya's largest state-owned companies. Without the IMF endorsement of economic policy, donors are unlikely to resume financial aid frozen since November 1991. And without the renewal of aid, Kenya faces a balance of payments crisis. It is Dollars 700m in arrears to its foreign creditors.

Donors are seeking an explanation of KPTC's failure to remit to the Treasury the 18 per cent value added tax it charges on telephone bills. The information is disclosed in an auditor general's report which also reveals that the company has not paid corporation tax since 1988.

The report shows that KPTC has accumulated arrears on its own foreign debt, on its contributions to the National Social Security Fund, and on a special telecommunications tax.

The monies owed are said by western officials to total more than Dollars 125m, an amount equivalent to about half the company's annual turnover.

KPTC deposited hundreds of millions of shillings in scandal-tainted domestic banks. According to a western official investigating the KPTC management, these funds were on-lent to government supporters.

Although four of these banks were closed earlier this year, auditors are still trying to trace the deposits of KPTC and the company pension fund held at another, Transnational Bank. The bank has fended off closure by promising to inject fresh capital to cover bad loans, but one of Transnational Bank's main shareholders, Mr Jared Kagwana, has fled the country after being questioned by police over alleged embezzlement.

A former manager at KPTC has also accused company executives of faking the theft of millions of dollars of equipment so that it could be resold to KPTC for instant self-enrichment.

Mr Stanley Bell, KPTC's chief general manager until October 1992, says he was fired for refusing to authorise a Dollars 20m procurement order for spare parts. According to him, thefts of stocks were being reported to justify the purchase of the same goods.

He ordered an inventory check and encountered 'huge discrepancies'.

Kenya Post and Telecommunications KE Kenya, Africa P4813 Telephone Communications, Ex Radio P4311 U S Postal Service COMP Company News P4813 P4311 The Financial Times London Page 4 507
Turkmenistan leads new rouble refugees: The launch of a new currency Publication 931102FT Processed by FT 931102 By STEVE LEVINE, GILLIAN TETT and JOHN LLOYD

THE CENTRAL Asian republic of Turkmenistan yesterday introduced its own currency, the manat, launching it at a value of 50 US cents and 500 Russian roubles.

Turkmenistan is the fifth of the 15 former Soviet republics to introduce a fully independent currency - and it does so as other republics prepare to leave the rouble zone, many of them complaining that the conditions set by Russia for remaining in the zone are too strict.

Estonia, Latvia and Lithuania, the three Baltic republics, each has its own currency, while the smallest central Asian state, Kyrgyzstan, introduced its unit, the som, in May. Three other republics - Azerbaijan, Georgia and Ukraine - use coupons, all of which are highly inflationary.

Turkmenistan, with between 10,000bn and 15,000bn cubic metres of natural gas and oil reserves estimated by the government at 6.3bn tonnes, has eschewed backing - though not advice - from the International Monetary Fund, relying on its own reserves of more than Dollars 300m held in foreign banks to support the manat.

Foreign observers in the capital, Ashgabad, expect the manat to fall to between 5 and 7 manat to the dollar when currency trading begins on Saturday. However, Mr Valery Otchersov, the deputy prime minister in charge of the economy, says that 'it is simply a matter of time before the currency is accepted at other currency exchanges and traded internationally'.

Turkmenistan, whose regime under President Sapurmerat Niyazov has retained tight control built round a growing presidential personality cult, is presenting itself as a stable location for foreign investment. Prices for the largely state-controlled staples are to be raised and a privatisation programme - which will exclude the oil and gas sector - is also due to be launched.

In spite, or because, of Mr Niyazov's gestures - such as erecting statues and portraits of himself all around the capital and his receipt last week of a bust from Turkmen businessmen containing 1.6kg of gold - most foreign diplomats and observers expect the Turkmenistan economy to prosper.

'Russia and Turkmenistan are the only two former Soviet republics which can stand on their own,' said Mr Vadim Cherepov, the Russian ambassador. A US diplomat said that 'if it follows the IMF recommendations it will have the most successful currency introduction of the former Soviet states'.

Dissatisfaction with the rouble zone may force other republics to follow. Last week, President Nursultan Nazarbayev of Kazakhstan was granted powers by his parliament to introduce a national currency after a demand by Russia that the roubles issued to Kazakhstan must be backed by its reserves of gold and hard currency reserves.

'We made all possible concessions (to Russia), but now Moscow has asked us to do the impossible - hand over billions of dollars,' Mr Nazarbayev was quoted by the Interfax news agency as saying at the parliamentary session last Thursday.

An agreement signed in September between Armenia, Belarus, Kazakhstan, Russia, Tajikistan and Uzbekistan committed these six republics to remain in the rouble zone under the control of the Russian central bank, in spite of the publicly expressed scepticism of many in the Russian cabinet. However, no new Russian roubles have yet been delivered to the other states, forcing them to use pre-1993 notes which the Russian central bank has withdrawn from circulation in Russia itself.

The Moldovan government has said it is to introduce its new currency, the leu, this month - rumoured to be on November 20.

TM Turkmenistan, East Europe P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 4 618
Trade figures for September boost markets, dollar Publication 931102FT Processed by FT 931102 By NIKKI TAIT SYDNEY

BETTER than expected trade figures for September yesterday gave new heart to the Australian stock market and dollar, as investors concluded that the country is moving out of recession with a fairly strong export performance.

The balance of payments deficit in September was ADollars 1.14bn (Pounds 533m) on a seasonally adjusted basis. This compared with a deficit of ADollars 1.3bn in August, and was below most market forecasts, which ranged between ADollars 1.2bn and ADollars 1.5bn.

On the trade front, Australia enjoyed a surplus in September, with exports up 9 per cent to Dollars 5.64bn, while imports rose only four per cent, at ADollars 5.53bn. This left a ADollars 110m positive balance on merchandise trade, compared with a ADollars 151m deficit in August.

The news caused the Australian dollar, badly buffeted in the recent stalled passage of the budget, to close almost one US cent higher, at 67.29 cents after touching 67.35 cents. On the stock market, shares also rallied strongly, with the all-ordinaries index closing 20.2 points higher at 2,132.4.

Some analysts, however, cautioned that the trade figures had been boosted by exceptionally strong exports of gold, and that the previous weaknesses in the Australian dollar had aided exporters' performance generally. Gold exports in September jumped 87 per cent.

'There are still some grounds for pessimism about the immediate future of the current acccount,' warned Mr Chris Caton, chief economist at Bankers Trust Australia. 'The rest of the world remains quite weak, and we may not have yet seen all the valuation effects on imports of the lower Australian dollar.'

Industrial unrest looms again on Australia's notoriously difficult waterfront after a breakdown in talks between Australian Stevedores and the Maritime Union of Australia over forced redundancies.

Australian Stevedores announced plans to shed 317 workers several months ago. This led to a brief national strike in September.

Yesterday Mr John Coombs, national secretary of the MUA, claimed the company had renewed attempts to sack employees, despite agreement by some 231 workers to take voluntary redundancy.

Australian Stevedores AU Australia P9311 Finance, Taxation, and Monetary Policy P4491 Marine Cargo Handling ECON Balance of payments ECON Balance of trade CMMT Comment & Analysis PEOP Labour P9311 P4491 The Financial Times London Page 4 388
Alliance drawn into peace talks Publication 931102FT Processed by FT 931102 By PATTI WALDMEIR JOHANNESBURG

SOUTH AFRICA'S right-wing Freedom Alliance yesterday agreed to meet the government to try to hammer out a last-minute compromise on a new constitution, while the ultra-left Pan Africanist Congress took a further step toward renouncing violence, writes Patti Waldmeir in Johannesburg.

The government and the Freedom Alliance, which includes the mainly Zulu Inkatha Freedom party and white supremacist groups, will meet for two days from today at a secret bush venue. The government will make a last-ditch effort to persuade the alliance to accept a draft constitution due to be adopted by multi-party negotiators. The deadline for multi-party adoption of the constitution was pushed back to November 12.

The government is also pressing the PAC, which has participated in multi-party constitutional talks, to end its violent struggle against apartheid. The two sides met yesterday in the Zimbabwean capital, Harare, and issued a communique calling for a moratorium on violence but stopping short of agreeing the government's demand that the PAC halt its guerrilla war. The Azanian People's Liberation Army, the PAC's military wing, has claimed responsibility for recent murders of whites.

ZA South Africa, Africa P8651 Political Organizations P9199 General Government, NEC NEWS General News P8651 P9199 The Financial Times London Page 4 217
Australia to let Tiananmen exiles stay Publication 931102FT Processed by FT 931102 By NIKKI TAIT SYDNEY

AUSTRALIA is to allow about 19,000 Chinese citizens, who were living in Australia at the time of the Tiananmen Square massacre, to apply for permanent residence, the federal government announced yesterday.

They had previously been granted only temporary residence.

Yesterday, announcing a number of changes in Australian immigration policy, Senator Nick Bolkus, the immigration minister, said Chinese nationals who were in the country at the time of the 1989 upheavals, and families who had joined them subsequently, would be granted permanent residence provided they met certain health and character criteria.

He estimated that about 28,000 Chinese could become permanent residents under the scheme. 'We will basically give formal legal recognition to (their) status here by this decision,' Mr Bolkus told a press conference in Canberra.

He said the treatment of these individuals would be outside the 'normal' migration programme, but the cost to the country would be limited. 'Those people are here, they're working here, they have very low dependence on social security.

'The cost of them coming into the community, the further integration of them, is minimal, if anything at all.'

Meanwhile, asylum-seekers who arrive in Australia before applying for refugee status will also be entitled to permanent residence rather than the temporary residence they are now offered if their applications are successful, the government announced. Since 1990, people granted refugee status after they arrived in Australia, such as the Cambodian boat people, have been given only temporary residence permits.

And a third new measure, also announced yesterday, will create a new onshore permanent residence category for Chinese nationals who arrived in Australia after Tiananmen, and for Sri Lankans and nationals of the former Yugoslavia who live in Australia under special humanitarian concessions. To be eligible for this category, applicants must satisfy certain age, educational and visa conditions.

Immigration to Australia dropped sharply last year, from 107,391 in 1991-92 to 76,330 in the following 12 months.

AU Australia P9721 International Affairs NEWS General News P9721 The Financial Times London Page 4 347
Norway may cut oilfield tax breaks Publication 931102FT Processed by FT 931102 By KAREN FOSSLI and REUTER OSLO

NORWAY is considering reducing tax concessions to oil companies that retain high levels of debt, in an effort to stabilise government revenues from the North Sea.

The measure would seek to offset revenue losses suffered after special tax concessions were introduced last year, Mr Arne Oeien, permanent finance ministry secretary, said yesterday.

The new rules had led to higher dividend payments and profit repatriations, Mr Oeien told a petroleum tax conference in Oslo.

The measure being considered would affect both domestic and foreign oil companies operating in the North Sea.

'We are currently considering different measures to avoid substantial revenue losses as a consequence of the increase in dividend payments and profit repatriations after the introduction of the new (petroleum) tax and accounting rules in 1992,' Mr Oeien said.

Last year Norway introduced important tax reforms in the energy sector in which it substantially increased the so-called special income tax rate, and abolished a production allowance, together with petroleum royalty payments on natural gas.

Mr Oeien said that as a result of these changes the reserve fund requirements and dividend taxation rules were no longer effective in terms of binding capital in the Norwegian petroleum tax jurisdiction, which mean dividends are no longer taxed under under Norwegian petroleum law.

'As a result we foresee that the companies will increase the value of their debt substantially, one effect being large (tax) revenue losses,' Mr Oeien said. The Finance Ministry was reviewing ways of discouraging high debt levels.

Mr Oeien said Norway actively used income tax to ensure the state a larger share of total (petroleum) revenue when the oil price increased, and to avoid a serious worsening of the working climate for the oil companies in times of lower pre-tax incomes.

Options being considered were an increase in the so-called special income tax and changing the regulations so that companies would be discouraged from maintaining high debt levels as a way of increasing tax allowances.

Norway's current account surplus jumped to NKr15.37bn (Pounds 1.4bn) in January-August from NKr10.63bn in the same period a year ago, the Central Bureau of Statistics said, Reuter reports from Oslo.

NO Norway, West Europe P9311 Finance, Taxation, and Monetary Policy P1311 Crude Petroleum and Natural Gas STATS Statistics NEWS General News P9311 P1311 The Financial Times London Page 3 400
Kurd rebellion spoils Turkey's 70th birthday Publication 931102FT Processed by FT 931102 By JOHN MURRAY BROWN ISTANBUL

THE worsening rebellion in Turkey's Kurdish-speaking region is putting intense strain on the conservative-led coalition of Mrs Tansu Ciller. One government minister has publicly conceded that the revolt has escalated into a full-scale war - ironically, at a time when the country is celebrating its 70th year as a republic.

Last week hardliners from Mrs Ciller's True Path party were promoted to key defence and interior ministries, apparently without the junior partner Social Democratic Populists being informed.

Both parties are now setting sights on nationwide municipal elections next March and questions are being asked about the coalition's survival as True Path and the Social Democrats appeal to their traditional constituencies.

If the coalition breaks up, as Turkish newspapers were already predicting at the weekend, western diplomats believe Mrs Ciller could win support for a minority government. Should her party emerge strongly from the March polls, Mrs Ciller might be tempted to call early general elections, probably in the autumn.

Since they swept the municipalities in the last local elections in 1989, the Social Democrats' standing has been hurt by a corruption scandal in the municipality of Istanbul, which it runs, and the failure to unite with other left-of-centre parties.

When the coalition was formed following the election in October 1991, there was a popular expectation that the need to find common cause would force both parties to moderate their traditional positions - with True Path forced to take on a more reformist Kurdish policy, and the Social Democrats made to adopt a more pro-business and economic stance.

But Mrs Ciller has paid only lip service to the need for a national policy on the Kurds, while ceding more powers to the military in the conflict. With the bloodshed escalating - more than 2,000 people have been killed this year alone - last week's cabinet reshuffle reflected her party's concern that the military might use the current crisis to impose martial law in the region.

Equally, Mrs Ciller's economic reforms have been hampered by what one senior western diplomat called the 'bureaucratic inertia' of the Social Democrats. Her efforts to legislate by decree have now been overruled by the constitutional court.

TR Turkey, Middle East P9721 International Affairs NEWS General News P9721 The Financial Times London Page 3 393
Turkish officials to urge Syria to curb activities of guerrillas Publication 931102FT Processed by FT 931102 By REUTER ANKARA

Three Turkish officials will go to Damascus this week to urge Syria to curb the activities of guerrillas battling for a separate Kurdish state in Turkey, Reuter reports from Ankara.

Turkey has long urged Syria to help prevent cross-border infiltration by Kurdistan Workers' party (PKK) rebels fighting a secessionist struggle in south-east Turkey.

Prime Minister Tansu Ciller last week accused Syria, Iraq, Iran and Armenia of allowing the PKK to use their territory and said she would pursue diplomatic efforts to persuade them to desist. Syria says it regards the PKK as an illegal organisation and arrests its members when it finds them.

SY Syria, Middle East P9721 International Affairs NEWS General News P9721 The Financial Times London Page 3 138
Danish bank rescue backfires on minister Publication 931102FT Processed by FT 931102 By HILARY BARNES COPENHAGEN

DENMARK'S Social Democratic-led coalition government, which promised a 'decade of decency' when it came into office in January, has become embroiled in a controversy over a banking rescue operation.

The opposition is calling for the resignation of Mr Ole Stavad, minister for taxation, for allegedly misleading the Folketing, or parliament, over his part in a rescue action in August for a bank in Mr Stavad's North Jutland constituency.

Mr Poul Nyrup Rasmussen, the prime minister, whose government has only a one-vote majority, was forced at the weekend to give in to demands both from the opposition and from within the ranks of the coalition parties for an 'impartial investigation' into the rescue.

Mr Stavad's troubles began when the government negotiated a deal with a North Jutland savings bank, Sparekassen Nordjylland (Spar Nord) to keep open the offices of a small local bank, Himmerlandsbanken, in the town of Hobro, which had collapsed with debts of around DKr400m (Pounds 40.2m). According to Spar Nord's managing director, Mr Jorgen Giversen, the savings bank obtained a 'crystal-clear' agreement that, as the price of taking on Himmerlandsbanken's operations, the savings bank would be allowed to make a tax-loss deduction of DKr173m.

However, when opposition politicians looked at the deal, they concluded that the offer of a tax-loss deduction was illegal. A tax-loss deduction is legal only if a company takes over another company in its entirety, but Spar Nord took over only part of Himmerlandsbanken, which was subsequently declared bankrupt.

Confronted with this argument, Mr Stavad said the government had never promised the savings bank a tax deduction, only that it could make normal loan-loss provisions for DKr173m.

In that case, retorted Spar Nord's Mr Giversen, the government misled the savings bank's shareholders.

He published a fax from the Customs and Excise Board, sent to him at 4 am on Monday August 23, after a weekend of negotiations with the government, which appears to confirm his version of events. 'We told the government during the negotiations that the alternative to a tax-loss deduction of this order was payment of about DKr53m in cool cash to make up the difference between the assets and liabilities we were taking on,' he says.

Mrs Kirsten Jacobsen, of the right-wing Progress party, who has spearheaded the attack on Mr Stavad, claims that the minister has repeatedly misled the Folketing and its committees in his attempts to escape blame.

The opposition parties yesterday accepted the government's proposal for an impartial investigation, which for the moment takes the pressure off Mr Stavad.

Mr Rasmussen's government took office when the prime minister for over 10 years, the Conservative party's leader, Mr Poul Schluter, resigned following a judicial inquiry.

The inquiry's highly controversial report found that he had misled the Folketing when reporting to it on the so-called Tamil scandal, in which his minister of justice illegally denied Tamil refugees the right to bring their families to Denmark.

Sparekassen Nordiylland Himmerlandsbanken DK Denmark, EC P6081 Foreign Banking and Branches and Agencies PEOP People NEWS General News P6081 The Financial Times London Page 3 526
Appeal over new Bosnia atrocities Publication 931102FT Processed by FT 931102 By LAURA SILBER BELGRADE

THE International Red Cross yesterday warned of mass expulsions in central Bosnia amid allegations that civilians were being summarily executed, writes Laura Silber in Belgrade.

The ICRC denounced the 'blatant violation' of international humanitarian law around Vares, a Croat-held town in central Bosnia, appealing to the mostly Moslem government army and Bosnian Croat forces to stop the 'harassment' of civilians. 'Thousands of civilians have been forced to flee from their homes . . . they are fleeing looting, death threats, mistreatment and are desperately searching for protection,' the Geneva-based organisation said. The Bosnian army is fighting against Croat forces for land near Vares.

The town straddles one of the main aid routes linking Sarajevo to Tuzla.

In Belgrade yesterday, Mr Thorvald Stoltenberg, UN peace envoy, protested against the detention of the crew of two Sea King choppers, who had been delivering relief supplies to Srebrenica, the Moslem enclave in eastern Bosnia. The incident comes after Serb forces flouting Srebrenica's status as a UN 'safe area', seized control of part of the Moslem enclave.

BA Bosnia-Hercegovina, East Europe P9721 International Affairs NEWS General News P9721 The Financial Times London Page 3 204
Moscow bans demonstration Publication 931102FT Processed by FT 931102 By REUTER

Moscow's city council has banned all demonstrations by all political parties and groups on communism's most cherished anniversary, Revolution Day, on November 7, Reuter reports. The ban was being introduced because some of the groups which had applied to take part in Sunday's rally had been involved in the abortive uprising against President Boris Yeltsin on October 3.

RU Russia, East Europe P8651 Political Organizations P922 Public Order and Safety NEWS General News P8651 P922 The Financial Times London Page 2 91
Austrian Airlines strike off Publication 931102FT Processed by FT 931102

Austrian Airlines flight crew have called off their four-day-old strike with immediate effect, supervisory board head Rudolf Streicher said last night after mediation talks with union leaders.

The decision to end the strike, called last Friday to protest against management job cut plans, requires the approval of a meeting of the AUA's 1,200 flight crew. But their leader, Mr Albin Schwarz, said he was confident the decision to go back to work would be endorsed.

Austrian Airlines AT Austria, West Europe P4512 Air Transportation, Scheduled PEOP Labour P4512 The Financial Times London Page 2 104
Romania 'pyramid' payments delayed Publication 931102FT Processed by FT 931102 By REUTER BUCHAREST

A pyramid investment company which launched a money-spinning craze in Romania said yesterday it had suspended payments to investors for two days because of 'organisational problems' but denied reports it was about to collapse, Reuter reports from Bucharest.

The Caritas company described as unfounded a wave of local press stories saying the money chain was losing momentum and that it would soon grind to a halt. 'It is true Caritas suspended payments for two days,' a company official told Reuter by telephone from Cluj. 'But this was only because the company wants to organise its work better.'

It was the second time in a month that Caritas has interrupted payments for several days. More than 4m Romanians have billions of lei tied up in the scheme, which works like a chain-letter game and promises depositors a return of eight times their initial deposits after just three months.

This has captured the imagination of a nation where monthly pay rarely reaches Pounds 40, the annual inflation rate runs at almost 300 per cent and bank interest rates lag behind at 70 per cent.

Caritas RO Romania, East Europe P6799 Investors, NEC COMP Company News P6799 The Financial Times London Page 2 213
Europe's big day a small affair Publication 931102FT Processed by FT 931102 By ANDREW HILL BRUSSELS

YESTERDAY was a strange birthday for what may be the most discussed, least read piece of paper in history.

The Maastricht treaty finally came into force on a day when the Catholic half of the revitalised European Community was having a day off.

No champagne, no fireworks. Most citizens of the 'new European Union' as they are described were oblivious to the fact that overnight their solidarity had been 'deepened', the democratic and efficient functioning of their institutions 'enhanced', and their economic and social progress 'promoted'.

In Brussels, those same institutions were barely functioning. The European Commission and Council were enjoying the All Saints Day holiday. The treaty itself also appeared to be on holiday.

The Gower Street branch of Dillons the UK booksellers had no copies, 'and we haven't had them for some time'.

There was some confusion over copies at HMSO Books, source for UK government publications - 'there's one done by the EC, which would be for Europe and Britain generally, and the government itself has done one that relates to Britain' - before the Commission's version was tracked down.

As for the specific rights of the EU citizen, some may find them rather disappointing.

Expatriate EU citizens get the privilege of being able to vote in or stand for elections to their local municipalities or the European parliament in the place where they live, but as there are only 5m expatriates in the whole Union that may not amount to much of a democratic breakthrough.

Mr Len Lewis, electoral services manager at Lambeth Borough Council, was certainly not expecting a flood of requests from disenfranchised Portuguese wishing to represent south London at Strasbourg. 'You're the first to call about it,' he said yesterday.

Not satisfied? The Maastricht treaty tells you how you can complain about this new-fangled Community and its institutions. You can petition the European parliament directly or - in particularly bad cases - complain to an ombudsman, appointed by the parliament.

Alas, the ombudsman could not be contacted yesterday. He, or she, has not yet been appointed.

As for the town of Maastricht itself, it was possibly the only place to allow itself a modest celebration. Now that it is no longer synonymous with particularly nasty disputes between Euro-enthusiasts and Euro-sceptics it is thinking of subtitling itself 'treaty town'.

BE Belgium, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 2 416
Romanian 'pyramid' suspends payments Publication 931102FT Processed by FT 931102 By REUTER BUCHAREST

A PYRAMID investment company which launched a money-spinning craze in Romania said yesterday it had suspended payments to investors for two days because of 'organisational problems' but denied reports it was about to collapse, Reuter reports from Bucharest.

The Caritas company described as unfounded a wave of local press stories saying the money chain was losing momentum and that it would soon grind to a halt.

'It is true Caritas suspended payments for two days,' a company official told Reuter by telephone from Cluj. 'But this was only because the company wants to organise its work better.'

It was the second time in a month that Caritas has interrupted payments for several days. More than 4m Romanians have billions of lei tied up in the scheme, which works like a chain-letter game and promises depositors a return of eight times their initial deposits after just three months.

This has captured the imagination of a nation where monthly pay rarely reaches Dollars 60 (Pounds 40), the annual inflation rate runs at almost 300 per cent and bank interest rates lag behind at 70 per cent.

'Caritas is agonising. . . investors will withdraw their money and the scheme will collapse,' the independent daily newspaper Romania Libera claimed yesterday.

The daily Evenimentul Zilei said: 'Caritas has run out of steam. The decision to suspend payments will spark panic and concern among investors and cut the number of investors.'

The Caritas official, however, said payments would resume today.

A fall-off in the number of new depositors would erode the base of the pyramid. Pyramid schemes have spread like wildfire in Romania since Caritas hit the limelight last July.

Eyewitnesses in Cluj said there was no panic outside Caritas offices there yesterday. 'Everything is quiet here,' a local reporter said.

The company said in a fax that payments had been suspended because it was understaffed and wanted to avoid 'mistakes which might occur in handling the large volume of work'. 'It is more and more difficult for us to adjust our schedule to the programme of banks, which close down over the weekend, while we stay open round the clock,' it said.

Last week, Caritas opened a branch in the Jiu Valley coalfield and thousands of miners lined up to deposit funds.

The scheme has drawn warnings from opposition critics, and even from President Ion Iliescu, that it could spark financial chaos or riots if the chain broke down.

Caritas RO Romania, East Europe P6799 Investors, NEC COMP Company News P6799 The Financial Times London Page 2 436
Reconstructing bankrupt east Germany: A tale of two cities - Judy Dempsey talks to the mayors of Halle and Rostock Publication 931102FT Processed by FT 931102 By JUDY DEMPSEY

FEW yearn for the days when eastern Germany was communist-ruled. But many remember how the capital, East Berlin, selected the party bosses who ran the main cities.

There were several key cities to which the aspiring party apparatchik sought promotion. One was Rostock, on the Baltic Sea, another Halle, deep in the heartland of 'middle Germany'.

Each with a population of 300,000, they were important political and economic sinecures of the old regime. Resources were pumped into Rostock, aimed at making it the most important port in eastern Germany and showing it could compete with the western shipbuilding centres of Hamburg and Bremen.

Red Halle, as it was known, also had funds directed its way to shore up heavy industry. But the infrastructure, including water, sewerage, housing and heating, was neglected.

Over-fulfilling the Five Year Plan in machine tool production took precedence over everything else.

Three years after unification, the mayors of both cities are struggling to rebuild an entire social, economic and local government infrastructure from scratch. They also have to cope with unemployment rates of more than 40 per cent.

No wonder Mr Klaus Rauen, mayor of Halle, Saxony-Anhalt, sees his job as a mission. As a 'Wessi', or westerner, he believes he can contribute to unification by passing on his experience as former mayor of Bonn.

'It has been rewarding and frustrating. I work about 15 hours a day. I don't know for how much longer I can continue this life-style,' he says in his office in the centre of Halle.

Mr Klaus Kiliman, his counterpart in Rostock, Mecklenburg-Vorpommern, is an 'Ossi', or easterner. He had never dabbled in politics before unification. He is a theoretical physicist. 'I thought I had something to contribute after the Wende (the change). It has been hard. I often think about returning to my physics,' he says.

Weak, coalition-led councils, suffering from inexperience and internal bickering, have hindered the consolidation of local government structures in both cities. Moral and financial bankruptcy have played their part as well.

'The people of the former east Germany still feel disoriented, and ashamed because they feel they were in a system which has lost all respect,' says Mr Rauen. He wants to restore the inner city as a means of generating self-confidence, pride and a sense of the pre-communist era. The problem is money.

Halle is also virtually bankrupt. It has a current expenditure budget of DM1bn (Pounds 400m) and an investment budget of DM300m. However, the collapse of the region's uncompetitive industry means that the city's share of company tax revenue is less than DM65m a year. Personnel costs, including administration wages, kindergartens and other employee services, account for 53 per cent of expenditure. To finance the deficit, the city has borrowed DM100m from banks and in the bond market.

Rostock has a budget of DM700m and a deficit of DM81m. The council's personnel costs account for 55 per cent of the budget - the average in western Germany is 35 per cent. Mr Kiliman has raised DM81m in the bond markets or through bank credits to finance his city's deficit.

Both mayors are legally obliged to reduce personnel costs. Halle has already cut staff from 13,000 in 1991 to 6,000. Mr Rauen intends to reduce it to 4,000. He has until the end of the year to dismiss staff. After that, each council employee will have tenure.

Mr Kiliman, a Social Democrat who heads a weak coalition government of Christian Democrats and Social Democrats, says he also is committed to cutting his staff to 4,000, a third of the 1990 level. But the local parliament is opposing it. Cuts mean closing down kindergartens and other employee services.

Neither Mr Rauen, a Christian Democrat, nor Mr Kiliman needs any persuading about the need to create a lean, efficient city council. In 1992, the eastern Lander, or states, employed 304 civil servants for each 10,000 inhabitants - 30 per cent more than western Germany. The eastern local councils employed 427 civil servants for each 10,000 - twice the western level. According to the German Federation of Taxpayers, 'eastern German administration has about 440,000 employees more than can be justified'.

Yet some see a positive side to the dire state of the cities' finances. A shortfall of revenue could speed up the privatisation of local services, almost taboo in western Germany.

'If we do not have a mixture of public and the private investment, we will not be able to overcome our (financial) problems,' says Mr Rauen.

Privatisation of water services in Rostock and electricity in Halle, both of which were difficult to push through, revealed the unstable and paradoxical nature of eastern Germany's political alliances. In Rostock, the Social Democratic SPD voted for privatisation, and the Christian Democrat CDU opposed it. In Halle, the SPD and the refashioned communist PDS tried to block it.

Mr Tjark Woydt, head of Deutsche Bank in Rostock, explains how unification has thrown unexpected alliances. 'Three years ago, politics in eastern Germany was like a casino game, with everyone vying for a place in the new order,' he says.

'Today, officials are slowly trying to make up their minds about where they stand politically. It's taking time. People still don't know where they stand ideologically. They don't know what the main parties stand for.'

Neither Mr Rauen nor Mr Kiliman has decided whether to remain on the eastern German political scene long enough to see the emergence of stable political structures. 'It's an uphill struggle,' says Mr Rauen. 'But both westerners and easterners have to make it together.'

DE Germany, EC P9121 Legislative Bodies P9611 Administration of General Economic Programs NEWS General News P9121 P9611 The Financial Times London Page 2 979
Tide of ethnic Germans recedes Publication 931102FT Processed by FT 931102 By JUDY DEMPSEY and REUTER BERLIN

THE number of ethnic Germans seeking to live in Germany has fallen sharply in the past 10 months, with the former Soviet Union accounting for the greatest reduction, the Interior Ministry announced yesterday.

Mr Horst Waffenschmidt, state secretary, said 187,658 ethnic Germans, or Aussiedlers, from the former Soviet Union, had applied to move to Germany, nearly 100,000 fewer than in the same period last year. More than 158,815, particularly from the Omsk and Volga regions, and Saint Petersburg, have arrived in the country since January.

Applicants from eastern Europe are also falling, partly because the ethnic German community has dwindled over the past 10 years, but also possibly because of the economic climate and growing unemployment in Germany. The number of ethnic Germans from Poland fell to 9,100 from 25,045, and from Romania to 5,643 from 12,922. In all, 168,653 ethnic Germans have settled in Germany since January.

The German authorities have tried to restrict the number of ethnic Germans, who have an automatic right to citizenship, by promoting German-language schools, newspapers and cultural centres where they live. But Mr Waffenschmidt said yesterday they would only remain in their region if they had incentive to do so.

German prosecutors yesterday began investigating an assault by right-wing extremists on US athletes at the weekend, Reuter reports from Berlin. Authorities in Oberhof said about 15 skinheads shouted racist insults at two US athletes, both of whom were black. A team-mate who came to their aid was beaten.

DE Germany, EC P9721 International Affairs P9229 Public Order and Safety, NEC NEWS General News P9721 P9229 The Financial Times London Page 2 284
Dutch working life shrinks Publication 931102FT Processed by FT 931102 By REUTER VOORBURG

Early retirement and increasing use of disability benefits have substantially lowered the average number of years Dutch people work, the statistics bureau said yesterday, Reuter reports from Voorburg, Netherlands. Men of 80 years and older have worked an average 49 years of their life while men aged 65-69 have spent 42 years working. For women the scores are 38 and 33 years.

NL Netherlands, EC P9441 Administration of Social and Manpower Programs STATS Statistics P9441 The Financial Times London Page 2 93
Czech bank merger Publication 931102FT Processed by FT 931102 By REUTER PRAGUE

A merger between two Czech commercial banks, Investicni Banka and Postovni Banka, should be approved soon, a national bank spokesman said yesterday, Reuter reports from Prague. Investicni Banka last month bought just under 70 per cent of Postovni Banka's shares.

Investicni Banka Postovni Banka CZ Czech Republic, East Europe P6081 Foreign Banking and Branches and Agencies COMP Mergers & acquisitions P6081 The Financial Times London Page 2 79
Austrian airline strike talks fail Publication 931102FT Processed by FT 931102 By PATRICK BLUM VIENNA

NEGOTIATIONS failed yesterday to end a strike by pilots and cabin staff at Austrian Airlines that has grounded the loss-making national carrier for the past four days amid recriminations between unions representing flight and ground personnel, writes Patrick Blum in Vienna.

Mr Christian Schmid, leader of the ground staff, denounced as senseless the strike called after management announced plans to cut 500 jobs next year from the 4,500-strong workforce. On Sunday, Mr Albin Schwarz, leader of the 1,200 striking flight staff, called for a new management, guarantees of the airline's independence in any future co-operation agreement with other airlines, and for a decisive say for unions in decisions affecting personnel.

Austrian Airlines AT Austria, West Europe P4512 Air Transportation, Scheduled PEOP Labour The Financial Times London Page 2 143
Italy moves nearer state steel sell-off Publication 931102FT Processed by FT 931102 By ROBERT GRAHAM ROME

ITALY's state steel company Ilva has decided to split its activities into three, marking an important step in the state's withdrawal from loss-making steel production.

One operational company will be formed round flat products produced at Taranto's integrated complex and at Novi Liguri, Genoa. A second will concentrate on stainless steels at Terni in Umbria.

Iri, the state holding that controls Ilva, intends these two operational companies to be privatised. A third company will include all those assets and activities which it intends to liquidate.

Mr Romano Prodi, the head of Iri, first unveiled plans to split up Ilva in July in an attempt to break the deadlock between Italy and the European Commission over state subsidies to the industry and to remove the financial burden of Ilva's L7,580bn (Pounds 3.15bn) debts. However, the idea came later of forming a special company to liquidate unsaleable assets - and it is assumed that that company will take on Ilva's losses which totalled L1,700bn in 1992.

The company charged with liquidation will also handle 5,545 of the 11,500 redundancies envisaged over the next three years from Ilva's present workforce of 34,000. The job losses risk provoking serious unrest, but the government is to be asked to fund generous early retirements and back new industrial projects in the worst affected areas.

It is thought likely that Mr Hayao Nakamura, the Japanese steel executive brought in this year to run Ilva, will be asked to take over the management of the flat products company. But much will depend on who decides to buy out this operation based round Taranto, Europe's biggest steel complex, with a capacity of 10m tonnes a year.

This week, Mr Nakamura, who formerly worked for Nippon Steel, is accompanying Mr Prodi on a trip to Tokyo to discuss the privatisation of Iri activities with Japanese investors.

Ilva was formed in 1988 from the collapse of the previous state-run group, Finsider.

Ilva IT Italy, EC P3312 Blast Furnaces and Steel Mills P3316 Cold Finishing of Steel Shapes COMP Company News P3312 P3316 The Financial Times London Page 2 363
Volvo defers shareholders meeting on Renault merger Publication 931102FT Processed by FT 931102 By HUGH CARNEGY and CHRISTOPHER BROWN-HUMES STOCKHOLM

VOLVO has bowed to domestic criticism of its proposals to merge with Renault by postponing a planned shareholders' meeting called to approve the agreement. The Swedish carmaker said it was seeking 'further clarification' of French plans to privatise the state-owned automotive group.

The two companies, which have operated a strategic alliance for the past three years, announced their intention on September 6 to create one of the world's largest vehicle makers.

But opposition to the deal in Sweden has escalated over the past month as critics said it amounted to a takeover of Volvo's car and truck operations by the French state, raising doubts that it would win shareholder support at a meeting planned for November 9.

Volvo's Swedish institutional shareholders expressed concern that there were no guarantees that Renault would be privatised by 1995 as promised, and that Volvo's proposed 35 per cent stake in the new company could be compromised by the provisions of a 'golden share' the French state plans to hold after privatisation.

'We have been influenced by the intensive debate that has been conducted recently and we have been taking the criticism that has been advanced with the greatest seriousness,' said Mr Soren Gyll, Volvo's chief executive, after the board's decision to postpone the shareholders' meeting to December 7. '(The delay) will give us the possibility to see if there is information which would change the situation.'

Volvo said it would take up the issue of privatisation and the golden share with the French government. But it was not clear whether Paris would be prepared to give further assurances on its timetable for the sale of Renault, or on its determination to hold the right of veto over any shareholding in Renault-Volvo above 20 per cent through the golden share.

Volvo had until yesterday insisted that the merger deal could not be renegotiated, and had rejected suggestions that the merger be postponed until after Renault had been privatised.

The decision to postpone the shareholders' meeting was a stinging blow to Mr Pehr Gyllenhammar, the Volvo chairman, who has said the future of Volvo's car and truck making in Sweden depends upon the deal.

Volvo Renault SE Sweden, West Europe FR France, EC P3711 Motor Vehicles and Car Bodies COMP Mergers & acquisitions P3711 The Financial Times London Page 1 404
World News in Brief: Karpov is 'champion' Publication 931102FT Processed by FT 931102

Russia's Anatoly Karpov defeated Jan Timman of the Netherlands to win the world chess championship sanctioned by Fide, the international chess federation.

ID Indonesia, Asia P794 Commercial Sports NEWS General News P794 The Financial Times London Page 1 50
World News in Brief: Hallowe'en shooting Publication 931102FT Processed by FT 931102

Three boys were shot dead as a group of teenagers walked home from a Hallowe'en party in Pasadena, California. Police are hunting two gunmen.

US United States of America P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 56
World News in Brief: Boys' murder trial starts Publication 931102FT Processed by FT 931102

Two schoolboys were alleged to have murdered Liverpool toddler James Bulger by beating him with bricks, stones and a piece of metal before laying his body across a railway track, as their trial started at Preston Crown Court. The boys, 10 at the time of the attack, have pleaded not guilty to murder.

GB United Kingdom, EC P9211 Courts NEWS General News P9211 The Financial Times London Page 1 82
BT tariff cuts to take Pounds 125m off phone bills Publication 931102FT Processed by FT 931102 By ALAN CANE

BT is cutting the cost of weekend telephone calls and reducing certain business rates in a parcel of tariff changes which should take about Pounds 125m off the nation's phone bills.

Further reductions are in prospect, including a version of a US scheme, 'Friends and Family', where discounts are given on frequently dialled numbers.

The cuts, which will take effect from December 4, reflect increasing competition between telephone operators and a tough pricing regime. Under an agreement with telecoms watchdog Oftel, BT is bound to keep increases in its main charges to the rate of inflation minus 7.5 percentage points. With inflation below 2 per cent, BT has to find ways to cut prices by some Pounds 500m.

Mr Michael Hepher, BT group managing director, refused to predict the effect of the cuts on profitability, arguing that BT was due to report its half-year results in a few days.

The cuts were welcomed by the Telecommunications Users Association, which said the new tariffs showed that BT was taking seriously the influence of new competitors. The association said it would continue to lobby for more accurate time-based tariffs rather than BT's existing 4.2p basic unit method.

Mercury Communications said the changes were a response to its own residential pricing initiatives and the launch of the One-2-One portable phone system.

BT's price reductions were aimed mainly at residential subscribers. A permanent national weekend rate is being introduced that will cut prices by up to 60 per cent. A three-minute call that would have cost between 15p and 25p at the old rate will cost 10p. Public payphones and BT chargecards are included in the new scheme. BT says a three-minute, 100-mile, weekend call will cost 8.4p compared with 40.24p in Germany, 25.09p in the US and 18.47p in Australia.

For business users who lease private circuits, BT has to meet new price controls which limit overall price changes to the rate of inflation. For its advanced Kilostream data communications rentals are being held steady, while connection charges for the faster Megastream circuits will be cut from Pounds 6,200 to Pounds 4,650. Charges for analogue services will increase by an average 1.1 per cent on rentals and 2.5 per cent on connnections.

Union abandons BT strike ballot, Page 12

Lex, Page 24

London stocks, Page 48

British Telecommunications GB United Kingdom, EC P4813 Telephone Communications, Ex Radio COSTS Service costs & Service prices MKTS Market shares P4813 The Financial Times London Page 1 429
Major pledges detailed peace plan for Ulster: Non-violent political parties told to agree to fresh talks as condition for deal Publication 931102FT Processed by FT 931102 By KEVIN BROWN and DAVID OWEN

THE British government promised yesterday to table a comprehensive peace plan for Northern Ireland if the province's four non-violent political parties agree to a fresh round of peace talks.

Mr John Major, the prime minister, told the Commons that the proposals would give 'focus and direction' to the so-called three-strand talks, which collapsed last year when the Unionist parties walked out.

Mr Major gave no details of the peace plan, but Downing Street said it was an attempt to bring about a permanent settlement of the Northern Ireland conflict.

The plan is believed to focus on the establishment of a Northern Ireland assembly and the revitalisation of local government, which has been moribund since the imposition of direct rule in 1974. It also builds on the agreement between the British and Irish governments in Brussels last week, which set out a framework for talks with all Northern Ireland parties except Sinn Fein, the political wing of the IRA.

The plan is aimed largely at the Ulster Unionists, who have long pressed for devolution from Westminster to remove control of the province from the Northern Ireland Office.

Initial reaction from Unionists suggested that the government may have to offer further concessions to tempt the parties back to the negotiating table.

The Rev Ian Paisley, leader of the hardline Democratic Unionist party, last night warned the prime minister that further talks with the Irish government, due to take place tomorrow in Belfast, could 'bring yet further outrages'. In a letter to Mr Major, Mr Paisley says: 'I implore you to hold it elsewhere.' He believes further talks with the Irish government would inflame the Protestant community.

He said that he would agree to talks with the Irish government only if it gave up its constitutional claim to a united Ireland. Mr Paisley said Mr Major had agreed to meet him soon.

Mr John Taylor, Europe spokesman for the Ulster Unionist party, the biggest Unionist grouping, welcomed the prospect of fresh proposals but dismissed the round-table format as 'flawed'. He called for the plan to be discussed in a series of bilateral meetings between the government and the constitutional parties.

Sir Patrick Mayhew, the Northern Ireland secretary, appeared willing to go along with that approach last night.

Sir Patrick said the peace process could resume with 'bilateral private discussions to clear things out of the way, bank what is bankable from last time, and to see what ultimately is a really serious obstacle. Then may be the time to sit round the table'.

Ministers were also drawing comfort from the measured response of Mr James Molyneaux, the UUP leader, who plans to take wide soundings among UUP members before commenting later this week.

Mr Major's decision to offer a fresh incentive to the Unionists to reopen round-table talks marks the end of any prospects for progress on the joint proposals produced by Mr John Hume, leader of the constitutional nationalist SDLP, and Mr Gerry Adams, president of Sinn Fein.

Mr Major yesterday accepted a request from Mr Hume for a meeting at Downing Street to discuss the proposals, but the government has ruled out even indirect contact with Sinn Fein until the IRA declares an unconditional ceasefire.

In Belfast, Mr Adams attempted to resuscitate the Hume-Adams proposals by issuing a statement asserting that 'the leadership of the IRA welcomed the initiative and pointed out that it could provide the basis for peace'.

Unionist party welcomes peace moves, Page 11

GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 1 624
Clarke wins battle over spending: Transport, housing and local government budgets hit hardest as government agrees freeze on expenditure Publication 931102FT Processed by FT 931102 By PHILIP STEPHENS and JAMES BLITZ

THE government yesterday agreed the terms of the toughest public spending round for a decade, heralding a freeze in real terms in most Whitehall budgets for the next three years.

In an unexpected announcement, Downing Steet signalled that a row over defence spending had been settled by Mr Kenneth Clarke, the chancellor, and Mr Malcolm Rifkind, the defence secretary, ahead of a special cabinet meeting this morning.

With only some minor details for the main Whitehall budgets still unresolved, the planned meeting has been scrapped. The remaining details of the spending package will now be finalised at Thursday's regular cabinet meeting and will form part of the first unified tax and expenditure Budget on November 30.

It was clear last night that the transport, housing, local government and agriculture budgets had been the principal victims of the public spending cuts.

Among the projects facing delay or cancellation were the London Crossrail link and the Channel tunnel rail link. The City Challenge urban regeneration scheme is also under threat.

Despite the risk of a Tory backbench rebellion and Mr Rifkind's own threat of a full-scale defence review, the defence budget has also suffered significant cuts from the mid-1990s onwards.

Officials confirmed that a proposed spending ceiling of Pounds 253.6bn for all Whitehall departments for the 1994-95 financial year had been met. In the following year, the total would rise to a maximum of Pounds 263.3bn. The ceiling for the third year allowed for an increase of no more than 1 per cent in real terms.

Mr Clarke's success in freezing expenditure at present levels will please Conservative right-wingers by reducing the pressure to increase taxation.

The Pounds 80bn budget for social security spending - by far the largest of any department - would continue to rise in real terms. Ministers conceded the threat of backbench rebellions had curbed the Treasury's ambition for radical cuts in the welfare state.

But Mr Peter Lilley, the social security secretary, had agreed to legislation to curb invalidity benefit and a clampdown on fraud.

The biggest source of tension in recent weeks had been the level of defence spending for the next three years. Treasury officials had threatened to cut the Pounds 23bn defence budget by several billion pounds, but Mr Rifkind enlisted the support of 20 Tory MPs in resisting deep cuts.

Agreement yesterday followed a meeting between the prime minister and defence chiefs last week. But last night Sir Nicholas Bonsor, the chairman of the Commons select committee on defence, was said to be among those still threatening rebellion if defence spending was reduced by more than Pounds 1.3bn over the next three years.

Health and education were said last night to have won real increases in their spending, though much less than in recent years.

Yesterday's statement took MPs by surprise because there had only been a limited opportunity to discuss spending at last Thursday's cabinet meeting, which was dominated by Northern Ireland.

Last year, five sessions of the cabinet were required to reach general agreement on spending levels before the Autumn Statement.

The spending agreement will allow Mr Clarke to finalise his proposals for revenue. Treasury officials have yet to inform ministers of their taxation plans.

Budget 1993: The secret art of disguising tax rises Page 10

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P9621 Regulation, Administration of Transportation P9531 Housing Programs P9121 Legislative Bodies P9641 Regulation of Agricultural Marketing GOVT Government News P9311 P9621 P9531 P9121 P9641 The Financial Times London Page 1 615
Stock and Currency Markets Publication 931102FT Processed by FT 931102

--------------------------------------------------------------------- STOCK MARKET INDICES --------------------------------------------------------------------- FT-SE 100: 3,164.4 (-6.6) Yield 3.72 FT-SE Eurotrack 100 1,375.31 (+0.70) FT-A All-Share 1,562.16 (-0.2%) FT-A World Index 169.58 (-0.2%) Nikkei 19,438.24 (-264.73) New York: Dow Jones Ind Ave 3,692.61 (+12.02) S&P Composite 469.1 (+1.27) --------------------------------------------------------------------- US RATES --------------------------------------------------------------------- Federal Funds: 3 1/8% (3 1/16%) 3-mo Treas Bills: Yld 3.115% (3.085%) Long Bond 103 1/16 (103 29/32) Yield 6.022% (5.963%) --------------------------------------------------------------------- LONDON MONEY --------------------------------------------------------------------- 3-mo Interbank 5 13/16 (5%) Liffe long gilt future: Dec 113 23/32 (Dec 114 3/32) --------------------------------------------------------------------- NORTH SEA OIL (Argus) ---------------------------------------------------------------------

Brent 15-day (Dec) Dollars 16.03 (15.93) --------------------------------------------------------------------- Gold --------------------------------------------------------------------- New York Comex (Dec) Dollars 362.1 (369.6) London Dollars 362.75 (368.8) --------------------------------------------------------------------- STERLING --------------------------------------------------------------------- New York: Dollars 1.482 (1.4815) London: Dollars 1.481 (1.4865) DM 2.5075 (2.4975) FFr 8.78 (8.74) SFr 2.2225 (2.2075) Y 160.25 (161.25) Pounds Index 80.9 (80.8) --------------------------------------------------------------------- DOLLAR ---------------------------------------------------------------------

New York: DM 1.6957 (1.6795) FFr 5.931 (5.906) SFr 1.50235 (1.492) Y 108.205 (108.5) London: DM 1.6935 (1.6795) FFr 5.9275 (5.88) SFr 1.501 (1.484) Y 108.2 (108.4) Dollars Index 66.7 (66.3) Tokyo open Y 108.325 ---------------------------------------------------------------------

GB United Kingdom, EC US United States of America JP Japan, Asia P1311 Crude Petroleum and Natural Gas P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges P3339 Primary Nonferrous Metals, NEC COSTS Commodity prices COSTS Equity prices P1311 P9311 P6231 P3339 The Financial Times London Page 1 236
Dividends are on a roll for Japanese shareholders Publication 931102FT Processed by FT 931102 By EMIKO TERAZONO TOKYO

FUND MANAGERS investing in Japanese stocks may find themselves with a pile of manure and toilet paper. Forced to cut dividends as earnings are hit by the country's prolonged economic slowdown, companies are starting to compensate shareholders with produce instead.

With a majority of Japanese companies expecting an earnings decline for the fourth successive year, more shareholders are being deprived of dividends.

Comson, a farming machinery maker listed on the Osaka stock exchange, says that instead of dividends it sent its 1,900 shareholders bags of fertiliser made from manure and sludge, while Nippon Pulp and Paper gave 24 rolls of toilet paper to every stockholder. The move also helps reduce high inventories.

Japanese workers are already sacrificing bonuses to help their employers. Managers at NEC last year agreed to accept vouchers which can be swapped for computers and television sets instead of year-end payments.

Some companies hope the gifts will help restore confidence, especially among retail investors disheartened by stock market scandals and last year's plunge of the Nikkei average to a six-year low.

The government had hoped that last week's flotation of East Japan Railway (JR East), the partially privatised regional railway operator, would bring retail investors back into the stock market. However, massive profit taking in JR East shares clogged up the Tokyo stock exchange's computer system, sending the market below the psychologically important 20,000 for the first time in three months. The Nikkei fell 264.73 points yesterday to 19,438.24.

Since Japan's traditionally low payout levels have never been much of an incentive for investors - the current average yield for the Tokyo market is about 0.7 per cent - companies also hope to lure investors with products. In the late 1980s, holders of Tokyo Electric Power shares were presented with electric kettles.

Amid public anxiety surrounding a shortage of rice due to this year's bad summer, Shinden, an electric appliance discounter based in Niigata, northern Japan, has decided to send shareholders bags of premium brand rice.

And as for the products now on offer, 'I don't know what I'd do with the manure, but I could do with the toilet paper,' says Mr Patrick Thompson at Fleming Investment Management in London.

JP Japan, Asia P6231 Security and Commodity Exchanges P6722 Management Investment, Open-End NEWS General News P6231 P6722 The Financial Times London Page 1 404
US airline threatened with strike Publication 931101FT Processed by FT 931102 By RICHARD TOMKINS DALLAS

AMERICAN Airlines, the second biggest US carrier, faces the threat of a strike by its 21,000 flight attendants following the collapse of talks on a cost-cutting pay and conditions deal at the weekend.

The strike could cause chaos for US air travellers because it is set to begin on or before November 22, the Monday before the Thanksgiving holiday weekend - one of the busiest travel weekends.

The dispute casts a shadow over attempts by beleaguered US airlines to restore profitability through deals aimed at big cuts in labour costs.

United Airlines is currently trying to persuade its employees to agree to Dollars 4bn worth of cuts in jobs and pay in exchange for a stake of up to 60 per cent in the ownership of the company.

American Airlines has been talking to its unions for a year about new conditions of employment that would cut labour costs by 20 per cent.

American Airlines Inc US United States of America P4512 Air Transportation, Scheduled PEOP Labour P4512 The Financial Times International Page 3 189
German far-right launches Euro-campaign Publication 931101FT Processed by FT 931102 By DAVID WALLER RASTATT

POLICE armed with machine guns stopped and searched cars as they approached the outskirts of Rastatt in south-west Germany yesterday. Helicopters buzzed overhead and hundreds of green-clad riot-police milled about the streets.

The reason was the gathering of the Republicans, one of Germany's most prominent far-right parties and a disconcerting threat to the country's political establishment in next year's 'election marathon', when there will be no fewer than 19 elections in Germany.

Mr Franz Schonhuber, the former Waffen SS sergeant who heads the party, to applause from 500-plus delegates declared the campaign for the election to the European parliament under way.

His message, well-tempered to the ears of the shopkeepers, small-businessmen and retired policemen and soldiers who swell the party's ranks, was that the Maastricht treaty on European integration was a 'Versailles without war', an agreement which had sold Germany's interests down the river as effectively as the Treaty of Versailles which followed the First World War.

The German Volk had been denied the opportunity to vote directly on the issue, betrayed by Bonn's traditional parties in the same way that Germany's interest were betrayed by those in the political elite who put their seal to the Treaty of Versailles. The Republicans would be the only party to be campaigning in next year's European elections on a clear anti-Maastricht ticket.

Support for the Republicans in the electorate appears to have slowed down, as they have been tarred with the brush of skinhead violence against foreigners. But they only just failed to gain 5 per cent of the vote in recent elections in Hamburg.

DE Germany, EC P8651 Political Organizations P922 Public Order and Safety NEWS General News P8651 P922 The Financial Times International Page 3 298
World News in Brief: River Phoenix dies Publication 931101FT Processed by FT 931102

US film actor River Phoenix collapsed and died in Los Angeles, aged 23. He made his mark as a child actor in Stand By Me and appeared in Indiana Jones and the Temple of Doom, The Mosquito Coast, Little Nikita and Sneakers.

US United States of America P7929 Entertainers and Entertainment Groups PEOP People P7929 The Financial Times International Page 1 73
World News in Brief: Federico Fellini dies in Rome at 73 Publication 931101FT Processed by FT 931102

Film director Federico Fellini died in Rome after two weeks in a coma. He was 73. His most famous films were La Strada, La Dolce Vita, The Nights of Cabiria, 8-1/2 and Amarcord. He won five Oscars, including one for life-time achievement.

Obituary, Page 9

IT Italy, EC P7922 Theatrical Producers and Services PEOP People P7922 The Financial Times International Page 1 78
World News in Brief: European Monetary System Publication 931101FT Processed by FT 931102

Currencies within the EMS grid stabilised as the D-Mark recovered following the Bundesbank's recent interest rate cut and after strikes in Belgium and France. The disparity between the Dutch guilder at the top of the grid and the Danish krone at the bottom widened to just over 6 per cent as investors adjusted their positions at the end of the month.

Currencies, Page 23

DK Denmark, EC DE Germany, EC NL Netherlands, EC P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times International Page 1 101
Dublin puts pressure on Ulster Unionists Publication 931101FT Processed by FT 931102 By KEVIN BROWN and TIM COONE LONDON, DUBLIN

THE IRISH government yesterday tried to add to the momentum behind the Northern Ireland peace process by stepping up pressure on Unionist leaders to join round table talks on the province's future, in the wake of Saturday's murder of seven people by the Loyalist Ulster Freedom Fighters.

Mr Albert Reynolds, the Irish prime minister, said he was determined not to allow the process to be derailed by the killings in a bar in Greysteel, Co Derry.

The initiative was rejected by Mr Peter Robinson, deputy leader of the hardline Democratic Unionist party, who warned that Northern Ireland was close to civil war.

Terrorists from both sides have killed 23 people in the last two weeks in a cycle of violence triggered by last weekend's bombing of a shop in Belfast which killed 10 people. The violence continued yesterday when an RUC officer was wounded in Newry.

Mr Reynolds said Unionists had 'nothing to fear' from the initiative launched by the British and Irish governments in Brussels on Friday.

He said: 'As long as a majority of the people of Northern Ireland wish the present status to remain, that's the way it will be.'

Mr Dick Spring, the Irish foreign minister, said he hoped to set up a series of meetings with Unionist leaders, probably lasting up to 12 months.

But Mr Robinson said the joint statement issued by the two prime ministers was 'an endorsement of the six-point plan for a united Ireland laid out last week by Dick Spring.

'Whoever it was aimed at, it was not aimed at Unionists because it is adopting a nationalist agenda.'

However, ministers were heartened by the restrained reaction of Mr James Molyneaux, leader of the official Ulster Unionist party (UUP), who has made no public comment.

The British government believes that constitutional guarantees and changes to parliamnetary procedures for Northern Ireland legislation may persuade Mr Molyneaux to take part in the talks.

The government is moving to set up a Commons committee on Ulster, and may also scrap the use of non-amendable orders in council for Northern Ireland legislation.

However, other UUP leaders remained wary. Mr David Trimble, the party's home affairs spokesman, said Mr Spring was guilty of 'self-deception.'

Mr John Major is expected to make a statement on the peace initiative in the Commons today, probably as part of a wider report on the EC summit in Brussels.

The prime minister is expected to distance the Anglo-Irish initiative from the peace proposals produced by Mr John Hume, leader of the nationalist SDLP, and Mr Gerry Adams, president of Sinn Fein, the political wing of the IRA.

Mr Hume said in a series of interviews that the SDLP/Sinn Fein proposals remained the best prospect for peace in Northern Ireland. He said it was 'difficult to accept' that the Hume-Adams proposals had been dismissed by the British and Irish governments.

Mr Hume accused Mr Major of being unwilling to discuss the proposals. However, he said he would drop the proposals if he was convinced that he had become an obstacle to peace.

'If the prime minister tells me that he has a peace process with the Irish government that is going to produce a total cessation of violence, and he convinces me that my dialogue is stopping that, then obviously I am not going to be an obstacle to that,' he said.

Downing Street said Mr Hume had not requested a meeting with Mr Major. However, the prime minister is willing to meet party leaders, including Mr Hume, at any time. The British government is determined not to be seen to be talking to the IRA through Mr Hume.

Background, Page 7

IE Ireland, EC GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times International Page 1 649
Russian banks opt to invest overseas Publication 931101FT Processed by FT 931102 By LEYLA BOULTON MOSCOW

RUSSIAN banks have more than Dollars 15bn dollars stashed away in accounts in the west but have made hard currency loans worth less than half a billion dollars to customers within Russia.

Thirteen banks, which account for 80 per cent of Russian hard currency operations, had Dollars 10.03bn in correspondent and investment accounts in western banks at January 1 this year, according to a western study. The same banks had outstanding loans of less than Dollars 300m lent to customers inside Russia. By this June, all Russian banks held about Dollars 15.5bn abroad, according to central bank figures. Loans within Russia were worth about 3 per cent of that sum. The figures compiled from official sources and the banks are an index of the financial chaos within the Russian economy. While the banks have large amounts of hard currency abroad, the government is rescheduling debts owed to the west, seeking other forms of international finance help it promote business investment. Many Russian companies with export potential have money but do not trust the national currency or the authorities enough to keep it at home in roubles. Despite Russia's hunger for investment finance, banks avoid lending within the country - except to clients which earn hard currency and are well-known to them - due to a lack of mechanisms to ensure repayment.

Mr Francis Gelibter, director of Eurosiris Russie, the St Petersburg-based joint venture of Eurosiris, the Paris based consultancy, which conducted the study said: 'If I were the manager of a Russian bank I would do the same because there are few alternatives to placing the money abroad. Lending is risky because you don't know if the person will disappear tomorrow or whether new legislation will come along to ruin the project.'

The money in correspondent accounts partly services the needs of Russian companies which trade with the west. But the report's authors say that with exports of just Dollars 30bn a year, a lot of money is in western banks simply because it is the safest place for it. If dollars are not lent to customers inside Russia, they are automatically transferred to correspondent accounts in the US for lending on capital markets there.

The state owned Veneshtorg Bank, the foreign trade bank, had Dollars 3.54bn in correspondent and investment accounts at January 1 this year, with Dollars 36.8m lent inside Russia. This is separate from illegal capital flight.

According to Foreign Economic Relations Ministry figures quoted by the report, Russia in 1992 lost Dollars 6.4bn through unfavourable barter deals where Russian exporters underestimated the value of what they were bartering to keep the difference abroad in undeclared accounts.

RU Russia, East Europe P6081 Foreign Banking and Branches and Agencies RES Capital expenditures P6081 The Financial Times International Page 1 476
Pandora's box swings open Publication 931101FT Processed by FT 931101 By IAN DAVIDSON

There was not much triumphalism at Friday's European Summit marking the entry into force of the Maastricht Treaty. True, the British government gave a strangled squawk of self-congratulation at the wonderful results of its brilliance in having been ejected from the Exchange Rate Mechanism a year ago. But most leaders adopted a more modest tone.

For the Community and the treaty are both seriously short of political credibility. Maastricht was supposed to launch Europe on the road to Economic and Monetary Union; but to the average voter, the EMU programme must look not just irrelevant but perversely damaging in the worst recession in recent memory. Worse, the Community, which has been sold primarily as a source of economic prosperity, has appeared to offer no policy response to this recession.

Unless growth returns and unemployment falls, governments are still vulnerable to the tide of nationalism and anti-Europeanism which surged in opposition to Maastricht. Chancellor Helmut Kohl and President Francois Mitterrand both remain fully committed to Maastricht. But German voters do not care for the idea of a common European currency and a large proportion of the Gaullists in the French governing majority are in reality hostile to the treaty.

It is under pressure from these anti-European Gaullists that Mr Pierre de Boissieu is being squeezed out of his job as Economic Director at the Quai d'Orsay, essentially because he is identified as the man who made Maastricht.

In short, governments are anxious to stay right away from the kind of ideologically charged controversy about Europe which made the ratification of Maastricht such a misery. They desperately need recovery and hope, growth and jobs; they are waiting anxiously for Mr Jacques Delors' White Paper on growth and competitiveness, the plat de resistance at the full summit in December; and they would much rather avoid another upsetting debate about federalism, supranationalism and the future shape of Europe.

Such a debate is inevitable however, because the Community is facing the prospect of admitting a large number of new member states. Four west European countries from EFTA are already negotiating and hope to join by the end of next year; and a raft of other countries from central and eastern Europe are anxious to join as soon as the Community will have them.

Expansion on such a scale cannot fail, in the most general terms, to change the character of the enterprise: a Community of 25 member states, with their divergences of character and interests, is obviously going to be radically different from the existing Community of 12. Poland is more different, in almost every way, from Holland or Belgium than they are from each other, and these differences of history and geography are deep and permanent.

The central problem of such a large Community is constitutional. There ought to be more majority voting, in order to keep open the possibility of effective decision-making; but in that case more individual member states could be outvoted. In a large Community, whole groups of states with similar interests may be outvoted: the south, or the north, or the poor. In short, the unavoidable question raised by such a large Community is the old unsettled problem of federalism, or whatever you call it.

The debate now starting is not overtly between the nationalists and the federalists, but between the big countries and the small. At present the big countries have a smaller voting weight, in relation to population or GNP, than the small. This gesture of political solidarity was part of the original bargain between the six; but since all the EFTA candidates are small and most of the eastern European candidates are also small, it is now being challenged, more or less openly, by most of the big countries.

Unexpectedly, the first to make the challenge explicit has been Britain. Last week Mr Douglas Hurd, foreign secretary, argued the number of votes required to block a majority decision should be the same after enlargement as before: the equivalent of two big countries plus one small. In theory, such a move could make majority voting more difficult by raising the proportion of votes required for a decision. But Mr Hurd's result could also be achieved by leaving the decision-making threshold unchanged, but increasing the voting weight of the large countries.

The German government appears divided on the issue, and thus paralysed. But France and Spain want a revision of voting weights. Since such a revision will anger their smaller partners and members of EFTA, they will be grateful to Britain for opening the Pandora's Box.

The small countries thought they had won a reprieve on the voting weight issue, at least until after the negotiations with the EFTA countries. But in the big countries the penny has at last dropped: once the EFTA countries get in on favourable terms, they will certainly not agree to sacrifice their voting privilege; even if they did, their electorates would certainly vote down such a treaty change in the inevitable referenda. A change in the voting system must be now, or it will be never.

The voting issue is also being driven by talk about reforming the Commission. There are now 17 Commissioners, which many think is too many; most agree that 21 after enlargement would be far too many; yet no country wants to give up its Commissioners. The reason is that the Commission takes more and more of its decisions by simple majority vote; and most Commissioners tend to vote by nationality, even though the Treaty forbids it.

QR European Economic Community (EC) P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 32 949
Monday Interview: Tackler who can fight dirty - Sir Peter Levene, new chairman and chief executive of Canary Wharf, talks to Robert Peston Publication 931101FT Processed by FT 931101 By ROBERT PESTON

As a life-long supporter of Chelsea Football Club, Sir Peter Levene, the prime minister's personal adviser on efficiency in government, has become used to sharp reversals of fortune. Though he says that his patron, Mr John Major, has lost his stomach for the fortnightly punishment at Stamford Bridge, Chelsea's stadium, Sir Peter continues to occupy his season ticket seat, week-in week-out, together with his three children.

Coping with Chelsea's vicissitudes is probably ideal training for his latest job, starting today, as chairman and chief executive of Canary Wharf, owner of the Pounds 2bn east London property development.

Though Canary Wharf was conceived in the mid-1980s as London's second business centre after the City, when confidence in the future of the Docklands development in east London was at a peak, its financial difficulties led to the collapse of one of the world's most powerful property empires, Mr Paul Reichmann's group of Olympia & York companies. They also meant colossal losses for 12 commercial banks which lent Mr Reichmann Pounds 671m for the project.

Indeed, the failure to find many tenants for the 4.3m sq ft of new office space - by next year it will be half let and the latest tenant, the Daily Mirror, was lured by the offer of rent-free offices for five years - cast a blight on the entire Docklands development.

But Sir Peter - son of a dealer in antique silver and who as an alderman of the City of London is likely to be Lord Mayor around the year 2000 - is in optimistic and combative mood: 'The reality is that it's a great development. There is nowhere else in the UK where a big company can find enough space to bring together all its head-office functions in one high-quality building.'

Mr Reichmann originally tried to recruit Sir Peter before Canary Wharf went into administration in 1992. With Canary Wharf out of administration last week, Sir Peter was offered the job by the banks which lent Mr Reichmann money and now own the properties.

Sir Peter says there is a vital difference between Mr Reichmann and himself: 'I fight dirtier.' His tough-tackling approach is evident in his role as Mr Major's efficiency adviser and overseer of the efficiency unit, which he intends to retain despite taking on the Canary Wharf job. Last week there was controversy over reports that the unit plans to recommend that all state pension recipients should be issued with plastic cards to allow their identity to be checked by computer.

Although Sir Peter refused to comment on the reports, colleagues say he is lobbying hard for the scheme, which he estimates could eliminate more than Pounds 800m a year in social security fraud.

He will ruffle more feathers this week when Mr William Waldegrave, the public services minister, announces the results of the efficiency unit's most important project, the market-testing programme. This was a project launched last November whose object was to put out to tender Pounds 1.5bn of work done by government departments, from cleaning and secretarial services to the collection of official statistics and naval surveillance operations for Customs.

In the event, several hundred million pounds of work has been subjected to the tendering process, about half being awarded to the private sector. Sir Peter is thus braced for criticism that he is not introducing competition fast enough.

Although he cannot comment until Mr Waldegrave has made his statement, colleagues say the Pounds 1.5bn target was unrealistically high, given that it was 60 times greater than the pilot programme. They add he believes that success depends not on how much is awarded to the private sector, but on whether the civil service has been made more efficient.

However, some private sector companies complain their bids have been obstructed by conservative department heads, who actually choose between the competing tenders, though the process is overseen by the efficiency unit. Sir Peter is unmoved: 'I have had an equal number of complaints from civil servants that we are making it too easy for the private sector. If both sides are complaining, I reckon I must have got it about right.'

He has got used to measuring his success by the level of criticism he receives - and the more the better. His first government appointment came in 1985, when he was picked to be chief of defence procurement by the then defence secretary, Mr Michael Heseltine, who became a close friend. This caused a furore as Sir Peter was chairman and managing director of a fast-growing defence contractor, United Scientific Holdings, at the time.

Civil servants were outraged that Sir Peter was being paid Pounds 95,000 a year, more than twice the rate of his predecessor.

He also earned the ire of defence companies by more than doubling the proportion of contracts subject to competitive tendering and then making payments to contractors conditional on the progress of projects. He says these measures led to savings of about Pounds 800m. 'When I got to the MoD, companies thought we were an easy touch. When I left, they regarded us as an awkward customer.'

His 'most daunting challenge', he says, came when he left the Ministry of Defence in 1991 and took over the chairmanship of the Docklands Light Railway, the new railway through London's east end to Canary Wharf. 'The DLR was so unreliable it had become a national joke,' he says.

Because he 'knew absolutely nothing about railways', he decided to treat the DLR as if it were 'a high-tech computerised system with software which did not work', analogous to some defence projects overseen by the MoD. He recruited MoD colleagues and the trains now run smoothly.

He has reluctantly given up the DLR chairmanship now that he is at Canary Wharf. Although adept at dodging conflicts of interest, he complains that 'some people actually thought that, as chairman of both, I would alter the timetable and run more trains to Canary Wharf'.

He is also giving up his positions as deputy chairman and managing director at the UK operations of Wasserstein Perella, the US investment bank, though he will remain as a non-executive director.

Because he has never before worked in the property industry, he accepts that people will question his suitability for the Canary Wharf job. But Sir Peter believes his success at the DLR shows that direct experience of an industry is not vital. He also points out that the bulk of his job will be selling the attractions of the development to potential tenants. 'As chairman of United Scientific my business was marketing,' he says.

His initial idea is to locate 'the best restaurant in London' at the top of the Canary Wharf tower, the tallest building in the UK. 'It would be the sort of place where the chairmen of big companies would go,' he says. 'Once they have been down to the site, I am sure I can persuade them of the merits of moving their companies to Canary Wharf.'

His confidence is such that he talks of developing the entire 90-acre site, which would mean the construction of 13m sq ft of office space in total, enough for 50,000 people.

Although he relishes the challenge at Canary Wharf, there was one job he coveted more than any other and which has now probably slipped from his grasp forever. In the autumn of 1991, he and his 'good friend' Lord Weinstock, managing director of the General Electric Company, discussed a plan which would have involved GEC taking a big stake in British Aerospace and Sir Peter then joining the board of BAe, the UK's biggest defence contractor. The plan foundered on BAe's hostility and Sir Peter was disappointed, though GEC remains keen on BAe.

'I would have liked to play a part in it, because it was what I was trained to do,' he says. 'On the other hand, the defence industry is pretty tough at the moment, probably even tougher than the property industry.'

----------------------------------------------------------------------- PERSONAL FILE ----------------------------------------------------------------------- 1941 Born Pinner, Middlesex. 1960-63 University of Manchester, BA in Economics and Politics. 1963 Joined United Scientific: man. director, 1968-85; chairman, 1981-85. 1984 Elected alderman of the City of London. 1985-91 Chief of Defence Procurement, Ministry of Defence. 1991-4 Chairman, Docklands Light Railway. 1992- Prime Minister's Adviser on Efficiency, and Special Adviser to Trade and Industry Secretary. 1993- Chairman and chief executive of Canary Wharf. -----------------------------------------------------------------------

Canary Wharf Holdings GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries PEOP People CMMT Comment & Analysis P6552 The Financial Times London Page 32 1458
California dream put on hold Publication 931101FT Processed by FT 931101 By MICHAEL PROWSE

The depth of California's recession has taken most local forecasters by surprise and remains under-reported on the east coast, which is two years into an economic recovery. Californians are not exaggerating when they claim to be still ensnared in the worst downturn since the Great Depression.

The figures are strikingly bad. With an unemployment rate of 9.4 per cent, against 6.7 per cent in the US as a whole, the state faces a jobs challenge of European rather than American dimensions. Manufacturing employment is down 14 per cent from its peak in 1990 and is still falling. Retail sales are down about 12 per cent in real terms, three times the fall in personal incomes, suggesting a crushing of consumer confidence. In Los Angeles county, which has suffered 70 per cent of the state's job losses, the property market has suffered a London-style meltdown. A typical home in an affluent area is selling for about Dollars 480,000 against Dollars 670,000 in 1990, and prices may go still lower. For the first time in memory, workers are heading east for jobs.

'If you want a job this century, leave California,' warns Mr Larry Kimbell, head of the business forecasting unit at the University of California at Los Angeles. He does not expect the recession to bottom out until late next year and predicts the state will not regain its pre-1990 growth trend until after the turn of the century.

The outlook for Los Angeles is worse still, according to Mr Jack Kyser, chief economist at the privately funded Economic Development Corporation, based in Hollywood. In spite of an upturn in movie studios and signs of a revival in tourism as memories of the LA riot fade, he does not expect sustained job growth until 1995. In Palo Alto, a region much less affected by defence cuts, Mr Steve Levy of the usually upbeat Centre for Continuing Study of the Californian Economy is almost as pessimistic. Although activity may have stopped declining, 'there is no sign of an upturn', he says.

The grim figures are provoking an intense debate within the state. One camp sees the problems as essentially temporary: a reflection of the combined impact of several short-term shocks. The most serious is obviously the 20 per cent decline in federal defence spending in California, which has led to a drop in aerospace employment, for example, of about a third since 1990. But this was exacerbated by the bursting of the real estate bubble, the cessation of inward investment from Japan and the weakness of foreign trade: California accounts for about a fifth of US exports.

The other, gloomier view is that the difficulties, while partly cyclical, also reflect structural problems: a complacency that took root during the long years of effortless prosperity. Mr Lew Coleman, vice-chairman of BankAmerica in San Francisco, says about half the state's economic base (not just defence-related industries) is restructuring in an effort to improve productivity.

'This cycle is probably several years from being completed but it should produce a more competitive state economy,' he says. The restructuring thesis helps explain the puzzling short-term weakness of service industries: instead of taking up the slack as in previous recessions, non-manufacturing jobs contracted in both 1991 and 1992 and will probably fall again this year.

The state government is wrestling with big increases in social spending that partly reflect the short-term burden of rapid immigration. (California, with 12 per cent of the population, absorbs a third of legal immigrants to the US and about 50 per cent of illegal immigrants.) But even allowing for this, its performance until recently was poor: a steady increase in the tax and regulatory burden co-existed with a deterioration in infrastructure, educational standards and public safety. For business and individuals alike, this has made California a 'bad buy'.

Some pundits are defiantly optimistic. Mr Joel Kotkin, a Los Angeles TV reporter and author, claims the state is going through a healthy Schumpeterian process of 'creative destruction'. He translates every negative into a positive: cuts in defence jobs, for example, are good because they increase the availability of skilled manpower for rapidly growing small, high-technology companies; the fall in housing prices makes Los Angeles more affordable for the young people still flocking to the region. The public gloom reflects the influence of the industries that are dying - and thus clamouring for state or federal assistance.

Mr Kotkin may overstate his case. But why be too gloomy about the long-term prospects of a state that boasts both Silicon Valley and Hollywood, crucial players in many industries of the future such as 'information superhighways'? In general California is strong in precisely the sectors - enter tainment, high-tech manufacturing, professional services and foreign trade - that are likely to enjoy above-average growth in coming decades.

With the passage of a budget on time this year and enactment of important tax reforms, there are signs that Sacramento, at last, is getting its act together. Add to this the state's vast consumer market and its favourable position on the Pacific Rim (and as a gateway to Latin America) and there is surely reason to believe that the Californian dream is on hold rather than cancelled.

US United States of America P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Economic Indicators P9311 The Financial Times London Page 32 905
Foreign Exchange and Money Markets: US job data awaited Publication 931101FT Processed by FT 931101 By PETER JOHN

ECONOMIC problems surrounding Belgium and France refuse to go away and could prompt continued weakness of the respective currencies this week. Meanwhile, many economists will be waiting for the latest employment data from the US, writes Peter John.

Belgium's problems were highlighted on Friday by a mass trades union demonstration to coincide with the EC summit in Brussels.

Workers protested at the government's plans to reduce wages and jobs and the country's transport system was disrupted.

At the end of last week, some foreign exchange dealers said Belgian companies were busy selling Belgian francs to ensure they were covered against further falls in the currency.

Many financial markets are closed today for All Saints Day. Tomorrow France and Germany will hold their twice-yearly conference on bilateral convergence and any concrete statements on growth could give some help to the French franc.

On Thursday, the Bank of France's weekly reserves statement is set to attract attention. It will cover the period after the D-Mark slipped following the Bundesbank's last interest rate cut. Economists have said the Bank of France has been slow in rebuilding its reserves lost during this summer's crisis over the European exchange rate mechanism and a short period of D-Mark weakness against the franc might have given it a chance to redress the balance.

On Friday, the US announces its employment figures for October and Midland Global Markets forecasts a pick up of only 50,000 over the month compared with 156,000 in September. However MMS International, the financial information company believes the figure will rise by 165,000.

BE Belgium, EC FR France, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 29 297
Construction Contracts: Work rolls in for Conder Publication 931101FT Processed by FT 931101

CONDER PROJECTS, Miller Construction's specialist design and build business, has won a total of Pounds 12m orders in Scotland, Co. Durham, Nottingham and Surrey.

The two largest contracts are for residential accommodation - the first, valued at Pounds 7m, to construct two, three and four-storey en suite student accommodation at Nottingham Trent University.

The second contract, for Miller Conder Projects, is to build three-storey en suite accommodation and associated facilities for 118 staff and trainees at the Scottish Police College in Kincardine, Fife. Work has just commenced on site and the contract value is Pounds 3.4m.

Conder has also been hired to construct advance factory units in Co. Durham for English Estates.

Conder Projects GB United Kingdom, EC P1522 Residential Construction, NEC P1542 Nonresidential Construction, NEC MKTS Contracts P1522 P1542 The Financial Times London Page 23 149
Construction Contracts: Gammon wins Pounds 370m orders Publication 931101FT Processed by FT 931101

GAMMON CONSTRUCTION, the Hong Kong-based company jointly owned by Trafalgar House Construction and Jardine Pacific, has won orders worth Pounds 370m (HKDollars 4.2bn), including its first significant contract in Indonesia.

The largest orders are for two sub-contracts worth Pounds 120m on the Western Harbour Crossing for Nishimatsu Construction Company. The main contract involves the design and construction of a third immersed tube road tunnel under Hong Kong Harbour to include northern and southern approaches.

The tunnel will provide a vital link between Hong Kong Island and West Kowloon.

Gammon will construct all the land based works on Hong Kong Island - 3.5km of pre-stressed elevated highway structures founded on barrettes and bored piles, a 300m long cut and cover tunnel, to be formed by top down construction between diaphragm walls, numerous linking ramps and an underpass, extensive drainage and utilities.

In Indonesia, Gammon in joint operation with P T Total Bangun Persada will build the Pounds 60m Landmark III and IV office towers at the Landmark Centre in central Jakarta (pictured above).

The 31-month project is for developer P T Panen Subur and includes the construction of twin 24-storey office blocks above a two-level basement carpark area and a two-level podium containing retail outlets, carpark and extensive landscaped areas.

Other Hong Kong orders include additional power station work and building on the Dorset House development in Quarry Bay.

Gammon is already building twin office towers of 40 and 43 storeys in the bay area.

Gammon Construction ID Indonesia, Asia HK Hong Kong, Asia P1622 Bridge, Tunnel and Elevated Highway P1542 Nonresidential Construction, NEC MKTS Contracts P1622 P1542 The Financial Times London Page 23 286
Construction Contracts: Joint venture starts on Pounds 68m hospital Publication 931101FT Processed by FT 931101

JOHN LAING CONSTRUCTION has joined up with JOHN PAUL CONSTRUCTION to build the Tallaght Regional Hospital in Dublin.

Recently awarded by the Tallaght Regional Hospital Board, the contract has a value of Pounds 68m.

Work has already started on the project and is scheduled for completion in early 1997.

The hospital is located in south-west Dublin, approximately nine miles from the city centre

The contract is said to be the largest current single building contract in the Republic of Ireland.

The Hospital will cater for 513 patients and is to have a gross floor area of 58,000 sq metres.

Work involves the construction of wards and paramedical departments including treatment, diagnostic and medical service sections.

Also included in the project is an energy centre, workshops, residential accommodation and school of nursing with full catering facilities and ancillary works.

John Simington, managing director at John Paul Construction, said the company was extremely pleased with the award.

'The hospital adds to a strong list of public sector projects for the company since it was first set up in 1949,' he said.

Brian Fitzgerald, a John Laing director, added: 'The joint venture provides much in terms of experience and local knowledge.'

John Laing Construction John Paul Construction IE Ireland, EC P1542 Nonresidential Construction, NEC MKTS Contracts P1542 The Financial Times London Page 23 235
Construction Contracts: MDI gains US hat-trick Publication 931101FT Processed by FT 931101

MORSE DIESEL INTERNATIONAL, a 50 per cent Amec-owned US project management company, has been awarded three contracts worth Dollars 160m (Pounds 106m).

The largest contract, at Dollars 117m, is for the construction management of a 27-storey, 1,263,000 sq ft, Orange County Courthouse in Orlando, Florida.

Work on the 32-month contract will start on site next year and is expected to create up to 2,000 local jobs for subcontractors, vendors and suppliers.

At Menlo Park in California, MDI's San Francisco office has been awarded a Dollars 24.3m contract for a new drug and alcohol rehabilitation unit.

Work involves building a two-storey, 100-bed, domiciliary building for the US Department of Veteran's Affairs. Work is due to start next month.

In Chicago, MDI has won an Dollars 18m deal to construct a new five-storey building for the Children's Memorial Institute for Education and Research.

Due to be completed 1995, the contract will add about 70,000 sq ft of usable research facilities, nearly tripling the institution's current capacity.

Morse Diesel US United States of America P1542 Nonresidential Construction, NEC P1522 Residential Construction, NEC MKTS Contracts P1542 P1522 The Financial Times London Page 23 201
Construction Contracts: Rooff designs Publication 931101FT Processed by FT 931101

ROOFF has been awarded a Pounds 2.1m, 68-week contract to design and build 54 houses for Notting Hill Housing at West Drayton. The development comprises 21 two-bed, 30 three-bed and three four-bed houses to be shared between Notting Hill Housing Trust and Airways Housing Society.

Rooff Group GB United Kingdom, EC P1521 Single-Family Housing Construction MKTS Contracts P1521 The Financial Times London Page 23 74
Construction Contracts: Hugh MacRae extends home Publication 931101FT Processed by FT 931101

Inverness builders HUGH MACRAE has been awarded a Pounds 230,000 contract to carry out building work at Redwoods Nursing Home in Teaninich, Alness.

The contract involves the construction of a 16-bed single-storey extension.

Hugh Macrae GB United Kingdom, EC P1522 Residential Construction, NEC MKTS Contracts P1522 The Financial Times London Page 23 64
Construction Contracts: UK group rebuild in Kuwait Publication 931101FT Processed by FT 931101

6m contract to rebuild an ammunitions facility in Kuwait has been won by the KUWAITI ANGLO DEFENCE COMPANY (KADCOL), a Taylor Woodrow / Wimpey joint operation.

KADCOL will repair and refurbish air-conditioned storage facilities for munitions, maintenance and testing facilities. It will also build a new administration block, and install a telemetry and security system.

Kuwaiti Anglo Defence KW Kuwait, Middle East P1541 Industrial Buildings and Warehouses MKTS Contracts P1541 The Financial Times London Page 23 89
UK Gilts: Bank report likely to prop prices Publication 931101FT Processed by FT 931101 By PETER MARSH

PROSPECTS for inflation in the UK over the next few months will occupy the minds of gilt specialists with the publication tomorrow of the Bank of England's latest report on price pressures. This is expected to paint a picture of inflationary forces throughout the economy being fairly weak and give another push to the generally downward drift in gilt yields of the past few weeks.

This trend received a jolt last week when gilt prices fell sharply on Wednesday soon after a successful Pounds 3.5bn auction by the Bank of five-year benchmark bonds. The decline in gilt prices, which stabilised by the end of the week, was due mainly to a concentrated effort by hedge fund managers in the US to sell European bonds including French and German securities.

However, the Bank's quarterly inflation report tomorrow is likely to put a floor under gilt prices by commenting on the generally favourable trends in inflation of recent weeks. With the Bank's economics department trying to set new standards in thinking of new ways to measure inflation, attention has been focused particularly on its new definition of core inflation - categorised as the year-on-year change in the retail prices index, excluding both mortgage interest payments and indirect taxes covering VAT, excise duties and local authority tax.

In the Bank's last inflation report in August, its economists were fairly bullish about this core inflation figure. They reckoned this would stay at about 3 per cent during the rest of this year and next year. This optimism might have seemed somewhat misplaced in view of the larger than expected September figures for the year-on-year change in the RPI and in RPI excluding mortgage payments - the latter being the Treasury's official measure of underlying inflation - which came out at 1.8 per cent and 3.3 per cent respectively.

However, many gilt analysts go along with the Bank's general line on inflation as expressed in the August report. They say the blip upwards in the year-on-year figures for September was largely a result of changes in retail prices a year ago and should not distract attention from the flat picture for inflation over the past few months. According to economists at Morgan Grenfell, the October figures for the RPI and the Treasury's measure of underlying inflation - due to be released by the Central Statistical Office next week - will be relatively low at a year-on-year 1.7 per cent and 3.2 per cent respectively.

The general absence of worries about price pressures in the economy was behind the signs of latent demand for gilts in the financial markets towards the end of last week. 'After the sell off in gilts in the middle of the week it was noticeable that as soon as the yield difference between gilts and German government bonds crept up to anything just over 100 basis points, buyers for the UK securities entered the market on the grounds that the instruments looked cheap,' said a bond specialist.

Over the week, the yield for the benchmark Treasury 9 per cent bond maturing in 2008 crept up 13 basis points, being quoted on Friday night at 7.2 per cent after 7.07 per cent the previous week. Its price on Friday was 116 1/4 , a fall on the week.

The yield increase for short-dated gilts was slightly higher for the week, with some investors moving out of these instruments on Friday after comments from Mr Eddie George, Bank governor, indicating that an early cut in interest rates was unlikely.

In spite of these comments many traders expect Mr Kenneth Clarke, the chancellor, to bring down bank base rates from 6 per cent at around the time of the Budget on November 30.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 22 656
US Money and Credit: Data could bring back the bears Publication 931101FT Processed by FT 931101 By PATRICK HARVERSON

AS EVIDENCE mounts that the US economy is gradually strengthening, bond yields at the long end of the Treasury market are struggling to hold below 6 per cent.

Last week, the market absorbed a spate of bullish economic numbers surprisingly well. Prices fell and yields rose, but not by much. The yield on the 30-year bond ended the week at 5.965 per cent.

However, another round of data is due out this week that will, in all likelihood, point to a continued acceleration in economic activity, and analysts are not sure that the market will take much more without cracking.

That investors stood their ground so well last week was partly due to some discounting by dealers who had sold bonds in anticipation of bad economic news, and partly because of remarks by Ms Susan Phillips, Federal Reserve governor.

The third-quarter gross domestic product report had been discounted by the the market earlier in the week. The 2.8 per cent rise in GDP was roughly in line with expectations, and at first glance there was little to concern the market about the figures.

However, a closer look revealed a more disturbing fact: that if it had not been for the impact of crop losses incurred during the summer's floods in the Midwest, GDP would have grown by a much more robust 3.4 per cent between July and September. Once the penny dropped, so did prices, pushing yields back over 6 per cent.

The selling did not last long, because the decline in prices quickly attracted buyers. The market was helped by comments from Ms Phillips, who said that she doubted whether economic growth in the fourth quarter could match the 2.8 per cent rate achieved in the third quarter.

Although there was nothing especially shocking in that statement, it was enough to push prices into positive territory, and yields back below 6 per cent.

The reaction to the Fed governor's remarks highlights the skittishness of fixed-income investors. Ten days ago bond prices were sent into a temporary tailspin by an innocuous prime rate cut by Morgan Guaranty.

A week later equally innocuous comments from a Fed official helped spark a rally. This is not the behaviour of a market that knows where it's going. With yields at historic lows, and the Fed more likely to make the next interest rate move an upward one, investors are clearly worried that the bond market may have reached its peak.

This week's data could prove a turning point for bonds. A raft of important economic data is due for release, and if the figures are consistently on the bullish side, the long end of the market could be in for a rough few days.

Today opens with the National Association of Purchasing Management's report for October, which is expected to record signs of a recovery in nationwide manufacturing activity. Tomorrow, September's leading economic indicators are forecast to show an increase of 0.5 per cent, and September single-family home sales to show a rise of about 4 per cent.

The pace picks up on Friday, when the all-important monthly jobs figures are published. Analysts expect the national unemployment rate to stay unchanged at 6.7 per cent, but are predicting a solid 150,000 increase in non-farm payrolls.

If these forecast prove accurate, fixed-income investors will end the week with little doubt in their minds that the economy has accelerated away from the sluggish growth exhibited in the first half of the year. And given that the recent discounting of good economic news has worked its way out through the market, there is very little slack left in bond prices.

After last week's struggle to keep yields below 6 per cent, the market may not have the strength to resist the bears this week.

US United States of America P9311 Finance, Taxation, and Monetary Policy P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P9311 P6081 The Financial Times London Page 22 676
Danish Bonds: Further rate reductions in Nordic region promise large capital gains Publication 931101FT Processed by FT 931101 By CONNER MIDDELMANN

WITH yields in many core European bond markets approaching historic lows, more investors are lured by the yield pick-ups that Nordic bonds offer. Moreover, further rate cuts in coming months are expected to result in hefty capital gains.

Denmark remains one of the region's favourites and is widely expected to outperform several core markets in coming months.

The Danish central bank has taken advantage of the widening of the ERM's fluctuation bands on August 2 to cut its interest rates independently of the Bundesbank, and with inflation a mere 1.2 per cent and unemployment at 12.4 per cent, that trend is set likely to continue.

In the last 2 1/2 months, it cut its important 14-day certificate of deposit rate six times from 11 per cent to 8 per cent.

The Danish krone has held up well in the process, a factor that is expected to facilitate further rate cuts in the near future.

Mr Peter von Maydell, senior economist at IDEA, the market analysis group, expects the central bank's 14-day CD to fall another 100 basis points by year-end and said the next reduction could come towards the end of this week. He said a 1/4 -point cut - rather than the recent 1/2 -point reductions - was most likely.

'They will probably scale down the easing pace as we approach interest rate levels of the time before the ERM break-up,' he said.

This is likely to keep Danish bonds well supported.

'We remain very positive for Denmark,' said Mr Rainer Back, bond market analyst at DB Research, Deutsche Bank's research arm.

Mr Back expects the Danish 10-year yield spread over German government bonds - currently at 51 basis points - to narrow to around 20 basis points in the next six months.

However, five- to seven-year bonds probably offered the best capital-gains potential on continued interest rate cuts, Mr Back said. The Danish five-year yield spread over Bunds currently stands at some 70 basis points.

Apart from its large Treasury market, Denmark has a liquid market for mortgage bonds, which have longer maturities than government bonds and offer a substantial yield pick-up.

The 6 per cent mortgage bond due 2026 yielded some 110 basis points over the 8 per cent government bond due 2003 on Friday.

Swedish 10-year bonds offer a larger yield pick-up over Germany - 163 basis points on Friday - and the allure of capital gains on further easing. However, analysts warn the long end remains vulnerable to bad news on the public-sector deficit front and political uncertainty ahead of next year's elections.

'With elections coming up, the government isn't going to show much fiscal austerity,' said Mr von Maydell.

The public-sector deficit is expected to account for some 14 per cent of gross domestic product this year and only slightly less next year.

However, investors may be able to realise large gains on the currency, which depreciated sharply in recent months but has begun a slow recovery which is expected to be supported by the country's improving export performance. After hitting a SKr5.04 high against the D-Mark in late September, it traded on Friday at SKr4.80.

'Even if this is just a dead cat bounce, the krona could well rise by about 10 per cent from its low to around 4.55,' Mr Back said.

Even higher-yielding bonds in Finland and Norway are expected to benefit from the easing scenario, although the relative lack of liquidity in those markets tends to deter heavy foreign investment.

DK Denmark, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 22 620
International Bonds: Low interest rates could open up Swiss sector Publication 931101FT Processed by FT 931101 By ANTONIA SHARPE

THE PROSPECT of Swiss interest rates remaining low for the next year could open up the Swiss bond market to a much wider range of foreign borrowers.

The fall in interest rates and structural changes, including the abolition of stamp tax and the easing of syndicate restrictions, have contributed to the large increase in new issue volume in the Swiss foreign bond market this year.

However, Swiss banks believe easier access for a broader spectrum of issuers is needed to further enhance the market's liquidity and transparency.

In the last few years, the Swiss bond market has become as exclusive as St Moritz because investors have restricted themselves to buying bonds issued by borrowers with high-quality credit ratings or with strong name recognition.

Syndicate managers say investors have adopted this strategy as a reaction to their bad experiences with borrowers with low credit ratings in the mid-1980s.

Last year, 55.50 per cent of foreign straight Swiss franc offerings were issued by borrowers with a triple-A rating, up from just 21 per cent in 1989, according to data from Swiss Bank Corporation (SBC). From January to October 4 this year, 49.1 per cent of issuers had a triple A-rating.

The fall in Swiss interest rates to their lowest levels for five years has produced good profits for investors in Swiss bonds this year. 'Swiss bonds carried coupons of 6 per cent to 7 per cent at the start of the year, now the same debt has coupons of 4 per cent to 4 1/4 per cent,' says one syndicate manager.

But investors will have difficulty in matching those profits next year if the market consensus that Swiss interest rates are close to the bottom of their cycle turns out to be correct.

Swiss National Bank (SNB) officials said last week that further falls in Swiss interest rates could occur in the months ahead, but they warned that the central bank would not risk reigniting inflationary pressures by easing monetary policy.

Nevertheless, the SNB's expectation that the Swiss year-on-year inflation rate will fall below 3 per cent in November, and fall to 2 per cent by May of next year has reinforced the bond market's view that yields are unlikely to rise again for at least another year.

One way for investors to enhance their returns in a stable to falling interest rate environment would be to buy bonds issued by borrowers with an inferior credit rating.

Syndicate managers say such borrowers would be prepared to pay a good margin over the market yield to secure Swiss franc financing at low interest rates.

There are signs that investors are softening their stance as they search for yield. Bond offerings for Pemex, Mexico's state-owned oil company, and for the National Bank of Hungary, both of which have sub-investment grade ratings, were well received by the market.

CH Switzerland, West Europe P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 20 512
Risk and Reward: CFTC stalls over regulation until reinforcements arrive Publication 931101FT Processed by FT 931101 By LAURIE MORSE

ANOTHER authoritative study on off-exchange derivatives was released last week. Its primary finding, that no new regulation is needed for the multi-faceted financial instruments, echoed the conclusions of a similar study by derivatives dealers and issued last summer by the Group of 30, the Washington-based think tank.

Issued barely a week after a Bundesbank warning that expanding use of derivatives and their global linkages threaten the stability of world financial markets, the Commodity Futures Trading Commission study was noted for its endorsement of the status quo.

The CFTC regulates exchange-traded futures and options in the US. The agency's responsibilities evolved with the rapid growth of financial derivatives. Its budget, and its stature in Washington and on Wall Street failed to follow apace.

The CFTC's summary of OTC derivatives regulation was not expected to be controversial, given that any recommendations for regulatory restructuring could have again pushed the agency into a fight for its regulatory life. It undertook the study only at the behest of Congress. But the CFTC has made a solid contribution to the derivatives debate.

It said current regulatory structures were adequate. But the agency reported that its study was hampered by the lack of information on OTC markets - a remarkable statement by a body backed by the US government. 'Data generally are available only for broad categories of derivatives products and market participants. The most extensive data pertain to interest rate and currency swaps and to dealers and broad categories of end users,' the report said. 'Very little information exists on the extent of activity in OTC equity options and swaps and commodity swaps or by non-depository financial institutions such as pension funds and investment companies.'

Later, the agency revealed that the data it used for the most broadly-reported vehicles swaps comes directly from the International Swaps and Derivatives Association, whose membership reports swaps turnover voluntarily and whose data lack independent confirmation.

The study bemoaned the difficulties posed by variations of regulatory treatments across borders and across participants.

Finally, the CFTC said the recent rash of separately capitalised subsidiaries created as swaps trading vehicles by non-bank securities dealers lacked any regulatory oversight. In short, the study's findings fail to back its conclusion.

The CFTC's fumbling attempts to get its arms around the OTC market demonstrate that derivatives regulation is in sad need of realignment. For a start, comprehensive and reliable data reporting is needed. Meanwhile, the CFTC has deferred decision on one the US's most significant derivatives issues in five decades until it receives political reinforcements.

The CFTC has jurisdiction over exchange-traded markets of the same trillion-dollar size and steep growth curve as OTC derivatives. The on- and off-exchange derivatives markets share many of the same participants and are used largely for the same purpose-risk transfer.

Exchanges contend that because they have more onerous reporting requirements and are more closely regulated, they lose competitive edge to their off-exchange cousins.

Having watched the CFTC grant regulatory exemptions to a swathe of OTC energy and financial derivatives this year, the world's two biggest futures exchange are asking for similar treatment. If their petitions for regulatory exemptions for their biggest players, professional traders, in the Chicago Board of Trade's lexicon, are accepted it is hard to calculate the effect.

Recognising that the issue could attract the wrath of Congress and that its is undermanned, the CFTC is stalling.

After declaring an unusually long comment period on the petitions in August, the agency recently extended the comment deadline to December 15. Reinforcements, in the form of long-awaited appointments of a CFTC chairman and two of four commissioners, are expected within days.

US United States of America P9651 Regulation of Miscellaneous Commercial Sectors P6221 Commodity Contracts Brokers, Dealers TECH Safety & Standards CMMT Comment & Analysis P9651 P6221 The Financial Times London Page 20 651
International Company News: Aetna has good third quarter Publication 931101FT Processed by FT 931101 By RICHARD WATERS NEW YORK

AETNA, the US's largest public insurance company, continued the improvement in insurance company earnings with third-quarter net income up to Dollars 226m or Dollars 2.03 a share from Dollars 174m or Dollars 1.59.

The company benefited from lower catastrophe losses compared with last year when Hurricane Andrew swept the Florida coastline. Catastrophe losses fell from Dollars 59m to Dollars 18m.

Aetna also benefited from the 1 percentage point rise in the US corporate tax rate, which brought a net addition to earnings of Dollars 22m.

Mr Ronald Compton, chairman, said the biggest improvements were in the property/casualty business, 'which benefited from reduced operating expenses.

Aetna Life and Casualty US United States of America P6331 Fire, Marine, and Casualty Insurance FIN Interim results P6331 The Financial Times London Page 19 148
International Company News: JVC passes dividend as losses continue Publication 931101FT Processed by FT 931101 By MICHIYO NAKAMOTO TOKYO

THE slowdown in the domestic market and the strength of the yen this year dealt a blow to JVC, the maker of video cassette recorders and other audio-visual products.

The Japanese company announced a pre-tax loss of Y9.9bn (Dollars 93.3m), against a deficit of Y13.5bn a year earlier, on sales 1 per cent lower at Y251.4bn and passed its interim dividend. Net loss was Y10.6bn against Y15.9bn.

JVC is dependent on its audio-visual products for 79 per cent of its sales, nearly half of which come from overseas markets where the yen's strength cuts price competitiveness.

Video cassette sales in Japan have been on the decline, with shipments down 9 per cent this year according to industry estimates.

JVC expects losses to accumulate in the second half and predicts a pre-tax loss of Y25bn and net loss of Y26.5bn for the full-year on sales of Y505bn.

Victor Company of Japan JP Japan, Asia P3651 Household Audio and Video Equipment FIN Interim results P3651 The Financial Times London Page 19 188
International Company News: Hostile chorus to Volvo deal reaches crescendo / A look at doubts over the Renault link Publication 931101FT Processed by FT 931101 By HUGH CARNEGY

WHEN Volvo and Renault announced in Paris on September 6 their plan to merge the Swedish manufacturer's car and truck operations with the state-owned French automotive group, the reaction in Sweden was largely one of sober acceptance.

The right-centre government of Prime Minister Mr Carl Bildt, the opposition Social Democratic party, the trade unions and most business leaders gave the deal the thumbs up, saying it was the best way to ensure the future of vehicle making in Sweden in the face of tumbling demand in Europe and heavy overcapacity in the industry.

A Stockholm investment banker summed up the feeling with the comment 'regrettable, but inevitable'. By the end of last week, however, the climate had changed so much that the same banker believed real doubt had arisen over whether the merger would be approved by Volvo's shareholders.

'Perhaps it is not so inevitable after all,' he remarked.

The opposition did not find its voice until early October. Then a rejection of the deal by Aktiespararna, the Swedish small shareholders' association, and a vehement denunciation by the head of Scania, Volvo's rival truck maker, combined to unleash a hostile chorus that by the weekend had reached a crescendo.

Backed by strong support from the media, the opposition camp now includes former senior Volvo executives, some trade unionists, an array of academics and - to date - two prominent institutional shareholders.

The new atmosphere was encapsulated at a packed seminar on the deal in Stockholm on Friday at which Mr Lennart Jeansson, head of Volvo cars and designated chief financial officer of the new Renault-Volvo, and Mr Jan Engstrom, Volvo's present chief of finance, were forced on the defensive by a panel of professors and a journalist, chaired by a sceptical Mr Assar Lindbeck, Sweden's best known economist.

The opposition inevitably includes a strong nationalist element which objects to Volvo, the symbol of Swedish industrial pride, being 'sold out' to foreigners. But what has Volvo most worried are the substantive questions being raised by shareholders about the details of the merger agreement.

'The industrial logic of the merger for Volvo still seems more positive than negative,' said a shareholder fund manager.

'But we have lots of questions about the valuations in the deal, the issue of the privatisation of Renault and the French government's intention to hold a golden share after privatisation.'

Volvo's case is suffering from two important weaknesses. Volvo and Renault have refused to break down the values placed on their respective assets, or give detailed performance forecasts, leaving many Swedes suspicious that Volvo, once again profitable, will in effect be milked by Renault which is suffering falling profits. Although Volvo will have a 35 per cent share in the merged company, its direct stake will be less than 18 per cent, and this is seen as a structural flaw.

The second weakness is the lack of cast-iron guarantee that Renault will be privatised as promised. There is a strong view in Sweden that continued recession, especially in the car industry, threatens the privatisation timetable and could strengthen protectionist forces, to the disadvantage of Volvo's Swedish operations in decisions on rationalisation.

From a Volvo shareholder's viewpoint there is another factor. After the merger, the Volvo parent will become, in effect, a diversified investment company with interests mainly in vehicle making, food and drinks and pharmaceuticals. As Professor Ingemar Stahl of Lund University remarked at Friday's seminar, an investor could almost certainly get better returns by investing separately in top car, food and pharmaceutical companies.

Apart from the substantive issues, a further difficulty for Volvo lies in the structure of its ownership.

Most of Sweden's other best known companies fall within the influence of the industrial empire of the Wallenberg family.

Heavily-weighted preference shares ensure that strategic decisions of the type taken by the Volvo board are made by one or two shareholders.

Volvo, by contrast, is a very democratic group in which no single shareholder has more than 10 per cent of the voting capital and more than 40 per cent is held by about 15 institutions. After Renault, which has 10 per cent of the votes, the next largest single shareholder is the so-called Fourth Fund state pension fund with 7.5 per cent.

At the same time, many influential figures sit on the board of more than one of these institutions, reflecting the small-world nature of Sweden's business community. This can work to Volvo's advantage through, for example, the seat on the board of Trygg-Hansa SPP, the insurance group held by Mr Soren Gyll, the Volvo chief executive. In another typical feature of Swedish business life, the trade unions hold many positions in the institutions and have, to date, mostly supported the merger.

However, double-jobbing at board level is working against Volvo where opponents exert their influence more than once. Nor are personal animosities absent.

Men such as Mr Lars-Erik Forsgardh, the head of Aktiespararna, have long battled against the flamboyant, and sometimes erratic, leadership of Volvo by Mr Pehr Gyllenhammar.

'A lot of scores are being settled,' said the Stockholm investment banker.

Volvo Renault SE Sweden, West Europe P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Mergers & acquisitions CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 19 908
International Company News: Stronger yen hampers shipbuilders - Heavy Industries Publication 931101FT Processed by FT 931101 By ROBERT THOMSON TOKYO

JAPAN'S shipbuilders reported an increase in profits over the last three years that ran against the tide of most companies' earnings, but their results in the first half suggest that the yen's appreciation has left them facing another period of restructuring.

Mitsubishi Heavy Industries and the other leading heavy industrial companies are reporting sales increases from ship and heavy equipment orders received two or more years ago, but they are struggling against South Korean and other international competitors.

MHI reported a 1.7 per cent fall in pre-tax profit to Y61bn (Dollars 575.5m) on a 5 per cent fall in sales of Y1,056bn, though of more concern to the company was an 8.7 per cent fall in orders received during the period from April to September, compared to a year earlier.

Japanese shipbuilders attempted to reduce their dependence on the ship market during the late 1980s, which had been an unreliable source of earnings, but the recovery in ship demand in the late 1980s and the fall in domestic industrial equipment orders has again increased that reliance.

In MHI's case, ship and steel structure sales rose from 10.9 per cent to 17.2 per cent of total sales over the past year. But orders for ships during the half just ended fell 20.9 per cent on a year earlier, and the company's recent experience in bidding for an order of seven LNG carriers for Qatar highlights the extra burden of a strong yen.

MHI, Mitsui Engineering and Shipbuilding, and Kawasaki Heavy Industries won a joint order for seven vessels from Qatar Liquefied Gas for the vessels, which will be used to supply Chubu Electric Power, a electricity utility based in central Japan.

But the bid price, reportedly Y26bn per vessel, is below the current break-even cost of Y30bn for that type of carrier, according to Japanese industry specialists, and the companies are facing a loss on the project if the yen remains in the range of Y100-Y110 to the dollar.

Mr Matthew Ruddick, transport machinery specialist at James Capel Pacific, said the heavy industrial companies have a relatively high export to sales ratio, which makes them more vulnerable than many other industries to a strengthening of the yen.

He said South Korean competitors, able to build a very large crude carrier for Y9bn against the Y10bn in Japan, are winning orders at the Japanese builders' expense, but the filling of the South Korean order books will create demand for new vessels.

KHI reported a 24.8 cent rise in pre-tax profits to Y6.1bn, explaining that the fall in interest rates over the past year had reduced its repayment burden and improved its balance on financial items, compensating for an 8 per cent slide in operating profit during the period.

For the full year, KHI expects a 20.5 per cent fall in pre-tax profit to Y18bn on a 0.5 per cent increase in sales to Y960bn. Sales rose 2.5 per cent in the first half, due to ship and industrial machinery competitions, but orders during the period were Y331.1bn, down from Y408.5bn a year earlier.

Kawasaki exports motorcycles, and the yen has slowed growth in this market, which has been strong in east Asia during the last two years. The company is planning to increase its overseas procurement of parts and materials by 30 per cent in the next year.

The rush of Japanese investment in east Asia is likely to mean weak orders for plant and machinery in the domestic market. It could produce a rise in export orders, though the companies' competitiveness will be hurt by the strong yen.

They do not expect much help from defence orders, expected to remain sluggish. Sumitomo Heavy Industries, which had a pre-tax loss of Y1bn, compared with a profit of Y741m in the previous period, said orders in its ship, steel structures and defence division were down 33 per cent, though orders for environment-related and other general equipment rose 77.8 per cent.

------------------------------------------------------------------------ JAPAN'S HEAVY INDUSTRIAL COMPANIES Interim to Sept 1993 (Ybn) ------------------------------------------------------------------------ Sales % change Profits % change ------------------------------------------------------------------------ Mitsubishi Heavy 1,056 -5.0 61.0 -1.7 Kawasaki Heavy 369 2.5 6.1 24.8 Ishikawajima-Harima 453 22.0 13.4 19.0 Hitachi Zosen 138 11.0 7.2 20.9 Sumitomo Heavy 110 -13.9 -1.0 - ------------------------------------------------------------------------ Source: Company reports ------------------------------------------------------------------------

Mitsubishi Heavy Industries Mitsui Engineering and Shipbuilding Kawasaki Heavy Industries Sumitomo Heavy Industries JP Japan, Asia P3731 Ship Building and Repairing CMMT Comment & Analysis FIN Interim results P3731 The Financial Times London Page 19 764
International Company News: Australia raises ADollars 1.7bn from bank sell-off Publication 931101FT Processed by FT 931101 By NIKKI TAIT SYDNEY

THE Australian government will raise ADollars 1.69bn (USDollars 1.1bn) from the sale of a 19.9 per cent stake in Commonwealth Bank - the second tranche of equity in the bank to be floated off by the authorities.

Mr Ralph Willis, the finance minister, announced at the weekend that the issue would be priced at ADollars 9.60 a share for institutional buyers. Private investors are entitled to a 25 cents a share discount - meaning that they will pay ADollars 9.35.

The sale involves a total of 178.5m shares. About 65 per cent of these have been reserved for private investors, who submitted over 191,000 applications, representing almost ADollars 1.1bn worth of shares.

Commonwealth Bank of Australia AU Australia P6081 Foreign Banking and Branches and Agencies P9611 Administration of General Economic Programs FIN Share issues P6081 P9611 The Financial Times London Page 19 162
International Company News: Paper groups hit by low prices Publication 931101FT Processed by FT 931101 By EMIKO TERAZONO TOKYO

INTERIM earnings at Japan's leading paper and pulp companies exemplified problems facing the industry, as sluggish demand and high competition depressed profit margins.

Nippon Paper Industries, Daishowa Paper and Honshu Paper were hit by lower paper prices. Honshu managed to lift its profit figure due to a decline in interest payment as interest rates have fallen.

The depressed business environment has accelerated restructuring of the industry. Last April, Jujo Paper and Sanyo-Kokusaku Pulp merged to create Nippon Paper Industries, and Kanzaki Paper and Oji Paper merged to form New Oji Paper last October.

Nippon Paper, the industry leader, said paper sales fell 8 per cent to Y232.7bn (Dollars 2.2bn) while sales for pulp and chemicals declined 19 per cent and building materials decreased 17 per cent. After-tax profits jumped 53 per cent to Y5.4bn thanks to profits from stock sales linked to the stock market listing of a subsidiary.

Paper sales at Honshu fell 6.6 per cent to Y89.5bn, while Daishowa, led by the Saito family, known for its extensive purchases of French impressionist art during the late 1980s, posted a 7.5 per cent decline to Y135.7bn.

For the year to March, lower paper prices will continue to squeeze earnings. Nippon Paper expects lower costs to lift operating profits, but a fall in gains from securities holdings will depress non-consolidated pre-tax profits by 25 per cent to 8.5bn on a 4 per cent fall in sales of Y642bn.

Daishowa posted Y10.8bn in unrealised losses on its securities portfolio at the end of September. It sees a pre-tax loss of Y21.8bn on a 6.7 per cent fall in sales to Y289bn. Honshu sees sales falling 4.4 per cent to Y372.6bn but expects support from lower interest rates, and sees pre-tax profits rising 8.1 per cent to Y6.6bn.

------------------------------------------------------------------------ JAPAN'S PAPER AND PULP COMPANIES ------------------------------------------------------------------------ Sales Change Pre-tax Change Y(bn) % profit % ------------------------------------------------------------------------ Nippon 318.52 -21.0 4.03 -21.0 Daishowa 144.90 -8.7 -11.41 - Honshu 185.8 -5.7 3.5 33.6 ------------------------------------------------------------------------

Nippon Paper Industries Daishowa Paper Manufacturing Honshu Paper JP Japan, Asia P2621 Paper Mills P2611 Pulp Mills FIN Interim results CMMT Comment & Analysis P2621 P2611 The Financial Times London Page 19 379
International Company News: JVC passes dividend as losses continue Publication 931101FT Processed by FT 931101 By MICHIYO NAKAMOTO TOKYO

THE slowdown in the domestic market and the strength of the yen this year dealt a blow to JVC, the maker of video cassette recorders and other audio-visual products.

The Japanese company announced a pre-tax loss of Y9.9bn (Dollars 93.3m) on sales 1 per cent lower at Y251.4bn and passed its interim dividend.

JVC is dependent on its audio-visual products, including blank cassette and video tapes, for 79 per cent of its sales. Nearly half of the sales come from overseas markets where the yen's strength reduces price competitiveness.

This dependence has been costly for JVC, which rose to prominence as the company that first commercialised the video cassette format used by most consumers.

Video cassette sales in Japan have been on the decline, with shipments down by 9 per cent this year according to industry estimates. Meanwhile, price competition has become fierce.

The only bright spot has been in the US market where recent figures indicate there has been a pick-up in demand for video products. JVC's entertainment division increased sales by 27 per cent.

In order to cope with the difficult trading climate, JVC has set up a special 'defensive' committee to oversee cost-cutting measures as well as an 'offensive' committee to strengthen product line-up and sales efforts.

JVC aims to reduce costs by Y20bn and restructure its operations. It is transferring 400 employees from various departments to sales.

JVC expects losses to accumulate in the second half as economic conditions in Japan remain sluggish.

----------------------------------------- JVC: INTERIM 1993 (Ybn) ----------------------------------------- 1993 1992 ----------------------------------------- Sales 251.4 -1 percent Pre-tax -9.9 -13.5 Net -10.6 -15.9 ----------------------------------------- Year forecast: Sales 505 Pre-tax loss 25 Net loss 26.5 -----------------------------------------

Victor Company of Japan JP Japan, Asia P3651 Household Audio and Video Equipment FIN Interim results P3651 The Financial Times London Page 19 320
UK Company News: Cross Border M&A Deals Publication 931101FT Processed by FT 931101

------------------------------------------------------------------------ CROSS BORDER M&A DEALS ------------------------------------------------------------------------ BIDDER/INVESTOR TARGET SECTOR VALUE COMMENT ------------------------------------------------------------------------ TCI (US) Flextech Tele- cPounds 100m TCI to take (UK) vision control ------------------------------------------------------------------------ Royal Bank of Neworld Banking Pounds 95.4m New England Scotland (UK) Bancorp takeover (US) continues ------------------------------------------------------------------------ Courtaulds (UK) Gold-Zack Textiles Pounds 13.9m Buying selected Werke operations (Germany) ------------------------------------------------------------------------ Delta Galil Unit of Clothing Pounds 4.2m Letting go of (Israel) Robert H Babygro Lowe (UK) ------------------------------------------------------------------------ Thomas Cook Auto- Travel n/a Pursuing (UK/Germany) Fischer Continental (Germany) strategy ------------------------------------------------------------------------ Unilever Bertoli Food n/a Negotiations (UK/Netherlands) (Italy) advanced ------------------------------------------------------------------------

Samancor NST Ferro- Chrome n/a Closer ties as (S Africa)/ chrome Pro- sanctions lifted Nippon Denko (joint duction (Japan) venture) ------------------------------------------------------------------------ Ericsson (Sweden)/ JV Telecoms n/a Defence equipment Unimor (Poland) venture ------------------------------------------------------------------------ Akzo (Nether- JV Fibres n/a Carpet fibres lands)/ move AlliedSignal (US) ------------------------------------------------------------------------ Siemens (Germany)/ Siemens Elec- n/a 60/40 ownership Electric Power Power tronics split Automation (China) Plant Automation (JV) ------------------------------------------------------------------------

US United States of America GB United Kingdom, EC DE Germany, EC IL Israel, Middle East NL Netherlands, EC IT Italy, EC ZA South Africa, Africa JP Japan, Asia SE Sweden, West Europe PL Poland, East Europe CN China, Asia P6231 Security and Commodity Exchanges COMP Mergers & acquisitions P6231 The Financial Times London Page 18 221
UK Company News: Tough task for a master of low profile - The new chairman of GPA who is not averse to taking risks Publication 931101FT Processed by FT 931101 By ROLAND RUDD

MR DENNIS Stevenson, the new chairman of GPA, is not about to move into the group's sumptuous London offices in Pall Mall. As a non-executive he does not believe he should have an office at all.

Nor will he be jetting across the Atlantic or be photographed at charity galas. His stark and somewhat puritanical view of management is in marked contrast to his predecessor Mr Tony Ryan, and his glittering array of non-executive directors, who included Lord Lawson and Sir John Harvey-Jones.

Whereas many of the old management were rarely out of the public gaze, albeit not always of their own choosing, Mr Stevenson is the master of the low profile.

'Our objective is to have a 'PC Plod style of management' getting on with the business out of the limelight,' he said.

Friends of Mr Stevenson have been asking him why he decided to take on the chairmanship of GPA, wondering whether it could become a recovery stock. As far as Mr Stevenson is concerned it is far too early to start talking about the potential long-term value of its as yet unlisted shares.

He was attracted to GPA because he sees it is a novel piece of financial reconstruction of 'vital importants' to stabilise the company. Furthermore, a restructured GPA could also help protect the airline industry and would be able to pay back some of the loans made by the 139 banks which financed the company through its massive expansion at the turn of the decade.

If that sounds a daunting task for a company with debts of Dollars 5.8bn (Pounds 3.84bn) Mr Stevenson replies that people have GPA out of proportion. 'The only big thing is the noughts,' he says.

All he will be doing is managing a financial asset - it is sub-contracting the leasing to the GE Capital subsidiary, GE Capital Aviation Services under the terms of GPA's rescue deal with GE Electric of the US.

However, Mr Stevenson is the first to admit that up until a few months ago he knew nothing about aircraft leasing, prompting some to wonder why GE asked him to chair the new company in the first place.

The initial approach was made by Mr Ryan, who first got to know Mr Stevenson while he was advising the Bank of Ireland, where Mr Ryan used to be a non-executive. Six months ago Mr Ryan made an informal approach to Mr Stevenson to parachute in as a trouble shooter in the role of chief executive.

He declined. He had no problem in juggling several part-time jobs at once, but he has always been very selective about what boards he chose to join.

Aparting from chairing his own consultancy group SRU, and the Tate Gallery, Mr Stevenson currently has non-executive directorships with Pearson, which owns the Financial Times, and J Rothschild and Assurance and Manpower (formerly Blue Arrow). He also sits on the Takeover Panel.

According to GE it was this 'solid, impressive curriculum vitae' that made Mr Stevenson so appealing as a prospective GPA chairman. Furthermore, Mr Stevenson is not averse to taking risks. He took on Mr Tony Berry at Blue Arrow in a highly personalised battle and won control of the board and chaired the Intermediate Technology Development Group, a Third World charity which by eschewing big development projects was never assured of success.

So last month, at 6am in the morning, Mr Gary Wendt, chief executive of GE Capital, met Mr Stevenson and Mr Ryan in the United Airlines VIP lounge at Heathrow Airport. It was at that meeting that Mr Stevenson was finally persuaded to take on the chairmanship of GPA and to try and bring the stability seen as essential to the long-term growth of the airline industry.

Mr Stevenson will be paid for one day's work every week and will have the extra incentive of a success fee. While not disclosing his salary, he says he will he charging considerably less than he charges at SRU, where he is reputed to be one of the highest paid consultants.

He does not believe the downside is too onerous. If he makes a big mistake, such as diversifying into shipping leasing, for example, and thereby compounding GPA's problems Mr Stevenson feels he would deserve a loss of reputation.

But since he was not responsible for the past mistakes, he is not fearful for his reputation if GPA is eventually unable to meet its demanding debt repayments.

Mr Stevenson would not have attempted the challenge without Mr Patrick Blaney, the 39-year-old chief executive, who he believes was untainted by GPA's past mistakes. He also made it a condition of him accepting the chairmanship that Mr Michael Davies, a non-executive director, from British Airways, also joined GPA's board. Mr Davies is an old Stevenson ally at Blue Arrow where they combined to oust Mr Berry.

The company still faces a tough time if it is to cut borrowings to a manageable level. Although it is deferring Dollars 750m of debt, this will largely fall due in September 1996. In the year to March 1997 GPA must repay or refinance debt of Dollars 2.36bn.

It will be no small achievement, irrespective of any upturn in the airline market, if Mr Stevenson can steer GPA through the next four years.

GPA Group IE Ireland, EC P7359 Equipment Rental and Leasing, NEC PEOP People CMMT Comment & Analysis P7359 The Financial Times London Page 18 939
UK Company News: Markheath accounts further delayed Publication 931101FT Processed by FT 931101

Markheath, the property group 61 per cent-owned by Adelaide Steamship of Australia and its associates, has been given permission by the DTI to delay publication of its annual accounts for the year to end-March until November 30.

Markheath GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COMP Company News P6552 The Financial Times London Page 18 71
UK Company News: Finsbury issues Lloyd's prospectus Publication 931101FT Processed by FT 931101

Finsbury Underwriting Investment Trust, one of the funds set up to invest in the Lloyd's insurance market, has issued its full prospectus.

Up to 30m shares are on offer at 100p each.

The issue will raise Pounds 28.2m after expenses. Net assets per share after the issue are estimated at 94p.

Rea Brothers and UBS are co-sponsors to the issue, which is being undertaken as a placing and intermediaries offer. The insurance adviser is Wren Underwriting Agencies; the investment manager is Finsbury Asset Management.

Finsbury Underwriting Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Share issues P6726 The Financial Times London Page 18 119
UK Company News: Compass in Burger King deal Publication 931101FT Processed by FT 931101

COMPASS, the catering group, has signed an agreement giving it rights to operate Burger King restaurants in railway stations and workplace outlets.

The deal will result in the replacement of the Casey Jones brand. Burger King is a subsidiary of Grand Metropolitan.

Compass Group GB United Kingdom, EC P5812 Eating Places TECH Patents & Licences P5812 The Financial Times London Page 18 76
UK Company News: Building societies 'more soundly' based Publication 931101FT Processed by FT 931101 By ALISON SMITH

BUILDING societies' pre-tax profits were significantly higher in the first half of this year than for the comparable period of 1992, according to a survey of societies' interim results.

While the profits were almost identical to those for the second half of 1992, the survey argues that they are now more soundly based.

That is because they do not rely on the opportunity that sterling's departure from the European exchange rate mechanism gave societies for improving their profits by widening their interest margins through reducing mortgage rates more slowly than interest rates.

Mr Peter Welch of Multistrategies research, the report's author, argues that the interim results should include a summary balance sheet in order to make it easier to calculate a society's overall profitability.

Six of the 13 societies which publish interim results do so now, but it is not required by the Stock Exchange. The survey is available from Multistrategies, 2 Ridgmount Street, London WC1E 7AA, price Pounds 50.

GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents CMMT Comment & Analysis P6162 The Financial Times London Page 18 196
UK Company News: Syntegra launch marks start of BT market push Publication 931101FT Processed by FT 931101 By ALAN CANE

BRITISH Telecommunications is refashioning its image as a computer systems designer and constructor in a move to capture a larger share of a market currently worth Pounds 25bn annually.

It will today announce that its customer systems division will be renamed Syntegra. The move marks the first part of the company to be rebranded to broaden its appeal to a world market.

Syntegra will remain a wholly owned profit centre within BT.

It will be controlled by Mr Bill Halbert who has been managing director of BT customer systems since 1990.

Last year the division turned over about Pounds 200m, one of only three British companies among the top ten computing services groups in the UK.

It is said to be 'significantly' profitable, although its figures are not broken out separately in BT's results.

It does 80 per cent of its business in the UK; one reason for the rebranding is to improve its international appeal.

Mr Alfred Mockett, managing director of BT's business communications division, said Syntegra would establish strategic relationships with customers around the world providing both new revenues and stimulating use of BT's international network services.

British Telecommunications GB United Kingdom, EC P7372 Prepackaged Software P7379 Computer Related Services, NEC MGMT Management & Marketing P7372 P7379 The Financial Times London Page 18 235
UK Company News: Rebel Ferranti shareholders to meet over 1p takeover bid Publication 931101FT Processed by FT 931101 By PETER JOHN

REBEL shareholders of Ferranti International, the defence electronics group, are to meet to discuss ways of resisting a bid which offers them only 1p a share.

Some shareholders have reacted angrily to the token offer by GEC which promises them just Pounds 10m while at least Pounds 100m will go to the banks.

They have commissioned Katz Associates, an investment consultancy, to see if there are alternatives to the GEC bid.

It is expected that the complicated share structure of Ferranti and the need for any bid to be accepted by 90 per cent of the voting shareholders will be severe obstacles to the smooth take-up of GEC's offer.

Mr John Katz, who heads the consultancy and who recently fought a bid for the Greycoat property group on behalf of unhappy shareholders there, said he had received a number of phone calls since his name was first linked to the Ferranti situation last week.

'The deal proposed looks like a quick safety net for the banks,' he said.

'I have written to Eugene Anderson (chairman of Ferranti who was taken on three and a half years ago to save the company) and advised him that any sale of the company for a token price will be opposed unless there is some platform for shareholders to remain in to some extent and recover something with time.'

Mr Katz said there was unlikely to be unequivocal opposition to a rescue package of some sort as some 4,000 jobs were at risk if a saviour could not be found.

Before the news of GEC's offer broke last week Ferranti's shares were valued at 9 1/4 p.

By the close of trading on Friday they stood at 1 1/2 p but Ferranti's board has defended the bid on the grounds that the company has no alternative.

A meeting of shareholders is expected to be held within the next two weeks.

Ferranti International General Electric Co GB United Kingdom, EC P3812 Search and Navigation Equipment P3612 Transformers, Ex Electronic COMP Mergers & acquisitions P3812 P3612 The Financial Times London Page 18 367
UK Company News: Beverley dips Pounds 1m into red Publication 931101FT Processed by FT 931101

BEVERLEY Group, the engineer, lapsed into the red in the six months to June 30 with pre-tax losses of Pounds 929,000, against profits of Pounds 56,000.

The loss reflected a fall in turnover to Pounds 6.46m, down from Pounds 9.68m.

Losses per share of 2.67p compared with earnings of 0.16p.

In an attempt to cut back on its debt, the Bristol-based group is selling Gall Thomson, which makes marine safety breakaway couplings, to Sealand Industries, a subsidiary of VSEL, for Pounds 3.5m.

The company said cash from the sale would be boosted by a Pounds 2.5 dividend from Gall Thomson's accumulated reserves.

Beverley Group Gall Thomson Sealand Industries GB United Kingdom, EC P3494 Valves and Pipe Fittings, NEC P3731 Ship Building and Repairing P3441 Fabricated Structural Metal FIN Interim results COMP Disposals COMP Mergers & acquisitions P3494 P3731 P3441 The Financial Times London Page 18 160
Card wars set to enter a new battle phase / A look behind a management change at Visa International Publication 931101FT Processed by FT 931101 By RICHARD WATERS

Credit card adverts in the US are full of bemused consumers. In one, a man stands immersed in a mound of rival plastic cards (he's lucky, he's picked the best one out of the heap). In another, cards littering a lawn are sucked up by a vacuum (only one is left at the end). The message in them all is the same: in a market awash with credit and charge cards, how do consumers choose - and which of the many issuers are going to come out on top?

The ripples from this US credit card war have spread outward in recent months, in the process hastening a reshaping of the management which leads Visa International, the world's pre-eminent payment organisation.

The US may no longer dominate the credit card world in the way it once did - the US share of the world's credit card transaction volume fell below a half at the beginning of the decade. But the US still accounted for around 47 per cent of the Dollars 884bn (Pounds 585bn) charged to general purpose credit cards last year, and the US banks remain the most powerful force in the Visa organisation (Visa, like its rival Mastercard, is owned by the banks around the world which issue its cards).

Also, industry executives know that what happens in the US, where the credit card industry was born and matured first, will eventually be mirrored elsewhere.

At the end of August Mr Robert Heller, head of Visa in the US, resigned under a cloud as the payment organisation's US market share took a rare dip. From a 45.4 per cent share of credit card volume in 1991, Visa slipped to 44.9 per cent in the first six months of this year: hardly dramatic, but notable after the organisation's previous steady advance. Mastercard, on the other hand, lifted its share by 1.5 percentage points to 27.6 per cent.

The reason: 'co-branded' cards launched by AT&T and General Motors, which give users discounts on those company's products, were issued under the Mastercard umbrella. Co-branding has become the most effective weapon in the battle to encourage consumers to use cards.

Last week Mr Charles Russell, the man who over the past 10 years has given Visa International, the parent organisation, its clear lead in the plastic card business, said he will retire next summer. He will yield the chief executive's job earlier, in January, to Mr Edmund Jensen, an outsider who joins Visa from west-coast based US Bancorp.

Mr Russell had said many times before that he planned to retire. In a 1988 interview, he said he would go after three years. In 1991, it was one more year. Finally, it seems, the banks that sit on Visa's board decided to take him at his word.

'It's time, after 10 years. Chuck has done a great job,' says Mr Jim Bailey, head of Citibank's US retail banking operations. He adds, though, that it was Mr Russell who approached the board over the timing of his retirement, rather than the other way round.

Other banks in the US, while also paying tribute to Mr Russell's achievements, murmur that Visa has become too bureaucratic. The organisation wasn't being managed 'to the bottom line,' said one.

If it was time for Mr Russell to go, he at least had some influence over the new management team. Mr Carl Pascarella, who now heads Visa in the US, was Mr Russell's chosen successor to Mr Heller. And, according to reports from some industry executives, Mr Russell also chose Mr Jensen as his own successor.

Despite Visa's little wobble in the US, Mr Russell leaves it the world's most powerful plastic card brand. From a 40 per cent share of worldwide credit card business in 1980, Visa advanced to nearly 52 per cent last year, with 304m cards in issue. 'What he did for Visa on a worldwide basis is prodigious,' says Mr David Robertson, president of the Nilson Report, a credit card industry newsletter.

It is the US, though, which still sets the pattern for the industry - and there, the toughest battles in the credit card war have yet to be fought. Despite lower interest rates, cuts in fees and the introduction of incentives, credit cards remain one of the most profitable products for most banks. Rock-bottom US interest rates make it possible for banks to prosper even in such a competitive market - helping to bring more new issuers into the business.

RepublicBank of New York, for instance, entered the market only at the start of this year: its 13.9 per cent interest rate is at the bottom end of the range for standard bank cards, yet is more than 10 percentage points over current money market interest rates.

Interest margins like this have helped to support the many incentives which card issuers now offer. RepublicBank gives holders a cash rebate of up to Dollars 250 a year on their credit card purchases, a trend started in the late 1980s by the Discover card, then owned by Sears but now part of the independent Dean Witter Discover. That card's cash-back incentive has attracted 38m cardholders since its launch in 1987, giving it more cards even than American Express (though its share of transaction volume is far smaller).

When US interest rates eventually turn up again, the rush to offer incentives is likely to slow. 'Margins are still pretty good,' says Mr Bailey of Citibank. '(But) in this immensely competitive market, we haven't yet had to contend with rising interest rates.'

When that happens, the American consumer could really see war break out.

Visa International US United States of America P6141 Personal Credit Institutions CMMT Comment & Analysis MKTS Market shares MGMT Management & Marketing P6141 The Financial Times London Page 17 994
Companies in this issue Publication 931101FT Processed by FT 931101

-------------------------------- Companies in this issue -------------------------------- UK -------------------------------- BT 18 Beverley 18 British Gas 17 Compass 18 Ferranti Intl 18 Finsbury Trust 18 GPA 18 Markheath 18 Queens Moat 1 Stanhope 17 Overseas Aetna 19 American Express 17 Commonwealth Bank 19 Daishowa Paper 19 Diners Club 17 Discover 17 Eastman Kodak 15 Honshu Paper 19 Ishikawajima-Harima 19 JVC 19 Kawasaki Heavy 19 Mastercard 17 Mitsubishi Heavy 19 Mitsui Engineering 19 Nippon Papar Inds. 19 Renault 19,17 Visa International 17 Volvo 19,17 --------------------------------

XA World P99 Nonclassifiable Establishments COMP Company News P99 The Financial Times London Page 17 106
British Gas made plans to break up Publication 931101FT Processed by FT 931101 By BERNARD GRAY

BRITISH Gas prepared plans to break the company up in the months before its reference to the Monopolies and Mergers Commission last year.

With financial pressures mounting as a result of tightening regulation, senior executives at the company commissioned studies into a range of options including the sale of some businesses and the complete break-up of the company.

The plans were dropped after several directors opposed them, including Lord Walker, a non-executive director, who as Mr Peter Walker was the Secretary of State for Energy responsible for privatising British Gas in 1986. As a result, formal plans were never put to the board, although they circulated among executives at the top of the company.

That the radical plans were drawn up is a sign of how far the company believed it might have to go to respond to the pressure upon it from consumers and Ofgas, the industry watchdog. They will strengthen the hand of British Gas critics who argue it should be broken up to reduce its monopoly power in the industry.

Disclosure of the plans comes at the end of the consultation period for the MMC inquiry into the company. The Department of Trade and Industry is expected to make a decision on the commission's proposals before the end of the year.

In the course of the MMC investigation British Gas repeatedly insisted that splitting the company into separate gas transportation and marketing companies was unnecessary. It argued that an integrated company would be in the best position to meet customers needs.

British Gas drew up the plans at a time when its financial position had become increasingly stretched after Ofgas had tightened its price cap from the retail prices index minus 2 per cent to RPI-5. The Office of Fair Trading had insisted that the company give up half of its share of the contract gas market and the DTI lowered the threshold at which competitors could bid for customers.

By early 1992 it was clear these measures would have a severe impact on Gas's profits and so the company started to consider radical measures to ease its burdens, including breaking the company up.

Lex, Page 16

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution CMMT Comment & Analysis TECH Services & Services use P4923 The Financial Times London Page 17 403
Economics Notebook: Hungary builds capitalism without capital Publication 931101FT Processed by FT 931101 By NICHOLAS DENTON

Surprises have lurked behind every corner of eastern Europe's tortuous transition from a planned to a market economy - many of them unpleasant.

Often, the first to encounter unexpected difficulties has been Hungary, which has pioneered reform since the late 1960s. So the recent survey of Hungary published by the Organisation for Economic Co-operation and Development, and especially its focus on the critical role played by credit markets, contains a broader message for the post-communist states.

The OECD found that Hungary's early, albeit hesitant start, did little to ease the pain of reform. 'Despite Hungary's status as the most Western-market oriented of the centrally planned economies, the post-1989 economic transition still came as an abrupt and wrenching shock.'

Hope for recovery has been vested in the privatisation process, but dismantling the state economy is taking longer than expected. In Hungary's case the OECD cites estimates that 18 per cent of state enterprise assets were under private control by the end of 1992, well short of the government's target of privatising half the state sector by 1994.

Privatisation of state assets is not the whole story. Start-ups and greenfield investments have boosted the private sector to about 30 per cent of GDP, but even that has been far from enough to offset the contraction of state-owned industry and avert recession.

Up to now Hungary has relied the most on foreign investment to flesh out the private sector, attracting more than Dollars 5.5bn (Pounds 3.64bn) since 1988, over half the total for central and eastern Europe. But foreign investment alone cannot transform the economy.

Most Hungarian consumer goods companies attractive to multinationals have been sold and foreign economic penetration has come close to its political limits. Increasingly foreign investors are looking to Poland which has four times the population of Hungary or the Czech Republic - and an economy stimulated by the dynamism of home-grown Polish entrepreneurs.

The growing stress on home-grown capitalism means closer attention must be paid to solving the dilemma of how to build capitalism without capital.

One recourse is to distribute ownership through voucher schemes like the Czech Republic or Poland's investment fund -based mass privatisation programme. Hungary is belatedly implementing a more modest 'small investor share buying programme'. But its conversion to the virtues of mass privatisation has been half-hearted. Distribution cannot in itself provide enterprises with the capital injection most desperately need.

An obvious solution is to mobilise household savings which were negligible under communism but have since surged. In Hungary the savings ratio rose to 15.8 per cent in 1991, dropping slightly to 13.2 per cent in 1992. But higher savings alone cannot stimulate investment in the absence of functioning banks and capital markets.

This was the conclusion of a recent World Bank internal aide-memoire which stated that Hungary's financial sector was 'unable to finance the transition to a market economy'. The OECD's survey was more circumspect, but the urgent need for financial sector reform runs like a thread through the report.

The financial sector effectively means the banks. The OECD, for example, dismissed the Budapest stock market as of 'minor importance', although this year's boom in the Polish stock market indicates that equity markets do have a future.

But the banks risk seizing up. In Hungary real lending rates remained above 10 per cent in 1991 and 1992. Despite growing liquidity, banks curtailed their lending to the enterprise sector in 1992 while the spread between their deposit and lending rates rose from about 4 per cent to a gaping 11 per cent.

Behind this phenomenon lies Hungary's status as the first east European country to implement western-style bankruptcy, accounting and banking acts. The new laws have forced many Hungarian companies and banks to face their real, and previously hidden, financial plight. One in six registered companies, producing about 14 per cent of GDP, have been affected by the bankruptcy legislation, according to the OECD.

To finance provisions against non-performing loans and rebuild capital, banks increased spreads. But high lending rates make default more likely as only the most desperate enterprises apply for loans. This process led to a 'credit crunch' in Hungary last year.

Throughout the region government hunger for higher revenue is compounding the difficulties of the banking system. Until 1991, taxation of banks' paper profits was an important source of revenue, equivalent to about 2 per cent of GDP in Hungary's case. Despite the current plight of financial institutions, governments continue to drain their liquidity.

Recapitalisation of the banks would reduce spreads and help stimulate lending to the corporate sector. But here again, the OECD says, budgetary economy has conflicted with bank consolidation. Hungary's effort last year to shore up balance sheets was conducted on the cheap.

Budapest, supported by the promise of a World Bank credit of Dollars 200m-Dollars 300m, is now planning another, more comprehensive attempt. But the government has warned of a rise in the budget deficit to Ft350bn (Pounds 4.41bn)next year, around 9 per cent of GDP. This would exceed targets set by the International Monetary Fund, so the temptation to cut corners on bank consolidation remains.

Lest Hungary despair, however the OECD notes: 'The visible size of the problems does not mean that the difficulties in Hungary are bigger than elsewhere in central and eastern Europe; rather it may be a sign that things are coming into the open earlier than elsewhere. This could mean that solutions are found more quickly, as issues are recognised in public discussion and measures are being debated and implemented.'

That may console Hungary. It is less heartening for its east European neighbours.

HU Hungary, East Europe P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs ECON Gross domestic product CMMT Comment & Analysis P9311 P9611 The Financial Times London Page 17 978
Stanhope to seek new equity in refinancing Publication 931101FT Processed by FT 931101 By BETHAN HUTTON

THE board of Stanhope, the heavily-indebted commercial property developer, said yesterday it was considering raising new equity in a refinancing.

The company is looking to raise Pounds 150m-Pounds 160m, and to restructure its banking arrangements, but said plans were still in very early stages. No proposals have yet been put to any of the 16 or so banks involved. Stanhope last refinanced its bank debt in January this year. At Friday's closing share price of 36p, it had a market capitalisation of just under Pounds 60m.

The likelihood of attracting investors was helped by Broadgate Properties, 50 per cent owned by Stanhope, last week selling the lease of One Exchange Square, home of the European Bank for Reconstruction and Development, for Pounds 170m. Stanhope also reports a 'significant increase' in letting enquiries at both Broadgate and Ludgate, another of its developments.

Any restructuring is likely to involve Stanhope taking control of the other half of Broadgate Properties, which was owned by Rosehaugh, now in receivership.

Stanhope said the refinancing would take three or four months.

It incurred pre-tax losses of Pounds 215m in the year to June 30, 1992. Results for the year to June 30, 1993 are due in mid-November, but the company said improvements in the market 'have come too late to be reflected in these figures'.

Stanhope Properties GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Share issues P6552 The Financial Times London Page 17 257
Volvo investors wary of merger Publication 931101FT Processed by FT 931101 By HUGH CARNEGY STOCKHOLM

SHAREHOLDER doubts in Sweden threaten the fate of the proposed landmark merger between Renault, the state-owned French automotive company, and the car and truck operations of Volvo. The Swedish group's institutional shareholders have yet to decide whether to support the deal, which is due to be determined this week.

The two companies, which have operated a strategic alliance for the past three years, announced plans in September to combine to form Europe's second-largest vehicle maker in the face of increasing international competition and sharply falling car sales on their home continent.

Critics of the deal fear the structure of the merger, which will give Volvo a 35 per cent share of the new Renault-Volvo company, amounts to a French state takeover of the country's leading manufacturing outfit. There are doubts over whether it will be approved at a special Volvo shareholders' meeting in Gothenburg on November 9.

Most of a group of about 10 institutional shareholders who together control about 40 per cent of the voting capital, but have yet to say how they will vote, are due to announce their decisions this week.

A key indicator of the final outcome is expected on Wednesday when the second largest single shareholder in Volvo, a state pension fund called the Fourth Fund, makes its decision. Directors of the fund, which holds 7.5 per cent of the votes after Renault's 10 per cent, are understood to be divided on the merger and are seeking further information on the deal from Volvo.

Another state fund, the 92-94 Fund which holds 2.5 per cent of the votes, has already said it will oppose the deal chiefly because of its concerns over the lack of guarantees about the French government's promised privatisation of Renault. At the weekend, the insurance group SPP, which has 4.5 per cent, said it would oppose the merger without further clarifications on privatisation and the French state's intention to hold subsequently a 'golden share' in the merged company.

The other 'swing' shareholders include pension and investment funds of Scandinaviska Enskilda Banken and Svenska Handelsbanken, the country's leading banks, and the insurance groups Skandia and Trygg-Hansa. Volvo is under pressure to delay the merger until after Renault has been sold off to the private sector.

Background, Page 19

Renault Volvo SE Sweden, West Europe FR France, EC P3711 Motor Vehicles and Car Bodies P3714 Motor Vehicle Parts and Accessories COMP Mergers & acquisitions CMMT Comment & Analysis P3711 P3714 The Financial Times London Page 17 428
Business help sought in urban revival plan Publication 931101FT Processed by FT 931101 By JOHN WILLMAN and TIM BURT

BUSINESS executives in London, Birmingham and Manchester are to be asked to help draw up plans for the regeneration of their cities as part of government reforms on urban policy to be announced this week.

The initiative - City Pride - will bring together business, government, local authorities and the voluntary sector in a new partnership for restoring English cities. They will be asked to visualise the future for their cities and set regeneration priorities for the allocation of the government's Pounds 1.7bn urban budget.

Mr John Gummer, the environment secretary, will also set out plans to bring together the government's inner-city regeneration programmes into a single budget. The City Pride teams will be encouraged to bid for a share of the funds, using the model developed for City Challenge.

The unified urban budget - promised in the Conservative election manifesto to allow greater local autonomy in setting priorities - will not be restricted to run-down inner-city areas. City Pride teams will consider all aspects of regeneration, including work needed to develop the economies of cities and regions.

The funds for the new unified urban budget will come from existing programmes run mainly by the Environment Department and the Department of Trade and Industry. Existing commitments to urban development corporations and some 30 City Challenge schemes will be honoured. The funds promised to the new Urban Regeneration Agency, to be chaired by Lord Walker, will also be 'ring-fenced' within the overall budget.

London First, the private-sector body formed last year to promote strategic thinking in the capital, is likely to play a leading role in drawing up City Pride plans for London. It has already opened its doors to local authorities after accusations that it was unrepresentative.

The announcement, expected on Thursday, will include details of the new regional offices, also promised in the election manifesto, to co-ordinate the work of Whitehall departments in the regions. The offices will give businesses, local authorities and voluntary bodies a single point of access to the Environment Department, the Department of Trade and Industry and the Home Office. A senior civil servant will head each office as regional director.

The creation of the regional offices has already been condemned by the opposition as 'a further sinister act of centralisation'. Mr Jack Straw, Labour's environment spokesman, described the regional directors as 'Whitehall commissars'.

GB United Kingdom, EC P9532 Urban and Community Development NEWS General News P9532 The Financial Times London Page 16 426
Russian banks opt to invest overseas Publication 931101FT Processed by FT 931101 By LEYLA BOULTON MOSCOW

RUSSIAN banks have more than Dollars 15bn stashed away in accounts in the west but have made hard currency loans worth less than half a billion dollars to customers within Russia.

Thirteen banks, which account for 80 per cent of Russian hard currency operations, had Dollars 10.03bn in correspondent and investment accounts in western banks at January 1 this year, according to a western study. The same banks had outstanding loans of less than Dollars 300m lent to customers inside Russia.

By this June, all Russian banks held about Dollars 15.5bn abroad, according to central bank figures. Loans within Russia were worth about 3 per cent of that sum.

The figures compiled from official sources and the banks are an index of the financial chaos within the Russian economy.

While the banks have large amounts of hard currency abroad, the government is rescheduling debts owed to the west, seeking other forms of international finance to help it promote business investment.

Many Russian companies with export potential have money but do not trust the national currency or the authorities enough to keep it at home in roubles.

Banks avoid lending within the country - except to clients which earn hard currency and are well-known to them - because of to a lack of mechanisms to ensure repayment.

Mr Francis Gelibter, director of Eurosiris Russie, the St Petersburg-based joint venture of Eurosiris, the French consultancy, which conducted the study said: 'If I were the manager of a Russian bank I would do the same because there are few alternatives to placing the money abroad. Lending is risky because you don't know if the person will disappear tomorrow or whether new legislation will ruin the success of a project.'

Yeltsin land decree, Page 3

RU Russia, East Europe P6081 Foreign Banking and Branches and Agencies NEWS General News P6081 The Financial Times London Page 16 327
De Benedetti lawyers attack magistrates' arrest order Publication 931101FT Processed by FT 931101 By ROBERT GRAHAM ROME

LAWYERS for Mr Carlo De Bene-detti, the head of Olivetti, were seeking to make arrangements yesterday for him to hand himself over to Rome magistrates to answer corruption charges.

Mr De Benedetti was outside Italy when an arrest warrant was issued in Rome on Saturday. His lawyers, who expressed 'amazement' at the warrant, said Mr De Benedetti would 'simply follow his usual approach and present himself to the judges to answer their questions'.

Lawyers were seeking to determine whether Mr De Benedetti would be obliged to spend time in jail before being questioned. With a public holiday today, they initially suggested that Mr De Benedetti should hand himself over on Tuesday.

The arrest warrant for Mr De Benedetti has provoked consternation in Italy among lawyers and businessmen as well in the media - not least in the daily La Repubblica, which Mr De Benedetti also owns.

At Ivrea, the headquarters of Olivetti, the unions voiced concern over the future of the telecommunications and office equipment group, which made first-half losses of L168bn (Pounds 69.79m).

The magistrates' move against one of the most prominent figures in Italian business also comes at a moment of increasing confusion as Italy's discredited political parties disintegrate.

The charges against Mr De Benedetti relate to payments of L10bn made to secure Ministry of Posts contracts for teleprinters between 1988-91. They have already been investigated by Milan magistrates.

However, the investigations into the postal ministry have since become the responsibility of Rome magistrates. They have hinted that they have acquired new information suggesting payments to secure contracts went back to 1983.

More seriously for Mr De Benedetti, the Rome magistrates have altered the nature of the charges. They are alleging that Mr De Benedetti was a willing party to the payments and actively connived in them.

The essence of Mr De Benedetti's defence has been that he was forced to make payments to ministry officials and their political masters. To demonstrate that, he said that in 1987, when he refused to comply with demands for money, Olivetti did only L23bn worth of business with the ministry. A year later, when commissions had been arranged, orders jumped to L204bn.

Olivetti et Cie IT Italy, EC P9211 Courts PEOP People P9211 The Financial Times London Page 16 395
The Lex Column: British Gas Publication 931101FT Processed by FT 931101

Reports that British Gas considered breaking itself up before it went to the Monopolies and Mergers Commission will surprise those who have heard the company argue so vigorously against the idea. In part, its opposition represented understandable negotiating tactics while the MMC was deliberating. Yet the way in which the company has switched ground threatens to undermine its negotiating position. British Gas has thought about break-up, fought it tooth and nail, accepted it with alacrity when financial inducements were offered and now seems prepared to drop the idea since it is getting little support at the Department of Trade and Industry.

The DTI is a keen advocate of competition and wants to see it introduced as quickly as possible. Yet at a time when VAT is being levied on domestic fuel, passing the costs of introducing competition on to consumers would hardly be an attractive political option. If the company's lobbying credibility is dented, it risks being saddled with competition, falling market share, a squeeze on profits and no regulatory relief. That would leave the company no better off than it was before it asked for the MMC reference.

Shareholders should also be nervous, since if the financial noose were to be tightened much further, dividend prospects could start to look uncertain. The consensus may be that appeals to Gas's flotation prospectus can carry little weight now, but under those circumstances investors could justifiably conclude that they were sold a pig in a poke.

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution CMMT Comment & Analysis P4923 The Financial Times London Page 16 277
The Lex Column: US economy Publication 931101FT Processed by FT 931101

A series of economic statistics this week from purchasing managers' surveys to Friday's employment report - should confirm that the US economic recovery has gathered pace in the second half of the year. Growth forecasts for the period have increased to an annual rate of 4 per cent, with the main impetus being provided by consumer spending and housing activity. Quite why consumers are spending more freely is something of a mystery, given that consumer confidence remains subdued and earnings are not rising rapidly.

Whatever the cause, the surge in consumer spending may have an impact on manufacturing as companies rebuild depleted stocks. That should be sufficient to support growth into the early part of 1994. To maintain the recovery beyond that will require an increase in employment which will only come if companies believe that the improvement in demand is sustainable.

The economic upturn has not as yet disturbed the bond market, since inflationary pressures remain subdued. Nor is the Federal Reserve likely to tighten short-term interest rates until it is convinced that a strong and sustainable recovery is in train. With funds flowing out of deposits, bond yields and equity prices may be sustainable for the moment, even though the gathering recovery brings the prospects of a Fed tightening nearer. While attention is focused on the Federal Reserve, the first signs of an end to the equity bull market will probably come from weakening bonds rather than rising short-term rates.

US United States of America P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Economic Indicators P9311 The Financial Times London Page 16 277
The Lex Column: Lloyd's trusts Publication 931101FT Processed by FT 931101

While the gaggle of Lloyd's insurance funds look likely to gain investment trust status, they have little in common with conventional trusts. The net asset value of Lloyd's trusts' bond and equity holdings will be easily measured. But the real balance of risks and rewards lies with underwriting exposures at Lloyd's. Profits and losses from underwriting can not be quantified until the 1994 underwriting year closes, in three years' time under Lloyd's accounting rules. Without a secondary market in syndicate participations, these exposures can not be easily valued in the meantime.

Lloyd's trusts should thus perform like insurance companies, trading at a premium or discount to the value of their underlying investment portfolio, depending on the underwriting outlook. How investors are expected to judge the climate at Lloyd's is a complicated issue. Composite insurers are already vulnerable to hurricanes and earthquakes, but Lloyd's syndicates carry a far higher gearing to such unpredictable catastrophes. Claims arising in obscure US courtrooms can have equally damaging effects.

That argues for a strict disclosure regime to ensure equal access to information. Individual names at Lloyd's receive quarterly reports, including claims figures relating to the syndicates in which they participate. Stock market investors have a right to expect equal treatment, not to mention stock exchange announcements when the Lutine bell tolls.

GB United Kingdom, EC P6726 Investment Offices, NEC P6411 Insurance Agents, Brokers, and Service CMMT Comment & Analysis P6726 P6411 The Financial Times London Page 16 252
The Lex Column: Ofwat's water works Publication 931101FT Processed by FT 931101

Next Thursday is an important day for the UK water industry: Ofwat will produce the methodology for calculating price caps up to the year 2000. The market will probably focus closely on the rate of return that water companies are allowed on new investment. The industry seems resigned to an outcome towards the lower end of the 6.5 to 7.5 per cent range suggested by the Monopolies and Mergers Commission for British Gas's pipelines business. Ofwat will probably also disclose its method for measuring the companies' asset base. These are the main theoretical tools for setting price limits in the second half of the decade.

The snag is that Ofwat may have to bridge a gap between theory and practice. A lowish rate of return would leave companies such as South West and North West with weakened balance sheets. Ofwat is therefore likely to leave open the option of more relaxed price limits from some companies to keep interest cover in shape. But it seems too much to hope that the regulator will say how far it thinks each company's financial ratios might be stretched. Without a steer on that point, judging the final outcome of the review will still be a matter of guesswork.

Exactly how much capital expenditure will have to be financed through the second half of the decade will also remain uncertain. The government's missive on the subject last month left open the possibility of renegotiating Europe's tougher water purity standards. That might cut Anglian's spending plans by anything up to Pounds 600m over five years. But negotiating with Britain's EC partners takes time. The chances are that the industry will be back talking with the regulator even after a settlement has been reached on the final price caps.

GB United Kingdom, EC P4941 Water Supply P9631 Regulation, Administration of Utilities CMMT Comment & Analysis COSTS Service costs & Service prices P4941 P9631 The Financial Times London Page 16 334
Focusing on grander horizons: Kodak's new chairman wants the group to play a leading role in the information revolution Publication 931101FT Processed by FT 931101 By MARTIN DICKSON

It was one of those rare shifts of perspective that make the world suddenly look a very different place.

It came courtesy of Mr George Fisher, one of America's most respected managers, who caused some surprise last week by moving from the chairmanship of high-flying electronics group Motorola to head Eastman Kodak, the struggling photographic products giant which had ousted the previous chairman, Mr Kay Whitmore, because of its lacklustre financial performance.

What, in addition to an extremely generous pay package, would prompt Mr Fisher to exchange his comfortable job for such a bed of thorns and abandon suburban Chicago for the stolid provincialism of Rochester, Kodak's home town in rural upstate New York?

The 52-year-old Mr Fisher explained he had a vision of Kodak playing a leading role in the 'information revolution' - shorthand for the convergence of the communications, computer and information sectors into one giant multi-media industry, tied together by their ability to transform data into common, digital electronic form.

'I have lain awake for the past two nights thinking about the possibilities,' he enthused, adding that while 90 per cent of his ideas might not work, 10 per cent of them would be 'killers'.

On one level he was stating the obvious: Kodak, at heart a chemicals company, knows its long-term prosperity depends on it mastering the electronics revolution which is transforming photography, along with so many other industries.

The company has, after all, poured vast sums of money into electronic experiments over the past decade. And many of them have been failures - a reminder that Mr Fisher's grand schemes may be devilishly hard to deliver.

The importance of his remarks was that he presented a snapshot of a bold, aggressive and optimistic enterprise, riding the crest of a technological wave - and the picture carried a degree of conviction, thanks to his successful career so far on the cutting edge of the electronics industry.

That is a stark contrast to today's popular image of Kodak. For it is a company, lacking any compelling vision, which has been defined for a decade or more not so much by its possibilities as by its problems. Its stumbling attempts to overcome them present a case study in the difficulties of shaking up a rigid, corporate culture.

Ever since the 1970s, the company, which pioneered the mass-market photography industry and remains the world's largest manufacturer of film, has been haunted by two big threats.

One is electronics, which allows images to be created without the chemical process which has characterised the photography industry since its birth - the sensitivity to light of silver halide salts. Electronic cameras, ranging from simple consumer camcorders to sophisticated still cameras, have been nibbling away at the market for traditional film, although they do not yet pose a serious threat to it and may not for many years. This is partly because no-one has yet invented a cheap, high-quality, digital still camera and partly because silver halide is still unrivalled as a medium for capturing the sharpest, most subtle images.

The other threat to Kodak is more immediate. It faces increasing competition in the film manufacturing business - the company's financial engine, churning out a fabulous stream of cash flow - from manufacturers of rival branded and own-label goods, sold at a discount to Kodak's product.

Its arch-rival is Japan's Fuji Photo Film, known for its bold colours and a history of innovation, but others include Germany's Agfa and America's 3M.

The competition has been growing for several decades - a period when growth in the western world's consumption of film has slowed from around 10 per cent a year to a modest 4 per cent.

Despite years of competition, Kodak still commands well over half the global film market and may even have been gaining share in some countries, as its reputation for quality - its single most important asset - recovered from a dip in the 1980s. It retains one of the world's most powerful brand names.

The trouble is that a combination of sluggish sales growth, loss of market share and pressure on prices has held back its photography profits, while the company has poured the cash from this business into lavish levels of research, gold-plated capital investments and unsuccessful diversifications which have failed to lift earnings.

To no avail it has also taken a succession of large charges against earnings for restructurings over the past eight years and implemented two big changes in management structure - the second to put right the flaws in the first.

'The frustration of many long-time shareholders is that the company seems to have spent these vast sums of money. . .and there hasn't been an incremental return on those investments,' says Mr Michael Ellmann, an analyst at brokers Wertheim Schroder.

Indeed, Kodak's 1992 net income of Dollars 1.15bn (Pounds 821m), on sales of some Dollars 20bn, was slightly lower than its income in 1982 and the company is forecasting operating earnings this year no higher than last.

Many of the company's problems are personified in 61-year-old Mr Whitmore, who became chairman in 1990. He is a cautious, kindly man who joined Kodak as a film manufacturing engineer in 1957 and is steeped in the company's paternalistic culture. Repeatedly prodded by shareholders and the board, he started drawing up a plan of action this year to improve the company's performance, including cuts in the research budget and the spinning off of its bulk chemicals subsidiary as a separately quoted company.

But he seemed unwilling to take the tough action needed to boost earnings from the current 5 per cent of sales to the board's 10 per cent target, including severe job losses. And he appeared unable to articulate a clear growth strategy.

Yet while Mr Whitmore has become the fall-guy, the roots of Kodak's problems stretch back through at least two other chairmen - and arguably to the origins of the company set up in Rochester in 1880 by George Eastman, a high school drop-out.

Eastman, a marketing genius who sold the world's first simple camera under the slogan 'you push the button, we do the rest,' built Kodak into the dominant force in the industry, at one time commanding some 90 per cent of the film market. He was also a pioneer in labour relations, lavishing generous health care and retirement benefits on the workers of Rochester, a city whose most striking landmark remains the solid, square tower of Kodak's headquarters.

Kodak's extraordinary success, combined with the insularity of Rochester and the company's dominance of the town, bred a mixture of complacency and arrogance.

Kodak found Japanese rivals stealing a lead with easier to use cameras, faster films, more efficient processing and marketing innovations such as the disposable camera, which is thrown away after its pre-packed film is processed.

Its arrogance was demonstrated most clearly in its reaction to Polaroid's invention of the instant camera. Kodak first dismissed it as a fad, but belatedly followed Polaroid's lead - only to be forced from the market by a 15-year patent infringement suit which cost it Dollars 925m in a 1991 settlement.

Even when Kodak began to realise its problems, its efforts to right matters were often half-hearted, ill-focused, or just plain wrong.

In the film business, for example, it took an expensive gamble on disk cameras - small cameras with film mounted on a disk - which it hailed in 1982 as the 'new engine which will drive amateur photography.' But consumers favoured the simplified 35mm cameras pioneered by Japanese rivals, which produced higher quality pictures. Kodak abandoned the disk five years ago.

It made an abortive foray into marketing Japanese-built camcorders and squandered a lead over Xerox in photo copier design.

It diversified into a hodge-podge of businesses (many of them sold during the past year), such as Atex, the newspaper copy processing system. The spree culminated in 1988 with the Dollars 5.1bn purchase of Sterling Drug, a pharmaceuticals and over-the-counter drugs company.

Kodak could advance a plausible rationale for a pharmaceuticals acquisition: its chemicals expertise has given it a wealth of formulae which could be useful to a drugs company. But it paid a fancy price for Sterling, a company with a thin research pipeline which so far has failed to pay its way - while landing Kodak with a vast debt burden.

However, the record is not universally dismal. In the electronics field, Kodak and its Dutch partner Philips have scored a considerable coup with their invention of the photo CD system, introduced last year. This involves scanning ordinary silver halide photographs into digital form and then storing them on discs, like compact records. Using a photo CD player, the pictures can can then be displayed on television or computer screens.

But while increasingly popular with business users, this transitional technology between the silver halide and digital worlds has failed to take off in the important consumer market. 'It's not inexpensive, it tends to be complicated for the average consumer and it's just not walking off the shelves,' says Mr Eugene Fram, professor of marketing at the Rochester Institute of Technology. In other words, it's not a profits blockbuster.

Kodak may have some significant digital inventions in the pipeline. One rumour suggests it is near to unveiling a camera developed jointly with computer company Apple. Yet some critics argue that the company has been reluctant in the past to commit wholeheartedly to electronic photography, for fear of the damage this could cause to the silver halide side.

To the extent that electronics needs a shot in the arm, it should get one from Mr Fisher, whose whole career has been spent in this industry - first at Bell Laboratories, the American Telephone & Telegraph research centre, and since 1976 at Motorola, where he has played a central role in turning the company into a leading manufacturer of mobile telephones and pagers and the world's fourth largest semi-conductor manufacturer.

But his most immediate problems will be more prosaic and unpleasant. Despite little experience in corporate retrenchment, he needs to cut costs quickly - possibly with job losses above the 10,000 reluctantly announced by Mr Whitmore in August - to increase cash flow and reduce Kodak's debt burden.

He may also sell peripheral assets. He intends to keep the healthcare division as one of two 'pillars' of Kodak, alongside imaging, having been pleasantly surprised by an independent report on the business prepared for him by an investment bank. But analysts think the barely profitable photo copier business might go and also the household products subsidiary.

No less important for the long-term will be rebuilding the management team - a task at which Mr Fisher is said to excel - and instilling in it a greater degree of marketing expertise than Kodak has displayed recently.

As a cure for myopia, Mr Fisher might also consider moving the headquarters from Rochester. As it is, his first comments have raised Kodak's sights from the humdrum, but necessary, task of restructuring to far grander horizons of technological triumph.

Visions, of course, are two-a-penny, and it will be no easy matter to turn this champion of the first industrial revolution into a winner in the next. But at least it's a start.

EASTMAN KODAK the full picture

1992 IMAGING: Sales Dollars 7.4bn. Earnings Dollars 1.2bn. Makes film for the consumer and professional markets, cameras and photo CDs which allow the electronic storage of images.

INFORMATION: Sales: Dollars 4.1bn. Losses Dollars 151m. Makes office copiers and printing systems.

HEALTH: Sales Dollars 5.1bn. Earnings Dollars 588m. Includes Sterling Winthorp, manufacturer of pharmaceuticals and consumer health products; clinical diagnostic business; x-ray film business; L&F products, which makes household cleaning products.

CHEMICALS: Sales Dollars 3.9bn. Earnings Dollars 494m. In process of being spun off to shareholders as a separately quoted business.

Eastman Kodak Co Inc US United States of America P3861 Photographic Equipment and Supplies CMMT Comment & Analysis MKTS Market shares PEOP People P3861 The Financial Times London Page 15 2027
Leading Article: European union Publication 931101FT Processed by FT 931101

AS OF today, the Treaty of Maastricht is legally in force. Whether they like it or not, and whether they know it or not, all nationals of the 12 member states of the European Community woke up this morning as something which last night they were not, namely citizens of the European Union (EU).

That may not make them feel any different. Its only direct practical effects are to give them the right to petition the European parliament, on matters of EC competence which directly concern them; the right to complain of EC maladministration to an ombudsman appointed by the parliament; and, if they are resident in a member state other than their own, the right to vote in European elections (starting next year) and local elections (starting in 1995).

Yet the EU is more than the EC writ large. Besides the EC itself, it includes two other 'pillars'. One is intended to provide it with a 'common foreign and security policy', leading in time to a common defence policy, perhaps even a common defence. The other institutionalises co-operation between the member states on justice and home affairs.

Within the Union, the EC itself is significantly modified by the treaty - though the most spectacular changes, creating an economic and monetary union (Emu), are supposed to take full effect only in five, or at the earliest three, years' time. Events since the treaty was signed have made it doubtful whether either this timetable, or the procedure envisaged, are realistic. The European Monetary Institute, which will start work on January 1, should see itself not as the police force of the treaty but as a useful forum for rethinking both the path to Emu and how best to manage what may prove an extended interim period.

Taken as a whole, the treaty was drafted too soon and too quickly to be an adequate response to the collapse of communism. That has brought into being a Europe radically different from the one in which and for which the EC was built. The chance to extend western Europe's zone of prosperity and security eastwards is far too valuable and the risk of contagious instability in central Europe if the chance is missed far too great, for the EC to be able to ignore it. Hence the historic decision, made in Copenhagen last June, that 'the associated countries in central and eastern Europe that so desire shall become members of the European Union'.

Strategic issues

But to meet the needs of a new and wider Europe the EC will have to adapt in ways different from, and more radical than, the changes that come into force today. The principle of the sacrosanct acquis communautaire - that new members must adapt to arrangements previously agreed between existing members, rather than vice versa - will simply not work when what is envisaged is an expansion that will eventually double the number of member states, bringing in new members with very different political and economic traditions.

It is true that that expansion will take some time. But it would be folly to imagine that the problems can be solved by dealing with them piecemeal, in a succession of negotiations with small groups of applicant countries. On the contrary, that procedure would virtually ensure that the strategic issues were not confronted and that the end product was utterly incoherent and unworkable.

As things stand, the EC is pursuing enlargement negotiations with four Efta countries, and is due to hold an intergovernmental conference in 1996 to revise the union treaty as far as seems desirable in the light of experience. It might make more sense to bring the conference forward and combine it with the enlargement talks, so that the parliaments and electorates of all 16 countries could consider the results simultaneously.

On the day-to-day level, the immediate task for the 12 must now be to try to operate the institutional machinery provided by the treaty and see how it works. But that should be combined with serious thought at the strategic level about the union of the future - a process which cannot be confined to 12 states or even 16. All the likely future members of the union must be involved in it, which means that some sort of skeleton institutional structure for it should be established as soon as possible.

It is clear that a union of the size and diversity envisaged cannot be highly centralised. It should have a single, open market, but its member states must be free to experiment with measures to alleviate their employment problems and to decide, within limits, their own macro-economic policies. For unless it can achieve sustained economic growth and unless it can reduce unemployment well below its current levels in both eastern and western Europe, the union is doomed to fail. It faces a formidable challenge from the new and dynamic economies of east Asia. It has no hope of meeting that challenge if it seeks to impose on all its members the social regulations that the most prosperous still think they can afford.

Open relationships

Full economic and monetary union of such a large area could only come about over several decades, if at all. Even then the national identities of the member states and the desire of their peoples to retain control of their own destinies, would have to be carefully entrenched and protected. They would not tolerate any attempt to merge them into a single state, even a federal one.

There could and should be no question of such a union fencing itself off from the rest of the world with tariff or non-tariff barriers. On the contrary, Europe can remain prosperous only if it maintains open relationships with the rest of the world, particularly in trade and investment. Indeed, the union should play a major role in securing global economic order.

Yet to talk of 'playing a role' implies a capacity to take decisions and to act on them; and a union of that size will not be able to avoid responsibilities in the area of physical as well as economic security. So although 'widening' may rightly be seen as the enemy of 'deepening', when the latter means a highly intrusive central power, the same is not true when 'deepening' means strengthening the ability of the union to decide and to act within the areas agreed.

In matters essential to its functioning and survival - notably internal and external trade, free movement of capital and labour, but also the key areas of foreign and security policy, including immigration, asylum, the fight against transnational crime and at least some aspects of defence - decision-making processes will need to be streamlined and sovereignty pooled. The union will not be effective in a crisis if its every move has to be unanimously approved in advance by the representatives of 20 or 30 separate bureaucracies. A central question will concern the necessary increase in the voting weights to be exercised by the large countries within the community.

It will obviously be a long time before even all the existing members, let alone all the future ones, are ready to make the sacrifices of sovereignty required for an effective union in this sense. Some, moreover, will be more interested in participating in the economic and monetary aspects, while for others the issues of physical security will be paramount. It is therefore inescapable that those who are ready to act together in a particular area should move ahead and do so, using or creating whatever institutions are necessary. That is already happening with border control (the Schengen treaty), with defence (the Western European Union), and with the management of exchange rates. It would happen for Emu even if Maastricht were applied to the letter, since not all member states would be ready for stage three at the same time. 'Variable geometry' is not something to be ashamed of. It is in fact the only way a viable European union can be built.

QR European Economic Community (EC) P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 15 1360
Observer: Old song Publication 931101FT Processed by FT 931101

The professional advisers behind the rescue of Canary Wharf seem somehow to have preserved their sense of humour during the last few months of negotiations. But, as children, they were clearly all far too serious-minded to watch cartoons.

The company that rises Phoenix-like in place of Olympia & York to control the Docklands development is called Sylvester Investments, apparently named after the cartoon cat that pursued Tweety Pie, the canary.

Only problem is, in the cartoon Tweety Pie was never caught. Unlike the bankers and other creditors to Canary Wharf. . .

Sylvester Investments GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COMP Company News P6552 The Financial Times London Page 15 123
Observer: Knock knock Publication 931101FT Processed by FT 931101

Guess who's moving in next door to Lord Rothschild, Rupert Murdoch and John Paul Getty 11 in a particularly salubrious corner of St James's, just off London's Green Park? Popping round for a cup of sugar any moment now will be Tiny Rowland's bete noire, Dieter Bock, the German financier, who last week rechristened his Lonrho colleague as his 'dear disjointed chief executive'.

The building containing Bock's new flat was designed in 1960 by the high priest of British modernism, Sir Denys Lasdun. Being something of a design freak himself, Bock is in the process of gutting the apartment to return it to its former glory.

While Observer is not party to the price at which Bock secured his new pad, the asking price, for a 32-year-lease, was Pounds 1.8m, with service charges in excess of an annual Pounds 25,000.

Apparently the basement car parking space costs another Pounds 5,500 a year - which seems a bit steep for someone whose favourite modes of transport are supposed to be a 2CV and a bike.

GB United Kingdom, EC P6513 Apartment Building Operators PEOP People P6513 The Financial Times London Page 15 199
Observer: Gas bags Publication 931101FT Processed by FT 931101

It was, by all accounts, a very auspicious meeting, when Cedric Brown, chief executive of British Gas, first sat down with his new regulator, Clare Spottiswoode.

Spottiswoode, who takes over from Sir James McKinnon today, invited herself round a few days ago for an hour's introductory chat. The pair hit it off so well that she stayed for two and a half.

'It was very constructive and wide-ranging,' beams Brown. 'We talked about issues spanning the whole breadth of the business in a way which we'd never done before. It bodes well.'

Which marks something of a departure from the stormy encounters that characterised British Gas's relationship with Sir James in the bad old days.

Even McKinnon has mellowed a touch. At his farewell party last week, he spoke almost fondly of the people 'in that building down by the river' - not that he could bring himself to mouth the name of the company inhabiting the Thamesside headquarters.

British Gas GB United Kingdom, EC P4923 Gas Transmission and Distribution P9631 Regulation, Administration of Utilities NEWS General News P4923 P9631 The Financial Times London Page 15 195
Observer: Hot property Publication 931101FT Processed by FT 931101

The rest of Europe may fiddle, but the mighty Deutsche Bank seems to have its eye on the main chance. Last week, Germany's leading commercial bank completed probably the largest property deal in the British capital in more than two years when it acquired, through its 60 per cent-owned subsidiary DGI, the long leasehold of One Exchange Square.

So now that it has become landlord to the European Bank for Reconstruction and Development, why not offer that other breed of Eurobankers a home as well, seeing the EMI has been secured by Frankfurt?

After all, the idea that Europe's new central bank should be housed in the cavernous IG Farben building was always faintly risible, given that the simply vast edifice built for the pre-1945 chemical conglomerate has since housed as many as 60,000 US soldiers.

As the Bundesbank has rented a number of floors in the landmark Messeturm skyscraper, that too is ruled out if the new Eurocrats are to be spared waspish words in the elevators.

But what about the so-called Trianon, the brand new building a D-Mark's throw away from Deutsche Bank's twin towers? Ten floors higher, it was originally supposed to be the new headquarters of BfG, but it was snapped up by Deutsche when the former union bank fell on hard times. It is only two thirds let, so EMI president designate Alexandre Lamfalussy might like to turn up to the dedication bash this Thursday to have a look around.

Then again it is perhaps not a long-term solution. Intended to be redolent of Marie-Antoinette's village in the grounds of Versailles, the name of the building could prove something of an embarrassment, as EU enlargement progresses. Not everyone will have forgotten the 1920 Trianon treaty according to which two thirds of Hungary's territory was confiscated after the first world war.

Deutsche Bank DE Germany, EC P6552 Subdividers and Developers, Ex Cemeteries RES Facilities P6552 The Financial Times London Page 15 334
Observer: Boo to EU? Publication 931101FT Processed by FT 931101

For all you folk soundly asleep at midnight last night, unmoved by the passing of a momentous historic occasion, welcome to European Union.

'Nothing could better illustrate this stillborn treaty than its coming into effect on the eve of the day of the dead'. One of many to remark on the ennui with which the treaty's coming is greeted, French far-right nationalist Jean-Marie Le Pen may have a point.

By contrast with the short history of the European endeavour, All Souls' Day was first celebrated 995 years ago at the behest of Odilo, abbot of Cluny. He had been struck by the tale of a pilgrim returning from Palestine who had been wrecked on a rocky isle, home to a hermit. The pilgrim had promptly been led to a fiery crevice, from which issued the groans of tormented souls. The good abbot duly ordered that a day be set aside to commemorate all those in purgatory.

How long, then, should Europe's politicians suffer before they are forgiven for signing Maastricht?

QR European Economic Community (EC) P9721 International Affairs NEWS General News P9721 The Financial Times London Page 15 197
A unified Budget is worth the bother Publication 931101FT Processed by FT 931101 By SAMUEL BRITTAN

The British Treasury is once more making threatening noises about tax increases of up to Pounds 5bn per annum. But it is not clear how far these are a response to a threatened overshoot of agreed spending limits for the next financial year and how far they represent an independent wish to tighten the fiscal stance. Only the first would be justified during a fragile and modest recovery - and then as a holding operation until the prime minister summons up the courage to confront his spending colleagues.

In any case, politicians and officials should resist the temptation to blame all their troubles on the decision of the last chancellor, Norman Lamont, to present a unified Budget covering both expenditure and taxation. Amazing though it is to retell, British Budgets have up to now covered only the tax side. The first unified Budget is due on November 30 and not before time. The last chancellor's decision to introduce it was widely commended, but is now the target of a hostile whispering campaign by grumblers who say that it is not working and that it will not last.

Something is indeed wrong. But the mistake is that the change has not gone far enough. For as Andrew Dilnot of the Institute for Fiscal Studies pointed out at an early stage, the Budget is now unified only in name. Public expenditure discussions are still taken in outline in July and in detail in autumn, a process which is now giving the cabinet so much trouble. Tax decisions are still made by the chancellor and the prime minister, after just a prudential consultation with colleagues. The main difference is that they have now to be made in a rush before the Christmas season, instead of in March.

The way forward should surely be to make the Budget genuinely unified: that is for the cabinet to discuss both spending and tax together at the same time. This does not mean subscribing to the primitive notion of an exactly balanced Budget or even a fixed borrowing requirement. The true housekeeping point is that, whatever level of borrowing is prudent in a given economic situation, extra spending on X still means less spending on Y or higher taxes; and the more that the noses of people like Malcolm Rifkind, the British Defence Secretary, can be rubbed into this logic the better.

The grumbles about a unified Budget are fourfold. First there is said to be an undue strain on the Treasury in a short period in the autumn. The second is that the gap between a late November Budget and the beginning of the financial year in April is said to provide a heaven-sent opportunity for parliamentary mischief-makers to try to overturn the chancellor's decisions. The third is that a November Budget has to be decided on the basis of a premature, and therefore unnecessarily bad, guess about economic and revenue prospects, compared with an assessment made in March. There is apparently a fourth objection: that the Conservatives are depriving themselves of the opportunity of a spring election a few weeks after a tax-cutting March Budget. This is not even good politics, overlooking as it does Abraham Lincoln's saying about not being able to fool all of the people all the time.

The answer to the first point about the overload on the Treasury is 'hard luck'. The seasonal pressures are a hazard of the job, as similar pressures are for farmers and fishermen. The second objection would amount to contempt of parliament if it had more substance. Where quick implementation is possible, as in the case of VAT and drink and tobacco duties, new rates can come into effect the day after Budget Day, irrespective of when that day is. The gap in implementing say, income tax decisions, is administrative and has little to do with the financial year. Indeed, November announcements should enable new income tax rates to come into force at the beginning of the financial year in April instead of in high summer.

Thus we are left with the third difficulty, of guessing the fiscal outlook a few months before the start of the financial year. On the Treasury's own doctrines this should be a minor problem. For the official view - not mine - is that tax rates should be set to bring the Budget back towards balance over several years, accepting that progress will be slow in years of recession or modest recovery and relatively fast when growth is more rapid.

If that is so, the chancellor should not be panicked into raising taxes because recovery is slower than foreseen; nor should he become more relaxed if economic prospects improve. In either case a departure from the target balance would be a helpful stabiliser - and even economists who are sceptical of such considerations are keen on stable tax rates, based on an assessment covering a whole business cycle, for supply side reasons.

It seems that, whatever politicians and officials think they believe, the ghost of Philip Snowden, the ultra-conservative Labour chancellor who tried to balance the Budget in the 1931 depression and destroyed his party in the process, still stalks the corridors. My own proposal, made in Economic Viewpoint on October 21, is for announcing slow-motion revenue increasing reforms, desirable in themselves, like phasing out mortgage interest relief, but coupling them with offsetting tax-cutting proposals to be introduced if the economic and fiscal position allows. This is hardly throwing caution to the winds.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis P9311 The Financial Times London Page 14 950
Letters to the Editor: The politics that does not deserve space Publication 931101FT Processed by FT 931101 From Mr P B MATTHEWS

Sir, As a recent convert to the FT, I hope you will allow me to say how much I disagree with the letter from Jack Straw (October 28).

In considering what to publish, newspapers must remember that readers' time is limited, and hence what matters is the importance to them of politicians' speeches compared with other matter competing for space. I recently co-wrote a book on a major new piece of legislation, and for this purpose I was obliged to read every debate in both Houses of Parliament (including committees). Frankly, 95 per cent of what I had to read was drivel that did not deserve to be printed, even in Hansard, let alone in newspapers. And Mr Straw may care to note that most of the remaining 5 per cent was uttered in the House of Lords. I prefer to read a newspaper which prints things of some value.

Granted, actual decisions of government or parliament, and the occasional policy announcement, are - or may be - news, and may be reported on that basis. However, the puerile posturing of self-important, second-rate intellects is not. Hence my preference for the FT.

Paul Matthews,

Hopkins & Wood, solicitors,

2-3 Cursitor Street,

London EC4A 1NE

GB United Kingdom, EC P2711 Newspapers NEWS General News P2711 The Financial Times London Page 14 241
Letters to the Editor: No benefit to housing market Publication 931101FT Processed by FT 931101 From Mr A M COLES

Sir, You report, 'Heroic assumptions and political realities' (October 28), that there will 'probably (be) new restrictions on benefit payments to cover mortgage interest'.

The exact nature of these restrictions is not clear. Nevertheless, it has been suggested in other media that the role which the state plays in protecting mortgage borrowers from the consequences of unemployment might be taken over by private insurers. There will be three major consequences of any such change, their severity depending on the extent of the reduction in state support:

(a) An increase in the number of repossessions. It is inconceivable that private sector schemes could be as comprehensive as that currently offered under the income support regulations. Any saving on expenditure on income support would probably be more than absorbed by increased expenditure on the provision of housing to the homeless.

(b) An increase in the cost of mortgage finance, reflecting both the increased risk of lending on mortgages, and the cost of insurance premiums.

(c) Some potential purchasers, identified by private insurers as particularly vulnerable to unemployment would find it very difficult to enter the market because unemployment cover would not be available.

At a time when the government is seeking to extend still further the groups of people able to become owner-occupiers through its rents to mortgages scheme, it is entirely inconsistent to be cutting back on the support which the state is able to offer if things go wrong. More generally, with the housing market remaining in deep recession, changes of the type being proposed will have the effect of putting back still further any meaningful recovery in activity.

A M Coles,

director general,

Council of Mortgage Lenders,

3 Savile Row,

London W1X 1AF

GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents NEWS General News P6162 The Financial Times London Page 14 322
Slow recovery on the runway: High losses and liberalisation are forcing airlines to restructure Publication 931101FT Processed by FT 931101 By PAUL BETTS and DAVID GARDNER

Some stark financial numbers will dominate today's annual gathering of the world airline industry in Dallas, Texas.

Mr Pierre Jeanniot, the director-general of the International Air Transport Association (Iata), will report to the organisation's 221 airline members that they lost Dollars 11.5bn on international scheduled services alone between 1990 and 1992: more than all the net profits made by the industry since international airline services began just after the first world war.

The combined industry losses are even bigger if domestic services and other activities are included, swelling the total to Dollars 15.9bn for the same three-year period.

Although extensive cost cutting and restructuring, coupled with a slow but steady recovery in air travel after the Gulf conflict in 1991, have started improving the industry's overall outlook, Mr Jeanniot expects airlines to report another big loss this year.

'It will be surprising if Iata members' losses in 1993 are less than half of those in 1992,' he says. That would put 1993 airline losses on international services at Dollars 2.4bn-Dollars 2.5bn after a record deficit of Dollars 4.8bn last year.

All this financial agony combined with increasing liberalisation has forced the pace of profound structural change. Direct employment has fallen by some 80,000 people and about 1,000 aircraft deliveries were cancelled or deferred last year as carriers continued to reduce costs by eliminating marginal operations, increase sub-contracting and concentrate on their core airline business, according to Iata's annual report.

They have also had to adapt to changing consumer demands fuelled by increasing cost consciousness in all sectors of the economy. This has led to an overall decrease in fares, (in real terms, the economy fare between New York and London is now half what it was in 1950), a reduction in first-class services, improved business-class services and growing demand for more low-cost leisure travel seats.

Perhaps the most significant trend has been the scramble for mergers and alliances, with airlines seeking to position themselves in an increasingly global and deregulated market. The list of partnership agreements completed or under negotiation keeps growing. Lufthansa of Germany last month forged a strategic link with United Airlines of the US; negotiations between Swissair, SAS, KLM and Austrian Airlines to combine their operations have reached a critical stage; and British Airways has bought equity stakes in USAir, Qantas and two smaller European regional airlines. These are just some of the bigger deals.

The financial losses of airlines have also provoked 'unique' government responses, says Iata. 'For the first time, governments on both sides of the Atlantic have simultaneously recognised the threat to the long-term viability of aviation as an integrated and global transport system,' Iata notes in its annual report.

In the US, this has led to the establishment of a presidential commission to recommend steps to help restore the profitability of US carriers. In Europe, the EC has set up a committee of 'wise men' which is due to suggest measures to support the recovery of the European airline industry by the end of the year.

But these government initiatives have once again raised the threat of a return to tighter regulations and protectionism. The concerns are particularly acute in Europe, where many state-owned flag carriers have been slower to restructure their activities and have been calling for more state support.

In contrast,the first tentative signs of improvement are emerging in the US industry, with several carriers, including American Airlines, the biggest US carrier, reporting profits in the third quarter of this year.

Under pressure from some national flag carriers and their government owners to reinstate some form of protection for European airlines, the European Commission has stated that it will resist any attempt to curb liberalisation in European air transport.

'What some of them are after apparently is a price cartel,' says Mr Karel van Miert, the Belgian socialist who holds the EC's competition portfolio. 'That, we cannot and will not allow. We won't accept a fare cartel or a capacity reduction cartel,' he adds, accusing some airlines of 'a certain nostalgia' for pre-open skies days - the era of airline cartels.

Mr van Miert's warning followed a proposal by Belgium to reintroduce the capacity-sharing the EC has outlawed as well as Community funding for airlines in trouble to get round the tougher state aids regime the Commission is now enforcing.

Belgium has so far received little support for its ideas, except from France. But the financial plight of most European airlines makes it more than likely that such proposals will keep resurfacing, bringing new pressures on the Commission.

Mr van Miert, who, as transport commissioner, last year pushed through the third phase of EC airline deregulation, is clearly not prepared to see liberalisation rolled back. He also has the backing of air transport liberals led by the UK and the Netherlands.

Echoing these views, Sir Colin Marshall, BA's chairman, told the EC 'wise men' that the European airline industry must be supported by policies which enhance competition. He added that capacity should be limited by market forces and not by voluntary agreement between airlines and that the restructuring of the European industry should be allowed to continue to enable airlines to improve their competitiveness. If airlines could not manage this, they should 'go out of business', Sir Colin argued.

The Commission's analysis is that Europe's airlines have to reduce costs and consolidate into stronger alliances capable of taking on US and Asian carriers. Brussels is prepared to help, but only within the structure of deregulation.

The EC has, for instance, started investigations into monopolies for ground services, such as baggage handling and refuelling at airports in Spain, Italy and Germany. Liberalisation in these areas would reduce airline costs. So too would any success in the Commission and industry's campaign to unify Europe's costly and fragmented air traffic control system.

On state aid, the EC has in the past two years approved recapitalisations for Air France, Sabena, the Belgian airline, and Iberia of Spain. But approval was tied to restructuring plans with the EC warning these airlines they could not come back for more state aid in the future.

Air France, however, is again seeking fresh funds from its state shareholder as part of a restructuring programme which has provoked fierce reaction from its trade unions. Brussels will now also have to decide whether to let through government cash injections for Aer Lingus, Olympic Airways of Greece and probably TAP, the Portuguese airline.

But the rearguard action by some European flag carriers to win more state support and re-introduce some of the old capacity and fares regulations is unlikely to halt the trend towards more 'open skies'. 'I think we are now too far down the road to reverse the process,' says Sir Colin.

For Iata, air traffic congestion at airports and in the air remains 'the greatest long-term threat' to the industry. 'Lack of infrastructure could limit both the size and scope of the future industry,' it says in its annual report.

The scale of the infrastructure challenge is simply put. Last year, the airlines carried more than 300m international scheduled passengers. Even after scaling back earlier long-term air travel forecasts made before the latest crisis, Iata still expects average annual growth of 6.6 per cent between now and 1997. If this latest forecast proves correct, Iata estimates that 114m more people will be flying in 1997 than did in 1992.

The implications are clear. Without adequate new airport and air traffic control investments, the industry's wings will be clipped just as it starts showing signs of financial recovery.

------------------------------------------------------------------------ IATA AIRLINES' CORPORATE RESULTS 1988-92 ------------------------------------------------------------------------ Dollars bn 1988 1989 1990 1991 1992 ------------------------------------------------------------------------ Operating revenues 125.1 144.5 193.2 186.2 199.8 Operating expenses 118.9 140.2 192.4 187.0 200.4 Operating result 6.2 4.3 0.8 -0.8 -0.6 % of revenues 5.0 3.0 0.4 -0.4 -0.3 Net result 2.5 0.6 -5.1 -3.3 -7.5 % of revenues 2.0 0.4 -2.6 -1.8 -3.8 ------------------------------------------------------------------------ IATA INTERNATIONAL SCHEDULED SERVICES 1988-92 ------------------------------------------------------------------------ Dollars bn 1988 1989 1990 1991 1992 ------------------------------------------------------------------------ Operating revenues 60.9 70.7 91.0 91.7 103.5 Operating expenses 57.5 68.1 90.5 92.3 104.5 Result before interest 3.4 2.6 0.5 -0.6 -1.0 Net interest payable 1.8 2.3 3.2 3.4 3.8 Result after interest 1.6 0.3 -2.7 -4.0 -4.8 ------------------------------------------------------------------------ Source Iata ------------------------------------------------------------------------

US United States of America P4512 Air Transportation, Scheduled P4581 Airports, Flying Fields, and Services CMMT Comment & Analysis TECH Services & Services use FIN Annual report P4512 P4581 The Financial Times London Page 14 1434
Letters to the Editor: Facing the unpleasant auditing decisions Publication 931101FT Processed by FT 931101 From Mr ROGER DAVIS

Sir, In response to my plea (Accountancy Column, August 19) for auditors not to seek refuge in rule books, the chairman of the United States Financial Accounting Standards Board is right to say that accounting standards and professional judgment should be equal partners ('Balancing rules and professional judgment', October 14).

My concern is that they could become very unequal. Mr Beresford identifies correctly the tendency for business people and auditing firms to ask for more accounting rules so as to avoid having to make difficult judgments themselves. Major business decisions are inevitably influenced by accounting standards and it is vital not to create an unnecessary accounting straitjacket on company directors.

I agree with Mr Beresford that there is more to be done through accounting standards to ensure comparability of accounts. His example of merger and acquisition accounting - and how you account (or don't account) for goodwill - is a case in point in the UK.

But his other example of accounting for foreign currency hedges illustrates my point. To achieve accounting certainty, the standard setters have traditionally associated them with the balance sheet rather than with their real purpose of protecting future cash flow, which requires more judgment.

It is that kind of conflict between accounting definition and commercial reality which we need to avoid.

I repeat my request for business and the auditing profession to take more of the unpleasant decisions for themselves. In the long run this will be good for industry and good for the profession, and it will make life easier for Mr Beresford and his fellow standard setters.

Roger Davis,

head of audit,

Coopers & Lybrand,

1 Embankment Place,

London WC2N 6NN

GB United Kingdom, EC P8721 Accounting, Auditing, and Bookkeeping Services TECH Safety & Standards P8721 The Financial Times London Page 14 317
Letters to the Editor: Government commitment on Bosnia still strong Publication 931101FT Processed by FT 931101 From Mr DOUGLAS HOGG MP

Sir, Edward Mortimer ('No news is good news', October 27) implies that, because Bosnia and Iraq are now less in the headlines, the government's concern, and Britain's efforts to promote peace and to relieve suffering, have lessened. This is quite wrong. Notwithstanding a reduction in media coverage, these issues and the plight of the civilian populations affected remain very high on our agenda.

We are aware of the humanitarian crisis Bosnia faces as a result of the continued fighting and winter conditions. All parties have been responsible for actions which have disrupted the aid convoys. But all convoys in the area covered by the 2,300 British UN forces get through, albeit sometimes after delay. Our troops have escorted more than 1,500 convoys carrying nearly 70,000 tonnes of supplies. The RAF has flown nearly 900 flights to Sarajevo delivering more than 11,000 tonnes. We shall continue our aid effort this winter.

There can be no question of using force to fight the aid through, as Mr Mortimer suggests. This would inevitably draw the UN forces into the conflict, threatening both their security and the humanitarian effort itself. But the threat of air strikes agreed by Nato in August still stands: the Serbs and others must be in no doubt about Nato's determination to launch such strikes if they resume, for example, the strangulation of Sarajevo.

It is true that the Bosnian Moslems' effective rejection in late September of the peace package negotiated by Lord Owen and Mr Stoltenberg has dealt a blow to the prospects for an early end to the fighting. But they are continuing their efforts, which offer the only real hope of a lasting peace.

We do not suppose that reconvening the international conference - probably in Geneva, not London - would, by itself, produce a solution. Any such conference must be properly prepared, with movement beforehand by all parties to the conflict. That is what the co-chairmen are pursuing.

As for Iraq, we have not relaxed our pressure. Nor will we do so until Iraq complies fully with its obligations, under the Security Council's ceasefire terms. We will do what we can to give political and material support to the population in northern and southern Iraq while the regime continues its repression. But recognition of an alternative provisional government is not on the agenda. Indeed, the Iraqi opposition itself is committed, as we are, to maintaining the unity of Iraq.

Douglas Hogg,

minister of state,

Foreign and Commonwealth Office,

London SW1A 2AH

BA Bosnia-Hercegovina, East Europe GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 14 456
Arts: Circus fun and High Art / A look back at the life of Federico Fellini Publication 931101FT Processed by FT 931101 By NIGEL ANDREWS

I always direct the same film,' Federico Fellini once said, 'I can't distinguish one from another.' But Italian cinema's greatest veteran, who died yesterday aged 73, kept directing the same film only in the sense that each great artist always remakes the same work. Genius cannot disguise its signature. From Variety Lights to La Dolce Vita, from 8 1/2 to Ginger And Fred, Fellini's films were like whirlwind variety shows that had strayed into High Art. Jaunty music abounded; crowd scenes bristled with exotic or outlandish characters; and pneumatic women were paraded like circus horses whenever the director's whip cracked.

At centre-screen there was usually Fellini himself - or his favourite alter ego, the actor Marcello Mastroianni. And to emphasise the monomaniac aspects of the work, filled with surfeit and self-mythologising, the film titles themselves often incorporate their maker's name: Fellini Roma, Fellini Satyricon, Fellini Casanova.

There were occasional glimpses of a different kind of film-maker, especially early in his career. Movies such as I Vitelloni and Il Bidone proved he could subtly, comically inflect the Italian neo-realist tradition; while sombre melodramas like La Strada and Le Notte Di Cabiria were modern cinema's answer to operatic 'verismo'.

But the carnival Fellini is still the best-known. Appropriately, he was born in Rimini, the Adriatic holiday town; as a teenager his first job was as comic-strip artist for a Florence-based magazine - an experience which gave him the background, later, for his first film as director, White Sheikh (1952), gently debunking the world of comic-book heroes.

In Rome he played truant from university law courses to work as a crime reporter for the newspaper Il Popolo di Roma; he then did a spell of cartoon-work and storywriting for a satirical magazine, Marc'Aurelio. During the 1940s he escaped military service when his medical records were destroyed during a hospital bombing; he joined a theatre troupe as set-designer and all-purpose factotum; wrote radio scripts and co-wrote film scripts.

He even helped to open a shop: the Funny Face Store, a novelty portrait studio for American GIs, specialising in instant caricatures and voice-recordings. In 1944 a visitor to this shop, Roberto Rossellini, the film-maker, made Fellini his first important movie offer. The 'documentary' for which Rossellini was seeking a script collaborator finally became the classic neo-realist film Rome Open City (1945).

Five years (and several Rossellini collaborations) later, Fellini began directing his own films. His early movies were witty, protean variations on neo-realism; often showcases for the impish pathos of the actress Giulietta Masina, whom he had married in 1943. But with La Dolce Vita, in 1960, Fellini's film direction broke definitively with neo-realism. This extravagant tale of Roman high life is decked out with surreal symbols (a flying statue of Christ, a beached sea-monster) and mischievously inflated minor characters, notably Anita Ekberg's fulsomely-endowed, fountain-splashing film star.

Marcello Mastroianni's bemused hero in the film - a Fellini surrogate, adrift in wonderland - returned three years later for the master's masterpiece. 8 1/2 (1963) is a fantasia on themes of autobiography. Though its story has few literal convergences with Fellini's own life apart from the hero's profession, that of film-maker, symbolically it skywrites all his favourite obsessions: the diversity of womanhood; the artist as ringmaster in his own circus; fear of failing creativity; the conspiracy of the philistines. Fellini's two great stylistic trademarks, perpetual-motion camera and a post-dubbed babble of voices, created a film whose garrulous forward flow seemed to sweep up every object in its path, hurling them briefly into the air, one by one, for inspection.

To the regret of many of his admirers, Fellini did not arrest his style at this point of development. The black-and-white baroque of 8 1/2 turned into the gaudy rococo of Juliet and the Spirits; rococo soon became a filmic version of fairground kitsch in movies such as Fellini Casanova and The City of Women.

But even in his fitful final decades Fellini made films or individual sequences that still ran rings round most orthodox modern cinema.

Fellini Roma is an unclassifiable mixture of documentary, travelogue and mickey-taking; its climax is a Papal fashion-show, with ecclesiastical models parading on roller-skates. Fellini Satyricon gives a surreal modern gloss to ancient myths. Amarcord is an album of childhood memories punctuated with moments of dazzling make-believe - the cut-out ocean liner riding a midnight polythene sea, for example. And Fellini Intervista is a satire on film-making which joyously mixes the impertinent (Anita Ekberg in an in-joke cameo) with the impossible (Red Indians attacking the Appian Way).

Like Orson Welles, perhaps his only true soulmate in Western cinema, Fellini believed that movies were a magician's medium where even the open acknowledgment of trickery could be part of the charm. He also spent much of his artistic life removing barricades between the arts. For him cinema was not just cinema: it was theatre, vaudeville, opera, circus and street fair. His aesthetic taste may sometimes have been questioned, but never the size or grandeur of his aesthetic appetite.

At a time when Europe became concerned about US cultural imperialism, especially through the cinema screen, Fellini stood out as a movie-maker who thrived while owing nothing to Hollywood. He was, indeed, one of the very few post-second world war European directors who was able to make films on his own terms and achieve a wide degree of popularity on both sides of the Atlantic.

Our monthly column on arts sponsorship will appear later this week

IT Italy, EC P7812 Motion Picture and Video Production PEOP People P7812 The Financial Times London Page 13 952
Arts: Romeo and Juliet - Ballet Publication 931101FT Processed by FT 931101 By CLEMENT CRISP

The Royal Ballet paid fine tribute to the memory of Sir Kenneth MacMillan during the past weekend, which marked the first anniversary of his death. His Romeo and Juliet was given superb revival - the ballet and the company looking fresh, vital - with three interpretations of exceptional interest. Two of these - Irek Mukhamedov's Romeo and Stephen Jefferies' Tybalt on Friday - are familiar, though none the less magnificent for that. The third was the debut, at Saturday's matinee, of Sarah Wildor as Juliet. It was one of those rare, rare occasions when a young artist seems to discover her own powers, and we watch, fascinated, as a talent reveals itself, unerring, beautiful, true.

We have seen Miss Wildor since she was a child at the Royal Ballet School - most memorably as gentle Clara in Nutcracker. She is now a lovely young woman, two years in the company, blonde head exquisitely placed on a long neck, with delicately-boned physique. From her first entrance as Juliet there was a sense of concentration about her playing, an artist securely inside the character, and as the performance progressed - its development sure, organic, inevitable - we saw how deeply this Juliet believed in her role, and we believed with her. She managed, and with what subtlety, to suggest the conflict in Juliet's temperament between girlishness and nascent passion, matching the sensuality that Romeo awakens with a child-like obstinacy. (Her flight to Friar Laurence was ecstatic, womanly; running from her family in the third act, she showed us a Juliet still awkward, impetuous). The third act rightly crowned her reading: every moment had meaning, every least action spoke. And there were incidents to which she gave entirely individual and thrilling identity - surest sign of great things to come. Miss Wildor is a talent to watch, to treasure, to nurture.

Michael Nunn made his debut as Romeo to this Juliet. It was a sincere, well-considered reading: the role does not offer him such challenges as did Rudolf in Mayerling, which he so admirably assumed last year, but it was an intelligent first sketch which he will develop. It was inevitably shadowed by the interpretation Irek Mukhamedov had given the night before. Mukhamedov's Romeo is a complete portrayal. The life of the character is vivid and ablaze with feeling: how grand is Mukhamedov's daring as he tells us of Romeo's infatuation for Rosaline before the Capulet ball - he looks up, as if at a full moon, and rejoices in the night's romantic possibilities. The thunderbolt of Juliet's presence, the sensual charge Mukhamedov gives everything that follows, burns through the dancing. The relationship with Tybalt is no less bold. I think Stephen Jefferies' is the best Tybalt the Royal Ballet has shown us. There is menace, of course, but Jefferies tells of the frustrations and innate fury of the man. As in Giselle, where his Hilarion is the ideal match for Mukhamedov's peerless Albrecht, these two artists respond thrillingly to each other: their duel was ferocious, far more intense than mere stage sword-play.

Mukhamedov's Juliet was Viviana Durante, giving a clear, slightly self-conscious reading, but one danced with lovely finesse. And, on a note of regret, I must record that the present run of Romeo and Juliet will mark the retirement of Leslie Edwards, the Escalus of the staging. On November 22 he will give his last performance as member of a company he joined in 1933. His qualities - not least a blessed enthusiasm that meant no role has ever become routine - have made him seem the very spirit of our national ballet, for which he has also guided many choreographic talents.

His reward has been our unfailing admiration and affection.

'Romeo and Juliet' continues in repertory at Covent Garden until Nov 22

GB United Kingdom, EC P7922 Theatrical Producers and Services NEWS General News P7922 The Financial Times London Page 13 665
Arts: A great mansion revealed - Architecture Publication 931101FT Processed by FT 931101 By COLIN AMERY

One of the greatest pleasures in life is looking at architecture with a good guide or a learned friend. A good cicerone can be a writer, a historian or an artist - or best of all a friend who is a mixture of all three. Sometimes the ideal guide to a building or a place is a book that not only tells a historical tale but nourishes the visual imagination as you read. One such book has just been published and it has been, for the last few days, an absorbing and enthralling companion. Spencer House: Chronicle of a Great London Mansion by Joseph Friedman is published by Zwemmer, price Pounds 39.50.

Eighteenth-century Spencer House survived the wars and slumps that saw off so many other aristocratic London palaces, but then, inevitably, declined and was turned into offices. Its rescue, restoration and indeed resurrection is the great achievement of the present Lord Rothschild and his companies (RIT Capital Partners plc).

The realisation that this house on Green Park is immensely important was only the first step in the tale of its redemption. The house's importance is artistic, architectural and historical. It can be seen today as an excellent exemplar of its period, not merely because it has been perfectly restored but because the motives behind its rescue so clearly reflect the aesthetic and intellectual reasons for its original creation.

Lord Rothschild was wise and generous enough to ensure that this extraordinary effort was accomplished by a broadly based team. He saw Spencer House as an opportunity to engage the very serious and impressive range of talent that is available in England in the field of conservation and historical refurbishment.

Those skills exist on two levels: first, at the level of historical research - often but not always accompanied by a degree of taste and aesthetic judgment; and second, at the level of finely honed craftsmanship. Spencer House today is a brilliant example of the skills of contemporary British craftsmen and artists in paint, gilding, carving, sculpture and upholstery. Last weekend there was a highly successful 'craftsman day' to show the public how some of the fine results were achieved.

Joseph Friedman's chronicle is a rewarding account of the creation and re-creation of the house.

He is right to emphasise the important transitional nature of the architecture. Fascinatingly, the house was begun by one architect, John Vardy, who died in 1765 and represented the English Palladian school of classical architecture, and was completed by another, James Stuart (1713-88), who was known as 'Athenian' Stuart and was the pioneer of the Neo-Classical revival in England based on first Roman and then Greek original sources. Friedman also points out the importance of symbolism, allegory and metaphor in eighteenth century architecture - an area that today needs exposition in a way that would have amazed our well-educated eighteenth century forebears.

The story of the building of the house for the first Earl Spencer between 1756 and 1766 is colourfully told in this book - a clear picture unfolds of the tastes and ambitions of the patron and of his Countess, the agreeable and influential Georgiana. The selection of John Vardy as the architect was partly because he came with the site that Spencer purchased in St James's. A more interesting choice was that of Colonel George Gray as an adviser to the 21-year-old John Spencer. Little is know about Gray beyond the fact that he was both a professional soldier and secretary and treasurer of the Society of Dilettanti - a dining club for gentlemen who had accomplished the Grand Tour. This group, when it was not engaged in serious drinking, had a didactic purpose to rejuvenate English art and architecture by spreading knowledge of classical archaeology.

Mr Friedman's research falls into two parts. First, he prepared an impressive report on Spencer House before restoration started on site. This helped to ensure a very high standard of accuracy throughout the project.

Second, the book is enriched, as the bibliography shows, by new material including diaries and bills from various sources, which Mr Friedman discovered while the restoration was under way.

To me the most fascinating part of the book is the section entitled 'A Revolution in Taste', where the original classical sources are described and illustrated with a rewarding thoroughness. Some of this may be speculative but the publication of the illustrative sources for the Palm Room and the Painted Room in particular seem to be exhaustive. The chapter on Athenian Stuart's work on the first floor of Spencer House reveals both the author's saturation in the source material and the controlled but rich nature of Stuart's Neo-Classical style. There is nothing arid about the revival of the classical past in this house and with Mr Friedman as your dragoman the lost meaning of much of the decoration and the architecture comes intriguingly back to life.

There is a great deal in this book about people and politics - indeed you could simply read about the people and glance at the sumptuous pictures that were specially commissioned from Mark Fiennes if the architectural detail becomes overwhelming. But I suspect that you will agree that this is the most enjoyable architectural book to be published for a long time - it is a brilliant story, well told with a triumphantly happy ending.

Spencer House is available for private and corporate entertaining. It is open on Sundays (except August and January). Booking enquiries: 071-499 8620.

GB United Kingdom, EC P2731 Book Publishing TECH Products & Product use P2731 The Financial Times London Page 13 943
Arts: Damnation of Faust - Concert Publication 931101FT Processed by FT 931101 By RODERIC DUNNETT

Berlioz's The Damnation of Faust was premiered in Paris on a freezing November afternoon in 1846, to a half-empty Opera-Comique. The concert was a financial disaster. No such misfortune attended the admirable performance at the weekend which concluded the fortnight-long Canterbury Festival.

To hear a revival of this luxuriant, semi-erotic French masterpiece in an English cathedral seems as remarkable as it is welcome. The festival's theme has focused on Faust this season to mark the quatercentenary of Christopher Marlowe's death. As a climax, Berlioz's 'Dramatic Legend' could not have been a better choice.

The widely-admired staging at the Royal Opera conducted by Sir Colin Davis recently revived debate about the work's stage viability. Berlioz conceived it as a series of audial tableaux, incorporating material dating back two decades.

This was a performance to remember, in an acoustic distinctly favourable to Berlioz's rich orchestral resonances. Much was owed to the direction of Richard Cooke, former conductor of the LPO Chorus, well on top of the work's large scale architecture and broad sweep: the pacing intelligent (if not always quite thrusting enough), with attention to chorus leads, although somewhat neglecting his soloists.

Key to the success was the splendidly disciplined Canterbury Philharmonic Orchestra. One was constantly reminded that here was the home of the distinctive Kent Opera. Rich-toned strings, meticulous tuning, with strong legato and alertness to Berlioz's arching melodic lines; warm brass and (apart from the odd passage) impeccable woodwind; plus two graceful, sensitive solos on viola and cor anglais.

All four vocal soloists rose to the occasion. As Faust, Martyn Hill, replacing the indisposed Neil Archer, surprised by the range of his interpretation - a bit introverted at the start, uncertain of the odd top note, yet growing into a difficult characterisation. As Faust's idealised Gretchen (Margareta), Eleanor Bennett launched shakily, but warmed in the duet and won hearts with her ensuing romance.

The cement to this performance was the singing of Mephistopheles by Brian Bannatyne-Scott, a jovial demon whose malicious energies inspired some of Berlioz's most witty and original vocal writing. This was a fine reading: flexible and assured, with clear words and just the right amount of controlled gesture. He was well supported by an attentive men's chorus, largely abreast of the trickier passages. Upper voices were disappointing - less honed and secure, and at worst, almost inaudible. But the freshness and invention of Berlioz's kaleidoscopic score were amply displayed.

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups NEWS General News P7929 The Financial Times London Page 13 435
Arts: Today's Television Publication 931101FT Processed by FT 931101 By ANTONY THORNCROFT

Victor Lewis-Smith is a card. His anarchic humour, slanderous, blasphemous, scatological, used to pop up on the more broad-minded radio programmes, such as Ned Sherrin's Loose Ends.

Somehow he has survived and tonight he gets his own TV series Inside Victor Lewis-Smith (BBC2, 10.00). Invariably television tames the wildest spirits, but Lewis-Smith has been over-dosing on outrage for so long he is probably incurable.

The repeat of House of Cards (BBC1, 10.10) confirms how accurate Michael Dobb's far-fetched saga of parliamentary intrigue and the overthrow of a PM really was. Somehow the surreal goldfish bowl filming technique draws you in. How they dared get so close to the truth in portraying the criminal habits of some of the thinly disguised characters is breathtaking.

Anyone impressed that for the first time the Booker judges have awarded their prize to a popular, funny, novel in Roddy Doyle's 'Paddy Clarke Ha-Ha-Ha' but who still cannot be bothered to read the book can have it read to them in Booker 1993 (BBC2, 12.00).

GB United Kingdom, EC P4832 Radio Broadcasting Stations P4833 Television Broadcasting Stations P4841 Cable and Other Pay Television Services TECH Services & Services use P4832 P4833 P4841 The Financial Times London Page 13 213
People: National Approval Council For Security Systems Publication 931101FT Processed by FT 931101

David Holt, formerly md of Slingsby Aviation, has been appointed chief executive of The NATIONAL APPROVAL COUNCIL FOR SECURITY SYSTEMS.

GB United Kingdom, EC P8611 Business Associations PEOP Appointments P8611 The Financial Times London Page 12 48
People: Chartered Insurance Institute Publication 931101FT Processed by FT 931101

Ray Hill, group chief executive of the Iron Trades Insurance Group, has been elected president of the CHARTERED INSURANCE INSTITUTE.

GB United Kingdom, EC P8611 Business Associations PEOP Appointments P8611 The Financial Times London Page 12 45
People: Association of Investment Trust Companies Publication 931101FT Processed by FT 931101

Paul Myners, chairman of Gartmore, has been elected chairman of the executive committee of the ASSOCIATION OF INVESTMENT TRUST COMPANIES.

GB United Kingdom, EC P8611 Business Associations PEOP Appointments P8611 The Financial Times London Page 12 47
People: County Landowners' Association Publication 931101FT Processed by FT 931101

The Country Landowners' Association, mouthpiece for the landed gentry of England and Wales, has elected a new president. Hugh Duberly, who spent his youthful days in banking, still retains 'a liquid interest' in the City as chairman of the Pavilion wine bar in Finsbury Circus, a popular watering hole close to Liverpool Street station.

His work in City finance ended in 1975 when Mercantile Credit, the hire purchase and leasing house for which he worked, was acquired by Barclays. Duberly, now 51, returned to take over the 2,250-acre family estate at Great Staughton in Cambridgeshire and began his climb up the CLA ladder.

As president of an organisation representing 50,000 landowners including the Duchy of Cornwall, the Church Commissioners and a number of Oxbridge colleges, Winchester-educated Duberly believes landlords and farmers should be proud of their 'custodianship' of the land.

At a conference last week he quoted an earthy passage from Emile Zola's novel La Terre to explain the lure of the countryside: 'Once the land gets you by the short hair, the bitch won't let go.'

GB United Kingdom, EC P8699 Membership Organizations, NEC PEOP Appointments P8699 The Financial Times London Page 12 203
People: Nine month search puts Pow into Aquascutum Publication 931101FT Processed by FT 931101

Aquascutum, the upmarket clothing group famous as Baroness Thatcher's favourite outfitter, has appointed James Pow as managing director and charged him with both reorganising the company and repositioning the brand.

First priority is to bring the company's different divisions in Canada, the US, Europe and the Far East together under one headquarters in London, and centralise functions such as buying wherever possible.

That may sound ambitious, but Pow, 42, believes his experience fits him well for the task. 'My background has been in fairly rapid reorganisations of premium businesses,' he explains. Most recently, he was at Dunhill, where he was managing director of Hackett, the menswear group it acquired in 1991 with a view to turning it into a global brand. Pow was responsible for opening Hackett's flagship store at Sloane Square last year.

Before that he was international sales and marketing director at Mulberry, the fashion designer.

His experience in promoting both those brands will equip him for what he sees as his second important task at Aquascutum: repositioning a brand which is losing its identity.

'We need to focus on what the consumer of the 1990s perceives the Aquascutum brand to be,' he says. Even premium brands are not immune from change in consumer attitudes from the high-spending culture of the 1980s towards demanding value. 'Young people today identify with brands that deliver quality and value for money.'

Pow plans a wide-ranging programme of market research to determine how Aquascutum should be positioned for the 1990s. He is aware that he could face resistance to change but says feedback to his ideas since he arrived at the company last month has been 'very positive'.

Aquascutum will certainly be hoping it has the right man, after an executive search which lasted some nine months. Pow succeeds James Stokes, who moved up from deputy chairman and joint managing director to succeed Paul Bennett when he retired as chairman in August.

Pow was educated at Broxburn Academy, West Lothian, before completing a degree course in business studies, production and design at the Scottish College of Textiles, Galashiels. In addition to his time at Dunhill and Mulberry, he is a former assistant MD of Ballantyne Cashmere.

Aquascutum GB United Kingdom, EC P5621 Women's Clothing Stores PEOP Appointments P5621 The Financial Times London Page 12 396
People: Finance moves - Oppenheimer International Publication 931101FT Processed by FT 931101

Charles Etienne-Carton has been appointed a senior vice-president and head of fixed income sales at OPPENHEIMER INTERNATIONAL; he moves from Bankers Trust International.

Oppenheimer International GB United Kingdom, EC P6719 Holding Companies, NEC PEOP Appointments P6719 The Financial Times London Page 12 54
People: Finance moves - SIB Publication 931101FT Processed by FT 931101

Barry Gittins, director, securities and derivatives regulation, is to take early retirement from the SIB.

GB United Kingdom, EC P9651 Regulation of Miscellaneous Commercial Sectors PEOP People P9651 The Financial Times London Page 12 44
People: Finance moves - Nomura International Publication 931101FT Processed by FT 931101

David Porter, formerly md of CLF Municipal Bank, has been appointed deputy md in charge of the UK, Scandinavian and Dutch investment banking operation at NOMURA INTERNATIONAL. Jim Durkin has been appointed a UK equity sales director; he moves from Williams de Broe.

Nomura International GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 12 75
People: Finance moves - Pointon York Publication 931101FT Processed by FT 931101

Lyndon Jones has been appointed group md of POINTON YORK.

Pointon York GB United Kingdom, EC P6371 Pension, Health, and Welfare Funds P6411 Insurance Agents, Brokers, and Service PEOP Appointments P6371 P6411 The Financial Times London Page 12 50
People: Finance moves - Building Societies Association and the Council of Mortgage Lenders Publication 931101FT Processed by FT 931101

Ron Armstrong has been appointed deputy director-general of The BUILDING SOCIETIES ASSOCIATION and the COUNCIL OF MORTGAGE LENDERS; he is succeeded as head of legal services by Michael Coogan, currently a deputy secretary. Peter Williams, professor of housing management at the University of Wales, is to join as head of research and external affairs.

GB United Kingdom, EC P8611 Business Associations PEOP Appointments P8611 The Financial Times London Page 12 88
People: Finance moves - Record Treasury Management Publication 931101FT Processed by FT 931101

Gary Vocat has been promoted to become a director of RECORD TREASURY MANAGEMENT.

Record Treasury Management GB United Kingdom, EC P6719 Holding Companies, NEC PEOP Appointments P6719 The Financial Times London Page 12 46
People: Finance moves - Newton Fund Managers Publication 931101FT Processed by FT 931101

Richard Piskorz has been appointed to the board of NEWTON FUND MANAGERS.

Newton Fund Managers GB United Kingdom, EC P6722 Management Investment, Open-End PEOP Appointments P6722 The Financial Times London Page 12 45
People: Finance moves - Hoare Govett Publication 931101FT Processed by FT 931101

Kevin Darlington has been appointed chief UK economist at HOARE GOVETT; he moves from UBS Securities.

Hoare Govett GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 12 48
People: Finance moves - T. Hoare & Co Publication 931101FT Processed by FT 931101

Bob Dighton has been appointed sales director of T. HOARE & Co; he moves from Smith New Court. Andrew Welsh, formerly associate director of finance at Nomura International Investment Banking Division, has been appointed finance director at T. HOARE & Co.

T Hoare and Co GB United Kingdom, EC P6211 Security Brokers and Dealers PEOP Appointments P6211 The Financial Times London Page 12 77
People: Finance moves - Gartmore Publication 931101FT Processed by FT 931101

Kevin Walsh has been appointed head of North American operations at Gartmore. Of the funds under Gartmore's management, 77 per cent are UK pension funds, so the company has recognised its need to diversify into other markets and has finally embarked on a project to attract North American clients to its fold.

Walsh was previously managing director of SEI International Investment Group, a US-based consultancy which, among other things, helps pension fund clients pick fund managers and where he directed its product and marketing effort. Before that, Walsh was a partner and senior account manager at Brinson Partners, also a pension fund consultancy.

Banque Indosuez, Gartmore's parent is planning to place 25 per cent of its shares on the London market.

In other moves, Vivian Bazalgette (above left) has been appointed md, and Mike Bishop deputy chairman, of Gartmore Pension Fund Managers. Peter Pearson Lund, formerly md, has been appointed chairman of Gartmore Fund Managers; Lewis McNaught (above right), formerly deputy md, has been promoted to md. Edwin Doeg and Charles Hoblyn have been made directors.

Gartmore Investment Management GB United Kingdom, EC P6722 Management Investment, Open-End PEOP Appointments P6722 The Financial Times London Page 12 207
Management: Opportunity knocks - A two-year-old initiative which aims to help women at work Publication 931101FT Processed by FT 931101 By LISA WOOD

Ann Thomas is a deputy manager of one of the largest flagship stores of J. Sainsbury, the British food retailer. But she only works on Sundays.

Five years ago, says Judith Evans, director of corporate personnel for the group, a 10-hour working week in such a managerial job, where she is often in sole charge of nearly 150 employees, would have been inconceivable.

The catalyst for changed thinking on how such a job could be made practical was Opportunity 2000, the business-led initiative launched two years ago to improve the position of women at work in the UK.

'Without Opportunity 2000 we would probably not have thought to ask Ann Thomas if she wanted to come back to work immediately after having her third child, and she probably would not have thought to ask us if she could,' says Evans.

The campaign, she adds, provoked Sainsbury to question how obstacles could be removed to assist women's progress.

Thomas may be exceptional at Sainsbury. But the personnel department and line managers, mindful of the active interest of their chairman in the initiative (he is a founder-member), are redoubling their efforts to promote equality of opportunity among staff.

Opportunity 2000 - to which 216 British companies are now formally committed - was widely suspected of being a nine-day wonder. But the campaign's second annual report - which is published today - may go some way to alter perceptions by pinpointing initiatives and policies being developed in the participating organisations. It discusses the ideas and approaches that have worked, and those that have still to bear fruit.

Lady Howe, who chairs the campaign, says she believes there are signs of Opportunity 2000 making a difference. But she says the campaign does not promise overnight miracles. 'There is still a long way to go.'

Just how far was highlighted in a survey of 29,000 executives in 533 companies published last week by the National Institute of Economic and Social Research and the London School of Economics. This showed that only 8 per cent of top executives in Britain are women and that the higher up the corporate hierarchy you go the fewer women you find.

Paul Gregg and Stephen Machin, from the Institute, take issue with the claim that women are increasing their share of the top executive jobs - defined as everything between chief executive and middle management. They also found that women are paid less than men even if they are working in the same job. 'There does appear to be a glass ceiling . . . and it does not appear to be cracking,' they observe.

Opportunity 2000 campaigners stress that they are not just interested in getting more women into the boardroom - although the report gives several examples of 'firsts' such as the Bank of England appointing its first female director. More generally, they are seeking to improve women's lot in the workplace.

Progress here, though, is uneven. Childcare Vouchers is an organisation which supplies companies with vouchers for eligible employees for the full or part-time payment of their childcare costs. It claims that only a few of the companies to sign up for Opportunity 2000 have introduced affordable and practical ways of helping working women overcome the childcare hurdle.

The organisation has an axe to grind, but its criticism highlights the scale of the task.

Many believe the government should provide more in the way of financial incentives. At the moment, for example, tax relief is confined to workplace nurseries which, for many women, is not an acceptable solution.

DayCare Trust, a national day care charity, also points out in a report published today that fewer than four in every 100 trainees on government-funded training schemes receive any help with childcare.

As the Opportunity 2000 report underlines, costs of implementing policies, such as childcare, are a prime concern of employers (some of whom are working with budgets as low as Pounds 1,000). Many companies are opting for less expensive alternatives, such as job sharing and flexible working.

Under Opportunity 2000 there is no formal pathway to promoting equality. Campaign companies set their own goals for increasing opportunities for women in their workforce by 2000.

Those new to the idea need to start with basics - incorporating equal opportunities into the business plan, for example, or investigating where women are in the hierarchy and then seeking to diagnose the problems which may hinder their upward mobility.

Others, however, are now in a position to measure year-on progress in areas such as promotion, retention and returner rates. Marks and Spencer, the retailer, is targeting areas such as its childcare and maternity arrangements and its training programmes for investigation following its monitoring exercises. Boots the Chemist has reported a rise in the number of store staff returning after maternity leave.

Some companies have set clear targets - Iceland Frozen Foods aims to increase the percentage of female retail managers from currently below 10 per cent now to 15 per cent in two years' time. Others, including Avon Cosmetics, are investigating whether there are gender differences in pay and conditions.

The Royal Bank of Scotland is 'profiling' jobs and individuals to ensure that subjectivity is taken out of recruitment and selection decisions. HTV, the television company, carried out a job evaluation in co-operation with its five unions.

Many companies recognise the need to boost confidence among women. Fox's, a biscuit-making subsidiary of Northern Foods, found that women were particularly reticent about coming forward for management positions mainly held by men.

As a result Fox's has run self-development programmes aimed at shop floor and junior clerical roles.

'There will be no revolution overnight but we are making progress,' says Philip Ward, group personnel executive at Northern Foods. In March 1991 only 3.7 per cent of employees at Northern Foods earning more than Pounds 30,000 a year were women. This has now gone up to 8.3 per cent.

'It would have happened without the campaign but Opportunity 2000 is another important weapon in our armoury as we seek to talk both internally and externally about these issues,' explains Ward.

GB United Kingdom, EC P8741 Management Services MGMT Management & Marketing CMMT Comment & Analysis P8741 The Financial Times London Page 12 1059
Management: Make it dramatic for the shareholders - Henry Wendt, chairman of SmithKline Beecham, offers advice on how to conduct an annual meeting / Tips from the top Publication 931101FT Processed by FT 931101 By HENRY WENDT

The statutory annual general meeting is something of a modern paradox. In the case of large companies, institutional shareholders holding the majority of shares seldom attend. Most chairmen are happy to see owners of 2 or 3 per cent of their shares show up. Since most ballots are cast by post, it is only in unusual cases that the vote is uncertain. Consequently, there is rarely true drama or a big decision at the AGM. It shouldn't be any wonder that many chairmen regard the occasion as a meaningless task to be dispensed with quickly.

Yet in doing so they miss an opportunity to generate considerable goodwill and understanding of the company. It is the one occasion during the year when the board and the management are on full parade and available to all shareholders for answers to direct and at times penetrating questions. The attendees are mostly small shareholders who have a strong sense of identity with the company and are predisposed to be friends. Their attitude is in many ways governed by what they learn and even more to the point, how they feel at the AGM.

With that purpose in mind, I believe it helps to think of the AGM as theatre. Theatre is a form of communication in which complex and provocative messages are put across to large audiences. Indeed, theatre works best when there is genuine interaction between the cast and the audience.

Designing the AGM as theatre begins with deciding the messages to be communicated. Usually, there is a mix of good and bad news. Naturally, the weight of the mix determines the tone and character of the AGM; celebratory or firmly resolute.

The next decision relates to the cast of characters. In most situations, the chairman should resist the temptation to place himself in the starring role.

The AGM is an opportunity to display the strengths of the management and the board. Opportunities to bring other executives centre stage will certainly occur during the question-and-answer session, but openings should also be sought during the formal presentations. The role of the chairman is always to maintain firm control and leadership of the meeting, while also bringing forth the personality, character and talents of other cast members. The audience should leave impressed with the way the management and the board complement each other and work as a team.

It is useful to consider the stage setting. Most annual meetings tend to be rather dry affairs. They do not have to be that way. Both colour and sound can be introduced at little expense, in ways that enhance the primary messages. Music played at a low background level as the attendees take their seats helps establish the mood. I often find visual aids to be more of a distraction than a help, but used to display data they can also introduce animation and colour. For emotional impact, nothing matches video on a large screen.

A successful AGM requires an active and energetic question-and-answer session. Since it is this part of the programme that many chairmen regard with the most anxiety, it is central to the AGM paradox. Yet it is the question-and-answer session that creates the lasting impression. A positive impression is created as much by the way the company responds to the question as it is by the answers themselves. I will always remember the occasion when during a particularly long and tense question period a feisty shareholder suggested that the personnel director get a haircut. The question - and the somewhat embarrassed response - brought the house down and changed the entire mood within the room.

The burden is always squarely on the chairman to conduct the question session in an open, understanding manner. By using his prerogative to restate and as appropriate, to reframe the question without distorting the questioner's basic thrust, the chairman can establish the correct tone and posture for the session.

The question-and-answer session of the AGM provides a unique opportunity to create positive human chemistry with the company's natural ambassadors.

Next Monday: Sir Colin Marshall of British Airways on how to cope with a busy business trip.

SmithKline Beecham GB United Kingdom, EC P8741 Management Services CMMT Comment & Analysis MGMT Management & Marketing P8741 The Financial Times London Page 12 749
The Week Ahead Publication 931101FT Processed by FT 931101

Results due

SEVERAL of the UK's largest retailers will be reporting interim results this week.

The UK's two most profitable retailers, Marks and Spencer and J Sainsbury, report on Wednesday, and both are expected to show a healthy increase in pre-tax profits. M and S is forecast to lift pre-tax profits from Pounds 257.1m last year to between Pounds 285m and Pounds 295m. But its shares have already risen substantially in expectation of good figures and analysts say any hint of weakness, especially on the food side, could be seized on by the City as an excuse to sell.

Sainsbury is expected to see interim pre-tax profits increase from Pounds 391.1m to Pounds 435m. But analysts are more interested in what the company might say about the changing face of the UK food market in the midst of rumours that Sainsbury is about to launch a price war, and after the admission by Tesco in September that it was investing some gross margin in lower prices.

On Thursday it is the turn of Boots, which is likely to report increased interim pre-tax profits from Pounds 185m last time to about Pounds 210m this time, after exceptional items relating to the sale of French subsidiary Sephora and the withdrawal of the Manoplax heart drug by Boots Pharmaceuticals.

Discussion is again expected to centre on the performance of the Do It All DIY chain and the future of the pharmaceuticals division, but analysts are not expecting any significant news.

BAT Industries, the tobacco and financial services group, is expected on Wednesday to report an increase of about 25 per cent in pre-tax profits for the first nine months of the year. Forecasts range from Pounds 1.31bn to Pounds 1.38bn. Tobacco earnings will again feel the effects of the US cigarette price war but the group should benefit from more favourable exchange rates. Analysts expect further progress from Eagle Star, the general insurance subsidiary, despite continuing losses on mortgage insurance. Growth may be slower at Farmers Group, the US subsidiary.

British Petroleum, reporting third quarter results on Thursday, has enjoyed a marked upgrading of its fortunes in recent weeks. Although oil prices have fallen some Dollars 2 a barrel since the second quarter, UK petroleum revenue tax has been cut to 50 per cent from 75 per cent and downstream operations have turned in stronger performances. Profits of at least Pounds 175m (Pounds 117m) are expected net of stock gains of around Pounds 100m.

PARLIAMENTARY DIARY

TODAY

TXCommons: Questions to Welsh ministers, Church Commissioners and Lord Chancellor's Department. Railways Bill, Lords amendments.

Lords: Not sitting.

TOMORROW

Commons: Education questions. Questions to the Prime Minister. Railways Bill, Lords amendments.

Lords: Priests (Ordination of Women) Measure. Ordination of Women (Financial Provisions) Measure.

Select Committees. Social security: the operation of the child support agency, 10.30am. Room 15.

Treasury and civil service: role of the Bank of England, 11.00am. Room 8.

Employment: future of trade unions, 4.15pm. Room 15.

WEDNESDAY

Commons: Foreign Office questions. Cardiff Bay Barrage Bill, timetable motion and Lords amendments. Crofters (Scotland) Bill, all stages. Scottish Land Court Bill, all stages. Health Service Commissioners Bill, all stages. Probation Service Bill, all stages. Pension Schemes Bill, all stages. Pension Schemes (Northern Ireland) Bill, all stages. Statute Law (Repeals) Bill, all stages. Football Spectators (Designation of Football Matches in England and Wales) Order. Safety of Sports Grounds (Designation) Order. Football Spectators Act (Commencement) Order. Debate on MPs' pay. Ministerial and Other Salaries Order.

Lords: Railways Bill, Commons amendments.

Select Committees. Environment: local government review, 10.00am. Room 8.

Foreign affairs: subject to be confirmed, 10.30am.

Room 17.

Welsh affairs: forestry and woodlands, 10.30am.

Room 18.

Defence: reductions in service numbers, 10.50am. Room 16.

Home affairs: the Sheehy report, 11.00am. Room 15.

Social security: operation of the child support agency, 3.15pm. Room 8.

Public accounts: award of the contract for the landing platform for helicopters, 4.15pm. Room 16.

Treasury and civil service: role of the Bank of England, 4.15pm. Room 6.

Home affairs: the Sheehy report, 4.45pm. Room 15.

THURSDAY

Commons: Treasury questions. Questions to the Prime Minister. Debate on parliamentary pension contributions. Debate on report on parliamentary questions. Debate on cash assistance to Opposition parties.

Lords: European Economic Area Bill, Commons amendments. Roads (Northern Ireland) Order. Environment and Safety Information (Northern Ireland) Order.

FRIDAY

Commons and Lords: 9.30am Prorogation of Parliament ending the session.

UK COMPANIES

TODAY

COMPANY MEETINGS:

Harmony Leisure, International Hotel, Marsh Wall, E, 11.00

BOARD MEETINGS:

Finals:

Finsbury Growth Tst.

Foreign & Colonial PEP Inv. Tst.

Morgan Grenfell Equity Inc. Tst.

Interims:

PEX Grp.

TOMORROW

COMPANY MEETINGS:

Bryant Grp., Cranmore House, Cranmore Boulevard, Solihull, W. Midlands, 12.15

London & Metropolitan, 10, Fenchurch Street, EC, 11.00

Trafford Park Estates, United Trading Estate, United Road, Old Trafford, Manchester,

12.00

BOARD MEETINGS:

Finals:

Amber Day

Keystone Inv.

Interims:

BDA Hldgs.

Casket

Celsis Int.

Finsbury Tst.

Powerscreen Int.

Rexmore

Smith (James) Estates

WEDNESDAY NOVEMBER 3

COMPANY MEETINGS:

Betacom, Unit 1, Ponders End Industrial Estate, Duck Lees Lane, Enfield, 11.00

Community Hospitals, The Brewery, Chiswell Street, EC, 12.00

PizzaExpress, 90-91, Wood Street, EC,

10.00

BOARD MEETINGS:

Finals:

Bellway

Greenwich Comms.

Scottish Metropolitan Property

Interims:

German Inv. Tst.

German Smaller Co's Inv. Tst.

Hambro Insurance Services

Marks & Spencer

Oceana Cons.

Sainsbury (J)

THURSDAY NOVEMBER 4

COMPANY MEETINGS:

Lyles (S), Forte Crest Hotel, Clifton Villiage, Brighouse, 12.00

Sirdar, Cedar Court Hotel, Wakefield, 12.00

Usher (Frank), Waverley House, 7-12, Noel Street, W, 11.30

Waterman Partnership, Apothecaries Hall, Blackfriars Lane, EC, 12.00

BOARD MEETINGS:

Finals:

Euromoney Publications

Low (Wm)

MMT Computing

Smart (J) Contractors

Interims:

Boots

Westbury

FRIDAY NOVEMBER 5

COMPANY MEETINGS:

Fortnum & Mason, 181, Piccadilly, W, 10.30

Ricardo Grp., Royal Aeronautical Society, Hamilton Place, W, 12.00

BOARD MEETINGS:

Finals:

Gartmore European Inv.

Goodhead Grp.

Interims:

Adam & Harvey

Banner Homes

Burtonwood Brwery

Capital Gearing Tst.

Cook (William)

Prowting

Company meetings are annual general meetings unless otherwise stated.

Please note: Reports and accounts are not normally available until approximately six weeks after the board meeting to approve the preliminary results.

DIVIDEND & INTEREST PAYMENTS

TODAY

AMEC Cm. Rd. Pf. 3.25p

APV 3.15% Cm. Pf. 1.575p

Do. 4.55% Cm. Pf. 2.275p

Do. 5 1/4 % Cm. Pf. 2.625p

Abtrust Pf. Inc. Inv. Inc. 2.90625p

Am. T & T Dollars 0.33

Ameritech Dollars 0.92

Anglo Am. Ind. 5 5/8 % Cm. 1st Pf. R0.05625

BET 4 1/2 % 2nd. Db. Pounds 2.25BTP Cv. Cm. Rd. Pf. 3.75p

Baldwin 1.6p

Baltic 0.5p

Beattie (J) A 1.5p

Bell Atlantic Dollars 0.67

BellSouth Dollars 0.69

Bristol 3 1/2 % Db. Pounds 1.75

Brit. Inv. Tst. 5 1/4 % Cm. Pf. Pounds 1.8375

British Mohair 6% Cm. Pf. 2.1p

British Thornton 0.25p

Campbell Soup Dollars 0.25

Citicorp 12 3/8 % Retract. Nts. Oct.'96 Dollars 618.75

CrestaCare 0.25p

Dunedin Worldwide Inv. 3 1/2 % Cm. Pf. Pounds 1.75

Edinburgh Inv. Tst. 7 1/2 % Db. '95 Pounds 3.75

Exchequer 3% Gas 1990/95 Pounds 1.50

Fleming Inc. & Cap. Inv. Tst. 1p

Do. Units 1p

Fyffes Cv. Pf. IR4.125p

Gaz Metropolitain 13 3/4 % Db. Oct.'94 CDollars 137.50

Genfinance 11.31% Ln. 2007 Pounds 5.655

Gibraltar (Govt of) 11 7/8 % Ln.'05 Pounds 5.9375

Glaxo 7 3/4 % Un. Ln. 85/95 1.9375p

Haden MacLellan 1p

Hardys & Hansons 5% Cm. 1st Pf. 1.75p

Do. 4% Irrd. 1st Mtg. Db. Pounds 2.0

Hilclare 0.5p

ICN Pharm. 6 3/4 % Sb. Cv. Bd. '01 Dollars 33.75

Int. Stock Exch. of UK & Rep. of Ireland 10 1/8 % Mtg. Db. '16 Pounds 5.0625

Kansai Int. Airport 9% Gtd. Bd. '96 Dollars 450.0

King & Shaxson 5% Cm. Pf. 1.75p

Kwik-Fit 1.5p

Laing (J) 6.4% Cv. Pf. 2.47p

Lamont 6% Cm. Pf. 1.05p

Do. 5.6% 2nd Pf. 2.8p

Do. 10% 3rd Cm. Pf. 5p

Lasmo Oil Prod. Units 5.7103p

Legal & General 6 3/4 % Cv. Bd.'08 Pounds 37.875

Lewis (J) Props. 8 1/4 % Mtg. Db. 93/98 Pounds 4.125

Lincoln National Dollars 0.38

Lloyds Chem. Rd. Cv. Ptg. Pf. '05 3.75p

Londonderry Port & Harbour 3 1/2 % Cons. Pounds 1.75

Malaysia 9 1/2 % Bd. 1996 Dollars 475.0

Marks & Spencer 10% Cm. Pf. 3.5p

Marshalls 10% Cm. Pf. 5p

Merchants Tst. 4% Perp. Db. Pounds 2.0

Mid Southern Water 10% Rd. Db. 95/98 Pounds 5.0

Mitsubishi Fin. 8 5/8 % Nts. 1993 Dollars 862.50

Montreal (City of) 3% Perm Db. Pounds 1.50

Morrison (Wm) Supermarkets 0.2p

Nat. Home Loans Sec. FRN 1995 Dollars 1.69

Norwich 3% Rd. Pounds 1.50

Nottingham 3% Irrd. Pounds 1.50

Nynex Dollars 0.59

Ocean Grp. 4.71p

Pacific Elect. Wire 3 3/4 % Bd. '01 Dollars 3375.0

Pacific Telesis Dollars 0.545

Parkland Textile 3.15% Cm. Pf. 1.575p

Pentland 1.16p

Pentos 4 1/2 % Cm. Pf. 1.575p

Prudential Fin. 8 1/4 % Gtd. Bd. '01 Dollars 82.50

RTZ Fin. 11 5/8 % Gtd. Bd. '93 Dollars 581.25

Reading Corp 3 1/2 % Pounds 1.75

Retail Corp 6 1/2 % Cm. 3rd Pf. 2.275p

Sanderson Murray & Elder 0.66p

Scottish Agricultural Sec. 3 1/2 % Db. 63/93 Pounds 1.75

Do. 13% Db. 1997/99 Pounds 6.50

Scottish Inv. Tst. 3 1/2 % Cm. Pf. Pounds 1.75

Do. 3.85% Cm. Pf. Pounds 1.925

Do. 4.55% A Cm. Pf. Pounds 2.275

Sema 1.2p

Shell Trans. 10.2p

Singer & Friedlander 1.25p

Southwestern Bell Dollars 0.3775

TT Grp. 10 7/8 % Cv. Pf. 1997 5.4375p

Torchmark Dollars 0.28

Travis Perkins 2.5p

Treasury 6 3/4 % Ln. 1995/98 Pounds 3.375

US West Dollars 0.535

Whitbread 4 1/2 % 1st Cm. Pf. 1.575p

Do. 6% 3rd Cm. Pf. 2.1p

Do. 7% 3rd Cm. Pf. 2.45p

TOMORROW

Astec (BSR) 0.25p

Camellia 13p

Export-Import Bank Japan 9% Gtd. Bd. '96 Ecu90.0

Filofax 0.75p

Foreign & Colonial Pacific Inv. Tst. 0.9p

Graseby 3.3p

Hewitt 1.5p

WEDNESDAY NOVEMBER 3

Assoc. British Ports 3.5p

Enterprise Oil 9.5p

Gen. Motors Acceptance Canada 9% Nts. Nov.'94 Ecu90.0

GKN 8p

Great Southern 4p

GT Japan Inv. Tst. 0.5p

Hall Eng. 6.48p

Lionheart 0.1p

Lyles (S) 1.75p

Royal Bk. of Scotland 8 1/4 % Nts. 94 (With Wrrnts.) Pounds 82.50

Do. (Without Wrrnts.) Pounds 82.50

Treasury 15 1/4 % Ln. 1996 Pounds 7.625

THURSDAY NOVEMBER 4

Albany Inv. Tst. 1.25p

Asda Property Tst. 0.7p

BPP Hldgs. 3p

Benson Grp. 0.2p

Fairhaven Int. Dollars 0.005

Gowrings 1p

Halifax Bldg. Scty. FRN '97 Pounds 314.54

Highcroft Inv. Tst. 1.9p

New Zealand 11 1/4 % 2008 Pounds 281.25

OGC Int. 1.75p

Plasmec 0.75p

Provident Financial 4.75p

Steel Burrill Jones 3p

Usher (Frank) 3.5p

FRIDAY NOVEMBER 5

ASW 3p

Appleyard 2.6p

Baynes (Charles) 0.575p

Bentalls 0.6p

Black (A & C) 4.25p

Cadbury Schweppes 8 1/4 % Un. Ln. 94/04

Pounds 4.125

Coats Viyella 3.25p

Credit National 13 1/2 % Gtd. Nts.'93

Pounds 67.50

Dawsongroup 1.5p

Delta 10 3/4 % Db. 1995/99 Pounds 5.375

Edinburgh Fd. Mngrs. 6p

Headway 0.7p

Int. Inv. Tst. Co. of Jersey 8p

Intrum Justitia 1.1p

Lincat 4p

Logica 2.75p

Mersey Docks & Harbour 2.85p

NMC 1.5p

NSK 4.05% Bd. 1997 Y101250.0

Osaka Gas 4.95% Nts. '99 Y130625.0

PCT 2.5p

Pacific Dunlop ADollars 0.11

River & Mercantile Am. Cap. & Inc.

1.8p

Royal Insurance 2.5p

Servomex 1.2p

Sherwood Computer 1.75p

T & N 10.85p

Transport Development 3p

Walker (Thomas) 0.4p

Wassall 1p

Waterford Foods IR1.19p

Watmoughs 3p

Wilkes (J) 1.5p

Wills 0.3p

Yorkshire Food 0.72p

SATURDAY NOVEMBER 6

Cornwell Parker 4p

Do. A N/Vtg. 4p

Courtaulds 4.2% Cm. 2nd Pf. 2.1p

Do. 6 1/2 % Un. Ln. 1994/96 Pounds 3.25

Do. 7 1/4 % Un. Ln. 1994/96 Pounds 3.625

New Throgmorton Tst. (1983) 1.5p

Whitbread 7 1/4 % Un. Ln. 95/99 Pounds 3.625

SUNDAY NOVEMBER 7

BBA 10% Db. 1989/94 Pounds 5.0

Bristol & West Bldg. Scty. 13 3/8 % Perm. Int. Brg. Pounds 66.875

British Petroleum 2.1p

Marks and Spencer J Sainsbury Boots BAT Industries British Petroleum GB United Kingdom, EC ZA South Africa, Africa US United States of America BM Bermuda, Caribbean AU Australia P5411 Grocery Stores P5399 Miscellaneous General Merchandise Stores P5912 Drug Stores and Proprietary Stores P2111 Cigarettes P6331 Fire, Marine, and Casualty Insurance P1311 Crude Petroleum and Natural Gas P2911 Petroleum Refining CMMT Comment & Analysis COMP Company News P5411 P5399 P5912 P2111 P6331 P1311 P2911 The Financial Times London Page 11 2020
Economics: UK inflation again under scrutiny Publication 931101FT Processed by FT 931101 By EMMA TUCKER

THE Bank of England Quarterly Bulletin is produced tomorrow. Its inflation report will be of particular interest following signs from official data that price rises are gradually gathering pace.

But the Bank, which has taken a fairly relaxed view of inflationary pressures in the economy over the past few months, is unlikely to alter radically its stance in tomorrow's report.

Figures for narrow money come out on the same day. Economists believe the year-on-year rate will rise again, to stay well above the government's 0-4 per cent monitoring range and lending weight to evidence that consumers are the driving force behind the recovery.

This is a heavy week for German statistics with industrial production and employment figures due towards the end of the week. Provisional figures for industrial production in August showed a larger than expected rise of 2.1 per cent on the month, following July's 0.8 per cent fall. Many economists expect to see a downwards revision to the August figure, and the median forecast for September is a drop of 0.5 per cent on the month.

In the US, the focus will be on non-farm payrolls at the end of the week. They should have increased by 160,000 according to the median forecast, following September's 156,000 rise. In the third quarter, the average rise was 117,000 per month, but all the gains occurred in the service sector. Higher paying manufacturing jobs were lost at a rate of 26,000 per month and are expected to suffer further.

The following are the rest of the week's economic highlights and events. The figures in brackets are the median of economists' forecasts from MMS International, the financial information company.

Today: Spain, Portugal, Belgium, Luxembourg, Austria France and Italy, All Saints Day - markets closed.

US, October NAPM Index (51.8); September construction spending.

Australia, September current account, building approvals.

Belgium, Maastricht Treaty comes into force.

Taiwan, markets closed.

Tomorrow: US, September leading indicators (up 0.4 per cent), new home sales (650,000); Johnson Redbook week ended October 30.

Germany, Franco-German convergence plan unveiled in Berlin.

UK, Bank of England quarterly bulletin. October official reserves (up Dollars 50m); UK, October M0 (up 0.4 per cent on month, up 5.5 per cent on year).

Wednesday: US, Fed releases Tan book for November 16 FOMC meeting; September home compilations; car sales October 21-31 (7.1m units), truck sales October 21-31 (5.2m units).

Japan, National holiday - markets closed.

Germany, Bundesbank repo results announced in Frankfurt; speech by Schulmann, Bundesbank Council Member in Frankfurt.

Canada, October foreign reserves, help wanted index (85).

Australia, September retail trade.

Thursday: US, initial claims week ending October 30 (347,000); state benefits week ending October 23; September factory orders (up 0.5 per cent), factory inventories; Q3 preliminary productivity; money supply data for week ended October 25.

Germany, Bundesbank council meeting in Frankfurt.

Friday: US, October non-farm payrolls (up 160,000), manufacturing payrolls (down 5,000), hourly earnings (up 0.2 per cent), average work-week, unemployment rate (6.7 per cent).

Germany, October unemployment - west (up 35,000); September employment (down 41,000), October vacancies - west (down 11,000); Chancellor Kohl delivers a speech on economic policy in the Bundesrat.

France, Q2 industrial production.

Canada, October employment rate (up 0.1 per cent on month), October unemployment rate (11.4 per cent).

During the week: Japan, September current account (Dollars 12.7bn surplus), trade balance, foreign bond investment.

Germany, September industrial production (down 0.5 per cent on month), manufacturing output (down 0.5 per cent on month), manufacturing orders (up 0.6 per cent on month); August trade balance (DM2.9bn surplus), current account (DM5.6bn deficit); October, final cost of living.

XA World P9611 Administration of General Economic Programs ECON Economic Indicators P9611 The Financial Times London Page 11 627
Peace initiative on Northern Ireland Publication 931101FT Processed by FT 931101 By TIM COONE

IN THE initiative launched by Mr Major and Mr Reynolds, Dublin has accepted that an overall settlement would involve an end to its territorial claim on the north and recognition of the unionist veto on change in the province, Tim Coone writes.

The UK accepted an increase in cross-border co-operation and the possibility of Sinn Fein entering talks if the IRA laid down its arms.

The six-point plan set out last week by Mr Dick Spring, the Irish foreign minister, paved the way for the initiative. The six points were:

People in Ireland, north and south, without coercion and without violence, should be free to determine their own future.

New structures should be developed for governing the province, for north-south relationships and for UK-Irish relations.

No agreement can be reached on any change in the status of Northern Ireland without the freely expressed consent of the majority of the people of Northern Ireland.

Unionist consent will be required for any constitutional change in the north.

The Irish constitution will be amended 'at the right time and in the right circumstances' to reflect any agreed changes.

There will be a place at the negotiating table for the 'men of violence' if they cease their violence.

The SDLP and Sinn Fein are concerned by Mr Spring's apparent acceptance of a unionist veto - as opposed to a majority veto - over constitutional change in Northern Ireland. On Irish radio yesterday, Mr Reynolds referred only to majority consent.

The statement from the UK and the republic was unequivocal that there could be 'no question of adopting or endorsing' the Hume-Adams initiative, which envisages a simultaneous referendum north and south of the border on any future changes to Northern Ireland's status, but recognises the principle of majority consent in the north.

The last series of talks between the four main Ulster constitutional parties broke up last November without agreement.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P9199 General Government, NEC NEWS General News P9721 P9199 The Financial Times London Page 10 353
Leaders ready to pay political price of peace / A look at at the realities prime ministers Major and Reynolds are prepared to accept Publication 931101FT Processed by FT 931101 By PHILIP STEPHENS

THE MEETING on Friday between Mr John Major and Mr Albert Reynolds showed that the London and Dublin governments are more determined than for many years to achieve a political settlement for Northern Ireland. The most recent in the latest spate of terrorist outrages just 24 hours later underlines the depths of the morass from which they are seeking to lift the province.

Both sides are aware that as long as the political vacuum remains then the spiral of violence will continue, and quite possibly escalate. But after more than 20 bloody years neither can be confident that the political initiative on which they have embarked can avoid the roadblocks which have halted so many of its precursors.

The lengthy communique released after the talks in Brussels renounced terrorism, declared that there could be no place at the negotiating table for those who used violence to further political aims, and underlined the central role of the Ulster constitutional parties in any settlement.

This might seem to represent no more than a statement of the obvious, but the very fact of its release sent an important message: that Mr Major and Mr Reynolds were ready to expend political capital in a resumed effort at permanent peace, and that in the process both were prepared to own up to some obvious realities.

From Dublin the message was that it was now ready to remove what Mr Major saw as two of the most foremost obstacles to peace. As part of an overall settlement, Mr Reynolds would be ready to ask the voters of the republic to remove from the Irish constitution its claim to jurisdiction over the north, and the republic would recognise explicitly the veto over change in the province exercised by supporters of the union.

For its part London would now state publicly what had always been obvious but never admitted so explicitly by a British government: that if the IRA ceased its military campaign a place would be found at the negotiating table for Sinn Fein.

Behind the scenes Mr Major has also acknowledged that the quid pro quo for changes in the republic's constitution would be a significant increase in administrative co-operation between north and south.

Over the next few weeks the two governments will seek to build on that agreement, starting at the meeting on Wednesday between Mr Dick Spring, the Irish foreign minister, and Sir Patrick Mayhew, the Northern Ireland secretary. Mr Major and Mr Reynolds will seek to strengthen it further at a UK-Irish summit in Dublin within six weeks.

The aim is to create an atmosphere which will persuade the constitutional parties - above all the unionists - to return to the negotiating table to thrash out an internal political settlement.

Reassurance for the unionists ran right through the Major-Reynolds statement: in the promise that there would be no secret deals; in the joint disavowal of the initiative launched by Mr John Hume, the SDLP leader, with Mr Gerry Adams of Sinn Fein; and in Dublin's implicit acknowledgement of the unionist 'veto'.

In practice, the two governments are reversing the order of negotiations in the three-strand peace process which stalled at the end of last year. Then the priority was an agreement between the Northern Ireland parties before moving on to the second and third strands - relations between north and south in Ireland and an agreement between the republic and Britain on Ulster's constitutional status. Now the aim is to secure a broad measure of agreement on strands one and two as an umbrella for negotiations on strand one.

But if the logic of a London-Dublin accord providing a catalyst for the restart of talks between the parties in the province is obvious enough, its chances of success are precarious.

The unionists, whose self-importance is bolstered by Mr Major's reliance on their votes at Westminster, must be persuaded that the talks offer something better than the status quo. Mr James Molyneaux, leader of the Ulster Unionist party, is now the most important player in the game. Without a positive response from him, the latest initiative will go nowhere.

Mr Hume, badly bruised by the rejection of his initiative, must also be brought back within the inter-governmental process. He remains as convinced as ever that a cessation of violence by the IRA is within reach if Mr Major is prepared to listen carefully to the ideas to which Sinn Fein has put its name. He has staked too much on his talks with Mr Adams to withdraw quietly now.

Yet British officials were suggesting yesterday that the picture beneath the surface was not as bleak as the familiarly unpromising rhetoric of Ulster politicians may suggest.

Mr Molyneaux has remained silent. If he offered to return to the negotiating table, both Mr Hume and the Rev Ian Paisley, the leader of the hardline Democratic Unionist party, would find it hard not to join him. The good intentions might this time offer at least a start on the road to an agreement.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P9199 General Government, NEC P9229 Public Order and Safety, NEC NEWS General News P9721 P9199 P9229 The Financial Times London Page 10 900
Postal rates up Publication 931101FT Processed by FT 931101

ROYAL MAIL prices rise from today by a penny, to 25p for first-class letters and 19p for second-class post. Parcelforce rates also rise today by an average of 3 per cent.

GB United Kingdom, EC P4311 U S Postal Service COSTS Service costs & Service prices P4311 The Financial Times London Page 10 60
Poll finds support for housing help Publication 931101FT Processed by FT 931101

THE GOVERNMENT should spend more on housing for people on low incomes, 70 per cent of respondents told a MORI poll for housing charity Shelter.

A total of 69 per cent said tax relief on mortgage interest should be redistributed to people on low incomes and 68 per cent said money from council house sales should be used to build more homes for rent.

GB United Kingdom, EC P9531 Housing Programs NEWS General News P9531 The Financial Times London Page 10 92
Steelworkers' scheme to end Publication 931101FT Processed by FT 931101

THE Iron and Steel Employees Readaptation Benefits Scheme, which has helped about 118,000 former steelworkers with income support and benefits for retraining, is to end, the government has announced.

Mr Tim Sainsbury, industry minister, said in a Commons written answer that the scheme had not been very effective in assisting redundant steelworkers re-enter the labour market and had not proved good value for money.

The scheme was established in 1974 after the first oil price shock and anticipated big plant closures in the late 1970s. Mr Sainsbury said further large-scale restructuring was not expected in the industry.

A consultation paper is being issued, with comments invited by December 10.

GB United Kingdom, EC P8331 Job Training and Related Services NEWS General News P8331 The Financial Times London Page 10 138
Attack on teacher training plans Publication 931101FT Processed by FT 931101

PROPOSALS to base initial teacher training in schools rather than colleges poses a threat to quality and could lead to political control over teacher education, the Committee of Vice-Chancellors and Principals said yesterday.

There was 'no logical argument' to support a fundamental shift towards school-centred teacher training, Mr Kenneth Edwards, committee chairman, said in a detailed response to the government.

A Teacher Training Agency, proposed as a funding council for teacher education, would be 'another costly, politically appointed body' and a 'sinister precedent' for the future possible fragmentation of higher education.

The proposed separation of education research from other university research would also set a dangerous precedent.

GB United Kingdom, EC P8211 Elementary and Secondary Schools NEWS General News P8211 The Financial Times London Page 10 136
Accuracy of trade figures queried Publication 931101FT Processed by FT 931101 By PETER MARSH

MEASURES to improve the European Community's new system of collecting trade statistics are to be discussed next week by government officials from the UK, France, Germany and the Netherlands, Peter Marsh writes.

Pressure for the meeting has come particularly from the UK, which is concerned that the method of collecting data introduced at the beginning of this year may be giving an inaccurate view of economic trends.

Even though data gathered so far this year about UK exports and imports indicate Britain's trade gap may be worsening as the recovery picks up, British officials are unsure about to what degree they can rely on the statistics.

They are particularly worried that the problems may also be affecting the collection of non-EC trade data and so distorting perceptions about the whole-world trade deficit.

Last year the UK had a deficit on visible trade with the rest of the world of Pounds 14bn, and the Treasury in its last published forecast in March said this would rise to Pounds 21bn this year.

Officials from the UK's Central Statistical Office and the statistical agencies of the other three nations will be discussing their experiences with the new system and ways to improve it.

The new system, Intrastat, was introduced after the ending of trade barriers between European Community countries meant Customs officials no longer collected the data needed in compiling trade statistics.

A specific worry about the system - which is organised by Eurostat, the EC's statistical agency - is that the companies sending in information about their own imports and exports may be confusing goods bought and sold within the EC with products traded outside it.

GB United Kingdom, EC FR France, EC DE Germany, EC NL Netherlands, EC P9311 Finance, Taxation, and Monetary Policy STATS Statistics ECON Balance of trade P9311 The Financial Times London Page 10 319
London and Dublin press on with initiative: Governments 'will not be diverted by gunmen' - Widespread support for talks / Killings condemned Publication 931101FT Processed by FT 931101 By KEVIN BROWN, Political Correspondent

THE BRITISH and Irish governments yesterday stressed their determination not to allow the Northern Ireland peace process to be derailed by Saturday's mass shooting in County Londonderry.

Downing Street said Mr John Major, the prime minister, who has been kept closely informed about the shootings, would not be diverted by the gunmen.

Mr Albert Reynolds, the Irish prime minister, said terrorists had to be prevented from dictating the political agenda in the province. He added: 'Last night's slaughter of the innocents puts more pressure on us to accelerate our efforts to find a formula for the cessation of violence and get the constitutional parties back around a negotiating table.

'One of our major problems is the lack of a political process and dialogue. Consequently the men of violence are allowed to take centre stage, and that has to be addressed immediately.'

The London-Dublin initiative was condemned by Mr Peter Robinson, deputy leader of the hardline Democratic Unionist party, who said it was part of the 'nationalist agenda'.

He said the initiative had 'raised the temperature' in the province. 'We are only half a step away from Northern Ireland being out of control. If the violence continues like this the ordinary man is going to take sides for protection.'

However, there was widespread support for the governments' determination to press ahead. Mr Kevin McNamara, Britain's shadow Northern Ireland secretary, said the killings were 'absolutely horrendous'. It was 'urgent that full attention should be paid to the Major-Reynolds initiative to find a solution which will respect the integrity of both communities and to establish institutions which can be useful both to the people of Northern Ireland and to the people of Ireland'.

Mr Seamus Mallon, deputy leader of the nationalist SDLP, said the shootings were 'another bloody milestone in the move towards peaceful resolution of the problems here'.

Dr Robin Eames, the Anglican primate of all Ireland, said he did not believe that the joint statement by Mr Reynolds and Mr Major had prompted the killings. 'Obviously people's minds will centre on the reaction to the recent inter-governmental announcement, but my experience is that these terrorists, whoever they are, don't have to look for a reason,' he said.

'This is psychopathic blood-letting and their so-called banner of 'For God and Ulster' on the one side and 'For a united Ireland' on the other are now irrelevant to most people.'

Mr Martin McGuinness, vice-president of Sinn Fein, said the murders were a brutal reminder of the conflict in Northern Ireland. He urged the nationalist community to remain calm and vigilant.

Mr Philip McGarry, chairman of the Alliance party, said the shootings were 'a disgraceful landmark'. He called on people to support the security forces.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P9229 Public Order and Safety, NEC P9199 General Government, NEC NEWS General News P9721 P9229 P9199 The Financial Times London Page 10 515
Peace given a small chance Publication 931101FT Processed by FT 931101 By JOHN GRIFFITHS

TRAFALGAR Square in London yesterday witnessed a Northern Ireland peace demonstration claimed by its organisers to be the first such event sanctioned in the square by the Home Office for 25 years.

Mr Liam Cleere, organiser, said: 'If Israel and the Palestinians can settle their differences; if South Africa can do it; if the Berlin Wall can come down - then Northern Ireland can be sorted out as well.'

Mr Cleere, an Irish bricklayer living in Kilburn, north London, set up the Rally for Peace Movement after the Warrington bomb blast which killed two children in March. He claimed yesterday that the non-political, non-sectarian movement had 5,000 members, almost all of them Irish people living in Britain appalled by the violence in Ulster.

Yesterday's protest over the latest week of violence was no mass rally - the Home Office gave permission only for Mr Cleere and five colleagues to hold banners in the square.

The pro-Republican Irish Freedom Movement staged a demonstration a few yards from the peace protesters demanding 'Irish freedom'. Troops Out demonstrators used similar tactics to disrupt the movement's first rally for peace, attended by 2,000, in Hyde Park about a month after the Warrington bombing.

Yesterday Mr Cleere called for Catholic and Protestant paramilitaries to be 'man enough' to lay down their weapons and give the latest formal and informal peace initiatives a chance to work.

GB United Kingdom, EC P9721 International Affairs NEWS General News P9721 The Financial Times London Page 10 260
Loyalists plot the demise of consensus Publication 931101FT Processed by FT 931101 By TIM COONE

THE loyalist paramilitary Ulster Defence Association announced seven months ago that it was planning to intensify its murder campaign against Catholics in Northern Ireland.

The UDA, banned in August last year, is a thinly disguised front for the Ulster Freedom Fighters, which carried out the weekend atrocity in the Rising Sun pub, Greysteel, County Londonderry.

In an interview with a Dublin newspaper earlier this year, one of the UDA's six-man commanding council said: 'It's entirely a joke to say that someone who is killed in the heart of a republican area is innocent.'

The UDA's aim, he said, was to defeat the 'pan-nationalist front' - a term used by unionists for what they perceive as an emerging alliance between the IRA, its political wing Sinn Fein, the Social Democratic and Labour Party led by Mr John Hume, and the Dublin government - all aimed at the eventual achievement of a united Ireland.

The UDA's main strength lies in Protestant working-class areas of Belfast such as the Shankill and Newtownards Roads. The IRA's Shankill bomb a week ago was aimed at the UDA headquarters.

The significance of the latest UFF atrocity is that it took place in Londonderry, the political heartland of Mr Hume's SDLP, which over the past decade has managed to avoid much of the political violence that has plagued Belfast.

Mr Hume's lobbying in Brussels and the US has attracted large sums of EC funds and US inward investment to the Londonderry area, to the benefit of Protestants and Catholics alike, and to the point where business confidence is buoyant.

The SDLP controls the Derry council, but has pioneered 'power-sharing', giving a significant role to minority unionist parties, including the hardline Democratic Unionists.

It is ominous that the UFF gunmen who carried out the slaughter in the Rising Sun appeared to care little that both communities mixed there, and that the victims were from both religions.

It was not the 'heart' of a republican area. Indeed, the attack appears to be a deliberate attempt to drive a wedge between the two communities and to break down the consensus politics pioneered by Mr Hume.

The effect will be to spread sectarian violence more widely through the province, and to make the need for political initiatives all the more urgent if the situation is to be kept from spiralling out of control.

GB United Kingdom, EC P9721 International Affairs P9229 Public Order and Safety, NEC NEWS General News P9721 P9229 The Financial Times London Page 10 430
Hume demands government response Publication 931101FT Processed by FT 931101 By TIM COONE

MR JOHN HUME, leader of the Social Democratic and Labour Party, said yesterday that the UK government had a 'responsibility' to explore his joint peace initiative with Mr Gerry Adams, leader of Sinn Fein, the political wing of the IRA.

He was on the counter-attack after the apparent rebuff to the initiative by the British and Irish governments. 'I expect to be listened to,' he said.

'The proposals that I have put to the government are proposals that can lead to a dialogue with all parties, including Sinn Fein, in a situation in which there is no violence,' he said on London Weekend Television's Walden programme.

He insisted that the joint Brussels statement by the two governments on Friday was 'only an appeal to end the violence. I am taking direct action to try and end it.'

Accused by the harshest of his unionist opponents of being a fellow traveller of the IRA, Mr Hume is nonetheless a lifelong opponent of violence and has himself been the target of nine IRA attacks over the past 20 years. Inspired by figures such as Mahatma Gandhi and Martin Luther King, he began his political career in the civil rights movement in Londonderry in the late 1960s. Unionist-inspired violence removed that movement from the streets, and was then met by growing IRA violence. Mr Hume remained throughout a constant advocate of constitutional and peaceful means to bring about change.

A founding member of the SDLP in the early 1970s, he holds a conviction that nationalism, whether Catholic or Protestant-orientated, will gradually dissipate in the European union slowly being forged in Brussels.

Not one to be baulked by criticism of his ideas or his tactics, he recently said: 'I am criticised for my approaches, but nobody else is putting any new proposals on the table. I want to see an agreed Ireland, not a united Ireland. I want a new Ireland in a new Europe.

'I am more confident now about the future than I have been for the past 20 years. In 10 to 20 years more there will be a whole new ball game.'

On the apparent rebuff of his initiative with Mr Adams, he argued that several of the principles in the initiative had been incorporated into the Dublin government's six-point proposals, and into the communique issued by the two governments on Friday.

He said yesterday: 'I am awaiting clarification of their response, but part of the process that has been proposed has already been proposed in (the Hume-Adams) initiative.

'I believe there is a way of bringing that about now which does not threaten the interests of any section of our people, that does not impose any solutions and which does not give victory to any section of our people'.

The savage UFF attack in Londonderry on Saturday night, the first of its kind there for many years and a clear intimidatory warning to Mr Hume, underlines the extent to which unionist extremists oppose even the most moderate nationalist viewpoint.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P9199 General Government, NEC NEWS General News P9721 P9199 The Financial Times London Page 10 537
Lib Dem portfolios Publication 931101FT Processed by FT 931101

MR NIGEL JONES, MP for Cheltenham, has been appointed a Liberal Democrat trade and industry spokesman with special responsibility for science, research and the new technologies. Mr David Rendel, MP for Newbury, takes on the local government and housing portfolio.

GB United Kingdom, EC P8651 Political Organizations PEOP People P8651 The Financial Times London Page 10 64
Government forced to extend rail franchises Publication 931101FT Processed by FT 931101 By CHARLES BATCHELOR, Transport Correspondent

THE government has bowed to pressure to extend the duration of franchises for parts of the British Rail network, it emerged yesterday.

Bidders could be awarded franchises that last as long as 15 years, more than twice the length of time previously expected, Mr John MacGregor, transport secretary said.

The short anticipated duration of the franchises, which had previously been expected to run for only five to seven years, has acted as a disincentive to potential private bidders.

If a bidder is willing to put in sufficient capital investment, the government would be prepared to to consider awarding franchises of '10 years and beyond' and possibly up to 15 years, Mr MacGregor said on BBC Television's On the Record.

Mr MacGregor said franchisees would not need large amounts of working capital because they would have the revenues from their operations and, if these were loss-making, a government subsidy.

The minister left open the possibility of further increases in the government's subsidy to the railways. But he denied that it would rise to Pounds 2bn in 1994-95 from Pounds 850m this year, as suggested by an internal government report obtained by the BBC. He said that the figure of Pounds 2bn was 'not necessarily true' and would certainly not apply to 1994-95, when the government expected the Gatwick Express to be the only franchise operating under private ownership.

Mr John Prescott, the former shadow transport secretary who was switched to the employment portfolio last month, said bigger subsidies would be needed if BR's operations were to achieve the 8 per cent rate of return required by the government. He said it was cynical of the government to cut subsidies when BR was in public ownership but increase them to help it go private.

Asked about suggestions that the need to reduce government spending would lead to delays in starting work on two projects - the high-speed rail link to the Channel tunnel, and London Crossrail which will link Paddington and Liverpool Street stations - Mr MacGregor said neither scheme was as far advanced as the Jubilee Line extension to London's East End, which was given the go-ahead on Friday.

'We can't tell what the final deadline date will be because there are so many processes to go through,' he said.

Union Railways, the BR subsidiary charged with launching the high-speed link from London to the the Channel tunnel at Folkestone, presented the results of a six-month public consultation on the route to the government on Friday.

British Rail GB United Kingdom, EC P9611 Administration of General Economic Programs P4011 Railroads, Line-Haul Operating P4013 Switching and Terminal Services P4111 Local and Suburban Transit RES Facilities TECH Services & Services use P9611 P4011 P4111 The Financial Times London Page 9 474
Consumers 'ignored' in energy policy Publication 931101FT Processed by FT 931101 By DAVID LASCELLES, Resources Editor

ENERGY policies have been politically inspired and dominated by producer interests and short-termism, the Institute of Economic Affairs says in a study today.

Professor Colin Robinson, professor of economics at the University of Surrey, says in the study published by the free-market think tank that the coal and nuclear industries in particular managed to win special treatment from the state.

'The consumer voice, however, was not heard - or if heard was not heeded,' says Prof Robinson.

His study also criticises the privatisation of gas and electricity as being motivated by a desire to raise revenue rather than to introduce competition into those industries. As a result, the privatised corporations retain huge amounts of power.

Fuel bills at 12 government departments rose 4 per cent during the year in spite of official encouragement for energy conservation.

The Cabinet Office's fuel bills rose 10 per cent, according to statistics compiled by the Association for the Conservation of Energy from published government sources.

Energy Policy, Errors, Illusions and Market Realities. Institute of Economic Affairs, 2 Lord North Street, London SW1P 3LB. Pounds 5.50.

GB United Kingdom, EC P4911 Electric Services P4923 Gas Transmission and Distribution P1222 Bituminous Coal-Underground P1221 Bituminous Coal and Lignite-Surface NEWS General News P4911 P4923 P1222 P1221 The Financial Times London Page 9 229
Court action against fishing curb starts today Publication 931101FT Processed by FT 931101 By ALISON MAITLAND

FISHERMEN today go to the High Court to try to overturn legislation that will restrict from January the number of days they can spend at sea.

The National Federation of Fishermen's Organisations, which represents 6,000 fishermen from all over the UK except Scotland, is applying for judicial review of the restrictions, which they say could destroy their livelihoods.

The government is introducing the limits as part of its obligation under EC fisheries policy to reduce the capacity of the UK fleet by 19 per cent by the end of 1996 in order to halt overfishing. It is also running a Pounds 25m decommissioning programme and tightening up on licensing of vessels.

The limits on days at sea, which apply to trawlers over 10 metres long, will initially restrict vessels to the number of days they spent at sea in 1991 and may later reduce the number further.

The measures, which have triggered blockades of ports around the country, were condemned as 'unnecessarily draconian' by the Commons agriculture committee in August.

Mr David Vaughan QC will argue for the federation in the High Court that the restrictions breach EC law by placing a disproportionate burden of the cuts on the fishermen's own incomes.

The fishermen say the government has not made an appropriate contribution to controlling the fishing effort because it failed to decommission vessels under the previous EC cuts programme between 1986 and 1991. Instead, the UK fleet was allowed to expand.

The federation is also objecting to the blanket prohibition on all fishermen, regardless of whether they catch species that are over-exploited, such as cod or haddock, or species that are still plentiful.

It argues that the legislation is unfair because only one other EC state, the Netherlands, operates such restrictions, and these apply only to trawlers fishing for particular species such as plaice and sole.

The High Court hearing is expected to last several days, although the case may be referred to the European Court. If that happens, the federation will ask for the rules to be suspended until the European Court hearing, which could involve a wait of a couple of years.

GB United Kingdom, EC P0912 Finfish P9211 Courts NEWS General News P0912 P9211 The Financial Times London Page 9 389
Ministers consider ending health pay review bodies Publication 931101FT Processed by FT 931101 By JAMES BLITZ

MINISTERS have begun to question whether the National Health Service's pay review bodies have a long-term future, arguing that hospital trusts should increasingly make direct pay settlements with doctors, consultants and other medical staff.

For nearly 30 years, pay review bodies and the Whitley Councils have advised the government on pay and conditions for doctors and other health service professionals.

But as hospitals and other NHS organisations gain financial independence under the recent reforms, ministers are privately suggesting that the pay review bodies have no long-term future.

Government officials have been careful not to press publicly for the withering away of the pay bodies. The British Medical Association has said that these institutions play a key role and would view any move to abolish them 'with grave disquiet'. But, according to a health department official, trusts need to look to the future, and change the manner in which they make pay settlements. 'They need to use their freedom to decide on terms and conditions for consultants,' he said.

Treasury officials have also raised doubts about the future use of national pay norms for the health service. 'Trusts are being given the right to operate in their own way,' said a Treasury official. 'With further developments in the NHS of that kind, there is a possibility that the role of the review bodies will change.' The government's imposition of a pay freeze for the whole of the public sector in the next financial year has already dealt a blow to the role of the pay review bodies. This year a pay rise of 1.5 per cent is being imposed.

Moreover, hospitals are already setting their own terms for direct pay deals with some staff. Last month, an internal government review issued to health authorities said that nearly a fifth of NHS trusts have introduced some form of local pay for small groups of workers such as cleaners and healthcare assistants.

Opposing the move, the BMA said that pay review bodies are vital in the health service where there are bigger constraints on industrial action than on other areas of the public sector. It also opposes the move on the grounds of expense. 'If you were to have pay negotiations in every trust, it would be extremely time-consuming and expensive,' it said.

But, according to a recent report published by the Social Market Foundation, an independent pressure group, the health service reforms should squeeze out any room for statutory pay reviews.

'With trusts having the authority to set terms, it is difficult to understand exactly what functions Whitley and the pay review bodies perform,' said Mr Ron Beadle, a lecturer in Human Resource Management at Newcastle upon Tyne University. 'So long as they persist, they provide a defence for inertia.'

GB United Kingdom, EC P9431 Administration of Public Health Programs P80 Health Services NEWS General News P9431 P80 The Financial Times London Page 9 497
Top 1,000 groups 'have cut 1.5m jobs' Publication 931101FT Processed by FT 931101 By MICHAEL CASSELL, Business Correspondent and RICHARD DONKIN

BRITAIN'S 1,000 largest companies shed about 1.5m workers in the year to March 1993 as costs were cut to cope with the recession, says a survey conducted for Director magazine.

The survey, which also shows that average pre-tax profits fell over the same period by nearly 8 per cent while sales rose by a little more than 4 per cent, suggests that the total workforce employed by the top 1,000 companies dropped from 8.6m people to just over 7m.

In the four previous years, staff numbers had remained reasonably steady, dropping by only 300,000 from their peak in 1989.

The cuts in staffing were deepest - averaging nearly 8 per cent - within the remnants of the state-owned sector, most notably in British Coal. The average reduction in the private sector was less than 2 per cent while foreign-owned businesses, on average, trimmed their UK numbers by 5 per cent. The days of the giant centralised corporation are over, according to a senior director in one of Britain's biggest companies, writes Richard Donkin.

Mr Mike Bett, deputy chairman of British Telecommunications and incoming president of the Institute of Personnel Management, says in the latest issue of Personnel Management magazine that new technology will lead to more companies decentralising their operations.

'For many years the average size of companies has been declining. The current drive towards keeping to the core business will reduce the average size of companies even further.'

The result, he says, will be more companies supplying services traditionally carried out in-house.

He adds that this will have repercussions such as less commuting and greater difficulty for unions in organising.

GB United Kingdom, EC P6231 Security and Commodity Exchanges PEOP Labour MGMT Management & Marketing P6231 The Financial Times London Page 9 313
Hotel optimism Publication 931101FT Processed by FT 931101

FOUR in five hoteliers believe the downturn in the industry has ended, tourism consultants Horwath Consulting said in a survey. This represents a 25 per cent increase on optimism in the summer.

GB United Kingdom, EC P7011 Hotels and Motels NEWS General News P7011 The Financial Times London Page 8 57
Exporters cool on rejoining ERM Publication 931101FT Processed by FT 931101

TWO-THIRDS of exporters do not believe their export sales would benefit if Britain rejoined the European exchange rate mechanism, Barclays Commercial Services and Export Times say in a survey.

Most exporters also believe that allowing the newly democratised east European states to join the EC would improve their sales abroad.

QR European Economic Community (EC) P9311 Finance, Taxation, and Monetary Policy MKTS Market data P9311 The Financial Times London Page 8 81
Small business finance is 'shaky' Publication 931101FT Processed by FT 931101 By EMMA TUCKER

SMALL-COMPANY finances are built on 'shaky foundations', says a report issued today which presents a worrying picture of the state of the small-business sector, Emma Tucker writes.

The report, by the 3i/ Cranfield European Enterprise Centre, says that small companies suffer from serious structural weaknesses which carry policy implications for the government and banks.

By comparing the financial structure of small and large companies, the report concludes that small companies have weak liquidity and a considerably lower ratio of fixed assets, which makes it difficult for them to raise finance from banks. Lower and more volatile profitability add to these difficulties.

Small companies are too dependent on short-term finance, with 'cheap but very risky' trade credit as their main source which contributes to poor liquidity, it says.

This lack of security is reflected in high interest rates for small companies. The authors urge the government to consider a direct subsidy to the banks to compensate for risk.

GB United Kingdom, EC P9611 Administration of General Economic Programs P6231 Security and Commodity Exchanges NEWS General News P9611 P6231 The Financial Times London Page 8 196
Fear of redundancy rises steeply despite fall in jobless total Publication 931101FT Processed by FT 931101 By LISA WOOD, Labour Staff

MORE THAN half of British workers fear that they could lose their jobs in the next 12 months despite falling levels of unemployment, the latest MORI monthly survey for the Financial Times has found.

Fear of redundancy and unemployment rose sharply over the past few weeks to 53 per cent of those in full-time or part-time work after falling to 43 per cent in September, the survey indicates.

Anxiety about prospects has grown most among women, part-time workers and the young.

Mr David Martin, editorial director of Industrial Relations Services, the independent pay and conditions group that commissioned the series of monthly surveys, said: 'Confidence is key to the strength of any economic recovery.

'Fear of job loss has grown dramatically, and those interviewed do not believe that unemployment has peaked and that confidence in the pace of recovery remains fragile.'

According to the series of surveys, which started in April, fear over the possibility of redundancy had a first peak in July when 51 per cent of those in work said they were either 'very concerned' or 'fairly concerned'.

In August 47 per cent were of the same opinion and in September the figure was 43 per cent. This decline was in spite of the possibility of job losses in the public sector because of an announcement by the government that any pay increases must be funded by increased productivity.

October's level of anxiety among part-time workers contrasts with six months ago. In April only a third of part-time workers expressed concern over redundancy, but last month the figure was 45 per cent.

Mr Bob Worcester, MORI chairman, said people 'read that businessmen are more bullish but then they look around among their friends and nothing has changed. In addition, the government has talked on so many occasions about green shoots that they have become cynical.'

MORI interviewed 930 adults aged 18 and over who work full-time or part-time. Interviews were conducted face-to-face in the period October 21-25.

GB United Kingdom, EC P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 8 370
Funds seek to fend off tax squeeze Publication 931101FT Processed by FT 931101 By NORMA COHEN, Investments Correspondent

ONE OF the UK's largest pension-fund managers has written to its clients urging them to lobby the government against any plans to tax dividend income earned by pension schemes.

Barclays de Zoete Wedd Investment Management, with Pounds 18bn in UK pension fund assets under management and about 250 UK corporate pension-fund clients, is urging its clients and the largest companies it invests in to press the government not to tax pension schemes further.

'A chancellor short of revenue could be tempted to tax pension funds a second time,' Mr Alan Rubenstein, director of BZW Investment Management said in a letter sent late last week.

In the March Budget, Mr Norman Lamont, then chancellor, reduced to 20 per cent from 25 per cent the amount of advance corporation tax paid on dividends which pension schemes could reclaim from the Treasury.

The effect of the tax change has cut income for pension schemes by about Pounds 600m a year, equivalent to a reduction of 6.25 per cent in the income earned on UK corporate equities. The change has forced several companies, including British Telecommunications, to make substantial increases to their pension schemes or to end contributions holidays.

The change took the pensions industry and employers by surprise. The National Association of Pension Funds, the trade association, has since been seeking assurances that there will be no further taxes on pension schemes.

BZW Investment Management and several accountancy firms, including Price Waterhouse, believe that Mr Clarke may abolish the tax refund which pension schemes earn on ordinary UK share dividends.

Mr Rubenstein said he believed the chancellor would propose a two-stage abolition, reducing the tax credit next year to 10 per cent from the present 20 per cent, following with a complete abolition the next year.

Mr Rubenstein said a cut to 10 per cent would deprive pension schemes of Pounds 1.5bn in income, equal to a reduction in their dividend income on UK shares of 12 per cent.

If investors decided to value share prices in line with the present dividend yield on shares, it would wipe roughly 300 points off the FT-SE 100 stock index, he added.

In his letter Mr Rubenstein points out: 'Many companies, perhaps yours included, would then have to question their support for final salary pension schemes and the open-ended commitment this entails.'

Barclays de Zoete Wedd Investment Management GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6371 Pension, Health, and Welfare Funds GOVT Taxes P9311 P6371 The Financial Times London Page 8 436
Clarke dismisses need for further interest rate cut Publication 931101FT Processed by FT 931101 By EMMA TUCKER

MR KENNETH CLARKE, the chancellor, said yesterday that he was not persuaded of the need for another cut in interest rates.

He said in a television interview that he agreed with Mr Eddie George, governor of the Bank of England, that current economic conditions 'have not justified reducing interest rates any further'.

He said, however, that even though the UK was in a better position than any other continental European country, its economic recovery was 'not strong enough yet'. Bolstering the recovery had to be the government's aim for next year.

Mr Clarke told the BBC's Breakfast with Frost programme: 'It surprised everybody when we began to have recovery in the spring and summer of this year. People say it has gone off a little bit. I do not think so.'

But he added that he did not try to talk up the recovery or sound as if all economic problems were over 'because far too many people earning a living in business still tell me it is very tough out there, and patchy'.

Mr Clarke said he would like to reduce the amount the government spends as a proportion of gross domestic product to less than 40 per cent. The proportion is now more than 45 per cent.

Mr Clarke said that - although he wanted a society with the entrepreneurial verve of the US - he did not wish to see 'a society where we abandon the European tradition of welfare, which is strongest in Britain'.

An article from the Bank of England's Quarterly Bulletin, released ahead of publication tomorrow, points out that low inflation rates have contributed to the highest public sector deficit - adjusted for the effect of inflation on outstanding debt - since the end of the second world war.

The article says that, in previous times of markedly high government borrowing, the increase in net debt relative to nominal output was less because high rates of inflation eroded its value.

Last year the net debt of the public sector and market holdings of the national debt registered their sharpest rises for more than 20 years. In relation to GDP, these measures increased by 5 and 6.2 percentage points respectively to 32.9 per cent and 36 per cent.

Mr Clarke said in his BBC interview that the decision not to announce compensation for the imposition of value added tax on domestic fuel at the time of the last Budget - a move he agreed with - had allowed the government's opponents to make mayhem.

'If we had given the compensation package then, nobody would be talking about it in November 1993,' he said.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Gross domestic product ECON Economic Indicators P9311 The Financial Times London Page 8 478
Consumer industries lead output growth Publication 931101FT Processed by FT 931101 By EMMA TUCKER, Economics Staff

MANUFACTURING OUTPUT expanded faster in October than in the previous month, and there was particularly buoyant growth in consumer industries.

The Purchasing Managers' Index, an early indicator of manufacturing output trends based on a survey of purchasing managers, indicated an expansion of manufacturing activity for the ninth consecutive month. The index - based on a weighted average of five survey variables - rose from 51.7 per cent in September to 53.6 per cent last month. The increase contradicted the latest survey evidence from the Confederation of British Industry, which pointed to a flattening of output and new orders.

The Chartered Institute of Purchasing and Supply, which carries out the survey, said there was a substantial expansion of production and new orders, with consumer industries showing the greatest growth in new orders. The output index rose from 54.3 per cent in September to 57.9 per cent last month. For new orders, the index rose from 50.9 per cent to 56.3 per cent.

Respondents said an improvement in domestic demand was the source for much of the growth in new orders in October, although a slight overall increase in overseas orders was also recorded after two months of falling exports and export orders.

The increase in production many also have been linked to preparation for Christmas. The index measuring stocks of finished goods registered little overall change on the previous month as de-stocking was reported to have been offset by Christmas stockbuilding.

Less encouraging was a fall in the employment index last month from 51.3 per cent to 48.8 per cent. This followed three months of rising employment in manufacturing. The north of England had the highest growth in new orders during October although demand continued to grow strongly in the south-west, the Midlands and Wales.

Mr Peter Thomson, director-general of the institute, said: 'This is good news, particularly as it is founded on hard data, direct from the factory gates - not conjecture. It shows clearly that fresh vigour continues to return to UK manufacturing, as demonstrated by the marked upturn seen in output and order books.'

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON Industrial production ECON Employment & unemployment P9311 The Financial Times London Page 8 385
Financing a cure for Japan's sick economy Publication 931101FT Processed by FT 931101 By EDWARD BALLS

MR YOH KUROSAWA, president of Industrial Bank of Japan, is unusually willing to criticise Japan's policymakers. In an interview in yesterday's Observer newspaper published in London, he attacked the government for failing to take sufficient measures to boost Japan's ailing economy. He called for a Y10,000bn to Y15,000bn (Pounds 62bn to Pounds 93bn) income tax cut - the government is rumoured to be considering a Y5,000bn cut - and a further half point reduction in the official discount rate.

But Mr Kurosawa's words, like the Japanese economy, are difficult to read. While the IBJ president's policy prescriptions are bold, they do not step too far outside the consensus: fiscal policy is still the preferred option for reviving Japanese growth, both in Tokyo and among Japan-watchers in the US Treasury. Yet, up to now, Japan's fiscal activism has not had much success. Three fiscal packages over the past year have consumed Japan's general government budget surplus, but they have not produced an economic revival. The OECD forecasts that the Japanese economy will not grow at all this year, industrial output and retail sales are still registering year-on-year falls and broad money growth remains sluggish.

A year ago, the focus of policymakers was on the unhealthy state of Japan's banking sector. Excessive lending to property companies by the banks and their non-bank subsidiaries in the late 1980s, followed by the collapse of the stock market and property prices, had left the banks with substantial non-performing loans. Official government figures said the bad debts of the leading 21 banks totalled Y12,300bn, slightly less than in the US when bad debts reached their peak and much less than in the severely indebted Scandinavia. But Tokyo bankers acknowledged that the truth was much worse: counting in the debts of non-bank subsidiaries, and adjusting for Japan's more restrictive bad debt definition, suggested a total three to four times the official level.

Mr Kurosawa, in conversation a year ago, was deeply troubled by the likely effect of these bad debts on bank lending. He handed over a copy of a speech which he had given in the US at Cornell university the previous week. His speech praised the idea of setting up an agency to purchase these bad debts and called for public funds to speed its work. There was, it acknowledged, opposition to the use of public funds. But Japan would not ignore the fact that public money had been used successfully both in the US Savings and Loan bail-out and in the UK in the early 1970s.

But, in the intervening week since his speech was delivered, Mr Kiichi Miyazawa, the then prime minister, had been strongly criticised for suggesting that public funds should be used. At the interview, Mr Kurosawa was adamant that the loan buying agency should not receive public funds. Nor has it. Not surprisingly, the results have been disappointing: between February and the end of September, it purchased non-performing loans with a face value of just Y1,050bn. Japan's banks, due to report healthy half-yearly operating profits at the end of this month, are using these profits slowly to write off their non-performing loans.

Now the Japanese economy is, in the words last week of Mr Toshihiko Fukui, a Bank of Japan director, in 'a protracted and deep adjustment phase'. Survey evidence suggests that, despite falling interest rates, Japan's banks remain unusually unwilling to lend. Outstanding loans by the 11 top commercial banks fell 0.5 per cent in the six months to the end of September, the first half-yearly fall since the survey began 39 years ago.

Of course, the troubled state of many Japanese manufacturers is a second reason why Japanese credit growth remains so slow. But, even if their demand for credit revived, Japan's indebted banks are likely to remain unwilling to lend for some time. Unless, that is, the Bank of Japan provides funds to speed the liquidation of these bad debts. For, as Mr Kurosawa knows, tax cuts alone will not do the trick.

------------------------------------------------------------------------ INTERNATIONAL ECONOMIC INDICATORS: PRODUCTION AND EMPLOYMENT ------------------------------------------------------------------------ Yearly data for retail sales volume and industrial production plus all data for the vacancy rate indicator are in index form with 1985=100. Quarterly and monthly data for retail sales and industrial production show the percentage change over the corresponding period in the previous year, and are positive unless otherwise stated. The unemployment rate is shown as a percentage of the total labour force. Figures for the composite leading indicator are end-period values. ------------------------------------------------------------------------ UNITED STATES ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 7.1 100.0 102.2 1986 105.5 100.9 6.9 98.0 107.0 1987 108.4 106.0 6.1 105.5 108.4 1988 112.6 110.7 5.4 106.1 112.5 1989 115.6 112.4 5.2 99.3 111.0 1990 116.5 112.4 5.4 84.6 106.9 1991 114.2 110.3 6.7 62.2 112.3 1992 117.8 112.9 7.3 60.4 117.4 4th qtr. 1992 5.9 3.2 7.2 61.8 117.4 1st qtr. 1993 3.7 4.4 6.9 62.2 117.8 2nd qtr. 1993 5.3 3.8 6.9 63.7 117.5 3rd qtr. 1993 4.1 66.0 October 1992 5.5 2.3 7.3 60.6 115.4 November 5.7 3.2 7.2 62.4 117.1 December 6.5 4.0 7.2 62.3 117.4 January 1993 4.9 4.6 7.0 60.4 118.3 February 3.2 4.4 6.9 63.5 118.0 March 3.0 4.3 6.9 62.8 117.8 April 4.7 3.9 6.9 62.9 117.3 May 5.2 3.3 6.8 65.0 117.6 June 6.0 4.2 6.9 63.1 117.5 July 5.9 3.7 6.8 65.6 118.1 August 5.3 4.0 6.7 66.7 118.4 September 4.5 65.6

------------------------------------------------------------------------ JAPAN ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 2.6 100.0 96.1 1986 106.5 99.7 2.8 94.3 105.2 1987 113.8 103.1 2.8 108.3 115.4 1988 122.6 112.9 2.5 135.9 122.6 1989 132.5 119.9 2.2 147.0 125.8 1990 141.6 125.5 2.1 149.8 123.7 1991 144.6 128.4 2.1 144.2 122.0 1992 139.9 120.6 2.2 124.2 121.9 4th qtr. 1992 -5.5 -7.7 2.3 115.3 121.9 1st qtr. 1993 -5.9 -5.1 2.3 115.5 125.0 2nd qtr. 1993 -6.0 -4.3 2.4 106.2 126.1 3rd qtr. 1993 -4.1 October 1992 -3.1 -6.7 2.3 116.8 121.9 November -5.5 -8.6 2.3 110.6 121.7 December -7.7 -7.8 2.4 118.6 121.9 January 1993 -3.5 -7.6 2.3 109.9 122.7 February -5.9 -5.8 2.3 113.0 123.5 March -8.2 -2.0 2.3 123.6 125.0 April -5.3 -4.1 2.3 109.6 126.3 May -4.8 -4.2 2.5 102.6 126.5 June -8.0 -4.6 2.5 106.4 126.1 July -4.5 2.5 100.8 126.3 August -2.6 2.5 September -5.1

------------------------------------------------------------------------ GERMANY ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 7.1 100.0 105.1 1986 103.4 102.2 6.4 136.4 105.1 1987 107.4 102.6 6.2 149.4 106.2 1988 110.5 106.3 6.2 164.8 112.3 1989 114.1 111.4 5.6 218.7 115.2 1990 123.5 117.2 4.8 261.1 115.9 1991 130.5 120.7 4.2 270.7 113.2 1992 128.2 119.1 4.6 260.2 107.1 4th qtr. 1992 1.4 -4.6 4.9 233.1 107.1 1st qtr. 1993 -4.6 -9.8 5.3 213.4 107.3 2nd qtr. 1993 -3.9 -8.3 5.6 209.3 109.4 3rd qtr. 1993 195.3 October 1992 -2.2 -3.6 4.8 242.0 108.6 November 1.4 -5.8 4.9 232.3 107.5 December 5.1 -4.3 5.0 224.2 107.1 January 1993 -7.2 -9.1 5.2 216.7 106.8 February -4.6 -11.8 5.3 212.6 106.9 March -1.7 -8.5 5.5 210.2 107.3 April -2.4 -9.0 5.6 211.8 107.8 May -5.7 -8.2 5.6 208.5 108.4 June -3.7 -7.6 5.7 206.8 109.4 July -4.1 -7.8 5.8 203.5 110.3 August -0.6 -5.6 5.9 196.1 111.7 September 185.4

------------------------------------------------------------------------ FRANCE ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 10.3 100.0 102.5 1986 102.4 101.1 10.4 107.2 109.2 1987 104.5 103.1 10.5 117.7 108.7 1988 107.9 107.3 10.0 134.9 114.3 1989 109.5 111.3 9.4 161.1 114.0 1990 110.1 112.9 8.9 163.0 107.6 1991 109.7 113.2 9.5 127.7 108.8 1992 108.9 113.1 10.4 111.4 106.4 4th qtr. 1992 -1.4 -2.3 10.7 101.6 106.4 1st qtr. 1993 0.1 -3.6 11.0 96.6 104.4 2nd qtr. 1993 1.1 -4.2 11.5 91.6 105.1 3rd qtr. 1993 106.4 October 1992 0.1 0.5 10.6 105.1 107.9 November -5.2 -3.4 10.7 101.8 107.2 December 1.0 -4.1 10.9 98.0 106.4 January 1993 0.1 -5.3 10.9 97.1 105.5 February -3.9 -2.5 11.0 96.6 105.1 March 4.3 -3.0 11.2 96.0 104.4 April 1.1 -5.1 11.4 95.0 105.0 May -3.1 -3.5 11.5 89.1 105.6 June 5.3 -4.0 11.6 91.0 105.1 July 1.6 -2.9 11.7 93.9 104.9 August -1.3 -2.9 11.7 80.4 105.4 September 106.4

------------------------------------------------------------------------ ITALY ------------------------------------------------------------------------ Retail Unemp- Composite sales Industrial loyment leading volume production rate indicator ------------------------------------------------------------------------ 1985 100.0 100.0 9.6 103.9 1986 106.8 104.1 10.4 110.8 1987 112.1 106.8 10.9 112.9 1988 108.0 114.2 10.9 117.9 1989 116.9 118.7 10.9 115.9 1990 114.3 118.0 10.3 112.1 1991 110.8 115.4 9.8 115.0 1992 116.3 113.6 9.8 111.6 4th qtr. 1992 2.7 -3.8 9.3 111.6 1st qtr. 1993 2.0 -4.3 9.1 114.4 2nd qtr. 1993 -4.0 10.5 115.7 3rd qtr. 1993 10.2 October 1992 2.5 -1.4 na 111.4 November 5.7 -5.7 na 111.5 December -0.2 -4.4 na 111.6 January 1993 11.0 -3.9 na 112.0 February -4.5 -4.3 na 113.5 March -0.3 -4.7 na 114.4 April 1.7 -3.6 na 114.8 May -10.4 -4.6 na 115.3 June -3.9 na 115.7 July -3.6 na 116.6 August na 118.0 September na

------------------------------------------------------------------------ UNITED KINGDOM ------------------------------------------------------------------------ Retail Unemp- Vacancy Composite sales Industrial loyment rate leading volume production rate indicator indicator ------------------------------------------------------------------------ 1985 100.0 100.0 11.2 100.0 101.7 1986 105.3 102.4 11.2 116.1 105.0 1987 110.7 106.5 10.3 141.2 109.1 1988 117.8 111.6 8.6 144.3 107.1 1989 120.1 114.0 7.2 124.7 104.7 1990 121.1 113.7 6.8 98.1 102.5 1991 119.6 109.2 8.7 68.8 106.2 1992 120.5 108.7 9.9 70.0 110.6 4th qtr. 1992 1.6 0.7 10.4 71.7 110.6 1st qtr. 1993 3.3 1.8 10.6 73.7 114.1 2nd qtr. 1993 3.0 2.7 10.4 74.3 114.2 3rd qtr. 1993 3.9 77.5 October 1992 2.1 1.7 10.2 68.9 109.0 November 1.6 0.1 10.4 71.2 109.7 December 1.0 0.3 10.6 74.9 110.6 January 1993 3.0 1.9 10.7 73.1 111.9 February 2.9 2.2 10.6 73.2 113.1 March 4.0 1.4 10.5 74.8 114.1 April 2.7 1.1 10.5 75.0 114.5 May 2.4 4.4 10.4 75.1 114.6 June 3.9 2.6 10.4 72.7 114.2 July 4.4 3.0 10.4 77.5 114.1 August 3.7 2.3 10.4 77.7 September 3.5 77.3 ------------------------------------------------------------------------

All series seasonally adjusted. Statistics for Germany apply only to western Germany. Data supplied by Datastream and WEFA. Retail sales volume: data from national government sources except Japan and Italy (value series deflated by OECD using CPI). Refers to total retail sales except France and Italy (major outlets only) and Japan (department stores only). Industrial production: data from national government sources. Includes mining, manufacturing, gas, electricity and water supply industries except Japan (mining and manufacturing only) and UK (also includes construction industries). Unemployment rate: OECD standardised rate which adjusts as far as possible for the different definitions of unemployment used in official sources. Vacancy rate indicator: relevant vacancy measure divided by total civilian employment, expressed in index form. Derived from OECD series. US - help-wanted advertising, Japan - new vacancies, Germany and France - all jobs vacant, Italy - no data available, UK - unfilled vacancies. Composite leading indicator: OECD data. Each is a combination of series, cyclical fluctuations in which usually precede cyclical fluctuations in general economic activity. ------------------------------------------------------------------------

JP Japan, Asia US United States of America DE Germany, EC FR France, EC IT Italy, EC GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis ECON Employment & unemployment ECON Industrial production ECON Economic Indicators STATS Statistics P9311 P6081 The Financial Times London Page 6 1946
Argentine minister to strengthen UK ties Publication 931101FT Processed by FT 931101 By JOHN BARHAM BUENOS AIRES

ARGENTINA'S foreign minister, Mr Guido di Tella, begins a three-day official visit to Britain today, the second by an Argentine minister this year and an indication of rapidly improving ties.

He will see Mr John Major, the prime minister, Mr Michael Heseltine, trade and industry secretary, and Mr Douglas Hurd, foreign secretary.

In September, Mr Domingo Cavallo, economy minister, made the first official trip to Britain by a minister since the 1982 Falklands war. Three British cabinet ministers have visited Buenos Aires this year.

Relations began improving after President Carlos Menem took office in 1989 and adopted pro-western foreign policies and free market economics. However, the unresolved dispute over the Falklands means that Mr Menem is unlikely to be invited to London soon.

The two sides have agreed on other questions, principally fisheries. Mr Di Tella will sign a new one-year fishing agreement.

GB United Kingdom, EC AR Argentina, South America P9721 International Affairs PEOP People P9721 The Financial Times London Page 6 179
Peru reform wins backing Publication 931101FT Processed by FT 931101 By SALLY BOWEN LIMA

PERUVIANS yesterday gave their approval to a new constitution but by a smaller margin than the government had expected, according to projections by Apoyo, the Lima-based polling organisation, as voting closed.

The projections indicated that 55.3 per cent had voted in favour of the changes in the referendum - the first in the country's history - and 44.7 per cent against.

If confirmed, the result would open the way for President Alberto Fujimori to seek re-election in 1995 as the new constitution provides for a serving president to stand for an immediate second term.

The most enthusiastic support for the new constitution came in the capital, Lima, which has around a third of the total population; many remote provinces rejected it roundly. Official results are not due for several days. The constitution would be the twelfth in Peru's republican history.

'Today marks the start of a new future for Peru, a future of modernity and stability,' President Fujimori said as he cast his own vote. He called the new constitution 'an enormously important political reform' and 'proof that Peru is a real democracy'. Investment and jobs would swiftly follow, he said.

The reforms define Peru as a social market economy. The new charter broadly enshrines the liberal economic reforms decreed by Mr Fujimori's administration, reducing the role of the state, outlawing monopolies and introducing modern work practices.

PE Peru, South America P9199 General Government, NEC GOVT Government News P9199 The Financial Times London Page 6 258
British Steel in Indiana contract Publication 931101FT Processed by FT 931101 By ANDREW BAXTER

BRITISH STEEL has won its first overseas contract for a pioneering technology that reduces the amount of coke needed in blast furnaces, writes Andrew Baxter.

Bethlehem Steel, one of the largest US steelmakers, is to install a system for injecting granular coal into the two blast furnaces at its Burns Harbor plant in Indiana.

The technology has been in use at British Steel's Scunthorpe works for about 10 years. Cokemaking is a capital-intensive and environmentally sensitive process, but granular injection reduces the amount of coke required for iron-making by up to 40 per cent.

Simon Macawber, the Doncaster iron and steelmaking equipment supplier, will make and install the equipment at Burns Harbor. British Steel will provide training, operating and technical assistance in the early production phase and will receive royalties.

British Steel Simon Macawber US United States of America P3325 Steel Foundries, NEC P3312 Blast Furnaces and Steel Mills MKTS Contracts P3325 P3312 The Financial Times London Page 6 173
Banking for the people down Mexico way: Democracy in the planned Nafta bank Publication 931101FT Processed by FT 931101 By NANCY DUNNE

PROPOSALS for a North American Development Bank, endorsed last week by the Clinton Administration, will create an institution with 'the most transparent and democratic structure in the history of development banking,' according to Mr Raul Hinojosa, who helped draft the plan.

The bank, intended to ease US-Mexican problems stemming from the North American Free Trade Agreement, seeks to 'avoid all the problems of the marble palaces' which house other development banks by sharing building space with the Inter-American Development Bank. To curb any expansive new bureaucracy, it will also get technical aid from the IADB.

Nadbank will not only finance environmental and infrastructure projects but also fund enterprises in communities hit hard by Nafta. The Clinton Administration can argue that without Nafta, there will be no lending institution to aid towns whose factories have moved to Mexico.

The blueprint for Nadbank gives labour, environmentalists, and church and civic groups an unprecedented voice in the institution's affairs. Along with business and government representatives, they will be appointed to serve on the bank's advisory and review committee 'to provide input and guidelines at all stages of the loan granting process.'

The US and Mexican governments each will appoint three representatives to the bank's board. But they will also have to deal with an ombudsman, appointed by the advisory committee, to provide independent inspection of Nadbank's operations. Conservatives are likely to view with distaste adding 'another level of bureaucracy' to involve the bank's clients. Mr Hinojosa acknowledges that democratisation may slow operations but 'it will be well worth it, if it means providing more effective proposals from grassroots up rather than top down.'

A visiting scholar this year at the IADB, Mr Hinojosa has worked on the Nadbank blueprint for two years with two economics professors from the University of California at Berkeley, Mr Sherman Robinson, now on the Council of Economic Advisers, and Mr Albert Fishlow. All three toiled in the Clinton campaign and transition team, determined to promote 'an alternative vision of what Nafta should be about,' said Mr Hinojosa.

Like other development banks, Nadbank will undertake a leveraging of its resources far beyond its paid-in capital - Dollars 225m each for Mexico and the US. Callable capital - that which each country promises to provide on demand - will be Dollars 2.55bn.

Up to Dollars 6.5bn in funding will also come from other US government programmes such as the Small Business Administration and Farmers Home Administration. Other funds will come from the World Bank (Dollars 1.8bn), the Mexican government (Dollars 2.2bn) and the Inter-American Development Bank (Dollars 200m). More will come from issuing bonds on the capital market, so that total project financing with private leveraging is expected to be Dollars 20bn or more.

The bank's initial priority will be financing environmental and development projects along the border. But two other facilities will provide up to Dollars 200m each to non-border communities in Mexico and the US.

Announcement of Nadbank was applauded by pro-Nafta environmental groups. Mr Peter Berle, president of the National Audubon Society, said it would be 'more flexible and its mission broader in scope' than a border clean-up fund, originally proposed by the Administration.

'With Nadbank not only will water infrastructure projects be funded but important issues such as housing, displacement of agricultural workers and general readjustment funding will now be addressed,' he said.

The Administration's endorsement of Nadbank was particularly a triumph for California Congressman Esteban Torres, but it was a painful victory. He and other Hispanic leaders had been pushing the concept for months as part of the price for their support of Nafta. When the deal was done, he received a visit from a large group of old friends in the labour movement, who beseeched him not to endorse Nafta.

But Mr Torres also felt the pull of his Hispanic-based constituency, which is torn over Nafta between job loss worries and a pride that Americans and Mexicans have sat down to the bargaining table and cut a deal as equals.

'This new-found respect has got to help improve the image and prestige of Hispanic Americans,' said Mr Raul Yzaguirre, president of the national council of La Raza, the nation's largest Hispanic organisation and one of the three Hispanic groups to endorse Nafta last week.

Mr Yzaguirre spoke of the pact's potential for turning his community's liabilities into assets. 'For perhaps the first time in my lifetime, being bilingual in Spanish and English will be an advantage, rather than a disadvantage in the labour market and in the corporate boardroom.'

Nadbank was expected to bring a number of the 18-member Hispanic caucus to the Nafta side in the House, but last week it was Mr Torres alone who announced his support. The others could be holding out for more Administration favours, as Nafta supporters say, or they may find that even their dream development bank is not worth the risk of losing their union friends.

MX Mexico US United States of America P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P6081 The Financial Times London Page 6 866
Iraqgate affair official dies in Washington Publication 931101FT Processed by FT 931101 By ALAN FRIEDMAN NEW YORK

MR Frank Lemay, the US State Department official who warned the Bush administration that Iraq was misusing US government-backed loans to fund its nuclear weapons project, has died in Washington at the age of 36.

Mr Lemay, who succumbed to complications from Aids, last year testified about the Iraqgate affair before the House Judiciary Committee. His testimony spurred congressional calls for a special prosecutor for the scandal.

Mr Lemay went before Congress after Democratic legislators revealed a 1989 memorandum of his in which he reported that funds from the Atlanta branch of Italy's Banca Nazionale del Lavoro (BNL) were being diverted by Baghdad for its war machine.

The Lemay memo said: 'If smoke indicates fire, we may be facing a four-alarm blaze in the near future.' The memo was considered so sensitive that it was stamped 'not for the system' when it reached aides to Mr James Baker, the then secretary of state.

US United States of America P99 Nonclassifiable Establishments PEOP People P99 The Financial Times London Page 6 186
Military aim to tighten grip in Haiti Publication 931101FT Processed by FT 931101 By CANUTE JAMES KINGSTON

HAITI'S military leaders, who successfully defied international efforts to have exiled President Jean-Bertrand Aristide reinstalled on Saturday, plan to consolidate their rule by making Mr Aristide constitutionally redundant.

Parliamentarians and businessmen who supported the military which overthrew Mr Aristide two years ago, say that by failing to return the president has defaulted on a United Nations-brokered agreement which he signed in July.

Mr Aristide's opponents plan to replace him with a provisional president, and then to call a presidential election. In Port-au-Prince, Haiti's capital, armed men in plain clothes, widely held to be an unofficial arm of the police, fired guns in the air on Saturday, celebrating the president's failure to appear.

Mr Aristide's return has been frustrated by the military leaders' refusal to step down in keeping with the July agreement. They also refused to provide protection for parliamentarians supporting the president, thwarting attempts to pass amnesty legislation which the military demanded.

The military's new ploy is likely to force the UN to take stronger action than the embargo on oil and arms shipments implemented a fortnight ago to force the military leaders to step aside. Mr Aristide, who says the UN agreement is still valid, asked the UN last week to tighten the embargo.

The UN Security Council said on Saturday it was insisting on complete compliance of the agreement for Mr Aristide's return to office, and threatened to tighten sanctions. The Security Council condemned General Raoul Cedras, Haiti's military leader, for violating the agreement.

Mr Robert Malval, the prime minister appointed by Mr Aristide, has backed away from a declaration that he would resign if the president did not return by Saturday. He now says he will stay in office to fight for Mr Aristide's reinstatement.

HT Haiti, Caribbean P9111 Executive Offices PEOP People P9111 The Financial Times London Page 6 320
Argentine minister visits UK Publication 931101FT Processed by FT 931101 By JOHN BARHAM BUENOS AIRES

ARGENTINA'S foreign minister, Mr Guido di Tella, begins a three-day official visit to Britain today, the second by an Argentine minister this year and an indication of rapidly improving ties.

He will see Mr John Major, the prime minister, Mr Michael Heseltine, trade and industry secretary, and Mr Douglas Hurd, foreign secretary. He will also meet opposition politicians and business leaders.

In September, Mr Domingo Cavallo, economy minister, made the first official trip to Britain by a minister since the 1982 Falklands war. Three British cabinet ministers have visited Buenos Aires this year.

Relations began improving after President Carlos Menem took office in 1989 and adopted pro-western foreign policies and free market economics. However, the unresolved dispute over the Falklands means that Mr Menem is unlikely to be invited to London soon.

Mr Di Tella is trying to win over the Falkland islanders by convincing them that Argentina has changed for the better. He has met Falkland representatives and broadcast to the islands via the BBC World Service. But suspicious Falklanders reject his advances and Britain refuses to discuss the islands' political future.

The two sides have agreed on other questions, principally fisheries, the Falklands' main source of revenue. Mr Di Tella will sign a new one-year fishing agreement.

However, Britain refuses to lift its arms embargo preventing Argentina from replacing aircraft shot down in 1982.

GB United Kingdom, EC AR Argentina, South America P9721 International Affairs PEOP People P9721 The Financial Times London Page 6 260
Venezuela gas blast arrests Publication 931101FT Processed by FT 931101 By JOSEPH MANN CARACAS

A Venezuelan criminal court judge issued warrants at the weekend for the arrest of 19 people, including executives of GTE and AT&T in Venezuela, as part of an investigation into a gas pipeline explosion outside Caracas that killed about 50 people, writes Joseph Mann in Caracas.

The explosion on September 28 occurred allegedly when an excavating machine digging a trench for fibre-optic cable struck an underground natural gas pipeline. CANTV, the privatised telecommunications company run by a consortium headed by GTE of the US, contracted AT&T Andinos to lay the fibre-optic cable.

AT&T sub-contracted a Venezuelan company, Abengoa, to carry out the work. The pipeline is operated by Corpoven, a subsidiary of the national oil company PDVSA. No one has accepted responsibility.

GTE Corp CANTV AT and T Andinos VE Venezuela, South America P9211 Courts PEOP People P9211 The Financial Times London Page 6 158
Jewish riots over murder of settler Publication 931101FT Processed by FT 931101 By DAVID HOROVITZ JERUSALEM

THOUSANDS of Jewish settlers set Arab homes alight, stoned Arab cars, blocked roads and burnt tyres at the weekend in response to the murder of a Jewish settler by Islamic militants on Friday. It was the worst violence in the occupied territories since Israel and the Palestine Liberation Organisation signed their autonomy accord in September.

Spokesmen for the 130,000 Jewish settlers in the West Bank and Gaza Strip declared 'a Jewish intifada' - an ongoing effort to disrupt Palestinian daily life throughout the occupied territories.

At a meeting in Jerusalem, settlement leaders agreed to continue blocking West Bank roads and disrupting Palestinian traffic. They also demanded an apology from Mr Yitzhak Rabin, prime minister, over remarks in which he implied a comparison between the opponents of the autonomy accords on both sides - Hamas and the settlers. Mr Rabin had stressed the need to stand firm against the 'enemies among the Palestinians . . . and the opponents among the Jews'.

Mr Benjamin Netanyahu, leader of the main opposition Likud party, called the implied comparison 'scandalous' and urged Mr Rabin to resign if his government could not properly protect the settlers. There were similar calls at yesterday afternoon's funeral of Mr Haim Mizrahi, the settler who was abducted and stabbed to death by Hamas militants.

Mourners carried signs saying 'Death to Hamas', condemned the government over last week's release of hundreds of Palestinian prisoners, and called for the scrapping of the autonomy programme.

Yesterday Israelis killed two Palestinians. A 21-year-old Palestinian was shot dead by an Israeli in the Gaza Strip after the Palestinian stabbed him in the hand and back. Soldiers shot dead a Palestinian labourer from Gaza when he failed to stop at a roadblock.

On Friday, Palestinian gunmen shot dead a West Bank Palestinian land dealer who was said to have been selling Arab land to Jewish settlers.

IL Israel, Middle East P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 4 346
Critical week in N Korea nuclear inspection dispute Publication 931101FT Processed by FT 931101 By JOHN BURTON SEOUL

A TURNING point may be reached this week in a looming crisis over the international inspection of North Korean nuclear facilities.

North Korea is under growing pressure to allow International Atomic Energy Agency inspectors renewed access to its nuclear facilities at Yongbyon since the agency's monitoring cameras are expected to run out of film soon.

Pyongyang recently broke off negotiations with the IAEA on the inspection issue, claiming the agency was biased.

Mr Hans Blix, the IAEA director-general, is due to report on the North Korean nuclear issue to the UN General Assembly today.

He is expected to say North Korea is hampering the agency's ability to verify that Pyongyang is adhering to the nuclear safeguards accord, but to stop short of declaring that the continuity of inspections has been broken.

The General Assembly is then expected to debate a resolution urging Pyonyang to continue IAEA inspections.

This could eventually set the stage for the UN Security Council to consider the question of imposing economic sanctions on North Korea for failing to carry out its obligations under the nuclear non-proliferation treaty (NPT).

But China has recently indicated that it would block a sanctions resolution, while Russia and Japan are also believed to have reservations.

The US has been holding discussions with North Korean representatives at the UN in New York since mid-October to persuade Pyongyang to allow resumption of the routine IAEA inspections that began last year.

North Korea is seeking an end to the Team Spirit military exercise, which is held annually each spring in South Korea by the US, in return for allowing the entry of the IAEA inspection team, according to South Korean officials.

But the US wants North Korea to accept the IAEA inspectors and arrange a meeting of presidential envoys with South Korea before the 1994 Team Spirit manoeuvres are cancelled.

KP North Korea, Asia P9721 International Affairs NEWS General News P9721 The Financial Times London Page 4 340
Airbus loses Dollars 590m Sri Lanka order Publication 931101FT Processed by FT 931101 By PAUL BETTS, Aerospace Correspondent

THE Sri Lanka government is to cancel an order for five Airbus A340 long range aircraft worth Dollars 590m (Pounds 391m) for its national airline Airlanka.

The decision is a further blow to the European Airbus consortium which has suffered more cancellations so far this year than new aircraft orders.

The current prolonged recession in the commercial airliner business has prompted a call from Mr Jean Pierson, the Airbus managing director, for a reform of the consortium's structure to increase its overall competitiveness. It won only 23 new orders during the first nine months of this year, and has also faced heavy cancellations and order deferrals.

Mr Ranil Wickremasinghe, the Sri Lankan prime minister, said in a weekend newspaper interview in Colombo that the government had informed the World Bank of the decision to cancel the A340 orders.

The original purchase had been criticised by the bank and Sri Lankan opposition leaders as extravagant. However, Mr Wickremasinghe said the government was open to renegotiating a contract with Airbus 'if conditions are acceptable'.

Airbus officials are understood to have met Mr Sepala Attygalle, Airlanka's chairman, last week to discuss the possibility of a more favourable contract for the airline.

Airbus Industrie LK Sri Lanka, Asia P3721 Aircraft MKTS Contracts P3721 The Financial Times London Page 4 233
Chinese shot in corruption purge Publication 931101FT Processed by FT 931101 By TONY WALKER BEIJING

CHINA executed seven officials over the weekend, including the mayor of a small town in southern Henan province, as a nationwide anti-corruption drive gathered pace. Dozens of bureaucrats have been shot recently for crimes ranging from bribe-taking to extortion and embezzlement.

People's Daily, the Communist party newspaper, hailed the executions as 'another achievement' for the party and the 'entire Chinese people'.

'To severely punish corrupt leading officials according to law is absolutely necessary for ensuring the purity of our party and state power, maintaining social stability and promoting the establishment of a socialist market economy,' the paper said.

China launched its anti-corruption drive several months ago in the face of widespread grumbling among citizens about official graft and bribe-taking. The campaign has taken on some of the characteristics of a national crusade led by a Communist party desperate to shore up its public support.

Members of the standing committee of China's parliament, the National People's Congress, meeting at the weekend, charged that 'corruption had reached an alarming rate in China, damaging the party style and harming the image of the party and the government. It had also eroded social conduct'.

Mr Li Ligong, a standing committee member, urged that the anti-corruption campaign should be carried out regularly and be institutionalised. 'The masses should be fully mobilised to inform on offenders,' he declared.

According to China's prosecutor general, corruption is rife among Communist party officials. He reported to parliament last week that in one out of 10 criminal cases investigated in the first nine months of this year, offenders were party or government officials.

By September, 5,040 party and government officials, including 20 at department or city level, and one at vice-ministerial level, were charged with committing crimes such as embezzlement.

CN China, Asia P9229 Public Order and Safety, NEC PEOP People P9229 The Financial Times London Page 4 322
Algerians free French hostages Publication 931101FT Processed by FT 931101 By REUTER ALGIERS

Algerian security forces have secured the release of the three French hostages kidnapped in Algiers a week ago, Reuter reports from Algiers.

The Algerian and French governments did not immediately say how or where Mr Jean-Claude Thevenot and Mr Alain Freissier were found. As the two men arrived back in Paris last night Mr Alain Juppe, French foreign minister, said the third, Mrs Michele Thevenot, was at the French embassy in Algiers.

DZ Algeria, Africa P9229 Public Order and Safety, NEC PEOP People P9229 The Financial Times London Page 4 102
Opec may revise pact on output Publication 931101FT Processed by FT 931101 By REUTER BAHRAIN

IRAN said yesterday that the Organisation of Petroleum Exporting Countries would have to re-examine its September output agreement and cut its ceiling if oil prices did not recover, Reuter reports from Bahrain.

'If the price weakens further, there should be a new discussion on the ceiling,' Mr Gholamreza Aqazadeh, oil minister, said in a statement.

'If this (current) ceiling does not lead to stronger prices, there should be a revision.'

It was believed to be the first open statement from within Opec that the agreement, which set a ceiling of 24.52m barrels per day for October to March, might need revision.

Opec members have looked in dismay as the market has chipped tens of millions of dollars off their collective daily revenue.

North Sea Brent prices fell below the Dollars 16 per barrel level on Friday. The price for December delivery closed in London at Dollars 15.80.

QN Organisation of Petroleum Exporting Countries P1311 Crude Petroleum and Natural Gas MKTS Production P1311 The Financial Times London Page 4 182
Sweet and sour tastes in colonies rejoining China: Good relations over Macao contrast with friction over Hong Kong, Publication 931101FT Processed by FT 931101 By SIMON HOLBERTON

OFFICIAL visits are a time for gilding lilies, but the contrast between Macao, the Portuguese colony which reverts to Chinese sovereignty in 1999, and Hong Kong could not have been greater.

At the weekend Chinese government officials were falling over themselves with praise for Portugal and its President Mario Soares, who concluded a three-day visit to the colony yesterday.

Mr Guo Dongpo, the head of China's Xinhua news agency, Beijing's de facto representative in Macao, praised the good relations between the two countries. His colleague Mr Guo Jiading, who leads the Sino-Portuguese Joint Liaison Group overseeing the transition, said the two sides were in complete agreement about matters relating to the transfer of the colony.

That cannot be said for Hong Kong, which an hour away by hydrofoil lies on the western side of the Pearl River estuary. Talks between Britain and China about Hong Kong's political development are mired. Over recent days British officials have let it be known that, if there is no movement from China towards a compromise, talks may break down as early as next month.

Portugal's position on its south China coast colony has always been different from Britain's. While Britain took Hong Kong from China in 1842 following the first Opium War, Beijing has always tolerated Macao and has always exercised much greater political influence over Macao.

Settled in 1557, the two islands and peninsula which constitute the colony were accepted by the Ming and Qing emperors who, for reasons of trade, allowed the settlement to flourish. So, too, have China's Communist rulers.

When the socialists took power in Portugal in 1974, it was the Chinese government which had to persuade the Portuguese to stay. As with Mozambique and East Timor, Portugal's new government wanted out - and quickly.

A secret deal between the two was concluded in Paris in 1979 whereby Portugal agreed that Macao was sovereign Chinese territory and agreed to administer it until China wanted it back. This agreement was revealed only in 1987, when the two agreed that Macao would revert to China in 1999.

Over the weekend Mr Soares sought to bolster confidence in the colony, saying that he had full confidence in Macao's future under Chinese rule. Although the crowds flocked to see the Portuguese president, few among the Chinese community will mourn the passing of Portuguese administration.

Earlier this year a Cantonese talkback radio show was summarily taken off the air after many of the callers rang in to criticise the Portuguese administration. Businessmen find the colonial government unnecessarily bureaucratic. 'I try to have the least to do with the government as possible,' said one, adding he preferred to cut deals with mainland partners.

One of the few areas of conflict between China and Portugal is over the issue of localisation of the civil service. Little has been done to date, possibly reflecting the fact that the governorship of the colony and the top posts in government are rewards given by Lisbon to loyal supporters at home.

China's involvement in Macao's economy is every bit as great as - possibly greater than - its role in Hong Kong's economy. An attraction for many mainland officials and businessmen is that Macao has no publicly quoted corporate sector, relieving them of the irritant of disclosure.

According to one western banker in the colony, the mainland Chinese business interest in Macao is dominant. 'They have a very solid presence in Macao and a very influential one,' he said.

Bank of China is the largest bank, controlling about half the banking assets in the colony. Xinhua, unlike its opposite number in Hong Kong, is highly visible and active in business, especially trading and property development.

As in economy, so too in politics, where Beijing holds the whip hand. Elections last year for 16 of the Macao Legislative Assembly's 26 seats saw a virtual clean sweep for pro-Beijing politicians. There is little popular agitation for greater democracy, as there is in Hong Kong.

Underlining Beijing's position in Macao is the power of the head of Xinhua. Since the Cultural Revolution of the late 1960s he has been de facto governor of the colony. Last year his status was upgraded. Mr Guo Dongpo no longer has to report to Beijing through the head of Xinhua in Hong Kong.

MO Macao, Asia CN China, Asia P9721 International Affairs CMMT Comment & Analysis P9721 The Financial Times London Page 4 761
India furious at US remarks on Kashmir status Publication 931101FT Processed by FT 931101 By STEFAN WAGSTYL NEW DELHI

A DIPLOMATIC row has erupted between the US and India about an American State Department official's remarks questioning the status of the troubled northern Indian state of Jammu and Kashmir.

India has reacted angrily to the official's comment last week questioning the validity of Kashmir's accession to India in 1947.

The row comes at a sensitive time with the siege of the Hazratbal mosque, Kashmir's holiest shrine, entering its third week. Hundreds of Indian troops surround the mosque, which was seized by separatist Moslem militants on October 15.

Efforts to negotiate a settlement and secure the release of an estimated 100 to 150 pilgrims trapped inside the mosque have repeatedly foundered over the militants' demands for safe passage. The Indian authorities want them to surrender.

If part of the militants' plan was to focus international attention on their fight to break away from India, they have succeeded. Pakistan, India's hostile neighbour which claims Kashmir for itself, has protested about the mosque siege. The issue was raised at last month's Commonwealth heads of government meeting in Cyprus. Now the US official's comments have prolonged the international debate.

The official - Miss Robin Raphael, an assistant secretary of state - said at a press conference last Thursday: 'We view Kashmir as a disputed territory and that means we do not recognise the Instrument of Accession as meaning that Kashmir is for evermore an integral part of India. There were many issues at play in that time frame as we all know.'

Miss Raphael was referring to the controversial way in which the last Maharajah of Kashmir acceded to India.

Indian ministers at the weekend rejected Miss Raphael's remarks angrily. Mr Dinesh Singh, the minister for external affairs, said no one had the right to question the status of Kashmir as an integral part of India.

US officials insist there has been no change in American policy. They point out that Washington has long regarded Kashmir as 'disputed territory'.

However, it does seem that Miss Raphael committed a gaffe in repeating Washington's view in strong language at a sensitive time.

IN India, Asia US United States of America P9721 International Affairs NEWS General News P9721 The Financial Times London Page 4 386
Crunch has come for S Africa's power-sharing constitution: Proposals look more like majority rule than National party supporters could have imagined Publication 931101FT Processed by FT 931101 By PATTI WALDMEIR

'IF YOU'RE scared of majority rule, vote Yes'. That was the promise the ruling National party in South Africa made to its white supporters during last year's national referendum campaign: vote Yes for a constitution entrenching minority rights and preventing majority domination; vote Yes, and prevent majority rule.

Those who did, two-thirds of white voters, are in for a shock. The new constitution negotiated by the National party and the African National Congress, due to be finalised shortly, looks far more like a majority rule constitution than any National party supporter could have imagined.

As promised, the constitution is based on multi-racial power-sharing in the executive, in the legislature, and between central government and the regions. But the share of power guaranteed to minorities is considerably less secure than that originally demanded by the National party. This could provoke a revolt among traditional party supporters and new recruits from minority communities, who may see the deal as a sell-out to the ANC.

That deal - on the first post-apartheid constitution, likely to remain in force until the end of the decade - is now all but done. Within a week, ANC and National party negotiators expect to have finalised joint constitutional proposals which go to a technical committee for drafting. They will then try to sell that constitution to the right-wing Freedom Alliance, which so far seems disposed to reject it.

It seems likely that parliament will endorse a new constitution within a month to six weeks, in time for the first all-race elections on April 27.

That constitution will enshrine a multi-party government of national unity for the first five years. But within that government, the power exerted by the National party, standard-bearer of white and other minority interests, seems likely to depend largely on the goodwill of the ANC and of Mr Nelson Mandela, its leader.

Far from entrenching an effective minority veto over cabinet decisions on fundamental matters - long the National party's bottom line - President F W de Klerk appears willing to accept a voluntary arrangement, which would have no constitutional force, under which Mr Mandela promises not to act on crucial issues without Mr de Klerk's assent.

The National party would have one further mechanism for blocking majority decisions in cabinet: where consensus could not be achieved informally within an inner cabinet of the main leaders, a vote would be taken.

The exact percentage required to pass decisions in areas such as finance and state security has yet to be agreed: but the ANC is insisting it be 60 per cent, and National party negotiators say they may accept this. If they do, the party alone could probably not block cabinet decisions. Its share of cabinet seats would reflect the party's share of the national vote - current opinion polls put NP support at 12 to 20 per cent.

Even voting with potential allies in the cabinet (each party with at least 5 per cent of the vote would have proportionate cabinet representation), Mr de Klerk might not be guaranteed blocking power.

Government negotiators believe that the ANC and NP share common goals for the government of national unity, including agreement on the need to restore stability. Most of all, they believe assurances from ANC leaders including Mr Mandela that the ANC does not think itself capable of governing alone. So Mr de Klerk seems to be willing to abandon the rigid entrenchment of minority power in cabinet, in favour of a primarily voluntary form of power-sharing which he thinks will give him more influence in fact, if not in law.

But if, after more than three years of constant negotiations, he and his officials have lost their fear of the ANC (government and ANC negotiators even shared bungalows at their recent bush summit, and relations are very cordial) the same cannot be said of much of the white electorate. Nervous whites wonder whether cosy unwritten agreements between Mr Mandela and Mr de Klerk would survive a landslide ANC election victory, and they question whether the spirit of national unity which inspires the current negotiations will endure when the new government starts to take hard policy decisions.

NP officials say they will sell the constitution as a package which, taken together, fulfils the referendum promise of protecting minority rights and preventing majority abuse of power. They point to a bill of rights which substantially protects individual economic and political rights against state abuse; and substantial devolution of power to regional governments, aimed at weakening central government and its ability to dominate.

But what Mr de Klerk has dubbed a 'federal' constitution in fact reserves very strong powers for central government. True, substantial powers are devolved to regional governments in areas such as education, policing, health, housing, welfare, but central government reserves the right to intervene in these areas to impose uniform national norms and standards, to ensure proper regulation, to protect the national economy or national security.

In short, the constitution authorises central government to intervene in terms so vague as to undermine regional autonomy. And with regions barred from imposing taxes without central government approval, it is hard to accept Mr de Klerk's claim that the new state will be 'federal'.

In the end, the best way to protect minority rights may be, as government negotiators claim, for whites to prove that they are indispensable to the new government. Officials believe they can build more power this way than by entrenching the minimum rights needed to survive.

But success will depend on the number of white, coloured (mixed-race) and Indian voters willing to take the same gamble. If minority voters desert the National party in droves, it will not have the electoral strength to claim the role agreed with Mr Mandela. Indeed, with white support for the party at an all-time low and attempts to muster black support going badly, there is an outside possibility that the NP could come third in a national election, behind the right-wing Freedom Alliance which includes the mainly Zulu Inkatha Freedom party, the white supremacist Conservative party and the nationalist Afrikaner Volksfront.

Still, it is hard to imagine the Freedom Alliance surviving tensions between black conservatives and white racists long enough to fight an election together. At the moment, the greater risk seems to be that the Freedom Alliance could oppose elections altogether, and launch something to close to a civil war. Alternatively, some members might choose to oppose the constitution but fight the elections anyway.

The next few weeks are crucial as the intentions of the Freedom Alliance become clear. At last, the crunch has come.

ZA South Africa, Africa P8651 Political Organizations P9199 General Government, NEC NEWS General News P8651 P9199 The Financial Times London Page 4 1151
Kenya abolishes maize monopoly Publication 931101FT Processed by FT 931101 By LESLIE CRAWFORD and REUTER KHARTOUM

PRESIDENT Daniel arap Moi of Kenya at the weekend abolished the government's maize import and marketing monopoly, a reform demanded by donors who meet this month to hear Kenya's plea for restoration of international aid.

The liberalisation of the maize trade allows private traders to import the staple crop and distribute it freely across the country.

The decision, resisted by the National Cereals and Produce Board, appears to have been prompted as much by the need to placate donors as by a crop failure this year. Mr Moi indicated that the government's foreign exchange reserves were only enough to cover Kenya's immediate emergency food needs, which he estimated at 200,000 tonnes. Long-term food stability would depend on the efforts of Kenyans themselves.

US aid officials criticised Mr Moi's announcement for not including the deregulation of price controls. Nevertheless, the deregulation of the maize trade marks a victory for IMF and World Bank officials, who are currently in Nairobi designing a new economic reform programme for Kenya's donors' conference on November 22.

Previous attempts to reform the sector have been resisted by the NCPB, which has a monopoly over maize trade.

Sudan's President Omar Hassan al-Bashir has sacked Mr Abdel-Rahim Hamdi as finance minister, Reuter reports from Khartoum. He had been closely associated with tough economic reforms welcomed by the IMF but unpopular among Sudanese because of price rises.

KE Kenya, Africa SD Sudan, Africa P9641 Regulation of Agricultural Marketing P0119 Cash Grains, NEC P9199 General Government, NEC NEWS General News PEOP People P9641 P0119 P9199 The Financial Times London Page 4 276
Municipal Elections: Northern League set to take another bastion - After decades of communist rule, Genoa is likely to fall to a regional party Publication 931101FT Processed by FT 931101 By ROBERT GRAHAM

IT USED to be said that the Genoese were reluctant to buy fridges because they believed the light was still burning after the door had been closed.

They still have a reputation for being cautious and suspicious of change. But this might be about to change. On November 21, the Genoese, along with 445 other municipalities, vote for a new mayor and council. And there are signs of a growing disenchantment with the left-wing politicians who have run the city throughout the post-war era.

Opinion polls suggest that Italy's sixth largest city could fall to the Ligurian League, one of the regional political groups belonging to the Northern League, a regional autonomy movement for Lombardy. Under the fiery populist leadership of Mr Umberto Bossi, the Northern League has grown in recent years from a relatively obscurity to a party that has 40 per cent of the vote in the rich northern industrial belt. If it wins Genoa, it would be the first proof that the league can appeal to voters outside its Lombardy heartland.

The more garrulous league officials in Genoa read even more into the prospect of victory. 'Winning Genoa gives a future Republic of the North its outlet to the sea,' says Mr Bruno Ravera, one of the Ligurian League founders.

Since the second world war, the administration of Genoa has been dominated first by the Communist Party and latterly by its successor, the Party of the Democratic Left (PDS). Grassroots support came from the trade unions, based in the port, steelmaking and engineering.

The appeal of the left has waned with the collapse of the Berlin Wall and the decline of Genoa's loss-making state-owned industries. Nine out of ten industrial workers are in the public sector and the city's economy has been undermined by recession and the drying up of state subsidies to the port and industry.

Genoa's unemployment, at nearly 15 per cent, is double the average in northern Italy and is worsening.

Despite a magnificent setting, hugging the curves of low mountains that drop steeply to the sea, the city has an air of melancholy neglect. The infrastructure has been punished by two consecutive years of heavy flooding.

The historic centre has been dubbed by some the Casbah because of the 20,000 immigrants living there. Most are North African and and many are illegal immigrants. The area has been patrolled by 500 police on 24-hour duty since riots last summer, the worst racial conflicts seen in Italy.

Last year's celebrations for the 500th anniversary of Columbus's discovery of the New World occasioned an expensive renovation of the port and a brief recovery of local pride. But funds have run out to finish the city's metro rail network and it has emerged that the claimed '1.7m' visitors were inflated by about 1m.

Symbolic of Genoa's plight is the elegant glass-structured Sheraton Hotel, unopened because of lack of clientele.

As elsewhere in Italy, magistrates are investigating corruption in various public works contracts. The previous city administration was dissolved in May following accusations of corruption against Mr Claudio Burlando, the mayor. Although it seems a zealous magistrate may have overstepped the mark in having the mayor arrested, the accusations besmirched the previous administration. As a result 'clean honest government' is on the lips of all those in the electoral contest.

In an attempt to adopt new clothing, the left has formed a 'progressive alliance'. The PDS has chosen to back an independent candidate for mayor, Mr Adriano Sansa, a well known local judge, and has obtained the support of the cross-party reformist grouping, Democratic Alliance, plus the Greens. Polls give Mr Sansa 38 per cent of the vote.

But the league has crept up, pushing aside the Christian Democrats and their allies, and now holds about 36 per cent of the vote. 'This is a contest between the league and the PDS,' says Mr Enrico Serra, the 59-year-old orthopaedic surgeon who hopes to be the league's first mayor. 'It's a vote between the old and the new.'

Their platforms are remarkably similar: an emergency programme to deal with flood damage; reorganising the city administration; improving the crumbling infrastructure and renovation of the historic centre. But when it comes to emphasis and style, the differences are marked.

The league wants to look in detail at the books of the previous administration, believing there are L700bn (Pounds 290m) worth of questionable operations. 'We want to provide a transparent administration, that offers real services, and of course we will privatise as much as we can,' says Mr Serra. The league will seek to prune the 16,000 workforce on the city's payroll.

Mr Sansa puts the emphasis on a more efficient use of resources and seeking new investment to create jobs. He wants tighter immigration policies but is alarmed at the more extremist among the league who are demanding mass expulsions.

Under new laws approved in March, mayors are directly elected and are able then to control the formation of the councils. If no one obtains an outright majority in the first round, there is a run-off. In Genoa a run-off is very likely.

Although Mr Sansa is in the lead, it is not clear how he can boost his support in the run-off without turning to the hardline marxists, Reconstructed Communism. In Genoa, they hold 9 per cent of the vote. In contrast the league will be looking in the second round to the centre, especially the Christian Democrat vote.

Two factors may tip the scales in the league's favour. The Genoese blame last month's flood disaster on the failures of the previous city council, and the league is picking up protest votes among the self-employed and shop-keepers who are furious over the government attempts to tighten up on tax evasion.

IT Italy, EC P8651 Political Organizations P9121 Legislative Bodies GOVT Government News P8651 P9121 The Financial Times London Page 3 1012
Airlines may fly Dollars 2.5bn into the red Publication 931101FT Processed by FT 931101 By PAUL BETTS, Aerospace Correspondent

AIRLINES ARE expected to lose a further Dollars 2.4bn-Dollars 2.5bn on international scheduled services this year, after losing Dollars 11.5bn in the three previous years, the International Air Transport Association warns in its annual report today.

In spite of some tentative signs of improvement in recent months, the 221 members of Iata, the airline trade organisation, do not expect a rapid turnaround in profitability. At best, the industry is expected to break even next year, with the possibility of a reasonable profit in 1995 or 1996.

'Even then, we are not talking of healthy industry-wide profits of the order of 5-6 per cent of turnover: the airline industry has never achieved this,' said one London airline industry analyst.

The main cause for the heavy losses has continued to be overcapacity, provoking fare wars undermining yields, says Mr Pierre Jeanniot, Iata's director general.

But he notes some improvements this year, with airlines restructuring their operations and with capacity coming more into line with passenger demand. Iata also expects the trend towards more consolidation through mergers, partnerships and commercial alliances to accelerate.

After increasing by 10.2 per cent last year compared with 1991, Iata expects international passenger traffic to grow by an average of 6.6 per cent a year between now and 1997.

Last year's increase reflects recovery from the dismal performance in 1991, when passenger numbers declined for the first time as a result of recession and the Gulf conflict.

The latest five-year passenger growth forecast is between one and two points lower than forecasts made before the 1991 air transport crisis.

Traffic to and from western Europe - the largest international market - is expected to grow by 5.9 per cent a year.

Slow recovery, Page 14

US United States of America P4512 Air Transportation, Scheduled FIN Annual report P4512 The Financial Times London Page 3 324
American Airlines faces threat of strike by flight attendants Publication 931101FT Processed by FT 931101 By RICHARD TOMKINS DALLAS

American Airlines, the second biggest US carrier, faces the threat of a strike by its 21,000 flight attendants following the collapse of talks on a cost-cutting pay and conditions deal at the weekend, writes Richard Tomkins in Dallas.

The strike, due to start on November 22, the Monday before the busy Thanksgiving holiday weekend, could bring chaos for air travellers.

American Airlines Inc US United States of America P4512 Air Transportation, Scheduled PEOP Labour P4512 The Financial Times London Page 3 100
Yeltsin decree will allow foreigners to buy land Publication 931101FT Processed by FT 931101 By JOHN LLOYD MOSCOW

PRESIDENT Yeltsin's decree permitting land to be freely bought and sold is likely to unleash a revolution in the Russian countryside and lead to substantial foreign investment.

However, ambiguities in the law and a rearguard action by officials hostile to land privatisation could delay or even halt its intended effect, by preserving the power of state and collective farms and preventing peasants from selling their share of collective farms.

Mr Yuri Chernichenko, leader of the pro-market Peasants' Party, said the decree would be meaningless unless the state pushed through collective farm sales and supported the new individual farmers.

Earlier decrees have cut subsidies to state farms, stopped easy loans and ordered an end to obligatory grain sales to the state - causing state farm leaders to forecast a crisis unless they receive funding. The decree, by allowing farm workers to sell and buy land, gives an incentive to create private farms which could take over from the failing state enterprises.

The decree appears to allow foreigners to buy land through joint ventures.

Mr Mark Borghesani of US lawyers Baker MacKenzie, said: 'There is nothing in the law to prevent a foreign company buying out its Russian partner after the joint venture has acquired land. This could lead to transactions in which the Russians would be nominal purchasers on behalf of the foreign company.'

While the bulk of the decree was aimed at privatising land for agricultural use, one section allows local authorities to change the use from agricultural to commercial, Mr Borghesani said. 'There is now definitely a growing demand for premises - including manufacturing bases on greenfield sites. Leases are now being signed with the option to buy later - in anticipation of the land law coming into force.'

However, the decree will also spark efforts to protect the present system. The Agriculture Ministry, voice of the state farm sector, has criticised the decree as ill-thought out and premature. Mr Valentin Denisov, a senior ministry official, said: 'Without a precise mechanism to control the land market and give permission to sell land, farm managers can do as they please and that could breed chaos.'

RU Russia, East Europe P9611 Administration of General Economic Programs P01 Agricultural Production-Crops P02 Agricultural Production-Livestock P65 Real Estate NEWS General News P9611 P01 P02 P65 The Financial Times London Page 3 404
Britain bans Polish carrier in flights row Publication 931101FT Processed by FT 931101 By PAUL BETTS

BRITAIN yesterday suspended flights by the Polish national carrier LOT to the UK following the breakdown of talks over flight allocations between British Airways and LOT, writes Paul Betts.

The UK Department of Transport said LOT's permit for air services to the UK was not being renewed because the airline had refused to honour existing agreements between the two countries.

But Mr Boguslaw Liberadzki, the Polish transport minister, said the talks had broken down because BA was seeking to double the number of flights between London and Warsaw at least for a trial period.

LOT believes an increase in BA flights to Warsaw would undermine its European and transatlantic business because passengers might switch to the cheaper route via London to the US and Canada.

Polskie Linie Lotnicze 'Lot' PL Poland, East Europe GB United Kingdom, EC P4512 Air Transportation, Scheduled TECH Services & Services use P4512 The Financial Times London Page 3 169
Scuffles mark gathering of far-right party Publication 931101FT Processed by FT 931101

Scuffles between police and young militants marked a gathering of the Republicans, a prominent far-right party, in Rastatt, south-west Germany yesterday. The party, led by Mr Franz Schonhuber, a former Waffen SS sergeant, presents a disconcerting threat to the political establishment in next year's 'election marathon', when there will be 19 elections in Germany

DE Germany, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 3 84
The European Union slips quietly into life: The Maastricht treaty, which takes effect today Publication 931101FT Processed by FT 931101 By LIONEL BARBER

THE 340m citizens of the European Community may hardly have noticed, but despite the absence of fanfares, history will record that Monday, November 1, 1993, marked the entry into force of the Maastricht treaty and the birth of the European Union.

Maastricht provides for small, but potentially significant changes in how Europe does business. It will increase the powers of the European parliament, and deepen collaboration between governments on drugs, immigration and crime. It also lays the groundwork for greater co-operation on foreign policy, and provides for a move to a single European currency by 1999 at the latest.

Some of these changes look incremental; others such as the move to European economic and monetary union look doubtful, at least in the light of the recent de facto suspension of the exchange rate mechanism.

Maastricht's proponents insist that the treaty is one of the most misunderstood documents in modern times, perhaps because it is about as readable as a London bus timetable. Yet the opaque, bureaucratic language reflects the ambiguity inherent in a treaty which was a compromise between federally minded states such as the Netherlands and Belgium and those who jealously guard national sovereignty such as the UK and France.

The treaty contains suggestions for intensifying European co-operation on education, health and culture; but it sets clear limits against centralising tendencies in Brussels. The doctrine of subsidiarity - devolving power to the lowest appropriate national and regional level - is a double insurance for member states.

The hybrid nature of Maastricht also means that the European Community will still exist beside the new European Union. Roughly speaking, Europeans should speak of the Union when referring to the 'intergovernmental' pillars of foreign policy and judicial co-operation; but they should retain the more familiar 'EC' or 'Community' when referring to normal EC business under the Treaty of Rome.

The obvious winner among institutions is the European Parliament. Under Article 189b, it gains the right of 'co-decision' on legislation, to be shared with the council of ministers. This does not extend to core areas such as foreign policy, defence, judicial co-operation or economic policy, rather to more mundane matters such as the internal market.

A senior Commission official predicts that the legislative struggle between EC ministers and parliament could make decision-making more difficult in the short-term. One analogy is the bargaining between House and Senate in the US, with the Commission playing the broker.

Other important changes foreshadowed by the Maastricht treaty include:

More qualified majority voting in social policy legislation. Britain has a treaty opt-out, but remains involved in discussions.

The right of EC citizens to vote or stand as a candidate in local and European parliament elections.

Establishment of 'joint actions' in foreign and security policy, a code word for less reactive diplomacy rather than the dispatch of combat troops. Maastricht also provides for closer collaboration between the European Union and the Western European Union, the military organisation based in Brussels.

The creation of a committee of the regions. This reflects the influence of the German Lander who were anxious not be left out in the cold; but it could again complicate decision-making if the new body gains stature.

The one institution which will be literally cut down to size is the European Commission. Under Maastricht, the Commission should comprise the president (Mr Jacques Delors) and one or two vice-presidents only, rather than the current six 'veeps'.

QR European Economic Community (EC) P9721 International Affairs NEWS General News P9721 The Financial Times London Page 2 607
Delors may not stand for Elysee Publication 931101FT Processed by FT 931101 By LIONEL BARBER BRUSSELS

MR JACQUES Delors, European Commission president, yesterday gave the clearest hint to date that he might not stand in the 1995 French presidential election.

Mr Delors, 68, said in an interview with the Journal du Dimanche that he had no intention of quitting his job in Brussels before the end of his final term in January 1995. 'I'm going to serve to the end,' he said.

Mr Delors' suggestion that he might bury ambitions to enter the Elysee defies his continuing strong showing in French opinion polls. But it appears driven by an unwillingness to risk splitting the French Socialist party which has just rallied around Mr Michel Rocard, a certain candidate in the spring 1995 election.

A second factor seems to be a desire to end his 10-year career as Commission president on a high note after the traumatic but ultimately successful ratification of the Maastricht treaty which enters into force today.

Mr Delors has told friends he accepts he has lost the battle for faster European political and monetary integration; but he remains determined that his forthcoming White Paper on competitiveness will prod leaders to tackle mass unemployment and restore economic growth.

In the interview, Mr Delors spoke of a New Deal for Europe and expressed satisfaction with the outcome of last Friday's special EC summit in Brussels, whose most significant decision was to locate the European Monetary Institute - forerunner of the future EC central bank - in Frankfurt.

EC leaders agreed to wider the scope of an Ecu8bn (Pounds 6.2bn) European Investment Bank lending facility to include energy, environmental and inner city projects rather than simply transport-related areas. This should speed up disbursement of funds from the present level of Ecu3.3bn, an EC official said.

The summit did not tackle the unemployment crisis, preferring to await the presentation of the Delors White Paper at the regular summit at the end of the Belgian presidency in December.

FR France, EC P9111 Executive Offices PEOP People P9111 The Financial Times London Page 2 350
Growing labour strife looms across Europe Publication 931101FT Processed by FT 931101 By TOM BURNS, DAVID GOODHART, JOHN RIDDING, QUENTIN PEEL and Our Foreign Staff MADRID, LONDON, PARIS, BONN

WORKERS across Europe appear to have taken strength from the spectacular victory of Air France employees in forcing a government climbdown last week over cost-cutting plans for the troubled airline.

In Germany, Belgium, Italy, Spain and France, employers are facing increasing militancy as they demand job cuts and flexibility in an attempt to prune costs.

Much of the recent disruption is about job security rather than pay, and it has been directed at governments rather than private sector employers. But the wave of protest reveals potentially ominous developments for industrial peace in Europe.

The decline of trade union power in Europe appears to be no guarantee of harmony and may, indeed, have the opposite effect. France, the centre of recent disruption, has the lowest level of unionisation among countries in the Organisation for Economic Co-operation and Development.

Unionisation is higher in the French public sector than in the private sector but the weak hold that union leaders have over the rank and file, even in the public sector, prevented an early conclusion of the dispute at Air France.

All of the national protests have domestic roots, but the domino effect seems to be playing a part. In Spain and Belgium in particular, two countries strongly influenced by France, union militancy seems to have been fuelled by the success of their French colleagues.

In France itself, while the airline strike has ended, the dispute is far from over. Fresh negotiations on a new package start this week. Force Ouvriere, one of the unions which spearheaded the Air France protest, has threatened further action if the new plan is unacceptable.

Strikes are also threatened later this month at Groupe Bull, the computer manufacturer, Pechiney, the aluminium producer and several other companies listed for privatisation. Rail, post office and telecommunications workers backed a day of protest on October 12 over planned job losses and pay cuts.

In Germany, three factors have combined to raise the prospect of a bitter autumn and winter of labour unrest: the threat of mass redundancies, efforts by employers to cut labour costs, and sharp reductions planned in public spending, not least in social benefits.

The key is the looming confrontation in the 4m-strong engineering industry, where the employers have symbolically announced the termination of current wage and holiday contracts, due to expire anyway at the end of the year.

IG Metall, the engineering workers' union, has called for open conflict in the New Year, in a desperate effort to preserve real wages and generous holiday benefits.

The temperature is rising in many other sectors.

Last week in Bonn, 120,000 building workers protested against government plans to scrap their winter lay-off payments. It was the largest union demonstration in recent years.

A week before, tens of thousands of steel workers protested in the Ruhr region over reductions in social payments.

At the end of September, 60,000 coal miners demonstrated against the planned closure of the Haus Aden-Monopol pit at Bergkamen, and two weeks ago, workers occupied a power station nearby which is threatening to switch to cheap imported coal.

On Friday, unemployed workers demonstrated in more than 200 towns and cities across the country at the 'destruction of the welfare state'.

Among the threatened job losses are those of 14,000 at Mercedes for next year, after cuts of 22,000 in 1992 and 1993. A further 16,000 are set to go at Deutsche Aerospace. In the machine tool sector almost 50,000 jobs will be shed.

In Spain, union leaders meet government ministers on Thursday to discuss wage restraint and more flexible labour regulations but demonstrations are already planned for later this month over the very economic policies they are ostensibly negotiating.

'There is no objective reason why what is happening in France and Italy will not happen here as well,' said a member of the employers' confederation who is attending the talks.

Faced with rising unemployment, the government wants to peg wage rises over the next three years to below annual inflation levels.

The unions are adamant that job security should be protected. The issue has surfaced at SEAT, Volkswagen's troubled Spanish subsidiary, where 9,000 jobs are to go.

Unrest over wage restraint is highest among 70,000 steel-workers at the state-owned INI group, following a management decision to delay salary rises.

In both Spain and Belgium the unions appear determined to reject 'social pacts' restraining wages, which are ostensibly designed to create jobs. In Spain, the pact also involves an overhaul of costly dismissal procedures and in Belgium a reduction in employers' social security payments.

FR France, EC DE Germany, EC ES Spain, EC BE Belgium, EC IT Italy, EC P9441 Administration of Social and Manpower Programs PEOP Labour P9441 The Financial Times London Page 2 814
Four-day week 'no answer to jobs crisis' Publication 931101FT Processed by FT 931101 By QUENTIN PEEL BONN

Business leaders in Germany warned at the weekend that introducing a four-day week in crisis-hit sectors of industry, as proposed by managers at Volkswagen, could prove counter-productive, writes Quentin Peel in Bonn.

Trade union leaders are divided over the plan. There have been calls for similar drastic action in the aerospace and coal mining industries to avert threatened mass redundancies. Yet the unions insist that workers cannot be expected to suffer a 20 per cent cut in their wages.

Volkswagen begins formal negotiations this week on the option between a four-day week for its 108,000-strong workforce, or a loss of 30,000 jobs.

In a weekend interview, Mr Hans-Peter Stihl, president of the German chambers of industry and commerce (DIHT), said the four-day week was 'fundamentally a step in the wrong direction'. 'In the future we must work more, not less, if we want to remain competitive,' he told the popular Bild am Sonntag newspaper. The four-day week only made sense if it was part-time working, with a corresponding cut in wages.

Mr Tyll Necker, president of the German industry federation (BDI), said that German industry needed cuts in real wages, not in working hours.

Mr Klaus Murmann, chairman of the German employers' federation (BDA), warned last week that a four-day week was no panacea. 'The necessary job reduction caused by the twin burden of recession and structural crisis may be slowed down, but it cannot be stopped.'

The four-day week might temporarily relieve the pressure for job cuts, he said, but it provided no substantial contribution to overcoming German industry's cost crisis. What was needed was more flexibility in working time.

However union leaders have rejected 20 per cent wage cuts, - including the VW proposal.

DE Germany, EC P9441 Administration of Social and Manpower Programs NEWS General News P9441 The Financial Times London Page 2 322
Saturday night dance that ended in terror Publication 931101FT Processed by FT 931101 By Our Belfast Correspondent

IT WAS an all too familiar sight. Tearful women and children laying flowers at the scene of yet another terrorist atrocity in Ulster.

Last weekend it was the Shankill Road, on Tuesday a cleansing depot in west Belfast, and late on Saturday night the tightly-knit community of Greysteel in Co Londonderry was plunged into mourning.

It was business as usual on Saturday night at the Rising Sun bar and restaurant complex at the northern end of the village. The streets were bedecked with the red and white bunting of the county's Gaelic football team, which recently won the All-Ireland championship. That had contributed to a mood of optimism in Derry in recent months. The county had been relatively trouble-free in comparison with the rest of the province. Intensive lobbying from US politicians had brought money and jobs.

Customers were packed into the lounge of the Rising Sun waiting for the band to start shortly after 10pm when the killers struck. Two gunmen from the outlawed loyalist paramilitary organisation, the Ulster Freedom Fighters, fired indiscriminately on the customers. Seconds later, seven people, three Protestants and four Roman Catholics, were dead and several others seriously injured.

One of those killed, 54-year-old former soldier John Burns, had no qualms about socialising with his Catholic former neighbours. Although he left the village several years ago, he always returned for the Saturday night dance with his wife. She is fighting for her life in hospital.

As a former member of the Ulster Defence Regiment, he would have been considered a target by the IRA. But Mr Burns would never have dreamt his co-religionists would be the men to shoot him dead.

There was no perceptible mood of revenge in the town, home to a nationalism moderated in part by its past. It was built in the second world war when many residents worked for the Ministry of Defence at the nearby Eglinton airfield.

The 2,000-strong community is a source of support for Mr John Hume's Social Democratic and Labour party. Sinn Fein candidates have lost their deposits in local elections.

Mr Brian McCaul, a resident for 20 years, said the community would not be torn asunder by the gunmen: 'People here go to each other's weddings and funerals. There would not be any anti-British sentiment around here.'

In yesterday's chilling wind, local resident Mrs Merie Irvine brought her two children to the scene. She said: 'I just feel that it is important to educate our children so that they know what is going on. I can't see any point in shielding them from what is happening where they live.'

GB United Kingdom, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 470
World News in Brief: Mansell hurt in crash Publication 931101FT Processed by FT 931101

Indycar world champion Nigel Mansell suffered a head injury during a touring car race at Donington Park, Leicestershire. Queen's Medical Centre in Nottingham said later he was 'not in any danger'.

GB United Kingdom, EC P7948 Racing, Including Track Operation PEOP People P7948 The Financial Times London Page 1 62
World News in Brief: Ex-KGB man questioned Publication 931101FT Processed by FT 931101

British police questioned former Soviet KGB general Oleg Kalugin about the 1978 'poisoned umbrella' murder in London of Bulgarian dissident Georgy Markov. Kalugin was released without charge.

GB United Kingdom, EC P9221 Police Protection PEOP People P9221 The Financial Times London Page 1 55
De Klerk concedes ground to ANC over constitution Publication 931101FT Processed by FT 931101 By PATTI WALDMEIR JOHANNESBURG

SOUTH AFRICA's ruling Nation-al party appears to have abandoned its demand for a constitutionally enshrined veto in a government of national unity to be headed by Mr Nelson Mandela if his African National Congress wins the country's first all-race general election next April.

Joint proposals, which will be incorporated in a draft of the constitution due to be released today, show that the government has given substantial ground in its negotiations with the ANC on a new constitution. The National party would have little constitutionally entrenched power to block majority decisions.

In an earlier draft, the party was guaranteed what amounted to a veto in the areas of budget, finance and security.

The proposals call for multi-party power sharing in a five-year national unity government. However, the long-ruling National party, which speaks for minority interests and is likely to come second in next year's elections, now seems to have accepted a form of voluntary rather than enforced power sharing, with President F. W. de Klerk appearing to rely on assurances from Mr Mandela that fundamental decisions will not be taken without his approval.

If the ANC wins the general election set for next April, Mr Mandela would become president of South Africa. Unless National party electoral support is drastically eroded, Mr de Klerk is likely to become second deputy president, alongside a first deputy president also from the ANC.

If Mr de Klerk disagrees with the ANC, he can try to muster support from allies to outvote it in the cabinet. He is likely to need 40 per cent support to block the ANC, which still might not guarantee him automatic veto power.

Dissent surfaced within Mr de Klerk's National party about the outcome of the talks. One influential party member said the proposals would leave the party 'at the mercy of the ANC'.

The proposals also offer only limited powers to provincial assemblies. They are likely to reinforce fears of many whites and harden the opposition of Chief Mangosuthu Buthelezi and his Inkatha Freedom party which demands a quasi-independent status for Natal province, the IFP stronghold.

The IFP and its white partners in the right-wing Freedom Alliance have been given 10 days to respond to the proposals.

Freedom Alliance officials condemned the proposals, released yesterday, saying they did not devolve sufficient powers to regional governments.

ANC and government negotiators expect to wrap up three years of off-on constitutional negotiations this week, completing proposals on how a final constitution should be written, on the composition of a constitutional court, and on local government. They will then present the document as a final offer to the Freedom Alliance, which includes the IFP and the white Conservative party. Negotiators, say they will tell the alliance to accept the offer within 10 days, or the government and ANC will proceed to elections alone.

Crunch for power-sharing constitution, Page 4

ZA South Africa, Africa P9199 General Government, NEC P8651 Political Organizations GOVT Government News P9199 P8651 The Financial Times London Page 1 515
Eight days in Ulster calendar of conflict Publication 931101FT Processed by FT 931101

Saturday Oct: 23 Ten people, including one IRA bomber, die and 57 injured in Shankill Road bombing. Belfast taxi driver shot in ambush. Dies two days later.

Sunday Oct 24: Catholic man shot in face in a car with his girlfriend in Catholic area of north Belfast.

Monday Oct 25: Catholic pensioner Sean Fox shot dead by Ulster Volunteer Force after an hour-long 'interrogation'.

Tuesday Oct 26: Two killed, five injured in attack on council cleansing department depot in Catholic west Belfast.

Wednesday Oct 27: Gerry Adams provokes anger by carrying IRA bombers' coffin. Belfast Catholic man critically wounded after being shot several times in the chest.

Thursday Oct 28: Two Catholic brothers shot dead in front of 11-year-old sister at home in Co Down.

Friday Oct 29: John Major and Albert Reynolds meet at EC Brussels summit and outline new peace initiative.

Saturday Oct 30: Rising Sun shootings leave seven dead.

GB United Kingdom, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 184
Unionists pressed by Dublin to back peace initiative: Major condemns 'act of butchery' after seven die in pub massacre Publication 931101FT Processed by FT 931101 By KEVIN BROWN and TIM COONE LONDON, DUBLIN

THE IRISH government stepped up pressure on Unionist leaders yesterday to join round table talks on the province's future in the wake of Saturday's murder of seven people by the Loyalist Ulster Freedom Fighters.

Mr Albert Reynolds, the Irish prime minister, said he was determined not to allow the process to be derailed by the killings in a bar in Greysteel, Co Derry.

But the peace initiative launched by the British and Irish governments was rejected yesterday by Mr Peter Robinson, deputy leader of the hardline Democratic Unionist party, who warned that Northern Ireland was close to civil war.

Terrorists from both sides have killed 23 people in the past nine days in a cycle of violence provoked by last weekend's bombing of a shop in Belfast, which killed 10 people. The violence continued yesterday when an RUC officer was shot by the IRA in Newry.

Mr Reynolds said Unionists had 'nothing to fear' from the initiative. 'As long as a majority of the people of Northern Ireland wish the present status to remain, that's the way it will be.'

Mr Dick Spring, the Irish foreign minister, said he hoped to arrange a series of meetings with Unionist leaders, probably lasting up to 12 months.

But Mr Robinson said the joint statement issued by Mr John Major and Mr Reynolds in Brussels on Friday was 'an endorsement of the six-point plan for a united Ireland laid out last week by Mr Spring. Whoever it was aimed at, it was not aimed at Unionists because it is adopting a nationalist agenda'.

However, UK ministers were heartened by the restrained reaction of Mr James Molyneaux, leader of the official Ulster Unionist party (UUP), who has made no public comment.

The British government believes that constitutional guarantees and changes to parliamentary procedures for Northern Ireland legislation may persuade Mr Molyneaux to join the talks. The government is moving to set up a Commons committee on Ulster and may also end the use of non-amendable orders in council for Northern Ireland legislation.

Other UUP leaders remained wary. Mr David Trimble, the party's home affairs spokesman, said Mr Spring was guilty of 'self-deception'.

Mr Major, who is expected to make a statement on the peace initiative in the Commons today, said the killings were 'another evil act of butchery in which members of both communities were mown down'. He said: 'I appeal to all the people of Northern Ireland to show no tolerance to the gunmen and the

bombers.' Mr Major is expected to distance the Anglo-Irish initiative from the proposals produced by Mr John Hume, leader of the nationalist SDLP, and Mr Gerry Adams, president of Sinn Fein, the IRA's political wing.

Mr Hume said yesterday that the SDLP-Sinn Fein proposals remained the best prospect for peace. He said it was 'difficult to accept' that the Hume-Adams proposals had been dismissed by the London and Dublin. Mr Hume accused Mr Major of being unwilling to discuss the proposals.

Downing Street said Mr Hume had not requested a meeting with Mr Major. However, the prime minister has said before that he is willing to meet party leaders, including Mr Hume, at any time.

The British government is determined not to be seen to be talking to the IRA through Mr Hume, but is also keen not to undermine Mr Hume's position as a leader of constitutional nationalism in Northern Ireland.

The prospects for the Anglo-Irish initiative will become clearer this week when Mr Spring meets Sir Patrick Mayhew, the Northern Ireland secretary, in Belfast.

Page 10

Leaders ready to pay price for peace

Loyalists plot demise of consensus

Hume call to government

GB United Kingdom, EC P9721 International Affairs P9229 Public Order and Safety, NEC NEWS General News P9721 P9229 The Financial Times London Page 1 663
Queens Moat chief blames management style for losses Publication 931101FT Processed by FT 931101 By RICHARD GOURLAY

MR ANDREW COPPEL, chief executive of Queens Moat Houses, yesterday laid the blame for a Pounds 1.04bn pre-tax loss last year at the hotel group firmly on the management style, which may have left its board seriously short of information it needed to monitor the group's health.

Mr Coppel refused to exonerate the non-executive directors, who have been criticised for failing to see the unfolding crisis that led to the year's largest corporate failure.

He emphasised that source of the company's problems was the management's style.

He said: 'Whatever is the view of the non-executive directors, the fact is that there were serious shortcomings in the executive management of the business, and this is the source of the company's problems.'

Mr Coppel said Queens Moat would have had to refinance its debts even without the Pounds 803.9m write-down on the value of the hotel group's properties, the main factor behind the loss. The real handicap was that the company made no trading profits in 1992 with which to pay a Pounds 100m interest bill.

Mr Coppel's remarks will reinforce a view emerging among City observers that Queens Moat's advisers and non-executives for some time may have been seriously short of detailed information they needed to check on the health of the business.

In the past decade, the business expanded rapidly, financed by high levels of debt and several rights issues. Senior executives brought in over the summer believe the company lacked basic financial controls.

The hotel group built up by Mr John Bairstow, an aggressive 1980s entrepreneur, may be investigated by the Department of Trade and Industry. The company's new management is considering legal action against its former advisers and directors, possibly over allegedly unlawful payments of dividends.

Mr Coppel said the entire board had offered to resign when he became chief executive in July. He asked Mr David Howell, the former cabinet minister, to stay on as a non-executive to smooth the transition to a new board and to help organise the refinancing of the company's Pounds 1.2bn of debt.

He said Mr Howell had been 'very useful and approved the reference of certain matters to the Department of Trade and Industry'.

Nevertheless, investors in Queens Moat are likely this week to question the property valuations that are the main reason for the loss. A valuation concluded by Jones Lang Wootton in August for the new board valued Queens Moat's properties at Pounds 861m on December 1992.

Only five months earlier, the group's former valuers, Weatherall, Green and Smith, had produced a draft valuation of Pounds 1.35bn for the same assets. WGS had valued the group's properties at Pounds 2bn in early 1992.

Both valuations followed guidelines laid down by the Royal Institution of Chartered Surveyors.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels MGMT Management & Marketing P7011 The Financial Times London Page 1 496
Stock and Currency Markets Publication 931030FT Processed by FT 931104

-------------------------------------------------------------------- STOCK MARKET INDICES -------------------------------------------------------------------- FT-SE 100: 3,171.0 (+8.0) Yield 3.71 FT-SE Eurotrack 100 1,374.61 (+5.13) FT-A All-Share 1,565.37 (+0.2%) FT-A World Index 169.87 (+0.7%) Nikkei 19,702.97 (+223.52) New York: Dow Jones Ind Ave 3,680.59 (-7.27) S&P Composite 467.84 (+0.11) -------------------------------------------------------------------- US RATES -------------------------------------------------------------------- Federal Funds: 3 1/16% (3%) 3-mo Treas Bills: Yld 3.085% (3.085%) Long Bond 103 29/32 (104 3/16) Yield 5.963% (5.943%) -------------------------------------------------------------------- LONDON MONEY

-------------------------------------------------------------------- 3-mo Interbank 5% (5 3/4%) Liffe long gilt future: Dec 114 3/32 (Dec114 1/4) -------------------------------------------------------------------- NORTH SEA OIL (Argus) -------------------------------------------------------------------- Brent 15-day (Dec) dollars15.93 (16.29) Gold New York Comex Dec dollars369.6 (370.2) London dollars368.8 (369.75) -------------------------------------------------------------------- STERLING -------------------------------------------------------------------- New York: Dollars 1.4815 (1.48825) London: Dollars 1.4865 (1.492) DM 2.4975 (Same) FFr 8.74 (Same) SFr 2.2075 (2.2025) Y 161.25 (161.5)

Pounds Index 80.8 (80.6) -------------------------------------------------------------------- DOLLAR -------------------------------------------------------------------- New York: DM 1.687 (1.6742) FFr 5.906 (5.857) SFr 1.492 (1.4775) Y 108.5 (108.145) London: DM 1.6795 (1.6735) FFr 5.88 (5.8575) SFr 1.484 (1.477) Y 108.4 (108.25) Dollars Index 66.3 (66.6) Tokyo close Y 108.23 --------------------------------------------------------------------

GB United Kingdom, EC US United States of America JP Japan, Asia P1311 Crude Petroleum and Natural Gas P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges P3339 Primary Nonferrous Metals NEC COSTS Commodity prices COSTS Equity prices P1311 P9311 P6231 P3339 The Financial Times London Page 1 223
How To Spend It: A catalogue of charitable ideas - Lucia van der Post explains how to help a good cause and give pleasure to your friends Publication 931030FT Processed by FT 931102 By LUCIA VAN DER POST

CHRISTMAS is coming . . . and the catalogues are getting fat. For all those who believe in planning and plotting it is time to sit down with pen and pencil and send off for the catalogues of your choice.

For those who prefer to spend their hard-earned pounds where they believe they will do the greatest good, here is a list of some of the best-known and most deserving charities that you could support this Christmas:

Notting Hill Housing Trust, 26 Paddenswick Road, London W6 OUB. Tel: 081-563-5000. Catalogue free or available from any of the 13 trust shops.

A charity that aims to help house those most in need. Although it manages some 10,000 homes, there are still about 37,000 homeless families in London.

The catalogue is very small - useful for those who do not like being confronted with too much choice - well-edited and offers a few really attractive presents at good prices. Camel candlesticks, 40cm high (sketched here) are Pounds 7.99 each and there is an equally attractive elephant and fish version.

There is a charming pure white cotton night dress, (Pounds 21.99), cotton lace cushions covers at Pounds 7.99 and pillowcases at Pounds 10.99.

Imperial Cancer Research Fund, Freepost, PO Box 48, Burton-upon-Trent, DE14 1BR. Tel: 0283-512040 for a free catalogue.

Many people's favourite charity, here supporters can buy most of their Christmas essentials - from crackers (much better designed this year) to cards, papers (look out for a particularly chic black and gold design), ribbon and decorations to plum pudding and fruit cake.

When it comes to presents there is nothing very beautiful but quite a lot that is useful - a wooden indoor croquet set (Pounds 34.95) would be handy for the country-house set, fleecy-lined slippers (Pounds 12.99) useful for those who live in draughty houses and the AA Guide to Short Walks to Country Pubs (Pounds 8.99) could inject some fun into the life of ardent fell-walkers.

Great Ormond Street Children's Hospital Fund, PO Box 20 Tanners Lane, Barkingside, Ilford, Essex 1G6 1QQ. Tel: 0268-288577. Catalogue free.

As many already know, this charity helps towards the treatment and care of seriously ill children from all over the UK. A small selection of the Christmas staples - cards, crackers, wrapping paper et al - and an equally small selection of presents. Choose from a wooden two-piece duck clothes brush (Pounds 9.95), a set of carpet bowls (Pounds 25.95), mystery games (Pounds 15.99), key-rings, pens and the like.

Oxfam Trading, Murdock Road, Bicester, Oxon OX6 7RF. Tel: 0869-245011 for a free catalogue.

Profits from catalogue sales go to help local craftsmen and women in poor areas of Asia, Africa, Latin America and the Caribbean. Last year's profits helped to start marketing initiatives in India, a shop in Thailand, training in Sri Lanka and Bolivia and a refuse cart in El Salvador. Lots of colourful ethnic crafts ranging from a brilliantly coloured cotton canvas director's chair (Pounds 39.95) to a tapestry kit based on Oriental rug designs (Pounds 37.95).

Levels of taste vary so there ought to be something for everybody. Particularly appealing were the decorative Peruvian mirror (Pounds 25.95), charming safari mugs 9Pounds 7.95), some wonderfully old-fashioned striped pure cotton tea-towels from South India (Pounds 5.70), rugs from Kashmir, Peru and Pakistan, and quite a good selection of toys. There is a separate catalogue which features its cards, wrapping paper, calendars and diaries - available from the address above.

NSPCC Trading Company, PO Box 39, Burton-on-Trent, DE14 3LQ. Tel:0283-510111. Catalogue free.

Big selection of Christmas cards, papers and gift tags, and a useful, if unexciting, selection of presents - personalised pens, aromatherapy oils, scented drawer liners and hangers, luggage straps and cassette carriers. A choice of gadgets for the gizmo fancier - alarm lights, hand-held sewing machine, lanterns with in-built alarms and so on.

Brainwaves from Childline, Freepost SU 361, Dept 5317, Hendon Road, Sunderland, SR9 9AD. Tel: 091-514-4666.

Some really splendid presents for children - from jigsaws to a box of science tricks (Pounds 7.95), lots of models to build, a working camera to make (Pounds 16.95), bubbles to blow, old-fashioned clay building kits (Pounds 45) and traditional games to play (Pounds 22.50).

World Wide Fund for Nature, PO Box 49, Burton-upon-Trent, DE14 3LQ. Tel:0283-510344 for free catalogue.

Cards, calendars and wrapping paper, much of it on a furry note, and a wide range of animal/conservation slanted presents. A tropical rain forest puzzle (Pounds 9.99), wooden Noah's ark (Pounds 19.99), duvet covers, cushion covers, t-shirts all embellished with colourful signs of wild-life from a dolphin to a complete range of jungle life.

British Heart Foundation, Heart Cards, PO Box 45, Burton-upon-Trent, DE14 3LQ. Tel: 0283-512040. Catalogue free.

Some splendid suitably traditional cards, lots of ornaments, ribbons and decorations, press-out Christmas books, candles and a rather limited selection of predictable presents as well - personalised pencil sets, name tapes, pot-pourri, scarves and ties. For a keen cook the stainless steel fish poacher (Pounds 28.95) makes a handsome present.

Traidcraft Interiors, Kingsway, Gateheads, Tyne & Wear NE11 ONE. Tel: 091-491-0591.

This catalogue may be slightly less useful as a source of Christmas presents than for finding well-priced attractive things for the house. It is a welcome change from the other catalogues, many of which clearly buy from the same sources, this catalogue has an original, fresh selection of very attractive things.

Apart from more substantial household objects such as chests and rugs, wooden cabinets (a charming verdigris finished version for Pounds 44.95) and chairs, there is a charming selection of appliqued Indian bedspreads (most children would love the elephant one, Pounds 34.95), a delightful stuffed fabric doll from Thailand (Pounds 14.95). There are colourful mirrors (painted glass frames as well as carved wooden ones), a beautiful hand-painted ceramic bowl (Pounds 36.95) and some wonderfully ethnic coconut shell salad servers (Pounds 4.95).

Lifewatch, Freepost, SU361, Hendon Road, Sunderland, SR9 9AD. Tel: 091-5142777 for a free catalogue.

The usual collection of sweat-shirts, t-shirts, calendars and notebooks all on a wild-life theme. Some particularly horrible gorilla feet slippers which I guess children would adore (Pounds 7.50), some almost as gruesome wind-up creepy-crawlies (Pounds 9.95 each), silver-plated elephant cuff-links (Pounds 17.50), a fine owl needlework kit cushion cover and a highly attractive 1,000 piece 'Happy Animals' jigsaw which should keep the family occupied during the holiday period.

One or two really rather beautiful things as well - look out for a strong and simple pewter brooch of penguins (Pounds 8.95) and Malcolm Sutcliffe's mouth-blown lead crystal glass bowl. For the lazy there is the large mystery parcel (Pounds 49.95 for at least 10 different items) or a small one (Pounds 24.95 for at least five mystery items) - they come wrapped in splendidly old-fashioned plain brown paper and string.

NSF (National Schizophrenia Fellowship), 28 Castle Street, Kingston-upon-Thames, Surrey, KTI ISS. Tel: 081-547-3937.

A slim little catalogue from a charity fighting for its share of the financial limelight. Cards and calendars are mostly what it purveys but some white, silver and gold crackers at Pounds 12.50 per box seem generously filled (address books, sewing kits, mini torches etc) and elegantly contrived.

Queen Elizabeth's Foundation for Disabled People, Leatherhead Court, Leatherhead, Surrey, KT22 OBN. Tel:0372-842204.

Another slim catalogue with a selection of cards, papers and crackers for those who want to support this charity and a small selection of rather predictable presents (sewing kits, photograph albums, pens and Biros, eau-de-cologne, boxed bridge sets and the like.

Greater London Fund for the Blind, PO Box 81, Burton-upon-Trent, DE14 3LQ. Tel: 0283-510111.

Cards, paper, ribbons, calendars and decorations and a small selection of presents. Slippers seem popular this year (anticipating the VAT on fuel?) so here we have some cosy-looking suede moccasins for just Pounds 10.99 a pair.

Aromatherapy, too, is in - choose from jasmine, camomile, peppermint and juniper foaming baths or a gift boxed set of four bath oils, Pounds 8.99. There is a lambswool scarf with tartan pockets (Pounds 24.95), lots of personalised pens and pencils and what the compilers of the catalogue call the 'World's Most Difficult Jigsaw' - 529 pieces for Pounds 9.99.

Marie Curie Cancer Care, PO Box 72, Burton-upon-Trent, Staffordshire, DE14 3LQ. Tel:0283-512040.

For those who want to support one of the smaller cancer charities Marie Curie Cancer Care provides nurses to look after patients at home as well as funding 11 centres where cancer patients can be looked after around the clock.

The catalogue offers a familiar collection of cards, wrapping paper, calendars and crackers as well as some traditional Christmas foods and some straightforwardly useful presents - woollen scarves, socks, pot-pourri, gardening gloves, bath oils and a really rather charming matt black wooden key rack based on the theme of cats, Pounds 5.99.

Shelter Trading Ltd., 88 Old Street, London EC1V 9HU. Tel:071-253-0202.

Nicely produced but very small little catalogue from the charity that helps with the homeless and badly-housed. Most useful on the Christmas card front as it offers an exceptionally jolly selection for those who prefer modern versions of the well-worn themes. A very few presents on offer as well - beeswax candles, some unexceptional blue and white pottery and some sweet little wooden puzzles for children.

Christian Aid , PO Box 100, London SE1 7RT. Tel:071-620-4444.

Another catalogue mainly useful for its charming selection of original Christmas cards - on the present front there is only a selection of t-shirts, a couple of books and a dairy.

Unicef, 55 Lincoln's Inn Fields, London WC2A 3NB. Tel: 071-405-5592.

Probably the best and biggest selection of Christmas cards - from arty photographic essays to jolly Nepalese pop-up cards - as well as a small selection of presents.

STILL on a charitable theme, there are two Christmas fairs that readers like to make a point of visiting. The Birthright Christmas Fair (Birthright, is a charity primarily concerned with problems of infertility and the welfare of newborn babies and their mothers) will be held at the Royal College of Obstetricians & Gynaecologists, 27 Sussex Place, Regent's Park, London NW1 4SP on Tuesday from 10am to 5pm. Tickets are Pounds 5 each. There is also an evening preview on Monday November, from 6pm to 9pm for which tickets are Pounds 10 each. Tickets can be bought at the door.

The Macmillan Fund, a cancer charity, holds its Christmas fair on Thursday November 11 at the Royal Horticultural Society's New Hall, Vincent Square, London SW1, from 10am to 5.30pm. Tickets cost Pounds 3 and are available at the door.

GB United Kingdom, EC P5961 Catalog & Mail-Order Houses NEWS General News P5961 The Financial Times London Page XV 1809
Minister for a Day: Digging out of little England - Edwina Currie, a former junior health minister, picks up the European portfolio Publication 931030FT Processed by FT 931102 By EDWINA CURRIE

IF I were minister for a day I'd probably waste most of it recovering from the shock. I spent much of my first day last time on the phone to my mother, trying to explain what a minister really does. I still don't know, but at least now, were I Minister for Europe for a day and properly equipped with a magic wand, I'd make one hell of an impact. They would still be talking about it years later.

For a start I would order the commencement of the next channel tunnel, at once. The first one is nearly finished and will be packed out from day one, at least as soon as the French can get their trains running. Our side will take a bit longer. But already 24m Britons a year stream abroad and the ferry companies are busy buying bigger boats, convinced that the tunnel won't pinch business but encourage it. The moment the new hole is packed solid with sweating weekend commuters we will start demanding a second one alongside: and that will take years. So I would get digging right away, and lay the plans for the third tunnel in due course.

While we are at it, I'd make the French TGV compulsory throughout the continent. It will be anyhow, sooner or later, its silver snakes hissing through long tracts of countryside carrying passengers at 300kph, so I'm going to take the credit for it. I said this in Germany recently - after my train from Leipzig to Frankfurt left an infuriating 20 minutes late without explanation, which produced some long faces, for the French have just beaten the Germans for a lucrative contract in Korea.

What is good enough for the Koreans should be fine for us, especially if we add British Rail's posh grey and pink velour, cheerful Asian ticket collectors and splendid habit of running lots of only slightly slower trains all over the place.

And now you can see what I'm planning. The Romans did it first: create communications links between all your centres, and you foster a feeling of wholeness, where nowhere is too far away, and everywhere counts. Trade, commerce, tourism, and friendship all increase with ease of access: nothing would be a greater unifying element, or bring more pleasure to more people.

I'd add fibre optic cables alongside the rail track and satellite dishes (or whatever is needed) at suitable points, so that I could use my car phone throughout Europe cheaply, instead of being held to ransom on a bad line. And I'd insist that all post be delivered in a day, with no excuses, even across frontiers: if it takes only 90 minutes to fly from Birmingham to Berlin, why on earth did it take my postcard four days to get back?

Now I am getting into my stride. Danish teachers would find themselves herded on to boats headed for all parts of Britain and refused home leave for five years, until they had taught the British how to speak several languages at once, fluently and with comprehensible accents. In return, 20,000 British teachers, chosen for their courage in standing up to the education secretary would be rewarded by equally long-term trips to the former east Germany, Poland, the Czech Republic, Hungary and points east, with a brief to stay put until the good souls of those countries had grasped basic English.

Then, when the European Community has grown to 20 countries with 16 languages - at which point the cost of translation will have overwhelmed the Brussels administrative budget - the nations will plump for the most obvious language, which (if I am successful) will, of course, be English.

I liked the idea of a member of the staff of the British Embassy in Bonn: that the news should be compiled nightly not from the unadulterated offerings of the BBC or ITN, but from all the main news stations in Europe, with sub-titles. Most of the time the different reports might be from separate planets. It would give us all a rude shock, and much to think about, if we realised how wide the gaps in perception still are between supposedly friendly countries. Then maybe we would all be driven to understand before we criticise quite so freely.

One pet project is probably already bubbling in some Brussels bureaucrat's fevered mind. Gazing at the superb restored buildings emerging from scaffolding in Leipzig in former east Germany, I understood why Berlin is still such a derelict mess.

There just isn't enough money to go around, even in the richest nation in Europe. Heaven knows how they're managing in Prague or Budapest; meanwhile the villages of Romania crumble from neglect and fine old churches up and down France and England appeal without hope for funds.

Can't we have a Heritage Fund, a substantial sum year by year, to help save the architecture and artifice of a bygone age which made Europe great? No one country can afford to do even their own, yet the citizens of all can enjoy the results. An International National Trust, if you like.

It could be paid for easily by scrapping the Common Agricultural Policy, though the French would have to be allocated more than their fair share for a while. However once they realised that far more people could be employed renovating Tours Cathedral and the like than looking after subsidised cows, they would be happy.

Churchill got it right, in The Hague at the first Congress of Europe in May 1948 when he spoke of 'progressively effacing (the) frontiers and barriers which aggravate and congeal our divisions, and . . . rejoicing together in that glorious treasure of literature, of romance, of ethics, of thought and toleration, which is the true inheritance of Europe.'

Yes, that's it. If I get my way, in my one special day, that is what we will do.

GB United Kingdom, EC P96 Administration of Economic Programs PEOP People P96 The Financial Times London Page XIV 1032
Motoring: BMW, a touch special Publication 931030FT Processed by FT 931102 By STUART MARSHALL

THERE I was, convincing myself that the only things needed nowadays when assessing a car were to check the price and look at its environmental, safety, security and recyclability credentials before making a judgment.

Then, BMW (GB) spoilt it all by asking me to try its latest wares: a 325i Convertible and M3 high-performance saloon, both with manual gears; and a 325tds turbo-diesel and 840Ci coupe, both automatics.

Never mind what the letters on their boot lids said; for me, they were all SE models. SE, that is, not for special equipment but for sheer enjoyment.

What is it that makes a BMW - any BMW - a touch out of the ordinary to drive? The company talks about the cars being an extension of the driver's nervous system. It sounds a bit pretentious, but it must be near to the truth because I do find myself striking up an instant rapport with a BMW.

There is an eagerness about a BMW, a desire to please a driver who enjoys making a car go well without in any way wishing to behave like a hooligan. The highway, after all, is public. It has to be shared with the less fortunate driving ageing family hatchbacks. (Or, on the roads behind Nice where I sampled the BMWs, the occasional out-of-season tourist in an unwieldy camper van).

The 325i Convertible I tried first was a real south-of-France car. In late October sunshine, with the top down, it was sufficiently draught-free for short-sleeved autoroute driving to be a pleasure. With a strongly reinforced body shell, it felt stiffer than many soft tops, flexing only slightly on rough mountain roads.

The power-operated top disappears completely. Pop-up roll bars behind the rear seats, and a massively strong windscreen surround, protect the occupants' should the car overturn.

The price is Pounds 28,000 but this year's production is sold out. BMW (GB) expects at least 500 Britons to buy one next year.

Next, a bright yellow M3, a two-door hard-top with a three-litre engine. The top speed is said to be 160 mph (258 kmh). From 0-60mph (0-96 kmh) takes but 5.4 seconds and the average fuel consumption, should any owner really be interested, is 31.5 mpg (8.96 l/100 km).

None of these claims can, realistically, be tested during an hour's drive on mountain roads. What I can say is that the fat-tyred M3 was nervously responsive to the slightest movement of the steering wheel; cornered with total security at absurd speeds; and, in fifth gear, trickled through villages slowly and so quietly enough that the boule players did not look up. What more could a sporting driver with family responsibilities (and Pounds 32,450) ask for?

Before going into diesels, BMW always maintained it was not prepared to sacrifice refinement or performance. In other words, a BMW diesel would be a BMW first, a diesel car second. Well, if you can afford it, the 325td (from Pounds 18,950 list price) is the best medium-sized diesel for a mix of performance and refinement. The 325tds, with an intercooler as well as a turbocharger, raises the stakes higher still.

It has an extra 28 horsepower on tap (143 against 115); a higher maximum speed (133 mph/214 kmh compared with 123 mph/198 kmh); and even a slightly better average fuel consumption of 42.2 mpg/6.7 l/ 100 km (40.9 mpg/6.9 l/100 km).

The 325tds four-speed automatic I tried turned like a polo pony and sounded ultra-refined. Only a distant chuckle under the bonnet at start-up gave the game away. At Pounds 22,250, this is the car for the business motorist who believes in cutting his consumption of fossil fuel but wants full enjoyment from driving.

Finally, the 840Ci. When first I drove the original V12-engined 850Ci I was slightly underwhelmed; the handling was not quite right. That was three years ago and I am prepared to believe that much may have changed.

But my first experience of the 840Ci - essentially the same car, but with the latest four-litre V8 and, in this case, a five-speed automatic transmission - was different. It is a wide vehicle, but so sharp is its handling that it seemed within minutes to have slimmed. As easy as a family saloon to drive, it swept up and down curving D-roads with panache.

Standard features include traction control, air-conditioning and a 12-speaker stereo. BMW (GB) expects about 100 people to take delivery of a Pounds 52,950 840Ci next year. If only I could be among them.

GB United Kingdom, EC P3711 Motor Vehicles and Car Bodies TECH Products & Product use P3711 The Financial Times London Page XIII 787
Bulls show no sign of tiredness: The dizzying rise in global share prices Publication 931030FT Processed by FT 931102 By PETER MARTIN

There is a dangerous moment in all bull markets when rising prices become their own justification, when investors find it hard to think of reasons why shares should not head upwards indefinitely.

That moment is with us now.

As the Dow-Jones Industrial Average reached a new record this week, briefly passing the 3,700 mark for the first time on Thursday, a straw poll of investors and analysts produced a striking consensus. The global bull market still has a way to run, they say: there are no real signs of danger.

'We've got this incredible situation where low interest rates make stock market investment almost a no-brainer,' says Mr Martin Barnes, editor of the Bank Credit Analyst, a Montreal publication normally noted for its caution.

This confidence, widely shared, shrugs aside what in normal times would be clear signs of an over-extended market. Share prices have risen in a straight line almost everywhere for the past 12 months. Traditional measures of the value of stocks and shares are starting to flash warnings.

Smaller British companies sell at 30 times their most recent earnings. The dividend on the average US share represents a yield of less than 2 1/2 per cent, lower than at the peak of the 1987 boom. German shares have risen 37 per cent in the past year in spite of a worsening economic outlook. The Japanese equity market, though deprived of the steady rise seen elsewhere, has stayed well above the 20,000 mark on the Nikkei index even though the country is heading, on some estimates, for a period of damaging deflation.

Despite these warning signals, three factors lead to continued optimism.

First, much of Europe still stands to benefit from falling interest rates, with perhaps 2 more percentage points to go. Falling interest rates are good for stock markets because they will lead in time to higher corporate earnings, and because they make shares seem more attractive compared with cash or short-term bonds.

Second, though it is hard to see interest rates falling much further in the two other main economies of the developed world, the US and Japan, it is equally hard to see them rising in the near future. The classic credit cycle, in which falling interest rates lead to higher borrowing and ultimately to higher interest rates seems unaccountably delayed.

The bottom chart tells the story. In the developed countries, 'narrow money', the money held for immediate transactions in the form of cash and current accounts, has been rising steadily, as governments have eased monetary policy to help pull their economies out of recession. But the broad measure, a wider definition of money including interest-bearing accounts, has fallen heavily, and has not yet shown a sustained upturn. It is broad money that influences future economic activity; because it is so weak, the normal economic upswing has been constrained.

None the less, the easing of monetary policy is having its effect elsewhere in the financial system. 'To put it in simplistic terms,' says the Bank Credit Analyst's Martin Barnes, 'that money has to go somewhere, so it finds its way into financial markets.'

After the debt binge of the 1980s, both business and individuals are unwilling to borrow more; and banks have become much more cautious lenders. Economic activity is kept below the levels at which inflationary pressures emerge, so interest rates continue low. 'There is too much cash or cash equivalent which is not producing the returns people got accustomed to in the past,' says Henry Looser, head of private banking at Bank Julius Bar in Zurich. 'There is still a lot of pressure to redeploy such assets, most obviously into the stock market.'

In the US, where this pattern is most obvious, the rush out of interest-bearing deposits into mutual funds is overwhelming, running at a rate of Dollars 1bn a day this year.

The third factor underpinning the optimism is the belief in a sea change in the outlook for world inflation. The rise in the Dow Jones Industrial Average on Thursday came about partly because the strong gross domestic product growth reported that day was accompanied by low US inflation figures: an annual rate of only 1.8 per cent in the third quarter, the lowest since 1986.

Inflation is low across Europe. Measured in terms of a basket of currencies, The Economist's commodity index shows prices 23 per cent below their 1985 level; food prices are 31 per cent lower than eight years ago; in nine of the 12 biggest industrialised countries, wages rose by less than 4 per cent in the past 12 months.

Is this atmosphere of confidence a sign that the market is reaching an unsustainable peak? Worryingly, perhaps, few people seem to think so. 'Bull markets always last longer than people expect,' says Michael Hart, joint manager of Britain's biggest investment trust, Foreign and Colonial.

That comment was repeated several times this week, itself an indication that sentiment is shifting from detailed justification of the market's rise to a more general belief in its self-sustaining properties.

Even if the broad global rally is set to continue, however, there is still potential vulnerability in a few specific areas. The US market has appeared over-valued, in foreign eyes, for at least a year: to buy the shares in the Standard & Poor's 500 index you have to pay for 28 years of current earnings.

US investors' growing feeling that their bull market is mature has been reflected in a rush to invest in emerging economies overseas, pushing these generally illiquid markets up so fast they are vulnerable to any sudden shift of mood.

Such specific risks aside, there are two more general uncertainties. What if US interest rates start to rise? After all, long-term interest rates in the US have been falling for six years, almost exactly as long as the rally of the early 1980s which ended in the short but steep bear market in bonds of 1987. Though the Federal Reserve expects US economic growth to slow in the fourth quarter, and there is still no sign of higher inflation there, the interest rate cycle will undoubtedly turn in time. When it does, equities will also look less attractive - and the signal could also mark a turn in sentiment elsewhere.

And what if Europe's recession is longer and deeper than currently feared? Though the consensus view is for a recovery starting some time in 1994 in Europe's German heartland, there is a strong minority view that next year will again bring bad news, with no real upturn likely till 1995. Share prices may not reflect the damage that such a sustained recession could cause to Europe's big companies and to its political and social stability.

Still, even people who say, like Henry Looser, that 'the economic situation in western European economies is much worse than people think' are optimistic about the effect on share prices - because they believe it will lead to a faster, deeper cut in interest rates. This form of financial alchemy, transmuting bad news into gold, surely signals the hour when a bull market starts to rely on its own momentum.

US United States of America JP Japan, Asia XG Europe P6231 Security and Commodity Exchanges P6282 Investment Advice CMMT Comment & Analysis COSTS Equity Prices P6231 P6282 The Financial Times London Page 7 1240
Man in the News: Blueprint for a banking baron - Alexandre Lamfalussy Publication 931030FT Processed by FT 931102 By PETER NORMAN

In endorsing Mr Alexandre Lamfalussy to head the new European Monetary Institute, European Community leaders have chosen a man who shuns the limelight but who is not afraid to put forward trenchant views.

The EMI, which will have the job of preparing for European economic and monetary union at the end of this century and is expected to be a forerunner of the planned European central bank, will be headed by a firm believer in international monetary co-operation, and someone who has been a persistent advocate of greater European integration.

He will have little sympathy for the UK government's determinedly anti-federal European stance, and still less for London's view of the EMI as a low-key institution. From the Bank for International Settlements in Basle, where he is currently general manager, Mr Lamfalussy has been scathing of UK policy in the past. In the early 1980s he dismissed the first Thatcher government's adherence to dogmatic monetarism, without regard to soaring unemployment, as being akin to an experiment in the natural sciences rather than a balanced economic policy.

Mr Lamfalussy was one of four outside experts appointed members of the Delors committee of central bank governors, which in 1988 and 1989 drew up proposals for the EC's move towards Emu that became the basis of the economic and monetary aspects of the Maastricht treaty.

He can claim to have invented the EMI. Mr Lamfalussy was a prolific contributor to the Delors committee's discussions, writing three special papers on aspects of Emu. In one, he proposed that EC central banks should create a joint subsidiary for the second stage of Emu which would centralise some of their operations and perform certain of their functions. This in effect was a blueprint for the EMI, although Mr Lamfalussy had in mind a more powerful body than the new institute is likely to be.

The paper's contents - a mixture of academic reasoning and a strong awareness of power relationships, the art of the possible and the technicalities of financial markets - bore witness to his varied career.

Mr Lamfalussy is a Belgian citizen who has moved from academia through commercial banking to the top of the BIS, the central bankers' bank. A sprightly-looking 64-year-old, he was born in Kapuvar, Hungary, and fled to Belgium 20 years later to escape communism. He has been honored with a barony by his adopted country.

In Belgium, he studied economics at the University of Louvain, Belgium's premier university for economic studies, until 1953, when he moved to Nuffield College, Oxford, as a research student.

He combined the careers of a bank economist and academic until the mid-1970s, by which time he had become an executive director of the Banque de Bruxelles and chairman of its executive board, as well as a professor at Louvain. Shortly after Banque de Bruxelles merged with Banque Lambert, he moved to the BIS in 1976 as economic adviser and head of the monetary and economic department, becoming BIS general manager in 1985.

With his high forehead and serious spectacles, he looks very much the academic. As befits a professor, he is precise in his diction, and speaks perfect, accent-free English. He is famously discreet and would never divulge anything about the monthly talks among central bankers at the BIS.

Although he has never worked in a central bank, he has earned the central bankers' respect. 'He is one of the tribe,' says a senior European central bank official.

In a debate, says the official, he is able to accommodate and bring together the views of several factions. But Mr Lamfalussy does not believe that burying his own beliefs is a necessary part of diplomacy.

'If you look at successive BIS annual reports, you see someone who is willing to go significantly further than most international bureaucrats in giving an analysis which sticks its neck out, says something substantive rather than tired cliches and is sometimes quite imaginative,' says Prof Richard Portes, director of the Centre for Economic Policy Research, London.

As one of those rare officials who straddles the world of economics and finance, Mr Lamfalussy has shown a good nose for defining issues and proposing solutions, well in advance of the herd. He has been in the forefront of those expressing concern that the fast-growing involvement of banks in derivatives could pose systemic problems for the banking system. In 1991, he warned of problems facing Britain from its membership of the European Exchange Rate Mechanism.

His willingness to stand up and be counted owes much to the fact that the BIS is not controlled by individual member states. Its ownership, with 84 per cent of the stock held by more than 30 central banks and the remainder by private shareholders, is sufficiently diffuse to keep carping governments at bay.

We have still to see how the EMI develops. If Mr John Major, UK prime minister, has his way, its future will be less than glorious. Other EC leaders are keen, however, to see it supervise and rehabilitate the European Monetary System in the second stage of Emu, starting on January 1, and pave the way for a European central bank.

Mr Lamfalussy is keeping his own counsel on his plans for the EMI. He intends to use the time between now and the end of the year to work out his strategy and priorities.

Some commentators have lamented the EC's failure to attract a senior central banker to head the EMI. But, according to Mr Portes, Mr Lamfalussy's experience in running the BIS could be an ideal apprenticeship for putting the EMI on its feet.

Since it was set up in 1930 to manage the transfer of German's reparations after the first world war to allied governments, the BIS has seen great changes in its structure and functions. Mr Lamfalussy has succeeded in carrying on this tradition, putting the BIS at the centre of efforts to achieve common rules on prudential supervision for international banks, for example.

'For a long time he has faced the problem of finding roles in life for his present institution,' Mr Portes says. Now he must find a role for the EMI over the next three years.

DE Germany, EC P6011 Federal Reserve Banks PEOP People CMMT Comment & Analysis P6011 The Financial Times London Page 6 1071
Leaders set out Ulster principles Publication 931030FT Processed by FT 931102 By PHILIP STEPHENS, Political Editor

MR JOHN MAJOR and Mr Albert Reynolds, the British and Irish Republic prime ministers, last night set out six guiding principles as they sought to revive the momentum for a political settlement in Northern Ireland.

For the first time Mr Major spelled out explicitly that his government would be willing to bring Sinn Fein, the political wing of the IRA, into peace negotiations. He was adamant that this would be possible only if the IRA renounced permanently the use of violence and demonstrated over 'a period' its commitment never to return to terrorism.

As both leaders acknowledged the growing pressure on London and Dublin - and on the constitutional parties in Ulster - to fill the political vacuum, they said in a joint communique that the first principle of any settlement was: 'The situation in Northern Ireland should never be changed by violence or the threat of violence.'

They added: 'Any political settlement must depend on consent freely given in the absence of force or intimidation.'

Negotiations could only take place between governments and parties committed exclusively to constitutional methods. There could be no talks or negotiations between their governments and 'those who use, threaten or support violence for political ends'.

The two leaders then reinforced that condition by stressing that there would be no agreements with organisations supporting violence. All parties claiming a serious interest in advancing the cause of peace in Ireland should renounce the support for violence.

But in language that reflected the Dublin government's view that the republican paramilitaries must be persuaded to stop the fighting, the communique added: 'If and when such a renunciation of violence had been made and sufficiently demonstrated, new doors could open, and both governments would want to respond imaginatively to the new situation which would arise.'

Pledging to press ahead with their own efforts to secure negotiations between the constitutional parties in Northern Ireland, Mr Major and Mr Reynolds added that the two governments would work together on a new 'framework for peace, stability and reconciliation'. They added that such an initiative could only be taken by the two governments.

London and Dublin acknowledged the 'courageous efforts' of Mr John Hume, the leader of the mainly Catholic Social Democratic and Labour party.

But there was 'no question' of the report he had drawn up after his talks with Mr Gerry Adams, the leader of Sinn Fein, being adopted or endorsed.

Last night Sinn Fein was non-committal on the statement by the two prime ministers, saying only that leaders of the party were planning to study it in detail over the weekend.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P8651 Political Organizations NEWS General News P9721 P8651 The Financial Times London Page 4 471
Mayhew endorses Irish peace plan Publication 931030FT Processed by FT 931102 By TIM COONE

SIR PATRICK MAYHEW, the Northern Ireland secretary, last night strongly endorsed the peace plan outlined by the Irish government earlier this week as a basis for future round-table negotiations on Northern Ireland, Tim Coone writes.

Speaking on BBC Radio 4's Any Questions programme he said: 'I don't believe the principles can seriously be objected to and we want to consider them very carefully and to see whether, applying those to the talks process, we can't take that process on and through to success.'

Mr Seamus Mallon, deputy leader of the Social Democratic and Labour party, said on the same programme that three of the Irish government's points included proposals made in the Hume-Adams peace initiative.

Mr David Trimble MP, home affairs spokesman for the Ulster Unionist party, warned the British government 'to be on guard against the Irish government, which is cynically recycling the Hume-Adams proposals'.

GB United Kingdom, EC P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 4 181
EC Summit: Disunion greets birth of the European Union Publication 931030FT Processed by FT 931102 By ANDREW HILL BRUSSELS

THERE were plenty of politicians and officials ready to fete the birth of the Maastricht treaty in Brussels yesterday, but with the baptism fast approaching - the treaty comes into force on Monday - nobody is really sure what to call their pride and joy.

The treaty itself is pretty explicit: it plumps for European Union in the first paragraph. That is all right for grand statements of vision - President Mitterrand of France was already referring to the Union in his opening statement to fellow summiteers yesterday - but the problem is that less integrationist members of the Community find it, well, a little too federal for their liking.

What is more, the 'old' EC has not quietly been put to sleep by Maastricht. The EC, set up by the Treaty of Rome, lives on, alongside new joint responsibilities for a common foreign and security policy, and a common policy on justice and immigration matters.

Confused? The EC Council of Ministers thought you might be, and some weeks ago set some of its keenest legal brains to work on a solution.

So far, nobody has, and Community (or Union) officials were keen to play down the debate yesterday - presumably to avoid accusations that they are merely fiddling while the Treaty of Rome burns.

* * *

Still on the subject of unions, yesterday's summit was picketed by Belgian workers, protesting against Belgian government plans to freeze wages and cut the country's looming budget deficit.

Most Belgians, however, took predictions of traffic chaos as an excuse to enjoy a sunny day off ahead of the All Saints Day long weekend, leaving the roads emptier than usual. That did not prevent the unions drawing a parallel. 'The newspapers were forecasting that we'd mess up Brussels today,' one unionist said, 'but the real mess isn't here but up at the European summit - a monetary and social mess.'

* * *

Fog at Brussels airport was considered more of a problem for EC leaders than the traffic. Flown to Aachen by helicopter early yesterday morning, Chancellor Kohl decided to forge on ahead of his motorcade. Drawing up 15 minutes late for the summit - after Mr Mitterrand, traditionally the last to arrive at such events - a shirt-sleeved Mr Kohl fazed the Belgian protocol experts by emerging from a smallish police car at the head of the procession, rather than the more ample diplomatic Mercedes behind.

* * *

As a location for the European Monetary Institute, forerunner of a European central bank, Frankfurt did not get everybody's vote. Some central bankers viewed the possibility of frequent trips to Germany's financial centre with ill-concealed distaste. 'I have to admit that the idea of spending much time in Frankfurt fills me with horror,' said one central bank governor. Some bankers seemed to prefer the candidacy of Bonn, 'if only because it's more lively at night' - not a compliment usually paid to the sleepy German capital. But then central bankers do spend a lot of time in Basle.

* * *

Not much should be read into seating plans at European summits - they tend to follow the alphabetical rotation of EC presidencies - but yesterday's arrangement seemed calculated to irritate the British.

Mr John Major, the prime minister, and his foreign secretary, Mr Douglas Hurd, found themselves squeezed in between two smaller powers - Portugal and Luxembourg - staring across the table at the much weightier triumvirate of Germany, France and Spain.

BE Belgium, EC P9311 Finance, Taxation, and Monetary Policy P9721 International Affairs NEWS General News P9311 P9721 The Financial Times London Page 3 618
EC Summit: Treaty celebrations give way to sober talks - Europe is settling down to the task of finding ways to create jobs and boost growth Publication 931030FT Processed by FT 931102 By DAVID GARDNER

'IT WAS our kind of talk,' a senior British official said of the summit's debate on how to rekindle economic growth in Europe and respond to the EC-wide unemployment crisis.

Asked whether this special summit was to celebrate entry into force of the Maastricht treaty on Monday, Mr Poul Nyrup Rasmussen, Danish prime minister, said soberly: 'There is one thing to celebrate: that is that now we start on solving pressing economic and employment problems. That is our major issue.'

But beyond saying that the 20m unemployed the EC will shortly have is 'intolerable', the 12 heads of government were vague on what to do about it. 'Concrete conclusions' are awaited at the December summit in Brussels, when Mr Jacques Delors, European Commission president, presents his White Paper on growth, competitiveness and employment.

Mr Delors, and Mr John Major, the British prime minister, made what there was of the running yesterday.

Mr Delors acknowledged the economies of the Twelve had ceased to converge. To counteract this, he urged beefing up the 'growth initiative' agreed at the Edinburgh summit in December 1992 and upgraded at Copenhagen in June; a labour market reform to cut the cost of employing workers; spurring investment to boost average growth to 3 per cent and cut jobless levels from 11 per cent to 6-7 per cent; and an investment drive in information and communications technology which he said required Ecu135bn (Pounds 105bn) over the next five years.

The Commission president was scathing about progress of the much-trumpeted 'growth initiative'. Only Ecu3.3bn of the Ecu7bn agreed at Edinburgh has been allocated. One of the few concrete measures to emerge yesterday was a widening of eligibility criteria, so that more 'national' projects could apply to a facility designed for trans-European infrastructure networks. Energy projects, transport equipment and urban renewal were singled out in the summit's conclusions.

Mr Delors noted acidly that finance ministers 'are not interested' in making use of Copenhagen's upgrading of Edinburgh: a bridging facility to bring on stream faster the Ecu48bn in EC regional and structural funds earmarked for 1994-95, soft loans for small industry, and an ambitious European investment fund. In the conclusions, finance ministers who this week rebuffed Mr Delors' call for an expanded growth initiative, were instructed by their bosses to stop dragging their feet on the last two summits' pledges.

There was little discussion of the labour market reforms emphasised in a recent draft of the Commission White Paper. This calls for more part-time work and job-sharing, greater wage flexibility including possible dilution of minimum wage norms, a reduction in non-wage costs on lower skilled jobs, and shifting part of the social security burden on employment onto eco-taxes on pollution and energy.

But the tone of most debate across Europe over labour markets enabled Mr Major to devote most of his speech to hammering home the UK's recipe without much demur from his colleagues. The UK prime minister said whereas long-term unemployment in the US was 6 per cent of the jobless total, and 18 per cent in Japan, in the EC it was 45 per cent of all unemployment. 'A better climate for enterprise' and jobs needed more flexible working hours; relaxed minimum wage legislation; reduced employers' social security contributions; pricing the jobless into work; and better education and training.

Mr Major also made the strongest of the few summit references to the Uruguay Round world trade reform negotiations, theatened by French intransigence over farm trade. 'Completion of the Uruguay Round must be our highest priority over the next six weeks,' he said, referring to the December 15 deadline for concluding the talks.

The absence of real discussion on the trade talks reflected the desire of France's partners not to push Paris into a corner - at least not yet. The draft conclusions said: 'It is now more than ever necessary to make every effort, within the agreed timetable, for a global, balanced and durable Uruguay Round accord.' But in the final communique, France managed to add a sentence saying any final agreement would have to take account of the additional agricultural demands that the EC raised last month under French pressure.

BE Belgium, EC DK Denmark, EC BE Belgium, EC P9311 Finance, Taxation, and Monetary Policy P9611 Administration of General Economic Programs NEWS General News P9311 P9611 The Financial Times London Page 3 751
Central Americans in trade pact Publication 931030FT Processed by FT 931102 By DAVID SCANLAN SAN JOSE, COSTA RICA

The pending North American Free Trade Agreement has helped push central American nations into a trade pact of their own, David Scanlan reports from San Jose, Costa Rica. Signatories are Costa Rica, Nicaragua, Honduras, El Salvador and Guatemala.

CR Costa Rica, Central America NI Nicaragua, Central America HN Honduras, Central America SV El Salvador, Central America GT Guatemala, Central America P9721 International Affairs MKTS Foreign trade P9721 The Financial Times London Page 2 93
EC leaders use summit for display of unity Publication 931030FT Processed by FT 931102 By LIONEL BARBER and DAVID GARDNER BRUSSELS

EC LEADERS yesterday restored a semblance of unity to the European Community with a decision to base the future European Central Bank in Frankfurt as part of a wide-ranging agreement on the location of EC institutions.

But the deal struck at a special European summit in Brussels followed an acrimonious battle over the division of 'Euro-spoils', including veto threats by the UK and Spain unless they got the European Agency for the Evaluation of Medicinal Products.

After several hours of haggling, the prize went to the UK which immediately praised the deal as creating several hundred jobs and confirming Britain as a world leader in the pharmaceutical industry. Spain was given two sites as a consolation prize - the EC trade-mark office and a new institution responsible for monitoring health and safety.

The summit, chaired by the Belgian presidency of the EC, was called to revive Europe's faltering progress toward greater political and monetary integration after the near failure to ratify the Maastricht treaty.

The choice of Frankfurt as the location for the European Monetary Institute - the forerunner of the European Central Bank - was seen as a minimum step towards rebuilding credibility in European Monetary Union after the August 2 currency crisis.

Germany, which stands to surrender the D-Mark under the Maastricht treaty at the end of the century, fought tenaciously for the EMI.

Chancellor Helmut Kohl's argument that the choice of Frankfurt was necessary to reassure Germans about the loss of their symbol of post-war stability carried the day over reservations from France and the UK.

The Bank of England said last night the decision was 'a pity, not for the City but for the EMI'.

The EMI, whose president will be Mr Alexandre Lamfalussy of Belgium, is the institutional anchor for the second stage of EMU due to begin on January 1, 1994 under the Maastricht treaty.

With the treaty set to enter force on Monday, EC leaders used the one-day summit to pledge closer co-operation in foreign policy and the fight against organised crime, as well as a broad endorsement of the goal of a European monetary union by the end of the decade.

They steered clear of any new initiatives to tackle mass unemployment in Europe, preferring to wait for the European Commission's White Paper on competitiveness, employment and growth which will be presented at the next summit in December.

They also avoided a damaging row over the Uruguay Round world trade talks in which France is holding out for more concessions on farm trade. But the final communique warned of the of the community 'turning in on itself.'

Despite relief that the log-jam over the location of more than 10 new institutions had been broken, there was also an air of contrition among EC leaders and a general admission that mistakes had been made before and after the Maastricht agreement.

EC summit, Page 3

Man in the News, Page 6

DE Germany, EC P6011 Federal Reserve Banks NEWS General News P6011 The Financial Times London Page 1 523
Leaders in new drive for Ulster peace plan Publication 931030FT Processed by FT 931102 By PHILIP STEPHENS, Political Editor BRUSSELS

THE British and Irish governments last night responded to the escalating violence in Northern Ireland with a new drive towards a political settlement.

Mr John Major and Mr Albert Reynolds agreed during talks in Brussels to speed up work towards a framework agreement to persuade Ulster's constitutional parties to return to the negotiating table.

They rejected as a basis for peace the conclusions of recent talks between Mr John Hume of the SDLP and Mr Gerry Adams of Sinn Fein. There could be 'no question' of the two governments adopting or endorsing Mr Hume's report of the dialogue. That report was passed yesterday for the first time to Mr Major by Mr Reynolds.

A joint communique, however, released by the British and Irish prime ministers after their meeting, left open the possibility of Sinn Fein being brought into the peace process if and when 'a renunciation of violence had been made and sufficiently demonstrated'. In those circumstances 'new doors could open'.

At the end of a week of the worst sectarian violence for two decades, the two leaders condemned the tit-for-tat killings by terrorists from the Catholic and Protestant communities. Their communique attacked the 'murderous and premeditated acts which could serve no end other than to deepen the bloodshed in Northern Ireland'.

Mr Major and Mr Reynolds reaffirmed their determination to restart the stalled negotiating process designed to bring a permanent political settlement to the province.

Their cautiously upbeat tone followed the Dublin government's acknowledgement earlier this week of the right of the Unionist community to exercise a permanent veto on changes in Ulster's constitutional status.

Both sides confirmed that the essence of any agreement would be a move by the Republic to replace its constitutional claim to the province with the aspiration of a united Ireland. Britain in return would offer a significant extension of cross-border administration.

But the communique glossed over significant differences on the extent to which elements of the Hume-Adams peace initiative could be incorporated into their own negotiations.

Mr Reynolds told Mr Major that the two sides could not ignore the potential for a cessation of violence by the IRA in return for a place at the negotiating table for Sinn Fein.

But, speaking after their talks, Mr Major told journalists that there could be 'no talks or negotiations between democratic governments and those who use, threaten or support violence'. Nor could there be any secret agreements or understandings with Sinn Fein or the IRA.

Despite their new determination to fill the political vacuum in which the terrorists have flourished, the two leaders also acknowledged that an intergovernmental agreement would not be enough in itself to bring peace.

GB United Kingdom, EC IE Ireland, EC P9721 International Affairs P8651 Political Organizations NEWS General News P9721 P8651 The Financial Times London Page 1 487
Briefcase, Q&A: Tax credit on dividends Publication 931030FT Processed by FT 931030

I HAVE A self-select personal equity plan (Pep). On my last quarterly statement was an entry for a tax credit on one of my dividends. The credit was given at the rate of 20 per cent.

I think the rate of tax on dividends is 25 per cent, but the last Budget decreed that credit is given at only the 20 per cent rate. A Pep is free of all tax, so am I right in thinking that this means there is relief at 25 per cent and not at just the rate at which non-tax exempt funds can claim a tax credit? Should my Pep have credited me at the 20 or 25 per cent rate?

The Inland Revenue was correct in paying a credit at the rate of only a quarter (equivalent to 20 per cent tax) on your Pep dividends for the present tax year, as against a third (equivalent to 25 per cent tax) on previous years' dividends.

You are wrong in saying 'the rate of tax on dividends is 25 per cent.' In the former chancellor's speech, printed in the FT's Budget supplement on March 17, was the statement: 'Finally . . .I also propose to reduce the rate of tax on dividends from the current basic rate of 25 per cent to the lower rate of 20 per cent.'

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All enquiries will be answered by post as soon as possible.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges NEWS General News P9311 P6231 The Financial Times London Page VIII 290
Finance and the Family: Your CGT allowances Publication 931030FT Processed by FT 931030

THE TABLE shows capital gains tax allowances for assets sold in September. Multiply the original cost of the asset by the figure shown for the month in which you bought it. Subtract the results from the proceeds of your sale; the balance will be your taxable gain or loss.

Suppose that you bought shares for Pounds 6,000 in June 1985 and sold them in September 1993 for Pounds 14,000. Multiplying the original cost by the June 1985 figure of 1.487 gives a total of Pounds 8,922. Subtracting that from Pounds 14,000 gives a capital gain of Pounds 5,078, which is below the 1993-94 CGT allowance of Pounds 5,800. If you are selling shares bought before April 6 1982, you should use the March 1982 figure. The RPI in September was 141.9.

----------------------------------------------------------------------- CGT INDEXATION ALLOWANCES: SEPTEMBER ----------------------------------------------------------------------- Month 1982 1983 1984 1985 1986 1987 ----------------------------------------------------------------------- January - 1.718 1.634 1.556 1.474 1.419 February - 1.710 1.627 1.543 1.469 1.413 March 1.786 1.707 1.622 1.529 1.467 1.411 April 1.751 1.684 1.601 1.497 1.453 1.394 May 1.738 1.677 1.595 1.490 1.450 1.393 June 1.734 1.673 1.591 1.487 1.451 1.393 July 1.733 1.664 1.593 1.490 1.455 1.394 August 1.733 1.656 1.578 1.486 1.451 1.390 September 1.734 1.649 1.575 1.487 1.444 1.386 October 1.725 1.643 1.565 1.484 1.441 1.379 November 1.717 1.637 1.560 1.479 1.429 1.372 December 1.720 1.633 1.561 1.477 1.424 1.374 ----------------------------------------------------------------------- Month 1988 1989 1990 1991 1992 1993 -----------------------------------------------------------------------

January 1.374 1.278 1.187 1.090 1.046 1.029 February 1.368 1.269 1.181 1.084 1.041 1.022 March 1.363 1.264 1.169 1.080 1.038 1.019 April 1.341 1.241 1.134 1.066 1.022 1.009 May 1.336 1.234 1.124 1.063 1.019 1.006 June 1.331 1.230 1.120 1.058 1.019 1.006 July 1.330 1.229 1.119 1.061 1.022 1.009 August 1.315 1.225 1.108 1.058 1.022 1.004 September 1.309 1.217 1.097 1.054 1.018 October 1.296 1.208 1.089 1.050 1.014 November 1.290 1.197 1.092 1.046 1.016 December 1.286 1.194 1.092 1.046 1.019 ----------------------------------------------------------------------- Source: Inland Revenue -----------------------------------------------------------------------

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page V 355
The Financial Times Guide To Secondary Education (2): How to read the tables Publication 931030FT Processed by FT 931030

POINTS/ENTRY = average number of UCCA points per subject entry. A-levels are awarded UCCA points on the scale A = 10, B = 8, C = 6, D = 4, E = 2; AS-levels were counted as half an A-level (ie A = 5 UCCA points). POINTS/PUPIL = average number of UCCA points per pupil. PASSES/PUPIL = average number of A-level passes per pupil. FT SCORE = a weighting of the average PPE (the quantity of grades attained) and the average PPE (the quality of grades attained). An FT score of 1.00 denotes the average score achieved by the FT-1000 schools. An FT score of more than 1.00 denotes above average results, less than 1.00 below average. TYPE OF SCHOOL I = independent G = local authority grammar GO = opted-out grammar C = local authority comprehensive CO = opted-out comprehensive CHG = church grammar CHC = church comprehensive f = member of a sixth form consortium RELIGION I = Interdenominational/ecumenical N = Non-denominational CE = Church of England/Wales RC = Roman Catholic NC = Non-conformist (Protestant) J = Jewish GO = Greek Orthodox

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page III 222
Police chiefs back diluted reforms Publication 931030FT Processed by FT 931030

THE ASSOCIATION of Chief Police Officers yesterday welcomed the home secretary's ditching of controversial proposed reforms of police pay and conditions.

Mr John Smith, association president, welcomed Mr Michael Howard's decision to reject recommendations in the Sheehy report that junior ranks be employed on fixed-term contracts, starting salaries cut and pension qualifications changed. Mr Howard also intends to water down the suggested formula for performance-related pay.

Mr Smith said: 'The home secretary has listened to arguments that we and others presented. There's much more yet to discuss and to debate . . . We will be wanting to continue to argue, but we believe with what the home secretary said yesterday he's taken (the) police service and therefore the public back from the precipice.'

Mr Richard Coyles, Police Federation chairman, agreed that there was much still to be debated, with pay rates an important example. He said discussion of the rates was back where it belonged, in the police negotiating body.

GB United Kingdom, EC P9221 Police Protection NEWS General News P9221 The Financial Times London Page 5 188
Pay for MPs set to rise by 5.5% Publication 931030FT Processed by FT 931030 By DAVID OWEN

PLANS to offer MPs a two-year 5.5 per cent pay rise prompted fierce criticism yesterday.

Under proposals to be debated next Wednesday, MPs would be awarded a 2.7 per cent increase, taking their salaries to Pounds 31,687 with effect from January 1994. This would be followed by a further 2.68 per cent the following year. The government also proposes to link MPs' pay to a range of civil service bands.

The government is this year seeking to impose a 1.5 per cent ceiling on the public-sector pay bill, and may try to impose a freeze next year.

Mr Michael Bates, Tory MP for Langbaurgh, said: 'It is an absolute outrage. This is a time when we are asking all public servants to play their part in having a pay freeze.'

Mr Alan Jinkinson, leader of Unison, Britain's biggest union, said: 'It would be grossly hypocritical for ministers and MPs to vote themselves an increase nearly twice the figure to which public-sector workers are being restricted this year.' Mr John Edmonds, leader of the GMB general union, said: 'Aren't they the lucky ones? I wish our members had the chance to vote themselves a pay rise at twice the rate of inflation.'

Officials said the proposed increase was a catching-up exercise. A formula linking MPs' pay to the civil service was abandoned more than a year ago when civil servants' rises were made dependent on performance. MPs' pay has been frozen since then, while civil servants have seen increases of 3.9 per cent from August 1992 and 1.5 per cent this year. Last year MPs voted themselves a 38 per cent rise office-cost allowances to nearly Pounds 40,000 a year.

GB United Kingdom, EC P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 5 313
Plaid in PR bid to lift number of female MPs Publication 931030FT Processed by FT 931030

HALF THE MPs in a future Welsh parliament must be women, Mr Dafydd Wigley, the Plaid Cymru president, said yesterday.

The Welsh Nationalist leader said that an incoming Labour government or a Liberal Democrat/Labour pact should use a voting system based on proportional representation to ensure 'near parity' between men and women members.

It is expected that a Welsh parliament would be set up in the first year of an incoming Labour or Liberal Democrat/Labour government.

Plaid Cymru, debating the issue at its annual conference in Cardiff, is pressing for a chamber made up of two MPs - one man and one woman - from each of the 38 constituencies in Wales, plus additional elected members, to give a total of about 100 members.

In his address to the conference - which earlier this week launched a campaign to put independence back on the political agenda - Mr Wigley, MP for Caernarvon, gave his support to proposals for a two-stage drive towards self-government for Wales.

On the last day of the three-day conference today delegates will debate calls for a Welsh parliament with law-making and financial powers to take over responsibility for all functions which are currently undertaken by the Welsh Office and about 80 quangos - such as the Welsh Development Agency.

The second more controversial step, setting up a fully self-governing Welsh republican state in Europe, would be put to Welsh voters five years later.

GB United Kingdom, EC P8651 Political Organizations NEWS General News P8651 The Financial Times London Page 4 269
Lander leaders in plea to save jobs Publication 931030FT Processed by FT 931030 By QUENTIN PEEL BONN

THE leaders of four German states (Lander) are to meet the chief executives of Daimler-Benz and its subsidiary Deutsche Aerospace (Dasa) to try to head off mass redundancies and plant closures by Germany's principal aerospace contractor.

The meeting, at the initiative of Mr Edmund Stoiber, the Bavarian prime minister, is on November 12. It will bring together Mr Edzard Reuter of Daimler-Benz, Mr Jurgen Schrempp, his colleague at Dasa, as well as Mr Gerhard Schroder, the premier of Lower Saxony, Mr Stoiber, and the mayors of the city states of Bremen and Hamburg.

All the states have important Dasa plants, several involved in manufacture of the European Airbus and now threatened with closure in the drastic rationalisation programme announced by Mr Schrempp last week. The company is to shed 16,000 jobs from its 80,000-strong workforce by the end of 1996, and close six plants, while seeking outside buyers for three further plants.

The biggest plants affected are the Airbus Lemwerder works outside Bremen, with 1,150 expected redundancies, and the Airbus factory at Munich-Neuabing, with 1,200 job losses.

Both Bavaria and Lower Saxony have offered subsidies to keep the plants open, but Dasa insists it has no plans to amend its cuts.

Daimler-Benz Deutsche Aerospace DE Germany, EC P3714 Motor Vehicle Parts and Accessories P3721 Aircraft PEOP Labour RES Facilities P3714 P3721 The Financial Times London Page 2 244
After the inferno Publication 931030FT Processed by FT 931030

A cyclist in Laguna Beach, California, passes debris of a house and car destroyed in the fires which recently engulfed parts of the state

US United States of America P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 2 53
Ciampi survives vote Publication 931030FT Processed by FT 931030 By REUTER ROME

Prime Minister Carlo Azeglio Ciampi won a confidence vote in the Italian parliament yesterday but politicians said he would probably have to face several more to win approval for his crucial 1994 budget, Reuter reports from Rome. Opposition parties object to its cost-cutting measures and Mr Ciampi's supporters now seem set to use the budget to help delay a general election, which would almost certainly cripple them.

IT Italy, EC P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 2 95
Personnel carrier Publication 931030FT Processed by FT 931030

Government army volunteers cramb into a car boot in Senaki, western Georgia yesterday

GE Georgia, East Europe P9721 International Affairs NEWS General News P9721 The Financial Times London Page 2 37
British Gas and Tenneco win Chilean pipeline deal Publication 931030FT Processed by FT 931030 By DAVID PILLING SANTIAGO

BRITISH GAS and Tenneco Gas of the US were yesterday awarded a contract to operate a Dollars 1.65bn project to pipe natural gas from Argentina to Chile.

The 1,200km pipeline, which would transport gas from Argentina's Neuquen fields to businesses and homes in Santiago and other Chilean cities, has a target completion date of 1997.

Chilectra, the project developer and leader of a consortium that has negotiated a gas supply contract with Argentina, named Tenneco as the technical operator of the transmission company.

British Gas will take responsibility for the 8,000km distribution network.

The British and US companies beat off stiff competition from other international companies, including Enron, Lonestar Gas and Utili-corp of the US, and Transcanada Pipelines and Novacorp International of Canada.

The two companies, which would take out an equity stake in the project, will undertake feasibility studies before going ahead with construction in 1994.

British Gas's share of the study costs will be less than Dollars 2.25m.

Securing financing may be difficult given the estimated six years of negative cash flows involved and the 20-year payback period.

The transmission and distribution elements of the contract, not including three thermo-electric generators, are likely to cost between Dollars 950m and Dollars 1.2bn.

There is also political risk. Although Chile was awarded an investment grade rating last year, Argentina's economic stability is still to be tested.

Relations between the two countries, although much improved, have often been strained - a factor that could interrupt the smooth flow of gas.

British Gas Tenneco Gas AR Argentina, South America CL Chile, South America P4923 Gas Transmission and Distribution MKTS Contracts P4923 The Financial Times London Page 2 293
Aristide's opponents call strike Publication 931030FT Processed by FT 931030 By WILLIAM SPINDLER SANTO DOMINGO

OPPONENTS of Haiti's exiled President Jean-Bertrand Aristide called an armed general strike yesterday which left the streets of the capital, Port-au-Prince, almost deserted.

The strike came the day before Mr Aristide was due to return to the country under the terms of a United Nations-brokered peace deal.

Yesterday's action was called by extreme rightists with close links to the military. The stated aim of the strike is to force Haiti's pro-Aristide civilian government to reopen petrol stations, which have been closed as a result of a UN embargo imposed because of the military leaders' refusal to give up power.

Army chief Lt Gen Raoul Cedras, in an interview on the pro-army Radio Liberte, said Mr Aristide had overstepped the terms of the peace accord by calling for the resignation of the army high command and police chief Joseph Michel Francois.

The impasse over Mr Aristide's return and deteriorating conditions in the country have led many ordinary Haitians to try to flee the country. Ships enforcing the embargo have intercepted two refugee boats this week carrying a total of 43 people. Fifteen people sent back were promptly arrested by armed men.

The Dominican Republic, with which Haiti shares a border, has traditionally offered an avenue of escape in times of crisis. This week, however, the Dominican government has been repatriating thousands of Haitians, including people who have lived there for decades, and even black Dominicans suspected of having Haitian descent. Although President Joaquin Balaguer of the Dominican Republic has said that the deportations would stop, the message to prospective Haitian refugees is clear: they are not welcome.

The deportations might serve another purpose. According to Mr Ruben Silie, an expert on Haitian-Dominican relations at the Technological Institute of Santo Domingo, they 'are a clear signal to the Clinton administration that the Dominican Republic is not prepared to pay the costs of US policy in Haiti.'

With traditional channels of escape being closed, desperate Haitians can be expected to seek refuge in other shores.

Britain could soon find itself drawn into the crisis. The Turks and Caicos Islands, a British protectorate, has been also receiving Haitian refugees.

HT Haiti, Caribbean P9721 International Affairs NEWS General News P9721 The Financial Times London Page 2 385
World News in Brief: Kurds attack Turkish airline office Publication 931030FT Processed by FT 931030

Turkish Kurds threw a petrol bomb into a Turkish Airlines office in central London in protest at a massacre of Kurds in Lice, south east Turkey. No one was injured and 21 demonstrators were arrested.

GB United Kingdom, EC P9229 Public Order and Safety, NEC NEWS General News P9229 The Financial Times London Page 1 69
World News in Brief: Clampdown on cautions Publication 931030FT Processed by FT 931030

Home secretary Michael Howard said he would issue police with guidelines intended to stop the use of cautions for serious offences and reduce 'drastically' the number of repeated cautions.

GB United Kingdom, EC P9221 Police Protection NEWS General News P9221 The Financial Times London Page 1 58
World News in Brief: Police chiefs back Howard's decision Publication 931030FT Processed by FT 931030

The Association of Chief Police Officers said it welcomed the decision of home secretary Michael Howard not to implement the most controversial proposed reforms of police pay and conditions in the Sheehy report.

GB United Kingdom, EC P9221 Police Protection NEWS General News P9221 The Financial Times London Page 1 64
Private View: The savage in the three-piece suit - What drives an English gentleman to spend five harsh years wandering in the desert with the bedouin? Wilfred Thesiger, one of the last of the great explorers, considers his craving for adventure among the world's most isolated tribes Publication 931030FT Processed by FT 931030 By CHRISTIAN TYLER

A GENTLEMAN nomad, a tribesman in a three-piece suit: Wilfred Thesiger is oxymoron personified. In London he carries a furled umbrella, at home in Africa a spear.

This ascetic, upper-class Englishman is one of the last explorers to have filled in the globe's blank spaces: you can see the desert etched into his face. Though 83, he is as tall, lean and straight-backed as the Samburu warriors of northern Kenya among whom he lives.

Wilfred Thesiger is a glorious anachronism. Where others only uttered their hatred of the modern age, Thesiger lived his. Where others only dreamed their adventures with the help of Kipling, Conrad or Buchan, Thesiger went out and created his own.

His exploits are well known: he has described them in his own spare prose and vivid black-and-white photographs. At 24 he was the first European to survive a journey among the Danakils of Abyssinia, tribesmen who showed off by killing and castrating their neighbours. He twice crossed the Empty Quarter of southern Arabia by camel. He lived for years with the marsh Arabs of Iraq (now being exterminated by Saddam Hussein). His only regret, he said, was that he did not see Tibet before its desecration.

Can the mind of an explorer be mapped?

I met Wilfred Thesiger at his Chelsea flat during one of his rare visits to London and asked him if he understood why he had been so determined to risk his neck.

'No, I don't. I mean, in a sense it was born into me.' As a child in Abyssinia, where his father was head of the British legation, he had been mesmerised by the savage splendour of a tribal victory parade. 'Then I wanted to hunt, and to get into areas that were virtually unknown, among tribes which hadn't any contact with the outside world.'

Nowadays, I said, people would look for a deeper psychological explanation.

'I wouldn't know anything about that.' He smiled. But he described as 'decisive' the experience of being sent home to St. Aubyn's prep school in Rottingdean, near Brighton.

'I arrived a friendly, forthcoming little boy, I think, and immediately I started telling stories about tiger hunts (in Jaipur with his uncle, Lord Chelmsford, then Viceroy of India) and being taken to see the British guns firing on the Turks near Aden, and I was regarded as a complete little liar. I was in a sense rejected by the other boys and driven back on myself.'

You escaped into the wilderness because you could not feel at home in your own country?

'I didn't think in those terms.'

Is there any explanation you have heard applied to you that you accept?

'No. I haven't discussed it like this before.' He added: 'What it did do, this rejection by my contemporaries, it spoiled Eton for me to some extent. Even there I was suspicious of the other boys and I think slightly aggressive.'

He was not popular, and that perhaps was why he preferred to travel with Arabs or Africans, avoiding other Europeans. (He introduced Gavin Maxwell to the marsh Arabs. The trip was not a success).

'When I was in Arabia my great aim was to get on to level terms with these people, to live as they did, meet the challenges of the desert on equal terms. I wanted no concessions. I think to that extent I won their respect, and the result was that three or four of them identified themselves with me and were prepared to take very considerable risks.'

The respect you earned from the bedouin made up for failing to win it at school?

'Again, I wouldn't be thinking in those terms. But I think it probably did.'

But why, I asked, does a man choose such extraordinary physical privations: the starvation, the thirst, the tedium? It's almost masochistic.

'No, it was a life that tested one to the full. It was this desire to meet a challenge, to be tested to the full.'

Thesiger had risked his life hunting lion but it was the hardship of five years in Arabia that forged him, he said, and the nobility of the desert nomads that fired him.

'All Arabs want to excel, to be known as more generous, more hospitable, brave and so on. Because it was a small society on the move everything was known. If you distinguished yourself it was 'God whiten the face of so-and-so'. If you behaved badly it would be heard everywhere.'

You felt obliged to undergo this test?

'It was what satisfied me. I don't feel obliged to do it. When I went to the marshes, the Arabs didn't match up to the bedou in that sort of way. I enjoyed being with them, but the challenge was gone.'

Perhaps, like the hermits of old, he went into the desert to meet his God. But no. Thesiger does not believe in a Creator, only some fundamental physical law. He went to the desert for companionship and for 'the dunes of silence.'

'Without the bedou it would have been a meaningless penance. If I had gone off to the North Pole I might have got associated with the Eskimos. If I had gone to the South Pole the penguins wouldn't have satisfied me.' He laughed like one who rarely makes jokes.

Thesiger was a 10-year-old at prep school when his father died suddenly. His mother became obsessively devoted to her four boys. Was this a classic recipe for . . . ? I broke off as the old man leaned forward to point to the framed photograph of a beautiful woman: 'There she is, you see.'

Again I elaborated the theory of the absent father and devoted mother and said: Does that make any sense to you?

'No, it all sounds complete nonsense. I mean, it wasn't anything to do with my father not being there that I had to go off and do the things I'd wanted to do while he was still with me.'

The elegant clubman opposite said he felt no affinity with England, a country he has not lived in for 60 years, since his Oxford days. And he is going blind. 'I couldn't bear coming back to England, going into a sort of old man's home for the blind. I'd rather live out in Kenya and be led about by them on a stick.' He smiled ruefully.

He shares a mud and timber house with his adoptive Samburu family, helps officiate in circumcision rituals and - a former boxing Blue - teaches boys to box.

You never wanted a family yourself?

'No. To have married and everything would have crippled me - there was a girl once I was attracted by when I was almost a boy. Then you have children, they've got to be educated. I wanted complete independence.'

Thesiger's sexual ambivalence is common gossip. A journalist colleague recalls meeting the explorer in the Yemen and being shown a box of dried foreskins. But I could remember nothing in print and had no idea how he would react to my next question. Thesiger took it blithely.

'I think in a curious way I had very little sexual sort of . . . in either direction.'

Thinking of his heroes, TE Lawrence and Alexander of Macedon, I said many adventurers seemed to have been ambivalent.

'If you travelled in the desert as I did, how many times did we see women? You arrived in camp and the women looked after you. There was a very attractive girl on one of the wells. The others used to pull my leg about her. I was attracted by her, but you were moving about the whole time with men - and some of them were really only boys.'

Hoping it sounded tactful, I asked: Do you prefer boys?

'I suppose in a sense, yes. But I am not thinking sexually. I have much more an emotional attachment because I know where I am with them. I was a boy myself. With girls I wouldn't begin to know what to talk about. I mean, I never have.'

In the past people would leave England to escape the stigma of a homosexual inclination, I said. Was that your case?

'No, it certainly wasn't. In the sense that I was to some extent - I suppose I am to some extent - homosexual it had nothing to do with it. My whole driving thing in all this was exploration.

'No. I lived in a celibate society. I've never had much interest. I find it extraordinary when people are prepared, like the Prince of Wales with Mrs Simpson or whatever her name was, to give up everything for another person like that woman.'

Thesiger had a lunch date at the Travellers Club. When I suggested it was time to wind up he demurred. 'Ask as many questions as you want. It's rather interesting, your probing me like this.' So I asked if he had satisfied his need for the wilderness.

''Need's too strong. Craving. It was an urge, a craving.'

You never questioned where this craving comes from?

'I don't question things. I'm not that sort of person.'

You've had time to think about it, sitting in the desert under the stars at night . . .

'My mind doesn't work that way. You're giving me credit for being much more intellectual. I'm not an intellectual.'

So you wonder why I am trying to find out why you do these things?

'I think it's a bit odd.' He laughed, then added: 'Let me say something. I think this is one of the reasons for all this trouble like football hooliganism. It's that most young people - young men anyway, perhaps the girls to some extent . . . I know nothing about 'em - want to meet a challenge, want to see how they will face up to some sort of danger. Hardship and danger. I think it's a desire that's almost born into most people. Now, kicking a football about in Battersea Park doesn't satisfy you, therefore you join a gang.

'It did at one time reintroduce tribalism into this country: the Mobs (he meant 'Mods') and the Rockers. Two quite separate tribes, dressing differently, behaving differently and fighting when they met.

'There's dissatisfaction with a world which gives them no opportunity for this. So you hang about in the streets, you paint your hair green, sit there and wait to collect money off Americans taking photos of you. I thank God that I lived when I did and that I'm not 18 today.'

I have called Wilfred Thesiger a glorious anachronism. But the last word should go to Lawi Leboyare, the young father in Thesiger's adoptive family. The explorer was chiding him one day for his love of cars, transistor radios and pop music. 'Of course,' laughed the young man, 'the truth of the matter is that you are Old Stone Age.'

GB United Kingdom, EC P7999 Amusement and Recreation, NEC PEOP People P7999 The Financial Times London Page XXIV 1898
Hawks & Handsaws: Travels with a twerp Publication 931030FT Processed by FT 931030 By MICHAEL THOMPSON-NOEL

Some of our dislikes are rational; others, obviously, are not. Why, I wondered this week, do I dislike twerpy Mark McCormack with such resoluteness. What has he done to me? I haven't even met him. I went to his office once, but McCormack was away travelling. So I was dealt with by an aide so ridiculously good-looking, charming and articulate that I assumed he was an android from Planet Zog.

McCormack is rich and successful, but that doesn't irritate me. I am not an envious person. His company, International Management Group (IMG), represents a large number of sports and entertainment celebrities, and has so insinuated itself into the running of sports and cultural events everywhere - merchandising, licensing, TV programming - that its influence is all-pervasive. McCormack, I am certain, deserves his success.

The best I can do to justify my dislike of him is to say that I find him one of the most banal and insensible of all sports commentators (yes, he does that as well); and that he has just produced one of the worst, most smug, most gung-ho and self-serving, most risible and stick-in-the-craw volumes of twerpish twaddle that I have set eyes on in many a long month.

It is called Hit The Ground Running: The Insider's Guide to Executive Travel, and has just gone on sale at the beguilingly cheeky price of Pounds 15.99. I only hope a copy does not fall into the hands of Kenneth Clarke, Britain's chancellor of the exchequer.

If it does, I have little doubt that Clarke's brain will snap and that he will vent his fury in next month's Budget by levying a stupendous rate of VAT on all books and newspapers. And all because of McCormack.

McCormack is, he tells us, a 'global commuter' for whom a sedentary month means fewer than 10,000 air miles. 'Last year, I logged over 225,000 miles on business travel - just as I have for each of the past 30 years,' he crows. 'I have eaten meals in more than 5,000 restaurants on six continents and stayed in hundreds of hotels in every major city.'

Here is a bit of nonsense from Page 104. In addition to the valuable papers that must stay with them in transit, and the materials they need to read or work with, says McCormack, all smart business travellers should pack a survival kit in their carry-on luggage.

'This small bag of 'travel insurance' might include: a fresh shirt; prescription medicines; personal toiletries, including a toothbrush, deodorant, make-up, razor, comb, hairbrush, shampoo and compact hairdryer; tissues; aspirin; spare contact lenses or eye-glasses; a change of socks (or pantihose); a change of underwear.'

And here is another bit of nonsense: 'I think the window seat (on aircraft) promotes clear thinking. Some business travellers think that if you've seen one cloud, you've seen 'em all. But, for me, looking out over the clouds can create a mood of contemplation that channels creative ideas to the forefront.'

Unfortunately, Hit The Ground Running seems to be selling copies. On Thursday evening I bumped into Miss Lee, my Thatcherite executive assistant. Miss Lee is a beauty, legs up to here. She was wearing one of the tightest microskirts I think I have ever seen, and was on her way to a meeting of the Blue Fuse Club in a wine bar near Chelsea barracks. In theory, the Blue Fuse Club devotes itself to Tory fund-raising; in practice, Miss Lee and her cronies drink cocktails and pick up young soldiers.

'Have to dash,' said Miss Lee, breathlessly, 'but everything's ready for your next trip, sweetie. I've packed you an on-board survival kit: fresh shirt, malaria pills, toothbrush, deodorant, make-up, razor, comb, hairbrush, mini-hairdryer, tissues, aspirin, socks, underwear. I've booked you a window seat so that you can watch the clouds fly past.

'And I've arranged with the hotel for you to have four telephone lines in your room - lines, not extensions - so that your calls to and from all six continents can flow in and out speedily and efficaciously.

'I have further informed the hotel that you will require a king-size bed with choice of pillows; swivelling reading lamps; bedside table with control console for lights, TV, radio and drapes; a real desk; an ottoman; coffee-maker; video message retrieval; teleconferencing capability; fax and computer modem capability; CNN; and in-room private safe.

'Each night I'll send you a 'headline fax' - highlights of the previous business day. You are up and running, tiger. Mark H. McCormack would be proud of you.'

International Management Group GB United Kingdom, EC P8741 Management Services MGMT Management & Marketing PEOP People P8741 The Financial Times London Page XXIV 798
Arts: Caught by the artist's snapshot - An intimate showing of Francis Bacon works Publication 931030FT Processed by FT 931030 By WILLIAM PACKER

INTIMATE is hardly the word most would use to describe Francis Bacon's art. Yet he was in some ways the most intimate of painters. The remarkable exhibition now at the Marlborough in London, which includes many loans from private collections, brings out two aspects of his work often overlooked.

First, it shows that for all the larger scale and formulaic presentation that Bacon came to adopt in his later work, his first and lasting reputation, in all its strength and expressionist authority, was founded on images of moderate size. Some of the strongest works are, in comparative terms, almost shockingly small. No matter how generalised the final resolution of the figure might seem to be, it was always based directly upon his response to a particular human presence. The physical immediacy and conviction of the result was never compromised by fact that he often used secondary and photographic sources as working references.

The show is of small studies for portraits of the sort he made consistently through the last 30 years of his life, the earliest dating from 1961. He had painted heads before, notably the screaming Popes after Velazquez, and the death-mask images of William Blake, but it was only then that this particular format was set. He had always responded to the visual stimulus of the image caught on the wing, the film-still, the snap-shot and newspaper photograph, and now was clearly fascinated by the serial image of the photo-booth and mug-shot, with its curious compound of arbitrary directness, informality and self-consciousness.

The head is cropped, constricted, close up, the subject a specimen beneath the microscope or victim strapped into the dentist's chair. Here is nothing of the quality we find in the work of Lucian Freud, for example, or, in its different way, of Frank Auerbach - of the artist confronting and scrutinising the model over an extended period, sharing a common space and temporal experience. Rather it is a matter of the moment, of the fleeting expression, the half smile, the fatuous grin, the turn of the head, the trick of the mouth.

The development of the image, too, is a serial affair, coming less from the particular and objective scrutiny even of the photographic image over a given and limited period, than from an extended familiarity with the subject in personal terms. For Bacon worked from few sitters, but tended to return to them repeatedly - Muriel Belcher, the formidable patronne of the Colony Room; Isabel Rawsthorne; Henrietta Moraes; Lucian Freud; George Dyer, his long-time companion; John Edwards, his heir. But, more than any of them, he painted himself, and while as single spies the self-portraits are no secret, thus brought together, it is not just their number but their insistent, cumulative quality that comes as a considerable surprise.

Many of the images are single shots, but the diptych and triptych follow naturally from the photo-strip, and suddenly we remember that it was by virtue of that first triptych, the studies for figures at the foot of a Crucifixion of 1944, that Bacon woke up Byron-like to find himself famous. He continued to use the device in his larger, more public work throughout his career. Yet here again, with these small, intimate and private paintings, we are brought up short, for among them we find particular twos and threes brought together to make up some of the most powerful and properly monumental works of the entire oeuvre.

One in particular, a triptych of 1977, of one self-portrait set with two still-life panels, makes one wish only that there might be a body of similarly intimate still-lifes to match the portraits. And, curiously, these characteristically pulled, twisted, distorted, truly manhandled heads and faces come together as a cumulative whole in celebration, not of some bleak and dreadful vision of a depraved humanity, but of something altogether more cheerful. The images are vital and alive, the paint laid on with a sensual and positive enjoyment, the drawing vigorous and positive. The likeness lies with a presence not closely described but known and sensed, as it blinked and, shifted, alive in every broad sweep of the brush across the surface of the canvas. Oh dear, we say, as we press the shutter, you must have moved.

Francis Bacon - small portrait studies: Marlborough Fine Art, 6 Arlbemarle Street, London W1, until December 3.

GB United Kingdom, EC P8412 Museums and Art Galleries NEWS General News P8412 The Financial Times London Page XXII 766
Arts: Why we should privatise the RSC Publication 931030FT Processed by FT 931030 By MALCOLM RUTHERFORD

THE Royal Shakespeare Company has had a good year. As it unveiled its 1992/93 accounts in Stratford this week, it revealed an operating surplus of Pounds 128,906, a return of 0.48 per cent on total costs of just over Pounds 26.5m. Many of its productions in both Stratford and London have been playing at more than 80 per cent of capacity audiences - a fine record by any standards, especially during recession.

The results of the Royal National Theatre, the nearest analogue to the RSC, are less satisfactory. It reported an operating loss of Pounds 565,000, or 2 per cent of turnover. But there is no point in making invidious comparisons. Theatre has its ups and downs. In 1990/91 the RNT had an operating surplus of Pounds 310,000.

Yet even if the RSC and the RNT had made profits of Pounds 1m apiece, there would still be bleats about what is to come, just as there were at the RSC's annual meeting of its Court of Governors on Wednesday. Sir Geoffrey Cass, chairman of the council, warned of difficult decisions ahead in the light of possible government cuts in the arts budget.

Prince Charles, who as patron of the RSC chaired the meeting, went along with him in general terms. He could not understand, he said, why Britain is so bad at appreciating what it is really good at.

The problem is the subsidy. At the RSC it is down to 38.79 per cent of costs, against 42.12 per cent in 1991/92. Just over Pounds 8m of it comes from the Arts Council and another Pounds 1.4m from the Corporation of London. Those are substantial amounts. The RNT is subsidised even more: in 1991/92, 44.4 per cent of its income came from grant in aid. The fear is that if the subsidies decline, or even at best stand still, the quality and variety of the two big subsidised theatres will go down with them. That is the conventional wisdom.

Yet the more one hears the arguments and looks at the figures, the more one wonders if the conventional wisdom can be right. For a start, we have been here before. Laments about a financial crisis in the arts are part of the landscape. Even if the government bows to the lobbies and allows a little more money for the arts than it otherwise might, there is no reason to believe that we shall not be here again within a year or two.

Is it not time for at least the two big theatre companies to break away from the system? It cannot be done overnight. The subsidies are so fundamental they would have to continue for a while. But there are possibilities for the longer term.

Remember that the government will shortly have extra money available for the arts from the national lottery. It could allocate part of that to pay off the accumulated deficits of of the RSC and the RNT once and for all, then set a deadline for when the subsidies would stop, after tapering off on the way.

It would be a great help if the theatres could could have some ideas of their own. For example, I can see no insurmountable reason why the RSC and the RNT should not be privatised. This is not a hostile capitalist device and indeed is not much different from becoming a co-operative. Many people might want to buy shares: actors, theatre-goers, impresarios, even the public. You could revert to the old BP solution where the state held just over half the shares and the rest were privately owned, or the other way round. There are masses of variants, including a management buy-out.

Yet for anything like that to happen, there will have to be one radical and early change. This is in the attitude to seat-pricing. The idea is around that going to the theatre is expensive. In its annual report, the RSC notes that the highest priced seat for the Royal Shakespeare Theatre in Stratford is Pounds 30, the lowest Pounds 4.50. At the Barbican the range is from Pounds 20 down to Pounds 4.50. Overall, the subsidy per paid admission is Pounds 9.54.

Somehow it has become fixed in the collective mind that those top prices are extravagant. That is nonsense which must be challenged. The basic question is how much it costs to put on a good show plus some profit, just as it is for the production of any other consumer good.

If you believe that Pounds 30 is excessive to watch a delightfully professional RSC performance of Love's Labour's Lost, such as opened in Stratford this week, think of the frivolities on which you might otherwise be spending your money: Pounds 60 for a second rate dinner in London, Pounds 30 for a haircut and another Pounds 20 for a book of unread political memoirs. Something has gone badly wrong between cost and price.

Of course, cheaper prices would remain for students, pensioners and the unemployed. But the idea that prices in general should be kept artificially low by subsidy is already damaging and will become even more so as the subsidies fail to increase. It is a bit like British Rail, where nobody seems to know any more how the pricing system works and any attempt at a rise is resisted.

This is the real downward spiral. Unlike BR, the theatre is still efficient enough to begin to reform itself. It will not do so by bleating.

Royal Shakespeare Co GB United Kingdom, EC P7922 Theatrical Producers and Services FIN Annual report P7922 The Financial Times London Page XXII 953
Arts: The future of Britain's art treasures? It's a lottery - Off The Wall Publication 931030FT Processed by FT 931030 By ANTONY THORNCROFT

FOR ANYONE interested in Britain's heritage this was the week of the bad news and the good news. The bad news came first. On Tuesday the annual report of the Reviewing Committee on the Export of Works of Art bewailed yet again the important national treasures sold abroad during the past year.

The next day came the good news, with the National Heritage Memorial Fund reporting how it spent its money saving for the nation everything from Old Masters to rare tracts of countryside.

But, as the Reviewing Committee points out, 'it is an ill wind that blows nobody some good'. The collapse in the art market over the last three years has reduced the flow of masterpieces seeking export licences, and only 20 objects were important enough to attract the attention of the Committee in 1992-93 as against 47 in the previous year. Of course British museums and art galleries are still unable to raise the cash to keep important works in the UK, and of the 15 objects that the Committee temporarily barred from leaving the country eight eventually left.

Inevitably they were the most valuable, and included grand Old Master paintings by Guido Reni, Ribera and Bellotto. There was absolutely no chance that a British institution could find the Pounds 11m needed to match the Getty Museum's offer for Turner's vibrant seascape 'Von Tromp going about to please his masters'. The Committee would have been prepared to let it go without a struggle but for the fact that it was being sold by Royal Holloway College. Its export was delayed for six months to show how much the committee disapproved of the college selling works bequeathed to it in perpetuity by its founder.

Not that Royal Holloway showed any signs of repentance. This week it did it again, and is Pounds 3.5m richer after dispensing with a Gainsborough landscape. The mysterious new owner said he was willing to loan the picture back occasionally to the College which suggests that it was bought by Sir Andrew Lloyd Webber, who lives nearby and is the only person in the world currently paying this sort of price for a British picture.

The Heritage Fund, the Government financed safety net to shore up the nation's heritage - artistic, natural, and industrial - also had a quiet year. Its main achievement was securing Joseph Wright of Derby's 'An Iron Forge' for the Tate with a Pounds 900,000 grant. As ever the 67 successful applications for its aid, out of a reduced total of 163 requests, included curiosities: a remnant of wildwood in Huntingdon; the turn-of-the-century wagon of a travelling showman; and 270 films showing the London Fire Brigade in action during the second world war.

The Fund needs a quiet time. It is frantically preparing for 1995 when it takes over the distribution of the heritage pot of Lottery money. It has a staff of seven and in 1994 its annual grant is a reduced pittance of Pounds 7.8m. A year later it will have at least an additional Pounds 75m to distribute.

Although the Lottery is aimed at capital projects, and much of the money will go towards restoring country houses, cathedrals, museums, etc, Lord Rothschild, chairman of the Fund, made it clear that the money can also be used to keep important works of art in the UK.

There is an obvious danger that crafty owners might try and arrange sales overseas at outrageous prices in the expectation that the Fund will step in with matching sums. The Fund is aware of the danger. It is already concerned at what it considers excessive valuations put on some of the archives of historical manuscripts which have come on to the market in recent years. It has made its displeasure known.

In theory, with new EC regulations shortly to come into force to allow the return of smuggled works of art; the Reviewing Committee in place to delay the export of treasures; and the Heritage Fund at last better able to help museums anxious to acquire artworks in danger, the UK's sorry record in squandering its cultural history should end. It sounds too good to be true.

The Lottery money cannot arrive too soon. There are signs of the art market recovering its nerve. The last few weeks have seen a spate of high, indeed record, prices. Not in London, which seems to be slowly slipping away as the centre of the international trade in art, but in those places overseas where fortunes are still being made.

The auction houses see their salvation in south east Asia. This week Christie's brought in Pounds 12m from Hong Kong sales of oriental art and Sotheby's Pounds 11.5m, with new collectors from Taiwan, Singapore and Korea often out-bidding the traditional Japanese and Hong Kong buyers. In Europe Sotheby's made Pounds 3.5m from Greek and Roman coins in Zurich while the clear out in nearby Regensburg by Princess Gloria of Thurn and Taxis of more than 6,500 lots of high class tat from her numerous palaces raised Pounds 12.8m, double the estimate. As always bidders were prepared to pay over the odds for a conventional item with an aristocratic provenance.

Christie's in New York managed an auction record for a photographic image, when Steiglitz's photograph of the hands of his wife Georgia O'Keefe sold for Pounds 260,458, while London made some contribution, with a high for an Islamic artifact, Pounds 2.4m for a bronze lion made in Spain around 1100.

GB United Kingdom, EC P8412 Museums and Art Galleries NEWS General News P8412 The Financial Times London Page XXII 955
Arts: All hail the high prince of horror - Nigel Andrews pays tribute to the actor Vincent Price, who died this week aged 82 Publication 931030FT Processed by FT 931030 By NIGEL ANDREWS

THE Tingler, The Pit And The Pendulum, The Raven, Theatre Of Blood . . . Vincent Price, prince of darkness, is dead. Who can resist the ritualistic mourning incantation? - 'Horror cinema will never be the same without him.'

But of course horror cinema was never the same with him. Never the same from movie to movie - when would this gaunt actor-chameleon put on his sepulchral-serious colours and when his self-spoofing motley? And never the same, seen historically, in the post-war Price heyday as it was in the earlier era of Lon Chaney or Boris Karloff.

Almost single-handedly Vincent Price created a new realm of Gothic cinema: one where stomping monsters gave way to silken aristocrats, monochrome (and often monotone) mayhem to a richly-coloured Romanticism sometimes curdling into camp.

His best movies were the series of Poe-based films made with director Roger Corman. Here the damask snarl of a voice - Missouri-southern mixed with stage-trained Shakespearean elocution - gave us the beat of Poe's taunting, haunting prose. And the patrician-bloodhound face summoned up all those Poe aristos, marooned in their mansions as troublesome guests dropped by. 'That noise, sir? Just my sister trying to emerge from her resting place. That scream, sir . . . ?'

The only time I ever met Price, it was in his pink-washed villa halfway up the Hollywood Hills. He already looked frail from long illness. But he talked for an hour; showed me round his art collection (he has written books on painting and was once reported to be the highest-paid art lecturer in America); and rolled out his career history for me like a red carpet.

He was a living half-century chronicle of Hollywood. After early stage experience with, among others, Orson Welles's Mercury Theatre, he came to screen fame in the late 1930s as Sir Walter Raleigh to Bette Davis's Queen Elizabeth I. Then he spent the next two decades working for a connoisseur series of Mad Directors, including Otto Preminger (Laura, 1943) and Cecil B DeMille (The Ten Commandments, 1956). DeMille was his favourite: probably because, like a good horror director, CB expected other people's imagination to work along with his own.

'He never had a script,' says Price. 'He'd have a Bible on his desk and that was the script]' The film's visuals were not always quick-off-the-drawing-board either. 'In The Ten Commandments I had a line to Sir Cedric Hardwicke, who was playing the Pharaoh and I said, 'Yonder lies the city of Seti's glory]' And behind us there was this great blank cyclorama which they'd superimpose the photograph on later. And DeMille pulled me over and said, 'Vincent, you don't read that line with much conviction.' And I said, 'Mr DeMille, I don't know what I'm talking about] I look out there and all I see is a great blue screen.'

'He said, 'You're right, come with me to the studio.' And he showed me what was going to be superimposed - temples, giant tombs and 13,000 slaves walking up the Valley of the Kings pulling an obelisk] It was the most extraordinary thing you ever saw in your life. I went back and read the line a little more convincingly.'

But not - see the film today - all that convincingly. Price never seemed wholly comfortable in either ancient or modern clothes. He was to find his identity in between: in those fin de siecle, quasi-Victorian villains that came his way after DeMille, multiplying like a benevolent plague in the 60s and 70s.

'You've really made it in Hollywood when you're typecast,' he says. 'You haven't made it until they say 'Oh he's the actor to play that kind of part, let's hire him.' So they hired Price. Again and again. His novelty value was that he was the suavest, most cultured 'heavy' in the history of screen Gothic.

'I think Aristotle's theory of the villain is correct. He said the villain should be a high-born, highly educated, very erudite man. Because if he has to pay for his sins, we hoi polloi understand that we must pay for ours. I've always tried to give my characters that kind of elegance.'

Different directors, though, had different uses for the Price charisma. For years he was pulled two ways by two contrasting auteurs: William Castle, of The Tingler and House On Haunted Hill, and Roger Corman.

'Bill Castle was a showman. He'd strew his movies, and his theatres, with these outsize gimmicks. For The Tingler, he wired up the seats with little buzzers so audiences would get shocked at key moments. And he sent the actual tingler, which was like a kind of lobster, on a string round the auditorium]'

Corman was ascetic by comparison. He steered Price through the incomparable Poe films, poised between refined camp and psychoanalytic fable. 'Roger's a very erudite man. He used to give Karloff and Peter Lorre and me directions on how Jung would have approached this or Freud that, and he'd quote from a book by Krafft-Ebing, and we'd say 'Yes, Roger, but how do we do the scene?''

The Corman movies gave us the Price we know, and the Price we know gave us hours of enjoyment screaming away in the darkened stalls. Did he think it is innocent enjoyment?

'I've been asked a lot about this. You know, 'Is it harmful to our children?' Well, it's not as harmful as the things that are harmful, which we can see on every street corner. Horror is a kind of escape. It happens when you're very young. Your favourite stories are Bluebeard and Rumpelstiltskin, which are terrifying stories. We start early loving to be frightened. 'Boo]' is probably the first word children react to, and they do all their life.

'I've had people come up to me, people my age in their eighties, and say 'I remember being frightened to death and holding hands with my boyfriend or girlfriend.' And it's true: there's a kind of intimacy that's brought about by adventure, and by adventures in evil.'

GB United Kingdom, EC P7929 Entertainers and Entertainment Groups PEOP People P7929 The Financial Times London Page XXI 1056
Arts: From 'good morning' to 'hello matey' - Clement Crisp finds the new chit-chat approach of Radio 3 a real turn-off Publication 931030FT Processed by FT 931030 By CLEMENT CRISP

I HAVE a very low resistance to chatter in the morning. An exquisite lyric about breakfast-time sums it all up: 'Good morning, George. Good morning, Percy. Good morning, Colonel. Christ, have mercy]'

I suppose that, like many another, I get up to the sound of music on the radio as I embark on the via dolorosa of ablutions and breakfast. Decent music helps, which has meant Radio 3 since it began. Brief news bulletins (albeit no help to the day's travails), discreet voices, minimal words, and music.

There are moments when lunacy strikes, and a voice promises a concerto for Jew's Harp by Albrechtsberger (the world's dullest composer). Then you shout 'Oh no you don't]' and switch off. But all in all, until a couple of years ago, the music, plus agreeable and cultivated voices (Donald Macleod and Tony Scotland as ideals. And ah, Patricia Hughes, of blessed memory) were part of the process of greeting the day with something less than a snarl.

Then came Classic FM, and change. I do not think there is any conceivable rivalry between the two music stations, despite foolish efforts to detect some battle for audience figures. Classic FM is unashamedly populist, unabashedly commercial, and tremendously well-intentioned. There is no snobism about it, no pretentions. Radio 3 remains essentially what it always has been: our most influential advocate of serious music, of encouragement for new work, of devotion in promoting an art.

The idea that it is an enclave of intellectual dyspepsia and arcane performance can only be held by those who do not listen to it, or consider its schedules and responsibilities. (And, be it said, there are listeners whose musical tastes are for highest art, and who merit their share of air-time).

Yet Classic FM's cheery manner has apparently made BBC policy-makers anxious. How else to account for Radio 3's barrage of chit-chat aimed at us in the early morning, and in that late-afternoon slot which was once a helpful way of easing oneself into the matter of the evening - be it preparing dinner, travelling home, or getting ready to go out.

Adieu the brief announcements and the unemphatic voices. Babble is all. There is a too-bright young man in the morning who cannot stop telling us his name: it is like having an uneasy guest at the breakfast-table. (He also cannot pronounce 'one', preferring 'wan'). There are interviews, oh so matey and first-namey, with assorted worthies. (One female announcer, her voiced pitched to tones of direst chumminess, promoted a detestable American choreographer during the Edinburgh Festival. If the BBC is prepared to do such commercial sponsorship, then there are many better candidates for puffery).

Classic FM is frank in its willingness to let people know about music on the most undemanding terms. Standards are variable: a Beethoven concerto once consisted only of the opening orchestral tutti, and the belief that the Yellow River Concerto, a piece of Maoist committee work, is even remotely music, is open to question. But it plays a wide range of good music, and we accept the nonsense of the commercial breaks (though I swear I will never buy one of those sofas) for the sake of the station and its aims. It knows exactly what it is, and why it is doing it.

So, I trust, does BBC Radio 3. Yet if it cannot be true to its own past integrity, to its uncompromised standards, even in so slight a thing as morning and afternoon broadcasts, then trouble looms. The path down-market is slippery. Cut the cackle, and get back to the musical 'osses.

GB United Kingdom, EC P4832 Radio Broadcasting Stations NEWS General News P4832 The Financial Times London Page XXI 647
Arts: Wits at a wedding - Opera Publication 931030FT Processed by FT 931030 By ALASTAIR MACAULAY

EVERYTHING about English National Opera's 1991 staging of Figaro's Wedding is shaped by Jeremy Sams's lucid, sassy translation. The first two acts strike me as among his very finest work. His wit often complements that of da Ponte's Italian libretto - a barbed, knowing wit that connects to the spirit of Mozart's opera and the original Beaumarchais play; I love Susanna's little post-Rousseau feminist remark to the Countess in the Act Two finale 'We think we are free, but we are always in chains.' Yes, very free, and marvellously refreshing.

But Sams's tone is unyielding. When his characters have no humour, their parlance grows less original and closer to operatic cliche ('And my joy has turned to woe'). It is also during the opera's latter acts that Sams draws attention to his own skill as a rhymester (army, barmy) and his needless modishness ('Bye bye, nice to have seen you'). With such strokes he reveals his distance from the tenderness at this opera's core.

Sian Edwards conducts. Pacing is good, orchestral timbre attractive, words generally clear. But pathos is missing, and the larger ensembles lack sparkle. None of the singing has great musical distinction, but Cathryn Pope's Susanna carries the opera along with a charming mixture of delicacy, robustness, directness and humour. Arwel Huw Morgan is a worthy, communicative Figaro, though amid this cast he looks too old. Curiously, his finest moment occurs simply in listening to Susanna's aria - motionless in pain, only inches away from her in the dark.

Amid the rest of the cast, only Donald Adams as Doctor Bartolo is outstanding - a self-important old buffer who suddenly melts into paternal warmth. Margaret Marshall's elegant Countess gave a very strained account of both arias. Edgy, pushy singing and lively, inelegant acting from Peter Sidhom's Count, Ethna Robinson's Cherubino, and Anne Mason's Marcellina. If embellishments are to be added, they should be more precise; but several appoggiatture were missed.

Graham Vick's production has been revived by Bill Bankes-Jones. The story becomes vivid - how well the eye is repeatedly drawn to Cherubino's commission - and has many revealing touches of manners, such as the way Figaro and Susanna stand to attention in the Countess's bedroom. Indeed, every iota of Susanna's comportment is fresh and convincing. But not everything else rings true. Though I was impressed by the violence with which the Count treated the Countess in private, it seemed false to their previous behaviour.

The stand-and-deliver method used in several big arias often detracts from the drama. When Barbarina sings her 'I have lost it' solo, you want to cry 'Then keep on looking]' Richard Hudson's sets are ghastly. One bright colour per surface: sheer green versus sheer mauve, and so on. Why seven doorways in the garden wall? This isn't Bluebeard's Castle. And the doorways are so narrow the Countess has to enter sideways.

Lord Goodman, a former chairman of English National Opera's board, was 80 this year. His birthday, and his presence on opening night, were marked by the company's new general director, Dennis Marks, whose curtain speech of congratulations contained the World's Longest Sentence.

ENO, London Coliseum. Performances until December 16. Original production sponsored by the Woolwich Building Society.

GB United Kingdom, EC P7922 Theatrical Producers and Services NEWS General News P7922 The Financial Times London Page XXI 569
Arts: Yesterday's crooner - Radio Publication 931030FT Processed by FT 931030 By B A YOUNG

RADIO 2 is generous to yesterday's favourites. We have Dusty Springfield this week and also a more interesting one, Michael Holliday, 'Britain's Bing Crosby', who committed suicide aged 38 some 30 years ago. Dennis Lotis presented a survey on Tuesday, but did not reach the conclusions I did. Holliday had a lovely voice and wrongly spent his life challenging Crosby instead of an opera star like Thomas Allen.

He gave his rich, deep baritone impeccable intonation, faultless breathing, as much understanding as possible of the shallow songs, and no accent. He left school at 14, served in the Merchant Navy and the Royal Navy, and learnt to play the guitar. What musical future for him except as a popular singer? He was not good-looking and was too unpunctual and forgetful to be cast in a musical (sometimes he had to invent new words as he sang). A sad loss of talent.

Mike Harris' Dark Messiah (Radio 4, Monday) takes an unusually strong line against missionaries. It is set in a Methodist mission in Kikuyu territory in Kenya in 1929 and its theme is female circumcision. This was common when I was in Africa in the 1940s: indeed a doctor in Nairobi showed me a film he had made of the procedure, a purely routine affair, he said. These missionaries think it un-Christian. When 12-year-old convert Susan (Viviene Rochester) has to be done to marry convert Benjamin, a chief's son, there is bound to be trouble - especially as Benjamin's grandmother is against the conversion of decent Kikuyu girls.

There is interesting detail about the mission even if the missionaries are dull. Their leader (John Church) has to mediate between the government and the Kikuyu Christian Association, whose activities grow increasingly Kikuyu. There is a resident assistant (Gudrun Ure), dealing with African girl converts. 'Girl-catcher', the Africans call her, and in the dreadful conclusion that caps the fuss over Susan's decision to go along with tribal custom, she is held in the sickbed where she is dying of fever and forcibly circumcised.

Howling at the Moon (Radio 4, last Saturday) was an informed programme on werewolves, with references to such sources as Petronius and John Webster. It traced the habit of turning into wolves to the envy of primitive men, who would dress up as wolves, those exemplary hunters. In the 16th and 17th centuries there were many cases against people accused of lycanthropy, which was associated with witchcraft. In eastern Europe the transference took another line and gave birth to vampires.

Humans turn into horrible creatures in fairy-tales - consider Red Riding Hood - and such stories go on, mostly for children. So what did we find on Radio 5 last night but the tale of Eloise, in Joe Turner's Twentieth Century Vampire, a checkout girl at the Co-op with a vampire Aunty Lucretia. At a party at Lucretia's suburban castle, she hopes to try her teeth out on Wayne from the meat-counter. It goes on for six parts, just like any old legend from France or Hungary, only more outspoken.

If you go for legends, Radio 3 on Tuesday gave a new version of Dante's Inferno. Peter Howell rewrote it as if Dante (Alec McCowen, excellent) conducted a bus-load of visitors around the infernal regions. These were seen afresh in the light of our modern world, and if it seemed cinematic, that is how it should have seemed. There was ultra-cinematic music from the BBC Radiophonic Workshop, performed by Serenata Notturna and Singcircle. First heard in 1983, it was much better than the example they gave us last week.

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Books: Massacres of the innocents Publication 931030FT Processed by FT 931030 By NIGEL SPIVEY

INSIDE HITLER'S GREECE by Mark Mazower Yale, Pounds 19.95, 464 pages

IN OCTOBER 1944, the streets approaching Athens were strewn with palms and carpets: to salute jeeps charged with British troops. By December 1944, those same troops were fighting in the streets against the Greeks they had supposedly 'liberated'. This is ostensibly one of the most perplexing events of the last war, and objectively-sketched explanations of it are not easy to cite. Here, at last, is one such.

Mark Mazower's account of the Italo-German seizure of Greece is often elliptical and specialised, but it should make sense to anyone with a feel for truthful documentation, and sympathy for modern Greek political history. The reason why British Tommies found themselves sniping from the Acropolis in late 1944 is basically that Churchill misread the extent of Greek support for the exiled Greek monarchy.

Churchill also underestimated the part played against the Axis invasion by the mountain-based guerrillas who did all they could to stop the occupying forces from treating this posting as a holiday. Churchill thought them reckless bandits, judging them more from external appearance than their internal organisation, which had a primarily Communist political tincture.

To describe the situation as an 'entanglement', in Churchill's phrase, is to understate the complex of local impulses right and left. Even British officers working with the guerrillas were sometimes mystified. What compounded these tensions were the intolerable economic circumstances created by the invaders, and the Wehrmacht's policy of local reprisals for gun attacks. As Mazower points out, the German forces had no experience of fighting an invisible enemy: frustration, as much as anything else, led them into a massacres of the innocents.

Sometimes this succeeded in raising local indignation against the guerrillas; more often, however, it merely intensified partisan support. There are some poignant photographs here of one such slaughter of villagers at Kondomari, on Crete; and a telling shift of focus to German headquarters, where a young officer called Kurt Waldheim translated barbarities into the language of bureaucratic acceptability.

Substantial differences are drawn between the joint forces of occupation, reinforcing general stereotypes (to German irritation, the Italians were considerably gentler in their areas of control, and also refused to co-operate in the extirpation of Greece's ancient Jewish community). But what is perhaps most extraordinary about the Teutonic military presence was its overt philhellenism.

Troops and officers eagerly studied classical remains. When Himmler went to Athens, it was not so much on SS business as to visit the Parthenon. True, there were appalling cases of double standards. Some Germans may have been sensitive to it: their escape route was the ethnic casuistry of bracketing modern Greeks as 'Balkan', and therefore sub-human.

As I say, this is an objective study. Not all Greeks or British are heroes, and not every Nazi acts dishonourably. But German behaviour in Greece 50 years ago has living witnesses. You might expect their accounts to be exaggerated. The documentation assembled in this book, however, suggests that they are right. It was a genuinely atrocious occupation.

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Books: From killer to conservationist - J D F Jones considers Peter Scott's biography Publication 931030FT Processed by FT 931030 By J D F JONES

PETER SCOTT: PAINTER AND NATURALIST by Elspeth Huxley Faber Pounds 17.50, 361 pages

IT is remarkable how some of our most famous conservationists learned their trade - discovered their passion - in the killing fields.

Here is Peter Scott ('Because of him, more than any other single person, animals that 40 years ago seemed doomed to extinction still exist' - Sir David Attenborough) at play before the war: he and two friends shot a score of ducks at Leighton Moss, rushed to the Lake District to kill two stags, then charged back to the marsh for another 100 geese before supper.

He saw nothing untoward in this. 'They were man's traditional quarry,' he wrote, 'and it was part of man's instinct to hunt: it was part of the birds' instinct to be hunted' (my emphasis). To which I can only say, balderdash and humbug.

Eventually - slowly - the sinner repented, and by the early 1950s Peter Scott had sold his guns. Gavin Maxwell had trodden the same path, just like those professional white hunters in Africa who, today, have become game wardens. Perhaps our own king-in-waiting will one day follow their example as he attends to his duties as president of the Wildfowl and Wetlands Trust which, successor of the original Severn Wildfowl Trust at Slimbridge, is Peter Scott's most concrete legacy.

But peaceful co-existence between hunters and bird-watchers was very much on Scott's mind in the early days of the Trust. He had observed in America the benefit of partnership between shooters and savers.

So long as a species was not endangered, the trust's annual reports could talk about 'the notion of wildfowl as a natural resource which can be harvested like any other crop'. It still sounds pretty rum to me, coming from a man who committed his life to, and built his international fame upon, a passion for geese.

Peter Scott was a famous man for 40 years. His father, of course, was even more famous, and everyone has always assumed that it must have been a problem for Peter to be automatically associated with the gallant Captain who died on the way back from the South Pole.

In fact, according to this authorised biography, there seems to be next to no evidence of a complex. On the contrary, Peter throughout his life found every door open to him, and he had the energy to take full advantage of his role as a golden boy of the Establishment. Elspeth Huxley's thesis is that his father's fame was a double-edged legacy: it smoothed his path but also confronted him with the need to achieve the highest standards. That sounds about right.

From babyhood he mixed with the good and the great, thanks to his formidable sculptress mother, Kathleen. At Cambridge he managed a pass degree by the skin of his teeth - he was never an intellectual - but it was there that he discovered wildfowl. He had a facility for drawing and, as we all know, he became a painter, a trade which was to fund him for much of his life. The biographer is polite: 'Although his paintings tended to be ignored or patronised by avant-garde critics, they sold well and continued to do so for many years to come, affording pleasure to his patrons and a comfortable income for himself'. The print called 'Taking To Wing' sold 355,423 copies between 1934 and 1959. Later on he saved himself exertion by making cardboard stencils of geese in flight which he could pin to his landscape canvases in the appropriate position.

He had a good war, in destroyers in the North Atlantic and then commanding a steam gunboat; he also made an important contribution to the technique of camouflage. A first marriage to the teenaged Elizabeth Jane Howard quickly failed (his portrait of that distinguished future novelist was to grace the jacket of Paul Gallico's best-selling The Snow Goose which he illustrated). He almost became a Tory MP. And he was a sportsman - skating, sailing, gliding - of world class; at the ripe age of 55 he was the British Open Champion glider.

The war matured him, says his biographer, which hardly seems surprising. It might be worth underlining (as she does not) that his powerful mother died soon after. In 1945 he discovered Slimbridge, on the south bank of the Severn, where Whitefronted geese arrived in immense numbers from Russia every winter. This time he did not shoot. He transferred his own collection of birds, which he had started in 1933, and the Wildfowl Trust was born.

Portly, balding, bespectacled, Peter Scott became first a national figure and then an international committee man and lobbyist. He was a pioneer of television nature programmes, which turned him into an indefatigable globetrotter, but Slimbridge (and its later satellites) was his first and true mission as he churned out the canvases to pay the bills. He was a mighty pioneer of the Green Movement and it was inevitable that in 1961 he should have been centrally involved in setting up the World Wildlife Fund (now the World Wide Fund for Nature). All this, be it noted, before we knew about acid rain and ozone holes and global warming. A voice before his time, he wrote: 'I personally believe that all other species of flora and fauna have as much right to their place on earth as does Homo sapiens'. It was his lifelong crusade.

This is not a book that calls for detailed criticism. Huxley has told a long and interesting story lucidly - no mean achievement for a writer in her mid-80s whose first biography, the definitive life of the Kenyan Lord Delamere, goes back nearly 60 years. She has evidently enjoyed a trusted relationship with the family (15 years ago she wrote a biography of Captain Scott). Peter, knighted, a Companion of Honour, Fellow of the Royal Society, is an Establishment hero and Huxley is not the biographer to scrutinise the emperor's clothes.

Once she asks whether he was 'too good to be true', but she prefers not to chip too deeply into the inner man. She is unnecessarily discreet about Kathleen's uninhibited life and, unsurprisingly, coy about the son's private concerns, but these things need not matter: the tale of a busy, worthwhile life, so superior in its achievement to that of the famous father, will carry you happily through a couple of winter evenings.

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Books: Words, words, words Publication 931030FT Processed by FT 931030 By WILLIAM ST CLAIR

SHAKESPEARE: THE EVIDENCE. UNLOCKING THE MYSTERIES OF THE MAN AND HIS WORK by Ian Wilson Headline Press, 498 pages, Pounds 19.99

WHAT DO we think we know about the author of Hamlet - assuming it was Shakespeare who wrote the plays? The answer is: a great deal, but some of it is wrong.

The main facts of his life are well authenticated. Born in Stratford-upon-Avon shortly before April 26 1564, he married, had several children, and moved to London. He wrote poems, was an actor, and a playwright. From money made from investing in the theatre, he bought land at Stratford and died there in 1616. A few years later two of his colleagues published an edition of his collected plays.

All this can be discovered from official records of baptisms, marriages, burials, and from property documents, wills, books and manuscripts. Samuel Schoenbaum, an American scholar, reprinted most of them in 1975.

But the facts have not been enough. From the beginning of the Shakespeare mania in the 18th century, the plain story has been filled out with invented gossip, anecdotes drawn from the plays, speculation, and forgery.

Tourist sites are still encrusted with a layer of nonsense, perpetuated by misleading disclaimers. Gaps in the chronological record have been elevated into 'lost years' with the implication that something sinister must have been going on.

Over the centuries Shakespeare has attracted dozens of pseudo-scholars and cranks, sure that they have uncovered a deep secret. Those who believe that he did not write the plays and try to give the credit to Bacon, Oxford, Marlowe, or others, have no more evidence than their own discomfort that a mere provincial could have known so much, but they continue to claim attention.

Ian Wilson's Shakespeare, The Evidence, Unlocking the Mysteries of the Man and his World, like his earlier study of the Turin shroud, is intended for a popular readership and assumes little prior knowledge. The book contains helpful summaries, a family tree, transcriptions of key documents, and is excellently illustrated. But is our excitement at the sleuthing increased by the knowledge that Stratford parish register measures 17 1/2 in by 7 1/2 in and consists of 335 pages with the Shakespeare entry towards the bottom of page five? Is Hamlet, above all, one of the most cracking ghost stories of all time?

Wilson's book is better than his misleading title implies. He rightly resists the common temptation to reconstruct Shakespeare's personality from the speeches of his characters in the plays. He sometimes tells us more than we need about the earls and lords and other better-documented men and women who were Shakespeare's contemporaries, and he piles 'arguably' on 'arguably.' But, for the most part, he is sure-footed in picking his way and judicious in his judgments. His book is a reliable guide to what is true, what is relevant, what is guesswork, and what is false in Shakespeare biography.

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Books: The meteor's tragic arc Publication 931030FT Processed by FT 931030 By STEPHEN AMIDON

TENNESSEE WILLIAMS: EVERYONE ELSE IS AN AUDIENCE by Ronald Hayman Yale University Press, 268 pages Pounds 19.95

THE TRAJECTORY of literary fame in 20th century America often seems as fixed as a meteor's. A sudden burst of talent and light from an unexpected region is quickly followed by a long, spectacularly visible fall. Hemingway, Fitzgerald, Faulkner, Capote - the American pantheon is full of writers who suffered the dubious distinction of being celebrities long after their talent had flared out.

Perhaps the most pathetic and poignant of these big league burn-outs is Tennessee Williams. Born the second child of a seedy middle class Southern family in 1911, by the age of 36 Thomas Lanier Williams had changed both his name and his future, becoming the most famous playwright of his age with the classic dramas The Glass Menagerie and A Streetcar Named Desire.

Nothing, it would seem, could stop him. But by the time of his death in 1983, the great dramatist had become a stumbling, lisping, doped-up parody of himself, raging and remonstrating like some countess in exile, working feverishly in an amphetamine trance yet unable to come up with anything worth staging.

Ronald Hayman's short, sharp biography provides a telling portrait of how this disintegration occurred. Unlike Hemingway and Fitzgerald, who simply drank too damned much, Williams's self-destructiveness was tied up with his art from the very beginning. After all, how many 13-year-olds complain of writer's block? Young Tom's family proved an incubator for both his homosexuality and artistic drive. The Williamses were dysfunctional long before the phrase became popular, with a distant and drunken father who worried about his 'sissy' son, an overbearing mother, and a sister whose brittle sensitivity was to lead to institutionalisation and a lobotomy.

Williams's response to this stifling environment was to write and travel obsessively. By his 30th birthday he had consigned an awesome number of words to the page, rivalled only by the miles he had racked up in the wanderlust that was to grip him until his death. But if wealth and fame allowed him to escape from his family, his imagination was tied to it for the remainder of his life. His domineering mother, a preacher's daughter who had married 'beneath herself', was to appear in various guises throughout Williams's oeuvre, most notably as Amanda Wingfield, the mother in Menagerie who claims to have once received 17 gentleman callers in a single day. Echoes of her can also be found in Streetcar's Blanche DuBois, another faded belle with delusions of grandeur.

Williams's sister, Rose, also informed his art. He was away when it was decided to give her a lobotomy, and he felt guilty for the rest of his life that he had not be present to prevent an operation which turned out badly. The model for the crippled Laura in Menagerie, her condition undoubtedly contributed to the morbidity and images of mutilation that were to mar much of the playwright's later work.

Ironically, Williams's father, a blustering and abusive shoe salesman, was confined to the wings of his son's imagination - most of the domestic arrangements in the playwright's major works are devoid of fathers. Although this may have seemed like contempt at the time, one can only conclude that Cornelius Williams fared better than his wife and daughter.

Hayman's biography is at its best in showing how Williams's ability as a young writer to mine his own life for dramatic ore left him gutted as an older man. There was no catharsis involved in putting his guilt and sexual tensions on paper. Writing seemed only to amplify these feelings. Williams was a compulsive reworker of material. Most of his plays began as short stories, grew into one act dramas, then blossomed into their final five-act form. While this diligence at first was the mark of admirable craftsmanship, it later took on the air of morbid obsession. Williams's hopelessly overblown later work rehashed the themes of emotional cannibalism and sexual confusion that were so potent in his great plays.

After critics and audiences shunned his work, Williams sought refuge in chemicals and pointless travel. His final years are as boringly melodramatic as his later work, a countless succession of male companions, tempests of hypochondria, and brief residencies in posh hotels. With the cruel irony America likes to reserve for its ruined artists, Williams's last years were his most famous, allowing him to play the grandmaster of the stage at countless revivals and lifetime achievement ceremonies even as he was coming creatively unglued.

While Hayman's book is skilled in showing the tragic arc of Williams's career, it is perhaps too perfunctory to satisfy readers wanting to get the full picture of this sad life. While I am no fan of door-stopping biographies, 240 pages of amply illustrated text does seem a bit meagre. That said, this remains a useful guide to the workings of Williams's troubled imagination, as well as a sad testament to the way a literary career can go so terribly wrong.

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The Financial Times Guide To Secondary Education (9): Expats flock to green playing fields - John Authers finds that British boarding schools are attracting more pupils from abroad Publication 931030FT Processed by FT 931030 By JOHN AUTHERS

BRITISH boarding schools have at least one growth industry to be proud of. The last survey by ISIS (the Independent Schools Information Service) revealed that the numbers of pupils coming from overseas had risen, in spite of an alarming 6 per cent fall in the total number of boarders.

For many schools, improved recruitment from expatriates and non-UK nationals could be the key to their survival, and they have improved their service for children from overseas as a result. Some of this is marketing hype with more than a hint of desperation - school prospectuses now tend to emphasise their closeness to major airports - but genuine improvements have been made. Standards of accommodation have improved markedly.

Even the examinations are changing. This survey is based around A-levels which are still, in spite of increasing attacks from educationalists, the 'gold standard' of British education. But the international gold standard of education is the International Baccalaureate.

Four schools in our survey now offer the IB - the Anglo-European School, Cheltenham, Malvern, and Sevenoaks - while others are considering doing so. It is accepted to a growing extent by British universities, but also, crucially to many outside the UK, by universities in other countries. The entries for Sevenoaks and Anglo-European both include IB results, using a formula to convert them into A-level equivalents.

Sevenoaks initially introduced the qualification for purely educational reasons, according to Richard Barker, head for the last 11 years. IB requires three subjects at a higher level, at a similar standard to A-levels, plus three subsidiary subjects.

The six must include English, maths, a modern language, a science, and a humanity, with only the sixth subject left optional. This allows specialisation for those fixed on a particular degree - for example maths, physics and chemistry could be the three higher subjects - while ensuring that they retain far greater balance.

IB candidates must also produce a 4,000-word essay and master a compulsory paper in the theory of knowledge, which takes students through a whirl of language, logic, induction theory and ethics, as well as specialist fields such as architecture. Rather than taking the standard university route through the subject, and studying philosophy author by author, the students have to answer questions such as: 'Do governments have the right to outlaw abortion?'

Finally, IB candidates must satisfy requirements in creativity, action and service, which typically means taking part in Duke of Edinburgh's awards, the combined cadets force, or voluntary services, such as helping handicapped children.

Alison Berresford, whose parents are much-travelled expatriates, is confident that the IB has offered her a better education than A-levels could have done: 'How can 16-year-olds know what to specialise in? By the time you are 18, 19 or 20 you should have some better general knowledge which you can't have perfectly at 16.'

The exam attracts foreigners as well as expatriates. Christian Artmann is German and studying the IB in Kent because he is unhappy with what he regards as the poor prospects of German sixth-form education. University in the US might follow.

Adam Abote is an Ethiopian, who was evacuated from his home country to avoid the civil war there. He wants to progress to college in American university - Brown University in Providence, Rhode Island, he hopes.

His parents sent him to Sevenoaks, he says, simply because he could do the IB there. The IB has been the key to an expansion in boarding numbers by the school - very rare as boarding numbers contract in the recession - which now hosts 30 nationalities.

More schools can be expected to introduce the IB in the next few years, a development which can only be beneficial for all concerned.

Once the curriculum is in place, the greatest obstacle in most parents' minds is the distance from home involved. At least British children at boarding school can usually go home for a weekend if the homesickness gets too much for them - not an option if your parents live in Singapore.

Schools have found an answer to this. Independent commercially run 'guardianship' services are now on offer, which give children the chance to phone someone they can trust and ask for advice. Almost as important, the guardians can also deal with the school when they have problems, rather than trusting to awkward trans-global telephone conversations.

Gabbitas, Truman and Thring, based in London, offers the largest guardianship service, while some schools, such as Rossall in Fleetwood, Lancashire, offer special deals with local guardians.

Rossall has traditionally had a high proportion of overseas students and is now going out of its way to attract children from overseas. It provides free escort services to take children to and from Manchester airport and also operates an overseas club, run by two members of staff, which takes pupils on weekend outings to give them a broader view of Britain.

All of this should be good news for expatriate parents. While British independent schools are looking so far afield for recruitment, they can be expected to offer better value for money.

They offer fluency in the English language, and a passport to British higher education, which is much admired throughout the world. But in some cases, the hard-sell recruitment campaigns which they take across the world represent a last bid for survival. Expatriates now have the luxury of a wide choice, and it should be used with care.

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XX 954
Books: The great traveller Publication 931030FT Processed by FT 931030 By MICHAEL THOMPSON-NOEL

AN EMPIRE OF THE EAST: TRAVELS IN INDONESIA by Norman Lewis Jonathan Cape Pounds 16.99, 237 pages

GRAHAM Greene called Norman Lewis 'one of the best writers not of any particular decade, but of our century.' Others are content to acknowledge him as the doyen of English travel writing. Either way, all Lewis's qualities are paraded in his latest travel book, which takes him to Indonesia: to Sumatra, East Timor and Irian Jaya.

Many writers would feel overwhelmed by Indonesia, an archipelago scattered across 3,000 miles of tropical seas, with a population approaching 200m that is divided, uniquely, into 300 ethnic groups speaking approximately 250 languages, each island possessing a different history and culture from the next.

But not Lewis. Like all the best travel writers, he is monumentally unflappable. He simply starts at the start and proceeds to the end, providing, as he goes, a textbook illustration of the qualities - charm, generosity, reportorial perspicacity and wisdom high among them - that have made him such a much-loved guide to places strange and far.

Not that this is a guidebook. It is the antithesis of guidebookery: a brilliantly-rendered account that pilots the armchair traveller from strange spot to strange spot, from lowland to highland, from the 20th century to the Stone Age, as though by magic carpet.

Lewis's vast experience as a traveller shines through everywhere. On a Sunday afternoon he visits Well Beach Number Three, as it is called in Indonesian, on the weirdly beautiful island of Weh, off the northern tip of Sumatra.

He is greatly taken by the sub-aquatic pleasures of Well Beach Number Three, where he sees more fish, and a greater variety of them, than he had seen anywhere on the planet - 'even in such remote Pacific islands as Raiatea.'

He is excellent on big issues like transmigration: the shipping of millions of people from one part of Indonesia to another to relieve population pressure.

'Painstakingly,' he says, 'all Brazil's errors in the movement of populations from rural wastelands and city slums into the Amazon were copied in Indonesia, although on a much larger scale.'

If the primary aim of transmigration was to relieve Java and Bali of excess population, the secondary aim was to guarantee national unity by the spread of Javanese culture through the islands.

'This so far has not happened,' he maintains. 'In fact the resentment provoked by what are generally viewed as government-sponsored Javanese colonies tends to diminish whatever ingredient of Indonesian patriotism may have previously existed. However many transmigrants are sent to East Timor, nothing is more certain than that only a permanent presence of the army will prevent it from declaring its independence.'

Within a few lines of this passage Lewis has switched, with the grace of quicksilver, from the cultural weightiness of transmigration to a beautifully controlled description of the pleasantness of life in the small Sumatran town of Lamainang, away from the hugger-mugger of the transmigration settlements.

In Lamainang market, girls in blue and scarlet bargain excitedly for jungle fruit and several kinds of bat. A pet stall offers cockatoos, long-tailed mice and a small member of the tarsier family, which surveys the world through troubled eyes, as well it might.

'Everyone's existence in Lamainang was enlivened by a clear mountain river squeezing through this small town, which drew a happy attendance of people . . . a thin old man, trousers rolled up, dabbed in a pool with a net; a woman brought her duck, carried under her arm, for its daily excursion on the river.'

The high point of the book is a journey into the Irian Jaya highlands, into the almost-Stone-Age realm of the Dani people. No one can use wryness as effectively as Lewis. Here he is at a church service of tribespeople, some wearing necklaces of graded boar's teeth, in a mission hall in Endoman, an experience, says Lewis, that calls for extreme theological simplification:

'What possible contacts could the minds of these villagers have with the intellectual subtleties evolved in 4th-century Byzantium shortly after the Emperor Constantine's conversion to the new faith? How could the preacher Engen, peeping out through the shutters of the Stone Age, explain to them the mystery of the Holy Trinity, Redemption, Atonement, and the union of divine and human natures in the Hypostasis of Christ? . . . It was a case of the blind leading the blind.'

In addition to a magic carpet, Lewis possesses the beadiest yet kindest of magic eyes.

GB United Kingdom, EC P2731 Book Publishing TECH Products & Product use P2731 The Financial Times London Page XX 780
The Financial Times Guide To Secondary Education (8): A helping hand for hard-up parents - Scholarships and bursaries can ease the financial burden Publication 931030FT Processed by FT 931030 By JOHN AUTHERS YOU MAY shudder at the sight of independent school fees

but remember you may well not be asked to pay them in full.

Last year, for the first time, more than a quarter of independent school pupils received some assistance towards paying their school fees - a total of 123,750 children. This was a rise of 2.9 per cent on the previous year and reflected schools' use of bursary funds to nurse parents through the recession.

Both scholarships (awarded for academic merit or for specific abilities) and bursaries (awarded in cases of need) allow parents to pay less than the standard fees. The government's assisted places scheme also helped.

Schools are understandably cagey about announcing their use of bursaries to parents, as they do not want to raise hopes. However, the Headmasters' Conference, which includes most of the best known boys' schools, has recently moved towards a policy of allowing more means-tested awards.

With a few exceptions, HMC schools now award scholarships of a maximum of half standard fees on academic merit. This allows them more lee-way to help boys from disadvantaged backgrounds - and means that schools can still pay full fees to academically able pupils from poor backgrounds.

Many headteachers felt that awarding full-fees scholarships to children whose parents could have afforded to pay anyway effectively reduced access to their schools.

Some schools are required under the terms of their endowments to offer a specific number of scholarships on merit. For example, St Paul's in London has 153 'foundation scholars' at any one time, in accord with the wishes of its founder, John Colet. Each scholar is entitled to wear a silver fish on his lapel, as 153 is the number of fish caught by Jesus in the 'miraculous draught'.

Eton, one of the richest schools, has 70 King's Scholars and will even pay for four 10-year-olds to go through three years of prep school, before taking the exams for the King's Scholarship.

Pupils entering for scholarships usually need to sit the school's own exams, which will often include Latin, and then endure a round of interviews. Others are prepared to take the common entrance exam as evidence.

Many schools also award scholarships for specific abilities, particularly art, drama, music and sport. This practice is controversial, but it allows schools to improve their extra-curricular activities without allowing rivals to 'scoop the pool' of gifted youngsters.

Bursaries are commonly awarded during a pupil's career when parental circumstances change for the worse. Typically, schools produce a form asking parents about their circumstances, which must then be verified using tax returns or other reliable documents. Decisions will then be taken normally by bursars and governors.

Some schools have bursaries for children of families in the armed forces, the clergy, or teachers.

The government's assisted places scheme also pays a large block of fees, accounting for 31,582 children last year. The amount of government help will depend on the family's 'relevant income', which includes the total pre-tax income of both parents, and any unearned income from dependent children. It does not include social security benefits and an allowance of Pounds 1,105 is deducted for each child in the family who is not applying for an assisted place.

On this basis, families with income up to Pounds 9,226 are eligible to have their fees paid in full. Assistance for families on higher incomes is available on a declining scale, up to a maximum income of Pounds 25,000. Parents interested in the scheme should contact the Department for Education Assisted Places team, Mowden Hall, Darlington, Durham DL3 9BG (tel: 0325-392163). For details of schools in Wales, telephone 0222-761456, extension 5362.

These sources of funds add up. Haberdashers' Aske's, an academic powerhouse in Elstree, west London, offers 35 assisted places to 11-year-olds each year and a further five for pupils joining in the sixth form. Side by side with this is the school's bursary scheme, which currently pays (without any academic threshold) towards the fees of around 100 boys.

It also awards five half-fee scholarships per year on academic merit, meaning that more than a third of its intake receives some help with fees.

Statistics like that should shake parents out of discounting an independent education just because published fees are high. They would be foolish not to investigate the state sector. But it would be similarly a mistake not to ask for help with fees.

Details on specialist scholarships, and on bursaries, are printed in Choosing Your Independent School 1993/1994, published by the Independent Schools Information Service, 56 Buckingham Gate, London SW1E 6AG. 071-630 8793. Pounds 6.95. ISIS also publishes a list of recommended financial advisers.

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XIX 823
Property: For those with reform in mind - Cadogan's Place Publication 931030FT Processed by FT 931030 By GERALD CADOGAN

THE NEW rules allowing owners of leasehold flats to buy the freehold come into effect on Monday. Copies of the Leasehold Reform, Housing and Urban Development Act 1993 can be obtained from Her Majesty's Stationery Office for Pounds 19.65. But leaseholders still face many hurdles if they intend to act and will need solicitors and surveyors.

Several firms and the department of the environment have prepared (or are putting together) books and pamphlets with advice. In alphabetical order, these include Bircham (071-222-8044) with Strutt & Parker (071-235-9959); William H. Brown (071-636-2736) with Philip Hodges (071-454-9970); Francis Russell (071-225-3344); Macfarlanes (071-831-9922) with Property Vision (071-602-8788); Simmons & Simmons (071- 628-2020). There might be a charge for some but the DoE's is free (PO Box 151, London E15 2HF). Meanwhile, law firm Trowers & Hamlins (071-831-6292), in conjunction with Fineman Lever, is organising a free seminar in London on November 18.

Guides to the legislation include:

How to Manage Your Own Block of Flats, by John Cumming and Richard Hickie; and How to Buy Your Freehold or Extend Your Lease, by Paul Gurowich, David Marcus and David Haines (both published by the College of Estate Management, Whiteknights, Reading RG6 2AW, at Pounds 14.50 and Pounds 12 respectively).

Buying Your Freehold or Extending Your Lease, by Timothy Curran (Pounds 11.99 from Leasehold Enfranchisement Ltd, Swan Centre, Fishers Lane, Chiswick, London W4 1RX).

IN MAYFAIR, central London, Egerton (071-493-0676) is selling 3 Lees Place W1, just off Grosvenor Square, on a lease with 26 years to run and with a guide price of Pounds 1.15m. But as the ground rent was fixed in 1931 at Pounds 125 for the whole term, the house is can be enfranchised under the new laws. Many larger houses in London cannot because the ground rent is too high or a company (not an individual) is the leaseholder.

* * *

SIR EDWARD Heath, the former prime minister, is the only person to have enfranchised in the close of Salisbury Cathedral. But whoever buys Myles Place, a very grand Grade I-listed house in the close which the dean and chapter are offering on a new 60-year lease, will not be able to join him because the ground rent of Pounds 500 exceeds the low rent test of Pounds 250 for a lease outside London granted after March 31 1990. The agent is DW Barke (0722-327087) and the price around Pounds 650,000.

* * *

ARDELEY BURY is a romantic castle on an ancient moated site near Stevenage in Hertfordshire. Its Tudor brick front, with a handsome, low, vaulted entrance hall merges delightfully with Georgian Gothic brick and flint towers and turrets, and a great hall built on to the Tudor house. As you approach, you pass a lake with a Tudor boathouse; ancient parkland with bumps and hollows awaiting an an archaeological dig (if that appeals); and old, thatched barns in apple-pie order.

This is a small paradise, where, even in winter, no neighbour is in sight. In excellent repair, it is waiting for new owners who will enjoy living in an exotic and congenial house. But they will need to bring large pieces of furniture with them. The guide price from Savills (071-499 8644) is Pounds 2.5m, which includes 90 acres. It is hard to believe that such rural bliss exists an hour from London.

BLISS MILL, on the edge of Chipping Norton, is a Cotswolds landmark - a huge, Italian renaissance-style tweed mill, with a chimney like a minaret, that would be more at home in Bradford or Glasgow than Oxfordshire. Built in 1872, it worked until 1980 as one of the last survivors of the Cotswold wool industry.

When it closed, a speculator bought it. There were various planning applications, including for a mosque. In 1987, Bliss Mill Holdings started converting it into flats, but went into receivership in 1990; the asking prices were too high. It was acquired by Widworthy Leisure Ltd, which took it to market last year - and then also went into receivership. Now, Chris Barlow, of Coopers & Lybrand (as receiver), is marketing the flats at prices from Pounds 85,000 to Pounds 198,000, and several have been sold already or are under offer. The agent is Savills in Banbury (0295-263535).

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries P651 Real Estate Operators and Lessors NEWS General News P6552 P651 The Financial Times London Page XIX 754
Gardening: The idiocy of planting for ethnic correctness Publication 931030FT Processed by FT 931030 By ROBIN LANE FOX

MANY OF you may be looking forward to planting trees during the next few months. You are interested not only in the 'best tree for a small garden,' that elusive entity which obsesses books on gardening. You also want trees for a field, an acreage of set-aside, or an eventual barrier in the landscape.

If you want inspiration, look around you this weekend or visit a local arboretum. The autumn colour is still holding up well, from Westonbirt to Leonardslee. You have your last chance to weigh-up your options while the leaves are looking their best.

Our choices are muddled with incoherent rhetoric which seems to be gaining ground. It comes home to me whenever I look through the two main windows of my life. One, the home window, is evidence of mistakes made 25 years ago by somebody else; the other, the working window, reveals the options which ought to have been followed.

The home window looks out across my garden into a tall boundary fence of sycamores, the rock-bottom trees of British landscaping. Whatever you decide after reading this, I do beg you not to plant them. By late summer, the leaves are already dull and dirty; in autumn, they turn a soulless grey-brown and are slow to rot when they drop.

The main reason they crop up so often in former owners' gardens is that they seed themselves frantically and some of the seedlings turn into trees. Nobody in their right mind would allow these seeding menaces anywhere near their flower beds. But free-seeding trees appeal to ecological gardeners: they can be introduced 'naturally' and, after years of seeding, they have become so firmly established that they satisfy hedgers and foresters who want to go 'native.'

Going native has become extraordinarily acceptable. County councils have special grants for amenity tree-planters, who are so slow to claim them that even a casual inquiry encourages a deluge of correspondence and offers of a consultative visit. The grants have two conditions: the trees must be open to public viewing, a reasonable condition as they are planted on public money, but they must also be 'native broad-leaves.'

This second condition is ridiculous. Nobody will give me a grant if I plant a glorious grove of ginkgos or an avenue of tulip trees which are beautifully foreign. If I propose sycamores, I would qualify for a broad-leaved handout. It seems batty to me. The council would probably be asked to prosecute me for discrimination if I banned immigrants in any other area of life; why does it give grants only to planters who conform to ethnic correctness?

The notion is ultimately bogus, anyway. When does a tree become a native, not an import: what about wild cherries or walnuts, both of which are approved native broad-leaves but which historians have sometimes proposed as foreign imports, brought to Britain by the Romans?

Why should we want a tree just because it is indigenous? Large areas of 'indigenous' British life are pretty second-rate. I would ban subsidies for sycamores and point out to inquirers that there are far lovelier trees for Britain than the service tree, hawthorn, common crab and elder which make up a municipally-correct idea of a 'native hedging mix.'

Avoid sycamores, therefore, and do not fall for the mindless 'native' rhetoric. Turn instead to the view from my life's other window, out beyond the shoulders of pupils reading essays on classical slavery to a wonderful harmony of winter-flowering cherry, non-copper beech, extraordinarily foreign mulberry, and Oriental wistarias which are still retaining their green leaves before going yellow in a blaze.

Here, natives mercifully are swamped by immigrants. While sycamores were being planted in the sight-line of one of my windows, a connoisseur was planting these un-English trees in front of the other. I wish I could risk felling the boundary hedge and replace it with trees from the tutorial vista, jazzed up by the best aliens which I could foist on the West Oxfordshire council.

Like our restaurants, our hedges need to be rescued from 'native' staples. We also need to break down the categories. When we think of the landscape, we are still too ready to divide trees into 'specimen' or 'hedgerow' varieties and to mark off some of them as 'ornamentals.' Fields and set-aside, we seem to be saying, do not need ornamentals: huge, sweet chestnuts, white-flowering winter cherry, Chinese sorbus, brilliant parrotias or the best birches. No, they need the unspeakably British service tree and the miserable blackthorn.

Even when we do dare to be ornamental, we run in ruts. Outside the garden, birches still amount to the pock-marked trunks of a common silver birch, not the stunningly white Betula jacquemontii. In fields, limes are large-leaved limes, not the silver or weeping silver varieties.

I am not claiming that cities have broader horizons. From New York to Seoul, streets are about to glow with the autumn duty of yellowing ginkgo trees: why did British town councils miss out on this lovely possibility, planting those awful yellow-edged acers on a main route into Leicester or splodges of pink cherry when the A23 pauses for a tree?

We used to be told that street trees had to be chosen so as to be vandal-proof: I never understood why a dreary mountain ash was any more proofed than one of its Oriental relations. In fields and on farms, we were also told that native trees were the right choice because they were better at fighting for themselves.

Chemicals and machinery have reduced the force of these arguments. Our new age of weed-killers, based on glyphosate, allow us to keep grass and coarse weeds away from a newly-planted tree on a headland as easily as in a garden: two or three sprays during the year will keep it clear without much difficulty. As a result, we can risk so-called ornamentals in places where once they might have succumbed to weeds.

We can also risk more of them at a greater height. The books still tell us to transplant some of the better varieties as pot-grown specimens, about 2 ft high, because they will then take root. But better techniques of root preparation and better machinery for lifting has made this advice outdated in most cases.

You can now buy most of these trees at a height where you will not lose them in the first year among your patch of weeds, set aside and subsidised by the EC.

I buy my trees from the fairly-priced list of Landford Trees, Landford, Salisbury, Wiltshire. Its ginkgos are Pounds 11.50 each (plus VAT) per 10 at six to seven feet high, while Sweet Chestnuts are Pounds 9.25 at 8-10 ft and tulip trees are Pounds 14.25 at a similar height.

Early in the 18th century, the great landscape architect, William Kent, was said 'to have first jumped the fence and seen all nature was a garden.' Nowadays, I merely suggest that we remember the full width of nature, outside the British Isles, and then proceed accordingly.

Of course, we do not want anything too fancy or too variegated or too purple and gold in the setting of farmland. But there is no fixed rule that woods in Britain have to be beeches and copses have to major on hazels. Open out, survey the world and enhance the view from your windows of the future.

GB United Kingdom, EC P0783 Ornamental Shrub and Tree Services P0781 Landscape Counseling and Planning NEWS General News P0783 P0781 The Financial Times London Page XIX 1272
Property: Somerset's different worlds - Gerald Cadogan finds a wide variety of houses on offer in the heart of the West Country Publication 931030FT Processed by FT 931030 By GERALD CADOGAN

JULIUS Caesar would have divided Somerset into two or three parts. The rolling hills of the east, on the border with Dorset, are a different world from the plateau of Exmoor, the county's west end.

Exmoor has sheep, stag hunting, and ancient hedgerows from which huge beeches sprout. Its steep and narrow valleys conceal burbling rivers, with pools for a bracing bathe that return you to the days before heated swimming pools in the garden. Its heroine is Lorna Doone, made famous by novelist RD Blackmore.

East Somerset is gentle country. Long, low stone houses are tucked into the hills or lie in a village at the bottom of the valley. Handsome churches show how the county prospered in the Middle Ages. And there is a sense that, in this haven of clematis and roses, it is always afternoon and time for a cup of tea or the first glass of white wine.

In the middle, between Exmoor and the Dorset borders, lie the flat lands of the Glastonbury levels, and the Sedgemoor marsh, and the Vale of Taunton Deane which the M5 crosses. Here, the Duke of Monmouth started his revolt against James II in 1685, and was routed. Judge Jeffreys' Bloody Assizes followed. The Quantock hills separate this vale, packed with history, from the wild country of Exmoor.

The M5, Somerset's main artery, goes south to Exeter, Plymouth and France, and north to the rest of England and its motorway network. Caravans bound for Devon and Cornwall crowd it in summer. The other links are the railway to London - which sometimes has long delays and re-routings when floods wash away the ballast; and, for east Somerset, the A303, the modern highway of Wessex.

Close to the A303 is the thatched Rodwell Manor at West Lambrook, a long house which has, as a centrepiece, a mid-16th century great hall. The house, listed Grade II, comes with five acres and looks over the National Trust land at Barrington Court (which will not be built on). Jackson-Stops is asking Pounds 475,000.

Pendomer Manor, south-west of Yeovil, is another long house of similar date which once was the rectory for the church next door. Buried there is a knight who might be one Sir John de Domer. For a chance to be the late-20th century squire, attend Humberts' auction in Hardington Mandeville village hall on November 11 (7.30 pm). Humberts also will be selling Eastfield at Hardington Mandeville: two farmworkers' cottages now made into one larger cottage with a garden around enclosed by a low stone wall.

For cottages on Exmoor, Stags is an agent to consult, and Gribble Booth Taylor has a good list of village properties. At Seavington St Michael, near Crewkerne, Jackson-Stops is selling Orchard Cottage, at the end of a no-through-lane, for Pounds 180,000. 'John Skellen May 25 1689' is inscribed on the wall in plaster, and the thatched roof received a new ridge last year.

At Compton Dundon, four miles from Glastonbury, Michael de Pelet (in association with Knight Frank & Rutley) offers Castlebrook Cottage, a long, thatched village house with Honeysuckle Cottage in the grounds, for Pounds 255,000. De Pelet also has the cottage-style Four Gables; this is listed Grade II, presumably for the unusual gables at either end which make it look like the model for a fairy story. The guide price is Pounds 360,000. Cheaper is Fosseway, with some mullion windows and exposed beams, in Hinton St George near Crewkerne: Pounds 265,000 from Jackson-Stops.

Farmhouses on offer start with Pightley, at Spaxton on the edge of the Quantocks, with nine acres and priced at Pounds 125,000-Pounds 150,000 by Greenslade Hunt. It needs total renovation but has a good position. South of Shepton Mallet, Kilkenny Farmhouse is half a mile from the Roman Fosse Way (A37) and, with a stable yard and 3.5 acres, costs Pounds 325,000-Pounds 350,000 from Cluttons. Two barn conversions are Park Barn at Castle Cary (Jackson-Stops, Pounds 245,000) and Home Barn at East Compton near Shepton Mallet (Cluttons, Pounds 215,000).

Just over the Devon border, and new on the market, Stags is selling Lodfin Farm at Bampton with 110 acres and farm buildings for Pounds 465,000. At Winsford, on Exmoor, the same firm offers The Tufters, with a licenced hiring yard for 10 horses in prime hunting country. Apart from the Devon & Somerset staghounds, five packs of foxhounds meet within five miles. The price for this retirement sale is Pounds 350,000.

If Victorian rectories are your taste, Cluttons has the Old Vicarage at Pilton, near Shepton Mallet, which is lucky still to have its coach house (now converted as a three-bedroom house). Often, a diocese has sold these separately or pulled them down to allow space for re-building. The price is around Pounds 325,000.

If your house has to be Georgian, Humberts and de Pelet offer Cheriton House, in South Cheriton near Wincanton; this has 26 acres, a swimming pool and outbuildings for Pounds 420,000. De Pelet also will sell Magnolia House at Watchfield, close to the M5 (junction 22) and needing renovation, by informal tender on November 24; offers in the Pounds 150,000-Pounds 200,000 range are suggested.

For Pounds 280,000, he offers the Old Rectory at Limington, near Yeovil, and Grove House at Baltonsborough, near Glastonbury.

The Great House at Edington, near Bridgewater, is on offer from Greenslade Hunt for Pounds 240,000. But the handsomest Georgian property is Haygrass House in Haygrass, near Taunton, from Humberts for Pounds 550,000; for Pounds 155,000 more, there are cottages and a further 17 acres.

Finally, there are two solid, Edwardian houses. Ham Court at High Ham - built, rightly, with some Ham stone - costs Pounds 400,000 from Jackson-Stops. The same agent (with Grimley JR Eve) is selling Coker House at East Coker, built with much more Ham stone, for Pounds 450,000. Recently, it was an old people's home.

TS Eliot is buried in East Coker church. His family left the village to emigrate to America, but he came home. In the East Coker part of The Four Quartets, he writes: 'In my beginning is my end, in my end is my beginning.'

Further information: Cluttons, Wells (0749-678 012); Greenslade Hunt, Bridgewater (0278-425 555); Gribble Booth Taylor, Chard (0460-67 644); Grimley JR Eve, Bristol (0272- 277 778); Humberts, Yeovil (0935-77 277); Jackson-Stops, Yeovil (0935-74 066); Michael de Pelet, Sherborne (0935- 812 236); Stags, Dulverton (0398-23 174).

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries NEWS General News P6552 The Financial Times London Page XIX 1115
The Financial Times Guide To Secondary Education (7): School fees - plan ahead to ease the pain / Giving Junior an education could cost over Pounds 300,000 Publication 931030FT Processed by FT 931030 By JOHN AUTHERS

PAYING FOR school fees has become an industry in its own right. Not only accountants but financial advisers and computer programmers have done very well out of the escalating costs of private education - and the increasing desperation of parents to buy it.

A look down the column of boarding school fees demonstrates the scale of the problems. Millfield, the most expensive school outside the specialist music institutions and one of the best-resourced schools in the world, charges Pounds 12,435 per year to boarders.

School fee inflation is currently running only slightly ahead of retail price inflation, but has averaged around 10 per cent for the last 10 years - last year's average of 8.3 per cent was the lowest since 1984-85.

A return to historic levels of inflation could therefore bring fees of around Pounds 20,000 in another five years. If your child is still an infant, and you want to pay for a boarding prep school as well, the total cost will be well into six figures. Sun Life's projection that sending a child born last year to independent school between seven and 18 would cost Pounds 310,000 appears accurate.

Projections like that make a wonderful sales aid. Frightening though they are, they should not scare parents into buying unnecessary financial products.

Some glossy school fees packages are just a good way to sell life assurance. They may make sense in limited circumstances, but their crucial weakness is that they ignore the current state of your finances.

If you already have extensive savings which could be put towards school fees, it is senseless to take out fresh policies aimed at paying the fees on their own. In spite of the alarming projections, do not over-provide for fees.

This can easily happen when dealing with salesmen paid by commission, so try to seek advice payable via a fee for time spent, rather than by a commission extracted from the money you invest. ISIS keeps a list of recommended advisers.

First step is to establish how much money you are likely to need to pay. If you have a school in mind, telephone the bursar, who should be prepared to predict how fast fees will inflate in future. If you are still deciding on a school, the figures in this survey should give a good idea of the figure to aim for.

Once you have set a target, standard wisdom is to err on the side of caution by using low-risk products to ensure that fees can be met. Higher risk products, based on equities rather than cash deposits or government stocks, have a good chance of doing better, but cannot be guaranteed to do so.

This judgment is finer the further in advance you plan. If your fees will only be payable 10 years hence, the chances that equities will outperform cash are so strong that you can afford to take the risk of a few market bumps. If Junior starts next year, putting money into equities would be more of a gamble.

Today's low interest rates, good news for the economy, are less appetising for long-term savers and further complicate the issue. Fixed rates on offer are so mediocre, as the table shows, that many advisers are prepared to risk school fees money to the stock market which they would have salted away in bonds or gilts a few years ago.

Low interest rates have also gnawed away at the value which schools can offer themselves. Most boarding schools allow parents a discount for paying in advance via a 'composition plan'. Bursars invest the money in cash deposits, so the level of the discount is dependent on cash interest rates. Schools are glad of the help for their cash flow that early payment can provide, and parents should ask for details, but in this economic climate schemes are unlikely to be competitive.

Once you have decided the level of risk you can take, the next golden rule of financial planning is tax-efficiency. For example, if one parent pays no income tax, they can earn gross interest on deposit accounts. On capital gains, the authorities allow a gain of Pounds 5,800 each year, once inflation has been taken into account, before any capital gains tax is payable. The Weekend FT regularly provides details on how to calculate CGT, which is one of the most unnecessarily complicated taxes on the statute book.

Once you have taken advantage of both allowances, two routes are open, depending on the state of your finances, for the bulk of your investments:

Capital. If you have a lump sum for fees payment, you have plenty of opportunities.

Educational trusts are popular. Funds can be invested tax-free, provided they are used to pay fees, and no particular school or pupil has to be named. The trusts are offered by life assurance companies, which will guarantee a certain level of fees through a series of annuities starting when your child starts at school. These schemes are secure, but like composition plans their attractions have been dimmed by low interest rates. They should not be touched while other tax allowances remain unexploited.

Products ahead of them in the queue include personal equity plans, which allow investment in equities free of income or capital gains tax, Tessas (tax-exempt deposit accounts which must be maintained for at least five years to maintain the tax advantages) and zero-dividend shares of investment trusts, which offer a fixed return taxed as capital gains (useful for those who do not pay capital gains tax).

Income. This is how most people pay school fees.

The traditional recommendation is the 'with-profits' life assurance endowment. This is the same product, offering investment with a little life assurance on top, which is used to back up most mortgages.

Their disadvantages in terms of inflexibility and tax-inefficiency are considerable, as regular readers of the Weekend FT will know. In most cases they are best avoided.

More flexible and tax-efficient savings schemes would again involve Peps or cash-based Tessas. National Savings, which offers Children's Bonus Bonds specifically with school fees in mind, should also be considered. For those who have not saved in advance, a third route may be inevitable:

Loans. Isis has a special reserve plan which provides cheap lending facilities for parents. Draw-down loans come from the Halifax; you borrow money only when it is needed for another term's fees.

This scheme has two big advantages. The first is the rate of interest, which is linked to the Halifax's base rate of 7.99 per cent. If borrowing is likely to be more than Pounds 60,000, the rate charged will be 7.54 per cent; this drops to 7.39 per cent if you borrow more than Pounds 100,000.

The second is that there are no strings to how you repay the loan - you are not forced to buy an endowment policy. Instead, Claremont Savile steers parents towards the least risky and most tax-efficient investments first.

The Isis scheme now pays out around Pounds 1m a week to parents. It is better to save in advance; but if you have no choice but to borrow, you are highly unlikely to find any better deals.

If none of these schemes are affordable then you might resort to the most effective way to save fees. Look through this survey - and find a good state school.

------------------------------------------------------ SCHOOL FEES: PLAYING SAFE (Five-year fixed returns) ------------------------------------------------------ % ------------------------------------------------------ Gilts Tr 8.75 1997 5.95 National Savings: 40th Issue 5.75 6th Index-linked *3.25 Zero div. pf. shrs. (9/98) 7.32 Guaranteed growth bonds 5.80 Deferred Annuities 6.50 With Profits Bonds 8.50 ------------------------------------------------------ * + RPI ------------------------------------------------------ Source: Chamberlain de Broe. ------------------------------------------------------

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis COSTS Service costs & Service prices P8211 The Financial Times London Page XVIII 1336
The Financial Times Guide To Secondary Education (6): More to grades than just graft and grind - John Authers finds that the best schools are not just exam factories with Oxbridge forever in their sights Publication 931030FT Processed by FT 931030 By JOHN AUTHERS

IF EXAM league tables have achieved anything they have at least identified a group of schools which are firmly entrenched in the top 10 each year. Nothing seems to move them.

With two exceptions - Eton and Winchester, both of which are internationally renowned boarding schools - all of them are day schools, single-sex (at least until the sixth form) and based in big cities.

The list includes King Edward's Birmingham, Manchester Grammar, North London Collegiate, St Paul's and St Paul's Girls', both based in west London, and Westminster.

However, recognition has brought them problems. High A-level grades achieved with such regularity look intimidating. This leads to the belief that such grades can only be achieved by sacrificing everything else which creates a broad education.

An old boy of Manchester Grammar summed up this Dickensian view perfectly in an article published by the FT three years ago. In it he attacked his 'conveyor-belt education' and judged that 'imprisonment, Oxbridge, the work ethic (even the workhouse ethic) were the themes of my years there'.

Exam success was brought brutally to the fore at St Paul's Girl's last year when its high mistress resigned in the face of complaints from parents that their daughters were doing too few GCSEs. Her idea had been to allow a broader education and greater concentration on the ultimate objective of A-level. The school nevertheless gained the nation's best results at GCSE this year.

One Paulina (as St Paul's old girls are known) puts it brusquely: 'I don't feel I was educated. I was just trained to do exams.'

Attacks like this are deeply resented by the schools themselves. Dr Martin Stephen, currently head of the Perse School in Cambridge, who will next year take over as high master of Manchester Grammar, says: 'It is natural to assume that schools pay a price in human terms for academic success, and very wrong. It is natural to assume that schools with the most selective entry are ruthlessly competitive and even destructive to what in their terms are the lesser-able, and also wholly wrong.'

Dr Stephen points out that unhappy or bored children do not get outstanding results, and that university entrance procedures encourage pupils to show a wide range of extra-curricular involvement. Academically successful schools are likely therefore to encourage a broad range of activities.

In any case, the good, ambitious teachers such schools need are unlikely to be happy unless they have the opportunity of deep involvement with extracurricular activities as well.

Manchester Grammar, for example, answers the charges with the words 'Atherton' and 'Crawley'. Both Michael Atherton, the new England cricket captain, and John Crawley, the 21-year-old tipped by several Australians as his successor, are Mancunians who went on to Oxbridge - suggesting that they found time in the school timetable to practise sport as well as swot for A-levels.

King Edward's in Birmingham, top over the last five years, even advertised the spectacular success of its sports teams in the match programmes for this season's local derby match between the Birmingham City and Aston Villa football teams.

St Paul's, top on A-level performance this year, has a two-hour lunch break, during which boys are expected to make the most of the facilities - they are excellent, expensive, and well-used. The music rooms shake with jazz and orchestral music, while the theatres, art rooms, and playing fields are all heavily occupied.

All the top schools accept that the degree to which they can select - far greater for large big-city day schools than for others - is crucial to their success. One St Paul's boy expresses this with self-confidence typical of the school: 'If you only take boys who are going to get As at GCSE it's not difficult to come top of the league table is it?'

This leads to perhaps the most important caveat about league table results - that if your child is not particularly academically able, he or she is unlikely to be admitted to one of the top schools. They would, in any case, be unlikely to flourish there.

Whether parents should actually consider sending their children elsewhere even if they get in to a top academic school is more debatable. John Trevis, schools consultant with Gabbitas, Truman and Thring, suggests that pupils who only narrowly win entrance to such schools might find the pace too fast, and prefer to be somewhere less heated. This is another fiercely contested idea.

For example Joan Clanchy, headmistress of North London Collegiate, this year's top girls' school for A-level results, is relieved when parents are nervous about the school's high league table position because 'it shows that parents are asking the right questions'.

But this does not mean that any girl who wins admittance should be worried that the pace will be too great. The school recruits extensively from the state sector and gives its pupils close attention, which leads to an obviously friendly atmosphere. According to Clanchy, this close attention is as useful in helping those nearer the back of the class as it is in fostering the more eye-catching gifted children.

Certainly all the top schools take academic subjects at a brisk gallop, with GCSE only viewed as a brief stopping point, and not an objective in itself. The target at which they take aim is A-level, which in itself is a gateway to university.

Oxford and Cambridge then loom on the horizon.

Approaches vary. Joan Clanchy starts the sixth form with a talk on Oxbridge which all the girls describe as 'deeply discouraging'. Those who choose other universities are put under no pressure to change their minds.

Manchester Grammar's Oxbridge applications system is likened by one old Mancunian to a military campaign. Boys fill out their application forms, and then teachers, who know most of the admissions tutors, fill in the colleges.

St Paul's Oxbridge mechanism is subtler, but has a deadly effectiveness. One boy in the lower sixth puts it thus: 'It's kind of understood. Some power up there knows who's going to be in the Oxbridge set. It happens, but it's not a pressure that's put upon you.'

Another boy then chirruped up to say that 'teachers hate being wrong'. Five minutes later his tutor was able to assure me that the sixth-former in question would be reading English at Cambridge.

That academic intensity will deter some parents, and attract many. But a close look at the top academic schools must at least dispel any notion that they are stultifying factories for bored children.

Far from it. Viewed at close quarters these schools seem exciting and vibrant.

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XVII 1161
Fashion: You can't keep a good shirt down - This time the look is long, lean and romantic or ascetic. It may be the one essential autumn buy Publication 931030FT Processed by FT 931030 By AVRIL GROOM

THE WHITE shirt is the many-headed Hydra of fashion. There are countless versions of this basic essential, and each time it seems about to disappear, because of a change in design direction, it renews itself more strongly. Designers are capable of perpetually reinventing it.

This time it is the swashbuckling dandy, the romantic poet or the ascetic nun which inspires the transformation. The square-cut, plain-collared, button-cuffed shirt always looks smart in its classic way - but it does not have quite the elan of this winter's style.

The details to look for include: long, rather lean-cut shapes with pronounced tails; long, ruffled or double cuffs and an interesting neckline with elongated revers; stock-ties or jabots; and cavalier lace trim.

The significance of these details lies in the way the white shirt is worn now. This is a season of layers and the shirt, as the basic ingredient, gives them topicality. It goes over, or under, a succession of lean, often fine-fabric layers and it is usually longer than the rest.

The protruding tails, cuffs and collar proclaim the vintage of your outfit, the details - a bold stock-tie, a romantic soft ruffle or a puritanically plain buttoned-up collar - say which of the season's fashion 'characters' you have decided to espouse.

For this autumn, designers have again plundered the dressing-up box and the shirt is the shortest way to a specific theme. Wear a very plain, high-necked style with simple, monochrome tailoring and skinny, undersized knits and you have a deconstructed look bordering on the ecclesiastical. Anything with a hint of lace worn with velvet, smacks of the dandy while a shirt peeking from long, knitted layers updates a revived classic.

So strong is the impression created by the shirt that there is a case for making it your one essential autumn buy. Certainly some of the top designers seem to think so. You have a Chanel jacket, however old, or - whisper it - a tweed lookalike in your wardrobe? Then follow Karl Lagerfeld's train of thought.

He put just about every jacket-shape he has designed for the house on the catwalk, all of them worn over saggy jersey trousers and a white shirt with tails and cuffs flying - and very fresh they looked.

It is a similar story at the newly-opened London shop of Dior where Gianfranco Ferre, its designer, has always been a serious shirt man.

He is best known for his flamboyant evening wear but his impeccable white, cotton day shirts, their collars and cuffs cut and top-stitched with mathematical precision, would lend drama and presence to any jacket. At more than Pounds 300 they are expensive, but compare this with the cost of a jacket of equal quality.

At lower price levels the choice is vast and often represents very good value. If you are choosing a plain style, check for neat top-stitching, even hems and attractive buttons and cufflinks. With more ornate styles, for good-quality embroidery or lace trims, Next and Laura Ashley have inexpensive shirts trimmed with good-looking lace. At whichever level you buy you are unlikely to be disappointed. Your white shirt will be a long-running item, although by next year the designers will doubtless have thought up a different way for you to wear it.

GB United Kingdom, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores NEWS General News P23 P56 The Financial Times London Page XVII 607
Fashion: Luxurious, and politically correct - Lucia van der Post dresses stylishly in lambskin Publication 931030FT Processed by FT 931030 By LUCIA VAN DER POST

SHEEPSKIN is one of those staples of the classic outdoor wardrobe. Fashions come and go but the popularity of sheepskin goes on, riding tranquilly above and beyond the frenetic search for trends and directions. Soft, warm, wind-proof, it is the garment one reaches for when in need of comfort and reassurance.

Desirable though sheepskin may be, lambskin is even more sought-after. Much softer, about a third thinner and 50 per cent lighter than sheepskin, it drapes better and feels silkier.

Lisa Johnson is a new designer of lambskin who, this autumn, has brought a collection of four lambskin designs - a short waistcoat, a long waistcoat, half-length jackets (either single or double-breasted) and a three-quarter length coat. All are made from lambskins which in these politically correct days, she is at pains to point out, come from natural casualties (mainly stillborn lambs) so there is no slaughter.

Lambskin, needless to say, does not come cheap. Coming from such tiny casualties, many skins are needed to make one coat, the workmanship is fine and careful and a jacket will sell in the shops for between Pounds 500 and Pounds 740.

Lambskin can be dyed almost any colour. This season Lisa Johnson is using black, anthracite, a jeans blue, ice-blue (see photograph) cream, mocha and dark coffee brown, dark khaki and a mint green.

Already her lambskins are highly sought-after and for next winter a full-length coat is planned - start saving now for it will cost around Pounds 2,000. So far Lisa Johnson has concentrated on designing lambskin for women but a few masculine pieces are also under way.

A good selection can be seen and bought at Space NK, 41 Earlham Street, Covent Garden, London WC2 and at Questionnaire, 2 the High Street, Wimbledon Village, London SW19. For further stockists ring 071-613-5239.

For those who want to see a wider range of lambskin coats, Nigel Preston is another name to look out for. A fine designer who every year does something new and beautiful with skins, this year he has three main themes: Afghan, a classic for everyday designs which retails at between Pounds 500 and Pounds 600; Entrefino, a luxury version, which sells at Pounds 1,300; and finally, the most luxurious range, Snow-tipped, which sells at about Pounds 1,500 and features everything from a shawl-collared coat to a trench coat. Joseph stores, Harvey Nichols, Harrods and Matches of Wimbledon all stock the Nigel Preston label.

GB United Kingdom, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores NEWS General News P23 P56 The Financial Times London Page XVII 456
The Financial Times Guide To Secondary Education (4): Do grades suffer when girl meets boy? Publication 931030FT Processed by FT 931030

'YOU WOULD think in these days that girls could perform as well in a classroom where there are boys as in a classroom where there are none. I don't know why that is not the case, but it's unfortunate.'

A statement like that, coming from a sixth-former at the girls-only North London Collegiate, cannot go unchallenged.

Other sixth-formers, dressed casually as the school rules permit, take issue: 'I don't think it's unfortunate. Once you are out of school it's almost inevitable that the society you are going to be in will be mixed. It's a question of taking the opportunity to be single sex.'

'School is for learning. You have got to have fun but I wouldn't want to go to a school which was mixed. I think it would be a distraction.'

Now the protagonist is put on to the defensive. She suggests that a mixed school is a more natural environment. But the enthusiasm the sixth-formers feel for single-sex education is strong.

'It's very cosy. Girls can support each other. You don't have to play the changes in the sexes off each other. I think it's important to have the opportunity to make close friendships with just girls.'

Then one makes a point which many academics have already noticed. 'Boys start to mature at 17 or 18. A 16-year-old boy can be the most painful person in the entire world.'

League tables of performance in GCSE exams, usually taken when the candidates are 16, bear this out. Girls' schools dominate the first 30 places, to an extent which suggests that girls at that age must be academically superior to boys.

But that does not prove anything about the relative merits of single-sex and mixed education. If girls at that age are academically more able than boys, it might still be possible to make the advantage tell at mixed schools as much as at girls' schools.

However, it is difficult to see many ways in which North London Collegiate girls are missing out. The school, set in a broad campus at the edge of Canons Park in North London, overtook its more famous rival, St Paul's Girls' School in Hammersmith, to become the nation's top girls' school this year.

Established by Miss Frances Mary Buss in 1850 to educate the girls of north London, it has a less exclusive air than most independent schools. Scholarships and assisted places are used to recruit as widely as possible from the local community, and the girls include strong contingents of both blacks and Asians.

This is very much part of the school's mission. While Cheltenham Ladies' College was meant to train young ladies, North London Collegiate is 'for girls' who intend to make their own way in the world.

Symbolically, the school no longer even offers cookery. Instead, the cookery room has been converted and is now full of girls enthusiastically working at craft, design and technology.

North London Collegiate also prepares its pupils for the hard-headed commercial world outside via the Young Enterprise scheme, which gives 'companies' of youngsters starter capital of around Pounds 1,000 and then gives them a year to make profits.

Whether girls truly feel freer to tackle the allegedly 'masculine' science subjects in an all-female environment is more open to question. Mathematics was the school's most successful A-level subject this year, with 31 of the 39 candidates winning A grades. But the most popular subject is the female bastion of French (45 candidates, including 24 As), while Chemistry attracted only 25 (14 As) and Physics 14 (8 As).

Elsewhere, the music centre is well-appointed and well used, while the school puts on numerous drama productions, some in conjunction with Harrow, the rather more exclusive boys' school just up the road.

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XVI 663
The Financial Times Guide To Secondary Education (3): Charters - first among equals / John Authers visits three very different schools, each of which excels academically Publication 931030FT Processed by FT 931030 By JOHN AUTHERS

KATE MORSE, head girl of Charters School in Sunningdale, Berkshire, wants to make something quite clear: 'I hope you don't think we're just a nice school full of nice people and that's why we get good results. This area isn't like that at all.'

Charters is one of the top schools in the UK, ranking 210th in the FT survey. But unlike the highest flyers it has achieved this with a fully comprehensive intake. Nobody in the catchment area can be turned away.

That catchment area is wealthier than the national average, but the towns of Ascot and Sunningdale are not as affluent as their reputations might suggest. Besides, its GCSE results - which show 60.5 per cent of Charters pupils passing at least five grades A to C - put the school far ahead of other Berkshire schools, where on average only 41.6 per cent of GCSE candidates did this well. Its A-levels make it the third-ranked mixed comprehensive to stay under local authority control in the UK.

A closer look shows that the school is far removed from the stereotyped image of the vast and impersonal comprehensive.

Steve Pratt, head of sixth form, does not regard league tables as a fair way to assess a school's worth. He believes that the high ranking comes from the school's policy of using the National Record of Achievement scheme to monitor pupils regularly.

Each pupil is issued with a folder, in which targets and reports are accumulated at meetings with tutors throughout the pupil's school career. This way the children who use the school's large and well-equipped centre for special educational needs are given the extra care they need.

It also allows the truly talented pupils to be identified and nurtured. Pratt says with pride that his staff can usually predict the A-level grades their children will get a year in advance.

Charters encourages pupils to stay on for the sixth form with a wider range of A-levels than most independent schools can offer. Theatre studies and physical education were added this year to a list which already included History of Art, Government & Politics, Greek, Russian, Spanish, and Sociology. Vocational qualifications are now being added.

The school's version of the prefect system also helps to maintain interest. Sixth-formers act as liaison officers for tutor groups in lower forms and sit on the school council, where issues such as recycling waste bins are discussed with an intensity reminiscent of university junior common rooms.

Even in the sixth form there is no such thing as a free period at Charters, with time not spent in lessons occupied either by private study, or by a range of optional extra courses including interviewing skills, games leadership and business French.

Sixth-formers are also encouraged to spend time helping both children with learning problems lower in the school and autistics from a neighbouring specialist unit. Two flourishing Young Enterprise companies are in business.

Do the potential university entrants lose anything by going to school with their academic inferiors? Barry Mitchell, the headmaster and a veteran of secondary moderns in greater London, dismisses the idea as ridiculous. 'We do divide pupils into sets depending on which subject they are studying as they move through the school. Therefore at appropriate times in their development pupils are brought together to work with their peers academically.

'Wherever you look you have got a pleasant atmosphere and a pleasant approach by the teaching staff. You don't get that by setting in motion systems which will divide pupils,' says Mitchell.

The school is well-maintained and adequately resourced, although its facilities do not match the best of the independent sector.

But no sixth-formers believe they have missed out on anything. Parents considering spending good money to send their children to one of the Berkshire independent schools which finished below Charters might bear in mind another candid comment from Kate Morse, when asked if she would have preferred to attend an independent school: 'I can't see the point. They just don't have the the taste of real life and the mix and variety in their lives that we do.'

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XVI 739
The Financial Times Guide To Secondary Education (5): New kid on the block Publication 931030FT Processed by FT 931030

LEICESTER Grammar provides a potent riposte to plenty of preconceptions about schools. It is fast gathering fresh claims to fame. The newest recruit to the prestigious Headmasters' Conference, having been inducted earlier this year, it is also the top coeducational school in the FT-1,000.

But most remarkably, Leicester Grammar opened as recently as 1981. The centuries of tradition and wealthy endowments boasted by most schools above it in the tables, and many below it, might be expensive luxuries.

Leicester Grammar started in response to public demand following the abolition of the city's state grammar schools.

As the history of the school's first 10 years proclaims, the Grammar is 'a product of the enterprise culture of the 1980s'. A group of worthies clubbed together to take over the buildings of one of the old grammar schools when it was closed by the council. Its fees still put it high in the value-for-money league tables, and it has expanded rapidly - from 94 pupils on opening day in 1981 to 565 now. The only problem is overcrowding.

Ingenuity has allowed the school to reclaim every nook and cranny in the buildings it has inherited. Music rooms are in the cellar, while a fully-equipped multigym lurks in what used to be a broom cupboard.

Leicester cathedral, next to the school buildings, is used for religious assemblies, while the school's impressive hall is also used for drama rehearsals.

Lack of resources has not dented formidable extracurricular ambitions. The school runs its own glossy magazine and the school choir has even released a record.

Coeducation was never an issue, according to John Sugden, the headmaster. At its foundation, the school needed as many pupils as possible and cutting out boys or girls was ruled out on purely commercial grounds. He backs mixed schools on educational grounds as well: 'If you put the two sexes together you are bound, if you get the balance right, to get a better education. Otherwise you are cutting out half the human race.'

The pupils, dressed in adult business clothes rather than uniform at sixth-form level and including many members of Leicester's east African Asian community, certainly seem happy with coeducation - to judge by the necking couples to be found in the sixth form's attic-like common room, which is off-limits to staff . . .

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page XVI 424
Fashion: Dressing for the Dolce Vita - Ralph Shandilya contemplates the style of Gianni Agnelli Publication 931030FT Processed by FT 931030 By RALPH SHANDILYA

ONE MAY have had bad habits in the old days, but never bad quality.' So said Gianni Agnelli, thus succinctly encapsulating his personal views on life and living - views that will be immediately recognisable to anybody who has followed his career during the last 27 years, when as well as being chairman of his grandfather's empire, he established his reputation as a notably stylish dresser. He sensed, with finer antennae than almost anybody else, that an important part of life's drama is acted out on the level of style. In the land of La Bella Figura, where how you dress matters more than almost anywhere else in the world, he carved a special niche for himself.

In republican Italy, L'Avvocato, or Il Re, as he was variously dubbed, became a potent myth for the masses and one of the most charismatic figures in Italian public life for many a long decade. When Gianni Agnelli wore his watch on the outside of his cuff, thousands of would-be snappy dressers did likewise.

When Gianni Agnelli tied his tie with a thick and glossy knot, so did young men the length of Italy.

Where this famous style began it is hard to say. His childhood influences (which include an English governess, an Anglo-American princess mother and a formidably powerful grandfather) must all have played their part. Rich, pampered, brought up in many-splendoured mansions, his tutelage in dressing began early. 'The Agnelli children,' Alan Friedman tells us in his biography of Agnelli, 'were always dressed as sailors - blue for winter, white and blue in the spring and autumn, and white in summer. At lunch the little Agnellis changed into formal and elegant clothes: with short silk socks.'

After war and military duties were over, with an annual income of around Dollars 1 million and the world his oyster, Agnelli took to heart his grandfather's words - 'Have a fling for a few years, get it out of your system'. He embarked on the serious business of driving fast cars and chasing beautiful women.

Over the years he developed a personal style that became a national trademark. His great leonine head, the skilful way he has mastered the art of wearing a permanent tan, his taste for a sober elegance enlivened with just the right touches of elan, have combined to give him almost cult status among the fashion cognoscenti. All over Italy his stylistic foibles are noted - his wearing of Brooks Brothers' shirts with the collar buttons undone, his turning up at business meetings with old-fashioned suede after-ski boots with the laces undone, for pairing dark shirts with light ties, gangster-style.

As Robert Graham, our Rome correspondent puts it, 'Some people wear clothes like a male model, others like a charmer and Gianni Agnelli wears them like the real charmer that he is. He has that seductive way of concentrating on you and what you are saying that all true charmers have. Another part of his charm is the way he seems to run his business - more like a bailiff guarding the family inheritance than a go-getting, cost-cutting businessman.' Franca Sozzani, editor of Italian Vogue, is a longstanding devotee of Agnelli's style. 'He really is the only businessman I admire. He is effortlessly stylish and this style emanates through the smallest details.'

Quite how it is and why it is that a 72-year-old man, who really wants to retire but has been ordered by his bankers to stay on, can still command the attention of the paparazzi and the followers of fashion is something of a mystery - but command it he does. Agnelli-style still sets a standard of masculine elegance that many want to emulate.

Here RALPH SHANDILYA analyses the essential ingredients of Agnelli style.

GB United Kingdom, EC P23 Apparel and Other Textile Products P56 Apparel and Accessory Stores NEWS General News P23 P56 The Financial Times London Page XVI 675
Food & Drink: Homage to Catalonia - French elegance in Spanish brandy / Spirits Publication 931030FT Processed by FT 931030 By GILES MACDONOGH

THE BRITISH spirits drinker is a wretchedly conservative beast. Take brandy. This means cognac or, very occasionally, armagnac. Sometimes, it means rather cheap French grape brandy mixed with soda in the pub; but this is less a matter of choice, rather the chicanery of brewers who count on the drinker asking for brandy, not cognac.

Spanish brandy is something else altogether. In Jerez, where 90 per cent of it is made, they add such flavourings to the casks as sweet, boiled grape must, caramel and cane syrup, or anything else which might give the spirit some individuality: plums, apricots, prunes or, in some cases, even nuts. The result is that many Spanish brandies have big, sweet fruit flavours of the sort which the Cognacais finds vulgar.

Spain has another brandy producing region, though: Catalonia. And here the spirits are made in a tamer, more elegant French style. The biggest Catalan producer is the Miguel Torres winery at Villafranca del Penedes, near Barcelona. It started making brandy in 1928, mainly to supply the important local market: in Spain, workers like a slug of brandy in their morning coffee and are not too fussed about its quality.

Torres, however, has moved steadily up-market over the years and now makes some of Spain's most prestigious wines. Sooner or later, the brandy had to follow the same path - out of the column stills, which made spirits for the workers, and into the expensive pot stills from Cognac which produce a refined spirit more appropriate to the dinner table.

Torres makes six brandies and a sweet liqueur based on brandy and oranges. The first two brandies in the range, the Solera Select and the Gran Reserva (known as Torres 5 and 10), are produced in continuous stills and matured according to the solera method where older casks are topped-up constantly by younger spirits.

Fontenac is the cheapest of the pot still spirits and spends four years in American oak casks. Miguel Torres is aged for eight years in French oak. Then come the two brandies at the top of the range: Miguel I, aged 10-12 years in French oak, and Honorable, aged 15-20 years. Only limited amounts of each are made, and both are rather expensive.

The 5 and 10 are produced from the trinity of grapes responsible for the sparkling wines of the region: Parellada, Macabeo and Xarel-lo. The better brandies are made from a pure Parellada, with the exception of Honorable which is distilled from the cognac grapes Ugni Blanc and Folle Blanche. Almost certainly, Parellada is responsible for something of the difference of character between cognac and a Penedes brandy.

Unless the grapes are picked early (as they must be for brandy), those on the Parellada vine achieve monstrous size, averaging more than a kilo a bunch. Flavour is not their strong point. At 70 per cent, I imagined 1 could smell the Catalan breakfast doughnut or Xuxo in its slightly sweet bouquet; but maybe I was simply hungry. After prolonged ageing in Limousin oak casks, however, the spirit sheds this sweet character and mellows into something very delicate and much closer to cognac than I might have imagined.

This was amply proven by the blind tasting of three brandies I did with the distiller Matias Llobet. The first flight of three brandies were all dark spirits.

The first two, with their sweet, caramelly or raisiny bouquets, clearly were Spanish - and Jerezanos too. But the third? Though a deep mahogany, the nose was subtle and the palate grapey. This was the Torres 10. The others were Osborne's super-popular Magno and Domecq's Carlos III. In the second round, the same Torres brandy also trounced the tarty three-star cognac from Courvoisier.

Three more brandies appeared in the next flight. The first I found a little short on the nose, but elegant and structured nicely on the palate. The two rivals scored better on the nose but, on tasting them, they were fiery and slightly coarse. The results of this round were revealing: the smoothest was Miguel Torres brandy; the others were VS0Ps from Hennessy and Martell at Pounds 5 to Pounds 10 more a bottle.

Three more brandies appeared in the next round. The first had a superb bouquet: nuts, prunes, oranges and orange blossom; a classic example of what the Cognacais call rancio. It was lovely to drink, too. The second was also exquisite just to sniff, but less impressive to drink. The third paled slightly before the first two: not in the same league. It was Miguel Torres. The first two were Martell Cordon Bleu and Hennessy XO at three and four times the price. It clearly does not pay to be conservative as far as brandy is concerned.

Torres 10 is available in the UK from Moreno Wines (tel: 071-286-0678 or 071-723-6897) at Pounds 13.99, or from branches of the North-Eastern Co-op at Pounds 11.95. Miguel Torres brandy is Pounds 19.95 from Moreno; Pounds 20.30 from Rackhams of Birmingham (021-2363333); or Pounds 22.50 from Selfridges (071-629-1234).

ES Spain, EC P2084 Wines, Brandy and Brandy Spirits NEWS General News P2084 The Financial Times London Page XIV 878
Food & Drink: Appetisers Publication 931030FT Processed by FT 931030 By JILL JAMES

THE Lanesborough hotel in central London will be hosting an Italian festival with guest chef Giuseppe Vitaglione (from the Il San Pietro di Positano in Amalfi) cooking from November 23 to 28.

The first 20 Weekend FT readers who book lunch or dinner there that week will be offered a free bottle of Antinori's Poggio Alle Gazzio (white) or Le Volte (red) which normally retail at Pounds 27.50 and Pounds 35 in the restaurant. Tel: 071-259 5599.

To add to the festive scene in London, a Taste of Indonesia festival was launched this week at The Lowndes, a Hyatt hotel in Belgravia. Chef Karno Suwito has flown in from the Hyatt in Jakarta to help direct operations in the kitchens. A three-course meal with Indonesian beer should cost about Pounds 25 per head although real gourmands might like to try the traditional rijsttafel of more than a dozen different courses. The festival runs until November 21. Tel: 071-823-1234.

Holme Farmed Venison has set up a mail order business. The company, based at Holme House Farm, Raisbeck, Penrith, Cumbria, CA10 3SG, has developed a range of products which can be eaten all year round including venison haunch steaks, sausages, burgers and casserole in red wine. Products arrive ready for use or freezing. For details tel: 05396-24618 or fax: 05396-24551.

Finally, you do not have to be toothless or aged to enjoy The Oldie Cookbook by James Page-Roberts (The Carbery Press, Pounds 5.95, 224 pages) which is full of simple, value for money recipes.

GB United Kingdom, EC P7011 Hotels and Motels P5812 Eating Places NEWS General News P7011 P5812 The Financial Times London Page XIV 286
Why costs don't count: Every parent's fear Publication 931030FT Processed by FT 931030 By PHILIP STEPHENS, FT Political Editor

THIS IS a good story about the National Health Service; about NHS doctors, nurses and administrators delivering unrivalled standards of care and efficiency. Sadly it may turn out to have an unhappy ending.

It starts with a personal experience: the only sort that counts in an age in which we too often judge the worth of our public services in terms of financial bottom lines and cost-benefit analyses.

My three-year-old daughter Jessica has a heart complaint. It was spotted two years ago by a diligent GP treating her for a particularly nasty cold. Since then she has been an out-patient at Guy's hospital.

Until this summer regular checks at the hospital's department of paediatric cardiology had shown the condition - a narrowing of the aortal valve - was stable. At some stage she would need an operation - and eventually a heart valve transplant - but the longer it could be left the better the prognosis.

Two months ago came the bad news. The latest check had revealed a sharp deterioration in the pressures inside the valve. Jessica would need at the minimum an exploratory operation and perhaps direct intervention to widen the valve.

That, as every parent will know, is when the panic started. But in our case it was also when the NHS showed its worth.

Jessica was summoned back within days so the consultant in charge of her case could conduct the tests again personally. The results were the same. We were told she would have to be admitted.

Giving us all the time we needed, the consultant explained the diagnosis would be rechecked under general anaesthetic and, if necessary, the valve stretched by the catheter 'balloon' technique pioneered at Guy's during the 1980s and now used to treat even unborn babies.

Then came the bad news. Jessica's case was serious but not an emergency. She would have to go on the waiting list. Her consultant was not quite sure how long that would be. But obviously the sooner the operation was done the better. The risk of damage elsewhere in the heart meant it should not be left longer than a few months. Instantly, images flooded our minds of Jessica suffering heart failure while waiting for an NHS bed.

It was at this point that our preconceptions crumbled. Fearful of delay we explored the option of having the operation done privately. Like many cynics I had always assumed that consultants - especially in high-tech specialisms - would never pass up the chance to switch patients from NHS to private lists. And such is the standing of paediatric cardiology at Guy's it already attracts private patients from around the world. I do not have private medical insurance but what's a few thousand pounds or so in such circumstances?

I was wrong. The doctors caring for Jessica advised us to wait. Why not see if an NHS bed came up. And if we wanted a second opinion, no problem. All Jessica's notes would be faxed to whatever consultant we chose.

So we contacted the senior paediatric cardiologist at the Hospital for Sick Children in Great Ormond Street. Since we wanted to see him within days we were quite willing to pay. No need. He would fit us in outside his normal clinic - but on the NHS. His advice - delivered without regard for what must be pretty valuable time - was to stick with Guy's. We should not worry about waiting up to three months. Beyond that we could re-explore the options.

From here on in the story gets still better. Guy's came back with an early date - the waiting list was not as bad as feared. Jessica had her catheter examination and the valve turned out to be in better shape than expected. With luck, major surgery will not be needed until she is much older. By then the technology will have advanced still further.

During a few days as an in-patient her treatment - from doctors, nurses, technicians and everyone else - was exemplary. We saw for ourselves what the combination of sophisticated equipment and a caring medical team can produce. In many other places the only option would have been open heart surgery, with all its attendant risks.

So what moral should be drawn? It is not, I am afraid, that the government's reforms have transformed the health service. Guy's may or may not have become a bit more efficient since it became a joint hospital trust with St Thomas'. But it worked for Jessica because of the dedication of staff and availability of expensive but invaluable equipment. People and resources, not structures, were the key.

It is here that we come to our fears of an unhappy ending. In spite of its envied reputation, there are strong rumours that a number of Guy's high-tech specialisms, including paediatric cardiology, will all but disappear through the merger with St Thomas's. All London hospitals must save money. Individual units may be a national asset at the leading edge of medical research. But things like that tend not to show up on the cost-benefit analyses of trust hospitals. Nor, it seems, is there any strategic authority ready to make the wider judgment. Next time Jessica needs an operation, I fear it will be an altogether different story.

GB United Kingdom, EC P9431 Administration of Public Health Programs P8062 General Medical and Surgical Hospitals NEWS General News P9431 P8062 The Financial Times London Page XIV 926
Food & Drink: A wizard of Oz weaves a spell in Italy - Jancis Robinson meets a very well-travelled moustache / Wines Publication 931030FT Processed by FT 931030 By JANCIS ROBINSON

THE FIRST time I spoke on the telephone with South Australian wine-maker Geoff Merrill, he was still recovering from cricketer Ian Botham's most recent testimonial. He had got to bed at 3.45am and had to be on a 7.55am flight to Rome. He made it.

Thus, he kept his promise to Sainsbury's, the UK supermarket giant, to see some Orvieto and Frascati fermentations bubbling away before turning his hired Lancia north and driving 680 km to position himself in readiness for a hard spell of wine-making the next day. 'I've been told I must have been the most photographed person in Italy last September, the speeds I've been doing on those autostradas,' he told me. his

Merrill is one of those characters whose reputations precede them. Somehow, our paths had never crossed - a lack of cricketing expertise on my part, perhaps - and I was all prepared for Les Paterson incarnate. What I got was a silk-shirted charmer with flowery waistcoat, a bunch of irises and a handlebar moustache.

Sainsburys's, the most sober of the supermarket chains, has hired Merrill to inject some Australian 'fruit - driven' character into an array of Italian wines made at premises owned by Gruppo Italiano Vini, Italy's most dynamic group of co - operatives. According to witnesses, the facial expressions above the Italians' Milanese suits when Merrill was presented to them were wonderful.

What Merrill did not realise when he took on the job is quite how long he would spend in the Lancia between what turned out to be seven different wineries from Rome to the Alps. In one 24-hour stretch, he drove 1,600 km.

'I had to work even harder in Italy than I do back home. There, you just ring up and get answers to 'What's the sugar level? Any sulphide on the nose?' You can't in Italy. You have to jump in your car in Trento and drive to bloody Rome and back.'

Merrill swears he loves the Italians, though. Great people. Great food. Some great wines, especially Tuscan reds. 'The elegant tannins in those Antinori wines. That's what I'm trying to go for at home. I'm not a big rap for Valpolicella, mind you, but I liked those - whaddyacall them? - Amarones. That's all I drank up there (in Valpolicella country). Fifteen per cent alcohol, mind you. Not very clever, was it?

'The only thing is, the way those guys eat lunch. You can forget asking someone to give you a reading at five to twelve. Or put some Chardonnay into oak on a Saturday, even if it's really ready for it. Could be the start of the shooting season, or something really important like that.

'And d'you know what? At six o'clock, they go home] Chief wine-maker came up to me at the end and shook my hand. 'You work very hard,' he said. Well, I wouldn't want it any other way.'

Merrill's main amendments to the Italian wine-making recipe have been to ferment cooler and use different yeasts, all the time trying desperately to protect the embryonic wine from oxygen, the obverse of Italian philosophy. 'In terms of machinery, Italians have got it all. But what they don't have is enough refrigeration, and it can be hot out there.'

Merrill claims he took on the job to keep sweet a very important British customer for his own Mount Hurtle Australian wines. Sainsbury's, on the other hand, realised that only someone who was his own boss would be allowed out.

This is not the first time an Italian winery has seen the arrival of a 'flying wine-maker' during the quiet season down under. The ubiquitous Jacques Lurton turned out some Basilicata wines last year, and Ricasoli of Tuscany had a little help from South Australia. This year Gaetana Carron, formerly of Rosemount (Australia), Trimbach (Alsace) and Concha y Toro (Chile), has been working the vintage all over northern Italy.

Sainsbury's buyers are flying to Verona on Monday to choose from the Merrill/GIV Bianco di Custoza, Pinot Grigio, a couple of Chardonnays, a Veneto Sauvignon, a Cabernet or two, a Teroldego, a Frascati, an Orvieto, and trials of varietal Grechetto and Verdello, two of Italy's less exposed grape varieties. Deciding how to market them might be even more difficult, though. A Vino Merrillo label? The Ozitalia range? Or GIVusabeer?

Footnote: Merrill must have found it difficult to improve on GIV's Chardonnay delle Tre Venezie (Pounds 3.59 Sainsbury's). Best Merrill buys are vehemently Australian. Mount Hurtle Grenache Shiraz 1992 (Pounds 3.99 at Oddbins and Pounds 4.15 at Sainsbury's) is a juicy antipodean answer to early-drinking Cotes du Rhone. Cockatoo Ridge Chardonnay 1993 (Pounds 4.19 at Oddbins) combines body with vivacity. Mount Hurtle Grenache Rose 1993 (Pounds 4.95 Sainsbury's) shows us what most Tavel is not.

IT Italy, EC P2084 Wines, Brandy and Brandy Spirits NEWS General News P2084 The Financial Times London Page XIV 846
Sport: Mansell keeps the fire of desire alight - Motor Racing Publication 931030FT Processed by FT 931030 By JOHN GRIFFITHS LIFE IN the US and on the IndyCar circuit has changed Nigel Mansell

outside the cockpit, at least.

After a year away from the political world of Formula One, Mansell has lost the wary defensiveness which appeared to make him the most miserable grand prix world champion on record. He is confident, relaxed and smiles readily. The paranoia has gone.

Today the only racing driver in history to hold both the grand prix and IndyCar world championships simultaneously might have been on his way to Adelaide to drive in next week's final grand prix of the season. With the IndyCar title tucked safely in his belt he was contractually free to take up offers from a couple of serious grand prix teams to drive in both the Japanese and Australian grands prix. That could have earned him close to Pounds 1m.

Instead, today and tomorrow he will be at Donington Park in central England, racing a Ford Mondeo touring car and one of the cheap but mighty Tuscans produced by the Blackpool sports car maker, TVR.

If he wins in the Mondeo he will earn Pounds 12,000 in prize money on top of the comparitively modest Pounds 100,000 Ford isthought to be paying him. TVR chairman Peter Wheeler, who will be racing against Mansell himself, says Mansell will be driving the TVR for 'a couple of coffees and a bun like the rest of us'.

If it is not for the money or prestige, I ask Mansell, is he doing the unthinkable by grand prix standards - and just driving for the hell of it? The grin that comes back is huge. He wants, he says, 'to have some fun.' Every driver will be risking all to beat him. The chances are that someone will. These drivers have raced together all season. They know their cars; each others' foibles. Whichever way it goes, Mansell is the, theoretically, loser. If he wins, that is no more than the world expects. If he is beaten, the popular press will have a field day.

But Mansell will give both races all he has. It is plain that even after all this time at the top, he would race dustbin lorries if there were nothing else to hand.

It is that undiminished desire to compete which, allied to his unquestioned track skills, explains so much of Mansell's success. His attitude this weekend is in stark contrast to the jaded tensions which envelope grand prix, and once again causes it to say goodbye to its new world champion, Alain Prost.

Prost's critics say that that he has lost motivation - that the fire has gone out. There was a fierce parting shot from Bernie Ecclestone, head of the Formula One Constructors' Association and the man effectively in charge of grand prix. 'Nobody,' he declared, 'is bothered about Prost. Racing will go on without him.'

It was understandable that Prost, 38, should take the attack personally. But the episode has a wider significance, it provides evidence of a shift in attitudes towards drivers. It is perceived that starting grids have become over-populated with overpaid, over-aged and too often under-committed drivers. Fearful of losing its huge audiences and sponsorship, grand prix has tended to cling to its established stars. But this year in the absence of one of Mansell, it has found out how quickly, among the public, new heroes can supplant the old.

At the Portugese Grand Prix in Estoril, Prost's young fellow Williams driver Damon Hill started from the back of the grid, Hill scythed his way through the field and was only seven seconds behind Prost by the end. Between them, Hill and Prost display most of the ingredients which go to make up successful racing drivers.

Prost is nicknamed 'the Professor'. His approach has become wholly scientic. In Prost's world, a racing car driven with its tail hanging even slightly out is a car wasting energy which should be propelling it forward. Prost is the ultimately 'tidy' driver.

But that very precision has frequently been called boring. So has been Prost's wholly rational philosophy of winning races at the slowest possible speed and least possible risk.

Prost has mostly won from the front this year in a car universally acknowledged to be the quickest. Had the Williams-Renault proved vulnerable, few would have expected Prost to tiger his way round any performance deficit as Michael Schumacher has done so brilliantly in the Benetton.

Hill, in contrast, has everything to play for. His natural talent and innate car control are not in doubt. But nor is that of Hakkinen, Schumacher, Jean Alesi, Rubens Barichello and several others among the up and coming F1 driver crop.

Both young and old guard are, almost without exception, physically fit. There is no choice if massively variable forces of up to 5g are to be survived for nearly two hours.

Where they differ is in commitment - the willingness to go out to the ragged edge, and occasionally and expensively beyond, in seizing any and every overtaking opportunity.

Only a very few, such as Mansell and Senna, retain their aggression undiminished - Senna sometimes off the track as well as on - as Mansell's kamikaze antics on Indy's ovals have shown. Cliche it may be, but grand prix drivers require courage. But then, back in the early 1980s, former world champion Nicky Lauda could be heard talking about the enthusiasm and 'madness' of his young team mate, Alain Prost.

US United States of America GB United Kingdom, EC P794 Commercial Sports NEWS General News P794 The Financial Times London Page XIII 951
Sport: Big boys come out to play - The US league starts without its biggest star. Who will replace Michael Jordan? / Basketball Publication 931030FT Processed by FT 931030 By PATRICK HARVERSON

LAST MONTH, the day after Michael Jordan, professional basketball's biggest star, unexpectedly retired from the game at the peak of his powers, the former Boston Celtic player Kevin McHale said something shocking. He said that within a year or two, basketball fans would be asking: 'Michael Who?'

The astute McHale did not mean to diminish Jordan's nine-year career, in which the Chicago Bull's guard won three consecutive National Basketball Association championships, three most valuable player awards, and seven consecutive scoring titles.

McHale was pointing out that basketball would survive the loss of its greatest star, that the memory of Jordan's greatness would soon be superseded by the reality of younger players reaching heights of their own, and that the memory of Chicago's three consecutive league titles would quickly be dulled by the rise of other teams to the NBA championship.

Among the tidal wave of hype and hyperbole that accompanied Jordan's retirement in October, McHale's remark was a refreshing dose of realism. Yet, it was also a trifle hyperbolic itself.

Jordan was more than just the best player in basketball. To millions in the US and around the globe, he was basketball. Although others began the game's revival in the early 1980s, it was Jordan who helped make basketball the fastest-growing, most glamorous and sexiest, professional team sport in the world.

But, the league goes on without him, and his early retirement will make the new NBA season (which opens this week) the most competitive in years.

Although Jordan was always ably assisted by his team mates (whom he cheekily dubbed his 'supporting cast'), the Bulls would never have won one championship, let alone three, without him. Now that he is gone, the few teams that came close to matching Chicago and Jordan in the playoffs in recent seasons - the Phoenix Suns, the New York Knicks, the Portland Trailblazers, and the Cleveland Cavaliers - have the best shot at winning the NBA title next spring.

Of those four, the first two will start as favourites to meet in the final, assuming the Suns' unpredictable leader Charles Barkley, stays fit enough to play and keeps out of trouble, and the Knicks' hot-headed heavyweights keep their collective cool when big games are on the line. Both Portland and Cleveland, however, look past their prime.

The Bulls themselves cannot be overlooked as contenders. They may have lost their maestro, but in Scottie Pippen they have one of the best five players in the NBA, and in Toni Kukoc, the recently signed 6 ft 11 in Croatian, they have a versatile playmaker who dominated European basketball.

Then there are a handful of teams which have flirted with success in recent years but which have struggled to progress in the playoffs, such as the Utah Jazz, Seattle SuperSonics, Golden State Warriors and San Antonio Spurs. Golden State could succeed, but only if their heralded new recruit from the college game, Chris Webber, plays to his potential.

There are also some outsiders, most of them built around young, unproven players. Teams such as the Charlotte Hornets, Orlando Magic, and New Jersey Nets possess some of the most explosive raw talent in the game, and represent the NBA's bright future. Yet, they remain works in progress, and it will probably be two or three years before they join the elite.

The NBA, however, has always been more about individuals than teams, and the most intriguing question this season is who will become the dominant personality of the post-Jordan era?

Barkley would probably regard himself as heir to Jordan's throne. Bull-shaped, bald-headed, and big-mouthed, the 30-year old Barkley is the NBA's favourite anti-hero. Fans adore his aggressive, highly physical play, but therein lies his weakness. Already struggling with recurrent back problems, he is not sure how long he can last, and has already hinted that he may retire at the end of this season.

No, the NBA will have to look to younger stars for its next Michael Jordan. The Orlando Magic behemoth Shaquille O'Neal looks the obvious successor, not least because his sponsors Reebok, the shoe manufacturers, have already anointed him the world's newest sports phenomenon.

The 21-year old O'Neal (who will be playing an exhibition game in London this weekend) is what basketball coaches like to call an 'impact' player. At 7 ft 1 in and 300 lbs, the Orlando centre made an impact as a rookie last year, scoring 23.4 points-per-game and dominating the most important part of the court - underneath the basket. O'Neal is quick, and very strong. So strong that he has twice pulled the entire basket, backboard and supporting rig to the floor during games with spectacular slam-dunks.

O'Neal was voted rookie of the year last season, but the player who came second in the ballot, Charlotte's Alonzo Mourning, displayed as much potential as his rival. Although smaller and lighter than O'Neal, Mourning plays the same pivotal position of centre, and does so with great drive and aggression. He is quicker than O'Neal, a better dribbler and passer and a more accurate shooter. Aided by Larry Johnson, the rookie of the year in the 1991-92 season, Mourning is expected to lead Charlotte to a championship sometime this decade.

Barring serious injury, O'Neal, Mourning and Johnson should be the game's biggest stars (both in size and reputation) for some time to come. In fact, the big men should dominate the NBA well into the 21st century, because this season's top rookies, like Webber of Golden State and Jamal Mashburn of the Dallas Mavericks, share the same attributes of strength and size that distinguished last year's crop.

US United States of America P7941 Sports Clubs, Managers, and Promoters NEWS General News P7941 The Financial Times London Page XIII 987
Travel: Loved the Galapagos, loathed the red tape - Richard Mooney visits the Ecuadorian islands made famous by Darwin but discovers that a mouth-watering itinerary can prove deceptive Publication 931030FT Processed by FT 931030 By RICHARD MOONEY

IT SEEMED too good to be true. 'Cruise the Galapagos Islands with Gerald Durrell,' the advertisement said.

To visit the Galapagos archipelago, cradle of Darwinian evolutionary theory and home to many unique species, was a long-cherished dream; and to meet Durrell, naturalist, author and founder of the Jersey Wildlife Preservation Trust, had for 30 years been among my wife's fondest ambitions.

A call to Superlative Travel, the London agent, brought a mouth-watering itinerary by return post: three days at leisure in Quito (capital of Ecuador, of which the Galapagos Islands are a province); a flight to the islands to join the cruise ship, followed by five days hopping between no fewer than seven of them; and return to Quito for Andean tours on the final day. So we booked. The cost was Pounds 4,998 for two.

The first change of itinerary came a few weeks later. We were told that over-booked flights from Quito meant we had to join the ship at the main port of Guayaquil, an hour's flight from the capital; sail the 600 miles to the Galapagos; and, on completion of the island-hopping, sail north to Costa Rica before heading homewards. That resulted in a two-day extension to the 13-day holiday - an inconvenience, but hardly a disaster.

The writing, however, was on the wall.

Ten days later we arrived in Quito and, having made contact at the airport with one other UK adventurer, were transported to the Grand Hotel Colon. We became uneasy at the continued absence of a detailed itinerary.

A telephone call to the office of Metropolitan Touring, which was handling the mainland phase of the holiday, and a request to speak to Paddy Romirez, named as local contact in our pre-departure information sheet, produced only consternation. An English speaker was found and the request repeated. Deeper consternation.

Eventually, someone was found who had heard of Romirez (apparently, he worked for another company altogether and was based in Dallas, Texas). More helpfully, someone else in the office knew the arrangements for that evening.

Contact having been established, the Andean tours (brought forward in the changed itinerary) passed off enjoyably and reasonably smoothly. Then came the time for transfer to Guayaquil and the high seas, or so we thought.

The air transfer was all right but the high seas had to wait. The ship had been unable to dock at the port and was sailing direct to the islands, to which we were to fly next day.

The morning saw the party, which had grown to five while in Quito, augmented further by two American passengers who were rejoining the ship after a spell of back-packing in Peru; and a Newfoundlander, Kevin, who was taking over as ship's chef. The three-hour flight seemed longer in the cramped light aircraft that had been chartered specially, and it was with some relief that we landed on the island of San Cristobal.

The ship had not yet arrived so we were put up overnight in a small hotel where Ernesto, a naturalist-guide, gave us an introductory lecture in the evening, laying particular stress on the restrictions under which visitors were placed.

Wildlife reserve areas could be visited only in the company of a licensed guide and visitors had to keep to the designated trails; no food was to be taken ashore; smoking was banned, as was flash photography; touching the animals was forbidden; and footwear was to be washed on departure from each island as a precaution against plant seeds being transferred and upsetting the fragile balance of their unique eco-systems.

Next morning, the odyssey was resumed with a five-hour trip in a small, slow and incommodious boat to the island of Espanola. Earth has plenty of things to show more fair than this featureless platform of volcanic rock, but dull would be the person unmoved by its inhabitants' extraordinarily relaxed attitude to humankind. And so accessible is its profuse wildlife that more species can be seen in an hour on Espanola than in a week almost anywhere else.

As soon as we dropped anchor, our dinghy was appropriated as a perch by two brown pelicans. And as this vessel ferried us ashore past marine iguanas, both swimming and sunning themselves sinisterly on the rocks, we were joined by a young sea lion showing ill-concealed delight at our arrival. This usher conducted us eagerly on to the beach, where lay a score of older members of his extended family.

It seemed that most of the neighbourhood had turned out to receive us. Frigate birds wheeled overhead; mocking birds hopped around us; Galapagos doves made more sedate inspections. Little lava lizards scuttled to and fro, going over, rather than round, lounging iguanas. A few yards away, a Galapagos hawk was casting a beady eye over the new arrivals.

Arriving back on San Cristobal after another tedious five hours at sea, we found the ship in the harbour and Patrick Shaw, the tour host, at the hotel. Within 20 minutes, we and our luggage were on board. The information sheet had said that the Northern Ranger was 'comfortable but not luxurious,' which turned out to be a fair description. Its appointments were what might have been expected of a craft designed to ferry fisherfolk and supplies up and down the Labrador coast during the northern summer. Accommodation was in cabins rather than suites, furnished with bunks rather than beds, and 'facilities' rather than bathrooms. But it did have air-conditioning.

At that evening's briefing, the hand-to-mouth nature of the voyage's organisation began to become apparent. Shaw revealed that it had proved impossible to get permission for the Northern Ranger to move to any other anchorage during its stay in the archipelago. Thus, our trips over the next four days would, like our visit to Espanola, have to be conducted as return journeys on small Ecuadorian craft, restricting severely the scope of our expeditions.

Conversations with our shipmates, mostly elderly Americans and Canadians who had boarded three weeks earlier in Argentina, confirmed that confidence in the organisational skills of Blyth and Co., the Toronto-based cruise operator, had expired soon after the Northern Ranger rounded the southern tip of the continent. And a lengthening list of cancelled excursions and aborted landfalls had done nothing to revive it.

Somewhat daunted, my wife and I retired to the promenade deck. There, in the sultry darkness, the islands' enchantment began to work on us once more. As we watched sea lions hunting flying fish attracted by the ship's lights, our spirits rose. We were in the Galapagos; Gerald Durrell was on board (we had met his wife, Lee, but not yet the man himself); and, if not exactly cruising, at least we were afloat.

The next two days were spent very enjoyably - except for the sweltering, interminable boat rides - on visits to sites on San Cristobal (red-footed boobies, marine iguanas, more sea lions), followed by a crossing to Santa Fe island (land iguanas, more finches, still more sea lions) and on to Santa Cruz, where we were rejoined by the Northern Ranger before leaving Galapagos waters the next day.

What lay ahead was the two-day journey north to Puntarenas in Costa Rica, during which long turtle- and dolphin-spotting vigils would be interspersed with lectures and slide shows presented by Gerald and Lee Durrell (herself a noted naturalist).

The hurried manner of our departure from Santa Cruz (the captain had been given a deadline to depart, under naval escort if necessary, whether or not all his passengers and crew were back on board) underlined the basic problem that resulted in the uncomfortably ad hoc arrangements of our stay in the islands. We were not welcome. This is not to say there was any unpleasantness towards the visitors from individual Galapagans; anything but. It was between the organisers and the local authorities that the tension existed - and one had to admit the authorities had a point.

As the jewel in the crown of Ecuadorian tourism the Galapagos group is, understandably, guarded jealously. If this third world country is to maximise its revenues from the limited number of visitors the islands can sustain without irreparable harm to their ecologies, those revenues must be earned chiefly at sea. So, cruising the islands in foreign vessels is, effectively, banned.

On our return, I checked with a London-based firm, Twickers World, which has been taking tourists to the Galapagos Islands for more than 20 years. It confirmed that the only way to cruise the islands is to transfer on arrival to a licensed Ecuadorian vessel. So now we know. Next time we will make sure our trip is organised according to Ecuadorian rules.

EC Ecuador, South America P7999 Amusement and Recreation, NEC NEWS General News P7999 The Financial Times London Page XI 1499
Travel: Not many people know about El Salvador . . . Publication 931030FT Processed by FT 931030 By MARK HODSON

TWO HUNDRED years ago, a hole appeared in the ground somewhere in western El Salvador and a huge fountain of lava and ash spewed out to form a perfect volcanic cone 4,000ft high. Over the years it remained almost permanently active and, late in the 1950s, the government decided to build a lavish hotel on an adjoining peak with spectacular views into the crater.

Just as the Hotel Montana was about to open its doors in October 1966, Izalco volcano let out one last rumble and, to this day, has remained perfectly, stubbornly dormant. Such is the luck that has dogged the history of El Salvador's tourist industry.

In recent years, events have taken several turns for the worse, with a terrible civil war and a frail peace accord in 1992 doing little to promote the country as a holiday destination.

The capital, San Salvador, once was an elegant colonial city but has twice been destroyed by earthquakes and is now dominated by a monstrous, unfinished concrete cathedral. Building started in the 1950s but, during the war, the liberal archbishop, Oscar Romero, ordered church funds to be spent instead on the poor. Despite his murder by a death squad 13 years ago, the cathedral shows no signs of being completed.

In the 1980s, other Central American countries seized on developments in international tourism, with Guatemala cashing in on its colourful indigenous population and Costa Rica catering to the fast-growing demands of eco-tourism. But El Salvador seems to have missed the boat again. Its own indians apparently have decided to adopt western culture, trading in their traditional garb for T-shirts and jeans. Even the country's principal pre-Colombian ruin, a 10th century pyramid at Tazumal, has been restored crudely in concrete. The countryside is beautiful but farmed intensely: eco-tourists want to see jungle, not banana groves and coffee plantations.

At the tourist office in San Salvador, the staff refuse to be disheartened. A bubbly young lady assured me there were muchos, muchos other tourists in the country, although her excitement at my arrival suggested otherwise. She gave me a handful of photo-copied bus timetables, a list of government tourist centres - and suggested I visit a Texaco garage to find a road map.

I took a bus to the 'charming indian village' of Panchimalco, which allegedly has a 'beautiful church full of colonial treasures.' Everyone there spoke Spanish, wore Levis and seemed to be listening to heavy rock music. The church was boarded up, apparently after a Colombian tourist had run off with some of the colonial treasures.

Things improved at Ilopongo, just half-an-hour from the scream and stench of San Salvador, where I found a clear blue lake five miles wide in the crater of an extinct volcano. The water was warm, fed by hot springs, and an old man steered me around the little craggy islands in his leaky boat. On the shore, the government has built one of its tourist centres, a surprisingly tasteful collection of wooden picnic tables under a cluster of palm trees.

The indians used to drown four virgins in the lake every year because they believed it was inhabited by gods - and, with all those other tourists mysteriously absent, it was easy to see why. The place was eerie.

On weekdays, all the tourist centres were similarly deserted but, on Sundays, rattling buses would descend on them, packed with thousands of city folk. Few would sunbathe or even swim, preferring instead to sit around drinking horrifying quantities of Tic-tak, a clear rum that scientists might like to consider as a way to power space missions. For most Salvadoreans, a perfect Sunday seems to consist of going to church, downing two bottles of rocket fuel at the beach and then driving home, stopping on the way for a brief gunfight with a fellow motorist.

The second city, Santa Ana, has a small-town feel; when I got off the bus I was approached by various people who wanted to help me find a hotel, have a chat or just shake hands. None asked for money. It was one of the most friendly places I have known. There were few sights; but inside the huge neo-Gothic cathedral, under a shrine to Our Lady of Santa Ana, was an interesting plaque which read simply: Gracias por el pick-up.

Two hours away, at Sonsonate, a week-long fiesta was getting under way in honour of La Virgen de la Candelaria. Each evening, the streets were blocked off with enormous loudspeakers and the salsa and merengue blasted out until 3am. At 4am, an army brass band drove around town on the back of a truck, playing a screeching fanfare.

In the east of the country, where the war had been fought most intensely, the fiestas were more subdued. In the small town of San Vicente, in a valley surrounded by fields of sugar cane, people were still getting used to the lifting of the curfew and some would not yet venture out after dark.

On the main square, the church was overshadowed by a huge military barracks, painted lurid green and surrounded by sandbags and gun turrets. On Sunday evening, about 30 uniformed soldiers marched out on to the leafy park, took up positions on the bandstand and, armed with three bass drums, six tubas and a woodwind section big enough to fill a stadium, bashed out possibly the worst-ever public rendition of the Beatles' Yesterday.

Not a soul watched; but, across the square, a small stage had been set up outside a chemist shop where two young men with acoustic guitars played songs of love and freedom. A crowd of hundreds appeared from nowhere. Eventually, the army retreated, leaving the guitarists in peace. Twenty minutes later, a power cut threw the square into darkness and the crowd drifted back into the shadows without complaint.

El Salvador's best chance of attracting tourists might lie in its beaches. The long stretches of stark black sand and crashing white surf are dramatic and deserted. Word had it that some of California's most adventurous surfers were about to descend on a spot called Zunzal, but I swam there in complete solitude until a military training jet roared over the horizon and buzzed me from 20ft, almost bringing on a heart attack.

As I recovered my composure over a beer and a plate of crayfish at a wooden beach-side restaurant, a thick-set, middle-aged man in dark glasses walked in, looked carefully around - and then sat down to embrace a young female companion. Outside stood his black Jeep with tinted windows and five nervous-looking bodyguards, each with matching moustache and machine-gun.

I developed a habit as I travelled around the country of asking hotel and restaurant staff if there really were many other tourists in El Salvador. The answer was almost always the same. 'Oh, lots. Not right now, but we have many, many tourists here.'

Back at the Hotel Montana, all was quiet. In the observation lounge, bored waiters in grey tuxedos shuffled from one foot to the other, waiting for customers. The furniture was period hi-tech, as if from an early James Bond movie. The high-backed chairs were not worn out but faded in the sun.

I sat with a cocktail reading the paper. A banner headline read: Gran Futuro Por Turismo Salvadoreno. More question, perhaps, than boast. I looked out of the plate-glass window across to the volcano, half expecting an answer, but the reply remained the same: unequivocal silence.

SV El Salvador, Central America P7999 Amusement and Recreation, NEC NEWS General News P7999 The Financial Times London Page X 1287
Travel: Masterful guide to World Heritage sites Publication 931030FT Processed by FT 931030

TRICK QUESTION: how many British sites appear on Unesco's World Heritage list of 360 'natural and spiritual treasures' of 80 countries? asks Michael Thompson-Noel. Masterworks of Man & Nature, published by Harper-MacRae at Pounds 30, puts the answer at 14.

It is a trick question because one of them is Henderson Island, uninhabited and largest of the Pitcairn group in the south Pacific. Henderson is described as one of the few remaining pristine atolls anywhere, an evolutionary laboratory with all the dynamics of natural selection on display.

Top marks, however, if you managed to call to mind six of the remaining 13 British sites. The list: Blenheim palace, Oxfordshire; the city of Bath, Avon; Edward I's castle and town walls, Gwynedd, north west Wales; Canterbury cathedral, St Augustine's abbey and St Martin's church, Canterbury, Kent; St Kilda, Outer Hebrides; Stonehenge, Avebury and associated megalithic sites, Wiltshire; the Giant's Causeway and its coast, Northern Ireland; Tower of London; Ironbridge Gorge, Wrekin; Westminster palace and abbey, and St Margaret's church, London; Durham cathedral and castle; Hadrian's wall; Studley royal park and the ruins of Fountains abbey, North Yorkshire.

Masterworks is a thorough, well-photographed guide to all 360 World Heritage sites, buttressed by useful essays.

Paul Keating, prime minister of Australia, co-signs the preface in which he describes the World Heritage convention as 'one of the greatest achievements in international co-operation of all time.'

GB United Kingdom, EC P7999 Amusement and Recreation, NEC NEWS General News P7999 The Financial Times London Page X 262
Minding Your Own Business: Playing it cool in the fruit field - The chilling techniques used to ripen produce Publication 931030FT Processed by FT 931030 By DAVID SPARK

HARD avocados, unloved and unwanted by supermarkets and shoppers, are what gave Barry Cooper an opening into business.

The fruit can be imported hard and then ripened with heat and ethylene gas - but it can get too ripe. Cooper, a self-employed refrigeration engineer, was asked to design airspray equipment to cool the avocados and stop the ripening process.

'The first airsprays leaked so they cost me a lot of money,' says Cooper. However, once he overcame that problem, he had equipment enabling him to send fruit and vegetables through the supermarkets' distribution chains in good condition.

He joined with Ian White, then selling refrigeration equipment for a Peterborough company, to form the Horticold company in 1989. 'I wanted to expand the business. Ian had a good customer base and technical knowledge. We just felt there was a huge market.'

Chilling fruit and vegetables in Britain used to be a hit and miss affair and caused produce to dry out. It was put in a cold room or a refrigerated lorry but a cold room simply chills the air and the cold takes a day or more to reach the inside of the produce. Maintaining the quality of the fruit and vegetables requires faster cooling.

But how fast? Peaches split if cooled too quickly; cucumbers go soft. There was no research data, so Cooper and White have had to compile their own using a mobile cold room equipped with airsprays enabling them to see how fast the produce can safely be cooled.

White only went into refrigeration following an incident on the cricket field. He was fielding at first slip when second slip suggested that he give up car trading, which he had taken up after a background in engineering, and apply for a job at a Hull refrigeration company. He got the job.

To launch Horticold, Cooper and White took out Pounds 100,000 in bank loans against guarantees. They got their first big order quickly, a Pounds 300,000 contract to design and install equipment for a new distribution centre for JO Sims, an importer, at Spalding, Lincolnshire.

Slowly they built up a reputation, advising and equipping other importers, and installing small units at prices from Pounds 10,000 for farmers selling strawberries. 'The only thing that sells an engineering product is recommendations and track record,' says Cooper.

Then Horticold turned to the importers' suppliers in Spain, France, Greece, Zambia and Kenya, offering to cool produce straight out of the fields, thus allowing it to be picked ripe.

'People harvest produce unripe for a long shelf life,' says Cooper, 'but if it ripens unnaturally the taste is not there. Peaches from Italy look beautiful but can taste lousy. It used to take 24 hours to cool peaches. We designed a machine that could do it in an hour.'

A staff of 12 assemble Horticold equipment at Langley, near Slough. They also install it in Britain and overseas, and train local maintenance teams.

Turnover was Pounds 600,000 in the first year. Four years later it's Pounds 1.6m. Profit is between 3 and 5 per cent. 'We've had a few scary moments with delayed payments and people finding excuses not to pay,' says Cooper. 'You have to run on your clients' integrity.'

Horticold is now tackling the task of promoting the sale of British fruit and vegetables by extending the season beyond November. This means that produce must be stored, possibly for months and then ripened.

As produce ripens it gives off carbon dioxide and sometimes ethylene, and this mixture promotes further ripening. Cooper and White have devised a computerised system for controlling the mixture and, through that, the ripening process.

'We started with carrots,' says White. 'We have a project near Newark. We have also shipped equipment to Italy for potatoes and carrots.'

They now have to wait to find out if they priced these projects correctly: they will not know the costs until the first few are completed. They believe, however, in doing things themselves. Cooper says: 'People want a slice of the action. But these are our ideas. We developed them. There's no charity when it comes to business.'

Their understanding of refrigeration and the market gives them an advantage over less specialised companies in what they have found to be a specialised field. 'The more cities and countries you visit, the greater depth of understanding you acquire. And this, after all, is a technology that does travel.'

Horticold, Unit 18, Wexham Road Business Village, Slough SL2 5HF. Tel: 0753-692891.

Horticold GB United Kingdom, EC P4222 Refrigerated Warehousing and Storage P0161 Vegetables and Melons P0171 Berry Crops CMMT Comment & Analysis P4222 P0161 P0171 The Financial Times London Page IX 808
As They Say In Europe: France insists on playing the fool Publication 931030FT Processed by FT 931030 By JAMES MORGAN

THE FRENCH Fifth Republic is founded on two principles: it must stand up to its friends and cave in to its enemies. President de Gaulle laid the groundwork when he turned on those who put him in power in 1958. He later ditched Nato and tried to cosy up to the Russians.

Then, 20 years ago, France thought its interests lay with the oil producers when OPEC jacked up the price: it rejected membership of the west's International Energy Agency and went over to the other side. This resulted in huge contracts in Iraq, for which it never got paid. More recently, France tried to preserve East Germany, although it did not go along with more extreme British plans in this area.

This week saw the government failing to end a strike at Air France, even though it abandoned an essential plan to re-structure this giant loss-maker. Nearly two-thirds of the population approved of this retreat, according to one poll. President Mitterrand said the strikers often talked sense and gave the kind of backing to his prime minister, Edouard Balladur, that Lady Thatcher reserves for John Major.

On trade questions, France remains united around the neanderthal remnants of a once-numerous peasant class. But any success achieved in protecting them will damage the country's long-term interests and, more importantly, those of its closest allies.

It could be that things are now getting out of hand. The president of the European Commission has diagnosed the problem. Jacques Delors often keeps his more valuable apercus to himself but on television nearly two weeks ago, he revealed that the French had finally gone mad. What he said was that France was going through a 'collective trauma which leads to bad solutions, prejudicial to its interests'. He was talking about Gatt - the General Agreement on Tariffs and Trade.

These four letters often arouse a certain madness - catatonia, hysterical boredom, and even a complaint known as Gatt-rejection syndrome. German newspapers can scarcely bring themselves to mention it. In Russia, the very words 'Uruguayski Raund' generate disbelief and scorn.

For the French, though, international trade policy plays the same role as vampires in Transylvanian folklore. The day after Delors' warning, there were 27 editorials in the French press. The day after, 18. 'We are not barmy,' was the theme.

The issue these days is not only French farming: agricultural protection is now joined by cultural protection, otherwise known as subsidising French films and keeping American rubbish off the small screen. In a country where you can rely on seeing an old episode of Hawaii Five-O whenever you like, there is clearly much to be done.

In its five-point rebuttal of everything, Nice-Matin accepted the worst the world could throw at France: 'Must we be resigned to see ourselves stigmatised as timid, irrelevant, limited, narrow-minded, inconsequential, chauvinist, archaic, demagogic, and so it goes on, for the simple reason that we care for the interests of France? One hopes this will not be so and there still remains an opportunity for our lesson in reason to be heard.' Most French leader writers think they are Francois Mauriac.

Another paper wrote of Balladur's 'Gaullist accents' and talked of a France ready to 'join the Resistance' if the US persisted in its dangerous game - 'a France which will accept neither injustice, nor inequality nor humiliation'. Le Figaro linked the Gatt struggle with the solidarity of the Francophone group, which held a summit at about the same time. France could escape from its encirclement by shovelling out free surplus food to its old colonies.

Liberation, almost alone, maintains a sceptical attitude towards the pro-peasant frenzy of the rest of the media. Referring to a prospective piece of legislation which will make it obligatory to translate the words 'Jurassic Park' into French, it wrote: 'Drugged by a kind of plebiscite, Edouard Balladur will be able to confront, with renewed muscle, the yankosaurs who menace our country.'

It is the coincidence of farms and films that makes the present French stand so interesting. The two are indeed symbols of all that it means to be French. The only trouble is that they do not go well together: the peasant provides a stock character of the French cinema, but a laughing stock character. From The Sheep has Five Legs to Jean de Florette, this figure - depicted as a timid, narrow-minded, archaic, malign, half-witted drunk - deploys enough cunning to destroy his friends while, comically or tragically, assuring his own demise.

Farmer France - the Movie provides a less-than-satisfactory motor for a new Europe. Which is a pity - for France, when not playing the fool and fighting its friends, is the country which can make this Europe something worth joining.

James Morgan is economics correspondent of the BBC World Service.

QR European Economic Community (EC) P9721 International Affairs NEWS General News P9721 The Financial Times London Page IX 836
Briefcase, Q&A: Benefit turns sour Publication 931030FT Processed by FT 931030

DURING 1991/92, I started a new job. This included a company car, with petrol provided for business mileage only.

In my tax return for the year, I declared the appropriate scale charge, reduced proportionately for the number of months for which the vehicle was at my disposal, and this was accepted.

During the following year, the benefit was improved to include fuel consumed for private mileage. I assumed I would be taxed only from when the benefit started.

But the Revenue has now told me that 'fuel is an all or nothing charge. If you make good the cost of all the fuel provided for private use, the car fuel scale charge is nil. If you fail to make good the cost of all the fuel provided for private use, the full amount of the car fuel scale charge is chargeable.'

Is the Revenue correct that there can be no proportionate reduction in the annual scale charge for the period before the benefit was provided? If so, could I now reimburse my employer for private fuel costs from the date the benefit was provided to the end of that tax year, and thereby eliminate the tax liability?

The answer to your first question is yes, by virtue of section 158 of the Income and Corporation Taxes Act 1988 as amended for 1992-93.

The answer to your second question is no, because sub-section 6 of section 158 says that 'the cash equivalent is nil' only 'if in the relevant year . . . the employee is required to make good to the person providing the fuel the whole of the expense incurred by him in or in connection with the provision of fuel for his private use and he does so . . .'

Ask your tax office for the free explanatory booklet 480 (Guide to expenses payments and benefits for directors and certain employees). This will give you an idea of the arbitrary nature of the rules laid down by parliament: they do not purport to be equitable or logical.

No legal responsibility can be accepted by the Financial Times for the answers given in these columns. All enquiries will be answered by post as soon as possible.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6282 Investment Advice NEWS General News P9311 P6282 The Financial Times London Page VIII 402
Finance and the Family: All downhill from this Crest - Diary of a Private Investor Publication 931030FT Processed by FT 931030 By KEVIN GOLDSTEIN-JACKSON

CREST is a well-known brand of toothpaste. The same name has been chosen by the Task Force on Securities Settlement for the proposed new share settlement system which is expected to begin operations in 1996. Rather than give people a gleaming smile, the task force's Crest is likely to make many private investors foam at the mouth.

In preparation for Crest, the London Stock Exchange recently announced that a 10-day rolling settlement for UK equities would be introduced on July 18 1994. The task force has recommended that the settlement period be reduced still further: to five days at the start of 1995.

The time taken to post and clear cheques will then make it impossible for private investors to deal unless they leave money on deposit with their brokers and, probably, make use of a broker's nominee service. The brokers will either charge for this 'service' and/or make a 'turn' on the money held on deposit, offering a lower interest rate than an investor could gain elsewhere.

With a nominee service, all dividend cheques go to the broker, not direct to the investor, and it is highly likely that the brokers will earn interest for themselves on dividends for several days (or longer) before crediting the dividends to their clients' accounts.

While I am in favour of brokers' receiving a fair return for their work, the nominee system can cause all sorts of problems. Under a nominee system, all company reports, takeover and other documents are sent to the nominee, not to the shareholder. Depending on the efficiency of the nominee (many of whom leave a lot to be desired), these documents may then be forwarded to the private investor.

Some nominees insert their client's name after the nominee name so that, when documents arrive, it is easier for them to discover to whom the documents should be forwarded. Other nominees do not do this and sometimes get in rather a muddle. In any event, delays are caused. Yet, prompt action on receiving documents can save an investor a small fortune.

Many small companies receive little press attention and are not followed by analysts. The private investor, therefore, has to rely on the company itself for information. If there is some 'horror' concealed in the notes to the accounts, then, by the time an investor receives his report via a nominee, other people may have bailed out of the company at a far better price than the poor nominee-dependent private investor will be able to achieve.

The supporters of the nominee system claim it is possible for investors to get reports direct from the companies concerned. I have tried this: it does not always work. Writing to a company secretary asking to be placed on the company's mailing list for reports will result in a report being despatched in the first year but, quite often, reminders have to be sent in subsequent years. Writing to company registrars dealing with millions of shareholders in hundreds of companies is also not always effective, either.

Getting a nominee to exercise voting rights on your behalf at an annual general meeting can also be fraught with problems, as well as incredibly time-consuming and costly. And as to getting 'shareholder perks,' such as discounts on purchases from a company's stores, most companies and nominees find this impossible to arrange.

Using a nominee means everything has to to be double-checked by the investor - even more time-consuming than checking bank statements for errors. At least with cheques, you have a fairly good idea of the amounts going into and out of a bank account; with nominee share services, there are additional problems. For example, I once sold what I (and the nominee) thought was my entire shareholding in a particular company only to find, almost a year later, that I still held shares in the company as a result of an earlier share bonus issue of which I had had no knowledge and which the nominee had not noticed.

The scope for fraud and tax avoidance by nominees is enormous. We have all read of companies that have gone bust and where auditors are being sued for alleged negligence - are nominees likely to be any better? Holding shares in my own name, I know the shares are mine: I have a share certificate in my name, not that of a nominee. At any one time, my brokers are not holding large amounts on my behalf: I am, therefore, well protected by the compensation scheme.

But if everyone is forced to move to nominee services, then many people will find the terms of that scheme inadequate because their brokers will be holding large sums on their behalf. It is worth remembering that, under the scheme, a claimant only receives the first Pounds 30,000 of his claim in full and 90 per cent of the next Pounds 20,000. The maximum anyone can receive is Pounds 48,000.

Will this mean that more private shareholders will move to large, well-known firms of brokers in the hope that size will bring greater security? If so, will the numbers of independent broking firms decline and thus reduce competition, to the detriment of investors?

Even if a broking firm is financially secure, if its systems foul up or its record-keeping is poor, then it could be costly and time-consuming to sort out who exactly owns what within its nominee service - and so clients might have to wait some time before being able to sell their shares or receive the amounts that are due to them.

I have never liked nominees. Indeed, 23 years ago, when I was just investing small sums as a student, the FT published a letter from me in which I stated: 'Far too many sharp deals and crooked practices can be carried out behind nominees.' How much capital gains tax is the Inland Revenue deprived of because the unofficial owners of shares have their identities concealed behind nominee names? If it is proposed to have identity cards to reduce the number of social security benefit cheats, why is it legal for people to hide behind nominee names when the scope for cheating on tax is considerable?

It surprises me that a government which spends millions of our tax on promoting democracy in other countries should connive with the Bank of England (leader of the Crest task force) to remove democratic rights from private investors. The Bank of England is a supporter of the Cadbury Code of Corporate Governance: yet, where is the proper governance when private shareholders find unwanted, costly obstacles placed in their path designed to make it difficult for them to attend AGMs and vote on various proposals, including takeover bids?

It is the private investor, more than the professional investment analyst, who is likely to notice mistakes in the annual report. Indeed, there are a number of instances at AGMs where private investors have correctly pointed out simple errors in arithmetic in reports which analysts have failed to spot. It is private investors who are likely to have more courage and ask pointed questions designed to elicit information of benefit to all shareholders.

Like many other private investors, I like receiving direct communications from companies and having a direct involvement with them. After all, as a shareholder, I am one of the owners of the company.

GB United Kingdom, EC P6231 Security and Commodity Exchanges P6799 Investors, NEC NEWS General News P6231 P6799 The Financial Times London Page VIII 1269
Finance and the Family: When age does weary them - The options for those needing help as they grow older / Health care Publication 931030FT Processed by FT 931030 By BETHAN HUTTON

BRITAIN'S population is ageing, like most of the developed world. Modern medicine lets people live longer, but a growing number need expensive, labour-intensive care and nursing in their final years. This could strain both individual and national finances. A paper presented to the Institute of Actuaries this week estimated that the demand for long-term care would rise in real terms from Pounds 40bn a year now to Pounds 60bn in 40 years.

Demographic and social trends mean that the present heavy reliance on informal care by relatives may no longer be feasible in future. The ratio of retired people to the population of working age is set to rise, more women are going out to work, family members live further apart, and rising divorce rates mean there are more single elderly people - and fewer daughters-in-law willing to perform traditional caring roles.

In coming decades, more people are likely to have to pay for care, but very few are taking the logical step of planning for it. Many have the vague feeling that the state will provide but the government has made clear that it can no longer afford to take full responsibility for the elderly. Anyone who has income, savings, or a home above certain limits must now pay for care, as described in an article on these pages two weeks ago.

Within the past few years, a number of insurance companies have launched products which aim to make paying for care easier. Sales are low as yet, and insurers are still experimenting with product structure. One innovative option devised by Cannon Lincoln, which packaged long-term care insurance as part of a pension plan, was dropped after the Inland Revenue withdrew approval.

Many insurers are hesitant to launch products while public awareness of the need is still low, or are waiting for the government to come up with tax incentives to kick-start the market. Bupa, the medical insurer, has been eyeing the market for some time and could well launch a product next year.

Products available now take two main forms: insurance plans for people not yet requiring care; and 'point of entry' plans for people who already need to go into a nursing home but are worried about their money running out. A few hybrid products combine an element of long-term care with life or permanent disability insurance.

Long-term care insurance is based on a concept called 'activities of daily living' (ADLs) - such as being continent, able to dress, wash, use the toilet, get in and out of bed and feed yourself without assistance. Once a person is no longer capable of a certain number of ADLs, the policy will pay out. 'Cognitive impairment,' such as that caused by Alzheimer's disease, will also usually act as a trigger.

Commercial Union and PPP Lifetime are the biggest players in this market, offering similar plans at two levels. One pays out only on serious incapacity (roughly, failing more than three ADLs), and one starts to pay at a lower level when two ADLs are failed. As the payments are made to the care providers - whether nursing homes or home nurses - they are tax-free. This insurance is intended to be long term, like life assurance: the younger and healthier you are when you start, the cheaper it will be all along. Premiums can be paid monthly, annually or as a one-off lump sum, particularly on retirement or when people move to a smaller home and have cash in hand.

Prime Health, a specialist health insurer, has two plans. One, called Home Health Care, covers help in the person's own home while Home Health Care Plus extends to nursing home care and some common inpatient surgery which improves the quality of life, such as hip replacement operations. These are more short-term policies, similar to private medical insurance, with variable, annually renewable premiums.

Commercial Union is also a provider of 'point of need' plans along with Eagle Star and Clerical Medical. The plans are all different, but have as a common basis an enhanced annuity: anyone needing immediate nursing home care is by definition in a poor state of health, with a correspondingly reduced life expectancy, and so can get better than normal annuity rates.

The plans are bought with a lump sum (often from the sale of a house) and then pay out a fixed or increasing sum every month or year for the rest of the person's life. Often, the insurer makes an arrangement with the nursing home that its fees will not rise more than a certain percentage a year, or in line with a recognised index, so that no shortfall arises.

Clerical Medical's plan is rather different. It is for a fixed five-year period and part of the lump sum goes to buy a temporary annuity. The rest is invested in unit trusts or a Pep with the aim of replacing the capital used to buy the annuity. After five years, another plan can be taken out or other arrangements made.

GB United Kingdom, EC P6321 Accident and Health Insurance NEWS General News P6321 The Financial Times London Page VI 885
Finance and the Family: Penny shares - why you should beware / The Speculator Publication 931030FT Processed by FT 931030 By PHILIP COGGAN

WHEN INVESTORS start to get interested in penny shares, that is often the sign of a flourishing bull market. If blue chip share prices start to run out of steam, the spotlight turns to less well-known companies which seem to present the chance for speculative profits.

Penny shares are merely stocks with share prices of under Pounds 1 (in some cases, under 10p). What makes them a potentially attractive investment is that they often fall into two categories:

Those where profits have collapsed and there is the hope that the market has under-estimated the chance for recovery.

'Shells' where there is no substantial business left. Here, the main value of the company is the stock market quote itself. This can be used by acquisition-minded entrepreneurs, or by other businesses which want a listing and can 'reverse' into the shell.

Both these classes of stocks can provide attractive returns, although at a risk; recovery stocks do not always recover and moribund shells can remain moribund for a long time.

Investors. however, seem to have a mystical belief that penny shares must be bargains simply by virtue of their low prices. Indeed, some may remember the phenomenal rise of Polly Peck in the 1980s and are hoping to catch its 1990s' equivalent.

Part of the enthusiasm could be due to the feeling that investors get more for their money with a penny share stock. Put Pounds 1,000 in ICI and you will get 140 only shares; put Pounds 1,000 in the Millwall soccer club and you get around 25,000. The problem with this theory is that if Millwall goes bust, you still lose Pounds 1,000.

In fact, there is nothing magic about the share price of the company. If someone whispers to you in the street: 'Psst. Want to buy some beer for 50p?' you would be wise to ask: 'How much beer exactly?' If the reply is a teaspoonful, then you are being offered a bad bargain; if the answer is a gallon, the deal might be attractive.

The key questions about a share price are not 'Is the price above or below Pounds 1?' but 'What are the assets and the profits (or potential profits) of the company?' and 'What proportion of those assets (and profits) do those shares represent?' If, for instance, there were only two shares in British Petroleum, and each was priced at Pounds 1bn, they would still be a bargain since the whole of BP is valued at more than Pounds 18bn. But shares in a company about to go bankrupt would be worthless at 1p, 0.5p, or 0.25p, since shareholders would get back nothing when the company went bust.

Any quoted company could easily turn itself into a penny stock simply by making a scrip issue; that is, issuing enough free shares. The company would still have exactly the same assets and profits as it did before and the shares ought to be no more or less attractive.

In practice, however, the 'bargain' effect does mean that shares tend to rise because of a scrip issue. Scrips do not always result in penny shares; often, they are undertaken by companies with so-called 'heavy' shares, trading at more than Pounds 10 or so, and bring the price down to a more palatable Pounds 4-5.

It is one thing to accept that the market can be irrational in favouring companies with low share prices; it is a much greater leap to state that penny shares automatically are cheap. Many investors make dangerous assumptions, such as: 'The shares are trading at only 2p so, if they go up to 3p, I will have made a 50 per cent profit.'

That ignores the very wide bid-offer spreads (the different prices for buying and selling) which often apply to penny shares.

Take Dares Estates and Tamaris, two companies which were shown as trading at 2p earlier this week. That figure is, of course, just the mid-price; the bid-offer spreads were 1 3/4 p-2 1/4 p for Dares and 1 1/2 p-2 1/2 p for Tamaris.

In short, buy the shares of Dares and you start off with a 22.2 per cent loss, not counting the cost of commission and stamp duty; buy Tamaris, and you are 40 per cent in the red.

To make a 10 per cent profit on, say, 40,000 shares in Tamaris (costing Pounds 1,000, plus Pounds 5 in stamp duty and Pounds 40 in commission), you would need the bid price of the shares to double to 3p. Furthermore, the 'value' of penny shares often consists of the hope, or expectation of future developments; sometimes there can be no dividend, no profits and not much in the way of assets.

Even if the business of the company does improve, it can take a long time for the fundamentals to catch up with the effect that sentiment has had on the price. And if sentiment changes for the worse, the small investor will probably be the last to hear.

So, is there any merit at all in penny shares? There can be, but only to the extent that often they are small companies or recovery plays. Penny shares are far more likely to be small, than large, companies; at present, the only FT-SE 100 index constituent at present with a share price of under Pounds 1 is Asda.

The work of Elroy Dimson and Paul Marsh, of the London Business School, has shown that small company shares have tended to outperform their larger brethren over the long run. One reason is that there is more scope for small companies to grow; another is that they tend to be under-researched and, therefore, under-valued.

Recently, however, investors have endured four successive calendar years - from 1989-92 - of smaller company underperformance. The small company effect is thus not inevitable (although such shares have outperformed this year).

For the private investor, the risk of investing in individual small companies is high; because they are highly vulnerable to the fortunes of a major customer or a particular sector of the UK economy. The safest way of backing the small company effect is via a specialist unit or investment trust.

The same factors apply to recovery situations. As the long-term success of funds such as M&G Recovery has shown, it is possible to earn excess returns by picking on stocks which the market has written off. There have been some splendid examples of penny stock recoveries in the recent recession; Next has climbed from 12.5p early in 1991 to near 200p today.

The O'Higgins theory, which we have written about many times in the Weekend FT, depends partly on choosing shares with low nominal share prices. But it limits itself to major companies, on the ground that the low price indicates the chance to buy a sound business while it is temporarily in the doldrums.

Shares, however, do not collapse for no reason at all. Many companies which have fallen to the status of penny shares have very real problems, which often prove fatal. For the private investor, a broadly-spread fund of recovery stocks is a better bet.

In short, penny stocks can have their attractions - but not because of their price. It is the recovery or growth potential of the company that creates the investment opportunity, not the level of the share price.

GB United Kingdom, EC P6231 Security and Commodity Exchanges NEWS General News P6231 The Financial Times London Page VI 1264
Finance and the Family: Controversy over fee Publication 931030FT Processed by FT 931030 By PHILIP COGGAN

FOSTER & Braithwaite is launching a unit trust which, when held in a Pep, will offer investors a tax-free income of 7 per cent. The trust has already provoked controversy since it will deduct the annual charge from capital rather than income - a practice which the Securities and Investments Board, the UK's chief financial services regulator, hopes to ban.

If F&B had deducted the 1.25 per cent annual charge from income, the yield on the fund would be 5.75 per cent. So, it would be wrong to assume the F&B unit trust is better than a rival fund (which takes the annual charge from income) offering, say, 6 per cent. But John Vintcent, chairman of F&B, points out that investment trusts are allowed to take their charges out of capital, so why not unit trusts?

Furthermore, whether the charge comes out of income or capital should make no difference to the total return to the investor. As yet, there is no standardised basis for calculating unit trust yields; some trusts use the distributions they have paid already while others use the yield they expect to pay.

SIB is consulting on proposals to prevent funds from levying charges on capital but the industry's trade body, AUTIF, is against such a ban. If SIB does go ahead, F&B will have to change its practice.

The F&B fund's investments will be high yielding investment trust shares, UK equities and, on occasion, fixed interest securities. F&B is known best for its expertise in investment trusts; it has the top unit trust in the IT sector over three years. The initial charge on the fund will be 5.5 per cent (although there is a 1 per cent discount until November 22). Minimum investment in the Pep is Pounds 3,000.

Guinness Flight is offering a 1 per cent discount off its three UK equity unit trusts - Recovery, High Income and Temple Bar Emerging Companies - until November 19. The normal initial charge on them is 5.25 per cent.

The funds chosen show good short term performance, but two have rather less impressive long term records. The Recovery fund is top of the UK Equity Growth sector over the year to October 1 (although 105th out of 118 funds over five years). High Income is 19th out of 107 UK income funds over one year, but 67th over five years. Temple Bar Emerging Companies has done well over both the short and long term; it is 11th out of 66 smaller company funds over one year, and seventh out of 49 funds over five years.

The funds are actually even cheaper to buy through a Pep since the initial charge is just 2 per cent. (The discount does not apply to the Pep).

Prolific Unit Trust Managers is also offering a discount off some of its funds. In its case, the 1 per cent break is in the form of additional units if investors buy into one of four funds - Recovery, Technology, European Growth and American Opportunities - before November 26. All four have good records, with top quartile (25 per cent) performance in their sectors over one year. American Opportunities was the best US fund over the year to October 1. The charges are 5.25 per cent initial and 1.25 per cent annual.

Foster and Braithwaite Guiness Flight Global Asset Management Prolific Unit Trust Managers GB United Kingdom, EC P6726 Investment Offices, NEC COMP Company News P6726 The Financial Times London Page V 596
Finance and the Family: The Japanese fund that takes its cue from Edinburgh - Unit trusts Publication 931030FT Processed by FT 931030 By BETHAN HUTTON

IT IS A LONG way from Scotland to Japan, but the physical and cultural distance has not hampered the performance of the Dunedin Japanese Smaller Companies trust - which is managed by a team based in Edinburgh and separated by nine hours and several thousand miles from the market it studies.

The Pounds 42m fund is top of 86 in the Japanese unit trust sector over the year to October 1, with growth of 84 per cent (offer to bid, with net income reinvested, source: Micropal); second over five years, with growth of 161 per cent; and eighth over three years.

Nigel Barry took over management of the fund in 1987, a year after its launch. He also manages Dunedin's Japan Growth unit trust, and the recently launched Dunedin Japan investment trust. He has a team of co-managers in Edinburgh, assisted by a researcher in Tokyo since 1990. The UK team members regularly visit Japan, seeing about 200 companies a year between them.

The investment approach is based on stock-picking, searching for good value among the smaller companies - mostly from the second section of the stock market and the over-the-counter market. 'Smaller' is a relative term: the largest stock in Dunedin's portfolio has a market capitalisation of about Pounds 3bn; the smallest, about Pounds 50m. The fund generally aims to buy reasonably large stakes, expecting holdings to form at least 1 per cent of the fund, so very small companies are not always suitable targets.

Share turnover is on the low side, at 30-40 per cent a year. 'I wouldn't say the portfolio has changed a great deal in the past year,' says Barry. 'We tend to sell a stock when we think its earnings outlook has changed, or it becomes too expensive.'

The strength of the yen has contributed to the fund's strong performance over the past year, but does not explain it entirely. Over the year from October 1 1992 to October 1 1993, the fund grew by 96 per cent (offer to offer) in sterling terms; but even in yen terms it put on a good show, with growth of 46 per cent.

Since the fund was launched, the Japanese stock market has had something of a roller-coaster ride, ranging from the late 1980s' boom to the early 1990s' bursting of the bubble and on to the latest tentative signs of recovery. Barry's strategy has had to adapt to carry the fund successfully through the ups and downs.

Between 1988 and 1990, favoured areas included machinery and robotics companies, as large manufacturers were increasing capacity. But in 1990, when the market began to fall quite sharply, Barry adopted a more defensive posture, moving into public works and housing related stocks: utilities, road repair companies, and a few food stocks and manufacturing companies. 'We were not exactly looking for great growth, just safety,' he says.

Now that the market is starting to improve, Barry is picking a few more economically sensitive stocks. One successful find recently was Kansai Sekiwa, a real estate company dealing in low-price condominiums, where sales volume is starting to increase.

The fund holds about 60 stocks. The top 10, which account for just over a quarter of the fund, are: Sansei Yusoki (leisure and storage equipment), Rinnai (kitchen and heating equipment), Katokichi (frozen food), Senshukai (catalogue sales), Nissho Corp (medical equipment), Eidensha (electrical retailer), Chofu Seisakusho (kitchen and heating equipment), Shimachu (DIY and furniture retailer), Max (house building equipment), and Mabuchi (electrical micromotor manufacturer).

'Dunedin are basically value investors. We don't tend to get wrapped up in the theme of the day,' says Barry. But economic and market trends are among the factors involved in the decision-making process. Japanese consumers, for example, have long had the reputation of being less price-sensitive, and more likely to buy expensive brand-name goods, than their counterparts elsewhere in the world.

The recession appears to be changing that. Growing consumer awareness of prices has been illustrated by the success of companies such as Aoyama, the discount suit retailer, and other well-positioned or adaptable companies could also benefit.

In the medium term, Barry is enthusiastic about the prospect of deregulation, in the construction industry as well as international trade. He is interested in companies which could benefit from trade deregulation, such as specialist discount alcohol retailers which could import lower-priced stock.

Other companies such as dairy product companies and bakers could do well from buying cheaper raw materials on the international market, where prices can be several times lower than for domestic products.

Charges. The trust has an initial charge of 5 per cent and an annual charge of 1.5; the bid-offer spread is around 6 per cent. The minimum investment is Pounds 1,000, or Pounds 30 a month with a savings plan. There is no Pep attached to the trust.

Dunedin Japanese Smaller Companies Trust GB United Kingdom, EC P6726 Investment Offices, NEC CMMT Comment & Analysis P6726 The Financial Times London Page V 851
Finance and the Family: Henderson TR is top of the Peps Publication 931030FT Processed by FT 931030 By PHILIP COGGAN

HENDERSON Touche Remnant, the merged fund management group, dominates the top 10 performing investment trust Peps over the last three years. The list, produced by Chase de Vere, contains five Henderson TR trusts.

The best performer, Personal Assets, which is a self-managed trust (with links to Ivory & Sime), has an investment portfolio split between the UK and the US. Manager Ian Rushbrook says he has felt the UK market has been undervalued for some time and has accordingly done well out of investing in the shares of fund management companies, which represent a geared play on the market.

Among the unit trust, the top place over three years is held by the St James's Place Pep Progressive fund. Its sister trust, International Growth, was covered in our Unit Trusts series recently; the management team, led by Nils Taube, follows a stock-picking approach, linked to various investment themes. Performance tables, covering some 550 unit and investment trust plans, are available with Chase's Pepguide for Pounds 9.95 from: Chase de Vere Investments, 63 Lincoln's Inn Fields, London WC2A 3JX.

Henderson Touche Remnant GB United Kingdom, EC P6282 Investment Advice P6722 Management Investment, Open-End COMP Company News P6282 P6722 The Financial Times London Page IV 223
Finance and the Family: Bank warns on deposits Publication 931030FT Processed by FT 931030 By ALISON SMITH

THE BANK of England is issuing a leaflet to warn people about the dangers of putting money into institutions which are not authorised by it to accept deposits.

Called 'Money in the Bank,' it sets out some signs that should put people on their guard - such as an offer of unusually high interest rates or an effort to attract them into making loans to someone's companies.

It also spells out the difference between a deposit, where someone has lent money and is entitled to have it back in full, and an investment, where there is no promise to return the money but the lender is entitled to a share of profits made.

The Bank is at pains to emphasise the lack of protection for someone who has lost money with an unauthorised deposit-taker, and also the scale of the problem.

In the cases being investigated by the Bank, up to Pounds 50m could have been taken in illegal deposits.

'All too often, the losers are elderly and those least able to afford to take the loss,' Bank officials say. They recall cases of pensioners who had to return to work after losing money to unauthorised deposit-takers.

Investigations have led Bank officials to carry out interviews in such unlikely places as London's Wormwood Scrubs prison, a brothel in Toxteth, Liverpool, and the back seat of a two-door Ford Fiesta.

Over the past year, they have brought three prosecutions for taking unauthorised deposits, all successful and all resulting in custodial sentences.

Just under 500,000 leaflets are being printed and will be available from post offices, Citizens' Advice Bureaux and libraries.

GB United Kingdom, EC P60 Depository Institutions TECH Safety & Standards P60 The Financial Times London Page IV 303
Finance and the Family: The Week Ahead Publication 931030FT Processed by FT 931030

This week sees several of the UK's largest retailers reporting interim results. The UK's two most profitable retailers, Marks and Spencer and J Sainsbury, report on Wednesday, and both are expected to show a healthy increase in pre-tax profits. M and S is forecast to lift pre-tax profits from Pounds 257.1m last year to between Pounds 285m and Pounds 295m this year. Sainsbury is expected to see interim pre-tax profits up from Pounds 391.1m to Pounds 435m. But analysts are more interested in what the company might say about the changing UK food market.

On Thursday it is the turn of Boots, which is likely to report increased interim pre-tax profits from Pounds 185m last time to about Pounds 210m, after exceptional items relating to the sale of the French subsidiary Sephora and the withdrawal of the Manoplax heart drug by Boots Pharmaceuticals.

BAT Industries, the tobacco and financial services group, is expected on Wednesday to report an increase of about 25 per cent in pre-tax profits for the first nine months of the year. Forecasts range from Pounds 1.31bn to Pounds 1.38bn. Tobacco earnings will again feel the effects of the US cigarette price war but the group should benefit from more favourable exchange rates. Analysts expect further progress from Eagle Star, the general insurance subsidiary, despite continuing losses on mortgage insurance. Growth may be slower at Farmers Group, the US subsidiary.

British Petroleum, reporting third quarter results on Thursday, has enjoyed a marked upgrading of its fortunes in recent weeks. Although oil prices have fallen petroleum revenue tax has been cut to 50 per cent from 75 per cent and downstream operations have turned in stronger performances. Profits of at least Pounds 175m (Pounds 117m) are expected net of stock gains of Pounds 100m.

Marks and Spencer J Sainsbury Boots BAT Industries Eagle Star Insurance British Petroleum GB United Kingdom, EC P5399 Miscellaneous General Merchandise Stores P5411 Grocery Stores P1311 Crude Petroleum and Natural Gas P6331 Fire, Marine, and Casualty Insurance P2111 Cigarettes P5912 Drug Stores and Proprietary Stores CMMT Comment & Analysis P5399 P5411 P1311 P6331 P2111 P5912 The Financial Times London Page IV 370
Finance and the Family: Societies retain their urge to merge Publication 931030FT Processed by FT 931030 By ALISON SMITH

THE abandonment of the planned merger between the Leeds Permanent and National & Provincial building societies will not necessarily affect the 1m people who borrow from or have an account with them, writes Alison Smith. Although the cancellation is slightly embarrassing, neither society needed to be rescued; thus, neither is left in severe difficulty.

The merger, combining the Leeds' Pounds 18bn in assets with the N&P's Pounds 12bn, would have created the UK's third-largest society, not far behind the Nationwide.

Much has been made of the societies' different styles, which stymied the merger. The Leeds is seen in the industry as being more traditional while N&P has adopted a more unconventional approach based more on teamwork and emphasising a focus on the customer rather than on the product.

John Wriglesworth, building societies analyst at UBS, says that although the two approaches are strikingly different, both have worked for their respective societies. He said both remain 'very strong' and could prosper alone.

The Leeds has made clear that it is still looking for a potential partner. And while David O'Brien, the chief executive of the N&P, talks of its strategy of 'organic growth,' it also would be ready for discussions if there were a 'meeting of minds' with another society.

Leeds Permanent Building Society National and Provincial Building Society GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents COMP Mergers & acquisitions P6162 The Financial Times London Page IV 257
Finance and the Family: Boost for co-habitees Publication 931030FT Processed by FT 931030 By BARBARA ELLIS

A RECENT decision by the law lords in a repossession case could have given rights to those who co-habit, as well as to married couples, according to some lawyers.

Bridget O'Brien had been misled by her husband into signing a surety which she believed guaranteed a short-term loan of Pounds 60,000 secured on the couple's house. In fact, it covered her husband's business debts of Pounds 135,000, which rolled up to Pounds 154,000. Barclays bank had not explained to her what she was signing. She paid back the Pounds 60,000 she thought she had guaranteed, but the bank sued for repossession to recover the rest.

In deciding that Barclays was not entitled to take the house, the law lords said the fact that the O'Briens were married gave the bank constructive notice of a potential for emotional pressure, and possibly undue influence, being used by one partner on the other. Because the bank knew it was dealing with a married couple, it should have asked questions, such as whether Mrs O'Brien understood the transaction.

The law lords made clear that the same principles would apply to other cases where there was an emotional relationship between people living together, saying 'the tenderness shown to married women is not based on the marriage ceremony but reflects the underlying risk of one co-habitee exploiting the emotional involvement and trust of the other.'

They added that since unmarried co-habitation and less conventional couples now were widespread, the law should recognise the fact. 'This could make lenders a lot more nosy in order to preserve their position,' said Pauline Walker, a solicitor specialising in family law with Manches & Co,

'If two people are living together, the bank is immediately on a sort of notice to ask questions.' She noted, however, that the decision applied only to people guaranteeing loans from which they did not benefit.

Walker added: 'One of the most interesting things about the (O'Brien) judgment is the law lords going so far as to say they were accepting social change. The law always has done, of course, but judges have never argued it so publicly before.'

Barclays said this week it had tightened its procedures on guarantees already in line with the Banking Code introduced last year, but did not feel the judgment put any onus on it to discover additional personal details about cohabiting couples. A spokeswoman pointed out that the bank had won a Crystal Mark for the clarity of its guarantees.

GB United Kingdom, EC P6163 Loan Brokers NEWS General News P6163 The Financial Times London Page IV 444
Finance and the Family: Directors' transactions Publication 931030FT Processed by FT 931030 By COLIN ROGERS, the Inside Track

METALRAX, the engineering group, is the ideal candidate for a bit of profit-taking and deputy chairman Douglas Hammond clearly feels the same way. He sold 150,000 shares at 120p leaving himself with 346,000.

When interim results were announced at the end of September, the chairman said the company looked forward to the coming year with greater confidence than had been felt for quite some time. Brokers are forecasting profits for the present year of Pounds 7.7m, rising to Pounds 8.2 in 1994.

Geoffrey Simon, chairman of Prism Leisure, has sold 421,000 shares at 130p. Business for this computer game wholesaler has been going well. The shares have outperformed the market by over 100 per cent in the past 12 months and the prospective p/e ratio for the year to March 1994 is 11. PN Goldsmith, chief executive of Conrad Ritblat Sinclair Goldsmith, the quoted surveying group, has sold 150,000 shares at 46p. Surprisingly, with just under 2m remaining, Goldsmith is one of the smaller shareholders on the board. Ronald Sinclair sold 750,000 at 47.5p on September 13 so further selling would indicate a clear trend.

----------------------------------------------------------------------- DIRECTORS' SHARE TRANSACTIONS IN THEIR OWN COMPANIES (LISTED & USM) ----------------------------------------------------------------------- No of Company Sector Shares Value directors ----------------------------------------------------------------------- SALES ----------------------------------------------------------------------- Allied London Prop Prop 8,060,202 9,269 1 Alumasc Misc 50,000 280 1 Barbour Index BuSe 64,314 138 1 Billam (J) Metl 32,950 99 1 Booker FdMa 15,636 60 1* Coats Viyella Text 343,858 921 3* Conrad Ritblat S G Prop 750,000 345 1 Dalepak FdMa 20,000 25 1 Essex Furniture Stor 470,000 729 1 Fine Decor Misc 123,044 330 8 Govett & Co OthF 20,000 66 1* Inchcape BuSe 50,000 255 1* Intl Food Machinery BuSe 89,000 58 1

Ladbroke H&L 16,750 32 1 Lamont Text 50,000 200 1 Lloyd Thompson InsB 340,000 952 1 Lucas Motr 546,782 910 1* Metalrax EngG 200,000 239 1 Mirror Group Med 18,666 31 1 Moorfield Estates Prop 124,208 45 1 Pantheon Intl InTr 25,386 20 1 Portals Pack 82,130 409 1* Prism Leisure Corp H&L 421,000 547 1 Psion Elns 200,000 277 1 Reed Intl Med 30,000 225 1 Spandex Misc 648,866 2,986 4 Wolstenholme Rink Chem 5,100 26 2 ----------------------------------------------------------------------- PURCHASES ----------------------------------------------------------------------- Albert Fisher FdRe 60,000 46 2 Barbour Index BuSe 41,500 91 1 Dalepak FdMa 20,000 25 4 El Oro Mining n/a 3,508 21 2 Fairway Group Misc 175,000 112 1 Forte H&L 10,000 22 1 Moorfield Estates Prop 54,054 20 1 Raine Industries C&C 200,000 156 1 Vardon H&L 43,000 42 1 ----------------------------------------------------------------------- Value expressed in pounds 000s. This list contains all transactions, including the exercise of options (*) if 100% subsequently sold, with a value over pounds 10,000. Information released by the Stock Exchange 18-22 October 1993. ----------------------------------------------------------------------- Source: Directus Ltd, The Inside Track, Edinburgh -----------------------------------------------------------------------

GB United Kingdom, EC P99 Nonclassifiable Establishments COMP Shareholding P99 The Financial Times London Page III 497
Finance and the Family: What Clarke's Budget could hold for Britain Publication 931030FT Processed by FT 931030 By PHILIP COGGAN

WHATEVER its content, the November 30 Budget will be radically different in form from those before it. Kenneth Clarke, the chancellor, will deal with both the revenue-raising and the spending elements of the government's finances - making it a 'Budget' in the true sense of the word.

While this change seems sensible, it does mean the Budget will be even less digestible than usual. Furthermore, the chancellor must walk a fine line; taking action to control the government deficit without endangering the recovery.

The chancellor has already been committed to a number of measures by his predecessor, Norman Lamont. The most infamous of these is the imposition of VAT on domestic fuel, at 8 per cent in April 1994 and at 17.5 per cent a year later.

Also in April, mortgage interest relief will be limited to 20 per cent, as will tax relief on the married couple's allowance. Employees' national insurance contributions will rise by 1 per cent (effectively, an increase in income tax). One of the few pieces of good news is that the 20 per cent tax band will be increased from Pounds 2,500 to Pounds 3,000.

As is usual before a Budget, rumours of policy changes have abounded. Often these are kite-flying exercises; if the public reacts badly to a proposal, it can be dropped with no harm done.

Income tax

It is widely assumed that, after years of making a virtue out of tax-cutting, the Conservatives would not dare to increase either the basic or higher rates of tax. Nevertheless, there is still plenty of scope for bills to rise.

One easy option is to freeze personal tax allowances at their present levels, rather than increase them in line with inflation. Since inflation is only 1.8 per cent, such a move would hardly be noticed by most taxpayers - but would still raise Pounds 670m. A more radical option would be to restrict the tax relief on the personal allowance to 20 per cent.

This possibility is discussed at some length in the Green Budget book produced by the Institute of Fiscal Studies. Other reliefs are being limited to 20 per cent, so there is a precedent. In practice, the change would probably be achieved by taxing individuals on all their income and giving them back a tax credit of Pounds 689 (20 per cent of the personal allowance).

This would cost top-rate taxpayers a maximum of Pounds 689 a year, and a maximum of Pounds 172.25 for those on the basic rate. If Clarke did make such a change, he would raise Pounds 5.7bn, according to the IFS. Accordingly, he could afford to give back some of the money (and reduce the resulting outcry) by perhaps increasing the 20 per cent tax band to, say, Pounds 5,250. Such a move, the IFS points out, could be presented as a further step towards a basic rate of 20 per cent, a long term Conservative promise.

Price Waterhouse thinks the chancellor will be much gentler, increasing personal allowances and widening the 20 per cent tax band even further.

National insurance contributions.

The separate systems for national insurance and income tax are something of an anomaly. The ceiling for employees' NI contributions is Pounds 21,840; the starting level for higher-rate tax is Pounds 27,145. So, the marginal tax rate of those who earn just over Pounds 21,840 suddenly drops from 34 to 25 per cent - only to increase again to 40 per cent after Pounds 27,145. Accountant Chantrey Vellacott thinks the government could bring the NI ceiling and the start of the top-rate band in line. It also believes the chancellor could bring all fringe benefits within the NI net and impose a heavier NI burden on the self-employed.

Value-added tax

The furore over VAT on fuel could prompt Clarke to act. Some think he might impose the 17.5 per cent rate in one go (to get the fuss over with now); others, such as Price Waterhouse, that he might limit it to 8 per cent.

New products, such as books and newspapers, could be brought into the VAT net. A more daring suggestion from Price Waterhouse is a general increase in VAT, possibly to 20 per cent; the argument against this is the effect on inflation, which the government is attempting to keep within a 1-4 per cent band.

Inheritance tax

The 1980s' house price boom brought many Tory voters into the IHT net. Price Waterhouse suggests the government might abolish the tax completely while re-introducing some form of capital gains tax charge on assets held on death.

Tax allowances

Despite my suggestions in Serious Money on page II, the chancellor is unlikely to do anything as radical as combining Peps and Tessas. Indeed, Price Waterhouse thinks he could extend Peps to include gilts, perhaps renaming them Pips (personal income plans).

Pensions

The present system gives very generous treatment to pensions. Contributions are tax-deductible; the fund itself rolls up tax-free; and the pensioner can take a tax-free lump sum on retirement. The government's dilemma is that it wants to encourage private pension provision (and reduce the burden on the state). Accordingly, it might want to chip away at the tax privileges of pensions rather than make a frontal assault.

Chantrey Vellacott thinks the chancellor might tax the lump sum but phase in the change, so as not to be unfair to people about to retire. The accountant also thinks tax relief on pension contributions could be limited to the basic rate. More radically, it suggests higher-earning employees could be taxed on their employer's contributions to the pension fund.

Advance corporation tax

The last Budget's changes in ACT - cutting the tax credit from 25 to 20 per cent - managed to raise Pounds 1bn of revenue a year with little protest. Further cuts in the credit are possible. A more likely change is a crackdown on 'enhanced scrip dividend' schemes, where companies arrange for those who take extra shares to sell them immediately for cash at little cost.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6371 Pension, Health, and Welfare Funds CMMT Comment & Analysis P9311 P6371 The Financial Times London Page III 1050
Finance and the Family: BES rush goes on Publication 931030FT Processed by FT 931030 By BETHAN HUTTON

NEW business expansion schemes are still flooding in ahead of the December deadline, writes Bethan Hutton. Assured tenancy and arranged exit schemes continue to be popular with investors, but a number of trading companies are also taking their last chance to use the BES tax incentive to attract new money.

Cadogan, the publisher of travel and chess guides, is aiming to raise Pounds 750,000 through a BES offer. The company has 35 travel titles, and its chess authors include Garry Kasparov (who is also a director). Minimum investment is Pounds 1,050, or Pounds 525 for booksellers and newsagents.

The Hop Back Brewery is a profitable brewing and pub company, based in Salisbury. It aims to raise Pounds 750,000 to expand through an entrepreneurial BES issue, sponsored by Wise Speke. Minimum investment is Pounds 500.

Coventry-based Patrick Eggle Guitars produces 225 electric and acoustic instruments a month and is hoping to raise almost Pounds 500,000 to expand. Minimum subscription is Pounds 2,000.

New Netherhall Residences is the Netherhall Educational Association's second arranged exit scheme, guaranteed by the Midland Bank and sponsored by James Capel. It offers an exit price of Pounds 1.19 after five years, equivalent to an annual 13.84 per cent for higher-rate taxpayers. Minimum investment is Pounds 1,000; cheques can be post-dated to November 19.

Investment in Heritage is an assured tenancy BES, sponsored by Matrix Securities, which aims to raise Pounds 5m to buy, refurbish and let listed properties of small to medium size. Minimum investment is Pounds 2,000. There is no arranged exit, but the directors aim to provide a minimum return of Pounds 1.40 a share after five years.

Accumulus Froebel is a cash-backed, arranged exit scheme sponsored by Terrace Hill Capital. Froebel Educational Institute has several schools and colleges around London. The scheme is offering a return of Pounds 1.20 a share after five years, equivalent to 14.1 per cent for higher-rate taxpayers. Minimum investment is Pounds 2,000.

Cadogan Hop Back Brewery Patrick Eggle Guitars New Netherhall Residences Investment in Heritage Accumulus Froebel GB United Kingdom, EC P2741 Miscellaneous Publishing P3931 Musical Instruments P6514 Dwelling Operators, Ex Apartments COMP Company News P2741 P3931 P6514 The Financial Times London Page III 382
Markets: Tax-free schemes that beg for reform - Serious Money Publication 931030FT Processed by FT 931030 By PHILIP COGGAN, Personal Finance Editor

THE chancellor of the exchequer is unlikely to listen to my advice but I am going to give it to him, anyway. Please, Kenneth Clarke, when you deliver your Budget speech on November 30, can you reform all the tax-free schemes - Peps and Tessas, mortgage interest relief and the rest?

Before you protest, it is not that I want your voters (or FT readers) to pay more taxes. I just believe that a simple tax regime is a good tax regime. You will still take the same amount of tax from us, but in a way that is more straightforward and creates less work for lawyers and accountants.

The present system is pretty generous. One executive confessed to me this week that he had already stashed away Pounds 75,000 in tax-free form this year, what with Pounds 40,000 in the BES, Pounds 18,000 in Peps for himself and his wife, Pounds 3,600 in Tessas and the rest in pension contributions.

Good luck to him. If the government wants to hand out these goodies, Britons are perfectly entitled to take advantage of them. Indeed, part of the purpose of the Finance & the Family pages is to point readers in these directions.

But does it really make macro-economic sense for you to be searching for ways to squeeze us for tax revenues, such as April's 1 per cent rise in national insurance contributions, while simultaneously promoting these loopholes?

Conservatives used to argue that the high rates of tax imposed by Labour governments distorted the economy. Do not some tax reliefs have the same effect? Take the business expansion scheme which your predecessor, Norman Lamont, had the good sense to abolish from the end of 1993. It sounded a great idea when it was established. Britain needs young, growing businesses; but such businesses have difficulty attracting finance, so why not give investors tax relief to buy shares in them?

The problem is that a large number of young, growing businesses tend to go bust. Investors found that saving 60 per cent (the old top rate) in tax was little comfort when they lost 100 per cent of their investments. The only people who seemed to prosper from these schemes were the sponsors, who had the good sense to take their fees up-front.

Late in the 1980s, the BES was turned on its head. Suddenly, the scheme was a vehicle for creating private rented accommodation. Again, this is a perfectly laudable aim since Britain has a shortage of affordable rented property. In practice, though, the principal beneficiaries seem to have been Oxbridge colleges.

The distorting effect of mortgage interest relief has been whittled away by restricting relief to the 25 per cent (and, soon, the 20 per cent) rate of tax. I know the housing market is weak now but mortgage rates are very low; many people will have benefited from big falls in interest payments. Why not announce that the relief will be phased out over five years, by successive cuts of Pounds 6,000 a year? That way, the pain in any individual year would not be great.

What about Peps? They are proving amazingly popular, so they might seem to be one scheme which the government has got right. Certainly, the present regulations are an enormous improvement on the original Pep which was small, costly to operate and, inappropriately, encouraged small investors to have a portfolio of just one or two equities.

Now, most Pep money goes into unit and investment trusts, which give small investors a properly diverse portfolio. And there is everything to be said for encouraging investors to break away from their dependence on building societies and move into equities. But what worries me about Peps is the trouble they may be creating for the future tax base.

A married couple could already have Pounds 100,000 in a Pep if they had used the maximum allowances each year. In another five years, if you allow for further contributions and a bit of growth, their portfolio could easily grow to Pounds 250,000. Even if they stopped there, and just let the portfolio grow at 8 per cent a year, they could have a tax-free portfolio of Pounds 500,000 by 2007. Thus, in the foreseeable future, some very wealthy people could have virtually escaped the tax net altogether. You, or your successor but five, will have to load the rest of us with even more taxes to compensate.

Meanwhile, we have the Tessa, a wishy-washy tax break; neither big nor flexible enough to change the nation's savings habits. So why not combine Tessas and Peps into a savings allowance, giving people the right to earn a certain amount of tax-free income from their investments each year, which they would declare on their tax form? This would be fair; after all, most people's savings come from money that has already taxed. It could be limited to a level that would not be too expensive on the nation's coffers, nor be too generous a shelter for the very wealthy; and it would abolish the need for special schemes.

Tax relief on pensions has to stay, I suppose, on the ground that the more you encourage people to save for their old age now, the less the state will have to provide for them. It could be trimmed back a bit (by, say, restricting up-front relief to 20 per cent).

For the rest, though, cut out the gimmicks; let us have as simple a tax regime as possible. Allow people to invest in an atmosphere free of confusing initials and regulations.

GB United Kingdom, EC P6282 Investment Advice CMMT Comment & Analysis P6282 The Financial Times London Page II 968
Markets: Wellcome gears up for war - The Bottom Line Publication 931030FT Processed by FT 931030 By TONY JACKSON

EVEN FOR hardened observers of the stock market, the behaviour of the Wellcome share price in the past couple of days has been slightly odd. On Thursday morning, the company, one of Britain's leading drug manufacturers, announced an almost two-thirds rise in earnings and a one-third increase in the dividend. The shares fell 11 per cent on the day and another 3 per cent yesterday. This puts them on a historic multiple of 14, compared with a UK market average of 23.

The market had its reasons, though. Before the results, Wellcome had risen 30 per cent since mid-August. This was part of a general re-rating of drug stocks which had been walloped since the start of last year as investors realised that, in the penny-pinching 1990s, governments finally were serious about controlling their health bills.

The reason for the re-rating was simple enough. Falling interest rates have caused a stampede into equities around the world.

As a result, many stocks and sectors have started to look worryingly expensive. In a rising market, this causes the phenomenon known in the trade as rotation, whereby any sector that seems to have been left behind goes through a catch-up phase.

The snag about Thursday's figures was that they reminded the market of what it had been worried about in the first place. Although Wellcome's earnings, margins and cash were still rising sharply, sales growth was slowing.

This was particularly true of the second half of the year. After stripping out the effects of sterling's devaluation, sales in the first half were up 11 per cent - but by only 3 per cent in the second.

Worse, the effect was marked strongly in the two drugs on which Wellcome relies most heavily for its profits. Its best-known drug, the AIDS treatment AZT (or Retrovir), showed sales growth - again, at constant exchange rates - of only 3 per cent in the year compared with 22 per cent the year before.

More worrying in fundamental terms, the herpes treatment Zovirax, which analysts reckon could account for half Wellcome's profits, grew by only 11 per cent on the same basis compared with 24 per cent the year before.

The slow-down in Zovirax, especially, reminded the market of a more fundamental question: how good is Wellcome at operating in competitive markets?

Until now, Zovirax has been the only treatment available for herpes or shingles. Next year, SmithKline Beecham is bringing in a rival. The chances are that it will pitch its price much lower.

If so, Wellcome must follow suit. John Robb, the chief executive, put the point bluntly on Thursday. 'SmithKline has cornered a healthy slice of the anti-depressant market on price already,' he said.

'We're not going to see our herpes market go out the window on price. Wellcome has to take on board a more aggressive marketing strategy.'

With luck, lower prices can be offset by higher volume. But it is hard to see this being true for the industry as a whole. And the slowdown in the industry's sales cannot be matched by reductions in spending on marketing or research. Indeed, Wellcome's R & D costs rose faster than sales last year.

As Robb put it on Thursday: 'The two principal areas for the long-term health of the company are R & D and marketing. We've tried to protect spending in those two areas.'

R&D consumed 16 per cent of Wellcome's revenues last year, and marketing probably at least as much again. It is easy to see why the market is worried about price wars.

In one sense, Wellcome could ask what on earth the fuss is about. The company is justly proud of having pushed operating margins from 21 per cent in 1990 to 31 per cent three years later, and in pushing its net cash from Pounds 17m to Pounds 567m in the same period. It is this hard-won financial strength, says Mr Robb, that gives it the muscle to act tough on prices.

But this is an industry of giants, many of which also have fat margins and big cash mountains. If there is to be a war of attrition, it could prove a long one.

Wellcome GB United Kingdom, EC P2833 Medicinals and Botanicals P2834 Pharmaceutical Preparations CMMT Comment & Analysis FIN Annual report P2833 P2834 The Financial Times London Page II 743
Markets: Unexpected recruits to penny shares - London Publication 931030FT Processed by FT 931030 By PETER MARTIN, Financial Editor

THOUSANDS more people joined the ranks of investors in penny shares this week - but only one of them was a volunteer. The enthusiastic convert was Lord Weinstock, whose GEC group was revealed as a potential purchaser of Ferranti at a price of 1p a share. The unwilling penny-share investors were Ferranti's existing shareholders, who had thought until now that their company as worth more like 10p a share.

Indeed, in 1987 they believed Ferranti to be worth 140p a share. That was before Ferranti bought the US company International Signal and Control, and discovered it to be constructed around an elaborate fraud, blowing a whole in the parent company's balance sheet from which it was never able to recover.

Eugene Anderson, the company doctor brought in to rescue Ferranti from its ISC problems, said this week that the company had also suffered from the decline in the defence business, and from poor management in the past. 'But I'm not blaming anybody. I've been here for three and a half years and we should have turned it around.'

In retrospect, it is possible to draw two lessons from the Ferranti story. The first is that all deals made amid the heady atmosphere of 1987 and 1988 must be viewed with scepticism, because so many of them have since come unstuck.

Second, the inability of Ferranti's core businesses to survive the financial damage inflicted by the ISC acquisition shows that the decision to diversify was based on a correct assessment of the company's vulnerability. But as shareholders will be all too painfully aware, getting your strategic analysis right is not much use if the steps taken to implement it are flawed.

There was one other relic of 1987 around this week, illustrated in the bottom chart. Figures published on Tuesday revealed that in the first nine months of this year, more money flowed into unit trusts than in the whole of 1987, the previous record year. Yet the long-term trend of individuals' ownership of the stock market, shown in the top chart, has been steadily downwards over the past decade. Rising unit trust sales do not contradict that trend, which partly reflects an increasing preference for collective rather than individual ownership. But the conjunction of the two charts does raise the question of whether the growing appetite for equities will in time lead to a revival of interest in individual ownership.

That partly depends on how long the current rally lasts. And on that subject, after the gloomy tone of some recent columns readers might appreciate a bit of no-holds-barred bullishness. It comes by courtesy of James Capel, the stockbroker, whose analysts spent Wednesday telling clients their optimistic views on the future for UK equities.

The specifics of this forecast are obviously those of the broker concerned. The broad argument, though, is one shared by a wider selection of investors and analysts.

Capel is expecting steady growth for the UK economy, continued low inflation, falling short-term interest rates, and satisfactory inroads into the government deficit. A sharp rise in corporate earnings would allow continued progress in share prices, taking the FT-SE 100 index possibly as high as 4,000 - although Capel was keen to point out that this was not an official forecast.

For Paul Walton, the broker's UK strategist, much of bullish phase of the equity cycle still lies ahead. There is still another 1 1/2 points to come off base rates, taking them down to 4 1/2 per cent in the first part of 1994. Longer-term interest rates will stabilise around 6 1/2 per cent, a level not seen on a sustained basis since the 1960s.

The economic recovery is healthy, says Capel, with 3 per cent gdp growth forecast for next year. Companies will take a rising share of the economic pie. Earnings per share are set to rebound sharply, as companies start outperforming analysts' estimates for the first time since the recession started. Annual dividend growth returns to 6-7 per cent.

Such encouraging fundamentals mean that the market is not over-valued at current levels, says Walton. He estimates that the market as a whole is selling at 14 times 1994 earnings, compared with a target range of 16-18. It is selling at a 1994 dividend yield of 4.2 per cent, compared with Walton's target of 3.5 per cent. That gives scope for share prices to move up by another 25-30 per cent.

What are the risks in such a scenario? Apart from the dangers that Capel itself mentions - political uncertainty or a slide in sterling - they can best be summed up as how to get there from here.

If there is one thing the British economy has been famously bad at doing, it is settling into sustained non-inflationary growth. If, this time, that's what we get, the equity market will be entitled to rejoice on the scale these forecasts suggest. But there are an awful lot of potential pitfalls on the way, starting with the Budget at the end of November. And - if the CBI survey published on Tuesday is any guide - company bosses are not yet ready to be as optimistic as stockbrokers. Business confidence rose for the fourth quarter in a row, but the increase was slight. Only one per cent of companies were more optimistic about the general business situation than three months before.

No such pessimism was in evidence among the enthusiasts for emerging stock markets. Any worries that the fad might be going too far were dispelled by an announcement from the First Philippine Investment Trust: Norman Lamont is to join its board. So that's all right, then.

GB United Kingdom, EC P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P6231 The Financial Times London Page II 981
Markets: Hungry investors tuck in to tasty stocks - Wall Street Publication 931030FT Processed by FT 931030 By PATRICK HARVERSON

TAKE plenty of low inflation and low interest rates, and add a healthy portion of low-to-moderate economic growth. Sprinkle with strong bond prices and improving corporate earnings, and you have the perfect recipe for a tasty stock market boom.

All of the above ingredients were available this week, and the mix proved a satisfying meal for hungry US investors, who propelled stocks to another round of record-setting gains on Wall Street.

A week ago it was the secondary market indices - the Standard & Poor's 500, the Nasdaq Composite and the American Stock Exchange Composite - reaching new highs. This week it was the turn of blue-chip and cyclical stocks to break into previously unexplored territory, as the Dow Jones industrial average advanced to a record close of 3,687.86 on Thursday.

The key to much of the gains was the third quarter gross domestic product report. Expecting a 2.7 per cent increase in GDP, analysts were pleased to see that growth was slightly stronger at 2.8 per cent. Yet two other elements of the quarterly data that were particularly encouraging.

First, statisticians pointed out that but for the impact of the crop losses incurred during the summer's devastating floods in the Midwest, the economy would have grown by an even healthier 3.4 per cent between July and September. Second, the cost of gross domestic purchase, an important measure of inflation, rose by only 1.8 per cent in the third quarter, down from the 2.9 per cent rate of growth reported in the previous three months and the lowest rate since 1986.

The news of moderate growth coupled with low inflation was exactly what the equity markets needed. Although many share indices have been trading at or near record highs, there has been a feeling among many analysts that investors were growing cautious about stocks.

This assessment was based on the fact that recent demand for equities has been very patchy. Since mid-summer, analysts believe investors have been 'rotating' their portfolios, rapidly shifting funds from sector to sector in search of value. Just this month, for example, investors were initially keen on semiconductor stocks in expectation of a revival in the industry's fortunes. Then, they moved on to financials in the wake of further declines in interest rates, before news of a bank prime rate cut forced them to switch back into cyclicals. Later it was the turn of airline stocks to benefit, as investors kept searching for the next updraft.

On Thursday this approach was abandoned as investors moved into equities on a broad front, spurred by a rare combination of optimistic economic data and positive earnings from some big corporations.

There was more to the markets' gains than that, however. Almost half of the Dow's 23-point advance on Thursday was attributable to one stock - Eastman Kodak. Late on Wednesday, Kodak stunned Wall Street by announcing that George Fisher, highly-regarded chairman of Motorola, was joining the company as its chief executive.

So enthused were investors by Fisher's track-record that they stampeded to buy Kodak stock in the hope that he would be able to engineer a rapid turnaround in the faltering company's fortunes. By the close of trading Kodak shares were up almost Dollars 6 at Dollars 63 1/2 , although the bulk of those gains were achieved in after-hours trading.

Fisher now has the difficult task of living up to the expectations of investors who bought Kodak shares and analysts who hailed his appointment as, in the words of one stockwatcher, 'beyond the dreams of avarice.'

Kodak's coup partly overshadowed what was another good week for corporate America. Although the week had its share of laggards - Minnesota Mining & Manufacturing, Phillips Petroleum and RJR Nabisco reported weaker profits - the balance of earnings data was again bullish. Among those announcing either narrower losses or stronger profits were IBM, General Motors, Ford, US Steel, Bethlehem Steel, Delta and United Airlines.

With the bulk of the latest reporting season now out of the way, it is clear that corporate profitability is firmly established on an upward path. One compilation of third quarter results published this week showed that 60 per cent of companies which have reported earnings for the latest period either matched, or exceeded, analysts' forecasts.

The next quarter should see this trend maintained, especially if economic growth continues to pick up. After Thursday's GDP report, economists upgraded forecasts for fourth quarter growth from 3 per cent to nearer 3.5 and 4 per cent.

---------------------------------- Monday 3673.61 + 24.31 Tuesday 3672.49 - 01.12 Wednesday 3664.66 - 07.83 Thursday 3687.86 + 23.20 Friday 3680.59 - 7.27 ----------------------------------

US United States of America P6231 Security and Commodity Exchanges MKTS Market data CMMT Comment & Analysis ECON Gross domestic product ECON Inflation P6231 The Financial Times London Page II 817
Markets: Smaller companies - At a glance Publication 931030FT Processed by FT 931030

Small company shares edged further ahead this week. The Hoare Govett Smaller Companies Index (capital gains version) rose 0.1 per cent from 1611.95 to 1614.16 over the seven days to October 26.

GB United Kingdom, EC P6231 Security and Commodity Exchanges NEWS General News P6231 The Financial Times London Page II 63
Markets: Two more equity bonds launched - At a glance Publication 931030FT Processed by FT 931030

Two more guaranteed equity bonds have been launched. Bristol & West's fourth issue allows investors to put up to 50 per cent of their money in a one-year interest paying account paying 7.5 per cent gross. The rest goes into a bond which will match the capital performance of the FT-SE 100 Index over five years, with guaranteed return of capital. Scottish Amicable's fourth issue gives investors the benefit of reinvested dividend income on top of the FT-SE 100's rise.

Bristol and West Building Society GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents COMP Company News P6162 The Financial Times London Page II 120
Markets: Henderson cuts charges - At a glance Publication 931030FT Processed by FT 931030

Henderson Unit Trust Management is offering a 1 per cent discount on its four European unit trusts during November. The normal initial charge is 5.25 per cent. The group is specifically recommending its European Special Situations trust, managed by Stephen Peak, which is seventh in its sector (out of 93 funds) over the five years to October 1.

Henderson Unit Trust Management GB United Kingdom, EC P6726 Investment Offices, NEC COMP Company News P6726 The Financial Times London Page II 94
Markets: Free life cover offer - At a glance Publication 931030FT Processed by FT 931030

The Cheltenham & Gloucester Building Society is launching a repayment mortgage which includes free life cover and has a variable rate of 7.99 per cent. The Freelife Mortgage will not be available to everyone. Applicants must answer questions about their health and those excluded will include those with a heart condition, who have tested positive for HIV, and who have had treatment for some other problems (such as a stroke) over the past 12 months. Those who have been refused life cover before will also be excluded. Freelife is available on mortgages of up to Pounds 250,000. Borrowers will need a deposit of 10 per cent.

Cheltenham and Gloucester Building Society GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents TECH Products & Product use P6162 The Financial Times London Page II 147
Markets: Housing now 'more affordable' - At a glance Publication 931030FT Processed by FT 931030

British housing is more affordable than it has been for a decade, according to a report by TSB this week. The Affordability index calculates the proportion of the take-home pay of a first time buyer which is needed to service the mortgage on the average first-time home. As the graph shows, that proportion has fallen to 26 per cent, compared with 65 per cent in 1989 and 1990 (when interest rates were at their peak). One needs to go back to 1983 to find a time when the ratio was as low.

GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries COSTS Product costs & Product prices P6552 The Financial Times London Page II 129
Markets: Unit trust sales for thisyear outstrip '87 record - At a glance Publication 931030FT Processed by FT 931030

Unit trust sales for the first nine months of 1993 have now outstripped the figures for the whole of 1987, the previous record year. Although net sales in September at Pounds 669m were down on the Pounds 900m plus figures recorded in July and August, they still pushed the total for the year Pounds 6.91bn, according to the Association of Unit Trust and Investment Funds.

GB United Kingdom, EC P6726 Investment Offices, NEC MKTS Sales P6726 The Financial Times London Page II 100
The Financial Times Guide To Secondary Education (1): State schools close in on the top dogs - The results of the FT's unique survey Publication 931030FT Processed by FT 931030 By GILLIAN DE BONO and JOHN AUTHERS

INDEPENDENT schools dominate the top of this year's FT survey of 1,000 schools, holding 92 of the first 100 positions. But the challenge from the state sector is gathering momentum.

In last year's FT-1000 only three state schools earned a place in the top 200. This year the figure is 23. Last year the top state school was ranked 63rd, but this year's top state school, Colchester County Girls High in Essex, is ranked 37th.

So while there is reassurance for fee-paying parents who, on average, pay Pounds 36,200 for one child's secondary education at a private day school, or Pounds 65,800 at a boarding school, in some areas the state sector offers an alternative which cannot be ignored.

Essex is blessed with two other high-flying state grammar schools, Chelmsford County High (78) and King Edward VI (81), both of which outshine the county's best independent schools. Buckinghamshire, which also retained grammar schools in several areas, and Kent also have excellent state school records.

Placing schools as precisely as this is a difficult and controversial job, which the FT has done as fairly as possible. The FT - 1,000 is the result of six months' research. Questionnaires were sent to the 1,100 top performing state schools according to last year's government statistics. These represent one third of state schools teaching A-levels.

In addition, the Independent Schools' Information Service (ISIS) supplied compatible data on over 500 (the majority) of its members. Before the tables were completed, head teachers were sent checking sheets to enable them to verify their entry and amend A-level grades where necessary.

All schools with at least 10 A-level candidates are included in our table. As most parents choose a school within 10 miles of home, they are listed alphabetically within counties, to show local choices at a glance.

Unlike league tables that assess schools only on the performance of their best pupils by ranking them according to the percentage of A and B grades, the FT-1000 compares the results of all A-level candidates using the points system of the Universities Central Council of Admissions (UCCA).

The FT-1000 rank positions represent a weighting of the average number of UCCA points achieved per pupil (the quantity of grades attained) with the average number of UCCA points per subject entry (the quality of grades attained).

However, rank positions can exaggerate differences between schools, particularly between middle ranking schools. Although there are marked disparities between schools at the top and bottom ends of the league table, schools ranked between 280 and 630 all achieved results within 10 per cent of the average - equivalent to each pupil achieving three grade Cs.

For this reason, the FT score is an important corrective to rankings. It has been scaled so that a score of 1.00 represents the average performance of all the schools in the FT-1000. The table opposite enables you to convert FT scores into average A-level grades attained.

It is not surprising that grammar schools, often more selective than competing independents, lead the state sector. For example, 17 Kent grammar schools achieved an FT score greater than 1.00, equivalent to average A-level grades of between BBC and CCC.

Yet in spite of their wide ability intake, many comprehensives achieved impressive results. Three took places in our top 200 - Hasmonean High in Hendon (ranked 73rd), Dame Alice Owen's School in Potters Bar, Hertfordshire (ranked 131), and Cherwell in Oxford (ranked 185). Of the 315 included in the FT-1000, 135 came within 10 per cent of the average FT score - the equivalent of at least three grade Cs per pupil.

Overall, opted-out comprehensives achieved similar results to local authority comprehensives. But for grammar schools, opted-out schools out-scored those staying with the local authority with average FT scores of 1.05 against 0.99. This may for the moment reflect the fact that successful schools are more likely to take the risk of opting out, but this trend must be monitored carefully.

Parents keen on independent day schools can be cheered by the fact that 78 out of the top 100 charge annual fees below the average of Pounds 5,170.

Those contemplating boarding schools are less fortunate. With a few exceptions, the FT-1000 reveals that you have to pay a premium for exceptional results. Eighty five out of the top 100 independent boarding schools charge above average fees (Pounds 9,400 a year).

Nor are academic returns so rewarding. Although two of the most prestigious - Winchester and Eton - remain anchored in the top 10, boarding school pupils achieved less impressive results than those at independent day schools, achieving average FT scores of 1.04, rather than 1.08.

This means that Winchester, Eton and the girls' school Wycombe Abbey manage to appear in the top 10 of the FT's rough and ready value-for money tables (see page 4), in spite of high annual fees of Pounds 12,270, Pounds 11,934 and Pounds 11,538.

The boarding schools' problem could stem from the 6 per cent fall in rolls which they suffered last year.

As a result of the recession, boarding schools now receive fewer applicants and must be less selective.

State schools with boarding facilities should not be overlooked. Several achieve impressive results, including the Royal Grammar, High Wycombe (66th), Reading (177th) and the Royal Grammar, Lancaster (189th). Fees average Pounds 4,000. They can be identified by the Boarding % column in our main table.

Comparisons of A-level results around the country with average house prices make startling reading. With the exception of Greater London and Oxfordshire, the 10 best performing counties have below average house prices.

In Leicestershire, fourth in the country, the average house price is Pounds 49,250 - 22 per cent lower than the national average. Fees for Leicestershire independent schools are also slightly below average.

Single-sex schools achieved better results than fully mixed schools in both the state and independent sectors. The FT scores for single sex schools are identical for boys and girls (1.09 in independents and 1.04 in grammar schools), whereas mixed independent schools averaged 1.01, with grammar schools on 0.95.

The strong showing for single-sex schools still leaves plenty of room for controversy. None of the top 20 schools is mixed throughout its age range, and the recent decision by a mixed state school in Essex to segregate boys and girls for classes shows that the idea is gaining in favour.

However, these figures demonstrate only the academic impact of single-sex status and say nothing about the broader effects on a child's upbringing.

John Sugden, head of Leicester Grammar, the top co-educational school at number 29 in the rankings, says the strength of single-sex schools is a historical coincidence. He points out that that most well-off selective city schools happen to be single-sex. Leicester Grammar is already approaching the very best results in spite of being co-educational because it is selective. Boys' school heads tend to agree.

Girls' schools, however, take a different approach, and plainly believe that single-sex education is vital for their pupils. Joan Clanchy, headmistress of North London Collegiate, is not given to understatement: 'Girls are actually cleverer than boys. So if you have got a school full of girls, you will do better.'

In other words, the figures may just say something about the relative development of the two sexes. Research suggests that at the age of 16 girls are more mature and intellectually advanced than boys.

The issue is less clear at A-level where the boy's half of 'twin' schools such as Haberdashers' Aske's, Elstree, St Paul's, and King Edward's, Birmingham, tend to do slightly better.

The strongest criticism of school league tables is that no allowance is made for schools' selection policies at age 11 or 13. Nor do they take into account socio-economic variations in catchment areas.

Ian Mellor of Sir Roger Manwood's grammar school in Sandwich, Kent (ranked 330) speaks for many: 'The hoary old argument that it is easier for a suburban grammar school to produce results of a high order than it is for a school in a deprived city area is so obvious as to make comparison between the two types futile. Even grammar schools cannot readily be compared, since they have different catchments. My area takes about the top 25 per cent of applicants, whereas others take anything from 10 to 40 per cent.'

Sceptics can further point to the catchment areas of the top comprehensives - for example Hasmonean High serves the Jewish community of North London, and Cherwell is in North Oxford, home to most of the university's dons.

Schools with a selective sixth form also have an advantage, as the deputy head of St Martin's comprehensive in Brentwood (640th) said: 'We have a policy of entering all pupils with a chance of passing, however slim. We could produce impressive statistics by changing this policy to the detriment of our students.'

Alex Clarke, head of Poole Grammar, Dorset, also made the point that A-level results do not always reflect the achievements of a school's original intake: 'Although we are a selective school at 12-plus, about 40 per cent of our A-level candidates join us at 16-plus where our entry requirements for A-level are similar to most schools.'

These problems explain why the government is looking for ways of measuring 'value added', or the extent to which pupils improve while they are at a school, rather than printing raw exam results.

This year, as last, the FT-1000 has excluded general studies A-level in its calculations. Roger Dancey, headteacher of King Edward VI Camp Hill School for Boys in Birmingham (ranked 103) was one of many who insisted on its value: '50,000 Joint Matriculation Board candidates should not be ignored. General studies is an excellent predictor for higher education.'

But the weight of educational opinion is against them. Earlier this year the Engineering Council published a report written by Alan Smithers, professor of education at Manchester university, which said that general studies counted for little in the competition for university places and had failed to broaden the curriculum. Some pupils even revised for it by playing the board game Trivial Pursuit.

Other heads lamented the omission of a five year FT score - a feature of last year's survey - pointing out that A-level results can vary considerably from year to year, especially for schools with small sixth forms. Unfortunately, so many state schools were unwilling or unable to produce the information last year that the five-year comparisons had to be abandoned this year.

Nor do A-level league tables reflect the achievements of sixth-formers who combine one or two A-levels with vocational courses, which are fast gaining popularity with employers. Many excellent schools offer superb sixth form vocational courses but will never excel in A-level league tables.

Other heads who may justifiably feel hard done by are those who run the schools which entered fewer than 10 candidates for A-levels. Results for these schools can be so volatile that it could be misleading to publish rank orderings which include them, but some produced impressive results this year.

In spite of these objections, all of which must be taken into account, these tables still help parents to shortlist schools that might suit their child's academic aptitude. And for all their protestations, schools cannot deny that the tables have an impact.

Early in the morning of August 28 this year, the head of a boarding school in Surrey was woken by one of his governors. A copy of the FT guide to independent school A-level results was thrust into his hands.

The governor, chairman of the finance committee, had been awaiting the new league tables with trepidation. The school was higher up in the tables, but not by as much as had been hoped, and the head had to do something about it.

The head of the school in question has spent the last year attempting to raise academic standards. While parents continue to want to read league tables, he will continue to respond to them. If that means attempting to improve academic standards, then the FT league table has achieved something.

Extra copies of the FT-1000 can be ordered from John White, Marketing Department, The Financial Times, Number One Southwark Bridge, London SE1 9HL.

The minimum order is five copies, price Pounds 3.50, including postage and packing. The price for 10 copies is Pounds 6 and for 20, Pounds 10. Orders should be returned before November 6.

------------------------------------------------------------------------ FT 1000 TOP 50 SCHOOLS ------------------------------------------------------------------------ Rank School Town/county FT score ------------------------------------------------------------------------ 1 St Paul's Barnes, Greater London 1.68 2 Winchester College Winchester, Hampshire 1.67 3 North London Collegiate Edgware, Greater London 1.64 4 Westminster London 1.64 5 King Edward's Birmingham 1.62 6 Eton College Windsor, Berkshire 1.59 7 St Paul's Girls' Hammersmith, London 1.59 8 Manchester Grammar Manchester 1.57 9 Withington Girls Manchester 1.54 10 King's College Wimbledon, London 1.54 11 Bradford Grammar Bradford, West Yorkshire 1.53 12 Haberdashers' Aske's Borehamwood, Herts 1.51 13 King Edward VI High Birmingham 1.51 14 Guildford High School Guildford, Surrey 1.50 15 Haberdashers' Aske's Elstree, Hertfordshire 1.50 16 Wycombe Abbey High Wycombe, Bucks 1.49 17 Nottingham High Nottingham 1.49 18 South Hampstead High Hampstead, London 1.48 19 St Albans High Girls St. Albans, Hertfordshire 1.47 20 Godolphin & Latymer Hammersmith, London 1.47 21 Tonbridge Tonbridge, Kent 1.46 22 Perse School, The Cambridge 1.46 23 Portsmouth High Southsea, Hampshire 1.46 24 City of London London 1.45 25 Royal Grammar Guildford, Surrey 1.45 26 Magdalen College Oxford 1.44 27 St Mary's Calne, Wiltshire 1.44 28 Merchant Taylors' Northwood, G. London 1.44 29 Leicester Grammar Leicester 1.44 30 Lady Eleanor Holles Hampton, Greater London 1.42 31 Twycross House Twycross, Warwickshire 1.42 32 Harrow Harrow on the Hill 1.41 33 Croydon High South Croydon 1.41 34 Abbey School, The Reading, Berkshire 1.41 35 Sir William Perkins's Chertsey, Surrey 1.40 36 Radley College Abingdon, Oxfordshire 1.40 37 Colchester County High Colchester, Essex 1.39 38 Tormead Guildford, Surrey 1.39 39 James Allen's Girls' Dulwich, London 1.39 40 Loughborough High Loughborough, Leics. 1.39 41 Benenden Cranbrook, Kent 1.39 42 University College Hampstead, London, 1.39 43 Perse School for Girls Cambridge 1.39 44 King's Canterbury, Kent 1.39 45 Cheltenham Ladies' C Cheltenham, Glos. 1.39 46 Shrewsbury High Shrewsbury, Shropshire 1.39 47 Queen's School, The Chester, Cheshire 1.38 48 Royal Grammar Newcastle-upon-Tyne 1.38 49 Rugby Rugby, Warwickshire 1.38 50 Merchant Taylors' Liverpool, Merseyside 1.37 ------------------------------------------------------------------------

------------------------------------------------------------------------ Rank School Type Sex Fees per annum pds Day Boarding ------------------------------------------------------------------------ 1 St Paul's IDy B 7485 11685 2 Winchester College IBd B 9204 12270 3 North London Collegiate IDy G 4668 - 4 Westminster IDy B 8850 12750 5 King Edward's IDy B 4074 - 6 Eton College IBd B - 11934 7 St Paul's Girls' IDy G 5838 - 8 Manchester Grammar IDy B 4002 - 9 Withington Girls IDy G 3645 - 10 King's College IDy B 6066 - 11 Bradford Grammar IDy B 3891 - 12 Haberdashers' Aske's IDy B 5580 - 13 King Edward VI High IDy G 3780 - 14 Guildford High School IDy G 4896 - 15 Haberdashers' Aske's IDy G 3990 - 16 Wycombe Abbey IBd G - 11538 17 Nottingham High IDy B 4500 - 18 South Hampstead High IDy G 4200 - 19 St Albans High Girls IDy G 4299 - 20 Godolphin & Latymer IDy G 5790 - 21 Tonbridge IBd B 8340 11820 22 Perse School, The IDy B 4044 - 23 Portsmouth High IDy G 3600 - 24 City of London IDy B 5679 - 25 Royal Grammar IDy B 5565 - 26 Magdalen College IDy B 4623 8319 27 St Mary's IBd G 6240 10530 28 Merchant Taylors' IDy B 6129 10050 29 Leicester Grammar IDy C 3675 - 30 Lady Eleanor Holles IDy G 4827 - 31 Twycross House IDy C 2805 - 32 Harrow IBd B - 12360 33 Croydon High IDy G 4200 - 34 Abbey School, The IDy G 3780 - 35 Sir William Perkins's IDy G 3600 - 36 Radley College IBd B - 11430 37 Colchester County High G G - - 38 Tormead IDy G 4959 - 39 James Allen's Girls' IDy G 5649 9912 40 Loughborough High IDy G 3834 5718 41 Benenden IBd G - 11730 42 University College IDy B 6270 - 43 Perse School for Girls IDy G 4020 - 44 King's IBd C 8160 11820 45 Cheltenham Ladies' C IBd G 7155 11250 46 Shrewsbury High IDy G 3600 - 47 Queen's School, The IDy G 4131 - 48 Royal Grammar IDy B 3516 - 49 Rugby IBd B 8895 11865 50 Merchant Taylors' IDy B 3672 - ------------------------------------------------------------------------ Type: IDy = independent day school; IBd = independent boarding school; G = grammar school. Sex: B = predominantly boys; G = predominantly girls. Boarding schools are deemed to be more than 50 per cent boarding, of which more than half are full-boarders. In a fully coeducational school, each sex must account for more than 25 per cent of pupils. ------------------------------------------------------------------------

------------------------------------------------------------------------ FT 1000 TOP 10 STATE GIRLS' SCHOOLS ------------------------------------------------------------------------ Rank School Town/county ------------------------------------------------------------------------ 37 Colchester County Girls High Colchester, Essex 55 Tiffin Girls, The Kingston, Greater London 78 Chelmsford County High Chelmsford, Essex 118 Rochester Girls Grammar Rochester, Kent 146 Kendrick Grammar Reading, Berkshire 167 Henrietta Barnett Hampstead, Greater London 184 Newstead Wood Orpington, Greater London 219 Tonbridge Girls Grammar Tonbridge, Kent 223 Queen Marys High Walsall, West Midlands 226 Wycombe High High Wycombe, Buckinghamshire ------------------------------------------------------------------------ Rank School FT Type score ------------------------------------------------------------------------ 37 Colchester County Girls High 1.39 G 55 Tiffin Girls, The 1.36 G 78 Chelmsford County High 1.33 GO 118 Rochester Girls Grammar 1.27 G 146 Kendrick Grammar 1.25 G 167 Henrietta Barnett 1.22 G 184 Newstead Wood 1.19 GO 219 Tonbridge Girls Grammar 1.16 GO 223 Queen Marys High 1.16 G 226 Wycombe High 1.16 G ------------------------------------------------------------------------

--------------------------------------------------------- FT SCORE CONVERSION TABLE --------------------------------------------------------- FT Typical score grades* 1.6 AAA 1.4 BBB 1.2 BCC 1.0 CCC 0.8 CDD 0.6 DDE 0.4 EEE --------------------------------------------------------- * assumes average pupil took three A-levels. Grades are higher if average pupil took less than three A-levels - a 1.0 score could represent BB, not CCC. ---------------------------------------------------------

------------------------------------------------------------------------ FT 1000 TOP 10 STATE BOYS' SCHOOLS ------------------------------------------------------------------------ Rank School Town/county 66 Royal Grammar School, The High Wycombe, Buckinghamshire 81 King Edward VI Grammar Chelmsford, Essex 103 King Edward VIth Camp Hill Birmingham 109 St Olave's Orpington, Greater London 114 Tiffin Kingston-upon-Thames, G. London 127 Bournemouth Boys Grammar Bournemouth, Dorset 175 Colchester Royal Grammar Colchester, Essex 177 Reading Reading, Berkshire 189 Royal Grammar, The Lancaster, Lancashire 194 Ermysted's Grammar Skipton, North Yorkshire ------------------------------------------------------------------------ Rank School FT Type score ------------------------------------------------------------------------ 66 Royal Grammar School, The 1.34 GO 81 King Edward VI Grammar 1.33 GO 103 King Edward VIth Camp Hill 1.29 GO 109 St Olave's 1.29 GO 114 Tiffin 1.28 GO 127 Bournemouth Boys Grammar 1.26 GO 175 Colchester Royal Grammar 1.21 GO 177 Reading 1.20 GO 189 Royal Grammar, The 1.19 GO 194 Ermysted's Grammar 1.18 G ------------------------------------------------------------------------

------------------------------------------------------------------------ BEST VALUE FOR MONEY ------------------------------------------------------------------------ Day schools ------------------------------------------------------------------------ 1 New College, Cardiff (422) 2 St Gerards, Bangor (77) 3 Twycross House, Warwicks (31) 4 St Michael's, Llanelli (87) 5 Scarisbrick Hall, Ormskirk (231) 6 The Grange School, Northwich (62) 7 Withington Girls, Manchester (9) 8 St Mary's Convent, Worcester (133) 9 Portsmouth High (23) 10 King Edward VI High Girls, Birmingham (13) ------------------------------------------------------------------------ Boarding schools ------------------------------------------------------------------------ 1 Duke of York's Royal Military, Dover (849) 2 Casterton, Kirkby Lonsdale (163) 3 St Mary's, Calne (27) 4 Winchester College (2) 5 Queen Margaret's, York (124) 6 Eton College, Windsor (6) 7 St Leonards-Mayfield, E Sussex (173) 8 Tudor Hall, Banbury (144) 9 Woldingham, Surrey (59) 10 Wycombe Abbey, High Wycombe (16) ------------------------------------------------------------------------ Each independent school had its FT score divided by the annual day or boarding fee. On this basis the schools above gave parents the best academic return on their money - although bear in mind that the figures used are crude, and no heavy weight should be attached to them. (The figure in brackets shows a school's position in the main table.) ------------------------------------------------------------------------

------------------------------------------------------------------------ FT 1000 TOP 10 COMPREHENSIVE SCHOOLS ------------------------------------------------------------------------ Rank School Town/county ------------------------------------------------------------------------ 73 Hasmonean High Hendon, Greater London 31 Dame Alice Owen's Potters Bar, Hertfordshire 185 Cherwell Oxford 221 Charters Sunningdale, Ascot, Berkshire 242 King's, The Peterborough, Cambridgeshire 247 Watford Grammar School For G Watford, Hertfordshire 254 St Nicholas High Northwich, Cheshire 264 Ranelagh Bracknell, Berkshire 281 Stanborough Welwyn Garden City, Hertfordshire 283 Maiden Erlegh Earley, Reading, Berkshire ------------------------------------------------------------------------ Rank School FT Type Sex score ------------------------------------------------------------------------ 73 Hasmonean High 1.34 C C 31 Dame Alice Owen's 1.26 CO C 185 Cherwell 1.19 C C 221 Charters 1.16 C C 242 King's, The 1.15 CO C 247 Watford Grammar School For G 1.14 CO G 254 St Nicholas High 1.13 CHC C 264 Ranelagh 1.13 CHC C 281 Stanborough 1.11 C C 283 Maiden Erlegh 1.10 C C ------------------------------------------------------------------------

----------------------------------------------------------------------- FT 1000 TOP 10 STATE CO-EDUCATIONAL SCHOOLS ----------------------------------------------------------------------- Rank School Town/county FT Type score ----------------------------------------------------------------------- 57 Latymer Edmonton, Greater London 1.36 GO 73 Hasmonean High Hendon, Greater London 1.34 C 130 Pate's Grammar Cheltenham, Gloucestershire 1.26 GO 131 Dame Alice Owen's Potters Bar, Hertfordshire 1.26 CO 185 Cherwell Oxford, Oxfordshire 1.19 C 221 Charters Sunningdale, Ascot, Berkshire 1.16 C 242 King's, The Peterborough, Cambridgeshire 1.15 CO 254 St Nicholas High Northwich, Cheshire 1.13 CHC 264 Ranelagh Bracknell, Berkshire 1.13 CHC 281 Stanborough Welwyn Garden City, Hertfordshire 1.11 C -----------------------------------------------------------------------

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page II 3629
The Long View: Victims of the glut Publication 931030FT Processed by FT 931030 By BARRY RILEY

MY VERY first lesson in applied economics came on the day in April 1949 that post-war sweets rationing of 4 ounces a week was ended. Alas, the Ministry of Food had blundered: demand exceeded supply and rationing had to be re-imposed until 1953.

Scarcity, in the experience of the generation in Britain with which I grew up, was part of the natural order of things. There were waiting lists for many goods, and rationing was imposed not just by the need for coupons but through restrictions on capital flows and property development (which persisted for decades after the Conservative government's 'bonfire of controls' in 1951). We had a final taste of shortages in the 1970s with the oil shocks and various other commodity crises, including the bizarre sugar famine of 1974.

Now, we one-time ration book kids must cope with the economics of glut. There is serious over-capacity in most of the western world's manufacturing industry; meanwhile, in the commodity markets this week, oil slipped to little more than Dollars 16 a barrel and aluminium crashed towards the 'disaster level' of 45c a pound. As for the other factors of production, the number of unemployed people in the European Community is rising towards 20m and surplus capital is sloshing around the globe, depressing real interest rates and threatening to generate destabilising asset price bubbles.

Some of those post-war scarcities were fundamental, being caused largely by the destruction of much of the capital stock of Europe. Rationing and central planning were natural consequences and, because of the absence of effective competition, the returns on capital often were very high. It was natural for investors to put their money into the famous names of British manufacturing industry. including high-tech wonders like Ferranti (which last Tuesday, announced its willingness to be taken over for 1p a share). Other shortages have resulted more from policy than from the fundamentals and so have persisted longer.

The property market in the UK, for instance, did not finally reach its confrontation with the age of glut until the end of the 1980s. But now, it seems, even Somerset beauty spots are being opened up by planners to Sainsbury's bulldozers. True, some of the old property market distortions persist, notably through upwards-only leases, and the remaining backlog of superstore permits means that the leaders in the food retailing industry are still enjoying an artificial enhancement of margins through restriction of competition (although these surplus profits will now crumble fast).

European airlines - the flag carriers, at least - have held out the longest against liberalisation, and have been able to exploit their right to carve up the profitable international routes between them. But Air France is at last approaching its moment of truth, however unwillingly.

It is ironic that the airlines should be among the last to accept open borders. Elsewhere, the globalisation of world trade has become a dominant factor in generating production surpluses. A huge and cheap supply of most manufactured goods (but not of services, with the important exception of travel and tourism) has overwhelmed the economies of countries that allow them in.

You can see this in the changing shape of the stock market. In the UK, for instance, manufacturing of tradeable goods now probably accounts for only about a fifth of the value of the market as a whole. Returns in the heavy manufacturing sectors in Europe have been forced down by the influence of state subsidies, and levels of profitability in basic industries such as steel, chemicals or cars are grim.

Many of the traditional defences of manufacturers - such as control of distribution, or the exploitation of technological superiority - are no longer effective. Vast increases in productivity have benefited not the manufacturer or the employees, as once they mainly would have done, but the customer.

In recent years, too, a crisis has developed for the brand, the standard means of adding perceived value to a consumer product. Too many brands have allowed their pricing premiums to drift up in a period when the wider diffusion of skills in production technology has actually been undermining the advantages of market leaders.

In any case, some of today's big retailers have stronger brands than many of the big consumer goods manufacturers. Who has the more powerful brand: a retailer like Sainsbury or a food manufacturer like Brooke Bond or Tate & Lyle?

In the stock market, value has shifted to those sectors where there is seen to be protection against the gluts apparent elsewhere. There is obvious appeal in regulated utilities which, through privatisation, have come from nowhere to nearly 14 per cent of aggregate capitalisation inside 10 years; and in drugs, which are defended by patents and the still crucial role of technological skills. The same used to be true of defence, but the great cost-plus days of this once-sheltered industry are well past.

Out there in the exposed sectors, the awful word 'commoditisation' has been coined to represent the downgrading of premium products into mere standard items, the price of which is set by increasingly fearsome competition between efficient factories. In these circumstances, the profits in the economy tend to percolate down towards niche providers of specialist goods and services. Hence the higher activity in the stock market in the smaller companies sector, where there may be some shelter from the intense pressure of global competition, but where decent growth in the domestic economy is essential.

Adjusting to the economics of glut can be tough indeed. Back in 1949, the Riley family used to listen to the Home Service and the Light Programme on a Ferranti wireless set. It seems a long, long time ago.

GB United Kingdom, EC P6231 Security and Commodity Exchanges P5411 Grocery Stores P4512 Air Transportation, Scheduled P6552 Subdividers and Developers, Ex Cemeteries P3812 Search and Navigation Equipment CMMT Comment & Analysis P6231 P5411 P4512 P6552 P3812 The Financial Times London Page I 1001
State schools begin to gain on private sector: . . . But fee-payers dominate the league tables. John Authers and Gillian de Bono study the FT schools survey Publication 931030FT Processed by FT 931030 By JOHN AUTHERS and GILLIAN DE BONO

BRITAIN'S state schools have been gaining academic ground against the fee paying sector, according to this year's FT-1000 survey of Advanced Level examination results published with the Weekend FT today.

Although private schools still dominate the upper reaches of our league table, 23 state schools made it into the top 200, compared with only three last year. More significantly, some famous and expensive independent schools failed to achieve A-level scores as good as those of the top state schools.

Essex girls at Colchester County Girls' High, the top state school at no 37, showed a clean pair of heels to those of Benenden, Cheltenham Ladies' College, and Roedean. Lower down the list, John Hamden grammar school in High Wycombe in 411th place, still beat respected boarding schools such as Blundell's and Sedbergh.

This year's survey has also raised controversial questions about what type of school is most likely to get the best results. It suggests that, with impressive exceptions, day schools do better than traditional boarding schools and that single sex schools do better than co-educational schools. But one of the most striking revelations from the publication of exam results is the success - in one area at least - of the despised selective system, based on grammar and secondary modern schools.

While most of the country was converting these '11-plus' schools into comprehensives, particularly under Margaret Thatcher when she was education secretary in the early 1970s, Buckinghamshire retained selection at aged 12. Now it boasts not only the top state boys' school in the FT-1000 survey, but average results well ahead of those for the country as a whole. Last year's government figures put the county's A level performance in fifth place out of 108 education authorities. Our survey suggests it has done even better this year.

But was good performance by the cleverest children achieved at the expense of the less fortunate - those who used to be stigmatised as '11-plus failures'? It seems not. Buckingham gets excellent results from pupils with a wide range of abilities, including those who fail the grammar school exam. In High Wycombe, for example, The Royal Grammar School (66th in the FT-1000), was up with famous names in the independent sector, such as Dulwich College, Charterhouse, Shrewsbury, and Haileybury. Last year it gained more places at Oxford and Cambridge than any other state school.

However, the town boasts two other successful grammar schools and, more remarkably, several secondary moderns (now called 'upper schools') with good examination results. Because our league table is based only on A-levels, it does not show the upper schools' success. But in GCSE exams, taken at 16, some of these schools finished ahead of comprehensives in neighbouring Milton Keynes.

So the latest evidence from the FT-1000 and the government's exam statistics suggest that the selective education system which Britain has been dismantling during the last 25 years can be successful for a wide range of ability - under certain conditions. The figures for Buckinghamshire also illustrate a more general truth - that where state schools achieve good results, the independent sector tends to be pushed into second place.

It might be objected that High Wycombe, like some other places with good state school results, is inhabited by the ambitious middle classes whose children would do well in any system. Our survey shows, for example, that the best performing comprehensive schools are those which serve areas where affluent and educated people live, such as north Oxford, or Sunningdale in Berkshire.

In Buckinghamshire, Andrew MacTavish, head of John Hampden, confirms that many parents who work for international companies have moved to the Wycombe area on the advice of their employers.

Wycombe, situated in the leafy Bucks commuter belt, is indeed attractive to prosperous parents. But it is not wealthy enough to explain such outstanding results. Unemployment has followed the decline of the town's traditional furniture industry, and a strong influx of immigrants means that it is not without 'inner-city' problems.

The good rating of Wycombe's grammar schools in the FT-1000 no doubt reflects the fact that parents send their children from a wide radius, including the far corners of Berkshire and Surrey.

Weak competition from local independent schools also helps. It seems that in this area, the dream of many idealists of the 1950s and 1960s has been fulfilled: they hoped then that strong middle class demand for improved state education would make private schools unnecessary.

But the middle classes always want the best for their children, which in a selective system, means grammar schooling, good A level grades and a university degree. What happens to the others? In High Wycombe the answer might be that they go to the Sir William Ramsay upper school.

In that case their prospects would be quite good. Last year 34 per cent of the school's GCSE exam entries resulted grades A to C, equivalent to a pass in the old GCE O-level. This was close to the average for the whole of the UK and much better than the performance of Milton Keynes's comprehensives, which accept children with a much wider range of abilities. There, the average is only 23 per cent. Two other upper schools in Wycombe, St Bernard's, which is Roman Catholic, and Wye Valley, also managed to better the nearby comprehensives.

If the entire Wycombe area is viewed as one big comprehensive school, to use an analogy suggested by Bill Richards, head of Sir William Ramsay, then in 1992, 52 per cent of pupils win at least five GCSEs at grades A to C. The average for the whole of the UK last year was 38 per cent.

Sir William Ramsay has even started a sixth form, once an unimagined development for a school intended only to take the 70 per cent of pupils who did not make the grade at the age of 12.

Although such successes might encourage those Conservatives who want to return to some form of selective education system, recent attempts in several counties to reintroduce selection, have run into fierce local opposition.

In Wycombe, however, there is equally fierce local commitment to selection. Heads of the area's 13 schools agree this stems from the council's battle in the mid 1970s with Shirley Williams, then Labour education secretary, to preserve the grammar schools.

Ever since that successful rearguard action, the Conservative county council has wanted to prove that its system works and can win popular support. In Buckinghamshire, a Conservative vote is a vote for selective education. It was the only county in England to retain a Conservative council after the May elections this year.

As Richards points out, this popular support could not have been won only on the basis of A level results by grammar schools. If parents believed that exam grades were achieved at the expense of sub-standard education for the rest, there would have been strong pressure to change the system.

So it is instructive to look behind the examination results, at the strategies which the education authority has used to fulfil the ideals, as it saw them, of the 1944 Education Act. This envisaged a harmonious relationship between three types of schools, grammar, secondary modern and technical based on selection.

First, the authority has promoted a traditional ethos in all its schools. In Wycombe, all schools enforce uniform and discipline strictly.

Second, it has formed a sixth-form consortium of Wycombe schools which allows pupils of one school to take lessons at another. This emphasises to pupils who miss the grammar school boat that they have a second chance.

The idea is that each school should play to its strengths. Grammar schools offer academic A-levels, while upper schools such as Cressex and Sir William Ramsay have introduced new vocational qualifications, intended to persuade less academically able 16-year-olds to stay in education. Upper school pupils are now more likely to take A-levels, as they can do so without the disruption of moving to a new school.

Third, co-operation has been encouraged below the sixth form, to give children who under-perform at 12 a second chance. Late developers can be transferred to the grammar school. Thus, many children who fail their 12-plus exam, win good A level grades in the grammar school.

Fourth, the authority administers the applications and entries for all schools in the area, even including the Royal Grammar which has opted out of the authority for financial reasons. This reduces wasteful competition for ther best pupils and makes forward planning easier.

Fifth, in Wycombe, the authority has kept the traditional division between the sexes in its grammar schools, in spite of the shift to co-education elsewhere, even in the top independent boarding schools.

Does this segregation help to explain the area's good results?

Certainly our survey shows that, on average, single sex schools get better examination grades in both state and independent sectors.

But there is much debate about the significance of this result. Do boys and girls really learn better without the distraction of the opposite sex? Or is it merely an historical accident that schools with an established record of academic success tend to have remained single sex?

Muriel Pilkington, head of Wycombe High, champions the traditional view that girls can flourish better in classrooms without boys, who, she says, tend to be less mature.

If girls want to meet boys, they can do so after class, since Wycombe High and John Hampden face each other across a road.

Nevertheless, many parents dislike segregation by sex, as the shift to co-education in other parts of the country amply attests. And this is only one reason to be cautious about Buckinghamshire's laboratory of 'traditional' education, despite the achievements.

However enlightened and flexible the system may claim to be, dividing young children by academic 'success' and 'failure' can be cruel.

In Buckinghamshire, these words were formerly used in letters sent by the authority to the parents of every 12-year-old.

At Sir William Ramsay, pupils appear happy, well-disciplined, and by no means the dejected or embittered failures which mythology might suggest.

Five out of six prefects say they want to go to university, an ambition which seems quite realistic.

Meanwhile, the school's cricket captain says: 'We were rained off last summer, but we'll beat the Royal Grammar this year. Just you wait and see.'

And yet, and yet . . . in spite of all this optimism and fighting talk, pupils and teachers attest to intense pressure on children to 'succeed' by winning a place at grammar school.

One of the prefects at Sir William Ramsay who is aiming for university, unwittingly summed up the argument, which will always remain against selection: 'Of course if I was good enough, I would go to RGS. But I wasn't good enough.'

GB United Kingdom, EC P8211 Elementary and Secondary Schools CMMT Comment & Analysis P8211 The Financial Times London Page I 1847
Catalogue of mistakes at Queens Moat: Debt-ridden hotel group suffers losses of Pounds 1bn Publication 931030FT Processed by FT 931030 By MAGGIE URRY and PEGGY HOLLINGER

A CORPORATE horror story unfolded yesterday when Queens Moat Houses published a 34-page catalogue of mistakes and mismanagement with its results for 1992.

The once high-flying hotel group formerly run by Mr John Bairstow, a typically aggressive 1980s entrepreneur, has been brought almost to its knees by nearly Pounds 1.2bn of debt.

Though some investors had become concerned by the company's rapid expansion, funded by high levels of debt and a number of rights issues, few were prepared for yesterday's revelations. One shareholder said yesterday 'there was no way you could have discovered what was going on from previous sets of accounts'.

The revelations included alleged breaches of company law, including the unlawful payment of more than Pounds 20m in dividends; the earlier overstatement of profits; losses of more than Pounds 1bn and a Pounds 803.9m property write-down, and an apparent lack of financial controls. There were minimal reporting systems, a scarcity of management information and no monthly consolidated accounts. There was no clearly defined treasury function.

These revelations could lead to an investigation by the department of trade and industry, although the company has not requested one.

Legal action against the group's former advisers and directors is under consideration by the new management team - probably over the question of the dividend payments.

The former advisers included Bird Luckin, the auditors, Charterhouse Bank, the merchant bank, and Beeson Gregory and De Zoete & Bevan, the joint stockbrokers. All either failed to return calls or refused to comment.

Mr Bairstow admitted the group had got out of control but defended himself yesterday blaming the spirit of the times. 'The sheer size of the growth in the 1980s was such that it would take care of any mistakes,' he said.

He said he was 'perplexed' by the Pounds 1.1bn difference between a property valuation by Weatherall Green and Smith at the end of 1991 and that by Jones Lang Wootton at the end of 1992.

'With so much at stake and with such a vast difference in the valuations the issue should go to arbitration,' he said.

Mr Andrew Coppel, QMH's new chief executive, said he could not comment on the differences, but said the JLW valuation had been subjected to lengthy and detailed examination before being adopted.

He said financial controls in the group had been severely lacking. The new management team appointed in July had been unable to locate the working papers from which 1992 interim profits were constructed. An outsider close to the group said of the financial controls, 'it was a complete and bloody shambles'.

A number of the group's hotels were run by managers paid under an incentive scheme. Mr Andrew Le Poidevin, the new finance director, said 'in the past there was very little financial information from these hotels'.

In its rush to expand into continental Europe, QMH had acquired hotels in France which were subject to leasing deals making it 'unlikely that these hotels can ever be profitable', Mr Coppel said. In Austria hotels had been acquired with excessive debts making them 'heavily loss-making'.

The group first announced it was in difficulties in March, when its shares were suspended at 47 1/2 p.

QMH has been surviving with the support of its banks. These are now entering discussions with the company over a financial restructuring. This is expected to give the banks control and substantially dilute the interests of existing shareholders.

A banker said that when the details of QMH's losses and property revaluation were given to a meeting of the company's banks on Thursday there was a 'shocked silence'. One banker said he had 'no idea how a company could build such a complicated banking structure with such inadequate security'.

With nearly 200 subsidiaries, loans from 65 banks in a number of different syndicates with varying levels of security, and operating in many countries, the restructuring will be extremely complicated.

The plan is to concentrate on a core of 50 UK hotels which will be renamed and form a base for eventual expansion. The other 53 hotels in the UK and the 86 hotels elsewhere in Europe will be managed to maximise returns for shareholders and creditors.

Although the business plan assumes some recovery in hotel values, one banker said the assumptions were sensible and if lenders 'sit tight' they could eventually get all their money back.

Reports and background, Page 8 Lex, Page 22 London stocks, Page 13

----------------------------------------------------------------------- CRISIS UNFOLDS ----------------------------------------------------------------------- - DTI and Stock Exchange told of more than pounds 20m in unlawful dividends paid in 1991, 1992 and 1993 - 1992 pre-tax loss of pounds 1.04bn. Exceptional losses of pounds 939m including pounds 803.9m write down - 1991 profit pounds 90.4m pre-tax restated as pounds 56.3m loss - 1993 interim loss pounds 48.4m before tax - Balance sheet July 4 1993 - net debt of pounds 1.18bn, negative net assets pounds 435.5m - Restructuring to be finalised by January 31 1994 at a cost of pounds 32m -----------------------------------------------------------------------

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels FIN Interim results CMMT Comment & Analysis P7011 The Financial Times London Page 1 880
Bank cools speculation over cut in interest rates: Governor sounds a strong warning on inflation Publication 931030FT Processed by FT 931030 By PETER MARSH and PETER JOHN

MR EDDIE GEORGE, governor of the Bank of England, yesterday damped speculation about an imminent cut in UK interest rates by suggesting this could jeopardise the goal of price stability.

Sounding a warning on inflationary pressures, Mr George said British industry needed a long period of monetary stability rather than short-term economic boosts provided by interest rate cuts.

Speaking to journalists in London, the governor said he was 'not confident' that cutting interest rates from 6 per cent would be compatible with the government's target of keeping underlying inflation below 4 per cent.

'As of now, I think monetary policy is appropriate for the conditions we face,' Mr George told the Foreign Press Association.

He added that any adjustment to monetary policy was likely to be finely balanced. Commentators calling for rate cuts of up to two percentage points had not seriously thought through the implications for inflation of such a large cut.

The remarks from the governor weakened short-dated gilts - which normally track expectations about likely levels of interest rates - and boosted the pound, which recovered from early weakness against the D-Mark to close unchanged on the day at DM2.4975. Against the dollar, sterling closed down just over half a cent at Dollars 1.4865.

However, Mr George's comments failed to shake the general belief in financial markets that Mr Kenneth Clarke, the chancellor, will cut base rates by up to 1 percentage point around Budget day on November 30, possibly to offset a fiscal tightening to curb Britain's Pounds 50bn budget deficit.

Mr George was fairly bullish about the UK's growth prospects, arguing that even with the weakness of important export markets in the rest of Europe, many British companies were well poised to take advantage of the general turn upwards in UK demand.

Mr George stressed that the top priority for the Bank was 'to achieve and maintain price stability in the medium and long run.'

Currencies, Page 11 See Lex

GB United Kingdom, EC P6011 Federal Reserve Banks NEWS General News P6011 The Financial Times London Page 22 369
Row looms over MPs' 5.5% pay rise plan Publication 931030FT Processed by FT 931030 By DAVID OWEN

A ROW was brewing last night over plans to offer pay rises to MPs that would increase their salaries by more than 5.5 per cent.

Union leaders joined MPs from across the political spectrum in attacking the proposed rise which would take effect in two stages by January 1995.

If implemented, the move would be widely expected to stiffen resistance to the government's efforts to rein in public-sector pay. Ministers are this year seeking to impose a 1.5 per cent ceiling on the public-sector pay bill, and may try to impose a freeze next year.

Mr Alan Jinkinson, leader of Unison, Britain's biggest union, said it would be 'grossly hypocritical' for ministers and MPs to vote themselves such an increase. The move would 'result in my members . . . redoubling their efforts to achieve justice in the next pay round'.

Mr John Edmonds, leader of the GMB general union, said: 'Aren't they the lucky ones? I wish our members had the chance to vote themselves a pay rise at twice the rate of inflation.'

Mr Michael Bates, the Conservative MP for Langbaurgh, described the plan as 'an absolute outrage' and called for MPs to lead by example.

Mr Max Madden, Labour MP for Bradford West, said salary increases should apply only to MPs who did not have outside financial interests.

Under the proposals - which will be debated next Wednesday - MPs would be awarded a 2.7 per cent increase, taking their salaries to Pounds 31,687 with effect from January 1994. This would be followed by a further 2.68 per cent the following year. The government also proposes a new remuneration formula linking MPs' pay to civil service bands.

MPs did vote themselves a 38 per cent rise in office-cost allowances to nearly Pounds 40,000 a year in July 1992.

GB United Kingdom, EC P9199 General Government, NEC NEWS General News P9199 The Financial Times London Page 22 335
The Lex Column: Salomon Brothers Publication 931030FT Processed by FT 931030

It is nice to see that time has not dimmed Salomon's inventive talents. Strips - bonds which are separated out into a stream of interest payments and one lump sum principle repayment - have made Salomon plenty of money. Having started the market in the early 1980s, Salomon is now turning full circle and putting the bonds and their interest payments back together again. Doubtless this is not what Salomon intended in the mid-1980s. But luck has intervened, since the high-coupon bonds which it split have become the benchmark for the vast T-bond futures market. Fortune has smiled on those who take a supple view of markets.

The futures fluke allows Salomon to buy large quantities of the split bonds, put them back together and hedge them perfectly. Since Salomon's split bonds have underperformed comparable whole securities, it can also afford to pay up for their strips and still guarantee themselves a handy profit. Of course, customers may not be quite so chuffed to buy a premium-priced product from Salomon, watch it fall behind the basic bond over the best part of a decade and then sell it back to the same arbitrage desk. Salomon scores on the way in, the way out, and dealing in between. But on Wall Street, that's a good trade.

Salomon Brothers Inc US United States of America P6211 Security Brokers and Dealers P6081 Foreign Banking and Branches and Agencies CMMT Comment & Analysis P6211 P6081 The Financial Times London Page 22 258
The Lex Column: Food manufacturers Publication 931030FT Processed by FT 931030

The big three superstore groups this week conducted a highly effective marketing campaign. Unfortunately, it was for their new rival, Costco. Their legal challenge ensured much media space was devoted to the threat of warehouse clubs, unnerving the stock market. More than Pounds 800m was lopped off the value of the big three's shares in two days as a result. Such a response is surely out of proportion to the immediate threat to their market position. But fears of margin pressure over the longer run may yet prove well founded. Amid the hysteria, almost no attention has been paid to the possible knock-on effects on retailers' suppliers. If the superstore groups over-react to Costco's arrival and cut prices, then manufacturers' margins will clearly suffer. A lowering of the food industry's whole margin structure would be just as painful for the manufacturers as the established retailers in the near term.

Strangely, though, the branded food manufacturers could view warehouse clubs as their biggest allies if they become a substantial presence in future. UK manufacturers are desperate to lessen their exposure to the big three and develop alternative distribution channels. Not only do UK superstores exert ever greater buying muscle, they are also committed to developing their own rival private label products. Yet, in the US, warehouse clubs stock leading branded goods almost exclusively. For manufacturers, higher sales volumes through warehouse clubs could be their best chance of offsetting the inevitable margin squeeze.

Costco Europe (UK) GB United Kingdom, EC P5411 Grocery Stores P5099 Durable Goods, NEC P5199 Nondurable Goods, NEC CMMT Comment & Analysis MKTS Market shares COSTS Product costs & Product prices P5411 P5099 P5199 The Financial Times London Page 22 292
The Lex Column: UK equities Publication 931030FT Processed by FT 931030

The whirring cogs of the UK economy emitted some discordant noises this week, but they were drowned out on the equity and bond markets by the shouts of 'buy' orders down telephones. The CBI's quarterly industrial trends suggesting the UK recovery was faltering as a result of recession in mainland Europe caused only a momentary flutter of concern. Anxieties about the outlook for corporate earnings were also shrugged off. Since the beginning of October, NatWest Securities' analysts have downgraded their earnings forecasts for 18 companies while upgrading only five. The market worries not a jot.

The benign interpretation is that such anxieties matter very little, given the trend in global interest rates. Indeed, even bad economic news, such as the CBI survey, is seen as encouraging because it only makes more certain further interest rate cuts. Moreover, if the UK really has tamed its inflation problem, 10-year gilts yielding 6.7 per cent continue to look cheap against the 5.8 per cent obtainable on German bunds. Such logic may well underpin a further run in UK equities and bonds. But in a European context, the UK will steadily lose its charms when compared with continental markets. Investors may switch into France and Germany, where real interest rates remain high and the economic cycle has not yet swung upwards.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy P6231 Security and Commodity Exchanges CMMT Comment & Analysis P9311 P6231 The Financial Times London Page 22 254
The Lex Column: Drowning in Queens Moat Publication 931030FT Processed by FT 931030

Until March this year when its shares were suspended, Queens Moat Houses appeared a respectable hotel chain with a long and successful history as a publicly-quoted company. The document released by the company's new management, however, depicts a company lacking the most basic financial controls. Some of the choicer elements include the payment of unlawful dividends over three years and the non-existence of records used to construct the 1992 interim results. Even among the many horrors unearthed by the recession, this catalogue of concerns ranks high. Despite the praiseworthy efforts of the Cadbury committee and Accounting Standards Board, many questions about corporate governance and financial reporting remain unaddressed.

The most disturbing aspect is the flimsiness of opinions expressed by the company's past advisers. It is perplexing, to say the very least, that two firms of property valuers could arrive at such different valuations of QMH's hotels in the space of a year. QMH's previous auditors and brokers deserve censure for permitting the publication of misleading accounts. The Department of Trade and Industry would appear to have much to investigate.

The new management has done its best to draw a line under past errors. But given the incompleteness of records at QMH's 200-odd subsidiaries and its remaining lease liabilities, this can only be drawn in pencil. The future strategy of the group is dictated by circumstance. There is little point in QMH's banks appointing receivers and dumping 200 properties on a glutted hotel market.

The following months will doubtless see much haggling between QMH's 65 banks and the two classes of preference shareholders over the terms of the restructuring. Ordinary shareholders, though, have little hope of any redress. QMH may only make Pounds 20m of trading profits this year, sufficient to support about Pounds 250m of debt. The forthcoming debt-for-equity swap will surely obliterate any remaining value.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels CMMT Comment & Analysis FIN Interim results P7011 The Financial Times London Page 22 344
World Stock Markets: Mexico recovers from its NAFTA worries - But investors remain unenthusiastic about poor recent third quarter results Publication 931030FT Processed by FT 931030 By DAMIAN FRASER

The optimism of the Mexican stock market returned yesterday as investors put behind them worries over disapointing third quarter results and obstacles to the passage of the proposed North American Free Trade Agreement. The impressive rally over the previous month faltered badly earlier in the week.

However, the market ended up only marginally down over the week. Yesterday the index leapt 42.28, or 2.1 per cent, to 2,020.26 - still 14 per cent higher than September 21 and 15 per cent up on January 1.

The majority of the blue chip companies reported third quarter earnings during the week, and in many cases they were below expectations. Cemex, the construction company, Vitro, the glass company, TMM, the shipping group and Dina, the truckmaker, among others, saw sharp falls in their prices, as the weak economy and high interest rates took their toll.

Even the 15.3 per cent increase in profits at Telmex, the telephone monopoly, failed to stem a short-term sell-off.

The market rally over the month as a whole comes as investors appear increasingly confident that the economy will start to pick up towards the end of this year and that, regardless of NAFTA, growth in 1994 will exceed the modest 1.5 per cent expected this year.

Optimism is partly based on the steady fall in interest rates on news of lower inflation and a reduced trade deficit, as well as the government's intention to boost spending and cut taxes in the run-up to next year's election.

The market has also been more confident about the prospects for Nafta, the fate of which is expected to be decided by the US House of Representatives in November.

But uncertainties have never been far away. The near universal view among brokers is that rejection of Nafta would lead to sharp reversal in the market in the short term, with some predicting a return to the 1,500 or 1,600 level.

The sweeping victory of Canada's Liberal party in last Sunday's general election, and its demand that parts of Nafta should be renegotiated came as a blow, although it was widely expected. The fear is that Canada's opposition could provide cover for US congressmen wanting to oppose the treaty.

Political uncertainty is also beginning to climb. The ruling party is set to nominate a presidential candidate, probably by the end of the year: this person will be the overwhelming favourite to win next August's election.

Investors recall that the candidacy of President Salinas in 1987 led to a spectacular market rise. If Mr Pedro Aspe, the finance minister, is chosen, the market might be expected to take off again. However, if one of the less economically experienced candidates is selected a reversal could be in store.

Third quarter earnings seem set to follow the pattern of results over the past year. Industrial companies facing international competition, and those depending on trade, have performed poorly throughout the year. However, consumer-orientated businesses, such as Maseca, the flour producer, have continued to show strong gains.

The government's recently announced economic pact for next year is not expected to help industrial conglomerates. The pact would reduce energy prices but, in theory at least, the savings have to be passed on to the consumer. On the other hand, the pact will lead to a pick-up in wages and a rise in costs.

The industrial sector has also been hit by an exchange rate which, adjusted for inflation, has appreciated against the dollar every year since 1989, and remained strong throughout this year. If Nafta is rejected, the government has said that it will defend the currency with high interest rates, thereby hurting the generally indebted industrial companies.

By pushing interest rates down, SG Warburg expects Nafta to raise economic growth next year by an additional 50 basis points to 3.5 per cent, and increase earnings growth from 13 per cent to 17 per cent. Faster growth, a stronger currency and lower interest rates, should help retail companies, such as Cifra, Gigante, Liverpool, construction concerns such as ICA and Cemex, and banks such as Banamex and Banacci. Their earnings are sensitive to economic growth and greater consumer and government spending.

Picking companies that would be relatively unaffected by Nafta's rejection depends on whether or not the government reacts with higher interest rates, as well as the effect such a decision would have on the currency. Some companies, such as Vitro, that might do well under devaluation, are also heavily indebted, and would suffer from high interest rates.

Companies with low net interest payments are Cifra, Kimberly Clark, Telmex and Liverpool, according to Baring Securities, and might be relatively unaffected by higher interest rates. Industrial conglomerates with revenues in dollars, such as Vitro, or mining companies, would gain from a devaluation.

MX Mexico P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P6231 The Financial Times London Page 19 840
World Stock Markets (America): Dow consolidates Thursday's gains Publication 931030FT Processed by FT 931030 By PATRICK HARVERSON NEW YORK

Wall Street

US SHARE prices mostly traded in a narrow range on either side of opening values as investors consolidated the gains earned during Thursday's record-breaking rally, writes Patrick Harverson in New York.

At the close, the Dow Jones Industrial Average was down 7.27 at 3,680.59, and the more broadly based Standard & Poor's 500 up 0.11 at 467.84. Secondary indices fared better, with the Amex composite finishing up 4.09 at 481.44, and the Nasdaq composite up 5.77 at 779.26. Trading volume on the NYSE was 266m shares.

After Thursday's big advance, when the Dow rose to a new record high of 3,687.86 on news of stronger-than-expected third quarter economic growth, investors took a breather yesterday. Some chose to take some of the profits earned earlier in the week, while others decided to sit out the session and await the markets' next decisive move.

Weakness in bond prices (the yield on the 30-year bond ended the day up at 5.967 per cent) also contributed to the subdued opening of equities trading. The declines in Treasury prices were sparked by the day's only economic news - an increase in the Chicago Association of Purchasing Management's index of manufacturing activity from 54.5 in September to 57.0 in October.

That news, plus gains on foreign stock markets, ensured that profit-taking did not make a big dent in share prices during the day.

Among individual stocks, Eastman Kodak, which had jumped sharply on the news that Motorola's chairman Mr George Fisher had been hired as the company's new chief executive, gave back Dollars 5/8 at Dollars 63. In contrast, Motorola, which fell on the news, recovered Dollars 1/2 to Dollars 104 3/4 . Xerox continued to benefit from positive reaction to its third quarter results, rising another Dollars 2 7/8 to Dollars 79 1/4 .

General Motors was hard hit by profit-taking, declining Dollars 1 3/8 to Dollars 47 5/8 , as were Chrysler, down Dollars 1 at Dollars 56 and Ford, off Dollars 1 1/4 at Dollars 61 7/8 , all in heavy trading.

Brokerage stocks were in demand. Merrill Lynch climbed Dollars 1 3/4 to Dollars 96 7/8 , Morgan Stanley rose Dollars 1 7/8 to Dollars 78 5/8 , Salomon added Dollars 3/4 at Dollars 45 1/4 , Charles Schwab put on Dollars 2 1/8 at Dollars 34 1/2 and PaineWebber firmed Dollars 1/4 to Dollars 29 3/8 .

Exide enjoyed a strong debut on the NYSE, the battery maker's stock rising from an offer price of Dollars 20 to Dollars 26 7/8 in volume of 3.8m shares.

Aetna climbed Dollars 2 7/8 to Dollars 65 3/4 on news of improved third quarter earnings.

On the Nasdaq market Microsoft rose Dollars 1 1/8 to Dollars 80 1/8 and Dell Computer added Dollars 3/8 at Dollars 20 1/4 . Canada

TORONTO prices closed solidly higher in moderate end-of-the-week trading, as a late-session rally propelled the TSE-300 composite index to another record high. It rose 20.37 points, or 0.48 per cent, to close at 4,255.61 above the previous peak of 4,235.24 achieved yesterday.

US United States of America CA Canada P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 19 550
World Stock Markets (Asia Pacific): Pacific Rim produces a bevy of new highs Publication 931030FT Processed by FT 931030 By EMIKO TERAZONO TOKYO

SHARE PRICES were supported by public and arbitrage fund buying and the Nikkei average advanced by 1.1 per cent after three consecutive days of declines, writes Emiko Terazono in Tokyo.

The 225-issue index rose 223.52 to 19,702.97 after a low of 19,500.95 and a high of 19,744.27. The index, which had lost 4.1 per cent during the past three trading days, rose in tandem with the futures market on index-linked buying, and ended the week down 2.7 per cent.

Volume was 280m shares up from 235.5m and advances led declines by 709 to 266 with 146 issues unchanged. The Topix index of all first section stocks rose 28.20, or 1.8 per cent to 1,630.59, its first gain in 10 days. In London the ISE/Nikkei 50 index rose 0.23 to 1,296.42.

Confidence was also supported as the slide in East Japan Railway abated somewhat, with the shares closing down Y5,000 at Y520,000, having initially fallen to Y500,000.

Buying interest concentrated on large capital issues and high-technology blue chips. Hitachi, the day's most active issue, rose Y24 to Y861, while NEC gained Y20 to Y951. Nippon Steel added Y14 to Y334 and Mitsubishi Heavy Industries Y30 to Y675.

Consumer electronics gained ground, with Matsushita Electric Industrial up Y30 to Y1,470 and Sony gaining Y70 to Y4,920. However, Pioneer Electronic fell Y20 to Y2,770 on prospects of weak earnings.

Banks recovered some of Thursday's losses: Dai-Ichi Kangyo Bank rose Y80 to Y2,400 and Sakura Bank Y50 to Y1,680.

Nippon Telegraph and Telephone declined to Y810,000 in early afternoon, but later trimmed its losses to Y1,000 closing at Y831,000.

In Osaka, the OSE average rose 235.29 to 21,621.65 in volume of 14.1m shares.

Roundup

RECORD highs were the order of the regional day.

HONG KONG continued to ignore Sino-British differences over political reform, the Hang Seng index closing 318.82, or 3.5 per cent higher at 9,329.09, 7 per cent up on the week.

Turnover hit an estimated HKDollars 9.72bn, up from HKDollars 6.83bn on Thursday, and Jardine Matheson, seen as sensitive to Sino-British friction, climbed HKDollars 3.00 to HKDollars 74.00.

AUSTRALIA broke through 2,100 on the All Ordinaries index to close at 2,112.2, up 35.9 on the day, 2.5 per cent better on the week, and at its highest in 6 years. Turnover soared, from ADollars 398.2m to ADollars 908.5m.

Good corporate prospects, and the possibility of lower interest rates after a modest 0.5 per cent rise in September quarter inflation lent support, and offshore buyers looking for quality stocks drove BHP up 52 cents to ADollars 17.70, CRA up 60 cents to ADollars 16.34, and News Corp by 36 cents to ADollars 11.50.

NEW ZEALAND chalked up its sixth successive gain and a four year high in the NZSE-40 index which closed 28.59 higher at 2,159.77, 2.9 per cent higher on the week. There was heavy trading across the board, but especially in the market leaders, Brierley, Carter Holt and Telecom.

KUALA LUMPUR reached its new peak on strong foreign demand for Telekom, which drove the KLSE composite index up 25.24 to 971.99, 4.1 per cent up on the week. Telekom registered a high of MDollars 22.00 before closing at MDollars 21.60, up MDollars 1.70.

BANGKOK and MANILA hit their highs in spite of profit taking, the SET index putting on 21.73 to 1,260.91, 9.7 per cent higher on the week, and the Manila composite 46.23 to 2,372.83 for a week's gain of 4.9 per cent.

TAIWAN, still well below April's high, rose only 20.30 to 4,086.17 on the SEC's proposed removal of ceilings on foreign investment in individual stocks.

BOMBAY's BSE index fell 31.4 to 2,667.9, 1.9 per cent down on the week, as fears remained of a political crisis in Kashmir.

JP Japan, Asia HK Hong Kong, Asia AU Australia NZ New Zealand MY Malaysia, Asia TH Thailand, Asia PH Philippines, Asia TW Taiwan, Asia IN India, Asia P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 19 684
World Stock Markets: South Africa Publication 931030FT Processed by FT 931030

MARKET activity moved to second line industrial stocks, helping to lift the sector index by 42 to 4,532. The gold index eased 15 to 1,755 and the overall index rose 22 to 3,916. Among golds, Vaal Reefs lost R3 to R359.

ZA South Africa, Africa P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 19 70
World Stock Markets (Europe): Switch is seen back into German equities Publication 931030FT Processed by FT 931030 By Our Markets Staff

WALL STREET's overnight gains inspired the early closing markets, but this stimulus was noticeably absent in the afternoon, writes Our Markets Staff.

FRANKFURT extended the 15-point gain it saw in Thursday's post-bourse, the DAX index closing 30.54 higher at 2,069.00, virtually flat on the official week. Turnover recovered from DM6.9bn to DM9.5bn.

Ms Barbara Schulz at Merck Finck in Dusseldorf, observed that English investors have returned to the market after a long period on the sidelines, and that this may have affected individual stocks. For instance, the metals and engineering group, Metallgesellschaft, saw a gain of DM17.50, or 4.6 per cent to DM401.50 on a big UK order. British institutions were probably trying to find underperformers, said Ms Schulz.

News based movers included Volkswagen, which rose DM7.20 to DM394 on its four day week and retreated to DM390.50 later as its works council chairman poured cold water on the idea; and Bayernverein, up just 50 pfg on the session but accelerating to DM528 in the afternoon after the bank publicised its restructuring plans.

AMSTERDAM remained in good spirits, although the CBS Tendency index closed off a year's high of 137.7, up 0.3 at 135.9 and down 0.8 per cent on the week.

Doubts over the future direction of the proposed link-up between four European airlines, including KLM, weighed on the Dutch carrier, and the shares moved down 70 cents to Fl 39.70. Problems have surfaced this week over the choice of a US partner, with KLM having links with Northwest and Swissair with Delta.

Heineken fared better, rising Fl 1.20 to Fl 201 on the day and 2.7 per cent on the week. Kleinwort Benson's Dutch team has recently issued a buy note on the brewer , and noted good sales for the group's products in the US, eastern Europe and the far east.

The team said that it had upgraded its 1993 eps to Fl 12.70 from Fl 11.50 in 1992; it added that the disappointing share price performance over the past 12 months had been partly a consequence of an over reaction to the recent bottling scare, as well as the market's neglect of defensive stocks.

In the chemicals sector, both DSM and Akzo lost some of Thursday's gains as investors took another look at DSM's third quarter results. DSM slipped 70 cents to Fl 102.10 and Akzo Fl 1.70 to Fl 179.30.

PARIS settled lower on the expiry of futures and options. The CAC-40 index lost 14.03 to 2,181.95, down 2.2 per cent over the week.

Canal Plus shed FFr20 to FFr1,328 in spite of returning a 9 per cent rise in third quarter turnover, while Elf Sanofi was off FFr10 at FFr989 in reaction to news that its Yves Saint Laurent division was to be prohibited from using the 'Champagne' brand name in a new product range. YSL is to appeal against the court ruling.

Michelin rose FFr2.00 to FFr181.50. Merrill Lynch upgraded its rating on the stock during the week, and expected the price to rise by over 30 per cent during the next 12 months.

The brokers said in support of this view that first half earnings had been depressed by a FFr2.6bn restructuring charge, covering the period up to mid-1995. 'This brings a degree of predictability to the path of earnings recovery which will be absent in the rest of the European automotive sector in 1994 and even in 1995.'

MILAN's improvement stemmed partly from victory by the government in a vote of confidence. The Comit index rose 7.66 to 583.41, down 1.7 per cent on the week.

There was activity in Ifil and Rinascente as the former began its bid for 33 per cent of the retailer, which is being sold by Fiat as part of its financial restructuring. Shares in Ifil added L117 to L5,114, while Rinascente lost L40 to L9,462 and Fiat was unchanged at L3,723. The tender period closes on November 19.

MADRID featured a Pta90 gain to Pta2,740 in Banesto, which reported a 76 per cent drop in nine-month profits but said that it was sacrificing immediate profits for a stronger balance sheet.

The general index rose 1.65 to 308.20 for a 0.7 per cent fall on the week.

STOCKHOLM saw its second record high helped by strong gains in the bank and insurance sector. The Affarsvarlden general index rose 4.9 to 1,426.2, a rise on the week of 0.6 per cent. Turnover was estimated at SKr1.8bn.

S-E Banken A shares put on Skr1.50 to SKr60.00 and Handelsbanken A SKr2 to SKr112. OSLO rose to a new 1993 high as the All Share index put on 9.37 to 613.99, in turnover of NKr655m. COPENHAGEN posted a recovery after two days of declines, the KFX index rising 1.42 to 103.65, a fraction higher on the week. DDL, which controls the Danish share of SAS, rose DKr110, or 4.8 per cent to DKr2,400 on speculation that the Alcazar airline alliance is falling apart.

Written and edited by William Cochrane and John Pitt.

----------------------------------------------------------------------- FT-SE ACTUARIES SHARE INDICES ----------------------------------------------------------------------- October 29 THE EUROPEAN SERIES Hourly changes Open 10.30 11.00 12.00 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1375.41 1377.64 1378.33 1378.72 FT-SE Eurotrack 200 1440.64 1440.06 1442.01 1441.93 ----------------------------------------------------------------------- Hourly changes 13.00 14.00 15.00 Close -----------------------------------------------------------------------

FT-SE Eurotrack 100 1378.41 1378.63 1375.55 1374.61 FT-SE Eurotrack 200 1441.73 1441.13 1439.03 1439.46 ----------------------------------------------------------------------- Oct 28 Oct 27 Oct 26 Oct 25 Oct 22 ----------------------------------------------------------------------- FT-SE Eurotrack 100 1369.48 1367.82 1377.10 1378.69 1386.16 FT-SE Eurotrack 200 1435.53 1430.55 1437.92 1442.09 1447.89 ----------------------------------------------------------------------- Base value 1000 (26/10/90) High/day: 100 - 1380.09 ; 200 - 1446.68 Low/day: 100 - 1374.52 200 - 1438.42. -----------------------------------------------------------------------

DE Germany, EC NL Netherlands, EC FR France, EC IT Italy, EC ES Spain, EC SE Sweden, West Europe NO Norway, West Europe DK Denmark, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 19 996
London Stock Exchange: New highs and lows for 1993 Publication 931030FT Processed by FT 931030

NEW HIGHS (178).

AMERICANS (4) Chrysler, Ford Motor, Lockheed, Malvy Tech., BANKS (4) ABN, HSBC, Natl Australia, Standard Chrtd., BREWERS (1) Vaux, BLDG MATLS (7) Blue Circle, Do 7 5/8 pc Pf., CRH, Grafton, Marshalls, Shaw (A), Sheffield Instlns., BUSINESS SERVS (1) Hutch. Whampoa, CHEMS (1) BTP, CONGLOMERATES (3) Gieves, Hanson 9 1/2 c Cv., Jardine Hldgs., CONTG & CONSTRCN (3) Eve, Countryside, Tilbury Douglas, ELECTRICALS (2) Kenwood Appliances, Oxford Instrs., ELECTRICITY (1) Manweb, ELECTRONICS (4) Eurotherm, Nesco, Polar, Unitech, ENG AERO (1) Smiths Inds., ENG GEN (2) Fenner, Neepsend, FOOD MANUF (2) Carr's Milling, Nichols (V), HEALTH & HSEHOLD (3) Amersham, Reckitt & Colman, Do 9 1/2 pc Cv., HOTELS & LEIS (4) Mandarin Oriental, Pelican, Rank Orgnsn., Do 8 1/4 pc Pf., INSCE COMPOSITE (1) FAI, INSCE LIFE (1) Irish Life, INV TRUSTS (60) MEDIA (8) Anglia TV, BBB Design, Elsevier, Flextech, Reed, Saatchi, Southnews, Taylor Nelson, MERCHANT BANKS (4) Close Bros., Hambros, Kleinwort Benson, Warburg (SG), MTL & MTL FORMING (3) Manganese Bronze, Simsmetal, Thyssen, MISC (4) Black (P), Kershaw (A), Rhino, Spear (JW), MOTORS (2) BBA, Trinity, OIL & GAS (4) BP, OGC, Pittencrief, Woodside, OTHER FINCL (9) BWD, Govett, Hambro, Jardine Strategic, Mercury Asset Mngmt., Oceana Consld., Quayle Munro, Sharelink, Swire Pacific, OTHER INDLS (2) BH Prop., Wilshaw, PACKG, PAPER & PRINTG (4) API, Boxmore, De La Rue, Kymmene, PROP (14) Asda, Do 5 1/8 pc Pf., Bilton, Burford, Chesterfield, Daejan, Dencora, HK Land, Heleical Bar 5 1/4 pc Pf., High-Point, Lend Lease, Saville Gordon, Smith (J), Warner Est., STORES (1) Moss Bros, TELE NETWORKS (5) Cable & Wire. 7pc Cv., Cathay Pac., Forth Ports, Securicor N/V, Security Servs., TEXTS (3) Alexandra Workwear, Magellan, Wensum, TRANSPORT (4) Forth Ports, Mayne Nickless, Powell Duffryn, TNT, PLANTATIONS (1) Highlands, MINES (5) CRA, Malaysia, St Helena, Sons Gwalia, Western Areas.

NEW LOWS (15).

BRITISH FUNDS (3) Exch. 12 1/2 pc '94, Exch. 13 1/2 pc '94, Treas. 14 1/2 pc '94, CHEMS (1) Caird 7p Pf., ELECTRICALS (2) Dale, Maddox, ENG GEN (1) Clayton Son, FOOD MANUF (1) Northern, FOOD RETAILING (2) Kwik Save, Sainsbury (J), INV TRUSTS (1) JF Pacific Wrt., MEDIA (2) Birkdale, Goodhead, TEXTS (1) Martin Intl., TRANSPORT (1) Tiphook.

US United States of America GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 13 403
London Stock Exchange: Drugs pressured Publication 931030FT Processed by FT 931030 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

Bears in the drugs sector were to the fore with more uncertainity moving through the sector mostly on the back of caution over Wellcome. The stock continued the slide it began after its disappointing results on Thursday and lost a further 22 yesterday to 690p with 9.3m shares traded. A number of brokers distanced themselves from the stock, declaring it either overvalued or recommending a sell. Several thought that 650p could prove a settling price for the stock.

Most bears stopped short of saying that the sector could face a re-rating after Wellcome's aftermath soured sentiment for other stocks. But one said: 'This will certainly add to the nervousness in the sector.'

One stabilising force for pharmaceuticals was that fears over the Clinton healthcare plan appear to be receding. One analyst said: 'The feeling in Washington is that only parts of it will be implemented.'

Kleinwort Benson was offering to buy Invergordon shares at 298 1/4 p for a 48-hour cash settlement, which was the signal for a huge rush of investors seeking a quick return on their holdings. While one leading institution was said to have sold its entire 7.75m shares, directors were also said to be active, one selling 675,000 options at 4p for a net return of over Pounds 2m. Total turnover reached 55m. Kleinwort is acting for Whyte & Mackay which has made a 300p-a-share offer, reluctantly accepted by the Invergordon board on Thursday.

Food retailers stayed under pressure as the predicted price war broke out, with Asda beating the expected combatants to the gun as it announced a price freeze on 5,000 items. The other supermarkets groups are expected to respond in kind, with one analyst commenting: 'It's going to be a bloody Christmas.' Asda shares slipped 1 1/2 to 54p in another day's big turnover of 25m. Tesco dropped 3 1/2 to 203p in volume of 6.3m, J Sainsbury 6 1/2 to 395 1/2 p in turnover of 4.8m and Kwik Save 9 to 642p.

Broker upgrades followed the trading statement and analysts meeting with Rank Organisation. The Rank share price, which has been under some pressure recently, reacted favourably and closed 9 ahead at 841p in busy turnover of 2.5m. Such was the recent caution surrounding the stock that many brokers were preparing to reduce their profit estimates ahead of yesterday's meeting, worried over the group's debts and Xerox contribution. However, some improvement had been seen in the group's overall trading and the market forecast for this year shifted from Pounds 240-260m to Pounds 250-265m.

The revelations of write-downs on the hotel valuations at Queens Moat Houses, which was suspended earlier this year with financial problems, had a surprisingly mild effect on the hotel sector. Forte actually shot forward in early trading as Rank announced a good price for the sale of one of its central London hotels. The shares later slipped back to close a half-penny off at 221 1/2 p.

Several factors put a bit of vim into the oil sector, despite the weakness of the crude price. Shell enjoyed investor interest after its oil figures were well received and moved ahead 9 to 711p in turnover of 4.9m.

A successful auction of shares in its scrip dividend helped to push up the price of Enterprise Oil 4 to 484p. BP continued to attract keen support ahead of Thursday's third quarter figures, the shares closing 4 up at 349 1/2 p.

Brisk two-way business was reported in Cable and Wireless as the shares underwent a split. Opening at 486p, they went to 498p and edged up in a perky telecoms sector to close 3 up at 501p. Turnover was 10m. The move was put down to the hectic activity in the Far East market, still buzzing with the huge flotation of Singapore Telecom. Vodafone gained 8 to 553p. Dealers said that the forthcoming flotation of Pac-Tel's cellular arm was exciting interest in the UK group's valuation.

There was another day's huge turnover in Ferranti, the electronics and aerospace group undergoing an agreed 1p-a-share bid from GEC. Over 63m shares traded hands as they edged down a quarter to 1 1/2 p. GEC gained 2 to 352p, partly from relief over the Jubilee line extention.

There were no real features in the insurance areas of the market, with only Sun Alliance, having any exposure to the massive storm damage afflicting northern California. Sun Alliance shares eased 2 to 369p.

Wellcome Invergordon Distillers Group Asda Group Rank Organisation Queens Moat Houses Vodafone Group GB United Kingdom, EC P6231 Security and Commodity Exchanges P2834 Pharmaceutical Preparations P2085 Distilled and Blended Liquors P5411 Grocery Stores P7011 Hotels and Motels P7311 Advertising Agencies CMMT Comment & Analysis MKTS Market data P6231 P2834 P2085 P5411 P7011 P7311 The Financial Times London Page 13 815
London Stock Exchange: Record high for Warburg Publication 931030FT Processed by FT 931030 By STEVE THOMPSON, CHRISTOPHER PRICE and CHRISTINE BUCKLEY

THE recent upsurge in the merchant banking area of the market, triggered by expectations of substantial trading profits from booming international bonds and equity markets plus the probability of increased mergers and acquisition business, continued apace.

SG Warburg, the more marketable of the two merchant banks in the FT-SE 100 index raced up 11 more to a record 924p, leaving the stock on the brink of the exclusive Pounds 2bn market capitalisation club. Turnover in the shares, rarely above 1m a day, totalled 1.5m. The bank is scheduled to announce interim results on November 9, with analysts looking for something like a 150 per cent increase in profits and a near 15 per cent jump in the interim dividend. Marketmakers are talking the shares up to Pounds 10-plus in the short term.

The upsurge on Hong Kong markets had a big impact of the UK banks with widespread and lucrative interests in the far east. HSBC was the big winner in the sector, closing 15 higher at 762p -within 13p of the all-time high - after heavy turnover of 7.8m shares. Standard Chartered, meanwhile, raced up 18 to a peak 1088p.

SG Warburg Group HSBC Holdings GB United Kingdom, EC HK Hong Kong, Asia P6231 Security and Commodity Exchanges CMMT Comment & Analysis P6231 The Financial Times London Page 13 241
London Stock Exchange: Equity market rallies as account ends Publication 931030FT Processed by FT 931030 By STEVE THOMPSON

UK SHARE prices continued to edge forward yesterday, responding to a modest end-account rally, and still helped by the recent upsurge in overseas markets which has seen Wall Street reaching new all-time records and European markets staging a useful recovery.

Gilt-edged stocks, however, came under moderate downside pressure, with long-dated stocks settling around four ticks lower and index-linked stocks making minor progress in subdued trading.

The FT-SE 100 index, which has see-sawed all week, influenced in turn by bouts of profit-taking by UK and then European and US institutions, moved up 8.0 yesterday to close at 3,171.0. Over the week the 100 index has retreated 28 points, or 0.9 per cent, from its all-time closing high of 3,199, as UK funds began to lock in profits from the record strong performance of the market.

Then overseas institutions turned aggressive sellers, reacting to a rather gloomy message from the latest survey published by the Confederation of British Industry which highlighted a distinct slowing in the pace of recovery in the UK and calling for a reduction in interest rates in the November 30 Budget. And dealers noted early signs that some of the big Continental funds had begun to reduce their weightings in the UK market back into Germany, following the recent interest rate cut.

Wall Street's overnight performance was viewed as slightly disappointing to London dealers who had seen the Dow Jones Average power above the 3,700 level during London trading late on Thursday. Consequently, there was a degree of certainty at the outset of trading yesterday when the FT-SE 100 moved up cautiously during the morning session, reached a session high of 3,172.3, before slipping back in the afternoon and then picking up again at the close.

There was genuine surprise among institutional traders yesterday at the exceptionally high level of turnover in equities. Just over 800m shares changed hands, the highest single-day's business for many weeks. It was pointed out, however, that almost 18 per cent of that total, around 140m shares was accounted for by activity in just three stocks. Ferranti, which has attracted a 1p-a-share bid from GEC, Invergordon Distillers, where Kleinwort Benson bid for stock on behalf of Whyte & Mackay, and Asda, the food retailer. The value of customer business on Thursday was Pounds 1.84bn, the highest for two weeks.

GB United Kingdom, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 13 422
London Stock Exchange: Equity futures and options trading Publication 931030FT Processed by FT 931030 By CHRISTINE BUCKLEY

MARKING time was the spirit of the day in Footsie futures with the December contract showing no real sense of direction, writes Christine Buckley.

A quiet opening was followed by a squeeze on the contract which pushed it up higher. In thin volume, it edged its way up to the psychologically important resistance level of 3,200 but fell 3 short of that at its day's high.

Hopes had been raised in the morning that there would be a strong gilts market, mainly fuelled by optimism that the chancellor could be forced into a full point cut in interest rates in the Budget. That hope proved fruitless and no positive lead was offered by gilts.

The contract drifted off in the afternoon and it touched its day's low of 3,182. A small rally was mustered to push it up to a closing level of 3,186, just marginally ahead of its fair value premium to cash. Volume was steady at 8,104.

Traded options were subdued with a total of 26,545 lots dealt. Index options proved a substantial part of that activity with 11,735 lots traded in the FT-SE 100 option.

GB United Kingdom, EC P6231 Security and Commodity Exchanges P6221 Commodity Contracts Brokers, Dealers MKTS Market data P6231 P6221 The Financial Times London Page 13 229
Money Markets: Futures close easier Publication 931030FT Processed by FT 931030 By PETER JOHN

FINANCIAL futures contracts eased slightly on the last trading day of the month following technical presures and comment in the UK suggesting that interest rates may not fall as fast as expected, writes Peter John.

Short sterling was volatile, dropping in the afternoon after Mr Eddie George, the governor of the Bank of England, said he was not confident that a cut in UK base rates would fit the government's goals for inflation.

Some dealers suggested the comments acted as a useful excuse for traders keen to balance trading books at the end of the month. The futures contract for December, which had reached a high of 94.64 in earlier trading dropped to close four basis points lower on the day at 94.55.

The German Euromark contract for the same month eased slightly to 93.85 and the French contract fell four basis points to 93.60, both slipping on end-of-the-month adjustments.

Monetary conditions in the UK money market continued tight as banks were unwilling to take up the Bank of England's early offer of help. The Bank of England forecast a liquidity shortage of around Pounds 1.85bn, later revised down to Pounds 1.75bn but by midday only Pounds 28m of help was provided.

The tight conditions pushed overnight rates to 9.5 per cent and one-month money to 6 15/16 per cent. Among the main factors affecting the position were the take-up of Treasury Bills and paper maturing in official hands which drained Pounds 1.852m from the system.

A rise in note circulation - traditionally heavy on a Friday as banks prepare for big withdrawals from cash machines over the weekend - withdrew Pounds 810m. Partly offsetting, these Exchequer transactions added Pounds 1.555bn.

The Pounds 28m of assistance at midday consisted of Pounds 6m of band one bank bills at 5 7/8 per cent and Pounds 22m of bills for resale to the market in equal amounts on November 16, 17 and 18 at an interest rate of 5 29/32 per cent.

The Bank provided a further Pounds 1.525bn assistance in the afternoon. It bought Pounds 840m of band one bank bills and Pounds 6m of band two bank bills, both at 5 7/8 per cent.

The Bank also bought Pounds 679m of band two bank bills for resale to the market in equal amounts on 16, 17 and 18 November at 5 29/32 per cent. Finally, the Bank gave Pounds 220m of late assistance.

GB United Kingdom, EC DE Germany, EC P6231 Security and Commodity Exchanges MKTS Market data P6231 The Financial Times London Page 11 438
Foreign Exchange: Technical trading dominates Publication 931030FT Processed by FT 931030 By PETER JOHN

A STRONGER D-Mark exerted early pressure on several European currencies as international investors adjusted their books on the last trading day of the month, but most affected currencies recovered by the close, writes Peter John.

Some encouraging economic data came out of France and the US yesterday, while Belgium suffered political pressures. However, the foreign exchange market tended to concentrate on technical factors.

The French franc was one of the more volatile currencies. It picked up in early trade as Mr Edmond Alhpandery, the minister for the economy, said that data from the French statistics office INSEE, showed the country was pulling out of recession.

Then, the franc slipped back in the afternoon after it was announced that unemployment in France had risen to 11.8 per cent from 11.7 per cent previously, in line with the consensus forecasts.

The franc traded in a half centime range, between FFr3.5000 and FFr3.5050 against the D-Mark, for most of the day and closed unchanged at FFr3.4990.

The Belgian franc was down at BFr21.72 to the D-Mark earlier in the day as the country's transport system was crippled by a strike but the currency picked up in late trading and closed at BFr21.64 to the D-Mark, up from BFr21.80 previously.

Mr Avinash Persaud, economist with JP Morgan, takes a gloomy view of the Belgian and French economies. He argues that the Belgian franc will fall to BFr23 to the D-Mark within the next three months while the French currency will hit FFr3.60 and French unemployment will top 12 per cent by the end of December.

The Spanish peseta, Italian lira and Danish krone were also weaker against the D-Mark in early trade.

The dollar was lifted slightly by promising regional data ahead of figures from the National Association of Purchasing Managers next week. It was taken back from the highs by profit-taking but closed more than half a pfennig up at DM1.6795 from DM1.6735 and better against the Japanese yen and sterling.

The pound recovered from early weakness against the D-Mark as some investors took comments from Mr Eddie George the governor of the Bank of England as an attempt to dampen recent speculation of a further cut in base rates. Sterling closed unchanged at DM2.4975.

The Bulgarian lev opened steady against the dollar and slightly lower against the D-Mark after the Bulgarian National Bank raised its key interest rate to 47 per cent late on Thursday.

DE Germany, EC US United States of America FR France, EC BE Belgium, EC BG Bulgaria, East Europe P6231 Security and Commodity Exchanges CMMT Comment & Analysis MKTS Market data P6231 The Financial Times London Page 11 453
International Company News: Volvo chairman moves to assuage Renault link fears Publication 931030FT Processed by FT 931030 By HUGH CARNEGY STOCKHOLM

VOLVO, the Swedish vehicle manufacturer, yesterday stepped up efforts to persuade sceptical shareholders to support the proposed merger of its car and truck operations with France's Renault. The move came as uncertainty grew over the outcome of a stockholders meeting to decide the issue.

Mr Pehr Gyllenhammar, Volvo chairman, acknowledged the goal for the merged company, of achieving average operating returns of 7 per cent, was high in a tough industry.

However, he said: 'That shows how beneficial we believe the merger will be.'

Addressing concern that the 65 per cent balance to be held by state-owned Renault amounted to a French government takeover of Volvo, Mr Gyllenhammar said the merger could not be delayed until after Renault was privatised.

He said this could delay the privatisation because potential investors needed to know the extent of Volvo's commitment to the merger.

Mr Gyllenhammar and Mr Louis Schweitzer, the Renault chief executive, told a Swedish newspaper that a letter or public statement from the French government to Volvo shareholders spelling out its commitment to Renault's privatisation would be helpful.

The fate of the merger depends on a group of Swedish institutional shareholders who have yet to decide how they will vote at the shareholders meeting on November 9.

Yesterday the insurance group Skandia, which holds 3.7 per cent of the voting capital, delayed its expected decision, saying it needed more time to analyse the merger deal.

Other fund managers said they were still pressing Volvo for more information before making up their minds. A key participant, a government pension fund which is the second-largest shareholder after Renault with 7.5 per cent of the votes, has retreated from its earlier positive position. It now says it will make its final decision next Wednesday.

Another state pension fund, with a 2.5 per cent stake, has already said it will vote against the merger.

Volvo Renault SE Sweden, West Europe FR France, EC P3711 Motor Vehicles and Car Bodies P3713 Truck and Bus Bodies COMP Mergers & acquisitions P3711 P3713 The Financial Times London Page 10 363
International Company News: Poland bank sale fails to attract foreigners Publication 931030FT Processed by FT 931030 By CHRISTOPHER BOBINSKI WARSAW

POLAND'S finance ministry is to cancel a tender for 45 per cent of the equity in the state-owned Bank Slaski after failing to receive an offer from 'a satisfying investor'.

The tender, organised by Banque Paribas, aimed to produce a strategic investor for Bank Slaski, the second big bank to be offered for sale under Poland's bank privatisation programme.

The sale of the bank's stock, however, is to continue. Small investors are being offered 30 per cent of the equity, starting on November 3, with the government setting the price at 500,000 zlotys per share.

Foreign banks and domestic investors had been invited to bid for the 4.17m of the bank's 9.26m shares, with a minimum price per share set by the government at 230,000 zlotys.

Earlier this year, the government sold off the Wielkopolski Bank Kredytowy (WBK) with the European Bank for Reconstruction and Development as its major foreign investor. The Krakow-based Bank Przemyslowo Handlowy is next in line.

The failure to find a large foreign partner for Bank Slaski will delay privatisation. Even if employees and management take up their 10 per cent allocation, and all shares offered for sale to the public are bought, a mere 40 per cent of the equity will be in private hands.

Bank Slaski PL Poland, East Europe P6081 Foreign Banking and Branches and Agencies COMP Shareholding P6081 The Financial Times London Page 10 252
International Company News: Galeries Lafayette in retailer deal Publication 931030FT Processed by FT 931030 By ALICE RAWSTHORN PARIS

GALERIES Lafayette, one of France's leading stores groups, is taking full control of Monoprix, the retail chain. It is buying a 37.77 per cent stake from the Malard family in a FFr500m (Dollars 85.3m) deal.

The Monoprix deal, which increases the Galeries Lafayette holding from 54.96 to 93.79 per cent, comes only two years after its last significant acquisition, the FFr2.87bn deal for the Nouvelles Galeries retail concern.

Galeries Lafayette, still burdened by heavy debts due to the Nouvelles Galeries deal and the cost of opening its troubled New York store, has negotiated to pay for the Monoprix stake in a series of instalments until the end of 1996.

Monoprix is one of the largest and best-known retail chains in France selling general merchandise, such as clothing and household goods, as well as food. Galeries Lafayette has already installed Monoprix supermarkets in some of its own sites.

The Monoprix deal comes at a turbulent time for French retailing. Many retail groups have been badly affected by the recession.

Galeries Lafayette reported a net loss of FFr140m for the first half of this year, having only just broken even in 1992.

The retail sector has also been destabilised by a series of mergers and acquisitions. Pinault-Printemps is still selling assets in an attempt to reduce the debts incurred by its takeover of Au Printemps. FNAC, the music and books chain, was sold this autumn because of the financial problems of GMF, its old parent company.

Tesco, the UK food retailing group, earlier this year bought Catteau supermarkets.

Galeries Lafayette Monoprix FR France, EC P5311 Department Stores COMP Mergers & acquisitions P5311 The Financial Times London Page 10 294
International Company News: JAL forced to revise forecast Publication 931030FT Processed by FT 931030 By MICHIYO NAKAMOTO

JAL, Japan's largest airline, yesterday reported a substantial deterioration in its first-half performance and passed its interim dividend. It also revised its forecast for the full year, citing a difficult business outlook.

The airline blamed the recession, a strong rise in the yen, and an unusually cold summer, which kept Japanese people at home.

Its international passenger traffic declined, compared with the same period last year, while demand dropped for cargo exports to Europe and the US.

The drop in revenue was also a result of intense price competition, which the company has been trying to combat with a belated attempt to introduce frequent-flyer incentives.

Flight operations were also adjusted to meet changed demand. New package tours and new traveller services were introduced.

Despite JAL efforts to build up its domestic passenger base, the number of domestic passengers carried rose just 0.1 per cent compared with the same period last year.

Overall, the airline was unable to introduce sufficient measures to offset the fall in demand and price competition from other airlines.

'This year we regarded as crucial for our survival,' JAL said. It added that the operating environment would get tougher and competition would increase. There were no signs of recovery in demand for air travel.

The airline is implementing a survival plan to cut costs.

----------------------------------------------------------------------- JAL HALF-YEAR RESULTS ----------------------------------------------------------------------- Sales Y500.4bn (-9 per cent) Pre-tax loss Y7.9bn (Y4.4bn loss) Net loss Y3.4bn (Y3.6bn loss) Revised forecast for year ending March: Sales Y970bn (previous Y1,064bn) Pre-tax loss Y30bn Net loss Y26bn -----------------------------------------------------------------------

Japan Airlines JP Japan, Asia P4512 Air Transportation, Scheduled FIN Interim results P4512 The Financial Times London Page 10 290
International Company News: Nissan passes payout as sales slide Publication 931030FT Processed by FT 931030 By MICHIYO NAKAMOTO TOKYO

NISSAN Motor, the Japanese carmaker, yesterday unveiled a drop in first-half sales and deeper pre-tax and operating losses. The result confirmed fears of a deteriorating business climate for Japan's automotive industry.

The second-largest Japanese carmaker passed its interim dividend and warned it would not make a profit in the year to March. The group is undergoing a restructuring programme and hopes to cut 5,000 jobs over the next three years.

Although Nissan is uncertain of when it will be able to return to the black, it is sticking to an earlier forecast of a break-even in the current year, and a return to profits in fiscal 1994.

However, Mr Heiichi Hamaoka, an executive managing director, conceded 'it is becoming extremely difficult to attain that goal'.

'Whether or not we can return to profitability next fiscal year depends largely on the speed of recovery in domestic demand,' he said.

The Japanese carmaker saw a 10 per cent decrease in total vehicle sales over the period. Much of this was due to the shift of production overseas. Domestic vehicle production fell 13 per cent, while overseas production rose 22 per cent.

However, the rise of the yen was also a significant reason for the decline in vehicle sales. Nissan said during the first half, the impact of the yen's rise amounted to Y100bn (Dollars 926m).

Although about Y50bn was absorbed through forward exchange dealing and price rises, the net impact of the currency's surge was Y50bn.

Nissan has tried to combat the adverse affects of the yen and weak sales through cost-cutting, which resulted in savings of about Y60bn.

It has, however, also been able to make non-operating income of Y13.2bn from sales of marketable securities.

Nissan's European operations are also under heavy pressure. The European market's weakness meant production at the UK plant would have to be reduced by about 9 per cent from 270,000 units to 246,000 units. The company was studying ways to reduce production without laying off people, Mr Hamaoka said.

'It is a very abnormal situation,' he said.

Nissan is expecting to suffer an operating loss in the second half. This could force it to consider selling securities and fixed assets to break even at the pre-tax level.

----------------------------------------------------------------------- NISSAN HALF-YEAR RESULTS ----------------------------------------------------------------------- Sales Y1,781bn (-6.7%) Pre-tax loss Y28.9bn (Y14.2bn loss) Net loss: Y32.8bn (Y21.9bn loss) Forecast for the full year to March Sales: Y3,650bn Pre-tax profits nil Net profits nil -----------------------------------------------------------------------

Nissan Motor JP Japan, Asia P3711 Motor Vehicles and Car Bodies FIN Interim results P3711 The Financial Times London Page 10 445
International Company News: Singapore Telecom sells well Publication 931030FT Processed by FT 931030 By KIERAN COOKE KUALA LUMPUR

THE OFFER for a 10 per cent stake in Singapore Telecom (ST), the posts and telecommunications utility, has been four times oversubscribed, surprising the most bullish of brokers.

Based on the value of shares offered, the market capitalisation of ST, which is being partially privatised, was SDollars 55bn (USDollars 35bn).

'It's fairly amazing when you make comparisons,' one analyst said. 'ST is being valued at about 80 per cent of the market capitalisation of British Telecom.'

Fifty per cent of the offer, in categories A and B shares, priced at SDollars 1.90 and SDollars 2 respectively, was available to Singaporeans only. The rest, the C share category, was open to Singaporeans and foreigners on a tender basis at a minimum price of SDollars 2.

The offer closed on Thursday after aggressive tendering for C shares pushed up the strike price to SDollars 3.60, giving a prospective price/earnings ratio of 48.

While no-one doubts the credentials of ST - which has a monopoly on Singapore's highly-efficient telecoms sector until 2007 - there are some who feel many share-buyers have rushed in without thinking.

An abundance of liquidity in Singapore, an influx of foreign funds, and an intense government campaign to encourage wider share ownership have resulted in hectic share buying.

It is believed slightly more than a third of the C category shares were taken up by foreigners.

The Singapore government had structured the ST offer to discourage stagging. It offered heavy discounts to Singaporeans who would keep their shares for a six years.

However, analysts say A and B shareholders might be tempted to take a quick profit. The Singapore stock exchange announced that, from Monday market hours will double to 12 to cope with the expected surge in trading volumes.

Singapore Telecom SG Singapore, Asia P4813 Telephone Communications, Ex Radio FIN Share issues CMMT Comment & Analysis P4813 The Financial Times London Page 10 333
International Company News: Nikon blames drop in demand for Y799m loss Publication 931030FT Processed by FT 931030 By EMIKO TERAZONO

NIKON, the Japanese photo-graphic group, has blamed poor demand for cameras and optical glass for a loss in the first six months to September. A fall in exports due to the sharp appreciation of the yen also hit results, writes Emiko Terazono.

Nikon, which paid Y4.5 per share in interim dividends last year, said it would forego dividend payments.

It reported a non-consolidated pre-tax loss of Y1.6bn (Dollars 14.8m), against a Y1bn pre-tax profit a year earlier. Sales declined 12.1 per cent to Y91.6bn, and the after-tax loss was Y799m.

The company expects to return to the black for the year to March.

Nikon Corp JP Japan, Asia P3861 Photographic Equipment and Supplies FIN Interim results P3861 The Financial Times London Page 10 143
International Company News: HK developer surges 46% to HKDollars 3.4bn Publication 931030FT Processed by FT 931030 By SIMON DAVIES HONG KONG

NEW World Development, the Hong Kong property developer, posted a HKDollars 3.4bn (USDollars 449.3m) profit this year - a 46.5 per cent jump, from HKDollars 2.36bn, on the previous period.

It attributed the growth to a sharp increase in property development sales, bolstered by a rise in luxury residential prices in the first half in 1993. There was also an improvement in the hotel division.

Turnover rose 7 per cent to HKDollars 13.32bn.

The company recommended a final dividend of 62 cents a share, amounting to a full-year payout of 87 cents, up from 68 cents previously.

New World has put considerable emphasis on its activities in China, where it has accumulated some 50m square metres of land for development, in addition to a number of infrastructure projects.

Although profits continue to be dominated by Hong Kong residential property sales, the company's Chinese investment programme will make a maiden contribution in the current fiscal year.

The group will complete its first Chinese power station project and two toll roads in the country. It is also launching the sale of several large property developments.

New World aims to have up to 25 per cent of its net assets invested in China.

New World Development HK Hong Kong, Asia P6552 Subdividers and Developers, Ex Cemeteries FIN Annual report P6552 The Financial Times London Page 10 244
World Commodities Prices: Spices Publication 931030FT Processed by FT 931030

Pimento supplies are becoming scarce in Europe becuase of central European buying, reports Man Producten. Mexican offerings were limitedthis week, with spot fetching USDollars 1,950 a tonne, afloat Dollars 1,925 and shipment Dollars 1,900. Jamaican spot pimento afloat Dollars 2,125 and shipment Dollars 2,100, while Honduran shipment was available at Dollars 1,925 a tonne. KB cassia br/cl, spot, was quoted at Dollars 1,750a tonne, afloat at Dollars 1,650 and shipment at Dollars 1,550; va/ka sticks, spot, cost Dollars 2,400, afloat Dollars 2,300 and shipment Dollars 2,225. Madagascan cinnamom was quoted at FFr5.80 a lb, cif. Indonesian nutmeg prices were locally firmer.

MX Mexico JM Jamaica, Caribbean HN Honduras, Central America MG Madagascar, Africa P2099 Food Preparations, NEC COSTS Commodity prices P2099 The Financial Times London Page 10 136
International Company News: Wall Street turns to long bond engineering Publication 931030FT Processed by FT 931030 By RICHARD WATERS NEW YORK

FACED with a shortage of long-term bonds issued by the US government, Wall Street has decided to create its own.

Or rather, recreate them. In the 1980s, investment banks made money by tearing Treasury bonds apart and selling the components for more than the value of the whole.

Now, led by Salomon Brothers, the banks are ready to start putting the bits back together to make whole T-bonds again.

The process has been spurred by the US Treasury's decision to issue fewer 30-year bonds. This has contributed to the bull market in so-called 'long bonds', where yields have fallen to historic lows.

The dismantling, known as 'stripping', involved separating the coupons (or interest payments) on the bonds from the underlying principal. Each part was then sold separately as a zero-coupon bond.

On Thursday, Salomon - Wall Street's pre-eminent bond trading house and the bank which first started stripping T-bonds back in 1982 - became the first to reverse the process publicly. It launched an offer to buy back Dollars 10bn of zero-coupon bonds, which it and other investment banks had created in 1984. The parts will be reassembled to create Treasury bonds which mature in 2014, Salomon said.

The economics underlying this feat of financial engineering remained a closely-guarded Salomon secret.

In return for their zero-coupon bonds, the bank is offering investors identical instruments issued by the US Treasury - which started its own 'strips' programme in 1985 - or cash. These Treasury-created instruments are worth more than those of the investment banks because they are traded in a more liquid market, Salomon said.

Even after paying this premium, Salomon believes current market prices are sufficiently out of line to yield a profit by turning series of zero-coupon securities back into whole bonds.

Technical factors explain part of this: given their 20-year maturity and high coupon rates (the stripped bonds were issued when interest rates were at 12-13 per cent), the reconstituted bonds will prove cheap for investors looking to deliver bonds in settlement of futures trades, Salomon said.

See Lex, Page 22

Salomon Brothers Inc US United States of America P6081 Foreign Banking and Branches and Agencies P6211 Security Brokers and Dealers COMP Company News P6081 P6211 The Financial Times London Page 10 395
Commodities (Week in the Markets): Aluminium prices hit 8-year lows Publication 931030FT Processed by FT 931030 By RICHARD MOONEY

THE SHAKY foundations of the aluminium market slipped again this week, allowing prices for the metal at the London Metal Exchange to subside to the lowest levels for eight years.

The three months delivery position closed yesterday at Dollars 1,067.50 a tonne, down Dollars 8.25 on the day and Dollars 47.75 on the week, after the already-tottering market was shaken by news of another five-figure addition to the record stocks in exchange warehouses.

Most of the week's fall happened on Tuesday, when long-standing support around the Dollars 1,100-mark gave way under the weight of gloomy world economic conditions, the seemingly inexorable stocks rise and continuing unrestrained exports from the former Soviet Union.

On his return from talks in Brussels, Mr Alexander Shokhin, Russia's deputy prime minister for foreign economic relations, said in Moscow on Wednesday that agreement had been reached with the European Commission on the outlines of a solution to the row over the aluminium exports with which his country is flooding the world market.

But with details of the agreement's thorniest component, the ceiling to be set for Russian exports, remaining to be decided the market was able to take little heart from that.

Although the pace of the fall was slower during the second half of the week most analysts thought it would only be a matter of time before a bear assault was mounted on the next technical support area, around Dollars 1,050 a tonne for three months metal. And if that gave way the market could soon find itself within hailing distance of 45 cents a pound (Dollars 991 a tonne), which the Anthony Bird consultancy group has identified as 'a disaster price' that would quickly force western producers to close another 2m tonnes of annual capacity, on top of the 1.4m tonnes already temporarily shut down.

Early in the week zinc had been among the weakest of the LME contracts, the three months price falling Dollars 29.50 to Dollars 920 a tonne at one point. That fall was regained with interest, however, as buyers were encouraged by persistent, though unconfirmed, rumours that a European production cut announcement was imminent. At yesterday's close the three months price stood at Dollars 958.75 a tonne, up Dollars 9.25 on the week.

Lead also recovered from an early decline to end marginally higher on balance. Support was found on a dip to Dollars 403 a tonne for three months delivery on Tuesday and with trade buying appearing at Dollars 410 yesterday the price closed at Dollars 416.50 a tonne, the highest level since early August.

Dealers explained the the lead market had been helped to shrug off a further LME stocks rise to a record 293,450 tonnes by continuing bullish sentiment following Thursday's news of a shutdown at Mexico's Monterrey smelter, tightness in supplies of concentrates (an intermediate material) and an upturn in consumer demand.

The tin market fared less well, although the appearance of demand in the Far East yesterday ensured that the three months price finished more that Dollars 100 above Tuesday's low of Dollars 4,660 a tonne.

Last week's near-Dollars 200 rise had been wiped out by Monday's close and the sellers remained in the ascendancy until after Tuesday's announcement that members of the Association of Tin Producing Countries had agreed at their meeting in Kuala Lumpur to cut exports by 13 per cent in 1994 to 78,000 tonnes.

Earlier news that China, the world's biggest tin producer, had decided to join the association made little impact on the then bearishly inclined market.

At the London bullion market gold prices fluctuated quite violently without ever threatening to break out of the present narrow trading range. After alternating rises and falls of up to Dollars 4.50 a troy ounce had been met by trade selling at the top and bargain hunting at the bottom the price ended the week just 80 cents up at Dollars 368.80 an ounce.

Silver followed a similar pattern, though in this case the sellers got the better of the exchanges and the cash price ended 6 cents down at Dollars 4.38 1/2 an ounce.

Coffee futures were in retreat early on at the London Commodity Exchange, but ended near the top of the week's range.

Technical selling in New York pushed the January position down to Dollars 1,171 a tonne at one stage before the market responded positively to news that Brazil had approved funding arrangements for the stockpile purchases it would be required to make under the producers' export retention scheme. Doubts about Brazil's effective participation in the scheme had been undermining market sentiment in recent week's.

The January price climbed to Dollars 1,222 a tonne at one stage yesterday but edged back to close at Dollars 1,210, up only Dollars 5 on balance but still comfortably above the psychologically significant Dollars 1,200 level.

Cocoa futures peaked early, the March contract touching Pounds 985 a tonne on Tuesday. With this and subsequent movements towards Dollars 1,000 meeting strong resistance, however, dealers concluded that the market was becoming 'range-bound' and that some fundamental encouragement would be needed to provide fresh impetus for the stalled bull run, which many thought still had a long way to go.

------------------------------------------ LME WAREHOUSE STOCKS (As at Thursday's close) tonnes ------------------------------------------ Aluminium +29,075 to 2,289,250 Copper +700 to 613,600 Lead +4,450 to 293,450 Nickel +576 to 119,196 Zinc +950 to 828,350 Tin -15 to 20,615 ------------------------------------------

GB United Kingdom, EC P6221 Commodity Contracts Brokers, Dealers P1099 Metal Ores, NEC P1031 Lead and Zinc Ores P1041 Gold Ores P1044 Silver Ores P0179 Fruits and Tree Nuts, NEC COSTS Commodity prices P6221 P1099 P1031 P1041 P1044 P0179 The Financial Times London Page 9 963
UK Company News: Revamped Flextech shows increased midway deficit of Pounds 3.2m Publication 931030FT Processed by FT 931030 By CATHERINE MILTON

FLEXTECH, the cable and satellite television group, yesterday announced pre-tax losses of Pounds 3.2m for the six months to June 30, against a deficit of Pounds 2.91m in the comparable period which covered the six months to September 30.

Losses per share deepened to 6.68p (5.86p).

The results reflected the change in the accounting year from March 31 to December 31 and included only media interests following the disposal of the oil services interests, completed in July 1992.

The company, which earlier this week announced plans to buy for shares the European programming business of Tele-Communications by Christmas, increased sales to Pounds 2.66m (Pounds 2.15m).

The deal would give TCI, the US broadcasting company which is itself in merger talks with Bell Atlantic, a controlling stake in the enlarged company, more than doubling Flextech's capitalisation to Pounds 200m.

'Notwithstanding the losses incurred during the period the board, given the changes taking place, are convinced of the potential of the core business and look forward to the future with confidence,' said Mr Stanislas Yussakovich, chairman.

Flextech, which holds a 50.1 per cent interest in The Children's Channel and will hold 39 per cent of The Family Channel, also plans to hold 85 per cent of Action Stations, a project to open children's indoor play areas in the UK.

The sites will consist of games and play areas combined with retail outlets and food facilities. Flextech said participants will include The Discovery Channel, TCC and TFC.

Flextech GB United Kingdom, EC P4841 Cable and Other Pay Television Services FIN Interim results P4841 The Financial Times London Page 9 287
UK Company News: Time running out for Greycoat rescue architects Publication 931030FT Processed by FT 931030 By RICHARD GOURLAY

EFFORTS to construct a financial package to save Greycoat, the ailing property company, from liquidation are taking longer than the architects of the rescue, Mr Julian Tregor and Mr Bryan Myerson, had expected.

Greycoat and its advisers have only one full working week before passing a 30-day deadline within which it is required to rectify a breach of the gearing covenant on the zero bonds. Trustees for bondholders would then have to consider whether to issue default notices.

The two corporate financiers, who advise the UK Active Value Fund, said they were arranging a rescue shortly after share and bondholders rejected proposals for a Pounds 120m rescue package from Postel, the UK's largest pension fund.

Greycoat UK Active Value Fund GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries P6726 Investment Offices, NEC COMP Mergers & acquisitions P6552 P6726 The Financial Times London Page 9 165
Economic Diary Publication 931030FT Processed by FT 931030

TODAY: Kuwait state security court verdict on 11 Iraqis and three Kuwaitis charged with involvement in alleged plot to assassinate Bush in April; Dhaka, anti-fundamentalist groups call for half-day national strike.

SUNDAY: referendum on new Peru constitution.

MONDAY: Maastricht Treaty comes into force; Italian CPI; US NAPM; final results - Morgan Grenfell Equity Income Trust.

TUESDAY: UK official reserves (Oct); US leading indicators; Bank of England Quarterly Bulletin (Nov); New York mayoral election; other state, governor and local elections - governor in Virginia and New Jersey; tax revolt propositions in 20 states; California education voucher vote; Indian bank staff plan nationwide strike.

WEDNESDAY: cyclical indicators for the UK economy (Oct); overseas travel and tourism (Aug); major British banking groups' mortgage lending (3rd qtr); major British banking groups' quarterly analysis of of lending (3rd qtr); advance energy statistics (Jul-Sep); London sterling certificates of deposit (Sep); mortgage lending (3rd qtr); international banking statistics (2nd qtr); monetary statistics (including bank and building society balance sheets; bank and building society sterling lending (Sep); MO figures (Oct); and M4 quarterly sectoral analysis (3rd qtr); Bill turnover statistics (Sep); sterling commercial paper (Sep); money market statistics (September); advance energy statistics (July-September); German unemployment (possible); US Fed 'Beige Book';

THURSDAY: details of employment, unemployment, earnings, prices and other indicators; housing starts and completions (Sep); Bundesbank council meeting; French money supply; US factory orders; weekly money supply and new jobless claims; final results - British Petroleum.

FRIDAY: insolvency statistics (3rd qtr); insolvency petitions (3rd qtr); German industrial production (poss); US monthly employment report and consumer credit; final results - Gartmore European Inv.

XA World P9611 Administration of General Economic Programs ECON Economic Indicators P9611 The Financial Times London Page 9 289
UK Company News: Lep reduces losses to Pounds 5.05m - Number of debt-reduction possibilities under consideration Publication 931030FT Processed by FT 931030 By DAVID BLACKWELL

LEP GROUP, the freight forwarding and security company which was last year restructured by its banks, has cut its interim pre-tax loss from Pounds 14.7m to Pounds 5.05m.

However, Mr David James, the company doctor who was appointed chairman by the banks, yesterday reiterated the health warning he made at the AGM in July.

'We don't feel the investing public has realised that there is no prospect of a dividend in the foreseeable future,' he said.

The company was looking at a number of possibilities for the future, he said, and might float off all or part of the equity in core businesses to reduce its debt, which stood at Pounds 340m at the end of the first half.

The pre-tax outcome was struck after a Pounds 1.77m loss for the disposal of property and Pounds 17.5m of net interest payable.

While the interest charge was down from a previous Pounds 23.7m, the company said it was still high in relation to profitability. This reflected the fact that the residual debt is attributable to losses on former activities and discontinued operations.

Total operating profit rose from Pounds 13.4m to Pounds 14.3m. The latest figure included a contribution of Pounds 71,000 from associates, compared with a loss of Pounds 137,000 last time.

Mr James said the group's trading activities had benefited from the stability following restructuring in August last year. This had helped investment in the freight forwarding division, which would have a long-term benefit.

Operating profits in the division fell from Pounds 6.52m to Pounds 3.45m. However, the division is expected to be ahead in the full year as the latest figure reflects an adjustment in the accounts for last year.

Operating profit at the National Guardian Corporation increased from Pounds 8.84m to Pounds 10.6m. The group said a small improvement in its trading performance had been enhanced by the sterling-dollar exchange rate.

Total turnover was unchanged at Pounds 703m. However, last time's figure included Pounds 8.42m from discontinued operations.

Losses per share fell from 12.7p to 0.7p.

Lep Group GB United Kingdom, EC P4731 Freight Transportation Arrangement P4513 Air Courier Services FIN Interim results P4731 P4513 The Financial Times London Page 9 388
UK Company News: Spring Ram shares dip as Masco talks break down Publication 931030FT Processed by FT 931030 By CATHERINE MILTON

SPRING RAM said yesterday that Masco Corporation had withdrawn from bid talks after the kitchens and bathrooms group, where changed accounting policies recently revealed heavy losses and gearing, told the US building products company its price range was too low.

Shares in Spring Ram dropped 4 1/2 p to close at 55 1/2 p - little more than a third of the year's high of 146 1/2 p but above its recent 40p low.

Mr Roger Regan, chairman, said: 'They did not make an offer. The price they were thinking of was too low.' He said he valued the company more highly than the Americans: 'At that point Masco decided that their ambitions to buy the company at a bargain price would not be fulfilled so they continued discussions about other issues.'

Mr Regan said Masco made a number of products such as taps and valves which Spring Ram might buy and that co-operation on fabric design was possible.

He said the board was now concentrating on the future: 'We are just getting on with the hard work we have got to do on our organisation, getting our marketing effort sorted out and things of that sort.

Masco Corporation declined to comment.

Spring Ram Corp Masco Corp GB United Kingdom, EC US United States of America P3261 Vitreous Plumbing Fixtures P3431 Metal Sanitary Ware COMP Mergers & acquisitions P3261 P3431 The Financial Times London Page 9 257
UK Company News: Flotation expected to value Azlan in excess of Pounds 40m Publication 931030FT Processed by FT 931030 By ALAN CANE

AZLAN GROUP, a distributor of advanced computer networking systems based in Wokingham, Berkshire, is expected to have a market capitalisation in excess of Pounds 40m when it comes to market later this month.

The pathfinder prospectus was published yesterday and impact day is November 12. Dealing in the shares will start on November 24.

The placing and intermediaries offer is designed to raise some Pounds 7m, out of which Pounds 1m will be accounted for in expenses and Pounds 1.3m will be used to redeem preference shares held by existing institutional investors. The balance of Pounds 4.65m will be used to strengthen the group's capital base, enabling it to exploit future business opportunities.

Azlan also published results for the half year to September 30 yesterday. It made pre-tax profits of Pounds 1.88m on turnover 69 per cent up at Pounds 28.5m. For the year to March 31 pre-tax profits were Pounds 2.9m on turnover of Pounds 41.2m.

Azlan was formed in 1984. In 1991 Mr David Randall, the current managing director, led a management buy-out supported by a group of institutional investors including CINVen.

The company has taken an approach to networking distribution which demands that it adds significant added value to the 500 or so products it sells.

Distributors are now faced with choosing between selling high volumes of product at low margins or smaller product volumes of new and innovative products which can benefit from Azlan's networking skills.

Azlan aims 'to maximise the sales of a product in the early days of its life before competition and familiarity with the product erode the initial higher margins,' Mr Randall says.

The vendors from which it buys products include Digital, Intel, Lotus, Microsoft and Novell. It is not an easy strategy to follow but one which should guarantee higher profitability than conventional electronics distribution. Azlan's skills include network infrastructure and integration, network management and workgroup productivity.

The prospectus points out that in addition to expanding its market share and range of products, Azlan intends to establish new businesses in continental Europe.

Azlan Group GB United Kingdom, EC P5045 Computers, Peripherals and Software FIN Share issues FIN Interim results P5045 The Financial Times London Page 9 387
UK Company News: Exceptionals push LIT Pounds 21m into the red Publication 931030FT Processed by FT 931030 By DAVID BLACKWELL

LIT HOLDINGS, the marketing services, investment and fund management group, plunged deeply into the red in the first half, reporting a pre-tax loss of Pounds 20.6m.

The deficit follows exceptional items of Pounds 27.5m related to the sale in July of LIT America, its US futures and options clearing subsidiary, for Dollars 23.6m (Pounds 15.6m). The sale resulted in a loss of Pounds 7.7m and a charge, under FRS 3, of Pounds 19.8m for goodwill previously written off to reserves.

In the first-half of 1992 the group made a pre-tax profit of Pounds 2.25m.

The group is planning to restructure and change its name to Johnson Fry Holdings. Mr Paul Gildersleeves, company secretary, said yesterday that the restructuring would mark the end of a troubled period of three or four years, leaving the company to face the future without debt.

The company is repaying its Pounds 12m of outstanding debt through the proceeds of the LIT America sale and profits from Johnson Fry, the UK financial services company, this year.

Johnson Fry boosted operating profits from Pounds 2.4m to Pounds 7.73m. Turnover rose from Pounds 12m to Pounds 24.7m - higher than for full year 1992, when turnover was Pounds 22.5m.

Mr Gildersleeves said that Johnson Fry's performance had been boosted by its success with business expansion scheme issues. The company raised Pounds 281.5m of BES funds in the half compared with Pounds 98.2m in first-half 1992 and Pounds 159.2m for the whole of last year.

Business expansion schemes, which end this year, accounted for 62 per cent of the turnover. Mr Gildersleeves said it was inevitable revenues would dip next year.

The company would concentrate on investment management and residential property management.

Losses loss per share were 42.9p (earnings 1.8p). Without the LIT America charge, earnings would have been 5p.

LIT Holdings Johnson Fry GB United Kingdom, EC P8741 Management Services P6722 Management Investment, Open-End P6798 Real Estate Investment Trusts FIN Interim results P8741 P6722 P6798 The Financial Times London Page 9 353
UK Company News: Tiphook to pay interest on Dollars 350m-worth of loan notes Publication 931030FT Processed by FT 931030 By RICHARD GOURLAY

TIPHOOK, the UK container leasing and transport rental group, said yesterday that it would be paying US bondholders the interest on two unsecured loan notes worth Dollars 350m (Pounds 232m) which falls due on Monday.

The decision to make the payments will relieve some of the pressure from bondholders in the US while the group works out a refinancing arrangement with its bankers.

Had the group decided not to pay the interest immediately, it could have taken advantage of a 30 day grace period before it would have been in breach of the terms of the notes.

Tiphook GB United Kingdom, EC P7513 Truck Rental and Leasing, No Drivers P7359 Equipment Rental and Leasing, NEC COMP Company News P7513 P7359 The Financial Times London Page 9 148
UK Company News: GPA signs rescue deal with GE Publication 931030FT Processed by FT 931030 By ROLAND RUDD

GPA GROUP, the Irish aircraft leasing company which has been struggling with debt of Dollars 5.8bn (Pounds 3.76bn), yesterday signed its rescue deal with GE Electric of the US.

Mr Dennis Stevenson, chairman of his own consultancy groups, the SRU, and the Tate Gallery, has agreed to become non-executive chairman.

GPA has finalised plans for a Dollars 150m capital raising, the granting of options to GE Capital, GE's financial services arm, to take control of the company, and the deferral of Dollars 750m of debt repayments for three years plus the injection of Dollars 150m of new money.

Although the deal was largely agreed in May, the complexity of the documentation has delayed finalisation until now. It is designed to give the company the stability to enable it to reduce debt through aircraft sales within three years.

GE Capital will have an option to buy up to 67 per cent of the company by March 1998, paying between Dollars 110m and Dollars 165m. For three years after that it can buy further shares and could take 100 per cent control of GPA.

GPA will pass management of its assets to GE Capital Aviation Services, under a 15-year contract.

Its new chairman will be Mr Tony Ryan, who is steping down from the aircraft leasing company he founded in 1975. An arbitrator is still looking into his Dollars 2m claim for compensation for loss of office.

GPA Group General Electric Capital Corp IE Ireland, EC US United States of America P6159 Miscellaneous Business Credit Institutions P7359 Equipment Rental and Leasing, NEC COMP Mergers & acquisitions P6159 P7359 The Financial Times London Page 9 290
UK Company News: Depth and complexity of the problems stuns City Publication 931030FT Processed by FT 931030 By PEGGY HOLLINGER, MICHAEL SKAPINKER and MAGGIE URRY

'TAKE a map of the London underground, superimpose it on Network South East and you get some idea of the complexities.' So Mr Andrew Coppel, chief executive, describes the challenge of sorting out troubled hotels group Queens Moat.

Observers were stunned yesterday at news that Britain's third largest hotels group had incurred pre-tax losses of Pounds 1.04bn, and had been operating for at least two years with virtually no financial controls.

'We never had a whiff of it,' the head of a rival hotel group said yesterday. While the industry knew the City had concerns about the group's debt, QMH's hotels had seemed operationally sound.

Mr John Bairstow, the former chairman who left after the group was plunged into crisis talks with bankers in March, would have held the same view. 'It was a growth company and was doing extraordinarily well,' he said yesterday. 'The thing that went wrong was insufficient profits in 1992.'

Mr Bairstow, who created the south of England estate agents Bairstow Eves, is unashamed of his entrepreneurial habits, which some have blamed for QMH's troubles today. 'When a company is run with an entrepreneurial flair, it is not the way accountants would run it . . . with everything done absolutely properly, and due diligence on every acquisition and disposal.'

Mr Bairstow was unquestionably the driving force behind QMH's expansion. The story is well documented of how Mr Bairstow built the company out of his front room, opting to run an 18-room hotel from his Tudor home in Essex.

Less well documented is just what happened within QMH to bring it virtually to its knees. QMH was hailed as a doyenne of the leisure sector in the late 1980s when it consistently produced strong profits, rising from Pounds 24.8m in 1987 to Pounds 94.1m in 1990. Other leisure groups were puzzled by its achievements and attributed them to a lean central office.

Mr Trevor Ward, a director of the Horwath hotels and leisure consultancy, says the group's small head office and the management incentive scheme appeared to fit in with the fashion for cutting central overheads and delegating responsibility. 'They took it to extremes. They were delegating responsibility but retaining no control.'

The latest revelations show that QMH's real achievement was in making a string of acquisitions which buoyed profits growth but were basically unmanageable with the group's resources. Even Mr Bairstow will admit as much: 'We were certainly lacking in management expertise.'

The report issued to banks showed QMH had no monthly consolidated management accounts which would allow the board to monitor the group's progress.

Board directors were also kept ill-informed, claim insiders. Although given documents as they entered the boardroom, directors were asked to surrender them as they left.

QHM's lax controls allowed it to enhance profits by booking in early the earnings from hotels which were run on an incentive scheme.

Yesterday's statement also reveals that there had been no proper treasury function. That lack, say insiders, resulted in a foreign exchange fiasco which accounted for almost half the Pounds 300m increase in debt in 1992.

That year was the watershed for Queens Moat. The market was expecting profits of some Pounds 80m for the year to December 31, a forecast which now looks ridiculously high. During 1992 the group installed the incentive scheme in Germany, which insiders say turned a group of hotels making operating losses into contributors of more than Pounds 20m in profits.

Coincidentally, Mr Martin Marcus, the deputy chairman, aroused controversy just before the results were to have been announced when he sold 1.1m shares at 57p, making a profit of Pounds 600,000. The shares were suspended the following month at 47 1/2 p.

Such entrepreneurial flair appears somewhat tarnished when confronted with yesterday's results. Even Mr Bairstow will admit that his style of management may not be appropriate to the 1990s. 'I never felt I was entirely wrong, but if I had run the company more conservatively it would be much smaller and . . . safer today.'

----------------------------------------------------------------------- 1968 John Bairstow begins hotel career Apr 1982 Buys 26 hotels from Grand Metropolitan for pounds 30m Nov 1986 Buys Dutch Bilderberg Hotels for pounds 15.5m Aug 1987 Buys 8 Globana hotels for pounds 73.8m and 16 Crest hotels for pounds 73.7m Oct 1988 Buys seven Crest hotels for pounds 96m Feb 1990 Wins control of Norfolk Capital for pounds 157m Aug 1990 Buys 49 per cent of HI Management of France for pounds 30m May 1991 Pounds 184m rights issue; paid pounds 45m for 15 continental European hotels Jun 1991 Issues pounds 180m of convertible cumulative redeemable preferred shares Aug 1992 Net debt of pounds 790m revealed with interim results Mar 1993 Shares suspended May 1993 Martin Marcus, deputy chairman, and David Hersey, finance director, resign Jul 1993 Bairstow to quit as chairman; eight other directors resign -----------------------------------------------------------------------

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels FIN Interim results CMMT Comment & Analysis P7011 The Financial Times London Page 8 860
UK Company News: Queens Moat plans to form core hotel chain - New management puts strategy to banks Publication 931030FT Processed by FT 931030 By MAGGIE URRY and MICHAEL SKAPINKER

THE ESSENCE of the business strategy Queens Moat Houses has put to its banks is a plan to form a core chain of 50 UK hotels, which will be rebranded and form a base for eventual expansion.

The new management expects to be ready to launch this chain by the first quarter of 1995. The 50 hotels are expected to contribute 80 per cent of budgeted trading profits for 1994.

The new chain, a name for which has yet to be chosen, will be 'leading, three star plus' hotels, each with more than 100 rooms, located in or near city centres, and having a restaurant and bar.

QMH believes these can achieve 'substantial increases in both trading profits and cash flows'. The operational gearing in hotels is such that profits can rebound sharply once occupancy and room rates are moving upwards.

The rest of the group's hotels, another 53 in the UK and 86 in continental Europe, will be not be put up for sale immediately. They will run for profit with the aim of maximising their value either through eventual sales or as additional security for the group's lenders.

Hotel sales in the present climate - with large numbers of UK hotels in receivership and the market in continental Europe worsening - are unlikely on a large scale although some, such as the Dutch hotels, are up for sale.

At the same time the financial restructuring will give the group a balance sheet more appropriate to its operations. This will involve a substantial debt for equity swap, cutting the interest charges QMH must service from its operation and giving the banks control of a majority of the equity. The exact size of the swap has yet to be decided but it is certain the existing shareholders will be substantially diluted.

Bankers who have seen the business plan say the new management team has put forward 'sensible projections' which indicate a beginning of a recovery in UK profits in 1993 and 1994, with a larger rise later on. Profits from continental Europe are still under pressure.

In the UK occupancy rates began to pick up in late May and early June, QMH said yesterday, although room rates were still under pressure. A rise in room rates is expected in 1994, however.

UK hoteliers were increasingly confident that the downturn had ended, Mr Trevor Ward, a director of the Horwath hotels and leisure consultancy said yesterday. The consultancy's quarterly survey in September found that nearly 80 per cent of hoteliers questioned believed recovery had started, compared with 57 per cent three months previously. Over 80 per cent, however, believed full recovery was a year or more away.

Mr Maurice Segal, chairman of Expotel, a large reservations agency, said yesterday that QMH appeared to be trading reasonably well but that room rates for the industry were still lower than last year.

The plan assumes some revival in hotel prices in the longer term, which could even repay the group's loans in full. One banker said yesterday, 'if the banks sit tight the restructuring has to be better than receivership'.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels COMP Company News P7011 The Financial Times London Page 8 568
UK Company News: North American Publication 931030FT Processed by FT 931030

North American Gas Investment Trust had a net asset value of 100.4p at July 31, a year-on-year rise of 81 per cent. Losses were 8.54p (0.87p).

North American Gas Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 8 60
UK Company News: Overseas Inv Trust Publication 931030FT Processed by FT 931030

Overseas Investment Trust lifted net asset value per share from 268.8p to 399.3p over the 12 months to September 30.

Earnings were 4.04p (3.53p). A final dividend of 2.3p makes a 3.15p (2.8p) total.

Overseas Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 8 67
UK Company News: James Fisher Publication 931030FT Processed by FT 931030

Profits at James Fisher fell from Pounds 1.81m to Pounds 304,000 pre-tax for the half year to end-June and the interim dividend is omitted - 0.5p was paid previously.

Turnover fell from Pounds 17.5m to Pounds 15.9m.

James Fisher and Sons GB United Kingdom, EC P4412 Deep Sea Foreign Transportation of Freight FIN Interim results P4412 The Financial Times London Page 8 73
UK Company News: Benchmark Publication 931030FT Processed by FT 931030

A stronger performance by its overseas division enabled Benchmark Group, the property investor, to swing from losses of Pounds 12.18m to profits of Pounds 77,000 pre-tax for the year to June 30.

Earnings per share emerged at 0.048p (losses 7.725p).

Turnover was little changed at Pounds 16.3m although last time's figure of Pounds 16.7m included Pounds 15.7m from discontinued operations. The 1992-93 results were prepared in accordance with FRS 3.

Benchmark Group GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Annual report P6552 The Financial Times London Page 8 102
UK Company News: British Assets Publication 931030FT Processed by FT 931030

Net asset value at the Ivory & Sime-managed British Assets Trust rose from 89.85p to 109.11p over the year to September 30.

Net revenue amounted to Pounds 16.2m (Pounds 15.6m). A proposed final dividend of 1.07p lifts the total to 4.28p (4.19p), again uncovered by earnings of 4.16p (4.02p) per share.

British Assets Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Annual report P6726 The Financial Times London Page 8 83
UK Company News: Broadgate Inv Trust Publication 931030FT Processed by FT 931030

Broadgate Investment Trust, which came to the market in August 1992 to manage a limited portfolio of the largest capitalised UK companies, yesterday announced results from April 14 1992 - the date of incorporation - to end-September 1993.

Since August last year, net asset value had risen more than 29 per cent to 119.68p.

A dividend of 1.8p is payable from earnings of 2.16p.

Broadgate Investment Trust GB United Kingdom, EC P6726 Investment Offices, NEC FIN Interim results P6726 The Financial Times London Page 8 97
UK Company News: Neepsend Publication 931030FT Processed by FT 931030

Improved manufacturing efficiency and reduced costs were behind the jump in pre-tax profits from Pounds 102,000 to Pounds 472,000 at Neepsend, the engineering group, in the half year to September 30.

Turnover of continuing operations advanced to Pounds 8.63m (Pounds 7.86m). An increased dividend of 0.5p (0.25p) is payable from earnings of 1.52p (0.42p). The shares closed 6p up at 37p.

Neepsend GB United Kingdom, EC P3313 Electrometallurgical Products FIN Interim results P3313 The Financial Times London Page 8 89
UK Company News: Fortune Oil Publication 931030FT Processed by FT 931030

Mr Daniel Chiu, chief executive of Fortune Oil, the exploration and development company which was created in August via a reverse takeover of Blackland Oil by Kingsleigh Petroleum of Hong Kong, said the group's main earnings and asset base was now in Hong Kong and China.

At the same time he announced the results of Blackland and Kingsleigh for the six months to June 30. Blackland incurred a loss of Pounds 163,000 (Pounds 203,000), before and after tax, on turnover of Pounds 226,000 (Pounds 172,000). Losses per share emerged at 1.63p against 2.04p.

Kingsleigh Group made after-tax profits of Dollars 1.1m (Pounds 720,000) on turnover of Dollars 92m.

Fortune Oil GB United Kingdom, EC P1311 Crude Petroleum and Natural Gas FIN Interim results P1311 The Financial Times London Page 8 141
UK Company News: High-Point Publication 931030FT Processed by FT 931030

High-Point, the consultant and project promoter in the engineering and construction industry, cut its deficit from Pounds 3.18m to Pounds 440,000 pre-tax over the year to May 31.

Losses per share emerged at 8.6p (53.5p) and there is a single dividend payment of 0.5p (1.3p). The shares responded with a 9p rise to 40p.

Turnover of continuing activities slipped from Pounds 44.8m to Pounds 42.6m. Exceptional provisions on continuing operations amounted to Pounds 825,000 (Pounds 1.66m).

High-Point GB United Kingdom, EC P8711 Engineering Services FIN Annual report P8711 The Financial Times London Page 8 104
UK Company News: Clayton, Son Publication 931030FT Processed by FT 931030

Clayton, Son & Co, the Leeds-based engineer, announced pre-tax losses narrowed to Pounds 1.26m, against Pounds 1.39m, for the six months to June 30.

Turnover amounted to Pounds 5.33m against Pounds 6.29m, including Pounds 599,197 from Baxter Crushers, sold in June 1992.

Losses were 47.78p (49.24p). The shares dipped 5p to 68p.

Clayton Son and Co (Holdings) GB United Kingdom, EC P3443 Fabricated Plate Work (Boiler Shops) P3444 Sheet Metal Work FIN Interim results P3443 P3444 The Financial Times London Page 8 93
UK Company News: TDS Circuit Publication 931030FT Processed by FT 931030

Cost controls, together with a reduction in interest charges, enabled TDS Circuits, the USM-traded printed circuit board maker, to reduce losses from Pounds 488,000 to Pounds 196,000 pre-tax for the six months to August 31.

Turnover totalled Pounds 3.4m (Pounds 3.5m) and losses per share emerged at 3.84p (7.08p).

TDS Circuits GB United Kingdom, EC P3672 Printed Circuit Boards FIN Interim results P3672 The Financial Times London Page 8 80
UK Company News: BBB Design Publication 931030FT Processed by FT 931030

BBB Design Group, the USM-traded company which takes in design, marketing and computer related services, reported a deficit of Pounds 154,000 pre-tax for the 12 months to April 30.

The outcome, on turnover of Pounds 1.89m (Pounds 1.65m), compared with restated losses of Pounds 427,000.

Losses per share narrowed from 4.57p to 1.84p.

BBB Design Group GB United Kingdom, EC P7372 Prepackaged Software P7379 Computer Related Services, NEC FIN Annual report P7372 P7379 The Financial Times London Page 8 90
UK Company News: EW Fact Publication 931030FT Processed by FT 931030

Shares of EW Fact were suspended at 104p yesterday pending approval by shareholders for a significant acquisition.

The USM-quoted company provides classes and publishes texts for students preparing for accountancy and banking exams and the proposed acquisition is a market leader in this field, the company said.

Consideration is Pounds 11m in shares and the issue of guaranteed loan notes to the vendors.

The company also reported a rise from Pounds 403,000 to Pounds 602,000 in pre-tax profits for the half year to June 30. Turnover increased from Pounds 2.35m to Pounds 2.45m. Comparisons were adjusted to conform with FRS 3.

An interim dividend of 1.76p (1.6p) is payable from earnings of 5.36p (3.51p).

EW Fact GB United Kingdom, EC P2741 Miscellaneous Publishing P8331 Job Training and Related Services FIN Interim results COMP Mergers & acquisitions P2741 P8331 The Financial Times London Page 8 155
UK Company News: Dares Estates Publication 931030FT Processed by FT 931030

Dares Estates, the property investment and development group, reported pre-tax losses down from Pounds 2.87m to Pounds 1.8m for the half year to June 30. Income rose from Pounds 2.9m to Pounds 3.4m.

Losses per share came out at 0.28p (2.08p).

Dares Estates GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Interim results P6552 The Financial Times London Page 8 74
UK Company News: Bourne End Publication 931030FT Processed by FT 931030

Bourne End Properties yesterday reported lower losses for the half year to end-June and said it had requested a temporary suspension of its shares.

Dealings were suspended at 97p pending the outcome of talks which may lead to 'substantial acquisitions.'

Pre-tax losses were trimmed to Pounds 145,000 (Pounds 543,000). Losses amounted to 1.7p (6.5p).

Bourne End Properties GB United Kingdom, EC P6552 Subdividers and Developers, Ex Cemeteries FIN Interim results P6552 The Financial Times London Page 8 88
UK Company News: Gieves Pounds 0.8m in the black Publication 931030FT Processed by FT 931030

GIEVES Group, the retailer, licensor and publisher, achieved pre-tax profits of Pounds 837,000 in the six months to July 31, against losses of Pounds 941,000.

Turnover of continuing operations was Pounds 8.84m (Pounds 8.3m). Earnings per share came through at 5.4p (6.6p losses).

Mr Tom Scruby, chairman, said he expected the second half to show an improvement over the first.

The shares gained 11p to 56p.

Gieves Group GB United Kingdom, EC P2731 Book Publishing P5611 Men's and Boys' Clothing Stores FIN Interim results P2731 P5611 The Financial Times London Page 8 107
UK Company News: Former advisers face prospect of legal action Publication 931030FT Processed by FT 931030 By ANDREW JACK

THE FORMER professional advisers to Queens Moat Houses were keeping a low profile yesterday as the company contemplated legal action following the release of its substantially restated accounts.

Accountants, surveyors, stockbrokers and merchant banks all face the prospect of harsh shareholder criticism and possible lawsuits.

QMH stated publicly that it was 'reserving its position' with respect to possible legal action against advisers.

Asked about the prospects for law suits, the company said: 'In the army, this is what is known as a target-rich environment.'

The company is believed to have consulted lawyers about litigation, and is initially focusing on those connected to the illegal decision to approve dividend payments which it did not have the profits to meet.

Much focus will be on Bird Luckin, a small accountanting firm which audited the accounts, and the former auditor from which, Mr Maurice Hart, joined the QMH board.

Prior-year adjustments in the restated accounts for 1991 reduced pre-tax profits from Pounds 90.4m to losses of Pounds 56.3m.

Weatherall Green and Smith, the chartered surveyors, was the only firm willing to comment, and yesterday vigorously defended its valuation of properties.

It placed a value on the company's assets at December 31 1991 - which was adopted in the 1991 audited accounts - of Pounds 2bn.

Its own valuation one year later was about Pounds 1.3bn, and the valuation adopted for the 1992 accounts by another surveyor, Jones Lang Wootton, was Pounds 861m.

Mr Terry Knight, senior partner of Weatherall, said: 'We stand by those figures. I can understand the layman's difficulty in understanding them but we happen to believe that our figures are right.'

Other advisers included de Zoete & Bevan and Beeson Gregory, the stockbrokers, and Charterhouse, its merchant bank.

Queens Moat Houses Bird Luckin Weatherall Green and Smith De Zoete Bevan Beeson Gregory Charterhouse Bank GB United Kingdom, EC P7011 Hotels and Motels P8721 Accounting, Auditing, and Bookkeeping Services P6211 Security Brokers and Dealers P6029 Commercial Banks, NEC P8713 Surveying Services COMP Company News P7011 P8721 P6211 P6029 P8713 The Financial Times London Page 8 363
UK Company News: Exceptionals and interest charges behind Pounds 1.04bn loss Publication 931030FT Processed by FT 931030 By MAGGIE URRY

THE DETAIL of Queens Moat Houses' 1992 results reveals a staggering list of exceptional items and prior year adjustments, headed by a property revaluation cutting assets by Pounds 803.9m.

The accounts have been prepared on a going concern basis assuming the financial restructuring now being discussed is completed and the group's banks continue to support it. Even without the property write-down, Mr Andrew Coppel, chief executive, said that a refinancing would have been necessary as the group could not service its debt.

Although the group almost broke even at the operating level, losing Pounds 700,000 compared with a restated profit of Pounds 22.4m, exceptional debits of Pounds 939m and interest charges of Pounds 112.6m gave a pre-tax loss of Pounds 1.04bn.

The 1991 pre-tax profit of Pounds 90.4m was restated as a loss of Pounds 56.3m before tax following changes in accounting policies.

The Pounds 146.7m difference included Pounds 50.9m of depreciation which the group had not previously provided and maintenance expenditure which it had formerly capitalised. Other changes related to profits on fixed asset sales which had been overstated, expenses which had been capitalised and sale and leaseback transactions which have now been treated as finance leases.

The total loss for 1992 was Pounds 1.07bn (loss of Pounds 102.5m), and losses per share were 116.4p (8.5p).

Interim results up to July 4 show an operating profit of Pounds 9.1m, but after net interest of Pounds 57.5m, the pre-tax loss was Pounds 48.4m. The group said it could not restate the 1992 interim figures as the papers from which they had originally been constructed could not be found. In August last year the group reported an interim pre-tax profit of Pounds 38.1m.

The end-1992 balance sheet showed net debt of Pounds 1.17bn and negative net worth of Pounds 388.9m. By July 4 debt had risen to Pounds 1.18bn and negative net worth fallen further to Pounds 435.5m.

Fixed assets, shown in the 1991 accounts at Pounds 2.12bn had fallen to Pounds 891.1m by the end of 1992 and Pounds 855.7m by July 4.

Queens Moat Houses GB United Kingdom, EC P7011 Hotels and Motels FIN Interim results P7011 The Financial Times London Page 8 384
Pounding sound of cash: Rave parties flourish in the UK at the expense of other leisure industries Publication 931030FT Processed by FT 931030 By RACHEL JOHNSON

Clouds of smoke from dry ice parted to reveal Lisa, aged 16, on a concrete breeze-block, clad in hot-pants and platform boots, jerking her body to the beat that pumped from the sound system. Her eyes were shut and in one hand she held a small bottle of Evian mineral water. It was 4am at the Ministry of Sound, the south London night club, and the Friday night rave had only just got going. A decade ago, Lisa might have been sipping lager at a friend's house, or more probably at that hour tucked up in bed. But increasing numbers of her generation are spending their time and money in a new wave of clubs - of which the cavernous Ministry of Sound, run by James Palumbo, son of property-developer Lord Palumbo, is a thriving example. The club has a no-alcohol, no-drugs, no-weapons policy, enforced by hulking bouncers. The attraction is the rave culture of all-night dancing in a sweaty, intimate atmosphere induced by the stimulant Ecstasy which is taken by many dancers before they arrive, or secretively when there. It is about seven years since rave - which combines hedonistic Mediterranean discos and the electronic dance music of 1970s New York and Detroit - seized the imagination of Britain's 15 to 24-year-olds. But it is only this week that its economic impact - in particular on the nation's pubs and off-licences - has been quantified.

According to estimates from the Henley Centre, the research institute, young people make 1m visits to raves each week. Each time, they spend as much as Pounds 35 and stay up to 24 hours.

The annual spending at raves is estimated at between Pounds 1.5bn and Pounds 2bn - five times more than total UK spending on cinema admissions, and equivalent to a quarter of spending on spirits. In addition, up to a third of those at a rave will have taken drugs such as Ecstasy - at about Pounds 15 a tab - speed (amphetamine) or cocaine.

The biggest losers have been pubs, where visits by young people fell by 11 per cent between 1987 and 1991. They are forecast by the Henley Centre to fall a further 20 per cent by 1997.

The trend will hardly thrill Britain's publicans. But there is reason for them, and other traditional leisure venues, to relax a little. Rave has been a fast-changing culture in its short life, and today's fads may look outdated in a year.

Among the cognoscenti, the original concept of a rave is already old-fashioned. Asif Noorani, a 21-year-old who writes about popular culture for the Modern Review magazine, says young people are rejecting the large, expensive raves that mushroomed in the late 1980s to seek a cheaper rave experience in clubs.

' 'Rave' suggests hordes of 16-year-olds with bottles of Vick's VapoRub (which is inhaled to clear the head before taking Ecstasy). The first ravers were people who lived for Ecstasy, and didn't understand music,' he says.

Until about 1989, rave centred on events in open fields in the West Midlands, for example, or on an 'orbital rave' around the M25. Organisers of such raves had no licence to sell tickets; they took advantage of a legal loophole and claimed the gatherings were parties - and passed around a bucket for contributions.

'It was all about thousands of people taking as many drugs as possible, listening to hardcore music. It was illegal and therefore a kick,' says Matthew Butcher, 16, a pupil at Pimlico comprehensive.

But under pressure from the government and residents, the police cracked down on raves organised without local council permission.

A number of entrepreneurs then tried to fill the gap in the market by organising licensed, mass-attendance raves costing up to Pounds 25 a head. These offered 'interactive' alcohol-free entertainment, combining attractions such as laser shows, funfairs and trampolines with soft drinks and powerful sound systems. A sell-out crowd could generate an income of Pounds 400,000 a rave, excluding merchandise sales.

But the scene has changed again - partly because the profitability of organised large-scale raves did not last. Fantazia, one of the few surviving promotors, is organising a 'dance party' to raise money for the Terence Higgins Aids charity in Glasgow next month. It is charging Pounds 25 a ticket but needs a 12,000 crowd just to break even. It expects to spend more than Pounds 300,000 on organising the event: security alone will cost Pounds 40,000.

Though the large-scale rave has probably peaked, experts agree with the Henley Centre that the culture is more than a passing fad. In the eyes of many young people, the new night clubs that offer a rave experience and that are replacing the large-scale events, have more of a buzz than pubs. Matt Paice, 21, a London student, enjoys a drink. But to him an average night out means 'kids sitting at home having a puff on a joint and then going to a club'.

Many young women, according to Lifeline, the Manchester drugs advisory agency, go to dance parties because it is more fun burning off calories there than at the gym. Women also find the atmosphere induced by Ecstasy - the so-called 'hug drug', because it triggers empathetic emotions - less threatening than the alcohol-induced aggression of pubs.

'Unlike punk or grunge, raves are not a cult but rather a new leisure activity enjoyed by different types of young consumers,' the Henley Centre concludes.

To combat the threat, pubs could offer themselves as rave venues. But the attraction of clubs such as the Ministry of Sound is that they do not open until midnight - and ravers want to escape the staid conventions of a night at the local. It seems decibels and mineral water will be the scene for some years to come.

GB United Kingdom, EC P5813 Drinking Places P7999 Amusement and Recreation, NEC MKTS Market shares CMMT Comment & Analysis P5813 P7999 The Financial Times London Page 7 1019
Letters to the Editor: Government must heed public in local government changes Publication 931030FT Processed by FT 931030 From Councillor JOSIE FARRINGTON

Sir, David Curry may well believe what he says about the benefits of reorganising local government (Personal View, October 28), but the public does not - as polls carried out for the Local Government Commission in the first phase of the review so graphically illustrated. He should stop to consider the democratic implications of what he advocates.

By endorsing unitary councils, he and the government are pre-judging the will of the people and the outcome of the review. Despite government's claims that the wishes of the public would be of utmost importance in finding a new council system for England, it is becoming patently obvious that so long as ministers get what they want out of restructuring, then the public can just be ignored.

What kind of democracy do we live in when a secretary of state can launch an independent commission to examine an issue, gauge public opinion on it and then just disregard what people say? And when people are to be denied the choice of whether they have Pounds 1bn spent on local government reorganisation?

The will of local people must be heard in the local government review. By effectively limiting the choices of the public to what the government thinks is right, the government is ignoring the very people it claimed it would heed. Local democracy will suffer. And the public will have to foot the bill for bringing in unitary councils without being given much freedom to choose if they actually want to change their councils, and how.

If the government - unlike the people in tranche one areas, the Confederation of British Industry and Sir John Banham, chairman of the LGC - is so sure of its proposals for changing local government, then it should let them be judged fairly in the court of public opinion. If the people demand change, then so be it. But if they decide change is unnecessary, then the government must heed their views. To do otherwise would be an assault on their democratic rights and would call into question the independence of the commission and the validity of the review.

Josie Farrington,

policy committee chair,

Association of County Councils,

66a Eaton Square, London SW1

GB United Kingdom, EC P9121 Legislative Bodies NEWS General News P9121 The Financial Times London Page 7 404
Letters to the Editor: Plucking the wrong geese Publication 931030FT Processed by FT 931030 From Mr PETER MORGAN

Sir, Your leader, 'How to pluck the geese' (October 27) does a disservice to the wealth-creating sector, which is your constituency. Government spending has risen by about 50 per cent in real terms since 1979-80. In the five years between 1992-93 and 1997-98 it is expected to rise by 32 per cent. In the five years to April 1994 government spending has been rising three times faster than taxes.

Public spending is forecast to be Pounds 314bn in 1993-96. A Pounds 20bn cut would be a reduction of less than 6.5 per cent. Few of your readers would balk at achieving such a budget reduction in their own business over a 30-month period. Most of them have already done it more than once.

You conclude: 'Whatever Mr Clarke does, the geese will hiss. But he has no prudent alternative. They will have to be plucked once again.' This is defeatist. The industrial sector went through the mill in the early 1980s recession. The service sector has gone through it in the early 1990s. Now it is the turn of the public sector. You are encouraging the chancellor to pluck the wrong geese.

Peter Morgan,

Institute of Directors,

116 Pall Mall,

London SW1Y 6ED

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy ECON National income P9311 The Financial Times London Page 7 240
Hackneyed cabbies versus rank outsiders: Fare deals in taxis around the world Publication 931030FT Processed by FT 931030 By FT writers

Love them or hate them: taxis prompt strong reactions. The taxi driver is often the first 'local' you meet in a strange city, and the treatment you receive can set the tone for the whole visit.

Travellers like to think that someone in authority will have vetted the person at the wheel. But as our international round-up shows, this is not always the case. Friction between London's highly regulated black cabs and its unregulated minicabs (outside London, minicabs do have to be licensed) has persisted for at least 30 years. Black cab defenders argue that tough regulation is essential. Minicab supporters say there are already enough rules on the statute book to ensure, for example, that unsafe cars are not allowed on the road. Deregulation would reduce prices and increase customer choice, they claim.

To get at the truth, the UK government published a consultative paper on Wednesday seeking the views of travellers, cabbies' organisations and the like. If deregulation's supporters prevail, it could mean the end of the road for that evocative symbol of London - the black cab.

NEW YORK: New York taxi drivers have a fearsome reputation for rudeness and an inability to speak English, despite the fact that to drive a Yellow Cab they must pass an English proficiency test. They must also complete taxi driver school and pass a physical exam.

There are nearly 1,800 Yellow Cabs on the city streets, and more than 3,000 livery cabs whose drivers are not required to speak English since they serve ethnic communities. Most of the Yellow Cabs are Chevrolets, but this is not a requirement.

Fares are remarkably inexpensive. The meter starts at Dollars 1.50 (Pounds 1) when you get in (Dollars 2 after 8pm), and thereafter you pay 25 cents for every half mile. New York cabbies are often compared with kamikaze pilots - weaving in and out of traffic at high speed with little apparent regard for life or limb. On Tuesday, thousands of cab drivers marched to protest their lack of safety - 35 drivers have been killed in the city this year.

PARIS: The Paris taxi is one of the unsung bargains of the City. They tend to be far cheaper than their London counterparts - fares within the centre of the city rarely run to more than FFr40-FFr50 (Pounds 4.60-Pounds 5.70) - and cabbies tend to know where they are going. It is unusual for them to refuse to take you anywhere in the city unless, of course, your destination is on the other side of the Peripherique.

A trip in a Paris taxi also tends to be safe. The cabs are generally well-kept Mercedes, with the occasional Renault Espace. The drivers are prone to saving their tempers - and their impressive array of Gallic obscenities - for anyone foolish enough to drive or, worse still, cycle into their path, rather than for their passengers.

Tipping is not essential (although the drivers do their best to imply to tourists that it is) but it is polite to add a few francs to the fare.

MOSCOW: Taxi driving in the former Soviet Union is not for the faint-hearted: nor is being a passenger. Although state-registered cab drivers are formally required to pass a test showing knowledge of their city, entry on to the market of any driver willing to pick up a fare means that taxi driving has ceased to require any kind of skill beyond the ability to drive (and sometimes does not obviously include that).

It is very rare for a driver to put on the meter, assuming he has one: inflation has made the tariff structure meaningless. In practice, all fares are negotiations. Foreigners are expected to pay a premium.

Most unreasonable are the 'mafias' outside big airports and hard-currency hotels: these enforce high prices on the mafia members (and thus on the customers) with a ruthless ferocity. One distinguished visitor told of hiring a car below the mafia price: the car was stopped as he left the airport, and his driver was led away and told to hand over his fee to the mafia leaders on pain of a beating.

Cars can be in any condition, often terminal.

LAGOS: The vital qualities for a Lagos cab driver are brinkmanship and skilled use of the horn. Although both driver and car show signs of the daily struggle, a good taxi driver will get through the traffic jams and road blocks in safety if not in comfort, and still manage a smile.

The official Lagos taxi is a bright yellow saloon, usually a Peugeot 504. The drivers must have an official certificate but are not examined on street knowledge. Taxis have fixed fares, about USDollars 3 for 3km, but you usually need to bargain.

Unlicensed operators, known as cabo-cabo, are to be avoided.

TOKYO: The average white-gloved Tokyo taxi driver is confused not by a lack of street knowledge, but by a complex address system in which houses are distinguished by a three-tier number that jumps erratically out of sequence. This encourages the driver to leave passengers in the general vicinity of their destination.

Drivers are generally courteous, though they tend to prefer listening to baseball games or agony aunt-style radio programmes rather than their customers. The fare starts at Y600 (Pounds 3.70), though the government has suggested that fares be liberalised to encourage competition.

BUENOS AIRES: One of the few bargains on offer in an otherwise expensive Buenos Aires are its taxis. A three-mile trip will set you back about Pounds 3 - the price of a (small) beer.

Drivers are occasionally drunk, but the greatest threat comes from their disdain for the speed limit. They sometimes take offence at being told which way to go and dump their passengers there and then.

The taxi driver's favourite car is the Ford Falcon, production of which ended last year. Renault 12s are taking their place.

ROME: Italian taxi drivers are tested on their local knowledge and must obtain a certificate of good behaviour from the local prefecture. Then comes the hard part: would-be drivers must get a licence to operate.

For this he or she must wait for an existing driver to retire since the number of taxis is restricted. Rome has roughly 5,500 taxis for 4m inhabitants. A driver may unofficially lease a licence to someone else.

Local authorities fix standing minimal fares - in the case of Rome the metre fare starts at L6,400 (Pounds 2.60). A 3km ride in average traffic would cost about L12,000.

FRANKFURT: On the ride from Frankfurt airport, the taxi driver will do his best to accelerate to 200kmph within as short a time as possible and will invariably try to test the brake system by driving his Mercedes to within centimetres of cars in front.

There are 1,700 taxis in Frankfurt and, while there is no rule specifying the make of the cab, 70 per cent are Mercedes. The cars must be painted light yellow. The driver must be at least 21, have had a driving licence for a minimum of two years, and have passed a test on city knowledge.

A ride costs an initial DM3.80 (Pounds 1.50) plus DM2.15 or DM2.35 per kilometre, depending on the time of day. Drivers range from the garrulous and friendly to the taciturn and downright rude.

Reporting by Charles Batchelor in London, Karen Zagor in New York, Alice Rawsthorn in Paris, John Lloyd in Moscow, Paul Adams in Lagos, Robert Thomson in Tokyo, John Barham in Buenos Aires, Robert Graham in Rome and David Waller in Frankfurt

US United States of America RU Russia, East Europe FR France, EC JP Japan, Asia AR Argentina, South America DE Germany, EC NG Nigeria, Africa P4121 Taxicabs COSTS Service costs & Service prices P4121 The Financial Times London Page 7 1322
Letters to the Editor: Rail privatisation, with BR as a bidder, is route to necessary investment Publication 931030FT Processed by FT 931030 From Lord MOUNTEVANS

Sir, Your editorial 'Right lines for rail privatisation' (October 21) unintentionally highlights the huge pitfalls that surround railway privatisation.

One of the benefits of the proposals (and the reason I have supported them in the House of Lords) is that they should open access to private capital for the expansion of railway investment which is needed now.

You point out that Sir Bob Horton, chairman of Railtrack, wants to involve private finance for infrastructure investment, yet while Railtrack remains in the public sector he will presumably be subject to the same constraints as is BR currently.

You acknowledge that short franchises are unlikely to attract the investment needed in new rolling stock, so where will the investment come from?

I would also challenge your view on Lord Peyton's amendment (which I supported), allowing BR to bid. The experience in Sweden, where this has been tried, is that the state railway, SJ, did indeed secure the majority of franchises, but that the stimulus of competition both improved services and helped to reduce costs by some 30 per cent.

It must be in the interests of the taxpayer for private bids to be tested against those of BR. It is certainly important in terms of the motivation and morale of the many railway staff that will remain with BR that it should not be seen as a 'rump' operator, managing those parts of the network that are scorned by the private sector.

While those of us in parliament can legislate for privatisation, its successful implementation depends on the enthusiastic co-operation and participation of those who work for British Rail.

Mountevans,

House of Lords,

London SW1A 0PW

British Rail GB United Kingdom, EC P9611 Administration of General Economic Programs P4011 Railroads, Line-Haul Operating COMP Company News P9611 P4011 The Financial Times London Page 7 326
Letters to the Editor: No sane way to generate jobs Publication 931030FT Processed by FT 931030 From Mr CLAUDE ROESSIGER

Sir, It is impossible not to comment on EC social affairs commissioner Padraig Flynn's prescription that hours of work be reduced to generate employment ('EC plans 5 per cent jobless target', October 20). This is new Euro-madness - that the pie can be divided into smaller pieces leaving each with as much to eat.

The only way to increase employment is to increase productivity, thereby increasing wealth. It is either that or Pharaoh building pyramids (that is, the insanely ponderous governments of developed nations today). But that is slave labour in a managed economy - which generates neither wealth nor happiness.

Claude Roessiger,

vice chairman,

PAK 2000,

Mirror Lake,

NH 02583 US

US United States of America P9311 Finance, Taxation, and Monetary Policy NEWS General News P9311 The Financial Times London Page 7 152
Letters to the Editor: Blow a multimedia raspberry Publication 931030FT Processed by FT 931030 From Mr DAVID JEWSBURY

Sir, The convergence between telecommunications and cable television ('Multimedia superhighways', October 15) is truly remarkable and seems to promise us untold benefits. In the midst of all this high technology, can no one invent a gadget that will identify and disconnect (preferably with a loud raspberry) Tania and Jacqui, the ubiquitous telesales persons who constantly try to sell me something I neither want nor need, usually at a time of greatest inconvenience.

David Jewsbury,

19 The Beeches,

Shaw Hill, Melksham,

Wiltshire SN12 8EP

GB United Kingdom, EC P4841 Cable and Other Pay Television Services P4813 Telephone Communications, Ex Radio NEWS General News P4841 P4813 The Financial Times London Page 7 127
Sense and sensitivities: UK building societies' resistance to mergers Publication 931030FT Processed by FT 931030 By JOHN GAPPER and ALISON SMITH

This has not been a happy week for Mr Michael Varney, general manager of the tiny Bexhill-on-Sea Building Society. After 80 years gathering deposits and lending mortgages from its single branch, his society is to disappear. Its 3,000 savers and 600 borrowers are throwing in their lot with the Bradford & Bingley Building Society, which is 750 times larger in terms of assets.

Bexhill-on-Sea could hardly resist the might of Bradford & Bingley. But it was a different matter for the two societies which this week disclosed the failure of their attempt at merger. Leeds Permanent and National & Provincial abandoned plans to create the third-largest UK society, having found too wide a gulf in their management cultures.

The societies had settled contentious issues such as their future name and chief executive - the society would have been called Leeds Permanent and been headed by Mr David O'Brien, N&P's chief executive. But the senior managers seem to have decided that it would be hard to combine Leeds's traditional management hierarchy with N&P's emphasis on teamwork.

The failure saves the 1,600 staff who would have lost their jobs as overlapping branches closed. But it raises questions over the apparently inevitable process of consolidation among the 88 remaining societies, and throws into further doubt the outcome of the struggle between banks, societies and life insurers to sell financial products.

Mr Varney says the Bexhill-on-Sea gave up the ghost because of the growing weight of regulation. He will now take early retirement after 40 years in the industry. 'You reach the point where it is a crushing and expensive burden for a small society, and you cannot go on any more,' he says.

Many of the tiny societies formed in the 18th and 19th centuries as mutually owned savings clubs appear to have only a limited life. They are being forced into mergers either because they have run into trouble through ill-advised lending, or because they cannot compete with the marketing and branch networks of the largest societies.

Until this week, the over-capacity in the retail financial services industry which has led to big cuts in banks' branch networks also seemed to be bearing down hard on medium-sized societies such as National & Provincial. Fierce competition seemed to be forcing them to grow through merger, or risk becoming also-rans to Halifax or Abbey National.

Many societies think that, in order to compete with banks, they will have to offer a range of products including credit cards, insurance and cheque books. An amalgamation between two societies that complement each other's branches and products offers each a way of developing a full service at a lower cost than doing so alone.

But the Leeds/N&P failure highlights a crucial weakness in this argument. Because societies are mutually owned by their borrowers and savers, there is little short-term pressure on them to merge. Indeed, the cost-cutting and rationalisation which might attract shareholders of public companies can put off savers who feel sympathetic to local branch staff.

The lack of external pressures on societies was one reason why the last big amalgamation - between the Nationwide and Anglia societies in 1987 - took several years to be a merger in anything but name. The societies preserved their separate identities under the same banner, pushing up the Nationwide's costs and producing limited benefits.

A study by Touche Ross management consultants last year concluded that mergers between equal-sized societies causes more difficulty than 'takeovers' of small ones. 'You have got to have a senior partner, otherwise there are three years of struggle to find compromises,' says Mr Donald Kirkham, chief executive of Woolwich, the third-largest society.

This lesson has been reinforced just as several top 10 societies appear to be struggling to find a direction. Bristol & West, the 10th-largest society, which has suffered from poor lending in the south during 1989 and 1990, has said that it is looking for a merger after the departure last month of chief executive Mr Tony FitzSimons.

Mr Mike Blackburn, chief executive of Halifax, argues that there is 'clear over-capacity' in retail financial services. 'How many personal financial services providers of national stature is there room for?' he asks. Mr Peter White, chief executive of Alliance & Leicester, says that large mergers remain inevit-able for this reason.

But the internal obstacles to society mergers - in spite of the general pressure to consolidate - have prompted questions over whether there is an alternative. The most obvious would be the takeover of a medium-sized society by a bank. Most speculation has focused on Lloyds, which tried to take over Midland last year to reduce industry over-capacity.

Other clearing banks have also cast covetous eyes on some societies. The chief executive of one high-street bank says that he has examined at least three societies. He says that the advantages would be access to cheap retail deposits, and an immediate share of mortgage lending.

Yet banks cannot simply launch hostile bids for societies. There are two obstacles. One is that societies can only merge if their members - consisting of their savers and borrowers - vote for it. The second is that the industry is regulated by the Building Societies Commission, which is widely seen as hostile to the notion of banks acquiring societies because of the complications it would create for supervision.

All this raises the prospect of a stalemate among banks and societies. Nearly all agree that there are too many suppliers of retail financial services, but the short-term pressures on societies may not be strong enough to force them to overcome the obstacles to big mergers. The issue will only come to a head when over-capacity has cut profits substantially.

For societies such as Bristol & West, it is not a happy prospect. They face struggling on in a difficult market, with no prospect of escape through a large merger. The Leeds/N&P failure has not put off forever the consolidation of societies, but it has shown there could be a painful wait for it to happen.

------------------------------------------------- TOP 10 UK BUIDING SOCIETIES by total assets in 1992 (bn) ------------------------------------------------- Halifax 62.76 Nationwide 34.97 Woolwich 23.26 Alliance & Leicester 20.53 Leeds Permanent 18.32 Cheltenham & Gloucester 16.07 Bradford & Bingley 13.05 National & Provincial 12.04 Britannia 10.52 Bristol & West 7.73 ------------------------------------------------- Source: UBS -------------------------------------------------

GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents COMP Mergers & acquisitions CMMT Comment & Analysis P6162 The Financial Times London Page 6
A very British clash: Two society cultures that refused to gel Publication 931030FT Processed by FT 931030 By CHRIS TIGHE

However sudden the abandonment of the Leeds Permanent - N&P merger may have seemed, it came as no surprise to many employees in Yorkshire's close-knit building societies.

From the outset the proposed deal was viewed with scepticism locally. How, one employee of a rival society asked this week, could the conventional Leeds ever have merged with a society which allowed a middle-ranking employee to buy a four-year-old Porsche, using a company scheme?

'Most Yorkshire societies,' he said, 'would very strongly dissuade the employee from it.'

Some of the financial gossip in Yorkshire may be a little extravagant in describing the yawning gap between the two societies' management styles - 'feudal' and 'off the wall' were among the epithets used to characterise, respectively, the Leeds and the N&P.

But there is no disguising the glaring difference between the sober culture of the Leeds, said to be 'hierarchical', by one employee, and the more innovative approach of N&P, where staff are 'players', the executives are the 'direction management team', the marketing department is called the 'customer requirements process' and meetings are styled 'events'. N&P has three 'role levels' of staff; Leeds has 15 grades.

N&P's unorthodox management style has even fostered a witticism. 'At these events, they go on talking until there are no more challenges to proposed changes,' says one insider. 'It gives a new meaning to 'three-day eventing'.'

'It's just not British. It's an American-based system of equality,' says Mr David Holmes, Yorkshire Building Society's communications director. 'A lot of the stuff seems like gobbledegook science fiction. We all know the realities of working for large organisations.'

He adds, however, that Mr David O'Brien, N&P chief executive, termed 'messianic' by some rivals has created a strong body of disciples among his staff, committed to his approach. 'The people who work there find it invigorating,' says Mr Holmes.

At the Leeds' imposing new headquarters many employees including middle management - a level the N&P calls 'managers of implementation' - were evidently not ready to follow a new messiah. 'There were a lot of people celebrating in the pub on Tuesday night,' says a Leeds middle manager.

After the announcement, staff at both organisations were instructed not to talk to the media. But a few, anonymously, were willing.

'When I heard the merger had been called off, I had mixed feelings,' says one Leeds HQ employee. 'It was good news because it was 1,600 jobs saved, and that's 1,600 families. But on the other hand the merger would have made us stronger and better able to compete against the Halifax.'

At N&P, the staff association chairman, Ms Janet Wojtkow, says 'players' were relieved, although some were disappointed too, having seen in the merger the opportunity for career progression.

'We remained to be convinced the merger was in the interest of the staff,' she adds. 'Our feelings have been proved right.'

For the N&P, the merger debacle has produced some unflattering comment on its management style. 'Our customers don't see us as some kind of wacky organisation,' said the company's spokesman.

The feeling that N&P was not 'British' reflected, he suggested, the British wariness of change. 'While the rest of the world is looking at new ways of working, we don't adopt them. N&P has implemented them successfully.'

Leeds Permanent Building Society National and Provincial Building Society GB United Kingdom, EC P6162 Mortgage Bankers and Correspondents COMP Mergers & acquisitions P6162 The Financial Times London Page 6 594
Leading Article: Monetarism in retreat Publication 931030FT Processed by FT 931030

REMEMBER the days, not so very long ago, when fighting inflation was the sole aim of monetary policy, when fixed rules were thought the best guide to monetary policy and when fine-tuning demand by using fiscal policy was a cardinal sin? Times have changed. Slow growth is now the number one enemy for most policymakers, discretionary monetary policy has replaced fixed rules, and fiscal-activism, where possible, is positively encouraged. Monetarism is out of fashion - Keynesianism is back. US officials, in both the Bush and Clinton administrations, have led the new rhetoric, repeatedly calling for lower interest rates in Europe and tax cuts in Japan. And Federal Reserve chairman Alan Greenspan was one of the first to spot that slow growth and indebted banks, rather than inflationary pressure, were the main threats to economic stability. The Fed cut short-term interest rates early and sharply before the US recession began, dragging long-bond yields down to record lows. Mr Greenspan has also ignored the siren monetarist voices who have argue that double-digit narrow money growth spelt inflationary dangers ahead. But, for all its lecturing, the US has not been able to use fiscal policy to stimulate its sluggish recovery. With the US budget deficit expected to be nearly 4 per cent of gross domestic product this year, a further fiscal stimulus might well have provoked a rise in long-term bond yields and choked off America's still sluggish recovery. Instead, reversing the Keynesian logic, the promise of future fiscal tightening has been used to keep bond rates down.

Japan, not the US, has been most effective at translating the Keynesian rhetoric into reality. Blessed after years of restraint with a large structural budget surplus, the Ministry of Finance has sanctioned three successive fiscal packages to revive growth, switching a general government budget surplus of 1.8 per cent of gross domestic product last year to a deficit of 0.1 per cent next year.

Risky strategy

Yet, so far at least, Japan has little to show for its efforts. Output and retail sales are still falling, the volume of bank lending continues to contract and the OECD has already downgraded its forecast for Japanese growth this year to zero. Not surprisingly, another fiscal package is rumoured to be in the pipeline: a Y5,000bn (Pounds 31bn) tax cut, to take effect next April, followed by a consumption tax rise in 1995.

This is a risky strategy: the negative effects of a prospective consumption tax increase could blunt the stimulative effect of the income tax cut. In any case, it is doubtful whether fiscal policy alone can revive Japanese growth. No one can be sure whether Japan's sluggish credit growth is caused by low demand from its bloated, job-shedding companies, or by restricted supply of credit resulting from the parlous state of bank balance sheets. But so long as monetary growth remains sluggish, the outlook for economic recovery looks poor.

Germany, meanwhile, has experienced a huge and unexpected Keynesian boost, followed by high interest rates imposed by an unflinchingly monetarist central bank. As the growth effects of the fiscal boost have dwindled, so this tight monetary policy has bequeathed a recession which may yet deepen. Only five of German's six economic research institutes were able this week to predict a modest economic recovery next year. The Berlin-based, and Keynesian-leaning, Deutsches Institut fur Wirtschaftsforschung (DIW) produced its own minority report predicting a further fall of 0.5 per cent in output in the western Lande, after a 2 per cent fall this year.

Inflation-fighting

The DIW report called for lower interest rates and public investment to revive the economy. But, like the US, Germany does not seem to have room for a further Keynesian stimulus. This year's public sector borrowing requirement is already expected to reach 7.5 per cent of GDP, a third higher than the largest US deficit in the 1980s. More encouragingly for growth in Germany and Europe, the Bundesbank appears to be edging away from its earlier monetarist rhetoric. Bundesbank President Hans Tietmeyer used a speech this week to reaffirm his inflation-fighting credentials. But less than a week earlier, he justified a surprise half-point cut in German interest rates by emphasising the need to stimulate the German economy, while downplaying the fact that broad money growth is still running outside its target range.

There is one European capital which is defiantly refusing to enter the pro-growth era. Since the collapse of the exchange rate mechanism this summer, the French government has continued to link its monetary policy to that of Germany by trying to maintain a stable D-Mark-franc exchange rate. In so doing, it has refused the significant cut in interest rates that France's low inflation rate justifies. As a result it continues to pay a heavy price in terms of depressed growth and high and rising unemployment. In Paris, at least, monetarism lives on.

US United States of America JP Japan, Asia DE Germany, EC P9311 Finance, Taxation, and Monetary Policy CMMT Comment & Analysis ECON Gross domestic product ECON Industrial production ECON Inflation P9311 The Financial Times London Page 6 856
Warehouses disturb the retail club: The effect of US-style shopping on supermarkets Publication 931030FT Processed by FT 931030 By NEIL BUCKLEY

BRITAIN'S retailers are bracing themselves for the arrival of warehouse clubs after a High Court ruling on Wednesday gave the go-ahead to the UK's first such development in Thurrock, Essex.

The UK's three biggest supermarket chains, J Sainsbury, Safeway and Tesco, asked the court to quash planning permission granted to Costco, the US warehouse club operator. They argued that the project should have been assessed as a retail rather than a wholesale operation, and so have been subjected to tougher planning controls.

Mr Justice Schiemann rejected the supermarkets' application, clearing the way for Costco to open the club on November 30. Costco has two other projects under way, while Nurdin & Peacock, the UK cash-and-carry operator, is building two warehouse outlets and Littlewoods, the department store chain, has a joint venture with Price Club of Canada to open a warehouse club in Liverpool.

But while warehouse clubs are expected to expand quickly in the UK they seem unlikely to 'revolutionise' UK retailing. It has also become apparent that Wednesday's ruling has not ended the debate about whether warehouse clubs should be treated as retailers or wholesalers. The supermarket chains are still considering further legal action.

Warehouse clubs have been the fastest-growing form of selling in the US for the past 10 years, achieving sales of Dollars 34bn (Pounds 22.5bn) last year.

The clubs are huge out-of-town warehouses selling a selection of goods at prices 25 per cent or more below the high street. But they sell in bulk, only to fee-paying members.

Warehouse clubs undoubtedly offer big savings, but there are several factors which suggest their impact in the UK may be limited. One is that there is no evidence that UK shoppers will be as willing as US counterparts to drive long distances to shop, or buy in bulk, even though it has become commonplace for retailers to talk of a growing price-sensitivity among British consumers.

Many bargain-hunters may find their desire for lower prices satisfied by fast-expanding high-street discounters such as Kwik Save and Shoprite, without the need to travel to warehouse clubs.

While clubs' ranges stretch from mincemeat to motor lawnmowers they offer only 3,500 product lines, compared with about 16,000 in a typical grocery-only superstore.

The clubs are not open to everyone - and that was the basis for the court ruling. Mr Justice Schiemann said that if there was a restriction on who could shop at a warehouse club it was not open to 'visiting members of the public' and so was not a retailer.

Members will have to be businesses, or belong to groups such as charities or churches.

Finally, analysts' estimates of the potential size of the market for warehouse clubs range from about Pounds 1bn sales a year to Pounds 3.25bn a year, from between 30 and 50 outlets.

But even Pounds 3.25bn would represent only 2 per cent of UK retail sales, and compares with the more than Pounds 10bn turnover achieved by Sainsbury alone last year. As only about half of the clubs' turnover is expected to be accounted for by food, they are unlikely to take large sales from supermarkets.

Mr Paul Morris, analyst at Goldman Sachs, the investment bank, said: 'Evidence in the US is that the clubs cream off a little bit of business across a range of sectors.'

But their most important effect may be to set a new low price 'floor', leading to increased competition on price among retailers accustomed to large profit margins.

J Sainsbury Safeway Tesco Costco Europe (UK) GB United Kingdom, EC P5099 Durable Goods, NEC P5199 Nondurable Goods, NEC P5411 Grocery Stores MKTS Market shares COSTS Product costs & Product prices CMMT Comment & Analysis P5099 P5199 P5411 The Financial Times London Page 5 644
Asda freezes grocery prices Publication 931030FT Processed by FT 931030 By PHILIP RAWSTORNE

ASDA, THE food retailer, yesterday fuelled speculation about a new round of supermarket price wars by freezing more than 5,000 grocery prices until next January.

Retail food stocks came under pressure in a second successive day of heavy trading. Kwik Save fell 9p to 642p, Sainsbury closed 6 1/2 p off at 395 1/2 p, Tesco slipped 3 1/2 p to 203p and Asda was 1 1/2 p lower at 54p.

Mr Allan Leighton, Asda's marketing director, said the move was to mark the anni-versary of the relaunch of the 'Asda price' advertising slogan.

City analysts said Asda's move was less a response to any threat from the Costco warehouse club project than an attempt to regain market share from existing rivals. It was likely to put pressure on other supermarkets to hold prices down, however.

One analyst said: 'We are not going to see many price rises in the supermarkets.'

Asda Group GB United Kingdom, EC P5411 Grocery Stores COSTS Product costs & Product prices CMMT Comment & Analysis P5411 The Financial Times London Page 5 190
Plugs plan prompts cost fears Publication 931030FT Processed by FT 931030 By ANDREW BAXTER

UK MANUFACTURERS of plugs and sockets are trying to kill a proposal for a common European system, which they say could cost as much as Pounds 20bn to introduce - about Pounds 1,000 for each UK household.

The proposed round-pin plugs would be unsafe if used in existing square-pin sockets and could seriously damage the British manufacturing base, threatening jobs and trade, they warn.

Mr David Dossett, director of the Electrical Installation Equipment Manufacturers Association, said about half the Pounds 1.3bn of capital employed by UK plug and socket manufacturers and subcontractors could be made redundant if the system were introduced.

Smaller plug and socket manufacturers could be forced to cease trading, with their place in the market taken by importers.

At issue is the future of both the British plug, with its three rectangular pins, introduced in 1947, and the latest in a number of attempts over the past 20 years to introduce a European-wide standard.

Supporters of standardisation say it would benefit travellers and create economies of scale for plug and socket manufacturers, and for producers of household appliances.

But the UK plug and socket industry - 20 companies employing 10,000 people directly and a further 10,000 in support jobs - says the proposal does not achieve genuine harmonisation, which it supports, and is unfair to the UK.

Under pressure from the European Commission, Cenelec, the European electrical standards setting body, has produced unpublished proposals for a system based on three types of round-pinned plug.

Mr Dossett said one of these - the existing 2.5 amp two-pin 'Europlug' - fits many UK three-pin sockets. This is potentially lethal, he warned, because it is possible to touch the live pins when inserting or removing it, and because the plug is unfused. The UK ring-main system depends on fused plugs.

The UK system would therefore have to be replaced, causing 'massive expense with no obvious payback', according to the association. Mr Dossett said that using adaptors for the 800m sockets in the UK would have aesthetic drawbacks and possible safety implications because the number of electrical contacts would be doubled.

Plug manufacturers, meanwhile, would have to invest heavily in lathes to produce round pins, while European manufacturers would need to make only modest changes.

One other option is for the UK to be granted a 'derogation', meaning that it would not have to abide by the proposals. The Commons trade and industry committee is due to consider the issue next month.

GB United Kingdom, EC P3643 Current-Carry Wiring Devices NEWS General News TECH Safety & Standards P3643 The Financial Times London Page 5 446
Individuals increase company holdings Publication 931030FT Processed by FT 931030 By PETER MARSH, Economics Correspondent

THE PROPORTION of the total shareholding in UK companies owned by individuals has increased since the late 1980s, partly due to a rash of privatisation issues which have been aimed at members of the public.

At the end of last year individuals owned 21.3 per cent of the share capital in UK companies, up from 20.6 per cent in 1989.

Pension funds held the biggest stake in public companies registered on the London Stock Exchange, accounting for 34.7 per cent of total share capital valued at Pounds 620.6bn. In 1989 the stake held by pension funds was slightly lower at 30.5 per cent.

According to an article in the latest edition of Economic Trends, published by the Central Statistical Office, the shareholding owned by insurance companies has decreased over the same period to 16.5 per cent from 18.5 per cent.

Almost two thirds of the value of shares held by individuals at the end of December were in blocks of less than Pounds 100,000, and more than one quarter in holdings of less than Pounds 5,000.

Individuals owned 24.5 per cent of shares in privatised companies, a higher figure than the proportion for the market as a whole.

Overseas residents owned 12.1 per cent of total shares, worth about Pounds 75bn at the end of last year.

People and organisations in the United States accounted for just under 50 per cent of overseas investment, while other European Community nations accounted for 17.5 per cent.

GB United Kingdom, EC P6311 Life Insurance P6331 Fire, Marine, and Casualty Insurance P6371 Pension, Health, and Welfare Funds COMP Shareholding STATS Statistics P6311 P6331 P6371 The Financial Times London Page 5 290
Customs traces Pounds 1.96bn of VAT Publication 931030FT Processed by FT 931030 By ANDREW JACK

CUSTOMS and Excise narrowly failed to meet its target of tracing Pounds 2bn in underpayments of value added tax, its 1992-93 annual report says.

It traced Pounds 1.96bn, out of a total of Pounds 63.5bn in VAT and duties raised during the year, up from Pounds 62.2bn in the previous 12 months. Costs rose to Pounds 879m from Pounds 797m.

There were 1.63m traders registered for VAT during the year, down from 1.68m, with new registrations totalling 187,000. Total tax written off or not pursued rose to Pounds 825m from Pounds 553m. Customs said the increase reflected the effects of the recession and also cases being processed more quickly.

The running costs of gathering trade statistics under the new European Community single market were Pounds 14.7m, against a planned Pounds 15.9m.

During the year Customs seized consignments to Iraq in contravention of United Nations sanctions valued at Pounds 181,606. It also brought prosecutions against a company and its owner for the export of riot gear to Angola without export licences.

Customs & Excise Report, 1992-93. Cmd 2353. HMSO. Pounds 11.50.

GB United Kingdom, EC P9311 Finance, Taxation, and Monetary Policy FIN Annual report P9311 The Financial Times London Page 5 214
Canary discharged with seven short words Publication 931030FT Processed by FT 931030 By ANDREW JACK

ONE OF THE most complex administrations under UK insolvency law ended successfully yesterday in the High Court in London with just seven words from the Chancery vice-chancellor, Sir Donald Nicholls.

'I approve the discharge with immediate effect,' he said after a 35-minute presentation on behalf of the administrators by Mr Jonathan Mance, QC.

Court approval was the final step required 28 days after creditors voted for a voluntary arrangement after Canary Wharf first entered administration in May last year.

It followed provisional approval on October 19 subject to there being no objections or challenges to the plan.

It clears the way for payment of a first dividend to creditors by the end of January next year. The administrators ultimately forecast total dividends of 15p.

This payment will go to an estimated 1,400 unsecured creditors who voted in favour of the exit strategy from administration.

A further 25p in the pound will be paid as dividends to the 130 construction trade creditors to provide warranties to them on work already done.

Yesterday's approval means that Sylvester Investments - named after the cartoon cat that pursued Tweety Pie, the canary - will become the holding company, with shares held by the 11 creditor banks.

Sylvester will control a separate vehicle called Canary Wharf Holdings, which will in turn own Canary Wharf Limited, the operating company for the Docklands development.

Sylvester Investments Canary Wharf Holdings GB United Kingdom, EC P9211 Courts COMP Company News P9211 The Financial Times London Page 5 263
Midland aims at small businesses Publication 931030FT Processed by FT 931030 By ALISON SMITH

MIDLAND BANK yesterday confirmed its intensified competition for small business clients by announcing the freezing of its small-business tariff for the coming year.

About 100,000 small businesses will continue to pay 60p for each credit and debit item and a monthly maintenance charge of Pounds 2.50, the level they have been since December 1990.

Charges have also been frozen for a further 200,000 on the standard business tariff, which is no longer available to new customers.

The move reinforces the bank's high-profile advertising campaign which emphasises that it has Pounds 1bn to invest in viable small businesses.

It comes at the end of a week in which Lloyds said it was cutting transaction charges to small businesses and National Westminster announced a slight increase in its tariff.

Banks should recognise their social obligations by not misusing their economic power, by providing banking services to the entire community and by acting to prevent unsustainable environmental practice, Bankwatch UK, the research group, says.

Its report, published by the 'green' pressure group New Economics Foundation, highlights the withdrawal of banks and building societies from parts of Birmingham as an example of how banks have the power to 'pull the plug' on a community.

Bankwatch UK National Report. NEF, 88-94 Wentworth Street, London, E1 7SE. Pounds 7.

Midland Bank GB United Kingdom, EC P6021 National Commercial Banks COSTS Service costs & Service prices TECH Services & Services use P6021 The Financial Times London Page 4 255