A resolution was passed at the August 30, 2002 board of directors meeting of OJSC North Western Telecom to estaboish a bad debt provision amounting to Rub 250 mn.   

A bad debt is defined as any payable owed to the organization which is not repaid within the deadline provided for in the specific credit and loan agreement, and which is not secured by the appropriate financial guarantees.  The creation of such a reserve does not, however, mean that such debt payables are written off, but is rather designed to enhance the reliability of the company's financial statements and provide a more objective evaluation of OJSC North Western Telecom's true financial standing, as well as the results of its business activity.  

– "The debts in question are mainly those which have accumulated over the years as a result of failure by the budget to adequately reimburse the company for all the special tariff discounts applicable to various categories of telecom consumers, such as veterans, etc.  In view of this situation, the Board of Directors has adopted a decision factoring in dividends payable for 2002 in line with the company's dividend  policy, which was approved at the same meeting, and instructed the Board to intensify legal measures aimed at recovering overdue payables" - said Ivan Rodionov, head of the committee for financial statements, audit and executive remuneration of the board of directors of OJSC North Western Telecom, commenting on the board of director's recent decision.  

The formation of bad debt provisions is consistent with the Company's interests, as well as its aspiration to deliver greater transparency and bring in a greater number of investors. Effective 2002 OJSC North Western Telecom will be drawing up its financial statements, both RAS and IAS, with the incorporation of the above-described bad debts, on a mandatory basis. In line with this policy, 2002 OJSC North Western Telecom plans to have its books audited in 2002 by Ernst & Young in full compliance with international accounting standards. 

- "This decision by the Board of Directors of OJSC North Western Telecom is one of strategic importance, as it reflects the determination of the company to provide its shareholders with a true and accurate picture of its financial condition.  Merged entities, for the most part, have already adopted this measure across the board. Considering the importance of this issue for shareholders, both current and future, we felt it was high time to submit it for review by the board of directors" - said Alexander Sysoyev, director general of OJSC North Western Telecom.  

In accordance with the current legislation (federal laws "On disabled persons", "On war veterans", etc.) special discount subscribers are entitled to a 50 percent rebate on telecom services provided by OJSC North Western Telecom.  Beginning in 1998 local and federal budgets discontinued the practise of the 50 percent reimbursement, which resulted in a snowballing of debts payable, estimated at Rub 453 bn as of December 31, 2001. In addition to these special discount customers, there are payables for other categories of subscribers somewhere in the neighborhood of Rub 40 mn.  

 For the record

OJSC North Western Telecom is a is a mega-regional telecom based on the former Petersburg Telephone Network, which provides telecommunication services throughout Saint Petersburg and in some areas of the Leningrad region.  In the course of 2002 eight regional telecom operators from the North Western region were merged to the company, including: Artelecom Arkhangelsk region, Murmansktelecomsvyaz, Novgorodtelecom, Cherepovetselektrosvyaz, Elektrosvyaz Vologda region, Elektrosvyaz Kaliningrad region, Elektrsovyaz Republic of Karelia and Elektrosvyaz Pskov region.  The total number of lines operated by the mega-merger stands at over 3.6 mn.  The major shareholders (as of August 15, 2002) include: OJSC Investment Telecom Company (41 percent), ZAO Brunswick UBS Warburg Nominees (19.5 percent), ZAO ING Bank (Eurasia) (9.1 percent), ZAO DKK (7.2 percent), Lindsell Enterprises Limited (4.5 percent), CB J. P. Morgan Bank International (1.9 percent).