Away from the main themes of the festival there has been a delightful pair of concerts from Spain. The Orquestra de cambra Teatre Lliure arrived in Edinburgh without much of a fanfare and offered little biographical information about itself except that it was founded in 1985 by the conductor Josep Pons and performs 20th-century repertoire.

Its calling-card comprised two imaginative concerts: a pair of Spanish programmes, one of music by Manuel de Falla, the other of Roberto Gerhard, composers from very different artistic backgrounds. If they have one trait in common, it is a liking for strongly-contrasted colours, as we heard quite vividly. The Edinburgh prospectus had advertised the orchestra as 'brilliant', an epithet which did not seem excessive after the event.

The Falla concert was held in the Usher Hall, but probably should not have been. Despite an audience turnout which justified the use of a large hall, the chamber versions of the scores that were being played could hardly make the impact they deserved. For one work - Falla's pithy Harpsichord Concerto (wisely performed here in an alternative version for piano) - there were only six players on the platform.

Given the novelty of the pieces the orchestra had brought, one really wanted as immediate a contact with the players as possible. Two of Falla's most popular works were on the programme, but each in a rarely-heard original form: El corregidor y la molinera (later to spawn The Three-cornered Hat) and the first version of El amor brujo.

The second was the eye-opener, both because it is longer than the usual version and because its nature is so different. Originally the music developed out of a chain of recitation, songs and dances. It was described as a 'gitaneria', or gypsy-piece, folk music at heart in a way that one could hardly guess at from the orchestral showpiece we usually hear. The singer, Ginesa Ortega, gave us real Flamenco in the songs, guttural, raw, full of passion - no concert-hall sophistication there.

For the Gerhard programme the orchestra moved to the small Queen's Hall. An irony this, as there were now more musicians on stage than for the largest of the Falla scores. But this was to Gerhard's advantage and even the two very derivative Spanish works that had been included - the Flamenco divertissement Alegrias and the song-cycle Cancionero de Pedrell based on Spanish folksongs - came across with some bite and flair.

I suspect there is not much of the true Gerhard in either of those. A short cycle of songs to surreal poems written in French by a Catalan poet in the Japanese style proved to be attractive, precious, not particularly distinctive. It was the ballet score Pandora, composed in Cambridge in 1942-3, that best showed how dramatic and evocative this composer can be, its sense of enveloping doom typical of the war years.

Ever since it moved (less than two years ago) to its new premises the Traverse has become a hub of Edinburgh life. Especially in Festival time. Even if you are not going there for shows, you use its cafe (from 10 am till midnight), you use its bar (open till early hours), you bump into old chums there. And this year, there is also the new Atrium restaurant. The old Traverse crowded you; this one has space.

If you go to Fringe theatre, the Traverse is on your map anyway. This year, even the official Festival has used Traverse terrain, to present the opera double bill Anna and Tourist Variations. But, for most of the the Festival the Traverse is a core venue for Fringe plays. Either of its two auditoria is currently showing four different shows per day (except on Mondays), from 12 noon until 12.30 am: plays and actors from Scotland, England, Spain, Belgium, Canada, the States, South Africa. I report here on five Traverse plays from the start of the Festival.

Penetrator (Traverse 2, world premiere), written and directed by Anthony Neilson, is the best Fringe play I have seen so far in '93 (I write this on Day 8). The worst thing I can tell you of it is that the advance blurb describes it as 'a taut and harrowing journey into the ferocious heart of masculinity' - though it is taut and harrowing, it is a journey into masculinity, and it sure gets ferocious. It is also a thriller about three young Scotsmen, two of whom are ostentatiously heterosexual and occasionally tease the third one that he's a poof; but all is not as it seems. The title warns you. Penetrator is about sex and threatened death. The real 'thriller' aspect of it, during the long and terrifying knifepoint climax, is its series of psychological revelations. Neilson is at his least canny in pacing the final ten minutes, which seem more neat and contrived - though still psychologically riveting. More than that I will not say, except to warn off those who are alarmed by ten-inch knives and four-letter words; and to praise BJ McMurphy, Alan Francis and James Cunningham for the exceptional conviction and fluency of their playing.

The Edinburgh Festival often gives Londoners a chance to catch up with what we missed back home; and I am grateful for the chance to catch up with the Ridiculous Theatrical Company (Traverse 2), the New York troupe which recently played at the Drill Hall. Brother Truckers, by Georg Osterman, is described as 'a Comedy Noir' and 'the B-movie story of the men who haul trash and the women who love them': which is fair enough. It too is about sex and death - but is a hilarious exercise in intense camp.

The heroine, Lyla Balskin (Everett Quinskin), is a brilliant Barbara Stanwyck type (with dashes of Bette Davis, Mae West, Joan Crawford and Joan Blondell). The snake-like way she darts her tongue as she names her lover ('Lech', as in Walesa), the smouldering way she hisses out lines like 'If you were as bright as your Clairol treatment, you'd know', and her final mad scene are highpoints amid wonderful ensemble playing. I'm not sure, but I think my favourite lines was 'I'm having difficulty breathing, and, with all due respect to the House of Chanel, this dress isn't making it any easier.'

Speaking of camp, Neil Bartlett's Night after Night is playing in Traverse 1; but enough already - I covered that Upstairs at the Royal Court some months ago. Speaking of men, the Spanish show Muu] (Traverse 1) is a largely mime cartoon about four matadors. I laughed about six times (it is a 70-minute piece), and I object to the performers' mugging and milking each joke dry. True, it is good to know that Spaniards are laughing about both bullfighting and the cult of machismo. But, these days, who isn't?

Comunicado, the Scottish theatre company, is presenting its largely non-speaking version of Flaubert's The Legend of St Julian (Traverse 1) with just seven performers. You can tell in the first five minutes that the director Gerry Mulgrew has a flair for poetic stage pictures, for pithy atmospheric evocation, for real theatre magic; and, also in the first five minutes, that he hasn't the rhythm to keep his storytelling taut - and the show lasts 135 minutes. Flaubert's medieval tale is laconic. Mulgrew catches some of its events with striking economy; but he draws out others, and allows composer Jim Sutherland to overdo the misterioso sound effects.

Sleeping With You (Traverse 2) is the only one-man play the Traverse is presenting this year. Written by Godfrey Hamilton and played by his lover Mark Pintosh, this piece comes from Hawaii's Starving Artists Theatre Company. Despite the fact that it is a deliberate vehicle for one person's actorly virtuosity and a piece of socio-political agitprop (two big minuses in my book), it is arresting, varied, intelligent, touching and funny - standing both inside and outside its subject.

In Sleeping with You, Pintosh plays both Marco and Andrew, shows their affair from different slants, depicts the whole sleaze scene of Hawaii gay hustlers, speaks of gay promiscuity, of serious gay love, and of Aids. Then he relates the big gay march on Washington DC; the organisers yelling 'I need to tell you we only have a permit for civil disobedience in this area'; and the 'pale queers' from Wisconsin chanting 'We're tired, we're bitchy, we want our rights now.' Any play that can suddenly make you guffaw out of the blue after an hour, and that can laugh at the cause it preaches, has real control.

Brother Truckers and Night after Night continue until August 29; The Legend of St Julian until September 4

Sky Television is currently urging satellite viewers to phone for details of 'A brand new Sky'. Do so and you receive a 36-page sales brochure which declares 'Summer's here and there's a completely new look to satellite television on the way. The Sky Multi-Channels Package will be the most exciting thing to hit your TV screen in years. There are brand new channels to satellite (sic) and a new way of receiving all your current favourites. Sky Multi-Channels launch on September 1, so hurry to page 11 to read all about it. You could also win a brand new Vauxhall . . .' This seems to be Sky-speak meaning 'From September we shall be adding new channels to the output. Most of the material will be American. At the same time we shall scramble the signal on all but one of the Sky services so that we can charge you for what you were previously watching for nothing. You could also win a brand new Vauxhall . . .'

The minimum 'package' of 12 scrambled channels will cost Pounds 4 a month for the remainder of this year and then Pounds 7 a month from January. That will bring you the general entertainment channel Sky One, the Children's Channel, the British repeat channel UK Gold, and the nine new channels listed below. Add to that package one of the 'premium' channels (The Movie Channel, Sky Movies Plus, or Sky Sports) and the price goes up to Pounds 12 a month. Add two premium channels and the cost is Pounds 17 a month. For all three it is Pounds 20 a month. With the two top price packages you get Sky Movies Gold thrown in, though it is neither a premium channel nor part of the basic package. Thus the lowest priced Sky package will, from January 1994, cost Pounds 84 a year: Pounds 1 more than the BBC licence fee. If you take all the Sky services it will cost Pounds 240 a year.

What about those in Britain's 2.5m satellite homes who bought their dishes on the understanding that the cost of the hardware, currently around Pounds 200, would be all they had to pay, not realising that encryption and subscription would follow? Since the dishes pick up all signals transmitted via the Astra satellite (actually three satellites now in the same position, with 48 channels already useable and more to come) there are still many channels which are neither owned by Sky nor marketed as part of the Sky package which can still be received in clear, though most are German or Dutch language services. English language channels which will continue, for the moment anyway, to be available free to those who cannot afford to pay another Pounds 84 a year, or who simply decide to resist Sky's urgings, will be Ted Turner's global news network CNN, Sky News (which is presumably staying unscrambled to compete with CNN), the 24-hour rock video channel MTV, Eurosport, and Turner's Cartoon Network which is due to arrive soon.

And what are those 'brand new channels' which Sky is offering as an inducement to pay a subscription? There are nine: The American children's channel Nickelodeon. A 24-hour home shopping channel called QVC ('quality, value and convenience'). The Family Channel showing series such as Remington Steele and Big Brother Jake. Discovery, a factual channel specialising in wildlife, travel, 'adventure', etc. Two more all-music networks: CMT, or Country Music Television; and VH1, or Video Hits One, which seeks to be an adult version of MTV 'for the generation that grew up with the music'. A women's channel called UK Living, described by Lis Howell, head of programming, as 'the elastic waistband' station; she warns that it will be 'domestic' and 'undemanding'. Two American 'retro' channels: Nick At Night which claims to be 'dedicated to the preservation of television's heritage'; and Bravo which promises 'treasures from the vaults'.

This appears to be the sort of 'niche programming' that we have so long been told is the natural outcome of the multi-channel systems brought in by satellite and cable. UK Living will presumably screen British material, though only 2 1/2 of their 18 hours a day will be original programming, and perhaps QVC's goods will be British, though we shall have to wait and see. Marketing programmes currently filling spare time on some satellite channels at night seem to sell only American products - plastic house painting kits, kitchen knives, car cleaners - with 'programmes' made in the US even though the presenters are invariably British. Those services aside, it looks as though these nine networks will consist almost exclusively of American material, most of it old, some of it quite astonishingly so.

Few of these new - well, new to Britain - channels have even started test transmissions yet, but Bravo and Discovery have been running in clear for a couple of weeks, so it has been possible to get an idea of what they, at least, have to offer. The answer is a strong whiff of nostalgia, an overpowering sense of American cultural values, and a feeling of stringent budgets. There is some British material here: on Discovery I have seen Bellamy's Bird's Eye View and several Loch Ness Updates covering a scientific hunt for a monster. There was even a European programme on Saturday evening, a 60-minute production called Airbus, about the building of the aeroplane, but as this droned on - 'Here's the comfortable six-abreast business class . . . comfort on board is unique . . . preparation has been patient and minute in its details' - it became impossible to believe that it was not, literally, a promotional video produced by the marketing department of Airbus Industries. Perhaps they paid Discovery to screen it; I hope so.

More common are old American programmes such as The Story Of Rock And Roll which includes Joan Baez, Bob Dylan, and The Byrds but excludes The Beatles, The Rolling Stones and anybody else who happens to be British. The subject of Friday's Biography was Joe Di Maggio, baseball player and Marilyn Monroe's sometime husband from the 1950s. The footage was, like much on Discovery, in black and white. In case you missed them Airbus and Biography were repeated mid-evening on Saturday, having also been shown the previous Tuesday. American Caesar turned out to be an old black and white documentary about General MacArthur.

Bravo's material is even more consistently black and white than Discovery's, and although it does include old British B-movies (an antique Edgar Wallace called To Have And To Hold with William Hartnell and Ray Barrett as detectives, the 1965 'silent' black and white comedy A Home Of Your Own with Willie Rushton, Bernard Cribbins and others on a building site, and so on) it, too, relies mainly on geriatric American television series. Friday brought Car 54 Where Are You? followed by The Doris Day Show and, later that evening, one of the oldest American series I have ever seen on British television: Art Linkletter And The Kids. It is amazing that these exist at all, having been made in the fifties and, I suspect, even the late forties.

We seem to be rapidly reaching the point where the world's (well, Britain's and America's) entire stock of old television programmes is being run on one channel or another all the time. It is, no doubt, a cheap way of filling schedules, in which case we may wonder why we are asked to pay such a relatively high price. Though there are 12 channels, with possibly more to be added, in Sky's basic package, they contain far fewer original programmes than the BBC's two channels or ITV and Channel 4. True, in October Sky One will be the first channel in Britain to screen Queen, sequel to the two Roots series (American of course) and the network is currently in the process of producing a dramatisation of the Ken Follett novel Red Eagle, the first time they have ever done such a thing rather than buy from the American and Australian stockpiles.

However, there is a very long way to go in the origination of drama, documentary, comedy, arts - virtually all types of programme other than news and sport - before satellite and cable can be seen as anything other than re-packaging parasites. The technology may be wonderful but we do not watch the technology, we watch the programmes.

The brief career of Percy Bysshe Shelley (1792-1822), poet and atheist, strayed into drama in 1819 with The Cenci, an ungainly tragedy bravely staged by The Damned Poets Theatre Company at the Lyric Hammersmith Studio.

The Cenci is domestic horror from 1599. The debauched and lubricous Count Francesco Cenci, quavering on the edge of sanity, tyrannises over his household. Only his daughter, Beatrice, stands up to him. But when he rapes her, the rest of the family, egged on by a slippery cleric, Orsino, has Cenci strangled to death while he sleeps. The murder is discovered by an emissary from the Vatican with a warrant for Cenci's arrest; instead, he arrests the family. Beatrice's brother and step-mother confess under torture, and are sentenced to death.

While Shelley was writing this, his sister was turning out the much more popular and profound Frankenstein. Instead of modern science fiction, Shelley looked back to Greek tragedy and to Shakespeare, the unacknowledged hero of the play. Cenci is murdered while he is sleeping, like Duncan in Macbeth; and the assassination is set about with strange noises and finished off with a knocking at the castle gate, again like Macbeth.

Shelley's friends felt the same way; the English Romantic poets reinvented Shakespeare in their own image. Keats was haunted by the sound of the surf in King Lear, Coleridge thought he was Hamlet, and managed three plays himself. But none wrote a play in this obscure-Shakespearean style.

The verbal action is unremitting. Every character comes on impelled to speak; and, in accordance with Shelley's views on language, everyone here speaks in metaphors so convoluted that it is hard to grasp the point of each scene. The melodramatic plot has a dreadful claustrophobia about it. The actors are bunched and squashed into a small versatile set (Bruce Gallup) which transports the action from court to prison with a speed Group 4 could usefully copy.

The acting, under the uncalm direction of Sydnee Blake, responds to the excesses in Shelley's text. The effects on stage range from pointless bluster and overdone pauses through to genuinely felt lines, experienced as they are delivered. Louise Bangay as Beatrice and Craig Pinder as Cenci have an uneasy time settling into the mutual loathing Shelley scripted for them, but Bangay manages to find variety in her roles as abused daughter and fiery avenger. Other highlights are Andrew Hawkins as a limber prelate, and Stanley Lloyd as a politic cardinal. Elsewhere the acting was too frenetic and over eager to do the work of Shelley's own energetic verse.

Despite the intractability of Shelley's drama and the excesses of the actors faced with the daunting task of putting it on stage, this Cenci is worth seeing. The company should be applauded for its nerve. Shelley was writing, as Beatrice says, of 'deeds which have no form, sufferings which have no tongue,' and it is a bold enterprise to try to stage them.

Lyric Hammersmith Studio until September 11 (081 741 8701)

Tree planting and chocolate may not seem to have any obvious connection. Yet Jacobs Suchard, the Zurich-based chocolate and coffee group, was delighted three years ago to accept sponsorship of reforestation projects in the Alps.

'The idea could have been invented for us,' says Walter Anderau, head of corporate affairs. The connection is supplied by the lilac Milka cow, a symbol of one of Jacobs Suchard's most popular chocolate brands. By protecting the habitat of the Milka cow - a Simmental cow painted lilac for Suchard's packaging - the message that the chocolate is made from healthy Alpine milk is made more credible, he argues. Jacobs Suchard's main markets are Germany, France, Switzerland and Austria, all with Alpine regions.

Since 1991, Jacobs Suchard - part of US products conglomerate Philip Morris - has sponsored the planting of 300,000 trees in five countries as part of its collaboration with Alp Action in the 'Green Roof for Europe' campaign. This is the biggest of the 30 projects launched by Alp Action, founded by Prince Sadruddin Aga Khan to mobilise corporate funding for environmental protection in the Alps.

The project, which has cost Jacobs Suchard more than SFr1m (Pounds 444,000), has involved thousands of children and plays a key role in its marketing strategy.

Last week, Alp Action and Jacobs Suchard staged a tree planting event at Lenk, home of the Milka cow, to mark plans to continue their 'Green Roof for Europe' partnership. Reforestation projects are scheduled for Austria, France, Germany, Italy, Slovenia and Switzerland over the next two years.

Jacobs Suchard's concern for the environment does not stop with tree planting. Since 1986, it has sought to 'green' its activities across the board.

It started with a rethink of packaging requirements, necessitated by the need to streamline packaging inherited from acquired companies. The group has since extended its environmental concerns to production, transport and its housekeeping.

Jacobs Suchard uses a recyclable plastic monofoil for its Milka Lila Pause chocolate bar which is cheaper, 'greener' and attractive to consumers. Its redesigned chocolate boxes have saved up to 50 per cent on packaging and dispensed with polyvinyl chloride.

Similarly, coffee in Germany is sold in vacuum packs containing practically no aluminium. With the same product protection, Jacobs Suchard claims to have reduced waste by 47 per cent, energy use by 37 per cent and water consumption by 48 per cent. The company plans to extend monopacks to all markets.

Further down the chain, the group uses multi-entry pallets of recyclable materials for shop deliveries. These pallets are later collected and re-used. In this way, Jacobs Suchard has cut the total amount of primary and secondary packaging by 5 per cent - 10,000 tonnes - in three years.

Fuel use per cubic metre transported by the company has been more than halved from 1987 levels. Packaging has been redesigned and standardised with efficient packing and transport in mind. Cocoa and coffee beans are increasingly shifted by rail in special bulk containers; half the tonnage moved by Jacobs Suchard last year went by train against 5 per cent in 1987.

All this greenery is, says Anderau, more a 'feel good' factor than a big money saver. Financial costs and benefits are often difficult to identify. Environmental objectives are just one factor in the investment in new packaging or factory modernisation.

The company has invested directly about Dollars 23m (Pounds 15m) since 1977 on environmental protection measures. This includes Dollars 4m on its new chocolate factory in Berlin and Dollars 3m (with Dollars 10m more planned) on its Lorrach facility near Basle. Anderau reckons these costs probably offset a large part of the savings from pro-environment activities.

However, the 'feel good' factor counts, for Jacobs Suchard's workers and its consumers. At Lenk, Jacobs Suchard launched a programme to plant a tree for every baby born to an employee's family, an Alpine farming tradition.

Paul Rich has been appointed director of POST OFFICE COUNTERS' Financial Markets Business Centre.

Alan Ross, formerly sales director of Newcastle Breweries, has been appointed sales director of BOOKER Fitch Food Services.

Andrew Ramsay has been appointed Grade 3 at the Department of NATIONAL HERITAGE in charge of the Arts Division, the National Lottery Bill team, the Government Art Collection and the Millennium Commission Unit.

Brian Dozey, previously executive director of United Distillers' subsidiary in the Canary Islands, has been appointed marketing director of UNITED BREWERIES.

SelecTV, the independent production company that was earlier this year upset by wranglings between co-founders Michael Buckley and Allan McKeown, is losing its managing director Michael Pilsworth, who had been in charge of the UK side, to Chrysalis.

Pilsworth joins as managing director and chief executive of the newly created visual entertainment division, which groups together a number of operations including the TV production company, the home video operation and Red Rooster Film.

Last November, Chrysalis brought Steve Lewis on board from Virgin to head up the music division, and group chairman Chris Wright says the senior management team is now complete.

Pilsworth, 42, says he had been talking to Wright, whom he has known since student days at Manchester University, for the past year. But it was not until now that he felt he could leave SelecTV so that the transition, in what is a very small company, would be 'as seamless as possible'. McKeown is returning from Los Angeles, where he had been based, having opted to run down the US operation. Buckley was ousted as chairman in March.

'For me Chrysalis is a fantastic global brand name in the record business; it provides a great opportunity to capitalise on that goodwill for the visual entertainment side.'

Chrysalis is also targeting a younger audience, in terms of mentality and cultural interests, if not in age.

Hence it was no accident, Pilsworth thinks, that SelecTV executives were avid golfers when he was not. Now, by contrast, he is about to take an intensive tennis course in Spain.

A lecturer in psychology at Manchester before he joined LWT as a research assistant in 1985, Pilsworth moved to TVS before joining SelecTV.

After three years of discussion over how best to provide emergency aid for the 58 Soviet-designed nuclear reactors in the former east bloc, the Group of Seven industrialised countries has finally begun to act. It has just agreed its first joint project, an Ecu24m (Pounds 18m) grant to Kozloduy, Bulgaria's troubled nuclear power plant.

The grant will be used to import safety equipment for Kozloduy, declared Europe's most dangerous nuclear power station in 1991. It will be paid out of the Nuclear Safety Account which was set up by the G7 at the European Bank for Reconstruction and Development last March and had received contributions of Ecu115m by June.

In return, the Bulgarians have agreed to shut down the plant's four 440MW VVER (old pressurised water reactor) units - which lack containment to enclose them in an accident - as soon as financially possible, which may be by 1998. The EBRD aims to make the plant as safe as possible until this happens.

Unlike many of the region's other nuclear plants, Kozloduy has already received much western attention. 'Until now, we've received around Ecu18m from the EC's Phare programme (funding eastern European projects) and had some 1,000 western experts visiting Kozloduy, but this has been spent mainly on analysing the plant and its problems, and on retraining staff,' says Nikita Shervashidze, deputy chairman of the Bulgarian government's Committee of Energy.

'The EBRD grant will provide us with hard currency to buy foreign safety equipment. This will include process computers to make the system more user-friendly, extra cooling devices, isolation valves, spare parts and ultrasonic inspection equipment for the pressure vessels.' The equipment will be purchased through tenders which the EBRD will help NEK, Bulgaria's state-owned electricity monopoly, to organise.

'One of the weakest points of electricity companies in the former east bloc is organising procurement, arranging financing and dealing with western banks. We have no experience in this and will rely on the EBRD's support,' Shervashidze says.

'We hope we can complete the project within 18 months and set up a model of how it can be done for other recipients of grants.'

But it is clear the west must provide much more funding if the project is to fulfil its long-term aim of seeing units one to four closed down.

The Bulgarians are adamant the country needs nuclear energy and say Kozloduy supplies between 35 and 40 per cent of the country's electricity.

Due to the ageing of the country's non-nuclear plants, this share could rise to 50 per cent, according to Yanko Yanev, chairman of the Bulgarian Nuclear Safety Authority (RNSA).

He says the country will not close down the reactors until it can finance the upgrading of Kozloduy's remaining two 1,000MW units. 'We are willing to co-operate but we cannot accept some sort of conditionality.

'We are trying to look for energy options which will permit closure of units one to four, although three and four are relatively new.'

But the two 1,000MW units could cost Dollars 500m (Pounds 357m) each to modernise and be made more reliable. They are considered safer than the 440MW reactors as they have containment facilities, but have proved to be a less dependable source of electricity than the older units.

Last September a fire in unit six closed the 1,000MW units - they share a common spare power supply.

Shervashidze is hoping the EBRD will also help Bulgaria to secure commercial loans for the upgrading work and for a second nuclear project on the Danube at Belene which is 60 per cent complete.

But the country looks like having little chance of raising substantial funding from the west - negotiations with the London club of commercial banks over Bulgaria's Dollars 11bn debt broke down again in July.

Also, many western countries and institutions, notably the World Bank, believe that nuclear energy is no longer cost-effective and will not finance new nuclear plants.

Ivan Uzunov, professor of atomic energy at Sofia University, believes Kozloduy and other Soviet-built reactors in the region can only be made to pay if safety standards are compromised. Uzunov, who has advised western countries such as Austria and Italy on nuclear policy, says a grant of Ecu24m is 'absolutely nothing' compared with Kozloduy's immediate needs.

He acknowledges the plant's safety has improved substantially in the past two years, but says he is still not satisfied that units two and three are sound enough to operate or that the plant's 7,000 employees have had enough training.

But his main concern is the build-up over the past three years of 600 tonnes of spent radioactive fuel elements at Kozloduy which are being stored in pools of water. In cold war days, these were reprocessed by the Russians at little cost to the Bulgarians. Now, the country faces reprocessing bills of Dollars 1,000 per kg.

Shervashidze says Kozloduy has storage space for the spent fuel elements for two more years. He hopes that by then, Bulgaria will have built dry storage facilities - but again, this requires financing. Uzunov would like to see alternative storage facilities built as soon as possible.

He says that an explosion at the Soviet Kishtim nuclear plant in the Urals in 1957 was caused after 70 tonnes of spent fuel elements overheated due to a shortage of water; parts of the region are still contaminated.

He also believes the Bulgarian authorities have not received enough independent advice and have been influenced by the western nuclear industry, hungry for new orders in eastern Europe due to falling domestic demand.

As an alternative to spending on nuclear energy, he is lobbying for western help to improve energy efficiency at conventional power plants and increase Bulgaria's connections to international gas pipelines and electricity networks.

David Margrett (below), md of LOWNDES LAMBERT's UK operations, is now responsible for the group's operations worldwide.

David Reed has been appointed md of ASHLEY PALMER HOLDINGS and Ashley Palmer Syndicates.

John Martin has been appointed group finance director of PEGASUS ASSURANCE GROUP.

Nancy Einck has been appointed actuarial & research director of LONDON & EDINBURGH INSURANCE GROUP.

Brian Jamieson has been appointed company secretary of REFUGE GROUP and Refuge Assurance. Derek Whitehead has been appointed IT director of Refuge Assurance.

Jonathan Coote has been appointed deputy md of SUN ALLIANCE GROUP PROPERTIES, and not of Sun Alliance as stated on August 17.

Hugh Prior has been appointed deputy chairman and Rolf Horst to the board of BMS RE, part of Ballantyne, McKean & Sullivan.

David Thompson, until the beginning of this week non-executive chairman of Rank Xerox in the UK, yesterday moved to Gestetner Holdings. The office equipment distributor has been looking for a part-time chairman since May, when Inchcape took a 15 per cent stake and Australian entrepreneur Basil Sellars, who had been chairman and chief executive as well as, indirectly, a substantial shareholder, gave up his executive responsibilities.

In the photocopier market, Rank Xerox and Gestetner are competitors in the medium and smaller machines.

Thompson, 61, who admits to a 'slight lump in the throat' at leaving the company for which he has worked for 27 years, felt far too young to retire. Hence, when presented with the current opening, his reaction was simply one of 'why not?'. He adds: 'With all the wisdom of 12 hours' experience, it looks as if Gestetner has a reasonable operating structure. It is quite strong in Latin America, and doing reasonably well in the Far East. Europe is poor, but so it is for most companies.' In May, a fellow countryman of Sellars', Greg Megaard, was appointed group managing director.

Thompson says there will be 'an executive tinge' to the job, which will entail 'taking a close interest in the financial aspects of the business'.

Meanwhile Sellers stays on as a Gestetner non-executive director. 'The classic assumption is that we will be tripping over each other,' Thompson acknowledges, but is adamant that this will not be the case. 'We have talked about it,' he says firmly.

He expects to be in the chairman's seat 'circa three years, maybe longer . . .if my performance is satisfactory'.

Coming to office machines via the colonial police in the former Northern Rhodesia, Thompson moved to IBM, working in the UK and the US, before joining Rank Xerox. He has been chairman of Rank Xerox UK since 1990.

John Hakes, chief executive of Thorn EMI Security and Electronics, the company's defence electronics arm, is to take immediate 'early retirement' as part of a radical shake-up at Thorn EMI's defence arm.

The changes follow Thorn EMI's failure to sell its defence electronics business to GEC, despite months of negotiation. For at least a year it has been clear that Thorn wants to concentrate on its music and rental businesses, and to dispose of non-core activities. However, it seems that Lord Weinstock was unprepared to pay anything like Thorn's asking price, which is thought to have been in the Pounds 150m range.

Hakes' retirement follows the resignation last month of John Taylor, the company's former defence systems managing director.

Mark Young, for two years head of business affairs at ITN, is to follow his former boss Bob Phillis, now BBC deputy director, to the BBC.

He starts next Tuesday as chief assistant to the deputy dg - who was poached by the BBC from his job as chief executive of ITN in January. Young will provide back-up across the whole range of Phillis's responsibilities, which include the managing directorship of the BBC World Service and co-ordinating the BBC's international commercial and resource activities.

Young spent his time at ITN looking at new business opportunities and drawing up business plans. He was also part of the team which put together a London radio franchise application for a consortium in which ITN has 20 per cent.

Before joining ITN he was a consultant in the media group at Coopers & Lybrand Deloitte.

When Lufthansa pulls in its aircraft for regular checks and overhauls every six years or so, it no longer douses them with powerful paint stripping agents that contain harsh chemicals such as dichloromethane and phenol.

Instead it gives them the water treatment. At the national carrier's new DM230m (Pounds 90m) paint hangar in Hamburg, a stream of high-pressure water is directed at each aircraft. This forces itself under the paint layers and peels them off.

The paint has to be removed so that aircraft can be inspected for cracks and corrosion.

Before Lufthansa perfected its robotically operated Aquastrip process, which it will make available to other airlines, stripping one of its Airbus A300s needed some 2.5 tonnes of unpleasant chemicals and left 10 tonnes of liquid waste.

With Aquastrip, lukewarm water is shot towards the aircraft at a shallow angle from a rotating nozzle. Turning at 6,900 revolutions a minute, this creates a fan-shaped stream of water so fine that it does not damage the aluminium skin of the wings and fuselage.

Aquastrip works precisely enough for the three coats of paint to be peeled away separately.

Each nozzle sprays water at the rate of 37 litres a minute. This water is then recovered and cleaned of the paint particles. Lufthansa engineers hope to be able to recycle 97 per cent of the water. The particles are burned in a special waste incinerator.

Before deciding on Aquastrip, Lufthansa, which has around 220 aircraft, tried other non-chemical methods of paint removal. One was blasting with dry ice; the paint layer was broken up by the temperature shock and then ground away by the sharp-edged crystals. However, this method put a heavy stress on the thin aircraft skin and could therefore be used only once in its service life. It also consumed a large amount of energy.

Lufthansa has found that Aquastrip not only helps the environment. It is even quicker than the old chemical techniques.

Independent directors now far outnumber insiders on US boards. But more than three-quarters of US company chairmen still combine that role with the job of chief executive.

These are two of the main findings of a new report on corporate governance from the Conference Board, the worldwide business organisation which has its headquarters in New York.

The issue of independent, non-executive directors, was highlighted in the US this month with the enforced departure of Kodak's Kay Whitmore, chairman of the phototgraphic company. But according to the Conference Board's findings, US corporations have been making considerable strides in recent years towards more independent membership.

Many companies, for example, have eliminated directors whose connection with the company could conflict with their ability to exercise impartial judgments. Thus 60 per cent of the 546 respondents had no board members representing leading customers or suppliers (including legal services), or who were related to or had a significant business connection with a member of the company's management.

Outsiders were in the majority on 94 per cent of manufacturing and financial firm boards, and on 93 per cent of non-financial service company boards. In many companies, the Conference Board comments, chief executives have initiated the reduction of insiders. In this they appear to be influenced by the potential advantages of tapping outsiders' knowledge and contacts, the need to slim down board sizes and pressure from the corporate governance lobby.

Another trend is management's loosened grip on the director nomination process through greater acceptance of the board nominating committee. The Conference Board notes, for example, that only 8 per cent of companies surveyed 20 years ago had such a committee - comprising solely outside directors and charged mainly with the task of finding and screening possible candidates for nomination to vacant board seats. The current figure is 64 per cent.

More than 90 per cent of boards now have a compensation committee, against 69 per cent two decades ago.

The finding that 76 per cent of chairmen combine the role of chief executive may seem a touch unlikely to a UK audience. Since the publication of the Cadbury report on corporate governance in 1991, splitting the two jobs in big companies has become very much de rigueur.

The Conference Board states that combining them in the US is 'clearly the established pattern'. It follows that 'most CEOs expect to hold both positions when they assume leadership of a company. But the practice has again come under fire, as it did in the early 1970s'.

Another section of the report highlights what directors actually do. Those in financial companies spend on average 35 per cent of their time on board committees, against 30 per cent for non-financial service companies and 24 per cent for manufacturing concerns. Committee time increases, though, as company size expands.

Median board meeting lengths range from two and a half hours in financial firms to three and a half hours in manufacturing companies.

In the largest manufacturing and financial firms the median board meeting frequency is nine times a year, although in some the frequency is as low as four and as high as 12.

At board meetings directors spend two-thirds of their time on three main concerns: strategic issues (a median of 25 per cent), financial management (21 per cent), and operations control (20 per cent). Forty four per cent of the manufacturing companies said their directors were 'very diligent' in preparing for meetings, but the figure drops to 39 per cent and 34 per cent for non-financial service firms and financial firms respectively.

The report includes a brief section on Europe, based on interviews with corporate executives in eight countries.

Available from Judith Kertland, The Conference Board Europe, Avenue Louise 207, Bte 5, B-1050 Brussels, Belgium.

As management fashions go, few have been more pervasive than Total Quality Management. Over two-thirds of Britain's largest companies are converts to TQM, fervently believing that it holds the secret to business success.

But experience suggests otherwise. Evidence is emerging that TQM schemes are failing because they have been poorly designed and implemented.

There is also a growing belief that the concept may be flawed - rather than being a management panacea, TQM is beginning to look like another fad.

A recent survey of Britain's largest 500 companies by marketing consultancy, Abram, Hawkes, shows that many of the schemes are half baked: two-thirds do not set quality performance targets, and even when they do exist, less than half have a mechanism for reward when those targets are met.

Perhaps more alarming, TQM schemes do not seem to be delivering their supposed financial benefits. Although most companies surveyed say that the schemes have increased customer satisfaction, only one-third have noticed an increase in sales and only a half have reported higher profits.

Overall, less than 50 per cent of the companies say they are satisfied with TQM, and only 8 per cent are 'very satisfied'. The results are particularly surprising as the questions were addressed to managers responsible for the quality programmes.

One of the reasons for the frequent failure of TQM programmes to deliver so-called quality, the study suggests, is they are sold to the companies by outside consultancies that have little interest in the long-term success of such schemes. The research shows that nearly 60 per cent of companies use external quality consultants when planning total quality implementation.

Alternatively, schemes may be failing because they are not properly implemented: many companies complain that middle managers have not supported or understood what TQM entailed.

A report on TQM within the UK's 500 largest companies, available from Abram, Hawkes. Tel 0444-441176.

India may not be the first place to conjure up images of industrial efficiency or total quality management. While decades of bureaucratic controls restrained India's industrial performance, companies all too often subscribed to the old Indian adage of chalta hai or 'it'll pass'.

But if that is now all changing - not least thanks to the economic reforms of finance minister Manmohan Singh - one company stands out as a benchmark for others to follow.

The truck and excavator company Telco (Tata Engineering and Locomotive Company) has developed a peculiarly Indian approach to quality and worker participation in a nation that has to contend with issues - from communal tensions to the effects of deshi or country liquor - not always on the agenda of western boardrooms.

Based in Jamshedpur, Bihar, Telco is one of the flagship companies in the blue-chip Tata group. With its sister car plant in Pune, it is India's largest private-sector concern, with a turnover last year of Rs29,000m, approximately (Pounds 612m).

Established in 1945, originally as a joint venture with Mercedes-Benz, it is one of the world's largest truck manufacturers, providing 75 per cent of the goods vehicles and buses on India's roads. It has exported them to 60 countries. Last year the millionth truck rolled off the assembly line and recently Telco secured its largest export order, for 2,100 truck chassis, from the Sri Lankan government.

'Quality and productivity are essential in helping us to compete worldwide,' says Sarosh Ghandy, resident director in Jamshedpur. 'We are investing in our 'software': building on the skills, commitment and involvement of our men.'

A crippling 40-day strike in 1969 and a series of shop-floor battles for union control in the early 1970s, had warned management 'we were far too distant from our men to liaise with them', says Ghandy. Union officers and senior executives subsequently attended moral re-armament industrial seminars organised by a grandson of Mahatma Gandhi. Impressed by the reconciliation of two rival union leaders, the company launched its own in-house 'human relations at work' (HRW) training programme in 1982.

The focus of this is a three-day course, attended so far by 18,000 of Telco's 20,000 employees. The aim is to empower the workforce to take responsibility.

Shop floor workers, who have passed through the course, do the training and at one afternoon session a chargehand from the toolroom, RB Singh, conducts a programme for 20 employees.

Topics for discussion are alcoholism, absenteeism, punctuality, synchronising work functions, responsibility versus blame and even blood donation schemes.

Hindu swamis (priests) also give talks on aspects of human behaviour, to 'bring an Indian ethos into our environment of management', says Ghandy.

There is also an emphasis on the Gandhian philosophy of the 'inner voice' - to encourage 'self-motivation', says Telco's head of management development, Nazimuddin Ahmed. 'Really motivated people are inner directed.

' They have a characteristic of their own and are not dependent on others.'

The visible manifestation has been the birth of shop-floor quality circles, known in Telco as 'small group activity' (SGA). Now, nearly 1,300 voluntary groups of 10 to 12 people, involving the bulk of the workforce, meet for an hour each week to iron out production problems - and discuss how to tackle alcoholism, family debt and communal tension in their townships or 'colonies'.

One group bailed out a colleague who became heavily in debt after personal problems. Another group repaired a fault on a metal press which had baffled German engineers.

Each year, employees make 100,000 suggestions for improvements, saving the company nearly Pounds 2m, says Ghandy.

Telco is now making 16,000 more trucks with 6,000 fewer workers and has enjoyed a strike-free industrial record over the last 21 years. Ghandy says that the productivity increase is also due to the impact of the SGAs.

The SGAs also help to defuse any communal and political tensions, according to Shri Gopeshwar, General Secretary of India's National Trade Union Congress (INTUC), who is head of the Telco workers' union.

When the Babri mosque at Ayodhya was demolished by Hindu militants, sparking nationwide violence, relations in the townships around Telco remained calm and the police found it unnecessary to impose a curfew.

Telco, in common with many companies in the west, still faces the challenge of how to reduce the multiple layers of middle management.

But other Indian companies are taking a keen interest in Telco's experience.

Chandreshwar Khan, assistant manager at the Management Training Centre gives talks on HRW to conferences of the Confederation of Indian Industry.

'Improvements in the quality of our products will come from an improvement in the quality of life of our workforce,' he says. 'In our company we talk about human relations, meaning we work together. And we don't just talk about it - it has become a way of life.'

NEARLY 500 former employees of Swan Hunter have lodged claims of unfair dismissal as part of a union campaign to highlight the position of workers made redundant by receivers.

The claims have been flooding into the Newcastle industrial tribunal centre since union leaders at the Tyneside shipbuilder wrote last week to more than 700 ex-employees made redundant since the company went into receivership in mid-May.

Should the employees' claims succeed they would be unlikely, as unsecured creditors, to receive any additional compensatory pay-offs: a creditors' meeting earlier this month was told by receivers Price Waterhouse that Swan Hunter had total liabilities of Pounds 51m, and realisable assets estimated at Pounds 6.29m.

But Swans union leaders hope their move, which follows a similar initiative by Leyland Daf union officials, will raise concern at how receivership can harm employees' redundancy entitlements.

Mr Tommy Brennan, Tyne chairman of the Confederation of Shipbuilding and Engineering Unions, said: 'Receivership shouldn't put on ice the rights of the individual; they should be sacrosanct.'

Swan Hunter's now defunct company severance scheme paid up to Pounds 13,000; employees made redundant by the receivers must apply to the Department of Employment under the state redundancy fund, which pays a maximum of Pounds 6,150.

Newcastle industrial tribunals centre said staff had been working extra hours to process the sudden Swan Hunter workload. More Swans claims, under the 1985 Employment Protection Act, are expected.

The unions claim the dismissals were unfair because of lack of consultation, lack of right of appeal and lack of information on selection criteria.

Price Waterhouse declined to comment.

A SECTION of staff in the military aircraft division of British Aerospace will tomorrow stage a one-day strike in Lancashire against what unions say are plans to 'sell their jobs' to one of three US companies.

The strike, which will involve about 450 computer and information technology specialists and other staff, will affect factories in Warton, Preston and Samlesbury where BAe makes the Tornado ground attack bomber, the Hawk jet trainer and parts of EFA, the European Fighter Aircraft.

The Manufacturing Science and Finance white-collar union said yesterday that BAe wants to 'outsource' up to Pounds 250m of information technology work. The union claimed this would remove the company's ability to control its own information technology systems and pose a threat to national security.

Mr Frank Coulton, chairman of the MSF branch for the three factories, claimed secrets of military aircraft design and know-how would be given to a foreign company, even if the US was an ally. MPs sponsored by MSF and GMB/Apex, another union involved, are to raise the issue with the government.

Outsourcing - where a company contracts out formerly in-house services - has been growing in the recession, with computer bureaux offering economies of scale and savings in functions such as warehouse management, stock control, invoicing and debt collection. The work usually involves large numbers of small transactions.

BAe said investigations on outsourcing had been under way for several months as a part of a general review of efficiency and cost reductions, but no decision had been made. It said detailed tenders for the work had been sought from an IBM-DEC consortium, Computer Science Corporation, and EDS-Scicon. All three bidders are US companies.

BAe declined to say what work would be involved, but MSF said its negotiations with BAe suggested it was all mainframe computer activity, including some computer-aided design and manufacture, as well as routine clerical and management systems.

BAe workers would be transferred to the contractor if any outsourcing is agreed. Mr Coulton said: 'They are trying to sell people and their know-how. We refuse to be sold.

'Our members have voted 11 to one to show their feelings with this one-day strike. We felt we had to act before a formal offer on outsourcing was put to us. Once the company has decided to do it, it would be difficult to make management change its mind, and much tougher industrial action would be needed.'

BAe said the outsourcing investigations did not involve Rover cars or the group's construction business, only aerospace. About 15 factories would be involved throughout Britain.

Exact numbers were 'imprecise' because no decision had been taken on what exactly might be outsourced, but MSF said about 2,000 jobs would be affected.

The Lancashire factories - established in the second world war beyond the range of German bombers - employ about 11,000, about 3,000 of whom are MSF members, working in range of high-technology professions and trades.

ABOLITION of the Agricultural Wages Board, which sets minimum pay for 238,000 farmworkers, could breach the European Community's Treaty of Rome, the Transport and General Workers' Union said yesterday.

Launching a campaign with the Labour party to save the board, the union pointed out that Article 39 (1b) of the treaty states that the common agricultural policy should ensure a fair standard of living for the farming community, in particular by increasing individual earnings.

'Abolition would be a clear challenge to the European Commission,' said Mr Barry Leathwood, national secretary of the union's rural, agricultural and allied workers group.

Mrs Gillian Shephard, agriculture minister, last week extended the deadline for consultation on the board's future until November, after pressure from farmers and farm workers. The board is the last statutory body fixing minimum wages for low-paid workers, after legislation to scrap wages councils which Mrs Shephard guided through parliament as employment secretary. The union fears any government decision to end minimum pay would mean pay cuts, less investment in training and threats to safety and hygiene.

Most farmers want rates to continue being fixed centrally to avoid potentially difficult negotiations with employees.

Mr Bill Morris, TGWU general secretary, predicted industrial conflict if the board went. 'If we're driven to negotiate farm by farm, that's precisely what will happen,' he said. 'Farmworkers must become either slave labour or industrial fighters.'

The board controls minimum pay, holidays and sick leave for full-time, part-time and casual farmworkers. Average earnings are estimated at 76 per cent of the average industrial wage.

The TGWU calculates that 43 per cent of full-time male farmworkers and 68 per cent of their female equivalents earn less than the low pay threshold.

Mr Gavin Strang, shadow agriculture minister, said: 'With so much taxpayers' money going into farming, it would be outrageous if action was taken to further erode the low wages of farmworkers.'

NISSAN, the Japanese carmaker, is reviewing output levels at its UK plant and is expected to be forced to cut its present target of producing 270,000 cars this year.

Production levels throughout the UK motor industry are under heavy pressure because of the continuing sharp decline in new car sales in continental Europe.

Nissan had planned to raise output at its Pounds 900m car plant at Sunderland in north-east England by 51 per cent this year to 270,000 from the 179,000 cars produced last year.

'With the situation in Europe as it is, it is beginning to look as if we will not reach that target,' the company said yesterday.

Around 88 per cent of production was exported last year, but this share has fallen in 1993, as the UK has emerged as the only market in west Europe where sales of new cars are growing.

The Sunderland plant, which now has a capacity to produce up to 300,000 cars a year, has been under development since the mid-1980s. This is the first year that it has been able to produce two car ranges, the Primera large family car and the Micra small car, at full capacity following the launch of the Micra in the second half of last year.

The start-up of Micra production has allowed Nissan to raise its output in the first half of 1993 by 90 per cent to 140,713 from 74,214 in the corresponding period a year ago.

However, output at the plant was already coming under pressure from the sales decline in continental Europe in the early summer when Nissan was forced to lower planned Primera output by 15 per cent to 110,000 from the previous target of 130,000.

This reduction was offset by the decision to raise the Micra production target from 140,000 to 160,000.

Nissan was the first of the Japanese carmakers to establish a car assembly base in Europe, and it has now become the first to be caught up in the recession that is hitting all the established car producers in Europe.

Ford, Vauxhall and Peugeot have all been forced to reduce production in the UK this year. Overall UK car output in the first seven months at 858,617 was 6.6 per cent higher than a year ago because of the higher output from Nissan and the start-up of the Honda and Toyota UK plants.

ATTENDING court is still a bewildering experience for members of the public in spite of promises under the Citizen's Charter to make court services more user-friendly, the National Consumer Council said yesterday.

It published a survey showing that many county courts were failing to live up to the promises of the charter.

Contrary to a central intention of the Citizen's Charter, of the 12 per cent of those interviewed who wanted to make a complaint about court services, 76 per cent did not know there was a complaints procedure.

The council asked 819 people using 35 county courts in England and Wales about their experience. Business users, lawyers and advice workers were excluded.

It said 92 per cent of those surveyed had not been told about the facilities.

Mr John Taylor, parliamentary secretary at the Lord Chancellor's Department, said parts of the report were very useful and constructive and would be considered further. 'However, in overall terms, due to the timing of the survey and unavoidable practical difficulties experienced in some areas, the results contained in the report are not a fair judgment and certainly do not reflect the current situation.'

WHEN John MacGregor, the transport secretary, announced earlier this month that 44-tonne lorries were to be allowed on Britain's roads he would have expected criticism from the environmental lobby.

But there was also disappointment among hauliers that the lorries were to be permitted only for journeys to and from rail freight terminals. The opportunity had been missed, they said, to raise weight restrictions on the whole range of freight traffic.

The 44-tonne limit applies to trucks carrying containers or drawing swap-bodies - vehicle bodies that can be demounted from the tractor and transferred on to trains.

Mr MacGregor says he wants to put container lorries and swap-bodies on level terms with conventional lorries that make road-only deliveries as part of the government's strategy of reversing the decline in rail freight compared with road freight.

Containers and swap-bodies are heavier when empty than conventional truck bodies, which have a competitive advantage over the containers and swap bodies needed for a combination of road and rail journeys. Under the old 38-tonne limit for articulated lorries, which will still apply to non-road/rail traffic, conventional vehicles could carry more cargo than swap-bodies, which could not carry their full capacity.

Mr Bill Newton, manager of the environment research centre at the Transport Research Laboratory, a government agency, said: 'We are getting into a situation where rail freight is almost entirely moving bulk goods - coal, oil, aggregates, some bulk steel and refuse.'

The Channel tunnel has raised new hopes of developing the rail freight industry because, generally, the longer the distance the goods are carried, the more cost-effective a rail component is.

On the Continent, where most countries already have a 44-tonne limit for lorries geared to road-rail travel, the use of swap-bodies tripled between 1980 and 1989. If there had been no move to relax British regulations, the tunnel would have highlighted the UK as an anomaly.

Continental freight carriers may be the first to benefit from the UK rule change because they have already invested in swap-bodies.

Railfreight Distribution, which will run the main Channel tunnel freight services, admits the investment in swap-bodies is crucial for intermodal (combined road-rail) travel but admits to uncertainty about the level of demand.

Railfreight Distribution, British Rail's freight subsidiary, is selling its train space to two intermediate wholesalers - Allied Continental Intermodal, and Combined Transport, a consortium of Continental intermodal - road/rail - companies and UK road transport operators. They will sell train space to freight forwarders and transport operators.

Mr Mike Stockdale, Combined Transport's commercial manager, says the company would initially have three trains a day in each direction, with swap bodies, tanks and containers carrying the equivalent of 26 lorry-loads. By 1995, he forecasts five trains a day.

It seems improbable that 44-tonnes lorry will become common on the roads as soon as they are permitted in the autumn. Their proliferation will depend on the popularity of Channel tunnel rail freight and, as Railfreight admits, much about the tunnel is uncertain.

Most of the 44-tonners willtravel to and from Britain's nine Channel tunnel railfreight terminals. Some critics believe that this limited number of freight terminals is the greatest obstacle to reversing the decline in rail freight.

Freight terminals no longer shunt individual wagons in and out of sidings, because it is no longer economic, and instead concentrate on shifting whole trains. The sorting of the components of each train is done by road, bringing together a train's worth of containers and swap-bodies.

But if goods are a long way from the nearest rail freight terminal, there is a strong case for keeping them on the road. Especially since at the other end of the journey there is very little to stop a 38-tonne lorry making deliveries to the doorstep of high street shops.

Mr Ken Buchan of the Metropolitan Transport Research Unit, an independent consultancy which was commissioned to look at freight traffic by the environmental pressure group Transport 2000, says the bias against rail freight is greater than a matter of weight restrictions.

Road freight, he argues, is not paying its costs in environmental and safety terms, and will continue to have economic advantages over rail until it is made to do so.

But Mr MacGregor, now that he has decided to permit some 44-tonne vehicles, may find it more difficult to resist the road lobby's pleas to raise weight limits for all traffic.

He has said the new vehicles will be no bigger and cause no more wear to roads than existing vehicles. The road lobby is sure to use that same argument in an attempt to drive a bigger hole through the 38-tonne limit.

AIRTOURS, the tour operator, yesterday brought forward the sale of its summer 1994 holidays by three days to today - even though its brochures will still come out on Saturday.

The move follows claims by other operators of a high rate of early bookings for next year.

ROBSON RHODES, liquidator of London's RiverBus, yesterday said it had been approached by a number of companies interested in operating some of its commuter services on the Thames, which were suspended at the end of last week.

'We hope to sell the business at the earliest opportunity,' the liquidator said.

'We have already been contacted by several potential purchasers and will now begin negotiations in earnest.'

The operators decided to close the RiverBus service after a 15-month struggle following the financial collapse of its principal underwriter, Olympia & York, the Canary Wharf developer.

UNION RAILWAYS, the British Rail subsidiary responsible for the Channel tunnel link, is investigating the feasibility of extending its tunnelling in London should St Pancras Station be chosen as the terminus for the link, Lisa Wood writes.

The study was in response to local protests over proposals, still being considered, for trains to travel to St Pancras Station alongside the existing North London line through Islington in north London, Union Railways said.

It added that it would carry out a feasibility study of siting a tunnel underneath the North London line, one of a number of options still being considered.

THE NEW head of the National Criminal Intelligence Service said financial institutions risked being undermined by large-scale money laundering by criminals.

Mr Albert Pacey, 54, former chief constable of Gloucestershire, said: 'We are concerned that the public, who are rightly anxious about street crime, will, as a result, forget the hidden dangers of sophisticated drug trafficking, fraud, money laundering and major robberies and burglaries.

Its financial intelligence unit had assessed more than 16,000 disclosures from banks and other financial houses on suspicious transactions - one in eight had led to further police or Customs inquiries.

Its counterfeit currency unit has provided information for seven police operations netting more than Pounds 8m in forged sterling.

The service was launched 17 months ago to co-ordinate the combating of serious crime.

THE GOVERNMENT plans to press ahead with the deregulation of London's bus services in spite of gloomy backbench forecasts of a backlash from voters.

The decision means ministers could find themselves fighting backbench opponents on both bus deregulation and the details of rail privatisation when parliament reconvenes in October.

Mr Steven Norris, the London transport minister, said the government was committed to deregulation, which was promised in the Conservative manifesto for the 1992 election.

Mr Norris said the government would avoid the transitional problems which led to complaints when services outside the capital were deregulated in the mid-1980s.

He also gave an unequivocal assurance that the Travelcard system, which allows passengers to switch between different modes of transport, would be retained.

Mr Norris's comments were aimed at calming Conservative critics inside and outside parliament who fear that deregulation will lead to higher fares and cuts in services.

Backbench critics showed no signs of backing down, however. Sir Rhodes Boyson, Conservative MP for Brent North, said deregulation was 'a form of suicide pill' for Conservative prospects in London council elections next May.

Worryingly for ministers, Sir Rhodes linked deregulation to other issues causing backbench unease, including railway privatisation and health and education reforms.

He said: 'I think the government is doing too much. It is running around all over the place and falling off cliff edges.'

Ministers believe the government would have little difficulty in forcing bus deregulation through the Commons as part of an omnibus deregulation bill being prepared by the trade and industry department.

But even a small rebellion on deregulation would increase the aura of disunity on the Conservative benches.

Government sensitivity on the issue was underlined by a plea for unity by Sir Norman Fowler, the party chairman, in the latest issue of Newsline, the Conservative newspaper.

THE ELECTRONIC tagging devices the government is considering introducing to charge motorists for using motorways could also be used to surcharge drivers for speeding, a minister has suggested.

Mr Robert Key, roads minister, said he could envisage a situation where motorists would be charged for every mile they broke the speed limit.

'You would know before you set out that if the speed limit was 70mph and you were doing 80mph, it was going to cost you and it was going to hurt,' he told Carweek magazine.

In May the Department of Transport suggested in a green paper that motorways could be operated profitably by charging users, imposing tolls of up to 1.5p a mile or an annual fee of up to Pounds 75.

Mr John MacGregor, transport secretary, indicated in June that annual permits were the 'most realistic option' if the government decided to move quickly, as electronic tolling probably would not be 'technologically achievable' until at least 1998. But he said electronic tolling offered 'more flexibility in the long run'.

The Department of Transport said yesterday the government had 'a very open mind' on whether to introduce road charging.

Mr Key was not implying that charging speeding motorists in the way outlined was going to be government policy.

Under the approach set out by Mr Key, motorists could be charged an extra 50p a mile for every 5mph they were travelling over the speed limit.

The AA criticised the proposal for suggesting that the rich could break the law. 'Charging premium rate tolls for speeding motorists sounds like a charter for the law-breaking rich,' it said.

URBAN DEVELOPMENT corporations have failed to meet at least 40 per cent of their performance targets, the National Audit Office, the government spending watchdog, says in a report today.

But the NAO doubts whether performance measures have been well-defined, and suggests that the corporations may be even less successful. It says that the Department of the Environment has not been given sufficient information to fulfil its supervisory role.

The report by Sir John Bourn, comptroller and auditor general, says output data are unreliable, that some achievements claimed by the corporations resulted from developments started before they were established, and that measures are inconsistently defined.

It also raises questions about whether some projects in the pipeline will contribute to regeneration.

The eight corporations covered by the report, which were established between 1987 and 1989, are projecting delivery of 5.5m sq metres of floor space during their lifetimes, in spite of a recent survey which found that 14m sq m of industrial floorspace is available in England, including 1.6m sq m in new buildings.

Some building plans exceed the corporations' estimates of what is necessary. In the areas of two of the corporations - Trafford Park and Central Manchester - demand for 840,000 sq m has been identified by the corporations, which plan to build 1.29m sq m.

The Achievements of the Second and Third Generation Urban Development Corporations, House of Commons Paper 898, HMSO. Pounds 8.15.

CONSUMER confidence in the health of the economy has increased again, fuelled by a growing belief that unemployment has stopped rising, the latest Gallup survey of consumer confidence shows.

The survey, conducted on behalf of the European Community, found that when asked about prospects for growth, optimists outweighed pessimists by 6 percentage points.

Thirty-four per cent of the 2,042 respondents expect the general economic situation to improve in the next 12 months, against 28 per cent who expect it to deteriorate.

The balance of 6 per cent is 11 points higher than the July result. With the exception of May, when expectations soared briefly only to evaporate, this month's figure is the best since June last year.

The positive assessment of the economy apparently stems from brighter expectations about jobs. Less than half (49 per cent) of Gallup's respondents predict an increase in unemployment in the next 12 months, while 20 per cent expect the jobless total to fall.

The still positive balance of 29 per cent expecting unemployment to increase is nonetheless 11 percentage points lower than the July figure.

The balances in this particular series have fallen sharply since the beginning of the year. In February a balance of 74 per cent of respondents expected unemployment to increase over the year ahead.

More people believe now is the right time to make a big purchase, possibly indicating that consumers are becoming less worried about committing themselves to significant retail spending.

But consumers are not yet convinced that their own financial health will improve. In spite of optimism about the general economic situation only 20 per cent of households expect their financial position to improve in the next 12 months. They remain outnumbered by those who expect it to deteriorate.

A survey yesterday from Brook Street, the recruitment specialists, suggested that optimism about the economy is also prevalent in industry.

A survey of 1,514 companies showed that 61 per cent expect an upturn in business before the end of the year. Almost 40 per cent indicated their intention to take on more employees by the end of the year.

The number of business failures tumbled in the second quarter of the year in England and Wales, figures published yesterday show.

According to KPMG Peat Marwick, the accountancy firm which compiled the figures, company liquidations fell 10.5 per cent from the previous three months and individual bankruptcies dropped by 21.5 per cent.

Company liquidations fell to 5,265 from 5,881 in the first quarter of the year, while bankruptcies dropped to 7,403 from 9,435.

LOGANAIR, a British Midland subsidiary, yesterday announced a Pounds 25m order for three Jetstream advanced turbo-prop aircraft.

Earlier this month workers at Jetstream, the British Aerospace subsidiary based at Prestwick, Scotland, feared that large redundancies were possible when management warned of difficulties because of poor market conditions.

LABOUR yesterday branded the government's health reforms an expensive flop as Mrs Virginia Bottomley, the health secretary, prepared to announce the next wave of trust hospitals this week.

Mrs Bottomley is expected to unveil the names of more than 100 new trusts to go into operation from April next year, joining 293 existing ones. She is also expected to invite applications for a fifth wave of trusts to start in April 1995.

Mr David Blunkett, shadow health secretary, said the government had admitted that its reforms had cost Pounds 1.2bn in the first two years. Yet patient waiting lists had increased, he added.

BRITISH Coal has suspended work at part of two other Nottinghamshire pits until an inquiry is completed into last week's accident at Bilsthorpe, in which three miners died.

British Coal refused to go into detail about the moves at Welbeck near Mansfield and Manton near Worksop other than to say they were for safety reasons.

THE Homes Assured Corporation fraud trial was adjourned yesterday after a member of the jury fell ill.

The man had complained of feeling unwell shortly after the jury began its second day considering verdicts in the trial of three former Homes Assured directors.

The judge sent the jury to spend a second night in a hotel, saying the position would be reviewed today.

AN 'anti-science' mood is sweeping Britain and undermining medical research, Sir David Weatherall, Regius Professor of Medicine at Oxford University, said yesterday.

Sir David, president of the British Association for the Advancement of Science, was speaking in advance of the association's annual meeting at Keele University next week.

He said young people blamed science for environmental problems and were alarmed by the 'Jurassic Park' image of genetic research. They were also concerned about 'the possible stigmatisation of people' carrying undesirable genes.

Despite high-profile developments in genetic research, people could not see improvements in healthcare, Sir David said.

FOOD discounters and US-style warehouse clubs pose a serious threat to large UK superstore operators, Mr Archie Norman, chief executive of Asda, warns today.

Mr Norman said in June the 'halcyon days' of UK food retailing were over, with the industry unable to support planned store openings without a downturn in margins and sales growth. On 'In Business', to be broadcast on BBC Radio 4 tonight, he warns that superstores are wrong to assume discounters operate in a different part of the market.

'The reality is we're all selling food. The warehouse clubs will affect the food retailing industry as will the discounters. They'll sure as hell have an impact and will attract a lot of attention because they are a very dramatically different style of retailing.'

The three largest superstore chains, J. Sainsbury, Tesco and Safeway, have denied that discounters such as Aldi, Netto and Shoprite, and warehouse clubs - which sell goods at very low prices from huge sheds - will damage their business. But they have joined forces to try to overturn planning permission granted to US warehouse club operator Costco at Thurrock, Essex, prompting allegations of collusion and calls for an Office of Fair Trading investigation.

Sir Alistair Grant, chairman of Argyll, owner of Safeway, says on the programme he 'wouldn't feel uncomfortable' about an OFT investigation. He denies supermarket chains have colluded to fix prices.

THE CLEARING system for UK universities starts today with indications that rejections of candidates for arts courses have been significantly higher than last year.

But the Polytechnic Central Admissions System reported that two 'E' grades - the lowest grade of A-level pass - would be sufficient to gain entry into many science and engineering courses.

Mr Tony Higgins, chief executive of PCAS, said: 'The absence of arts and social science courses is striking. But the place is seething with science and engineering courses.'

He added that admissions tutors for arts subjects had had to adopt much stricter criteria. 'In normal years admissions tutors have three piles - yes, maybe and no. This year they need to be much more decisive, and the only piles are yes and no.'

The Universities Central Council on Admissions (Ucca), which will merge with PCAS later this year, reported that more courses were still open than at the same stage last year, although vacancies in arts subjects were restricted to combined courses.

It predicted that more applicants would qualify for clearing this year, leading to a higher proportion of ultimate rejections. The total number of students accepted by Ucca members, which exclude the old polytechnics, could slightly exceed that for last year.

University vice-chancellors, who have lobbied intensively in the past week for the government to direct more funds to higher education - possibly by requiring students to take out loans - said that changes in government funding were to blame for the problem. The government has cut the fees which it pays universities for tuition in arts courses.

The Committee for Vice-Chancellors and Principals said: 'Given the government's very clear insistence that it doesn't want to see the expansion continue for the time being, universities feel bound to be strict. They won't be able to offer alternative courses to applicants who miss out narrowly any more.'

Yesterday the committee stepped up this campaign by calling for the government to increase 'access funds' for students, and to rename them 'hardship funds'.

It said: 'They have no effect on access to higher education, since payment is not made until the student is registered. They are no more than a rather inadequate safety net.'

Applications by students rose by 15 per cent between 1990-91 and 1991-92, but available funds rose by only 4 per cent. The committee suggested that funds should also be made available out of term, because vacation jobs were hard to find and students could no longer claim benefits.

Total access funds in 1992-93 were Pounds 19.17m.

The committee's efforts to blame the government for the sharp fall in the supply of arts and humanities places available through clearing seem, so far at least, to have found no resonance among Tory backbenchers.

Mr James Pawsey, chairman of the party's backbench education committee, said he was 'a little disappointed' by the committee's attitude, given the expansion of higher education and the resources available for it since 1979.

A CROSS-PARTY committee of MPs is expected to recommend a multi-million pound facelift for catering and dining facilities in the Palace of Westminster to bring them up to acceptable safety and hygiene standards.

The catering committee report, which is expected in November, follows the first ever strategic assessment of Westminster's venerable catering facilities.

'We are trying to deal with 50 to 100 years of botch,' according to Mr Colin Shepherd, Tory MP for Hereford and committee chairman. 'If it had been in the private sector, we would have been served with a notice,' he added.

According to Mr Shepherd, a report by a firm of independent consultants into hygiene in Westminster's collection of kitchens and dining-rooms had been 'fairly devastating in technical terms'.

The report is thought to have highlighted a wide range of defects in areas such as tiling, guttering, refrigeration (which has now been dealt with) and flow paths, where incoming food came into contact with prepared food. A report into health and safety aspects is thought to have pointed to inadequate passage space at a number of facilities.

About four weeks ago Mr Anthony Steen, the Conservative MP for South Hams and a catering committee member, told MPs he understood they were to authorise spending 'about Pounds 19m' on updating the kitchens. This figure is thought to be on the high side.

The Westminster facilities enjoy Crown immunity from prosecution under hygiene and health and safety statutes. The policy, however, is to comply with relevant legislation.

The Commons refreshment department yesterday published its annual accounts for the year ended April 1, showing a 1 per cent increase in turnover to Pounds 3.34m. Of this, Pounds 1.39m was attributed to House services, Pounds 1.3m to private banqueting and Pounds 0.65m to souvenir kiosks and shops.

THE GOVERNMENT should set up a charter to give regulators of the privatised utilities clear directions on their role, says a report published today by the European Policy Forum.

Mr Cento Veljanovski, a commentator on regulation, says a charter would end the sometimes acrimonious relationships between the regulators and the companies they watch over.

The Monopolies and Mergers Commission said last week it hoped that the bitter relations between British Gas and Sir James McKinnon, head of the regulator Ofgas, would ease as Ofgas concentrated on more technical issues.

The commission noted that a change of personnel at the gas regulator was imminent - Sir James is due to retire in October - and said this, with the fact that Ofgas would be concentrating on more technical issues, could allow it to build a more constructive relationship with the company.

But Mr Veljanovski says that relying on a change of personnel is simply postponing the real issue. 'The danger is if the regulator changes so does the law,' he says. A charter would set down some rules for regulators to follow, circumscribing their discretion.

The monopolies commission said it could not comment on the regulatory system in its reports on the gas industry as it would need a specific request from the government to do so. Mr Veljanovski calls on the government to set up such an inquiry to be chaired by a figure with legal and regulatory expertise.

He believes this inquiry should draw up the regulatory charter setting out the principles of good regulation.

Under the charter a regulator would have to call formal hearings before the monopolies commission if he or she wanted to change a utility's terms of operation. These hearings would be open to public scrutiny and third-party representation.

Increased regulation would have to be cost-effective, Mr Veljanovski says. Regulators should also have to consult more widely and give reasons for their decisions.

The Need for a Regulatory Charter, European Policy Forum, 20 Queen Anne's Gate, London SW1H 9AA. Pounds 5.

LOW interest rates and a buoyant stock market gave a further fillip to unit trust sales in July, with a net Pounds 948m flowing in, according to the Association of Unit Trusts and Investment Funds. Funds under management reached a new high of Pounds 78.8bn, up from Pounds 76.3bn at the end of June.

The industry has benefited substantially from sterling's departure from the European exchange rate mechanism, and the consequent falls in base rates. Income offered by some unit trust personal equity plans (where returns are tax-free) is now higher than that provided by many building society accounts. Total net investment (gross sales minus repurchases) in the year to July was Pounds 5.25bn.

Private investors were responsible for nearly half (Pounds 453m) of the net sales in July. The most popular sectors were UK balanced, UK equity income and UK general funds. In July 1992, private investors made net withdrawals of Pounds 98m from the sector.

Gross sales of unit trusts in July 1993 were Pounds 1,631m, the eighth successive month in which they topped Pounds 1bn. If the pace continues, gross sales will outstrip the previous record of Pounds 14.55bn, reached in 1987.

The number of unitholder accounts, in steady decline since the crash of October 1987, is also on the increase. After touching a recent low of 4.35m at the end of last year, accounts have increased to 4.68m, indicating that the industry has a growing appeal.

The revival in the stock market has also helped unit trust performance, with the average UK equity income fund returning 28.6 per cent over the year to August 1 (offer-to-bid with income reinvested; source Hardwick Stafford Wright). The best performing sector over the same period was Japan, which produced growth of 91.8 per cent.

Evolution helps trusts, Page 15

ELEVEN of Brazil's 27 states signed an accord yesterday to restart repayment of up to Dollars 20bn (Pounds 13.3bn) owed to federal government agencies, in the first concrete step towards improving the Treasury's cashflow and balancing public accounts, writes Christina Lamb in Braslia.

Under the accord, whose signatories include the biggest debtor states such as Sao Paulo, Minas Gerais, Bahia and Rio de Janeiro, the federal government has the right to suspend revenue transfers to the states if they miss debt repayments.

The debt is to be restructured over 20 years with 240 monthly instalments. On signing, the states made a symbolic Dollars 38m payment to the National Savings Bank, to which they owe Dollars 9bn.

However, for the accord to come into effect, Congress must approve enabling legislation in a vote due next week and the Senate must decide on the level of payments for each state.

The federal government wants the states to pledge 11 per cent of receipts for debt payments. However, state governors insist they cannot commit more than 7 per cent.

To get the accord the government had to give in to various demands by the states.

It will assume much of the debt Rio state built up over its ill-fated metro project and discount money owed to the state power distribution companies by Eletrobras, the state holding company. The final amount to be repaid to the federal government may be nearer Dollars 11bn than the Dollars 20bn originally hoped for.

Following the government victory on wage legislation, the signing of the debt accord is the second piece of good news in a week for Mr Fernando Henrique Cardoso, the finance minister.

REPRESENTATIVES of the US's largest coal mine operators and the United Mineworkers of America will meet in Washington today in an attempt by federal mediators to end a long-running strike that has hit about 10 per cent of US coal production.

However, both sides have called today's talks 'exploratory', and neither expects a quick end to the dispute.

Mineworkers have been striking at eastern and central mines owned by members of the Bituminous Coal Operators Association since May, when the union's contract expired. Hardest hit include Peabody Coal, subsidiary of UK-based Hanson, and Consol Energy, owned by Rheinbraun of Germany and DuPont, the US chemical company.

Most of the affected mines produce high-sulphur coal, a commodity already under market pressure because of the environmenal constraints of the US Clean Air Act. The union is seeking guarantees from the coal companies that its members will be given jobs in new mines in the region.

The coal operators have proposed a complicated formula for awarding some new jobs to union workers and some to non-union labour.

Union workers, the companies contend, cost more to employ. The companies are also seeking contract concessions that would give them more workforce flexibility, according to Mr Tom Hoffman, a BCOA spokesman.

'The union still wants all the jobs at every single new mine that opens,' said Mr Hoffman, 'and we won't give them that.'

THE CLINTON administration yesterday threw its weight behind a controversial measure to allow property owners to buy the right to develop protected wetlands with payments to a fund set up to restore other wetland areas, writes Lisa Bransten in Washington.

Mitigation banking, as it is known, is part of a plan to protect sensitive lands that provide a home for over a third of endangered species in the US. Officials promised no net loss of US wetlands and hoped the plan would end the stalemate between environmentalist and agricultural and business groups.

Offsetting environmental damage in one area with gains elsewhere is gaining currency, with companies able to trade air pollution allowances.

THE DUNKEL negotiating text for completing the Uruguay Round of world trade talks is coming under fire from both business and labour in the US. Lobbyists are demanding far-reaching changes, and more progress on reducing tariffs.

The text, prepared by Mr Arthur Dunkel, former director-general of the General Agreement on Tariffs and Trade, proposes compromises based on Gatt members' positions. In the view of many US companies, it is weighted against 'the world's most open large market' because it would cripple the trade laws used to protect against 'unfair' practices or to open foreign markets. Objectors believe the text places too much emphasis on curtailing US trade laws. They argue greater attention should be paid to controlling dumping, subsidies and industrial targeting - practices those laws are meant to address.

The enthusiastic support of US business is vital if a final Uruguay Round package of reforms - with a notional deadline for agreement of December 15 - is to overcome protectionist forces in Congress.

The US Chamber of Commerce last week sent Mr John Schmidt, the country's co-ordinator for multilateral trade negotiations, a document spelling out what it sees as the draft's 'shortcomings'. High on the list was a complaint that it 'benefited significantly' the interests of the targets of anti-dumping investigations while prejucing those of complainants. An updated report produced by the Labour/Industry Coalition for International Trade has pinpointed many of the same deficiencies.

The Chamber of Commerce is also pressing for further tariff reductions (it mentions textiles and electronics), harmonisation of tariffs, and 'vigorous attempts' to achieve commitments made at this summer's Tokyo summit to cut peak tariffs in half and other tariffs by at least 33 per cent.

THE FIVE caviar-producing countries around the Caspian Sea agreed yesterday to set up a caviar cartel, according to a report from the Iranian IRNA news agency, threatening higher prices for one of the world's priciest delicacies, writes Neil Buckley.

Officials from Iran, Russia, Azerbaijan, Kazakhstan and Turkmenistan were reported to have met in the Iranian port of Bandar Anzali, and agreed to co-ordinate the global marketing of caviar.

IRNA said member countries would get together to determine an export quota for each country, and study the possibility of joint exports.

An Iranian official was quoted as saying the agreement was needed to end a slide in caviar prices since the break-up of the Soviet Union in 1991. But western caviar importers said last night Russian exporters had been quoting higher prices for caviar this year, and a cartel might have the effect of keeping prices at sensible levels.

The Soviet Union, which produced about 250 tonnes of caviar a year, and Iran, with 100 tonnes, were previously the only exporters - apart from China which produces about 15 tonnes a year - and fixed prices annually.

The disintegration of the USSR has led to four different countries - Russia, Azerbaijan, Kazakhstan and Turkmenistan - emerging as exporters.

Lack of centralised regulation has led to over-fishing and damage to caviar supplies in the Caspian Sea.

There has also been a rise in smuggling of caviar into western Europe.

MR KLAUS KINKEL, German foreign minister, and Mr Alain Juppe, his French counterpart, yesterday voiced their determination to reach a rapid settlement of the Uruguay Round.

'We have not solved all the problems, but our determination to find a solution is stronger than ever,' Mr Juppe told a news conference.

He said Mr Edouard Balladur, French prime minister, would be bringing new 'texts' putting forward French proposals on farm trade liberalisation, when he came to Bonn for talks with Chancellor Helmut Kohl tomorrow.

After a day of informal discussions in Dresden, in the east German state of Saxony, the two foreign ministers underlined the 'excellent' state of relations between their governments, in spite of the recent upheaval in the European monetary system, and their continuing differences on the Gatt negotiations.

Mr Juppe said that France could not accept the extent of cuts in European Community cereal exports, of between 13m and 17m tonnes a year, agreed in the EC-US Blair House accord last year.

Underlining efforts to forge a common position, Mr Jochen Borchert, German agriculture minister, flew to Paris for dinner with Mr Jean Puech, his French opposite number, last night.

HUNGARY will tomorrow name the winners of a tender for two concessions to operate digital mobile telecommunications systems, writes Nicholas Denton in Budapest.

The successful international consortiums are expected to pay a combined Dollars 100m (Pounds 150m) for the right to operate networks based on the pan-European GSM standard over 15 years and to invest a further Dollars 400m in development over the next 10 years.

Hungary's is the first tender in east-central Europe for GSM mobile phone services and will set a precedent for Poland and the Czech Republic.

Confident of victory is a group led by US West, the US regional operator, and HTC, the Hungarian telecommunications monopoly. They are already partners in Westel, the joint venture operating Hungary's analogue mobile telephone service.

DBFH, teaming Deutsche Bundespost Telekom, France Telecom and British Telecom, is also a powerful contender. With a reported Dollars 48m bid for the rights to one concession, the west European national oper-ators topped the Dollars 46m offered originally by US West and its partners.

But Deutsche Telekom is a prime contender for the planned privatisation later this year of a stake of more than 30 per cent in state-owned HTC. Deutsche Telekom's involvement in the national landline operator could conflict on competition grounds with participation in digital cellular telephony.

Deutsche Telekom's divided interest may work to the advantage of Pannon GSM, a coalition of the Danish, Swedish, Finnish and Dutch state telecommunications companies. The 'Nordic' group's last bid of Dollars 45m was only marginally behind the leaders' and the tender evaluation committee rated the submission's technical quality highly.

HOPES FOR rescuing the Dollars 980m (Pounds 652m) Mars Observer mission from failure were dwindling yesterday as US space scientists tried vainly to re-establish radio contact with the spacecraft.

Officials at the National Aeronautics and Space Administration could do little but cross their fingers and hope that a fallback programme would prompt the Mars Observer to call in of its own accord, after their own efforts to restore communications had produced no result.

However, they said yesterday they believed the spacecraft would automatically move into orbit, despite their lack of communications.

Nasa engineers had originally switched off the Mars Observer's radio last week as a precaution when they pressurised its fuel tanks in preparation for orbit. The radio has not switched back on.

Scientists involved in the mission tried to put a brave face on things, noting that some of the return on the Dollars 980m investment had already been achieved through the development of technology for the mission that could be transferred to other uses.

Nonetheless, the mission seems set to become the latest in a series of disasters that have severely damaged Nasa's reputation for getting things done.

Nasa's efforts to explore deep space, from the Hubble space telescope to the Galileo mission to Jupiter, have been hampered by technical failures.

Its launch programme has also been plagued with problems, with malfunctions causing repeated delays to the schedule for space shuttle missions.

Other space launchers outside Nasa's aegis have fared no better, with setbacks including the explosion earlier this month of an Air Force Titan 4 rocket carrying an expensive intelligence satellite.

These problems come at a particularly critical time for Nasa, because of the intensity of debate in Congress about future funding levels for expensive programmes such as space exploration.

The space station, redesigned to meet tighter cost constraints, survived by one vote in the House of Representatives in June, but Congress members opposed to the station believe there are still other opportunities to kill the project.

THE UNITED NATIONS last night appointed a senior investigator to examine persistent charges of fraud, waste and corruption in the organisation.

Mr Mohamed Aly Niazi, an Egyptian who served for 23 years as a UN internal auditor before his retirement, will fill the newly-created post of assistant secretary-general for inspections and investigations.

He is said to be 'obsessed with honesty' and is already running an inquiry into UN handling of multi-million dollar bids for commercial contracts for peacekeeping and other services.

Eight officials were suspended recently after suspicions of impropriety in the award of a contract to a company providing helicopter services for the UN.

Mrs Madeleine Albright, US delegate, has been pressing for appointment of a UN inspector-general with wide powers.

That question is expected to be addressed by member states at the general assembly session beginning next month.

Allegations of mismanagement and lax controls over the UN's world-wide operations are blamed in part for the US Congress's failure to authorise payment of Dollars 786m (Pounds 527.5m) in arrears for the regular budget and peacekeeping.

US GOVERNORS have agreed on a new policy aimed at preventing 'bidding wars' in their efforts to attract businesses to their states by offering tax breaks and other incentives.

The policy will not end such competition but officials hope it will mark a truce and help states to focus on improving their general economic conditions.

Governor Jim Edgar of Illinois, main author of the policy, said it 'should restore some sanity to the competition'.

Governors have often come under attack for spending more money and effort trying to attract new industrial plants than on maintaining sound business conditions for existing businesses that may have a much better record of creating local jobs.

The new policy statement from the National Governors' Association, agreed at a meeting in Oklahoma last week, says that the competition for plant location 'should not be characterised by how much direct assistance a state can provide to individual companies'.

Instead, states should be judged on such factors as improvements in education, transport, telecommunications, general tax policies, business regulation and the quality of public services.

The announcement of a new industrial plant can trigger a flurry of offers from states anxious to win the jobs it would bring, ranging from tax holidays to free land and infrastructure investments.

Mercedes-Benz received offers from more than 30 communities around the US when it announced it would build a Dollars 300m factory making four-wheel drive utility vehicles. BMW won an estimated Dollars 71m in land grants and other incentives from South Carolina when it decided to locate a Dollars 410m plant in Greenville.

ANGLO-German partners AEG and Taylor Woodrow International have won a DM735m (Pounds 290m) contract for a light railway system in Kuala Lumpur, the Malaysian capital, writes Christopher Parkes in Frankfurt.

AEG said yesterday its share amounted to DM320m and comprised orders for the entire electrical system, signalling, telecommunications, ticket-issuing and workshop equipment, and 34 units of rolling stock.

Taylor Woodrow, the construction company in charge of the project, will lay tracks and build stations for the 12km project. On completion, expected in late 1996, the system will have a maximum passenger capacity of 35,000 an hour in each direction.

The contract represents a further advance for AEG's rail systems division, one of the fastest growing units in the Daimler-Benz subsidiary. AEG is due shortly to make its first direct investment in Chinese railways, in a joint venture to make carriages for the Shanghai metro. The company made its first move in Chinese railways in charge of an all-German consortium which set up and equipped the first stretch of the Shanghai system.

THE ANGRY resignation of Argentina's interior minister has brought out into the open a bitter row over President Carlos Menem's drive to amend the constitution so he can stand for a second term, Reuter reports from Buenos Aires.

Mr Gustavo Beliz, a 32-year-old lawyer sworn in just nine months ago as a symbol of clean government, stormed out on Monday after accusing some of Mr Menem's closest aides of dirty tactics in their campaign to change the constitution.

Mr Beliz, who has close links to leaders of Argentina's Roman Catholic church, said in his letter of resignation that unidentified senior officials were generating 'an unacceptable state of suspicion' by the way in which they tried to further Mr Menem's goal.

The outgoing minister had also charged in an interview published on the eve of his resignation that some of Mr Menem's aides were prepared to buy opposition votes in the 257-seat lower house of parliament, which must approve by a two-thirds majority any proposal to change the constitution.

Although Mr Beliz never named any of his targets, one of his aides singled out Mr Eduardo Bauza, Mr Menem's influential chief of staff and his main political operator.

Mr Menem, who took over from his predecessor Mr Raul Alfonsn at the height of a bout of hyperinflation in 1989, will have to step down in July 1995 if he cannot get the constitution changed.

He says his team's success in reining in inflation must be given a further lease of life with a second term in office.

IN TAIWAN the business of building aircraft has become too important to be left to businessmen.

Taiwan Aerospace Corporation (TAC), the company set up two years ago by Taipei to launch one of Asia's leading manufacturing economies into the commercial aviation industry, is being elbowed aside by the country's banks and government officials.

Its president and chairman will be replaced within weeks by nominees from creditor banks, whether or not the protracted talks with its potential partner, British Aerospace, succeed in establishing a joint venture to build regional jet aircraft. Although TAC's chairman is taking part in the talks, the state-owned Chiao Tung Bank, which leads the banking consortium that plans to lend money to the joint venture, has taken centre stage in the talks.

Mr Denny Ko, TAC's outgoing president, is not even attending this week's event though he signed the original joint venture contract with Mr John Cahill, BAe's chairman, in January. US-educated Mr Ko acknowledges that he was 'perhaps naive' in believing the fine-tuning of the contract would take just three months. He says that the Taiwanese establishment tends to regard him as too pro-western to take any further part.

But he admits the banks have some justification for their unhappiness about the way the deal has been conducted. 'There was a breakdown in communications' between TAC and the banks backing the project during the spring,' he says.

That breakdown led this week to a redrafting of a series of clauses in the original contract with the intention of assuaging the fears of the banking consortium members that the joint venture might lose money. Those changes being negotiated this week are designed to:

Ensure that assets BAe is putting into the joint venture called Avro can be used as collateral against bank loans. Details of the loans have dominated talks this week.

Reduce the banks' exposure to risk in the leasing of aircraft - Taiwanese banks are relatively unfamiliar with leasing.

Determine the nature of a market study that could lead to the production a new model of aircraft, the RJX.

Strengthen BAe's commitment to transferring design and manufacturing skills to Taiwan - a senior government official on Monday said the original contract was 'loose' on the subject.

This last point was underlined yesterday by Taiwan's defence minister, who was reported to have called for more technology know-how to be transferred to Taiwan as part of a separate military aircraft deal with Dassault, the French aircraft maker.

The now sidelined Mr Ko can only watch Taiwan's banking and political establishment take direct control of the talks, indicating how determined it is to make Taiwan a force in civil aircraft manufacture. While BAe wants Asian manufacturing and markets to stem the losses in its regional aircraft operation, for Taiwan the logic of the deal is more complex and no less compelling.

The country has a well-developed military aerospace industry that grew out of its political isolation. In the wake of western countries' recognition in the early 1970s of the communist government in Beijing, Taiwan was unable to buy advanced military aircraft from western countries.

In the 1970s it began a programme to develop its own supersonic fighter aircraft. But just as production got under way last year, France and the US decided to risk Beijing's wrath by allowing the sale of General Dynamics F-16 and Dassault Mirage 2000 fighters to Taiwan.

Taiwan's air force promptly halved its order for the indigenous fighter, leaving 200-plus local aerospace manufacturers and the design and manufacturing arm of the defence ministry with spare capacity.

What is unfortunate for BAe, is there is no shortage of western suitors willing to take work-hungry Taiwanese partners. The Taipei annual aerospace exhibition, which finished on Sunday, was dominated by huge pavilions of French and US companies. BAe was represented by a small stand under the name of Avro.

See Lex

TALKS between British Aerospace and Taiwanese officials to rescue a proposed joint venture have spilled over into a third day, write Daniel Green and Dennis Engbarth in Taipei.

Fourteen hours of meetings yesterday remained mired in the details of how the aircraft manufacturing venture, called Avro, will be financed.

The deal is central to BAe's strategy to improve its profitability. The RJ series of regional jet aircraft that would be built partly in Taiwan currently loses money for the company.

Taiwanese banks want to limit their exposure to the fortunes of Avro. They are seeking assurances that the assets BAe is putting into Avro - land, plant and machinery in the UK - qualify as collateral for their loans rather than loans from UK banks. The Taiwanese cabinet minister involved in the talks, Mr Chiang Ping-Kun, economic affairs minister, confessed he 'did not understand' UK banking law on collateral.

Taiwanese law prevents a bank from making unsecured loans to a company in which it has more than a 3 per cent stake. This limit is exceeded by the state-owned Chiao Tung Bank, which heads the consortium of lender banks.

Chiao Tung Bank officials will continue their talks with BAe today.

Another team from Taiwan Aerospace Corporation, the joint venture partner, will address guarantees that aerospace technologies will be transferred to Taiwan and the conditions under which a new range of aircraft, the RJX, would be developed.

MR ZHU RONGJI, China's vice premier in charge of the economy, acted to slow the rapid growth of the economy after receiving recommendations from international advisers whom he called the 'foreign monks'.

The team's involvement in the formulation of economic measures reveals a remarkable degree of openness to external advice on the part of Mr Zhu.

Mr Zhu's term for the foreigners, according to a participant in meetings held in China in June, was 'his way of saying that outsiders sometimes have greater wisdom because they can look at things from the outside'.

The team, mainly from the World Bank but including several other foreign economists, recommended a package of measures to cool the over-heating economy at the end of a three-day meeting with Chinese officials at Dalian, on China's north-eastern coast, from June 10 to 12.

Among their suggestions were increases in interest rates, much tighter control of the financial system, and curbs on capital spending by local governments.

Mr Zhu's response was swift. On July 2 he took over as governor of the People's Bank of China, the central bank. On July 5 he stated that China 'must rectify financial order and strengthen financial discipline'. On July 11 he raised interest rates.

The World Bank team first met Mr Zhu in Beijing. He asked them whether they believed that the economy was over-heating. When they answered that they were convinced that it was, he asked them what actions they would advise.

The team then went to Dalian for an annual session with ministers and top officials of the ministry of finance, the People's Bank and the System Reform Commission, the agency which is overseeing the re-structuring of the economy. The team's advice was given at the close of the Dalian conference.

The recommendations, a copy of which has been obtained by the Financial Times, said evidence of overheating was provided by rising inflation and a widening gap between the official exchange rate and the rate in the 'swap centres' in which foreign currencies are mainly traded.

'It is clear that the main source of the overheating is excessive fixed investment growth, facilitated by an accommodating monetary policy,' the report said.

China's economy grew 13 per cent in 1992 and the annual rate of growth rose to 14 per cent in the first half of 1993. As the economists and officials met, inflation was edging over 20 per cent in big cities and the yuan, China's currency, was weakening as low Chinese interest rates made it attractive to hold foreign currencies.

Much of the investment in fixed assets - which was rising at a 70 per cent annual rate in the first half of 1993 - was by local governments which rushed, with the help of ill-advised lending, to establish property and industrial schemes.

Mr Zhu has cracked down both on the lending and on local authorities, closing down 1,000 locally-declared 'development zones' - though economists say the total number of zones is much larger than this.

The World Bank already had a close relationship with China. Reforms since 1979 have earned high praise from the bank and exhortations to press ahead.

Reuter adds: The US plans to impose sanctions against China as early as this week for allegedly exporting sensitive missile technology - the M-11, capable to delivering a 500kg warhead up to 300km - to Pakistan in breach of its pledges, a US official said in Washington yesterday.

Monks, not devils, Page 13

CHINA and Vietnam yesterday sought to open a new chapter in their vexed relations, with their first high-level talks on long-running territorial disputes, including a row over oil drilling rights in the Tonkin Gulf.

Mr Tang Jiaxuan, China's vice foreign minister, talked of a 'new situation' in relations between the once close allies, and said that Beijing would 'participate in the negotiations with positive, practical and constructive attitudes'.

Western officials in Beijing say that while it was important that the neighbours should have resumed discussions in an apparently cordial atmosphere, significant barriers remained to an early resolution of disputes over territory both in the Tonkin Gulf, and in the South China Sea where the two sides are locked in disagreement over ownership of the Spratly Islands.

Mr Vu Khoan, Vietnam's vice foreign minister, said at a welcoming ceremony at China's state guest house that the two sides had come together to 'help resolve various problems left over from history'.

Agreement on this new round of talks was reached during a visit to Hanoi last December by China's Premier Li Peng. That visit was aimed at establishing a new basis of trust and understanding after the mutual antagonism of the recent past.

China, angered by Hanoi's invasion of Cambodia, launched a brief border war against Vietnam in 1979 which it described at the time as a 'counter attack in self defence'.

Chinese forces received a 'bloody nose' at the hands of the Vietnamese.

It was not until 1991 that relations were normalised again, but lingering mistrust delayed the resumption of serious efforts to resolve their differences.

Japan yesterday announced that it had agreed to lend a total of Y138.7bn Pounds 890m to China, in the year to next March, to promote its reforms and open-door policies, Reuter reports from Tokyo.

The loan is part of Japan's third package of yen-based loans to China, worth a total of Y810bn.

The new loan will be used for 18 projects, including five new projects. It has a 30-year term, with a 10-year grace period and a 2.6 per cent annual interest rate. The loan is not linked to contracts with Japanese companies.

Nigeria's President Ibrahim Babangida will step down tomorrow, state radio said yesterday, Reuter reports from Lagos. The chief justice would swear in members of an interim national government the same day, the radio added. There would also be a farewell military parade to mark the end of Gen Babangida's eight years in power.

THE BANK of Japan remained equivocal on the state of the domestic economy yesterday, proclaiming in its latest monthly review that 'Japan's recession seems to be coming to an end', but adding that imminent recovery was not in sight.

The central bank's assessment was echoed by the economic planning agency, which said its index of current economic conditions was negative in June for the second successive month. A revival hung in the balance, it added.

After positive scores on its so-called coincident diffusion index for the three months to April, the EPA in mid-year announced that the economy had bottomed out.

Officials have since attempted to cling to this forecast and brush off fears of a double-dip, while acknowledging that conditions are not improving.

The index reading stayed at 10.0 in June, the same level as in May and down from 65.0 in April. The index of leading indicators was 36.4, its fourth month of decline.

According to the Ministry of International Trade and Industry, industrial production in the three months to June was down 1.5 per cent from the first quarter, hit by a fall in output of consumer durables.

The Bank of Japan said its assessment of latest available data showed personal spending still weak as a result of a fall in wage-earners' bonuses and a poor summer. Fixed investment by manufacturers continued to decline despite de-stocking which had 'virtually run its course'.

It described export demand as firm, particularly from South-East Asia, but said imports remained stagnant except for foods, textiles and machinery.

The bank intervened in currency markets again yesterday to prop up the dollar against the yen, the recent rise of which has been hurting export profitability. The yen closed in Tokyo down Y0.62 at Y103.97.

HONGKONG and Shanghai Bank and its subsidiary Hang Seng Bank have tightened their mortgage lending policy, following the release of government figures showing the fastest monthly growth in mortgage loans since late 1991.

However, the moves have been seen as largely cosmetic, and unlikely to hold back a property market which withstood the introduction of a 70 per cent ceiling on mortgage lending for new properties in November 1991.

The two HSBC group companies yesterday announced guidelines primarily aimed at curbing property speculation. These included an increased penalty for mortgage repayment within 12 months of a property purchase, and an end to loans against properties more than six months before they are ready for occupation.

Luxury property prices are estimated to have risen by more than 20 per cent during 1993, and there has been a significant increase in the level of sales. This has been boosted by an enormous influx of capital from mainland China, where investors have been looking for a hedge against the weakening yuan.

According to the Hong Kong government's monetary authority, total outstanding mortgage lending increased by 2.2 per cent during July, compared with an average of 1.1 per cent for the previous year. It expects a further increase during August.

The authority's deputy chief executive, Mr David Carse, yesterday encouraged the colony's banks to review lending criteria, in the light of the latest statistics.

Since mortgage lending is arguably the most profitable part of their loan portfolios, the banks will be anxious to see the property market stabilise rather than actually fall. Hongkong Bank said it would take a flexible approach to the new policy.

CHINA'S economy is, in the World Bank's terminology, 'half-reformed'.

Its excesses have to be curbed by a delicate mix of telling people what to do - as in the old days of central planning - and indirect measures which rely more on the working of market forces.

Given the complexity of the task, it was not without reason that Mr Zhu Rongji, senior vice premier in charge of the economy, turned in June to the World Bank for advice on how to deal with the extraordinary boom which had resulted from the most recent round of market-oriented reforms.

China has long respected the bank's advice. Mr Zhu's direct request to a team of visiting economists for assistance on dealing with an overheated economy indicated its continuing influence with the Beijing government.

Before taking action to slow growth, however, he wanted to be sure that the economy was indeed overheating. The response from the World Bank was unequivocal. According to its annual study completed in June, massive growth in fixed investment was pushing up prices of raw materials at a rate of nearly 40 per cent. Real estate and securities prices were rising sharply, and excess demand was creating bottlenecks in transport and electricity.

'It is clear that the economy is now overheating, and that growth at current rates is not sustainable,' the bank said. However, it believed swift action could prevent a 'hard landing' and could maintain economic growth of 8 to 9 per cent - still fast, but below the heady 13 per cent pace of 1992.

For three days in June, a team of its economists - accompanied by a few foreign economists from outside the bank - conferred with Chinese officials at Dalian in north-east China on exactly what actions should be taken to cool the economy while maintaining the pace of reform.

A central theme underlying their recommendations was for the government to seize control of the financial system and of macroeconomic management, while not choking off the development of market mechanisms.

At the heart of China's problems, in their view, was the inability of the central bank, the People's Bank of China, to exert monetary control. There was little discipline over banks' lending (none at all over non-bank financial institutions), little use of interest rates as a monetary instrument and little attention paid to flows of foreign exchange. The People's Bank was itself increasingly engaged in commercial activities.

A large proportion of the reforms suggested by the team centred around the issue of financial control.

The People's Bank, they said, should be radically re-structured 'to turn it into a real central bank'. It should abandon all activities, such as ownership of securities companies and mutual funds, which were not the function of a central bank.

Three weeks after the conference at Dalian, Mr Zhu installed himself as governor of the People's Bank and began the recommended changes.

On monetary policy itself, the foreign advisers suggested an increase of at least 3 to 5 percentage points in the one-year deposit rate and an even greater increase in lending rates.

Other interest rates should also rise with the aim of pushing all above the inflation rate, which had risen to around 14 per cent by the end of the first half. The previous increase in rates, on May 15, was judged insufficient and harmful to the banking system because deposit rates were raised by more than lending rates.

On July 11, one-year deposit rates were increased from 9.18 to 10.98 per cent, and the lending rate from 9.36 to 10.98 per cent. Three-year government bond coupons went up from 12.52 to 13.96 per cent. Thus, longer-term rates have become positive relative to inflation, though not yet short-term rates.

The economists suggested that rate increases be accompanied by a rigorous tightening of bank supervision, including a reduction of liquidity through increased reserve requirements. Credit ceilings should be enforced and applied to all lending institutions, they said.

They recommended an acceleration of moves towards a unified exchange rate. The authorities have since intervened in the swap market to bolster the yuan, encouraging those who had been hoarding foreign currencies in expectation of further weakness of the yuan to buy the Chinese currency.

The gap between the official and swap market rates has therefore narrowed.

While the measures detailed so far essentially relied upon a market response which would have the effect of slowing economic growth - such as reduced and more judicious bank lending - some direct action was also called for.

The effect of official exhortations to faster growth had been to encourage local governments all over the country to pour money into property and industrial schemes. They would give preferential tax treatment to such projects by designating the construction areas as development zones.

Financed by easy lending, these schemes contributed enormously to the economic boom, commanding huge volumes of raw materials and pushing up their prices. They also caused a loss of tax revenue, worsening an already large budget deficit.

This was a sensitive political issue because it involved wresting back to the centre some control which had been allowed to devolve to local authorities.

The economists at Dalian said they 'recognise that there will be resistance to enforcing planning commission controls over investment at the local level'. But their carefully worded conclusion was that 'a key task for the central government at the present time is to achieve consensus on the need for a reduced investment rate'.

The government has since closed many development zones and cracked down on wasteful or corrupt local plans.

These changes represent only a small part of the World Bank's overall blueprint for Chinese economic reform. Further deregulation of prices and trade as well as re-structuring of the tax system, incomes policy, and state-owned enterprises are all recommended.

The economic boom, however, has focused the urgent attention of both China and its advisers on the financial system, an area which had so far virtually escaped reform.

Underlining its importance, the World Bank is to hold further workshops with Chinese officials next month on reforming the People's Bank and on re-structuring banks so that they are no longer involved in 'policy lending' - state-directed lending for the purpose of subsidising state enterprises, or the financing of costly long-term development projects.

Although massive hurdles - both economic and political - face China's economic managers, World Bank economists believe the steps taken so far to deal with overheating are in the right direction, and they expect more. The extent to which the desired solutions depend on the market's response, however, shows how far economic reform in China has already come.

NOT FOR the first time, but possibly for the last, General Ibrahim Babangida yesterday demonstrated his capacity both to surprise Nigerians and keep them guessing.

Three days before he is scheduled to step down from power, Nigeria's military leader authorised the introduction of a two-tier price system for petrol that will have the effect of raising the price ten-fold.

Is the move designed to trigger protests which might turn to violence and provide a pretext for an extension of the general's strong-arm rule?

Or is it his farewell gift to the new government, due to be sworn in tomorrow, tackling an issue a civilian government might prefer to avoid?

Whatever his motive, the general has belatedly fulfilled an acid test of any attempt to put Nigeria's lapsed economic reform programme back on track. Few issues are so central to recovery as the need to end the massive subsidy of fuel that saw smuggling to neighbouring states thrive and left many parts of Nigeria short of petrol - at the official rate, that is.

Under the new system, fuel at the old price of N0.70 a litre (1.8p) will still be available, but in the coming weeks the number of outlets will be cut and queues will get longer. More and more drivers will choose to pay a higher price - N7.50 - for a premium grade petrol rather than queue, so the theory goes.

And in centres where smuggling has created a shortage, motorists are already paying a black market price equivalent to the new rate.

Petrol in a country which produces 1.8m barrels of oil a day is not the only commodity in short supply. Banks have been unable to meet a sudden run on deposits because of a shortage of bank notes. Cheques are not being honoured. The Central Bank of Nigeria has rejected calls to print more notes.

In the absence of reliable data, Nigerian businessmen believe inflation is running at an annual rate of 70 to 100 per cent, compared with 46 per cent at the end of 1992.

'In the past three weeks this country has ground to a halt because there is just no government,' says the managing director of a big industrial group. 'No one wants to hold stock, manufacturing output has dwindled and people want their money in cash kept under the mattress. Everyone is just waiting to see what will happen on August 27.'

Managers have put investment decisions on hold. They say planning meetings are about how to survive through the week. Any business forecasting is impossible. Fears for safety have stopped truck drivers making journeys between north and south Nigeria, adding supply problems to the other woes of Nigerian industry.

More disruption is expected as pro-democracy groups have called three days of protest from today. The Nigeria Labour Congress, which groups 41 industrial trade unions, has called its members out on strike if Gen Babangida does not bow out on Friday.

More serious is the threat of Nupeng, the oil workers' union, to do the same.

'The soldiers have taken arms and ammunition into refineries in contravention of all international safety regulations,' says Mr Elijah Okougbo, the deputy general secretary of Nupeng. 'They fear we will sabotage the oil industry. But we have no guns. Our only weapon is a civil disobedience campaign to force Babangida to quit the stage.'

Gen Babangida yesterday convened a meeting of the ruling military council to discuss the composition of the 'interim government' which he says will succeed him next Friday.

But with 48 hours to go before the handover, the general, who annulled the June presidential elections, is understood to be having difficulty convincing a Nigerian of sufficient stature to head the new administration.

Several eminent people are believed to have declined the offer. 'No self-respecting Nigerian wants to lead a puppet government,' says a banker in Lagos. 'It will be a government of nonentities, and the economy will continue to fall to pieces.'

The pro-democracy movement has been fragmented and leaderless since Chief Moshood Abiola, the presidential candidate robbed of his victory, fled the country three weeks ago.

Labour protests are unlikely to have much impact outside Lagos, although the disruption in the oil industry could be serious if Nupeng carries out its threatened strikes.

Businessmen fear that the new interim government will lack the legitimacy and authority to solve Nigeria's economic problems. The departing transitional civilian administration, named by Gen Babangida six months ago to put Nigeria's faltering economic reform programme back on track, has wound up in dismal failure.

The country's budget deficit is thought to have reached N22bn (Pounds 582m) in the first quarter of 1993 - nearing in four months its deficit target for the year. Chief Ernest Shonekan's administration also failed to reach a debt-rescheduling agreement with the Paris Club of creditor nations, who are owed Dollars 16.5bn of Nigeria's Dollars 30bn foreign debt.

Whatever government takes over will inherit an economic crisis; but if the price rise yesterday is accepted by Nigerians, it will have one less headache to bear.

THE latest draft of South Africa's post-apartheid constitution, published yesterday, provides details for the first time of how executive power will be shared in the first government, proposing an effective white veto over areas such as the budget and national security.

The issue of sharing power within the first post-apartheid cabinet has been the subject of months of bilateral negotiations between the African National Congress and the government.

Yesterday's draft constitution effectively proposes that Mr Nelson Mandela, president of the ANC, should be South Africa's president and Mr FW de Klerk, the current president, the vice or deputy president.

It stipulates that decisions within the cabinet should be taken by a special majority - yet to be set - and that in matters of budget, finance and national security, both the president and vice-president would have to agree. This would give the ruling National party, whose support is expected to be overwhelmingly white, an effective veto in these matters.

Debate on the draft is due to begin tomorrow.

The draft proposes that parties gain cabinet representation in proportion to their share of the vote in elections to parliament. It is understood Mr de Klerk opposes the idea of a deputy presidency, insisting on a more equal relationship between the leader of the majority party and others within the coalition. He is also understood to consider the powers granted to the deputy president insufficient.

The draft constitution also sets out powers for regional governments, with only very limited areas reserved exclusively for the regions - including markets and pounds, town planning, roads and public transport - with powers over regional taxation, education, health, and policing to be exercised concurrently with central government. Parties which favour federalism argue that this gives central government ultimate control over most important regional functions.

France and Germany agreed yesterday to maintain the present timetable for EC economic and monetary union, Quentin Peel writes from Dresden. Mr Klaus Kinkel, the German foreign minister, and Mr Alain Juppe, his French counterpart, said at a meeting in Dresden they would push for greater economic convergence 'to revive the credibility of the aims of economic and monetary union'.

Gatt pledge, Page 4

MR HELMUT RICKE, the chairman of Deutsche Telekom, Germany's state-owned telecommunications group, yesterday pleaded for urgent political support for early privatisation of the company.

'There is not much time left . . . (before) the emergence of fully liberalised markets and ever stiffer competition,' Mr Ricke said, referring to the European Commission's decision to liberalise basic voice telephony markets in Europe by 1998.

Mr Ricke told a news conference that Deutsche Telekom faced an uphill struggle trying to increase its competitiveness because of its status as a public company. It is legally required to transfer the bulk of its profits to the state budget each year and to cover the ever-growing deficits of the German post and postal bank.

'We have made enormous progress toward increasing our competitiveness,' he said. 'However, we are not able, on our own, to implement all the measures that have now become urgently required . . . It is therefore imperative that public policy lead to a joint-stock corporation which can trade its shares on the stock market.'

MPs this autumn will debate a controversial privatisation bill which emerged after two years of wrangling between Germany's political parties. The bill has won the support of the leadership of the opposition Social Democrats (SPD), but it still needs backing from ordinary SPD MPs.

If adopted, the bill would allow Deutsche Telekom to sell a first tranche of shares on the stock exchange by 1996 or 1997. It would would also be able to keep its profits.

Mr Ricke said the first tranche of shares would amount to DM15bn (Pounds 5.8bn). He also warned that Deutsche Telekom could not continue to subsidise the postal system at the same time as rebuilding the telecommunications infrastructure in eastern Germany and preparing for increased competition. Revenues this year are expected to reach DM58bn from DM54bn in 1992. Last year the company had to transfer DM6.5bn of its DM7bn profit to the federal and postal budgets. 'The political decision-making bodies must ensure that our enterprise can continue at an accelerated pace,' Mr Ricke said.

THE chief economists at Germany's 12 biggest banks all expect the Bundesbank to cut its leading lending rate this week, even though conditions have failed to improve since the central bank's last meeting at the end of July.

Nine of the dozen questioned in a poll, which closed last Friday, said they expected a reduction of half a percentage point in the key discount rate, currently at 6.75 per cent.

However, inflation is still stuck above 4 per cent, according to the latest indications, while money supply growth seems likely to remain well above the central bank's target range for some months yet.

The cost-of-living index in Baden-Wurttemberg edged up 0.1 per cent in the month to mid-August, state officials reported yesterday. This brought the year-on-year increase in the most prosperous state to 4.3 per cent, compared with 4.2 per cent in July.

New money supply figures are not expected this week, but the effects of heavy buying of weak currencies in the European exchange rate mechanism - before the widening of fluctuation bands three weeks ago - are expected to drive the annualised growth rate in the M3 measure above July's 7.5 per cent.

The bank's target range for this year allows for growth between 4.5 per cent and 6.5 per cent.

Mr Hans Tietmeyer, Bundesbank president-elect, dropped mild hints last weekend when he said small rate cuts were possible provided the trend in the money stock permitted them and inflation declined slightly in the near future.

Observers suggested the bank could justify a drop in the discount rate tomorrow if it filtered out the distorting effects of money market interventions on M3.

The policy council has also recently shown itself to be more interested in short-term inflation trends than in the conventional figures.

According to informal analyses, the annualised rate for the past three months could be as low as 3 per cent in August compared with 3.4 per cent in July.

However, non-German economists suggested a rate cut this week was unlikely because fundamental conditions had not changed in the past month, and that international pressure had eased greatly since the widening of ERM fluctuation bands.

The Bundesbank's announcement yesterday of a fixed-rate offering of securities repurchase agreements at an unchanged 6.80 per cent gave no clues to its intentions for Thursday, analysts said.

PLANS for radical reforms of the main institutions of the European Community, including new rules for majority voting in the council of ministers, have been drawn up in Germany in a fresh attempt to create a streamlined, less bureaucratic European union.

The parliamentary leaders of Chancellor Helmut Kohl's Christian Democrats yesterday approved a blueprint for German foreign policy, clearly identifying their national interest with European integration - leaving an open door for the democratic states of eastern Europe eventually to join the EC.

They also spelt out the need for institutional reform of the EC, to ensure that an enlarged Community, with 16 or more members, remains capable of decisions.

Their ideas may form the basis of a German government initiative to maintain the momentum towards European integration, just when doubts about economic and monetary union, and the Maastricht process, are spreading.

Germany wants the new institutional reforms to be discussed at October's extraordinary EC summit to celebrate ratification of the Maastricht treaty.

The proposals drafted by Mr Karl Lamers, CDU parliamwentary foreign affairs spokesman, include:

a 'double-majority' voting system in the council of ministers requiring both a majority of member states and a majority of their populations to take decisions;

a maximum 10-member European Commission, to be selected by the Commission president from nominees by the member states, and approved by both European parliament and the council of ministers; there are currently 16 commissioners, two for each of the four larger member states and one each for the remaining eight;

a new rotation of member states holding the council of ministers presidency, scrapping the alphabetical system, and leaving it up to member states to nominate large and small states alternately;

a ceiling on membership of the European parliament, regardless of the number of member states, to prevent it becoming too unwieldy;

possible creation of a 'senate' representing national parliaments directly, in a sort of upper house of the elected parliament.

The plans meet the need for new thinking on institutional reforms to maintain the decision-making balance of the EC, between the large member states and the smaller ones. Enlargement to 16 member states will upset that balance.

A Czech police chief yesterday denied his country had become 'a breeding ground for organised crime', writes Patrick Blum in Prague.

Mr Josef Doucha, deputy director of the Czech central criminal police, angrily rejected press reports suggesting Prague had become a centre for international criminal groups after the collapse of communism. There had been no 'sudden eruption of crime', but he admitted drug smuggling had grown because the Balkan drug route from Afghanistan and Pakistan through Turkey and the Balkans and into western Europe had been disrupted by war in the former Yugoslavia. As a result the Czech Republic had become a transit route.

Italy's ex-Communists, who have escaped relatively unscathed from the country's bribery scandal, yesterday became embroiled when the party's treasurer was warned he was under investigation, Reuter reports from Milan.

Mr Marcello Stefanini, a senator, was told by magistrates he was being investigated in an inquiry into bribes paid by a building company. However, the Democratic Party of the Left, the former Communist party, immediately denied the senator had anything to do with the alleged bribes.

The United Nations Security Council decided yesterday to establish a UN observer mission in Georgia, comprising up to 88 military observers plus minimal support staff, Reuter reports from New York. It will be the first team the UN has sent to any of the republics of the former Soviet Union.

Mr Boutros Boutros Ghali, secretary-general, recommended recently that the mission be set up to monitor compliance with the July 27 ceasefire agreement between the government of Georgia and Abkhazian rebels.

SWEDISH police said yesterday they had arrested three Russians and a Swede, armed with pistols and a hand grenade, on suspicion of planning to kidnap Mr Peter Wallenberg, senior member of the powerful Wallenberg industrial dynasty, writes Hugh Carnegy in Stockholm.

Police said the men were seized outside the gates of Mr Wallenberg's mansion on the forested island of Varmdo, near Stockholm, on Monday evening. Officials said they believed the men intended kidnapping Mr Wallenberg, 67, for ransom.

They did not get close to the industrialist. High-profile Swedes, previously relaxed about security, have tightened precautions since the assassination by a still unknown gunman in 1986 of the former prime minister, Mr Olaf Palme.

Mr Wallenberg heads a family which founded much of Sweden's industrial base and holds large shareholdings in leading companies such as Ericsson, the telecommunications group, Astra, the pharmaceuticals giant, Stora, Europe's biggest forestry products company, and Saab-Scania, the vehicle and aircraft maker.

He is a relative of the wartime diplomatic hero, Raoul Wallenberg, who died in prison in Moscow in 1947.

THE International Court of Justice in the Hague will consider today Bosnian accusations that Serbs have been carrying out a campaign of territorial expansion through 'ethnic cleansing' and genocide.

A similar application by the Bosnians four months ago resulted in a court order to stop the genocide.

Legal officials in The Hague say a decision on the case is unlikely for several days, not least because the court will simultaneously be considering similar accusations from Serbia of genocide carried out by Moslems.

But though few expect the ruling to carry much weight with the forces on the ground, the hearing is likely to fuel a wider diplomatic debate over attempts to bring legal retribution to bear in Bosnia.

Next month the United Nations general assembly is expected to name 11 judges who will sit on the UN war crimes tribunal on former Yugoslavia.

Meanwhile, in a separate move, the International Red Cross (ICRC) has called a conference in Geneva on August 30 to discuss the treatment of war victims.

The organisers claim the conference has been called to raise awareness of the Geneva conventions, with participants expected from more than 100 countries.

But ironically, the ICRC's tradition of neutrality has left it refusing to co-operate with UN investigators seeking evidence of war crimes.

With other European governments increasingly reluctant to dwell too much on the issue - particularly when the west is pressing adoption of a peace plan - there are fears at the UN war crimes council, formed seven months ago to collect information on war crimes, that attempts to build a case could ultimately be undermined by a reluctance to submit evidence.

A CZECH police chief yesterday denied his country had become 'a breeding ground for organised crime' and said it faced the same problems as other European countries in fighting drugs trafficking, the illegal arms trade, and other crime.

Mr Josef Doucha, deputy director of the Czech central criminal police,

angrily rejected press reports suggesting Prague had become a centre for international criminal groups after the collapse of communism. There had been no 'sudden eruption of crime', though the Czech capital's geographical position put it in the middle of new east-west crime routes, he told CTK, the Czech news agency.

Drug smuggling had grown because the Balkan drug route from Afghanistan and Pakistan through Turkey and the Balkans and into western Europe had been disrupted by war in the former Yugoslavia. As a result the Czech Republic had become a transit route for drugs.

The illegal arms trade was also worrying. The Czech Republic produced good weapons and there were large quantities of old Semtex explosive - manufactured before last year's requirement that it be made easily detectable - in circulation. But Czech police lacked resources and experience in fighting organised crime.

Nearly one in four claims on property confiscated by the Nazis, or the Communist regime in eastern Germany, have been resolved since late 1990, writes Judy Dempsey in Berlin. However, officials from the federal office responsible for the cases yesterday said it would take a decade before all outstanding claims were settled.

The claims, which relate to property confiscated between 1933 and 1945, and between 1949 and 1990, total 1.21m, and involve 2.63m titles to property ranging from large enterprises to small businesses, land and houses. Their uncertain status is seen by economists as hindering investment in the region.

From late 1990 until the end of June 1993, 28 per cent of the claims on 130,000 enterprises, including agricultural land, were resolved, while 24 per cent of the remaining 2.52m titles were also settled.

ALL OVER the world there are families who can recount stories of legendary battles over land: how one son was favoured over another; how siblings refused to talk to each other after a parent's will carved up property; or how one child got nothing.

In the re-united German family, a growing controversy over whether property should be returned to its former owners is generating its own legends.

When Soviet forces occupied eastern Germany in 1945, about 14,000 families farming 13,000 sq miles were ordered to leave their properties within 48 hours. Some were imprisoned on the island labour camp of Rugen, in the Baltic Sea. Others had to keep a 20-mile distance from their properties. Most fled to western Germany, and were compensated in the 1950s.

Three years ago the unification treaty created one nation out of the two Germanys. On property questions, the treaty states that 'expropriations on the basis of Occupation Law (when the Soviets occupied eastern Germany between 1945-1949) are irreversible'.

This means that former property owners during this period cannot get their land back - unlike those who can seek restitution or compensation for property confiscated between 1935 and 1945, and between 1949 and 1990.

Through the federal constitutional court, several former landowners challenged the unification treaty's restrictive clauses on 1945-1949 on the basis that property was not being treated equally before the law. But the court upheld the treaty on the grounds that the Soviet Union and the former German Democratic Republic had made the ban on restitution a precondition for unification.

'This is absolute nonsense,' said one constitutional lawyer. 'Those who are seeking to have their property returned to them can prove that no such precondition existed,' he added.

Lawyers claim that documents recently obtained from Moscow show that the Soviet government never specifically made unification contingent on the 1945-49 land issue.

They say the word of the then West German government is the only evidence to support this view.

'On the one hand, passing the buck to the Soviet Union was a convenient attempt by the Bonn government to avoid paying compensation to former landowners. On the other, (Lothar) de Maiziere (the last prime minister of East Germany), was able to prevent 'the Junkers', or landed gentry, from coming back,' the lawyer said.

The ruling by the constitutional court, however, has not discouraged an unlikely cross-section of individuals and institutions from challenging Bonn's interpretation of the treaty. They include the Dutch government, Daimler-Benz, the Duke of Saxony-Anhalt and a German lawyer. Each claim a legal right to restitution or substantial compensation.

The Dutch government, which is acting on behalf of three families, is arguing that land owned by foreigners could not have been nationalised or expropriated by the Soviet authorities during this time.

'Under the Allied Control Council, property owned by foreigners could not be sold or expropriated or property rights transferred,' said a Dutch diplomat.

For years, Dutch government tried unsuccessfully to negotiate with the former East German regime the return of this land to its original owners. Dutch diplomats thought the matter would be quickly resolved after unification. But after two 'verbal notes' to the foreign ministry in Bonn, the Dutch government has still been unable to get the property back.

'Bonn says we have to be patient. It has to work out the legal aspects,' a Dutch diplomat said. 'We said OK. But a solution which does not return the property, or grant compensation, is unacceptable to us,' he added.

Daimler-Benz, Germany's largest industrial holding, had huge investments and property in the former East Germany. It is now arguing that it has a right to reclaim this property.

'We will claim about 14m sq yards of land throughout eastern Germany,' the company said. 'We are doing it on behalf of our shareholders.'

The Prince of Saxony-Anhalt, who is the great great grand nephew of Catherine the Great, is also trying to reclaim his property of more than 24,700 acres.

And Mr Albrecht Wendenburg, a lawyer who has no aristocratic, industrial, or diplomatic connections, is also trying to reclaim his small holdings in eastern Germany.

'People have this view that those whose property was expropriated between 1945-1949, were either raving Nazis, or else they want the property back so that they can kick out the present owners,' said Mr Wendenburg.

'We are trying to establish the principle of justice and truth: that property should be treated equally before the law, and that it was Bonn, not the Soviet Union, which chose to ban any restitution,' he added.

Constitutional lawyers believe that Bonn may be forced to make concessions. 'This problem will not go away. The belief that it was the two German governments, and not the Soviet Union, which decided on this ban on restitution is gaining momentum. Until this matter is settled once and for all, property rights in eastern Germany will never be satisfactorily resolved, and investors will always be cautious,' a lawyer said.

JOHN WALKER, who was the Financial Times correspondent in Stockholm from 1963 to 1974 and continued to contribute to the paper for another eight years, died in Stockholm on August 11, aged 72.

He had three great enthusiasms in life: the Financial Times, vintage cars, about which he was an expert, and fishing. In London, where he was a freelance journalist and worked in public relations before joining the FT, he was the proud owner of a vintage Bentley, which, however, did not follow him to Stockholm.

He joined the paper at a time when its foreign coverage was expanding rapidly and he pioneered the development of the extensive coverage of Swedish - and Nordic - business on which his successors in Stockholm have built.

He used to say that it was his love of fishing which led to his job with the FT. It was an enthusiasm he shared with the editor of the paper at the time, Sir Gordon Newton, who recruited him. Sweden, with its many fast-flowing rivers and the Stockholm archipelago at his doorstep, was an ideal posting for him.

He was forced into partial retirement in 1974 by the onset of Parkinson's disease, but he continued to work part-time and to file to the paper until 1982.

John Walker was born in Sandgate, Kent, on November 11, 1920, went to school in Dover and served as an officer in the Royal Air Force during the second world war.

He was nursed through his long illness by his Swedish wife, Ann, who survives him. He has a son, Peter, by his first marriage.

NORWEGIAN opposition to European Community membership has risen in the run-up to next month's parliamentary elections, a Gallup poll published yesterday shows. Some 47.1 per cent of those questioned oppose membership, a rise of 1.8 percentage points in one week.

The poll, which surveyed 1,000 Norwegians, put support of membership at 28.3 per cent, a decline of 1.2 percentage points, while 24.6 per cent were undecided.

Norwegian membership in the EC is the main issue in the September 13 elections. The electorate narrowly rejected joining the EC in 1972, but Brussels and Oslo began fresh negotiations last April and a new Norwegian referendum could be held in 1995.

The poll, in the Conservative newspaper Aftenposten one week after the campaign started, showed popularity of the pro-EC Conservative party down 2.9 percentage points to 20.3 per cent. The ruling Labour party, whose minority government applied for EC membership, advanced 1.2 percentage points to 32.8 per cent.

RUSSIA said yesterday it had been 'too kind' towards Lithuania in agreeing a troop withdrawal timetable before signing a formal treaty on the pull-out.

Mr Vitaly Churkin, deputy foreign minister, said Russia had decided not to meet an August 31 deadline for completing the troop withdrawal after Lithuania turned up at weekend negotiations, which had been expected to conclude the treaty, with a new demand that Russia make amends for five decades of Soviet rule.

'We have shown perhaps excessive kindness to Lithuania for which we are perhaps now having to pay,' he said.

Some western diplomats suggested that in demanding the new concessions, Lithuania wanted to exploit a US congressional amendment tying a speedy Russian military withdrawal from the Baltics to US aid to Russia.

Although Mr Churkin did not mention this, Russia is clearly anxious to avoid being put in a position of appearing to be under US pressure. Nor does it want to apologise for Lithuania's annexation by the Soviet Union, saying Russia was also a victim of the Soviet system of which it was the main component.

The original formal treaty stipulated that Russia would compensate Lithuania only for material damage caused in the course of the withdrawal and possibly also for damage incurred after January 1992, when Russia declared itself the successor state to the Soviet Union.

It was also to transfer some former Soviet army equipment to Lithuania's newly-formed defence forces.

Mr Churkin said that the harshness of a statement telling Lithuania that Moscow would now pull out at a time convenient to itself was designed to discourage neighbouring Latvia and Estonia from also demanding compensation for Soviet actions.

He said he believed the new demands were part of a 'domestic political struggle'. He pointed to the fact that the Lithuanian delegation was dominated by officials close to the radical opposition led by the republic's former leader, Mr Vytautas Landsbergis,

The aim, he said, was to present the more moderate, pro-Russian government of newly-elected President Algirdas Brazauskas as incapable of standing up to Moscow.

OPPOSITION to international peace proposals appeared to be mounting in Bosnia yesterday after leaders of the Moslem-led government lambasted the proposed plan to divide their republic.

Mr Haris Silajdzic, Bosnia's foreign minister, denounced the proposed map put forward last week at the Geneva peace talks for 'rewarding the aggressor, and punishing the victim'. The plan is due to be debated by the Bosnian assembly later this week.

Speaking on behalf of Mr Alija Izetbegovic, the Bosnian president, he said that it was unlikely that an agreement would be accepted unless there were big concessions. He cited towns where Moslems had comprised the majority before the war until Serb forces expelled or killed them.

In an attempt to step up pressure on his Moslem adversaries, Bosnian Serb leader Radovan Karadzic yesterday reiterated warnings that if the Bosnians rejected the deal they would face more war. However, Mr Miro Lazovic, speaker of Bosnia's parliament, dismissed the need to endorse the proposals by the August 30 deadline set by the international peace envoys, Lord Owen and Mr Thorvald Stoltenberg.

Meanwhile, United Nations' efforts to take an aid convoy into the contested city of Mostar failed yesterday. Croat forces refused to let the convoy into the east of the city, where some 55,000 Moslems have been trapped for more than two months with little food. A spokesman for the UN High Commissioner for Refugees said that the Croat forces had refused to let the convoy pass until various demands were met.

However, Croatian radio yesterday reported that when the convoy was due to set off, Croat forces launched an offensive around Mostar, and seized the city's hydroelectric plant.

A UN protection forces spokesman in Zagreb said that fighting was continuing yesterday between Croat and Moslem forces around Mostar, although the UN could not confirm reports by Serb, Croat and Moslem press agencies that fighting had flared up again in central Bosnia and other regions.

Amid mounting international outrage over the fate of Mostar, Washington continued to raise the tone of its warnings to the Croats.

US officials have said that a warning of possible air strikes issued by Nato applied not only to the Serbs besieging Sarajevo but also to other groups preventing the delivery of humanitarian relief.

THE Serious Fraud Office yesterday suffered a further setback to its efforts to prosecute alleged City crimes in the criminal courts with the acquittal of two stockbrokers accused of trying to deceive the industry's regulators in order to remain in business.

Mr Andrew Leslie Kent, 46, and Mr Patrick Mahon, 53, were, respectively, the corporate development manager and managing director of the City firm TC Coombs. Both had also been charged with conspiracy to defraud and Mr Mahon was charged with attempting to obtain property by deception.

Dismissing all charges against the two men at Middlesex Guildhall Crown Court, Judge Clark said: 'This sort of inquiry, in a case where there has been no financial loss to any individual, would be far better left to the regulatory jurisdiction of the appropriate bodies, rather than a full blown criminal trial.'

Judge Clark called the SFO's case speculative, but said: 'I make no possible criticism of the SFO in this case.' He noted that 'if the SFO had known as much as they know now they would not have brought the case'. The SFO case was based on documents supplied by a Swiss bank, Rahn and Bodmer. However, several months ago, following a judge's order, the bank turned over many more documents which cast new light.

The judge ordered the prosecution to pay the defendants' costs.

The City's self-regulatory body for the stockbroking industry, at the time known as The Securities Association, had declined to authorise TC Coombs in 1988 to conduct investment business, on the grounds that it was inadequately capitalised by the standards set out by regulators.

In late 1988, TC Coombs won the right to conduct investment business but regulators questioned its capitalisation up until the time the SFO raided its offices in November 1990. TC Coombs went into liquidation in February 1991.

Both men are considering applying to the Securities and Futures Authority to re-enter the securities business.

Mr Robert Alun-Jones QC, acting for Mr Kent, said his client would be pursuing claims against Rahn and Bodmer for defamation and malicious prosecution. Lawyers for both men said they were also considering whether they could take action against any regulatory bodies.

US AIRCRAFT late last night began dropping food into the southern Bosnian city of Mostar, according to US airforce officials.

The UN High Commissioner for Refugees had earlier called on the western allies to organise rapid airdrops of food into the city, where some 55,000 Moslems have been trapped for more than two months. The UN appeal came as opposition to international peace proposals appeared to be mounting after leaders of the Moslem-led Bosnian government lambasted the plan to divide their republic.

Mr Haris Silajdzic, Bosnia's foreign minister, denounced the proposed map put forward last week at the Geneva peace talks for 'rewarding the aggressor, and punishing the victim'. The plan is due to be debated by the Bosnian assembly later this week. Speaking on behalf of Mr Alija Izetbegovic, the Bosnian president, Mr Silajdzic said it was unlikely an agreement would be accepted unless there were big concessions.

But in an attempt to step up pressure on his Moslem adversaries, the Bosnian Serb leader, Radovan Karadzic, reiterated warnings that if the Bosnians rejected the deal, they would face more war. However, Mr Miro Lazovic, speaker of Bosnia's parliament, dismissed the need to endorse the proposals by the August 30 deadline set by the peace envoys, Lord Owen and Mr Thorvald Stoltenberg.

Rebel Bosnian Croats also rejected international protectorate status for Mostar envisaged by the peace plan, instead declaring the city the capital of a Croat republic. They later weakened their stance, saying they would accept a two-year EC mandate.

Meanwhile, UN efforts to take an aid convoy into Mostar failed when Croat forces refused to let it into the east of the city.

In an effort to break the deadlock, the Moslem forces in Mostar, under pressure from the UN, agreed to an exchange of bodies with the Croats. Under the agreement, the UN convoy will provide aid to both the Moslem-controlled east side of Mostar and the Croat-held west side at noon GMT today. The bodies of nine Croat soldiers will be swapped for those of 15 Moslem dead.

A UN protection forces spokesman in Zagreb said that fighting was continuing yesterday between Croat and Moslem forces around Mostar.

Amid mounting outrage over the fate of Mostar, Washington continued to raise the tone of its warnings to the Croats. US officials have said the air strike warning issued by Nato applied not only to Serbs besieging Sarajevo but to other groups preventing delivery of aid.

Hague court to hear genocide allegations, Page 2

THE computer industry in the US is facing the prospect of a battle of its giants after moves by International Business Machines to clone a version of Intel's top-selling microprocessor chip.

The IBM plan threatens one of the industry's longest-lasting technology partnerships.

IBM, a conservative company normally, is becoming more aggressive in its efforts to restore profitability since the arrival of Mr Lou Gerstner as chairman and chief executive in April.

Intel, meanwhile, has become the world's biggest semiconductor manufacturer largely because of the success of its microprocessors, which were chosen by IBM as the brains of its first personal computers more than a decade ago. Since then the Intel chips have become the standard for all 'IBM-compatible' PCs.

Yet while Intel has earned record profits from its microprocessors, IBM's PC business operated for several years at a loss and only recently achieved a 'very small' quarterly profit.

For IBM, cloning the Intel chips seems to represent an attempt to take control of its own destiny and to boost the profitability of its PC business.

IBM declined to comment on its decision. However, the company is believed to have efforts under way to produce 'clean room' versions of Intel's 486 and new high-performance Pentium microprocessors.

The 'clean room' approach, which has been used by other chip companies to produce Intel microprocessor 'work-alikes', involves isolating designers from any access to Intel technology so that they must start from scratch to create a chip that emulates the functions of the original.

Yet Intel has raised legal challenges to all other efforts to clone its microprocessors. Mr Tom Dunlap, Intel general counsel, has said in the past that he does not believe it is possible for any company legally to clone Intel's chips.

The IBM cloning effort is believed to be in its early stages, and industry analysts point out that, like any development project, it is not certain to lead to the release of products.

However, if IBM pursues the project it runs the risk of a legal challenge from Intel, one of its main chip suppliers. IBM is also Intel's largest customer. This partnership has given IBM unprecedented access to Intel's technology. Indeed, IBM is licensed, by Intel, to produce Intel-designed microprocessors. However, the terms of the licensing arrangement restrict IBM to selling these chips only as components of personal computers or circuit boards.

Yesterday both Intel and IBM maintained that their relationship remained 'strong and very positive'. But it is clear that most of the benefits of the relationship accrue to Intel.

Students at Monasterevin in Co Kildare, Ireland, have built a 2,000 square foot extension to their school as the practical part of their leaving certificate examinations - saving more than Pounds 60,000 in construction costs.

Aides of the singer Michael Jackson said a police investigation, which included a search of his Los Angeles home, had been prompted by allegations of child abuse made by blackmailers as part of an extortion plot.

------------------------------------------------------------- STOCK MARKET INDICES ------------------------------------------------------------- FT-SE 100: 3049.3 (+7.3) Yield 3.76 FT-SE Eurotrack 100 1296.82 (+4.99) FT-A All-Share 1514.44 (+0.2%) FT-A World Index 167.49 (+0.3%) Nikkei 20,431.84 (+17.70) New York: Dow Jones Ind Ave 3638.96 (+32.98) S&P Composite 459.77 (+4.54) ------------------------------------------------------------- US CLOSING RATES ------------------------------------------------------------- Federal Funds: 2 15/16% (same) 3-mo Treas Bills: Yld 3.045% (3.044%) Long Bond 100 23/32 (100 3/8) Yield 6.194% (6.22%) ------------------------------------------------------------- LONDON MONEY -------------------------------------------------------------

3-mo Interbank 5 7/8% (same) Liffe long gilt future: Sep 112 15/32 (Sep112 15/16) ------------------------------------------------------------- NORTH SEA OIL (Argus) ------------------------------------------------------------- Brent 15-day Oct dollars 17.24 (17.095) Gold New York Comex Dec dollars 374.9 (375.5) London dollars 373.45 (374.0) ------------------------------------------------------------- STERLING ------------------------------------------------------------- New York: Dollars 1.49875 (1.5045) London: Dollars 1.4965 (1.5025) DM 2.5175 (2.5375) FFr 8.7625 (8.8425) SFr 2.2125 (2.2325) Y 155.25 (same) Pound Index 80.7 (81.4)

------------------------------------------------------------- DOLLAR ------------------------------------------------------------- New York: DM 1.67925 (1.6845) FFr 5.8445 (5.866) SFr 1.47525 (1.481) Y 103.625 (103.1) London: DM 1.6815 (1.6885) FFr 5.855 (5.885) SFr 1.4785 (1.4865) Y 103.7 (103.25) Dollar Index 65.4 (65.5) Tokyo open Y 103.625 -------------------------------------------------------------

MR MICHAEL PORTILLO, the chief secretary to the Treasury, yesterday said the government planned to go into the next general election holding out the prospect of tax cuts.

But this could only be achieved by cutting the existing level of government borrowing and establishing sound finances.

In an interview with the Financial Times, Mr Portillo did not rule out tax increases in the November 30 Budget as part of a strategy to bring the state's finances into order.

With tax and spending policy an increasingly contentious issue within the Tory party, the chief secretary cautioned against optimism that this year's public sector borrowing requirement would be less than the Pounds 50bn forecast in the March Budget.

Rightwing Tory MPs have been warning the government against tax increases in the Budget and urging spending cuts.

But yesterday Mr Portillo, who is one of the remaining rightwing members of the cabinet, underlined that it would be extremely difficult to keep public expenditure within the limits already fixed.

He said it was 'essential for the Conservative government to go into the next election with a reputation for sound public finance and in a position where it can explain that it has the public finances in a state where it can plausibly show the path to a low-tax economy'.

'To put ourselves in the best position either to cut taxes or to hold out the prospect of cutting taxes, we need to make sure that borrowing is reducing at a fast enough rate,' he said.

The government might have done enough already to achieve this, but it would have to review the situation in the autumn. Its fundamental principle had to be the maintainance of sound public finances and its 'first port of call' in achieving this must be public spending constraint.

Sound finances would flow from 'a combination of recovery, public spending restraint and some amount of revenue-raising'. Mr Portillo stressed the difficulties facing the government in holding down public spending.

He also warned that the Treasury had already 'factored in' economic recovery into its estimates of the PSBR during the years ahead.

'If the recovery is stronger than we anticipated, then public borrowing will come down a little bit faster,' he said. 'But on any scenario, we are going to be borrowing rather large sums of money for rather a long period of time. I'm looking at an increase of our debt service burden of about Pounds 10bn over the next four years. And that is money that cannot be spent on programmes.'

Mr Portillo was concerned that critics inside the Conservative party underestimated the government's task of aiming to hold to the 'control totals' of Pounds 253.6bn and Pounds 263.3bn that it set a year ago for public spending in 1994-95 and 1995-95 respectively.

Mr Portillo said the government could not take comfort from Britain's better-than-expected inflation performance. 'For the time being, we would expect inflation in the years ahead to be a little higher than we expected in July 1992 (when the control totals were set) because of the loss of value in the currency' since the departure of sterling from the European exchange rate mechanism last September.

Nor was he lulled into complacency by last month's better than expected public sector borrowing figures which have prompted many City analysts to pitch their expectations of the PSBR below the Pounds 50bn envisaged by the government for this financial year and the Pounds 44bn forecast for 1994-95.

Interview, Page 12

Consumer confidence in the health of the economy has risen sharply, according to the latest survey by Gallup.

Thirty-four per cent of respondents were optimistic about growth while 28 per cent were pessimistic. The positive balance of 6 per cent is 11 points up on the previous month and stems from brighter expectations about jobs. There is a growing belief that unemployment has stopped rising.

Low interest rates and a buoyant stock market also gave a further boost to unit trust sales in July.

A net Pounds 948m flowed in and funds under management reached a record Pounds 78.8bn, up from Pounds 76.3bn at the end of June.

Details, Page 5

Correction (published 25th August 1993) appended to this article.

HOLMES PROTECTION, the US security group quoted in the UK, suffered a setback to its recovery in the six months to June 30, when pre-tax profits fell from Dollars 1.47m to Dollars 133,000 (Pounds 89,000).

Mr Richard Hickson, chief executive since Mr Eric Kohn resigned in May, said the reorganisation of the group had involved the 'clean-up of both its balance sheet and its operations'.

The former - it had been necessary to clear the Dollars 73m of debt built up in the acquisitive 1980s and had resulted in the note-holding banks now controlling 53 per cent of Holmes' equity - had been achieved, he said, though it had taken longer than anticipated. This in turn delayed the progress of the latter, which is now only two thirds complete.

Mr Hickson said that both he and Mr Kohn had been cautious not to repeat Holmes' old mistakes. Therefore there had been a delay in the intended programme of acquisition of subscriber monitoring contracts. The rate of subscriber cancellations had fallen 79 per cent year-on-year in the first half, and was the lowest since 1986.

Group turnover slipped to Dollars 27m (Dollars 28.3m), of which monitoring and service of alarm systems contributed Dollars 20.6m (Dollars 21.5m). Net operating costs rose to Dollars 13.6m (Dollars 12.4m). Mr Hickson said that Holmes had been spending 'general and administration' money on its European strategy, with little to show for it. While Holmes Protection in the UK was still operating, activities on the Continent have now been delayed.

Interest costs rose to Dollars 262,000 (Dollars 195,000) as debt rose to Dollars 5m (Dollars 1.5m) at the period-end. Holmes was forced to borrow from its bank when in March it had to cancel a share placing, after an investor, thought to be Faisal Finance (Switzerland), failed to honour its agreement to pay for 1m shares. Legal proceedings continue in Switzerland.

Earnings were 0.1 cents (3.3 cents) per share.

CORRECTION

The investor who failed to honour an agreement to buy 1m shares in a Holmes Protection placing was not Faisal Finance (Switzerland) as suggested in yesterday's edition. Holmes and Faisal, a Holmes shareholder, said yesterday that their relationship was harmonious. We apologise for the error.

BIKUBEN, Denmark's third-largest bank, reported a first-half pre-tax profit of DKr207m (Dollars 30m) compared with a loss of DKr442m in the same period last year.

The bank returned to profit despite a doubling of loss provisions to DKr1.68bn from DKr781m, which Mr Borge Munk Ebbesen, the bank's chief executive officer, described as reflecting 'the culmination of a series of the economic difficulties which have hit Danish business in recent years'. The bank has become involved in a legal dispute over the interest formula on Dollars 50m in subordinated loan capital subscribed to Bikuben by the Danish dairy group, MD Foods. As a consequence, the bank has decided not to include the loan in the capital base at the half-year, which nevertheless left the bank with a capital adequacy ratio of 10.5 per cent.

The main contribution to the improvement in the bank's performance in the first half was a DKr784m gain from the value adjustment of the securities portfolio.

POLAND'S sovereignty could be endangered by a proposed plan that would supply Russian natural gas to the country along an east-west pipeline, Mr Jan Olszewski, a former prime minister, warned yesterday.

Mr Olszewski was speaking on the eve of a two-day visit to Poland by the Russian president, Mr Boris Yeltsin. During the visit an agreement to build the pipeline is expected to be signed.

Mr Olszewski, whose right-wing Coalition for the Republic is one of more than a dozen political groups contesting parliamentary elections scheduled for September 19, contended that the pipeline would 'nullify chances of obtaining gas from other sources such as the North Sea'.

Russia currently exports 6.5bn cubic metres a year of natural gas to Poland, whose domestic production amounts to 3.5bn cubic metres a year.

Estimates of Poland's natural gas needs in the year 2010 assume that consumption will treble from present levels. The pipeline would carry 67bn cubic metres a year 4,000km from the Jamal Peninsula in the Arctic Circle to western Europe.

Details of financing of the project have still to be divulged, but Poland could take delivery of 14bn cubic metres a year of gas as part of the agreement.

The Polish sector of the pipeline would be owned by a joint Polish-Russian operating company. The issue of ownership has been the subject of debate by critics of the project.

The state-owned Polish Oil and Gas Company has been negotiating the pipeline agreement with Gazprom, its counterpart in Russia.

The Polish company has also been exploring the possibilities of building a pipeline linking North Sea gas deposits with Poland's Baltic coast to bring in a further 10bn cubic metres a year.

WHEN the European Commission told Sweden that it must scrap its alcohol monopoly, it brought to the fore one of the most sensitive and difficult issues in the Nordic countries' EC membership talks.

Sweden, Norway and Finland have operated Europe's most restrictive alcohol regime for much of this century and none shows any sign of giving up the policy without a fight.

The EC says the restrictions have to go because they conflict with rules on free movement of goods and non-discrimination. For the Nordic countries, it is a case of public health, for the EC it is one of competition.

The issue could have a decisive impact on whether the Nordic countries can get their membership applications approved by referendum. Sweden and Norway each have more than half a million supporters of the temperance movement; if mobilised, this could be sufficient to swing an otherwise close vote against membership if the EC line prevails.

Puritan attitudes to alcohol date back to the 18th and 19th centuries when heavy drinking was rife. Both Norway and Finland had a spell on prohibition earlier this century, before their current monopolies evolved. The aim today in all three countries is to discourage alcohol consumption by maintaining high prices and limiting availability.

Public opinion on the issue is split. A poll in Sweden last week found that 43 per cent of the public wanted the alcohol monopoly retained; a recent Norwegian study said as many as 59 per cent backed the current regime.

Norway and Sweden are taking the strongest line in the EC talks, saying that they want to retain monopolies over both imports and retail sales of alcohol. Attitudes are more relaxed in Finland, which has indicated that it considers retention of the retail monopoly to be the important issue.

The Commission does not dispute the Nordics' contention that their policies have cut alcohol-related problems - meaning everything from liver cirrhosis to drunken driving and violence in the streets.

But it says they can find ways of meeting their health objectives without retaining a formal monopoly. That could be through taxes, licensing, advertising, better information, and restrictions on sales to young people, for example.

Sweden counters by saying it is already doing much of what the commission recommends. It argues that it should be allowed to adjust its monopoly in so far as it transgresses EC competition rules, but that public health arguments should outweigh any requirement to scrap the monopoly.

As part of this emphasis on adjustment, Systembolaget, the Swedish monopoly retailer, is about to widen its selection of imported brands to demonstrate that the country's alcohol monopoly is not about favouring domestic suppliers.

Moves such as this may not be sufficient to win the argument. The Nordic countries still have to persuade a sceptical European Commission that the nanny state should have the right to dictate people's drinking habits. And they have to address evidence that actual levels of drinking are much higher than official statistics suggest.

According to Norwegian estimates, the country's spirits consumption is doubled if duty-frees, smuggling and home-distilling are taken into account.

It is difficult to see how a satisfactory solution can be worked out, given the weight of tradition and long-standing policy on the Nordic side, and the EC's intransigence towards monopolies on the other.

One answer could be to scrap the import monopoly and agree to phase out the distribution monopoly over a number of years. But Swedish politicians, at least, fear they will not be able to sell that to the temperance lobby. They say alcohol is one of the issues on which the EC has to show increased flexibility if Swedes are not to get a negative view of membership.

One Swedish politician comments: 'It will be far better for the monopoly to disappear naturally, with prices coming down as import restrictions disappear, than if it is forced on us politically. People will see it as a classic case of unwarranted meddling by Brussels in our internal affairs.'

CONSUMER confidence dropped to record lows in the European Community in June, after slight signs of recovery the previous month, the European Commission said yesterday, Reuter reports from Brussels.

The drop took the EC's measure of consumer confidence back to the level recorded in March and April.

'The loss of confidence is particularly discernible in Spain, Italy and Portugal,' the Commission said, adding that Spain and Portugal recording new lows.

'Taking the average for the Community, consumers view their current and future financial situations more pessimistically in June than in previous months.

'They are even more sceptical about the general economic situation: well over half were of the opinion that the situation had deteriorated further in June compared with the same month last year.'

The Commission said there was also a distinct absence of cheer from consumers looking at the next 12 months.

As a result of recession, industry, too, saw the future as gloomier, the Commission said.

The leading economic indicator for the European Community also dipped to a record low in June after a slight rise in May, losing 0.5 of an index point to 95.6, the Commission said. The previous record low of 95.7 was set in March.

KURDISH rebels kidnapped two British tourists from a bus in south-east Turkey but later abandoned them when they themselves came under fire from government troops yesterday, Reuter reports from Ankara.

The Kurdistan Workers Party (PKK) was still holding seven other tourists - three Swiss, one Italian, two Germans and a New Zealander - seized this month to draw attention to their separatist campaign in Turkey's south-east.

A diplomat said the Britons, a man and woman, were seized at a rebel roadblock near the town of Kozluk in Batman province on Sunday evening.

Their kidnappers forced them to walk into the mountains, where they were joined by two Turkish hostages.

They spent the night in the rebels' hands but were turned loose in the morning when security forces fired on the area, making their way to the town of Batman.

Security forces killed eight guerrillas in clashes with the kidnappers, the emergency rule governor's office said.

The PKK has abducted a total of 27 foreign tourists since 1991 but has released all unharmed, except the seven.

On August 10 the rebels freed four Frenchmen, a Briton and an Australian taken in two separate kidnappings in July.

Iran is suggesting the four former Soviet republics which border the Caspian Sea join it in a caviar cartel to keep prices up.

The UN peacekeeping mission in Cambodia said it had found three of its 150 stolen vehicles at the homes of a police officer and two army generals.

The 1986 Chernobyl nuclear disaster was blamed for the birth of a in Moldova last week of a baby with two heads. A senior surgeon said the number of malformed babies had risen by 30 per cent since Chernobyl although the birth rate had fallen.

Greek President Constantine Karamanlis said ex-king Constantine's visit was holding Greece up to ridicule and should not be repeated.

Kurdish rebels kidnapped two British tourists from a bus in south-east Turkey but abandoned them when they came under Turkish fire. The Kurdistan Workers party is still holding seven foreigners.

Nigerian military ruler Ibrahim Babangida, pressed by trade unions and pro-democracy groups to hand over power, will step down tomorrow. a senior aide said. 'I can assure you that he is leaving on Wednesday', said the unnamed aide. Nigerian military faces protests, Page 4; Oil prices rise on Nigerian unrest, Page 21

NEW HIGHS (142).

BRITISH FUNDS (1) Treas. 3pc '66, AMERICANS (1) Unilab, BANKS (1) Banco Santander, BREWERS (2) Regent Inns, Wetherspoon, BLDG MATLS (1) Sheffield Instlns., BUSINESS SERVS (3) Business Post, Capita, Chubb Security, CHEMS (4) Croda, Ellis & Everard, Porvair, Wardle Storeys, CONTG & CONSTRCN (4) Ashtead, Berkeley, Eve, Tilbury Douglas, ELECTRICALS (3) Chloride, Johnson Elect., Volex, ELECTRONICS (4) CML Microsystems, Pressac, Process Systems, Racal, ENG AERO (1) Hunting 8 1/4 pc Pf., ENG GEN (5) Aerospace Eng., Brammer, EIS, Quadramatic, Renold, FOOD MANUF (1) Matthews (B), FOOD RETAILING (2) M & W, Shoprite, HEALTH & HSEHOLD (3) Greenacre, Huntleigh Tech., Nestor-BNA, HOTELS & LEIS (4) Airtours 6 3/8 pc Pf., City Centre Rests., Compass, Stanley, INSCE BROKERS (3) Archer, Oriel, Willis Corroon, INSCE COMPOSITE (1) Amer. Gen., INSCE LIFE (1) Transatlantic, INV TRUSTS (37) Beta Global Emrg. Mkts Wts., British Inv., Contl. Assets Wts., Contra-Cyclical Zero Pf., Exeter Prfd. Cap., Exmoor Dual Zero Pf., First Ireland, First Spanish Wts., Do Wts. '97, Do Cv. '97, Fleming Euro. Fldg. Wts., Fulcrum Zero Pf., Gartmore Scot. Cap., Do Units, German Inv. Wts., Grahams Rintoul, Greenfriar, Henderson Highland, Johnson Fry Zero Pf., Kleinwort Charter, M & G Recovery Zero Pf., Mediterranean Fund, Do Wts., Moorgate Wts., Murray Inc., Do B, Murray Intl. B, Murray Smllr. Mkts B, Olim Zero Pf., Schroder Split Cap., Scot. Natl. Zero Pf., Shires Inv., Smaller Co's Inv., TR Tech., Do Zero Pf., USDC, Whitbread Inv., MEDIA (3) Capital Radio, Elsevier, MMI Wts., MTL & MTL FORMING (5) Castings, Cooper (Fr), Metsec, Richards, Saville Gordon, MISC (9) Bluebird Toys, Calderburn, Copymore, Headlam, Holders Tech., Norbain, Relyon, Ricardo, Silentnight, MOTORS (4) Channel, ERF, Quicks, Trinity, OIL & GAS (1) Aminex, OTHER FINCL (6) BWD, Guinness Peat, INVESCO 9pc Cv. '95-00, Jupiter Tyndall, Lon. Forfaiting, Perpetual, OTHER INDLS (3) McKechnie, Metrotect, Vinten, PACKG, PAPER & PRINTG (4) Bemrose, Boxmore, Field, Macfarlane, PROP (11) Allied Lon. 5 3/4 pc Pf., BDA, Bilton, Chesterfield, Daejan, Derwent Valley, Development Secs., Frogmore Ests., Green Prop., Smith (J), Southend Stadium 5 1/2 pc Pf., STORES (6) Blacks Leis., Carpetright, GUS, Mallett, Menzies, Tie Rack, TELE NETWORKS (1) Securicor, TEXTS (1) Rexmore, TRANSPORT (5) Fisher (J), IoM Steam, Natl. Express, Ocean, Seacon, MINES (1) CRA.

NEW LOWS (5).

CANADIANS (1) Breakwater, CHEMS (2) Hickson, Plysu, HOTELS & LEIS (2) Euro Disney, First Leis.

Much of the activity in Vodafone, the second best performer in the FT-SE 100 Index over the past fortnight, came from two exceptionally large trades carried out in mid-afternoon. The first a block of 6.3m shares dealt at 553 1/2 p, and the second a block of 3m at the same price. Yesterday the stock lost 9 to 553p.

Vodafone shares have risen by more than 14 per cent in the two weeks, as cellular stocks benefited from a rerating after the AT&T bid for McCaw, the US cellular group. The big US institutions were seen as keen buyers of Vodafone, while some of the UK market's leading analysts have been busy promoting the shares in the past few sessions. Activity in Vodafone yesterday was believed to be US-sourced.

MB-Caradon was steady at 314p amid talk that the company will soon announce a one-for-four rights issue at 280p a share, to fund its acquistion of RTZ's Pillar division. RTZ firmed 2 to 698p.

Among transport stocks, the departure of the chairman of Union Railways, the British Rail subsidiary responsible for the Channel tunnel rail link, hit Eurotunnel shares, sending them down 17 to 444p.

A decline on the Hong Kong market and renewed worries about the recent poor results from the Hang Seng Bank subsidiary saw HSBC dip 18 more to 707p on good turnover of 4.5m. The concern about profitability in the Far East also took its toll of Standard Chartered shares, which dropped 18 to 943p.

Lloyds Bank, affected last week by switching operations, staged a minor rally to close 5 up at 533p. National Westminster rose a similar amount to 486p. Royal Bank of Scotland eased a penny to 289p after Scottish Equitable confirmed it was the big seller of the shares last Friday.

National Express was in demand ahead of next month's interim figures, appreciating 4 to 261p.

The oil sector was boosted by another session of above-average turnover in stocks such as Lasmo and Calor. The latter was up 7 at 256p, after 258p, following a buy recommendation issued by Hoare Govett, whose oil team described the shares as a 'cheap income play with improving fundamentals'.

Lasmo continued to attract strong speculative support as last week's takeover stories and talk of a general restructuring in the UK exploration and production sub-sector continued to circulate in the marketplace. The stock settled 2 1/2 higher at 139p on turnover of 4.6m, well above usual levels of activity. Volume last Friday reached a very substantial 14m, after a week of unusually high activity, leading many oil sector specialists to the view that something may be up in the sector.

Enterprise Oil, in spite of a push from one of the market's leading broking firms yesterday morning, suffered later in the day, eventually settling a net 3 off at 428p.

News from Aran Energy's drilling operations in the Celtic Sea came as a disappointment to the market, the shares sliding 4 1/2 to 31 1/2 p.

Shares in French theme park Euro Disney came under pressure, losing 3 per cent of their value after the chairman warned of high levels of debt and current difficult trading. The stock ended 20 down at 620p. Mr Nigel Reed at Paribas Capital Markets believes the company will 'need an injection of finance to keep it going'.

Talk that the chairman of Ladbroke may be thinking of retiring, following weekend press reports that were denied by the company, along with the appointment of a chief executive for Ladbroke's Texas Homecare subsidiary, put the shares under pressure. They fell 9 to 209p in active trading of 6m.

Market watchers pointed out that the appointment of a new CEO at Texas, who is to be on Ladbroke's main board, suggested that the company planned to continue its involvement in the Do-It-Yourself market, which is currently suffering difficult market conditions.

Continued fears that Rank Organisation's holiday business will lose out to increasingly cheaper overseas holidays once again dogged the shares, leaving them 12 cheaper at 770p. On the other hand, the current price war in overseas holidays for next year is expected to boost earnings at Airtours, which put on 5 at 379p.

Confirmation that the Hoar family had sold a 22.57 per cent stake in USM-quoted Hoskins, the Leicester-based brewing, public houses and hotels group, boosted trading in the stock, sending the shares ahead.

A majority of the holding was bought by a team led by entrepreneur Mr Howard Hodgson, and the rest placed with institutions. The shares jumped 20 to 76p.

Radio shares continued to benefit from a Smith New Court review on the sector. Capital Radio added 10 at 225p, while Chiltern Radio advanced 8 to 78p and USM-quoted Metro firmed 5 to 190p.

Nervous trading in Weir Group, ahead of Thursday's interim figures, left the shares 14 off at 351p.

Continued worries about the future of its proposed Pounds 250m regional jets joint venture with Taiwan continued to overhang British Aerospace, weakening the shares by 21p at one stage. They subsequently picked up to finish 14 down on the day at 435p on talk of 'some progress' being made in talks in Taiwan. BAe shares were hit last week by reports of outstanding differences between the two sides in the financing of the project.

Profit-taking in Smiths Industries left the stock 10 lighter at 375p.

In a market that lacked strong features, the spotlight fell on Northern Foods, which turned out to be the best performer in the FT-SE 100 in percentage terms, following a broker's recommendation.

Agency broker Carr Kitcat & Aitken visited the company last Friday and issued a strong buy recommendation, predicting 10 per cent earnings and dividend growth in each of the next two years.

Investors sent the shares climbing 5 to 277p, an improvement of around 1.7 per cent on the day. Volume was, however, no more than average at 1.9m by the close.

THE building area of the market was again rife with speculation that a heavy cash call is in the offing from Tarmac, still regarded as one of the UK's biggest housebuilders.

Talk of a Pounds 200m rights issue from Tarmac has been in the market for some time, but building sector specialists are now looking for the group to call on its shareholders to boost its balance sheet and take advantage of the expected recovery in the UK housing market.

Tarmac shares have performed well in recent sessions, in spite of the persistent talk of a big cash call. Last week saw the shares feature prominently in the list of the most heavily traded stocks. Yesterday the shares were the London market's most active with more than 16m changing hands after a weekend during which the Sunday press highlighted the probability of a large fund-raising operation.

Yesterday's turnover was the highest in a single session since December 1992 and included a single trade of 6m shares dealt at 145 1/2 p.

The share price rose to 150p yesterday, fractionally below the year's peak, before slipping back and closing a net 1 1/2 up at 148 1/2 p. Tarmac shares have staged a strong recovery over the past year, picking up from an all-time low of 53p, reached in September 1992.

Tarmac's interim results are scheduled for September 28. Building specialists said, however, that those figures could well be brought forward to accommodate a sizeable rights issue call. One leading analyst said a Pounds 200m issue 'would come as no great surprise', adding that Tarmac is seen as one of the sector's bellwethers, with substantial exposure at both the light and heavy end of the market. 'The market has been well and truly softened up for a cash call,' he added.

TRADING volumes were much reduced in the London derivatives markets yesterday as the underlying equity market moved into what was clearly a consolidation phase. A further cut in Bank of France interest rates failed to ignite the UK market.

The futures market tried to move higher at first, encouraged by wider reporting in London of remarks on interest rates on Friday by the vice-president of the Bundesbank. But with European markets easier, it was soon clear that there was limited basis for interest rate optimism in London.

The September contract on the FT-SE 100 drifted down for the rest of the session, closing at 3,056 for a premium against cash of 11 points, compared with estimated fair value at 6. Dealers commented that, while this premium was quite satisfactory at this stage in the life of the contract, it reflected no great enthusiasm. Volume of 6,709 lots was unexciting.

Very poor business was reported in traded options. Total turnover dropped from Friday's 29,111 lots to 15,983 yesterday, with the FT-SE 100 option seeing only 4,449 dealt, against 6,475 previously. The actives list was headed by the Euro FT-SE option (2,482), while Lasmo (1,567) again attracted speculative attention as investors pondered the implications of the Monopolies and Mergers Commission report for British Gas. Also busy was BAe at 686 contracts.

INVESTORS in London remained unconvinced of the prospects for cuts in UK interest rates in the near term, and the UK stock market followed the downward trend set yesterday in the other leading European bourses. London investors took a cautious view of the latest cut in rates in France. Some stock was sold but traders showed no dismay in the 15.6 fall to 3,042 on the FT-SE 100 Index. Profit-taking was not unexpected in view of the market's strong upswing and comfort was drawn from a steadier performance in UK government bonds.

There was some playing between the September future contract on the Footsie and the index stocks themselves, but activity in the futures sector was never large enough to play a significant role in equities. Sterling remained steady and it was an early fall of 16 Dow points on Wall Street that took the heart out of London in the closing minutes of the session. Also unsettling were suggestions that a large rights issue is in the offing, perhaps from MB-Caradon or in the building and construction sector.

The general air of malaise also hung over the second line stocks, which have fared so well in the market advance. The FT-SE Mid 250 Index lost 15 points to 3,467.4, while trading in these smaller capitalised stocks made up around 64 per cent of the day's Seaq total of 546.8m shares. On Friday, 633.4m shares traded through Seaq reflected retail, or customer, business of Pounds 1.58bn.

Customer business, having traded since last September at the Pounds 1bn-plus levels regarded as profitable for the London-based securities trading industry, has risen sharply over the past month as share prices have soared to new territory above the Footsie 3,000 mark.

With the influence of transatlantic markets now challenged by last week's poor trade figures from the US, international blue chips lost some of their recently revived confidence. Pharmaceuticals, in particular, shaded lower again, casting doubt over the rally in share prices in the sector, which provided a significant boost to the UK market last week. Glaxo, Wellcome and most other drug leaders lacked support yesterday.

Nor was the picture much brighter on the domestic scene. Retail issues tried to edge forward at first as London took a fresh look at comments on German interest rate policies made in the US on Friday by the Bundesbank's vice-president, but support soon dwindled and the sector closed lower.

The banking segment, also closely linked to interest rate prospects since lower rates would ease some of the sector's burden of non-performing debts, again took its cue from a poor performance from HSBC, which was still depressed by last week's gloomy half-time statement from Hang Seng Bank, its Hong Kong subsidiary.

However, the stock market rallied from the day's low point on the Footsie index of 3,035.6 and equity strategists professed to be willing to see the index down to the 3,020 area before the present phase of profit-taking would cause any reconsideration of medium-term views on UK equities.

The satisfactory level of retail trading volume indicated that the big institutions were trading stock, rather than merely selling. 'Consolidation is the name of the game,' was the comment from several leading trading houses.

Wall Street

AFTER four consecutive days of record-breaking gains, US stock markets ran into profit-taking yesterday, leaving share prices marginally lower, writes Patrick Harverson in New York.

At the close the Dow Jones Industrial Average was down 9.50 at 3,605.98. The more broadly based Standard & Poor's 500 eased 0.93 to 455.23, while the Nasdaq composite was off 0.10 at 730.86. Trading volume on the New York SE amounted to 212.5m shares.

Dealers and analysts were not surprised by Monday's losses. Share prices had ended in positive territory last Friday only because of a late burst of buying tied to the unwinding of stock index options that expired at the close. On the first Monday after options expiration, stocks usually fall in early trading as the markets retrace the upward steps taken late on the previous Friday.

Often in such cases early selling peters out quickly, but this was not the case yesterday as investors decided that five days of gains, which had pushed the markets' indices to four new all-time highs, had left equities looking overbought.

Profit-taking was, therefore, the order of the day and analysts said the declines were a natural correction, and did not indicate a shift in underlying sentiment.

Among individual stocks, cyclicals were mostly lower. General Electric, which rose sharply last Friday on news of planned lay-offs, retreated Dollars 7/8 to Dollars 97 3/4 in busy trading; Caterpillar gave up Dollars 1/8 at Dollars 80 5/8 ; International Paper slipped Dollars 3/4 to Dollars 66 3/4 ; and Minnesota Mining & Manufacturing dipped Dollars 3/4 to Dollars 107.

Consumer shares, which fared well last week, succumbed to profit-taking. Philip Morris receded Dollars 5/8 to Dollars 49 5/8 , Procter & Gamble Dollars 1 to Dollars 48 1/8 and RJR Nabisco Dollars 1/8 to Dollars 5 1/4 .

Drug and healthcare stocks, another sector that did well last week, also suffered a reaction. United Healthcare dropped Dollars 2 5/8 to Dollars 57 1/2 , Pfizer fell Dollars 1 1/4 to Dollars 62 7/8 , Merck eased Dollars 1/4 to Dollars 32 1/2 , Johnson & Johnson shed Dollars 7/8 to Dollars 40 1/8 and Bristol-Myers Squibb gave up Dollars 7/8 to Dollars 55 1/2 .

Morgan Stanley firmed Dollars 1/8 to Dollars 78 7/8 , a 52-week high, after the securities house announced record second-quarter earnings of Dollars 225m.

Car issues, which remain in favour with investors following strong quarterly earnings from the big three car manufacturers and buoyant car and truck sales, bucked the trend. Chrysler climbed Dollars 3/8 to Dollars 41 3/8 , Ford added Dollars 5/8 at Dollars 50 1/8 and General Motors was Dollars 5/8 higher at Dollars 45 1/4 .

On the Nasdaq market, casino stocks were in trouble, with Casino Magic losing Dollars 7/8 to Dollars 14 5/8 and Grand Casinos weakening Dollars 1 to Dollars 21 1/2 .

Canada

TORONTO posted a modest gain after relatively light trading. The TSE 300 index ended 14.6 up at 4,091.8, although rises led declines by just 356 to 351. Volume came to 38m shares valued at CDollars 413m.

Nine of the 14 sub-group indices ended higher, with golds, consumer products and industrial products showing solid gains.

Shell Canada, which forged ahead CDollars 1 1/2 to CDollars 39, said it is reviewing its operations in an attempt to cut costs and to improve its pre-tax cash income by CDollars 250m by 1995.

THE consolidation which began towards the end of the week extended, and in some cases deepened yesterday, writes Our Markets Staff.

PARIS paid little heed to the decision by the Bank of France to suspend its 24 hour lending facility, having earlier in the day cut the interest rate by another 50 basis points to 7.75 per cent. However, the more important intervention rate remained unchanged at 6.75 per cent and dealers said that the market would probably see cautious trading ahead of Thursday's Bundesbank council meeting. They said that hopes are for Germany to cut rates by up to 0.5 percentage points, enabling the French to cut rates by some 25 basis points.

The CAC-40 index lost 16.83 to 2,111.37 in turnover of some FFr2.4bn.

Euro Disney was off 4 per cent shortly after the opening following negative weekend media comment and confirmation by the group that summer bookings had been weak. Analysts reiterated sell recommendations on the stock and commented that the future of the company was dependent on the refinancing package currently being negotiated. The shares finally closed off 80 centimes at Fl 56.00, having seen a day's low of FFr54.50.

Alcatel Alsthom saw further profit-taking after last Friday's announcement that it had won a South Korean contract, easing FFr10 to FFr722. Lafarge Coppee lost FFr16.50 to FFr423.50 on a report that the European Commission might be about to impose fines on some European cement companies.

FRANKFURT fell faster with the DAX index 34.41, or 1.8 per cent lower at 1,888.27 after dropping 16.30 on Friday from a three year high of 1,938.98. Turnover was DM5.7bn.

Some observers thought that the consolidation could go a lot further; 1,800 was mentioned. But Mr Patrick Bettscheider, head of equity sales at Bank Julius Bar in Frankfurt, and jointly in charge of the trading desk, said that he saw a further 20-point drop as the worst-case scenario.

Mr Bettscheider thought that yesterday's drop was exaggerated by an overhang from the triple options expiry on the Deutsche Terminborse last Friday. Before the consolidation the bank had seen 'quite encouraging' buying from a number of big institutions, he said; he believes that global investors are still underweight in Germany, and that the DAX will break through its April 1990 all time high of 1,976.43 in the near future.

DB Research, too, said that the consolidation was healthy. Its chief equities analyst, Mr Thomas Neisse, saw the DAX reaching 2,000 this year and predicted a rise to 2,200 in the first or second quarter of 1994.

AMSTERDAM drifted lower in the absence of major corporate news, the CBS Tendency index losing 0.8 to 121.1. Nedlloyd and Wolters Kluwer, which reports half year results today, both went against the trend, with respective rises of Fl 1.10 and 80 cents to Fl 43.10 and Fl 98.30.

Polygram eased Fl 1.40 to Fl 63.00. The stock has attracted positive brokers' comments following its good results recently. Kleinwort Benson's Dutch team have restated their buy recommendation, citing its long-term earnings growth of 20 per cent plus per annum.

MILAN retreated a little from earlier highs further but most brokers said that sentiment remained firm. The Comit index closed 3.00 higher at 618.68.

Italcable featured a 4.3 per cent rise to L10,240 as the issue began to catch up with gains in the telecommunications sector last week. Elsewhere in the sector Sip added L42 to L3,660 and Stet L47 to L4,597.

ZURICH's SMI index eased 6.7 to 2,467.3 in calm dealings. Brown Boveri continued to face selling pressure after last week's satisfactory first-half results, falling SFr22 to SFr896.

STOCKHOLM remained weak with profit-taking being noted in the banking sector, down 3.7 per cent on the day. The Affarsvarlden general index lost 17.9 to 1,291.6 as turnover remained strong at SKr1.5bn.

Handelsbanken A shares shed SKr2 to SKr146 ahead of today's half year results.

OSLO extended last week's falls, the All-share index losing 11.03 or 1.9 per cent to 562.11 in turnover of NKr658m. Uni Storebrand, which reported a first half profit of NKr689m, slightly below expectations, lost NKr0.20 to NKr19.30.

Moving east, bourses offered various reactions to the day's consolidation. VIENNA followed Frankfurt, but at a distance with the ATX index down 13.30, or 1.3 per cent at 1,000.66. ATHENS continued its downward plunge with a 34.63 drop to 868.53 leaving the general index down 7.9 per cent in a week; and WARSAW ignored the trend altogether in price terms as the all-share WIG index leapt 385.5, or 6.4 per cent to record 6,390.6.

------------------------------------------------------------------------ FT-SE ACTUARIES SHARE INDICES ------------------------------------------------------------------------ August 23 THE EUROPEAN SERIES ------------------------------------------------------------------------ Hourly changes Open 10.30 11.00 12.00 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1293.00 1294.86 1295.01 1293.55 FT-SE Eurotrack 200 1375.17 1376.87 1376.75 1374.03 ------------------------------------------------------------------------ Hourly changes 13.00 14.00 15.00 Close ------------------------------------------------------------------------ FT-SE Eurotrack 100 1292.46 1290.18 1291.82 1291.83 FT-SE Eurotrack 200 1373.81 1374.03 1373.52 1374.00 ------------------------------------------------------------------------ Aug 20 Aug 19 Aug 18 Aug 17 Aug 16 ------------------------------------------------------------------------ FT-SE Eurotrack 100 1297.31 1304.07 1303.09 1284.89 1276.32 FT-SE Eurotrack 200 1380.12 1385.51 1387.63 1368.15 1359.35 ------------------------------------------------------------------------ Base value 1000 (26/10/90) High/day: 100 - 1295.92; 200 - 1378.03 Low/day: 100 - 1289.74 200 - 1372.23. ------------------------------------------------------------------------

TRADING volume was the lowest of the year yesterday as investors remained absent on uncertainty regarding both the future course of the strong yen and the government's policy in reviving the economy, writes Emiko Terazono in Tokyo.

The Nikkei average slipped 193.12 to 20,414.14, its fifth consecutive decline, having opened at the day's high of 20,595.26 before easing steadily during the session to hit the day's low of 20,384.44 just before the close.

Volume was 139.3m shares, below the previous year's low of 140.7m shares registered on July 5. Declines led advances by 742 to 217, with 194 issues unchanged. The Topix index of all first section stocks shed 15.01 to 1,644.18 and, in London, the ISE/Nikkei 50 index softened 1.52 to 1,254.44.

Foreign investors were small-lot buyers, but some banks were seen taking profits on their long-term portfolios ahead of the September mid-term book closing. Dealers were also seen selling as this is the final week for August delivery.

Investors, hoping that the first policy speech in the afternoon by Mr Morihiro Hosokawa, the prime minister, would present measures to boost the economy, were disappointed. Mr Hosokawa expressed concern but failed to map out specific measures.

Meanwhile, the yen once again strengthened on buying by exporters in spite of active intervention by the Bank of Japan. The dollar yesterday closed Y1.10 down at Y103.35.

Fading prospects of a cut in the official discount rate hurt financial issues. Bank of Yokohama, the day's most active issue, lost Y10 to Y1,110, Bank of Tokyo fell Y70 to Y1,640 and Fuji Bank shed Y60 to Y2,370.

Telecommunication shares were lower: Nippon Telegraph & Telephone dropped Y7,000 to Y936,000 on reports that it might delay the commercialisation of its next-generation communications network. KDD, the international telecom company, fell Y500 to Y11,800 on plans for a rate cut in international calls this October.

Ricoh, which was supported last week on its technology for turning copied paper into blank pages, receded Y7 to Y808 on profit-taking.

In Osaka, the OSE average declined 157.29 to 22,377.34 in volume of 35.8m shares. Nintendo, the video game maker, went against the trend, rising Y310 to Y9,710 on reports that it is developing a new generation of video game hardware.

Roundup

THE WEEK began with a mixture of profit-taking and record highs in New Zealand and Manila. Bombay was closed for a public holiday.

HONG KONG shed 2 per cent as the banking sector continued to fall back following last week's disappointing results from Hang Seng Bank, down HKDollars 2 at HKDollars 55.50. HSBC Holdings, the parent group, also lost HKDollars 2, to HKDollars 81.50.

The Hang Seng index slipped 156.94 to 7,388.4, just above the day's low.

Swire Pacific, which reports this week, declined HKDollars 1.25 to HKDollars 39 on forecasts of poor results.

SINGAPORE retreated from all-time highs at the close as investors took profits. The Straits Times Industrial index gave up a net 7.78 at 1,964.49, having seen an intra-day record high of 1,982.39.

Brokers pointed out that Malaysian shares traded over the counter were sold on news that the country's finance minister would make a challenge for the deputy president's post in November.

In KUALA LUMPUR the reports of the challenge also gave investors an incentive to take profits and the composite index eased 0.25 to 805.26 in volume of 365.4m shares.

NEW ZEALAND continued its rally, the NZSE-40 capital index finishing at its highest level since January 1990. Among the actives, Carter Holt Harvey advanced 7 cents to NZDollars 3.49 and Brierley Investments 3 cents to NZDollars 1.18. The index gained 8.85 at 2,027.37 in turnover of NZDollars 60.1m.

Fletcher Challenge met renewed profit-taking, easing 4 cents to NZDollars 3.66, but the shares still remain 22 per cent up following the good results last week.

AUSTRALIA was moderately firmer as many investors consolidated positions after last week's strong gains.

The All Ordinaries index closed 5.7 higher at 1,932.8 in turnover of ADollars 391.4m.

Strong buy orders from Hong Kong lifted BHP 14 cents to ADollars 15.50. News Corp, which reports tomorrow, added 10 cents at ADollars 9.30.

MANILA rose to record levels again, led by Philippine Long Distance Telephone, which climbed 25 pesos to 1,190 pesos. The composite index put on 20.29 at 1,783.30 in turnover of 429m pesos.

SEOUL was easier as profit-taking was seen among large-capitalisation issues. The composite index finished 7.33 down at 727.06 in turnover of Won309.9bn.

GOLD shares lost early gains in thin afternoon trade as the bullion price slipped. The golds index finished only 7 up at 1,778 after a day's high of 1,797. The industrial index rose 10 to 4,620 and the overall index added 5 at 4,049.

At one point last week, five Pacific Rim equity markets, three senior bourses in Europe, Wall Street in the US and Toronto in Canada were all hitting 1993 highs; yet the FT-Actuaries World Index ended the week with a rise of just 0.5 per cent.

Some high-profile investment destinations, such as Germany, France, the UK and Hong Kong, saw profit-taking last Friday; but Japan was the real drag on the World Index with a fall of 1.4 per cent in local currency terms.

Nomura's global strategy team in London, headed by Mr Nicholas Knight, put out a sell recommendation on Japanese equities last week, noting that the market at that point was still 46 per cent higher than it was a year earlier.

Given that, say the team, the key priority now may be the wish to avoid a repetition of the 'bubble' economy of the mid to late 1980s; the authorities may seek to reflect the economy to the exclusion of the stock market, and a 'wall of money' might come out of Japan to cap the rising yen.

Opinions are divided on whether Japanese money has been feeding gains elsewhere on the Pacific Rim. Mr David Bates at Asia Equity says his clients have been thinking positively after a bullish National Day in Singapore, Malaysia expected to produce a repeat performance at the end of this month, and Hong Kong moving from exuberance to caution - the latter over China worries and the Hang Seng Bank results - at the end of last week.

However, Ms Pauline McAtamney at Ord Minett thinks that New Zealand, certainly, must have seen some new source of funds as turnover boomed last week, and its World Index constituent index climbed by a heady 9.7 per cent. Fletcher Challenge lit the touch paper with results better than market expectations, indicating that forestry returns had touched bottom, and with its plans for a separate vehicle for its forestry assets.

------------------------------------------------------------------------ MARKETS IN PERSPECTIVE ------------------------------------------------------------------------ % change % change % change in local currency* sterling* in US dlrs* ------------------------------------------------------------ 1 Week 4 Weeks 1 Year Start of Start of Start of 1993 1993 1993 ------------------------------------------------------------------------ Austria +0.41 +5.43 +30.58 +26.11 +21.03 +20.78 Belgium -0.56 +2.16 +24.04 +21.07 +14.10 +13.87 Denmark +3.47 +11.10 +23.07 +33.08 +22.29 +22.04 Finland +1.89 +19.90 +154.95 +84.22 +67.17 +66.84 France -0.74 +6.97 +24.36 +17.62 +11.46 +11.22 Germany +0.81 +4.95 +25.45 +24.09 +19.86 +19.62 Ireland +1.13 +8.48 +40.47 +45.79 +26.59 +26.34 Italy +4.80 +12.02 +73.11 +51.52 +40.87 +40.59 Netherlands +1.14 +6.10 +26.87 +23.25 +18.91 +18.68 Norway -2.93 +10.34 +52.60 +33.21 +26.96 +26.71 Spain +3.70 +12.32 +43.21 +36.71 +15.73 +15.50 Sweden +0.11 +10.86 +60.25 +29.62 +15.40 +15.17 Switzerland +0.31 +4.83 +39.70 +20.40 +19.62 +19.38 UK +1.43 +8.28 +33.43 +9.45 +9.45 +9.23 EUROPE +1.10 +7.56 +33.73 +18.77 +15.00 +14.78 ------------------------------------------------------------------------ Australia +3.20 +5.48 +18.63 +19.27 +17.67 +17.44 Hong Kong +1.61 +9.82 +31.92 +34.74 +34.86 +34.59 Japan -1.39 +3.11 +41.18 +25.70 +49.98 +49.67 Malaysia +4.09 +8.26 +70.09 +40.63 +44.33 +44.04 New Zealand +9.69 +18.97 +41.52 +35.45 +46.29 +46.00 Singapore +4.11 +10.23 +54.36 +29.55 +32.02 +31.76 ------------------------------------------------------------------------ Canada +1.40 +6.32 +10.57 +13.66 +9.53 +9.31 USA +1.36 +2.00 +9.51 +4.79 +5.00 +4.79 Mexico +5.43 +12.35 +28.61 +3.43 +3.94 +3.73 ------------------------------------------------------------------------ South Africa +1.70 +0.67 +29.53 +28.59 +34.53 +34.25 ------------------------------------------------------------------------ WORLD INDEX +0.50 +3.99 +24.29 +15.00 +20.17 +19.94 ------------------------------------------------------------------------ * Based on August 20th 1993. Copyright, The Financial Times Limited, Goldman, Sachs & Co, and NatWest Securities Limited. ------------------------------------------------------------------------

BOTH France and Denmark cut their short-term interest rates yesterday, giving a small lift to European markets ahead of this week's Bundesbank council meeting, writes James Blitz.

The Bank of France's 50 basis-point cut in its overnight rate of lending was the fifth successive easing since the August crisis in the exchange rate mechanism, and took the rate to 7.75 per cent.

Denmark reduced its 14-day CD rate from 11 per cent to 10.5 per cent, its first easing of policy since the widening of currency bands.

France's move was followed yesterday afternoon by a suspension of lending through the overnight rate window for the remainder of the day.

The market viewed this as a technical move rather than a signal on policy, with one dealer suggesting that the French money market had been amply supplied with funds.

However, another dealer wondered whether this might be a precursor to a reintro-duction of the five to 10-day lending window, which had been at 7.75 per cent before being increased to 10 per cent in the run-up to the ERM crisis.

In any event, the cut in the overnight rate was well priced in by the futures market, and the September Pibor contract dropped 9 basis points to close at 93.19. The December contract declined 6 basis points to finish at 94.27.

In Germany, Euromark contracts were a little more buoyant in the run-up to this week's Bundesbank council meeting. The September contract gained 3 basis points to end at 93.55 and the December contract was up 3 basis points at a closing 94.02.

The rise in these contracts was partly due to speculation that the Bundesbank would lower the discount rate on Thursday. However, few dealers believe an easing in the repo rate is likely in its wake. Call money remained at 6.90 per cent yesterday, modestly above the repo rate level.

Short-term interest rates in the sterling cash market were fractionally softer, helped by the firm despatch of a large Pounds 1.85bn daily shortage and anticipation of policy easing in Germany.

Three-month money closed at 5 27/32 per cent yesterday, a fraction below the 5 7/8 per cent at which it had stood unmoved last week. The December short sterling contract was up 2 basis points at 94.59.

THE YEN continued to gain ground against the dollar in Monday's Asian and European trading, in spite of the US Federal Reserve's intervention in support of its currency last week, writes James Blitz.

Last Friday, the yen was already clawing back some of the lost ground against the dollar, closing in London at Y104.85. When Tokyo opened on Monday, the Japanese currency moved even higher, in spite of comments from officials that an economic expansion plan would be launched in September and that Mr Morihiro Hosokawa, the prime minister, would visit the US in late September.

Dealers said the upward pressure on the yen continued to come from exporters, who sold dollars at comparatively high levels in the belief that they might get less yen for them if they waited.

However, once the dollar reached the Y103.30 level, the Bank of Japan intervened to support the currency, and fears that the US would echo the move stopped the weakening in the dollar/yen rate. There was no intervention when US markets opened, and the rate closed at Y103.25. It is still uncertain whether the dollar will breach the Y100 level, as so many dealers anticipated at the start of last week. In New York it finished at Y103.10.

In Europe, the main focus was on cuts in French and Danish interest rates, in the latter case the first since the exchange rate mechanism's bands were widened.

The 50 basis-point cut in the French overnight rate, to 7.75 per cent, did not lead to a heavy depreciation of the franc, which ended at FFr3.485 per D-Mark from FFr3.478. The Danish cut had little effect on the krone, which closed at DKr4.1043 to the D-Mark.

In both cases, the currencies held steady because of a strong belief in the market that the Bundesbank will lower its discount rate at its first meeting after the summer recess on Thursday. The market is far less certain that there will be a cut in the German central bank's repo rate, however. Today's inflation figure for the state of Baden-Wurttemberg will be an early indication of how much room for manoeuvre the central bank has.

Miss Wendy Niffikeer, international economist at IBJ International, believes a discount rate cut has been well priced in by the market. If the Bundesbank eases its rate floor by 1/2 percentage point on Thursday, it is unlikely to lead to a fall in the D-Mark's value.

The weaker currencies in Europe were less well underpinned yesterday because of speculation that their countries might try to reduce interest rates in advance of the Bundesbank meeting.

The peseta declined yesterday morning, bottoming out at Pta81.05 to the D-Mark from a previous Pta80.97, but it closed at Pta80.92. The Portuguese escudo receded yesterday to Es101.95 to the D-Mark from a previous Es101.40. Sterling was largely unaffected, finishing unchanged at DM2.5375.

THE AUSTRALIAN Wheat Board said yesterday that returns for Australian Standard White wheat of 10 per cent protein were expected to stay firm at Australian Dollars 155 (USDollars 105) a tonne for the year ending September 30, 1994, reports Reuter from Sydney.

Mr John Lawrenson, the board's managing director, said that the estimated return was at the top end of the range of forecasts made over the past few months, although it was well down from returns of ADollars 188 a tonne forecast for 1992-93.

The 1993-94 estimate was based on an Australian crop of about 15m tonnes and a continuing build-up of wheat stocks around the world.

The wheat board was more optimistic about returns for high protein, premium grade wheats, Mr Lawrenson said.

'We're estimating a return of ADollars 168 a tonne for Australian hard wheat at 12 per cent protein and ADollars 200 a tonne for prime hard wheat at 13 per cent protein. That's a rise of ADollars 3 and ADollars 10 a tonne respectively above our previous estimates.'

However, he said the market for protein premiums this season remained volatile. 'They have risen and fallen by as much as ADollars 5 a tonne in the week in recent times and future protein premiums will depend on the quality of the US and Canadian spring wheat crops now being harvested.'

Mr Lawrenson estimated that Australia would carry more than 1m tonnes of last season's downgraded wheat into the new selling year, depressing returns for any off-grade wheat produced in the 1993-94 season.

'It's unusual to forecast returns for off-grade wheat so early in the season but growers should be under no illusion as to the difficulty of marketing another large quantity of poorer quality wheat in a world market already over-supplied from last year's damaged crop,' he said.

The AWB forecast returns of ADollars 145 a tonne for Grade Pool 1 wheat and ADollars 130 a tonne for Grade Pool 2 wheat for 1993-94.

SUGAR GROWERS in Natal are struggling to save what they can of the drought-stricken 1993-1994 crop, which is expected to yield only 1.2m tonnes, down 300,000 tonnes from last year and 900,000 tonnes below the normal level, according to industry officials, reports Reuter from Durban.

'There was some rain in parts of Zululand but it is not going to do anything to this crop. It might save the cane roots from dying,' South African Sugar Cane Growers' Association executive director Mr Rex Hudson said.

He added that the Natal south coast and midlands were the worst affected production areas. Extensive replanting would have to be done as a result of the drought, he said.

STATE-OWNED Minero Peru has fixed the base price for its Cerro Verde copper mine to be sold off on October 13 at Dollars 30m, with a minimum investment requirement of Dollars 60m, the company's president, Mr Raul Otero, said yesterday, reports Reuter from Lima. The Dollars 30m is to be in cash and the investment is to be over five years.

Mr Otero said the investment pledged by 19 of the potential bidders who qualified would be a key factor as Minero was unable to develop the second stage of the mine for lack of financing and it would signal the bidders' long-term plans.

The figures would be kept low to allow each of the 19 qualifiers to assess the mine's worth. They are at present making analyses of the mine to verify its reserves.

Latest studies show that Cerro Verde, located in the southern region of Arequipa, has a potential output of 100,000 tonnes of copper a year.

The Tea Broker's Association reports, Landed there was again strong general demand. Selected best East Africans advanced 4 to 8p but bright liquoring teas tended lower. Mediums were fully firm to dearer particularly coloury sorts. Brighter ceylons moved higher while others were barely steady. Offshore good demand at dearer rates. Quotations: quality 165p/kg, nom good medium 125p/kg, medium 109p/kg, low medium 93p/kg. The highest price realised this week was 173p for a Rwanda pf. 1.

NORTH SEA Brent crude prices edged up 11 cents in light trading yesterday with oil for October delivery reaching Dollars 17.09 1/2 a barrel as the market searched for direction amid conflicting signals.

Prices were pushed upwards yesterday by market fears over the civil unrest in Nigeria and the possibility that a general strike called for Wednesday could affect oil loadings.

The threat of an Iraqi return to the market, which caused so much price volatility last month, has abated for now. The Iraqis are pushing the United Nations for a complete lifting of sanctions rather than the one-off oil sale that was previously under negotiation.

But the oil price is unlikely to show much of a rise beyond Dollars 17 a barrel before the next meeting of the Organisation of Petroleum Exporting Countries on September 25 since countries are continuing to over-produce. Opec output is estimated at 24.6m barrels a day - 1m b/d higher than the ceiling.

'The market is trying to grapple with a number of crucial issues, but at least mentally, it's still on holiday,' said Mr Peter Gignoux, head of Smith Barney's energy desk in London.

Opec officials have estimated that the call on Opec oil from production and stocks will run to 26.02m b/d for the final quarter of the year. Since stock levels are fairly high that does not leave much room for a production increase.

NO PERMANENT cuts in primary aluminium production capacity are planned by producers despite present low prices and market turmoil caused by imports from the Commonwealth of Independent States, according to the latest projections by members of the International Primary Aluminium Institute.

These show forecast capacity in 1996 virtually unchanged from today's in every region except Africa. There Alusaf in South Africa plans a Pounds 940m smelter expansion, adding 460,000 tonnes to its present 170,000 tonnes of annual capacity.

The Alusaf project will help African capacity almost double from 657,000 tonnes to 1.2m tonnes by 1996. According to the IPAI, total western world capacity will rise by 4 per cent to 16.7m tonnes Projected mid-1996 capacity in other regions is: North America 6.425m tonnes (6.424m tonnes in 1993); Latin America 2.07m tonnes (2.023m) East and South Asia 1.766m tonnes (1.736m); Europe 3.553m tonnes (3.506m) and Oceania 1.664m tonnes (same).

Russian output of primary aluminium was 98 per cent of last year's levels in the first seven months of 1993, but nickel production fell to 80 per cent of year-ago levels, according to new government data, reports Reuter from Moscow.

Statistics released by the government press service showed that July primary aluminium production was 100.3 per cent of levels in July 1992.

July nickel production was 71.4 per cent of year-ago levels.

Data on tonnages was not given.

London's robusta COFFEE futures climbed to the highest levels since the London Commodity Exchange's dollar contract was introduced in March 1991 as the market continued to be aided by concern about nearby supply tightness. The prompt September position touched Dollars 1,253 a tonne and the November quotation Dollars 1,222 a tonne. The latter closed at Dollars 1,220 a tonne, up Dollars 18. But dealers said the turnover was fairly light at just 2,825 lots (5 tonnes each) despite signs of continued roaster buying in the physical market, particularly of lower grade beans. COCOA also continued on its recent uptrend, closing with gains of up to Pounds 18 a tonne. Dealers said both charts and the market's fundamentals appeared to be pointing towards higher levels. The first objective was to overcome the psychologically barrier at Pounds 800 a tonne for the December position, which closed Pounds 15 up at Pounds 794 a tonne. At the London Metal Exchange three months COPPER surged in the afternoon to end at Dollars 1,923.50 a tonne, a gain of Dollars 16.50 a tonne from Friday. Traders attributed the rise to commission house buying, possibly including orders on Chinese account.

Compiled from Reuters

THE RUSSIAN government and the local authorities in Irkutsk, the region that is home to the disputed Sukhoi Log gold deposit, have set up a conciliatory commission to work out differences over a deal giving a small Australian company a stake in the local gold producer.

Mr Vladimir Dvornichenko, acting head of the regional administration, which initially supported a deal between Lenzoloto and Star Technology Systems, said on Friday that the administration had turned against the deal because the final terms were agreed without its final support.

The commission was created on Monday last week after the Irkutsk authorities took the State Property Committee in Moscow to court in protest against the terms of the deal.

The State Property Committee, which is responsible for managing state property and privatisation, endorsed the creation of a joint stock company in which Star would hold 31 per cent and which would include Sukhoi Log, Russia's largest hard rock deposit, among the company's assets.

The conciliatory commission includes representatives of all parties concerned except for Star. 'At this stage Star is not needed. Star is a victim of, not a party to this conflict,' claimed Mr Dvornichenko.

He said that he believed the commission should reconsider the inclusion of Sukhoi Log among the new company's assets, and also remove some other assets from its balance sheet. He said the commission should also seek full and clear information as how the Russian and Australian partners in the deal intended to proceed.

Mr Ivan Zelent, first deputy chairman of the regional parliament, said the local authorities were divided over the issue, and that he believed a final decision should be taken by the court. 'We need to start developing the deposit as fast as possible. That will help us increase our local budget revenues.'

Separately, the new company also needs to get a licence from the State Geology Committee in Moscow confirming the rights held by its Russian founder to mine Sukhoi Log, which Star previously claimed was unnecessary.

DISCOVERY OF a poisonous fungus in the US spring wheat crop prompted a jump in US wheat prices last week and threw wheat buying agencies in Japan into nervous consternation. Japan is one of the biggest consumers for high-protein US wheat, and one of the few that pays in cash.

The crop quality concerns have since abated, but are still sufficiently significant, analysts say, to sustain firm prices for high quaility wheat worldwide.

The fungus outbreak could not have come at a worse time for US wheat exporters. Winter wheat growers have just completed a healthy harvest and are beginning to realise that their biggest buyers - Russia and China - are drastically trimming their grain import intentions. With production growing and the international wheat trade slowing, the US Department of Agriculture projects world wheat stocks will rise by 2.6m tonnes this year, to 135.21m tonnes.

Good crop prospects and dull export conditions left the US wheat market on the sidelines for most of the summer as relentless rains played havoc in the central Midwest and maize and soyabean prices soared. Except for a small a portion grown on the dry southern and western plains the US winter wheat crop escaped the floods.

Until recently spring wheat crop prospects also appeared excellent. Three weeks ago a group of agricultural specialists and journalists conducted their annual tour of North Dakota and Minnesota spring wheat fields and announced the crop was two to three weeks late because of cool weather, but in superb condition.

'Then,' says Mr Jim Peterson, marketing specialist for the North Dakota Wheat Commission, 'we got several days of really hot weather, and with so much moisture in the ground, some of the fields were like saunas.' The cool developmental period and late steamy conditions fostered a plant disease known as 'scab' or 'head blight', which produces a fungus that can cause nausea when consumed in sufficient quantities.

Hard red spring wheat is prized for its high protein levels, and is often blended with lower protein winter wheats for bread making.

News of toxins in the first bushels of the North Dakota wheat harvest threw spring wheat futures prices at the Minneapolis grain exchange into a tumult. The September contract rallied 23 cents, to Dollars 3.42 a bushel (60lb) in two days, and cash prices soared above Dollars 5.50 a bushel as millers bid up the premiums they pay for high protein wheat.

The scurry for protein, traders say, was encouraged by reports that Canada's spring wheat crop was more than three weeks behind normal development and in danger of an early frost. France, the world's biggest high-protein wheat producer, is also experiencing quality reductions because of heavy harvest rains.

Some analysts estimated initially that as much as 20 per cent of the projected 640m bushel US spring wheat crop was affected by the fungus. But crop specialists are now calling the disease problem 'localised' and are waiting for more of the crop to be cut. The US Department of Agriculture said last week that as of August 15, only 7 per cent of spring wheat fields had been harvested.

By the end of the week the September spring wheat price had moved back by 20 cents. The earlier rise 'was too strong a reaction,' says Mr Warren King, market specialist for Cargill Investors Services in Chicago. 'Wheat prices are 60 to 70 cents per bushel higher today than they were when the 1988 drought cut the spring wheat crop nearly in half. That doesn't make a lot of sense.'

In the meantime, US wheat exporters are trying to calm their best customers. Japan dithered over its regular weekly offers last week, but its buyers are expected to be back in the US wheat market again today. 'They are being cautious,' says Mr Greg Dowd, crop specialist with the export marketing group US Wheat Associates.

He thinks that China will buy only about 2.5m tonnes of US wheat this year, less than half of its purchases three years ago. Russia, with a good crop of its own and lingering credit problems at the USDA, may take only donated US wheat this year. The former Soviet Union bought 6m tonnes of US wheat last year. 'We'll have to scramble pretty hard to make up for loss of business that size,' Mr Dowd says.

In its August 11 crop report the USDA estimated that US wheat stocks would climb to 741m bushels this year, from 529m last year, mostly because of fading export prospects.

JAPANESE COPPER smelters are likely to cut output soon, removing up to 200,000 tonnes of annual supply from the market, according to traders and analysts.

The cuts are expected because of weak demand in Japan itself and because the charges smelters make for treating copper concentrates, an intermediate material, are falling.

The Highland Valley mining company is reported to have completed a deal recently with Mitsubishi, Dowa and Sumitomo of Japan for between 65,000 and 75,000 tonnes at treatment charges of USDollars 102 a tonne, substantially below the Dollars 115 to Dollars 120 a tonne levels negotiated earlier this year between miners and custom smelters.

'If, as we expect, the concentrates market continues to tighten, treatment charges will move increasingly in favour of the mines,' says Mr Angus MacMillan, research manager at Billiton-Enthoven Metals, part of the Royal/Dutch Shell group.

'Some observers believe that the Japanese smelter pool, which is exporting copper for less than it would get in its protected domestic market, will cut output and reduce its demand for concentrates.'

Mr Ted Arnold, metals specialist at the Merrill Lynch financial services group, suggests that in the short term there is 'a very good floor' under the three-month London Metal Exchange copper price at 80 to 83 cents a lb. However, 'if the Japanese smelters start to cut back production in coming weeks, as we and many other observers expect, then copper prices will stabilise at a higher level'.

One complicating factor is a deal being put together by a big trading house for some consumers to give them guaranteed long-term copper prices. This may be completed by the end of August. 'When the deal is concluded there may be a temporary price setback,' says Mr Arnold. But, 'if the pricing deal results, as more and more observers think it will, in the withdrawal of 100,000 tonnes of copper from LME warehouse stocks, then copper prices are unlikely to fall far for very long'.

In Merrill's latest Weekly Futures Report he says that, although copper stocks are high, 'they can hardly be described as crushing at around eight weeks of consumption'.

Mr Arnold says Merrill is not expecting 'runaway copper prices. But price surges up to the 90 to 95 cents a lb area in coming months would not surprise us'.

In Billiton's latest Metals Report, Mr MacMillan argues that fears about a lack of world copper smelting capacity are unfounded. A tightness in capacity last year was eased by merchants shipping concentrates to remote locations such as the Commonwealth of Independent States and Zambia for treatment, he points out.

While some greenfield smelter projects have been cancelled, additions to existing smelters will add more than 700,000 tonnes of annual capacity between 1992 and the end of 1994. Also, nearly half the 972,000 tonnes of new annual copper mining capacity by the end of 1995 would use the SX-EW (solvent extraction-electro winning) technology which dispenses with the need for conventional smelting plants.

Estimates vary, but there is a broad consensus that SX-EW now accounts for more than 10 per cent of total western world refined copper output compared with 7 per cent in the mid-1980s, Mr MacMillan points out. 'This proportion is likely to rise to about 15-16 per cent during the second half of this decade and could be as high as 18 per cent by the year 2000. By 1994 the production of copper by the SX-EW route will almost certain exceed 1m tonnes.'

EUROPEAN government bond markets were yesterday caught in the thrall of the German rate cut debate and held fast ahead of the first signals due today.

Many economists expect a quarter-point reduction in the all-important German discount rate to 6.25 per cent, which could allow France to lower its 6.75 per cent intervention rate. It would also give other EC members, particularly Belgium, a chance to ease further.

However, high money supply figures last week cast a shadow over the leeway that the members of the Bundesbank Council will have when they return from their summer break for Thursday's meeting.

Analysts are waiting keenly to see whether Germany's repo auction on Wednesday will be fixed at 6.8 per cent or variable. If the latter, the repo could rise slightly, increasing the gap with the discount rate.

The first regional inflation figure is also expected today and could provide an opportunity for easing if it points to a national figure of less than 3 per cent on a three-month annualised basis. German government bond futures on Liffe rose 9 basis points to 97.07.

FRENCH debt prices marked time despite the suspension of the emergency 24-hour lending facility set up to counter the wave of franc selling that led to the broadening of the ERM bands at the beginning of the month.

The standard five-day to 10-day lending rate remained at a punishingly high 10 per cent but is expected to fall to the final 24-hour level of 7.75 per cent shortly. French 10-year futures closed two basis points firmer at 122.16. However, the balance of strength was on the shorter end of the yield curve which is more sensitive to interest rate cuts.

IN the UK, gilts were firm at the long end, but the sustained rally of recent weeks appeared to lose some impetus.

With no significant domestic data or political factors to concentrate on, dealers waited to see what would happen in Germany. Long gilt futures were up 3/32 at 112 15/16 by the close but the support was not there and turnover was just over a paltry 14,500 contracts.

HIGH-yielding markets were enlivened by a rate cut and encouraging inflation data. Spanish Bonos futures lifted more than half a point to 97.59 after the central bank announced a one-point reduction in its intervention rate.

Although not significant in itself economists said the cut heralded an easing in the repo today from its present 10.57 per cent.

In Italy, government bonds responded to the latest consumer prices data that represented encouraging year-on-year inflation of 4.4 per cent, unchanged from the official July figure. They also bounced from a sharp technically inspired fall late last week. Italian bond futures on Liffe lifted half a point to around 111.44.

Portuguese bonds, especially long maturities, closed higher on strong demand from local investors who foresaw foreign buying later as interest rates fall.

DANISH bonds reacted to a half-point cut in the central bank's 14-day certificate of deposit rate to 10.5 per cent - the first since early August's ERM changes.

Short-term bonds lifted with 9.25 per cent two-year paper rising 0.25 point to 104.75. But the cut failed to impact on longer-term paper - the key 8 per cent Danish state bond due 2003 closed five basis points lower at 108.87 on profit-taking.

US TREASURY prices eased slightly yesterday in listless trading.

By late afternoon, the benchmark 30-year government bond was down 5/32 at 100 11/32 , yielding 6.222 per cent. At the short end of the market, the two-year note was down 1/32 at 100 9/16 , to yield 3.927 per cent.

Trading was extremely quiet, primarily because this is the most popular week on Wall Street for holidays. In the absence of fresh economic news, the market's attention was focused on upcoming supply, although there were reports of continued buying of bonds from overseas investors before New York opened.

On the supply front, the Treasury is due to auction Dollars 16bn of two-year notes today, followed by Dollars 11bn of five-year notes tomorrow. Traders said that the short-end of the market eased slightly yesterday in anticipation of the auctions.

Lazards, Barclays and James Capel have won the mandate to lead manage a Dollars 100m Euro convertible issue for Shipping Credit and Investment Corporation of India, writes R. C. Murthy in Bombay.

Essar Gujarat floated a Euro convertible with put option, which attracted investors. Shipping Credit is expected to allow a similar put option to its Euro convertible scheduled for launch in October.

GUINNESS MAHON, the UK merchant bank owned by the Bank of Yokohama, is setting up a capital markets operation which will specialise in broking bonds.

'A major capability in the fixed income sector is something I have been seeking for some time,' said Mr David Potter, chairman and chief executive of Guinness Mahon.

Guinness Mahon Capital Markets will be headed by Mr Guy Burgun, who previously ran Leu Securities, and will be staffed by 10 former Leu traders.

Leu Securities, part of the Bank Leu group which is majority-owned by CS Holding, was closed down at the end of July and its activities merged with Swiss Volksbank's London operation to form Swiss Volksbank Securities.

The move was part of a restructuring of subsidiaries of CS Holding, the parent company of the financial group built around Credit Suisse, which bought Swiss Volksbank for SFr1.6bn (Dollars 1.05bn) in an agreed takeover in March.

Mr Potter said the development of the fixed income side of the business would provide greater balance, as the company was currently mainly equity-orientated through its stockbroking and corporate finance businesses.

He said: 'We will want to focus on developing our presence in the sterling market. We have been successful as an agency broker in equities and will look at the possibility of agency broking in gilts.'

However, the firm will not attempt to compete for Eurobond underwriting business. 'The barriers for entry into the primary market are too high,' he said.

The new unit, which starts trading on September 1, will concentrate on broking less liquid Eurobonds and structuring private transactions.

Bank of Yokohama, Japan's largest regional bank, took over Guinness Mahon in 1991 after the company had suffered heavy losses on leasing, property and commercial loans during the 1980s.

J. P. MORGAN, the US banking group, brought off a considerable coup yesterday when it arranged the first 15-year bond offering in the D-Mark sector.

So far, foreign banks have had only limited success in winning mandates in this important sector of the international bond market. For years it has been dominated by German banks, Deutsche and Dresdner in particular.

Mr Maarten van Eden, head of J. P. Morgan's syndicate desk in London, said that yields on 15-year Dutch and French government bonds were used as a guide when pricing the DM1bn offering for LKB Baden Wurttemberg Finance, because a German government bond of that maturity does not exist.

The yield differentials between 10-year French, German and Dutch government bonds were also taken into account.

The calculations resulted in a theoretical 15-year bund yield of 6.70 per cent, in line with the yield on French government bonds and 15 basis points above the yield on Dutch government bonds. This compares with a yield of around 6.80 per cent on 15-year German domestic bonds.

LKB's bonds, which carry a coupon of 6 1/2 per cent, were priced to yield 6.69 per cent, or 36 basis points above the 6 1/2 per cent bund of July 2003. When they were freed to trade, the spread narrowed slightly.

'You can argue that this is aggressive since it prices this issue where you would expect to see the bund,' Mr van Eden said. However, he felt that the pricing of the bonds was justified by strong investor demand for long-dated paper, the issuer's triple A rating and closeness to German state risk, and the fact that there were no comparable issues outstanding.

Syndicate managers involved in the deal said that they expected further 15-year D-Mark offerings to emerge now that a precedent had been set.

They reported good demand for such offerings from pension funds and insurance companies which have to match liabilities of a similar maturity. They said that the most obvious borrowers at this area of the yield curve were sovereigns, but that the lack of swap opportunities would limit their scope.

Lehman Brothers also stole the German banks' thunder yesterday when it arranged a 10-year bond issue for LB Schleswig-Holstein.

Demand was such that the issue was increased by DM50m to DM200m. The issuer has an option to change the status of the bonds from senior to subordinated debt.

Lehman Brothers was also active in the Euroyen sector, leading a Y10bn three-year offering of floating rate notes for itself. The notes, which pay interest of 40 basis points above three-month Libor, attracted demand from Asia.

FOREIGN & Colonial Management, one of the first fund management groups to give investors access to the emerging markets in Latin America in the late 1980s, is about to launch an open-ended fund investing in medium-sized Indian companies.

India is widely regarded as the emerging market of the 1990s, following the country's introduction of free market reforms.

Some Dollars 1bn is already invested in Indian equities through existing closed-end funds. F&C hopes that its fund, Indian Investment Company Sicav, will attract between Dollars 50m and Dollars 100m during its launch period, which runs from September 6 to October 1.

Mr Sanjit Talukdar, Indico's fund manager, said the fund provided an opportunity to invest in India's medium-sized companies which, he believed, were greatly undervalued.

Trading in the shares of medium-sized companies has become much more liquid in the past three years when turnover in the so-called 'B' shares has risen from 15 per cent to 27 per cent of daily turnover which is now Dollars 100m.

Mr Talukdar said Indico was the first fund to be managed offshore and to employ an adviser from the private sector. 'This gives us freedom of activity from local advisers,' Mr Talukdar said.

Until the introduction of new legislation last September, the Indian ministry of finance only gave approval for open-ended funds which were administered by India's public-sector banks.

CASCADES, the international packaging and paper group, reported a loss of CDollars 1.95m (USDollars 1.47m) in the second quarter against a loss net profit of CDollars 6.9m a year ago on sales of CDollars 415m against Dollars 212m.

For the first half, the company had a loss of CDollars 1.1m against a profit of CDollars 12.3m.

SOUTH China Morning Post, the News Corporation subsidiary which publishes Hong Kong's leading English language newspaper, reports a net profit of HKDollars 494m (USDollars 64m) for the year ended June, down 7 per cent.

The fall was primarily the result of the full utilisation of tax losses during 1992. The figures were also adversely affected by the recent purchase of Wah Kiu Yat Po, a Chinese language newspaper.

DELTA Air Lines, the Atlanta-based carrier, is offering voluntary early retirement to some of its employees, writes Nikki Tait in New York.

The airline said that about 3,000 people would be eligible for the programme, and that it would take a one-off accounting charge, of about Dollars 70,000 per person for all individuals who elect to take this option.

Delta has already cut some 6,200 jobs over the past 15 months, and is attempting to reduce its cost-base.

SHARES in Varity, the US automotive, farm and industrial equipment maker, rose Dollars 7/8 to close at Dollars 37 1/8 yesterday, a 52-week high, after the company posted better-than-expected second-quarter earnings, writes Karen Zagor in New York.

In the latest quarter, it took a one-time charge of Dollars 1.7m, or 5 cents a share, which left net income at Dollars 14.4m, or 29 cents. In the same period of 1992, Varity had net income of Dollars 14.1m, or 37 cents. Sales in the three months dropped to Dollars 660.9m from Dollars 891.4m, reflecting the disposal of several businesses.

Stripping out one-time charges, taxes and earnings of associated companies, Varity earned Dollars 15.4m in the 1993 quarter against Dollars 17.6m a year earlier.

Mr Victor Rice, chairman and chief executive, said the company had cut its interest expense by 73 per cent in the second quarter, reflecting the restructuring and financing actions. The company's consolidated debt is Dollars 1bn lower than last year.

Kelsey-Hayes, the automotive components business, had operating income of Dollars 19m on sales of Dollars 256m in the latest quarter. On a pro forma basis, earnings were Dollars 13m on sales of Dollars 228m in the 1992 period.

CHINA will place a freeze on enterprises issuing bonds in the latter part of this year in an effort to curb a bond-issuing spree that has raised concerns about the circulation of billions of yuan of worthless paper.

The English-language Business Weekly reported at the weekend that the People's Bank of China, China's central bank, and the State Planning Commission, were scrutinising all applications for new bond issues.

The paper quoted Mr Lu Pansheng, a central bank official, as saying that bond issues that have not already been approved will be stopped.

Companies seeking working capital through bond issues will be asked to apply for bank loans, the official said.

Some Yn20bn (Dollars 3.45bn) of corporate bond issues had been planned for this year, but worries about the ability of enterprises to service their commitments, and concerns about bonds draining money from the banking system, have prompted the latest measures.

Steps to curb unrestrained bond issues by enterprises seeking funds to expand their activities are part of a widespread crackdown by the Chinese authorities on a financial sector that had mushroomed out of control.

China's efforts to cool its overheating economy include a squeeze on credit, a demand that banks recall billions of yuan in loans for speculative ventures such as property, and a strengthening of control over the countries fledgling capital markets.

Mr Zhu Rongji, China's senior vice-premier in charge of the economy, was appointed last month to head the central bank. He wasted little time in installing a new team of deputy governors to assist him in unravelling China's financial morass.

Regulations issued earlier this month were also aimed at clamping down on the bond issuing binge. These included the requirement that enterprises not be permitted to issue bonds unless they had been profitable for the last three years.

Proceeds from the issuing of corporate bonds could not be spent on real estate speculation, securities, futures trading, or other risky investments that are not related to the enterprise's central business.

Companies which float bonds without approval or provide an interest rate higher than the one set by the central bank will be severely punished, the report said.

No mention was made of China's capital raising abroad. China has embarked on a fairly ambitious programme of international bond issues. These are almost certain to be coming under careful central bank scrutiny.

PLAYMATES, the Hong Kong toy manufacturer which produces the Teenage Mutant Ninja Turtles, yesterday announced a further decline in earnings. First-half 1993 net profits fell 16.5 per cent, to HKDollars 146.6m (USDollars 18.9m). The interim dividend is being cut from 7 cents a share to 6 cents.

At the peak of Turtle sales in 1991, the company posted six-month profits of HKDollars 409m. However, the product's popularity has waned and the company has failed to find an alternative source of income.

Turnover fell to HKDollars 600.6m from HKDollars 645.5m in 1992, despite the success of the group's Star Trek product line.

In addition, associate contributions swung to a HKDollars 12.6m loss due to a negative contribution from the 37.5 per cent-owned Ideal Loisirs of France. The French toy group is expected to turn in a profit in the current half-year.

Like many other Hong Kong manufacturers, Playmates has turned to property development in an attempt to make up for dwindling profits from its toy core business.

Director Mr Edmund Ip said the company's 'objective is to establish itself as a quality developer concentrating initially on smaller sites in carefully selected locations'.

Nintendo America, the US arm of the Japanese video game maker, announced plans for a new generation of home video game machines using advanced microprocessor and computer graphics technology provided by Silicon Graphics, a leader in the field of advanced computer graphics, writes Louise Kehoe. Nintendo said the new game machine would be available in 1995 at less than Dollars 250.

The company, which is projecting Dollars 5bn in retail sales this year, will invest a 'significant amount of money' to fund the joint venture while Silicon Graphics will provide its MIPS microprocessors and graphics technology.

SHARES in Varity, the US automotive, farm and industrial equipment maker, reached a 52-week high yesterday after the company posted better-than-expected second-quarter earnings.

In the latest quarter, it took a one-time charge of Dollars 1.7m, or 5 cents a share, which left net income at Dollars 14.4m, or 29 cents. In the same period of 1992, Varity had net income of Dollars 14.1m, or 37 cents. Sales in the three months dropped to Dollars 660.9m from Dollars 891.4m, reflecting the disposal of several businesses.

Stripping out one-time charges, taxes and earnings of associated companies, Varity earned Dollars 15.4m in the 1993 quarter against Dollars 17.6m a year earlier. The shares rose Dollars 5/8 to Dollars 36 7/8 at mid-session.

Mr Victor Rice, chairman and chief executive, said the company had cut its interest expense by 73 per cent in the second quarter, reflecting the restructuring and financing actions. The company's consolidated debt is Dollars 1bn lower than last year.

Kelsey-Hayes, the automotive components business, had operating income of Dollars 19m on sales of Dollars 256m. On a pro forma basis, earnings were Dollars 13m on sales of Dollars 228m in the 1992 period. The company attributed the rise to higher margins due to improved operating efficiencies.

Massey Ferguson, the farm equipment unit, had operating income of Dollars 4m on sales of Dollars 239m. On a pro forma basis, it earned Dollars 4m on sales of Dollars 283m last year. Although Massey's main European market has been weak this year, it expects the business to remain profitable in 1993.

The UK-based Perkin's engines business turned in flat earnings of Dollars 11m.

COAL and Allied Industries, the Australian coal producer, has increased net profits for the year to June by 23 per cent to ADollars 59.7m (USDollars 40.4m).

The result was achieved on a 7 per cent improvement in revenue to ADollars 657.4m. The company is stepping up its dividend from 60 cents to 70 cents a share.

Coal production rose marginally from 11m to 11.1m tonnes, but sales rose strongly from 11.1m to 11.9m tonnes.

Reviews of the underground operations led to significant reductions in employee numbers during the year. The board is making a provision of ADollars 35.1m before tax for diminution in the value of the assets.

That provision led to a net ADollars 28.4m abnormal loss but this was offset by a ADollars 7.5m tax credit. Depreciation took ADollars 51.5m, against ADollars 44.4m.

THE popularity of Dutch shares among foreign investors is proving to be a curse as well as a blessing for the Amsterdam stock exchange.

Strong foreign demand for the likes of Royal Dutch, Philips and Heineken means an alarmingly high percentage of trading in Dutch blue chips is now conducted abroad - mainly on London's Stock Exchange Automated Quotation (Seaq) system - rather than in Amsterdam itself.

For years, Amsterdam has tried to ward off London's attractions by undertaking gradual reforms, such as abolishing stamp duty, encouraging direct bloc trading between banks, and automating the flow of orders onto the bourse floor.

However, these measures have had such little impact that the Amsterdam stock exchange is now gearing up to push through more radical reforms early next year.

According to Baron Boudewijn van Ittersum, the bourse's chairman, the difference between the earlier reforms and those scheduled for next year is that 'this time we are going to tackle the very core of the trading system itself'.

Until now, a central role on the Amsterdam exchange has been reserved for hoeklieden, or stock jobbers, who bring together supply and demand by setting prices in the stocks in which they specialise. Often under-capitalised, and frequently criticised for their inability to take large positions, the 'hoekmen' are the linchpins of a bourse which traces its history nearly 400 years to the issue of shares by the Dutch East India Company.

Under the proposed reforms, the 23 'hoekmen' firms will go, to be replaced by no more than 10 market 'specialist' firms. At the same time, the market will be divided into retail and wholesale segments. In another departure, foreign brokers will be able to take part in the screen-based wholesale market without being present in Amsterdam.

Seven foreign-based houses have already taken out special membership of the exchange to participate in a new inter-professional trading system for Dutch government bonds.

The retail market will remain the domain of the specialists. The wholesale market will be based around Asset (Amsterdam Stock Exchange Trading System) screens, Amsterdam's answer to Seaq. Completing the new look will be Aida, an inter-professional dealing system modeled on Frankfurt's Ibes.

Although it is partially following Seaq's lead, Amsterdam is consciously stopping short of adopting London's reliance on market-making. 'We think the structure we'll have will be stronger than the one London has at the moment, because they lack a retail side and the role of the specialist,' Mr van Ittersum says.

The retail and wholesale sides of trading on the Dutch bourse will be linked. Specialists will have to quote firm prices, a stipulation designed to lend support and direction to the screen-based wholesale market, he says.

A crucial test of the new consensus in Amsterdam will come in the autumn, when a committee of 'wise men' is due to make recommendations on buying out the bourse's hoekmen, some of whom will be transformed into better-capitalised specialists.

Job losses among the 200-strong staff are inevitable. Members will have to approve the plan before the reforms can go ahead.

McKinsey, the consultancy group, published a report on trading in Dutch shares in late 1992. Before then, any talk of doing away with the hoekman was almost taboo. But McKinsey's survey of investors showed that 40 per cent of trading in Dutch shares had leaked abroad, chiefly to London. The situation in Dutch bonds was even bleaker, with just 32 per cent traded at home, though this came as little surprise.

Perhaps the most worrying statistic was that just 33 per cent of 'bloc' trades in Dutch shares, worth more than Fl 1m (Dollars 525,000), was conducted in Amsterdam in 1991, against 68 per cent in 1988.

McKinsey also showed that investors, including Dutch ones, were unhappy with Dutch banks and brokerages, complaining of uncompetitive rates and an aversion to taking risks in the market. This accounted for the trend towards seeking the services of foreign brokers, who in turn were more likely to use Seaq than Amsterdam.

Mr van Ittersum said Dutch banks and brokers had now committed themselves to playing an active part in the new system. They will, in any case, 'need to stick their necks out' more if they want to continue to create a primary market for the larger, internationally-orientated Dutch companies and to serve the Netherlands' powerful institutional investors, he said.

He noted that of all Europe's bourses, Amsterdam was the most exposed to competition from London. With a small home market and a preponderance of international companies, it relies on foreign buying of shares and, particularly, of bonds.

Because of its greater vulnerability, it is also 'the first bourse on the continent that is ready to put a strategy vis-a-vis London into practice', he said.

BRAU Beteiligungs (BBAG), Austria's leading brewery group, is seeking to raise Sch1.9bn (Dollars 160.5m) through a rights issue for itself and a warrant rights issue for its main subsidiary, Brau Union.

The group, which dominates the Austrian beer market with a share of more than 60 per cent, has also disclosed first-half consolidated pre-tax profit of Sch323m, up from Sch169m last year. All but Sch37m of the rise came from property and share sales.

BBAG, one of Europe's largest brewing groups with annual output of over 8m hectolitres of beer, has undergone a restructuring in the past year, simplifying a complex web of cross-holdings among Austrian brewers. Two main sub-groups, both quoted on the Vienna Borse, have emerged. Brau Union, in which BBAG has a 66 per cent stake, holds all the group's brewing interests, both in Austria and in eastern Europe. BBAG itself bottles soft drinks, mineral waters and fruit juices.

BBAG's first-half consolidated sales were up 5 per cent to Sch5.2bn. Mr Christian Beurle, chief executive, forecast at a press conference that pre-tax profit would rise 19 per cent to Sch550m in the full year.

Proceeds from the rights issues are to be used for financing expansion opportunities in eastern Europe. Both issues are on the basis of one new share for every five held. Prices will be struck on September 30.

The BBAG issue is a conventional one, with a two-week exercise period. The Brau Union issue will run for six months from October 22.

'It is really a rights issue disguised as a warrant,' Mr Walter Schuster, deputy director of capital markets at GiroCredit Bank, said. Mr Schuster, who conceived the idea, said the problem was that both companies wanted to raise new capital, and their plan was for BBAG to go to the market this year and Brau Union a year later.

SHARES in Morgan Stanley rose to a fresh high for the year yesterday after the US securities house reported record second-quarter profits of Dollars 224.2m, or Dollars 2.77 a share. At the same stage last year the firm earned Dollars 119m or Dollars 1.36.

Morgan Stanley's strong earnings easily surpassed the firm's previous record of Dollars 198.8m, earned in the first three months of the current fiscal year, and provided fresh evidence that the record-breaking boom on Wall Street shows little sign of losing steam.

Demand for the company's shares in the wake of the results, which exceeded many analysts' expectations, pushed the stock up Dollars 7/8 to Dollars 79 5/8 , a new 52-week high, before closing at Dollars 78 7/8 .

Morgan Stanley's impressive performance was driven primarily by trading revenues, which leapt 153 per cent to Dollars 517.9bn over the three months. Although the sharp jump reflects increases in both customer-related and proprietary trading revenues, earnings from the firm trading its own capital in US and overseas financial markets, particularly fixed-income markets, will have been especially strong.

Mr William Hartman, securities industry analyst at the banking group JP Morgan, said: 'A lot of that (increase in trading revenues) came from Europe. They were able to capitalise on declining European interest rates.'

The huge gains in trading revenues overshadowed improvements elsewhere. Strong growth in financial advisory services and in high-yield and structured debt underwriting boosted Morgan Stanley's earnings from investment banking to Dollars 318.2m, up from Dollars 284.2m a year ago.

Revenues from broking commissions rose 17 per cent to Dollars 90.7m, while asset management and administration revenues climbed 20 per cent to Dollars 63.6m. Interest and dividend revenues rose slightly to Dollars 1.48bn. Overall, total revenues (excluding interest expense) rose to Dollars 11.5bn, up from Dollars 764m a year ago.

Expenses climbed sharply because of a 54 per cent increase to Dollars 572.2m in compensation and benefits payments, which are tied to the firm's performance. Most of Morgan Stanley's other expense lines were little changed in the quarter, and total non-interest expenses came in at Dollars 787.8m, compared to Dollars 568.9m a year earlier.

COST-CUTTING and the weaker krona helped SSAB, the Swedish steel group, more than double first-half pre-tax profits to SKr338m (Dollars 42.5m) from SKr128m despite the difficult market conditions which continued to depress sales.

The group, privatised last year, said it had cut processing costs by 5 per cent since the 1992 first half and by 10 per cent since 1990. Staff numbers have fallen by 2.5 per cent to 9,700 since the year-end.

Lower volumes led to a 2 per cent decline in sales to SKr6.35bn, even though prices were 3 per cent higher in krona terms because of the weakening of the Swedish currency.

The group's steel plate division, SSAB Tunnplat, lifted profits to SKr58m from SKr16m, while the heavy plate unit boosted profits to SKr109m from SKr55m. Both the building products division, Plannja, and the Tibnor trading unit returned to the black, with profits of SKr33m and SKr13m respectively.

SSAB said it expected to make a profit in the second-half for the first time since 1990. Last year it made a SKr165m loss.

UNI STOREBRAND has reached advanced stages of planning a spin-off of Christiania General Insurance, the group's New York-based reinsurance business, into a separate company listed on the New York Stock Exchange, writes Karen Fossli.

Uni said a prospectus for an issue of Christiania General shares was almost complete and that a valuation was almost finished. The company added that limited group resources would in future prevent it from financing the further development of Christiania General.

Earlier this year, Uni had considered either disposing of Christiania General or seeking a strategic partner for the entity, but this had been become difficult during a period of consolidation of the US reinsurance market.

Credit Suisse First Boston, among others, are advising Uni on the move.

Christiania General has assets of Dollars 300m and is ranked 11 among US reinsurers.

Last year the unit returned a surplus of about Dollars 120m under US accounting principles, compared with a deficit of Dollars 125m in 1991.

UNI Storebrand, Norway's largest insurance group, yesterday announced sharply improved first half pre-tax profits to NKr689m (Dollars 94.8m) from NKr79m in the same period last year, helped by substantial gains on securities.

The group boosted net operating income to NKr10.93bn from NKr10.1bn. The increase was achieved despite a loss in premium income by the life business which saw market share decline by 2.8 percentage points to 31.9 per cent in terms of premiums written during the last year.

Uni said group operating expenses had been cut by 2.67 per cent during the six-month interim to NKr8.69bn from NKr9.3bn. Although the payroll was reduced by 286 employees to 4,221 during the period, the full effect of cost reductions is not yet apparent due to terms and conditions of voluntary redundancy arrangements, the company explained.

Gains on securities hit NKr1.41bn, including a NKr213m net gain on the disposal of the group's 25 per cent stake in Skandia, Sweden's biggest insurer, against a loss of NKr690m last year.

Uni said unrealised gains on a consolidated basis rose by NKr1.5bn during the second quarter and stood at NKr3.6bn at end-June. However, by the end of last month unrealised gains had increased further to NKr3.81bn.

Uni pledged to place particular emphasis on quality assurance in future as part of measures to regain market confidence in the group following its release on July 13 from public administration.

Uni collapsed last August under the weight of NKr3.8bn debt taken on to but the Skandia shares in a failed attempt to gain control of the company. The group's shares were relisted on the Oslo bourse in mid-June and NKr4.3bn was raised through share and bond issues in a major recapitalisation of the group.

Uni said it made cash settlements to creditors last month whose claims had fallen due and been approved. The settlements involved full payment of principal, together with interest of about 11 per cent per year and reduced Uni's external debt and cash holdings by NKr4.3bn.

A BARRAGE of noisy volleys over the past fortnight suggests that the drawn-out fight for survival between Canada's two main airlines is nearing a climax.

Air Canada and Canadian Airlines International are firing every weapon at their disposal as each seeks supremacy in a battle which has become increasingly frantic, but remains as confused and unpredictable as when it began almost two years ago.

The only certainty is that both airlines, with combined debts of CDollars 4.2bn (USDollars 3.3bn), are bleeding profusely. Foreign carriers complain that fare-cutting by the two combatants is severely undermining the profitability of their Canadian routes. 'Whatever one does, the other will do in spades,' says the representative of one European airline in Toronto.

Mr Ted Larkin, analyst at Bunting Warburg in Toronto, predicts that whatever the outcome, the survivor (or survivors) will require a heavy injection of equity.

The latest salvoes have come from Air Canada, which is desperately trying to thwart a planned alliance between Canadian and AMR Corporation of Dallas, parent company of American Airlines.

AMR would secure Canadian's future by infusing CDollars 246m of new capital in exchange for a 33 per cent equity stake. But the US carrier has put a gun to Canadian's head by setting an end-1993 deadline for the deal to be finalised.

As an alternative to the American deal, Air Canada last week offered to pay CDollars 200m for Canadian's offshore routes to Asia, Europe and South America. It would also take over leases on the aircraft which currently fly those routes, making the total deal worth about CDollars 1bn. Canadian would be left as a domestic carrier.

Air Canada's offer, like other moves it has made, is shrewdly timed. As a former quasi-state-owned corporation which was privatised in 1989, the Montreal-based airline 'knows how to pull the levers of politics', one Toronto analyst says.

The proposal comes on the eve of crucial votes on August 27 by shareholders and creditors of PWA, Canadian's parent company, on a financial restructuring. Air Canada's offer to take over some of the jewels of Canadian's fleet means that senior creditors who hold the leases on these aircraft can look forward to cash payments, rather than the near-worthless common shares offered to them under PWA's restructuring plan.

Air Canada has also sought to defuse criticism that any solution other than the deal with American would result in huge job losses at Canadian, especially on its home turf in western Canada. Air Canada has offered, for instance, to set up a wide-body jet maintenance base in Vancouver and to employ all Canadian's international crews.

Meanwhile, the Montreal-based carrier has shored up public support on its own doorstep by signing a tentative letter of intent last week to buy up to 48 Canadair Regional Jets from Bombardier, the transportation group whose main assembly plant is also in Montreal.

Canadian has so far rejected Air Canada's overtures outright. Mr Rhys Eyton, Canadian's chairman, called the bid for its routes part of 'a diabolical plot' to kill his airline.

If nothing else, having to shrink Canadian from an international airline flying to five continents to an insignificant domestic carrier would be a severe humiliation. Canadian has its roots in Pacific Western Airlines, which was a profitable regional carrier before it over-stretched by swallowing Canadian Pacific Airlines and Wardair in the late 1980s.

Mr Larkin says, however, that Air Canada's latest proposal plus American's year-end deadline have put Canadian against the wall. 'The options have become more limited,' he says. 'Time is running out.'

Canadian has pleaded for the government to come to the rescue, though it has yet to specify in what way. It argues that if the deal with American collapses, thousands of jobs will be lost and the national interest damaged by leaving Air Canada as an unfettered monopoly.

Loan guarantees from the federal and several provincial governments have helped keep Canadian flying for the past year. But with a general election looming, politicians are now more reluctant to become involved as they find themselves torn between two high-profile companies, each with its own powerful regional constituency.

The dilemma for the government is epitomised by the fact that Ms Kim Campbell, the prime minister, comes from Vancouver, while her transport minister, Mr Jean Corbeil, is a Quebecer.

Canadian's best (and perhaps last) hope of clinching the deal with American lies with the quasi-judicial Competition Tribunal in Ottawa.

The tribunal will convene on September 8 to consider the latest of many tortuous attempts by Canadian to extricate itself from the Gemini computerised reservations system, which it owns in partnership with Air Canada and a unit of United Airlines.

A condition of Canadian's entire deal with American is that Canadian sever its ties with Gemini, and take its business to AMR's Sabre system. AMR wants to use Canadian as a guinea pig and a showpiece for its business of providing management services to airlines, other transport companies and hotels.

Canadian contends that the dissolution of Gemini would preserve competition in the airline industry. But Air Canada is fighting its rival's effort to withdraw from Gemini, arguing that Canadian is legally bound to remain in Gemini until 1999, and that its withdrawal would undermine the network's viability.

The competition tribunal, which has considered the Gemini issue once before, is expected to come to a quick decision. What that decision will be is largely a matter of conjecture. One way or the other, however, it will provide a pointer to the outcome of what has become one of Canada's most messy corporate battles.

COPYMORE, the USM-quoted office equipment company, lifted pre-tax profit from Pounds 506,000 to Pounds 758,000 for the six months to June 30.

In part to compensate shareholders for the omission of a final dividend last year, the interim is increased from 1p to 2.5p, payable from earnings of 4.5p (3p) per share.

Mr Stephen Matthews, chairman, said turnover rose 15 per cent to Pounds 17.2m (Pounds 14.9m).

The result reflected the efforts of the sales team and determination to control and centralise fixed costs, as well as integrating new acquisitions, particularly National Technical Services.

As yet there was no real sign of recovery in the office automation market, but he was confident of a satisfactory outcome for the year.

Combined full year service revenues from the acquired Solutions II group and Concorde Copiers were expected to be Pounds 1.45m. Gearing had been cut from 134 per cent to 111 per cent. Interest cover improved to 6.8 times.

Mr Matthews is leaving the board at the end of the month to concentrate on other interests.

TAYLOR WOODROW has completed the sale of its Ford car dealership, A&S Andrews, to Vulmore (UK).

SIDLAW: rights issue taken up as to over 90 per cent.

RUBICON GROUP has received valid acceptances in respect of 6.36m shares (97.54 per cent) of its 7-for-11 rights issue. Balance placed with institutional clients of James Capel at 155p apiece.

NO PROBE: the proposed acquisition of Multiserve International by the Harsco Corporation will not be referred to the MMC.

MENVIER SWAIN is making a 2-for-1 scrip issue.

MARLING Industries rights issue has been taken up as to 85.2 per cent.

INTEREUROPE TECHNOLOGY Services has bought the business and assets of Telub Inforum Services, a provider of technical documentation and recruitment, for about Pounds 400,000 cash. Telub is an indirect subsidiary of Celsius Industries, one of Sweden's largest industrial concerns.

GRAYSTONE has completed the disposal of Gainsborough Flowers (Porth) to South Green Holdings. Proceeds will be used to cut borrowings.

GIBBONS (STANLEY): offer from Paul I Fraser accepted for 3.36 per cent of the capital and total holding now 47.85 per cent. Offer extended until August 27.

FLEMING HIGH Income Investment Trust has received valid applications for the exercise of 41,772 warrants following the first subscription date and has accordingly issued 41,722 new shares.

EX-LANDS has received acceptances in respect of Pounds 6.87m nominal of the Pounds 15m issued under the open offer and placing of 7.5 per cent convertible unsecured loan stock 2020. Applications, together with stock placed firm, total Pounds 10.69m nominal (77.04 per cent). Balance will be taken up by placees.

CLYDE BLOWERS has received acceptances for 666,479 shares, representing 83.31 per cent of its rights issue. The balance has been subscribed for by institutions.

AEROSPACE Engineering turned round from a pre-tax loss of Pounds 2.16m to a profit of Pounds 214,000 in the year to April 30, adjusting for the FRS 3 accounting changes.

The final dividend is held at 0.5p. Following the cut at the interim stage, however, that gives a total of 0.75p, against 1p. Earnings per share were 0.75p (losses 3.76p).

Mr John Davis, chairman and chief executive, said the recovery was achieved after absorbing Pounds 122,000 (Pounds 1.12m) costs relating to disposal of businesses, Pounds 51,000 (Pounds 742,000) restructuring costs, and against difficult trading conditions in UK markets.

The aerospace sector, in particular, suffered from weak demand exacerbated by severe competition in an over-supplied market, he pointed out.

Much of the improvement was the result of the programme to reduce costs and gearing and improve efficiency, and also to the divestment of businesses.

Mr Davis said while UK demand for circuit boards remained patchy, overseas sales were rising steadily. Conditions in the international aerospace markets were still depressed.

The sale of Forward Industries in June had a significant impact on the balance sheet, reducing debt by Pounds 2.61m. At the close of the year total debt was Pounds 5.33m (Pounds 9.21m), supported by shareholders' funds of Pounds 11.8m, reducing gearing from 79 per cent to 49 per cent.

Capital expenditure of Pounds 750,000 has been authorised for equipping a new microwave circuit board facility and Pounds 500,000 in a new 'clean room' status printed circuit board.

MR HOWARD Hodgson, one of the more flamboyant entrepreneurs of the 1980s, yesterday returned to the London stock market as the biggest shareholder and chief executive of Hoskins Brewery, the Leicester-based real ale brewer.

The move, which ends almost a year of friction between the brewer's board and disgruntled shareholders, added 20p to the company's shares when dealing resumed on the USM after a three-month suspension. The shares closed at 76p.

Mr Hodgson said yesterday: 'I believe Hoskins represents an excellent opportunity for us to expand the business into a substantial public company with growing profits and earnings.'

He heads a new but experienced management team with Mr James Roe, a former director of NM Rothschild, who becomes non-executive chairman; Mr Shaun Dowling, chairman of Hartstone Group and a former director of Guinness, and Mr Bill Caldwell, who retired last year after 22 years as a partner in Price Waterhouse, are appointed non-executive directors.

Coopers & Lybrand have been appointed as the company's financial adviser, and Peel Hunt as its stockbroker.

Mr Hodgson has paid Pounds 303,500, or 55p a share, to acquire a 9.6 per cent stake in Hoskins from the Hoar brothers who have been running the company. Other members of his team have bought a further 3.4 per cent.

Mr Barrie Hoar, the former chairman, and Mr Robert Hoar, a director, together with their families, have also disposed of another 9.5 per cent holding which has been placed with institutions.

The Hoars, who have twice faced shareholder moves to remove them in the past year, received about Pounds 715,000 from the deals which value the company at Pounds 3.14m. The family retains a 7 per cent interest. Mr Barrie Hoar will remain a non-executive director for the time being but his brother has resigned from the board.

A group of dissident shareholders which had been challenging the Hoar brothers' management of the company yesterday formally withdrew their requisition for an extraordinary meeting.

Mr Hodgson approached the Hoars a week ago after the collapse of Hoskins' negotiations with Swithland Estates, a private company run by Mr Adam Page, former chairman of Midsummer Leisure. Swithland was proposing to reverse some of its theme bar businesses into Hoskins - which owns four pubs as well as a brewery - in exchange for 41 per cent of the equity.

'James Roe and I spent several months putting our team together and searching for the right opportunity,' Mr Hodgson said.

The new team aims to increase distribution of Hoskins' beers, building present production from 1,300 barrels a year to 5,000, but has no ambitions to become a large-scale pub retailer.

'In view of the narrow base of its business operations, the company's best long-term interests may well be served by developing the business into complementary areas,' Mr Hodgson said.

The company plans to embark on a series of acquisitions though Mr Hodgson said no targets had yet been identified.

'Our intention is to look for mature businesses, not start-ups or turnrounds, that are cash generative and in expanding markets. Our small head office - to which we have yet to recruit a finance director - would act as a portfolio manager, overseeing a number of profit centres rather than getting involved in the day-to-day running of the businesses.'

Mr Hodgson used similar acquisitive tactics to build his family firm of funeral directors, which he bought for Pounds 14,000, into PHKI, the UK's largest quoted funeral services company with a capitalisation at one time of Pounds 100m.

In the process, he transformed the public image of the undertaker by introducing stretched Volvo limousines in midnight blue and dressing his staff in Portland grey livery.

He was named USM Entrepreneur of the Year in 1987 but resigned as chairman of the company in 1991, selling his shares for an estimated Pounds 6.5m.

Last year, he published a book about his experiences, entitled How To Become Dead Rich.

Caverdale Group, distributor of industrial consumables, is making an offer worth a maximum Pounds 864,000 for Trust Parts, a supplier of engineers' and motor trade accessories.

Irrevocable acceptances have been received in respect of 76 per cent of the total 1.06m shares. The initial offer is 73p per share, worth Pounds 774,000 on 100 per cent acceptance, and further cash deferred consideration will be payable to a maximum Pounds 90,000.

In the year ended October 31 1992 Trust Parts incurred a pre-tax loss of Pounds 81,0000, but the following eight months to end-June indicated a return to profitability.

Cathay Group, an importer and distributor of electrical goods and a subsidiary of Cannon Street Investments, has disposed of its business, including the right to use the Cathay brand name, to Harley Electronics for a nominal consideration.

Cathay incurred a pre-tax loss of Pounds 219,000 in 1992.

Wagon Industrial Holdings, the Shropshire-based materials handling and engineering group, has paid Pounds 2.43m cash for Salter Springs and Pressings, a subsidiary of Staveley Industries.

SSP, based in West Bromwich, manufactures springs, pressings and wire forms, mainly for the automotive industry, and will form part of Wagon's automotive division.

Trinity International, publisher of the Liverpool Daily Post and Echo, now holds 92 per cent of Joseph Woodhead & Sons, the independent privately owned publishing company for which it made a Pounds 12.6m recommended cash offer earlier this month.

The offer has now been declared unconditional as to acceptances but remains conditional upon the consent of the Secretary of State for Trade and Industry.

The deal has been referred to the Monopolies and Mergers Commission.

Finsbury Smaller Companies Trust has announced that the 5.06m C ordinary shares of Pounds 1 each, which were issued in the placing and open offer that closed on July 9, will be converted on September 13 into new 25p ordinary shares in the ratio of 0.96 shares for every C ordinary.

On this basis, the net assets attributable to the C ordinary shares were Pounds 7.59m, equivalent to 1.5p per C ordinary and the net assets attributable to the existing ordinary shares were Pounds 17.55m, equivalent to 1.55p per existing ordinary share.

Therefore a total of 4.88m new ordinary shares will be issued on the conversion of the C ordinaries.

In addition, the 1.51m C preference shares which were listed further to the open offer which closed on July 9 will convert on a one for one basis into 1.51m new Zero dividend preference shares on September 13.

FLEMING Investment Trust Management is planning to launch an investment trust specialising in the Chinese market, writes Philip Coggan.

The investment adviser will be Jardine Fleming in Hong Kong and the stockbroker to the issue will be SG Warburg Securities.

Fund managers have been attracted to China in recent years because of the country's high economic growth and its potential as it slowly introduces capitalism. There are a limited number of shares on China's stock exchanges in Shanghai and Shenzen but many managers invest in Hong Kong-listed companies with Chinese operations.

The new trust is expected to be launched at the end of September.

LADBROKE, the hotels, racing and property group, has suffered a setback in its long-running attempts to penetrate the French market for betting on horse racing, the second largest in Europe after the UK.

The European Commission has turned down its complaint that Pari Mutuel Urbain, France's monopoly tote operator, was infringing EC competition rules by refusing to supply Tierce Ladbroke, its Belgian subsidiary, with audio-visual images of French horse races.

Tierce Ladbroke is the leading bookmaker in Belgium, where its operations along the French border have indirect access to France's horse racing.

Ladbroke claimed discrimination and abuse of a dominant position by PMU, because the French monopoly supplies pictures and sound of French races to Deutscher Sportverlag Kurt Sttof of Cologne for the use of German bookmakers.

The EC has decided that PMU is entitled to choose, market by market, whether or not to provide its services to off-track betting operators. PMU has chosen not to do so at all within Belgium, the EC said. 'The situation would be different if (it) decided to give licenses to certain bookmakers (in Belgium) while refusing them to others.'

HIBERNIAN Group, the Dublin-based insurance and financial services company, reported a 2.3 per cent increase in first-half pre-tax profits from IPounds 8.65m to IPounds 8.85m (Pounds 8.23m).

Increased underwriting losses of IPounds 8.46m (IPounds 6.35m) were more than offset by a rise in investment income to IPounds 17.3m, up from IPounds 14.7m.

Mr Cecil Hayes, general manager finance, described the result as 'very satisfactory,' pointing out that in the 1990 and 1991 first halves underwriting losses were IPounds 13.5m and IPounds 11.1m respectively. Last year's first half had been exceptionally good with no weather-related claims, whereas the 1993 first half had suffered an increase in the number and cost of claims.

The increase in investment income was attributed to strong cash flows and the high levels of interest in Ireland in the early part of the year before devaluation, and the rise in the equity and bond markets since.

Life profits were IPounds 53,000 (IPounds 313,000), reflecting the development costs of an acquisition.

General insurance premium income rose 8.7 per cent to IPounds 89.6m (IPounds 82.4m) and life premium income rose to IPounds 49.3m (IPounds 21.1m).

Earnings per share increased to 11.3p (11p) and the interim dividend is raised to 2.3p (2.1p).

GENERAL ACCIDENT, the composite insurance company, yesterday insisted that it was fully reserved against asbestosis claims arising from a US court judgment earlier this month.

Fears that GA's exposure to the claims, which arise from underwriting operations in Australia, weakened the company's share price yesterday, leading to a 5p fall on the day to 687p.

The claims concern public liability policies bought by CSR, the Australian building materials and mining group, and were made by US workers injured by asbestos mined and exported by a CSR subsidiary, Midalco, at the Wittenoom asbestos mine in Australia.

The insurance policies in question were written between 1955 and 1978. In the latest stage of a complex and long-running liability suit a Mississippi court ruled against CSR on August 5. CSR was ordered to pay damages of Dollars 2m (Pounds 1.3m) to four plaintiffs.

GA said yesterday that the risks were reinsured, that it was fully reserved and that the claims were 'irrelevant in the context of GA's current level of business.'

GA is also in litigation with CSR on these matters and a result was unlikely to be reached for 'several years'.

REA BROTHERS, the small independent merchant bank, and UBS, a subsidiary of the Union Bank of Switzerland, are joining forces to explore new investment opportunities at the Lloyd's of London insurance market.

A pathfinder prospectus for a Pounds 35m investment trust backed by the two groups and supplying capital to a range of Lloyd's syndicates could be issued in early October.

The two groups aim to list Finsbury Underwriting Investment Trust on the Stock Exchange.

A final decision to go ahead is dependent on the publication of a detailed rule book governing the operation of 'incorporated Names' by Lloyd's early next month.

Approval by existing Lloyd's Names, the individuals whose assets currently supply the market's capital base, will also be required. Names are due to meet on October 20 to vote on the market's initiative to attract corporate capital.

'We are fairly confident that if rules are promulgated we can move ahead as we plan to. But there are no guarantees,' said Mr David Lyons, a director of Rea Brothers.

In particular, Lloyd's will need to reassure investors that they will not be liable for liabilities arising from old insurance policies underwritten before 1986. Lloyd's announced in April that it will transfer all such liabilities to a new company, establishing a ring fence to protect new investors.

'There must be absolute confidence that people will not be funding past losses. The ring fence must work,' explained Mr Lyons.

Rea Brothers and UBS will work with Wren Underwriting Agencies and Finsbury Asset Management.

Investments of some Pounds 35m will allow Lloyd's syndicates to accept up to some Pounds 60m in premium income, making the scheme less ambitious than some others currently being considered by a range of US and UK banks and finance houses.

BZW and Sedgwick Lloyd's Underwriting Agents are working on a scheme to raise at least Pounds 100m to form a new investment company, while James Capel and Samuel Montagu are involved in a separate scheme which could raise up to Pounds 250m.

Kleinwort Benson is understood to be examining the formation of an investment trust which support syndicates managed by Sturge Holdings. Salomon Brothers, JP Morgan, SG Warburg, Phoenix Securities and Chase Manhattan are among other companies involved in Lloyd's corporate capital initiatives.

Lloyd's hopes to raise at least Pounds 500m in corporate capital boosting capacity at the market in 1994 by Pounds 1bn.

Hail and blight can now be added to over-expansion, crippling debt and management incompetence on the list of main causes behind the collapse of UK companies.

The Hungerford Wine Company has entered voluntary liquidation, in large part because the harvests of 1991 and 1992 were rendered disastrous by heaven-sent afflictions, according to Mrs Shirley Jackson, provisional liquidator from Begbie Norton, the insolvency practitioner.

She said that HWC's cashflow had been hit by the lack of product to sell, and this was in spite of no lack of customers in the fine wine market.

HWC specialised in the top sector of the fine wine market and especially in the Bordeaux en primeur trade, selling to private consumers and collectors. It has wine laid down in bonded warehouses for more than 1,500 customers.

Mr Nick Davies, owner and managing director, had explored all potential routes to reconstruction, she said, but none had borne fruit. His main concern now was to ensure that clients could take delivery of their wines, perhaps on payment of a levy for storage and transportation.

Mrs Jackson herself is allergic to wine.

GUINNESS PEAT Group, the UK investment vehicle of New Zealand entrepreneur Sir Ron Brierley which took over Brown Shipley Holdings in March, reported a sharp rise in pre-tax profits for the first half of 1993.

Profits came to Pounds 6.75m, compared with Pounds 3.15m for the nine month period ended June 1992, when the company changed its year end.

GPG attributed the rise to a good performance from its main asset, Tyndall Australia, the life assurance and fund management company in which it has a 56 per cent stake. In addition the group cited the unwinding of its joint venture with Brierley Investments in Rossington, owner of the majority of Australian Consolidated Investment, which has oil and brewing interests.

Turnover was steady at Pounds 13m, in spite of the difference in accounting periods. Interest payable fell to Pounds 322,000 (Pounds 701,000).

GPG paid Pounds 5.6m for Brown Shipley Holdings, the investment and broking business arm of the UK merchant bank. Yesterday the group said the acquisition had proved 'very complementary to GPG's UK operations.' It contributed Pounds 280,000 after-tax in the last two months of the latest period.

Mr Blake Nixon, GPG director, said the purchase of Brown Shipley was 'the sort of thing we expect to do quite regularly in the UK.' The group would be looking for companies that would respond to its skills.

Last November GPG regained its stock market listing after a suspension lasting nearly two years. The suspension was imposed because GPG was considered a shell company with no underlying business activity.

Mr Nixon said the suspension had held the company back. 'It tied us up in huge amounts of non-productive work. Now we can focus on the basic business.'

Earnings per share were 0.86p (0.71p) after payment of minority interests of Pounds 1m (Pounds 661,000).

The shares closed yesterday at 28 1/2 p, up 2p on the day.

BTR has been awarded a Pounds 55m contract by Industri Pesawat Terbang Nusantara, Indonesia's state-run aeronautical company, to manufacture parts for the N250 passenger aircraft.

The N250 is a 64-seat turboprop regional aircraft which is being built by IPTN at Bandung, Indonesia. The contract is for the supply of the tyres, wheels, brakes and anti-skid equipment for the aircraft.

The wheels and brakes will be supplied by Dunlop Aviation Division - part of the BTR Aerospace Group - in partnership with Aircraft Braking Systems Corporation, a US manufacturer.

Dunlop Aviation Division will team-up with Magnaghi of Italy in the manufacture of the brake control and anti-skid systems, while Dunlop Aviation Tyres Division - also part of BTR - will supply the nose and main bias tyres for the aircraft.

BTR also announced it was to invest some Dollars 10m (Pounds 6.7m) in a new 45,000 sq ft plant in the US for its Eaton Technologies automotive accessories arm.

Sir Tom Cowie, who is stepping down at the end of the year as chairman of T Cowie, the motor dealer and bus and coach operator he founded, has sold part of his holding in the company.

Sir Tom and Lady Cowie have disposed of 1m and 500,000 shares respectively at 260p each, in line with yesterday's market price of 261p. The disposal realised Pounds 5.24m and leaves the chairman with a stake of 4.69 per cent.

------------------------------------------------ UK ------------------------------------------------ Aerospace Eng 17 BAe 1 BTR 16 Copymore 17 Cowie (T) 16 Eurotunnel 32 GEC Alsthom 5 General Accident 16 Guinness Peat 16 Hibernian 16 Hoskins Brewery 17 Hungerford Wine 16 Ladbroke 16, 15 Northern Foods 32 Rea Brothers 16 Shanks & McEwan 10 Tarmac 32 Texas Homecare 15 Tomkins 1 UBS 16 Vodafone 32 WPP 15, 14 ------------------------------------------------ Overseas ------------------------------------------------ Air Canada 18 Brau Beteiligungs 18 Bridgestone 15 Canadian Airlines 18 Cascades 19 Delta Air Lines 19 Euro Disney 15 Firestone 15 Holmes Protection 16 MAN 15 Morgan Stanley 18 Nintendo 19 Playmates 19 SSAB 18 South China Post 19 Toshiba 5 Uni Storebrand 18 Varity 19 Walt Disney 15 ------------------------------------------------

A long American nightmare is finally over for Bridgestone, the Japanese rubber company which found itself in severe difficulties after it snapped up Firestone, the large US tyre manufacturer, in an ambitious Dollars 2.6bn (Pounds 1.74bn) takeover five years ago. This is the first year since then that Bridgestone/Firestone (BFS), the US company formed after the takeover, will make an annual profit.

The newly confident company claims to be gaining ground in an intensely competitive market - but so too does Goodyear Tire & Rubber, the market leader, which last month reported one of its best quarterly results ever.

Goodyear had an estimated 15.5 per cent share of the US replacement car tyre market in 1992, compared with 7.5 per cent for Firestone and 3.5 per cent for BFS's separate Bridgestone brand, according to Modern Tire Dealer magazine.

The financial upturn is a welcome change for BFS, which lost Dollars 350m in 1990, Dollars 500m the following year and Dollars 146m in 1992 - even though it broke even in the second half of last year.

And it is an important development for the company's Japanese parent, which staked much of its future on the 1988 takeover. Before the deal, it was number one in the Asian tyre market, but an also-ran elsewhere.

Bridgestone's problems in the US, and the way it has gone about solving them, show that Japanese companies are far from infallible in penetrating foreign markets, particularly when taking over another company rather than building their own business from scratch.

'The problems of Firestone have proved to be far more difficult than anyone expected,' says Mr Sunil Kumar, president of BFS's tyre sales business.

Originally, Bridgestone merely wanted to take a majority stake in the Firestone tyre business, but it was pushed into a full takeover when Italy's Pirelli launched a competing offer.

It knew that it would face some post-merger difficulties. When it bought a truck tyre plant from Firestone in Tennessee in the early 1980s, it found the equipment run down and labour relations poor.

Nevertheless, it remained ill-prepared for the sheer scale of modernisation required and for the headaches of merging two corporate cultures, as well as different manufacturing and distribution systems.

Bridgestone was forced in 1991 to pump an additional Dollars 1.4bn of capital into the subsidiary to halve its debt.

The problems were compounded by the onset of recession in the US, which cut demand for tyres, and by the Japanese company's 'kid gloves' approach to its acquisition.

Rather than aggressively merging the two companies, it initially kept Firestone's sales and marketing operations separate from Bridgestone's, thus losing many of the cost advantages of the deal and fostering competition between the two arms. 'They didn't want to do anything which might injure Firestone,' says Mr Kumar. 'I think they ended up injuring everyone.' He says there were numerous examples of Bridgestone salesmen calling on dealers and trying to encourage them to buy Bridgestone tyres rather than Firestone.

However, BFS's fortunes turned for the better in 1991 when the parent company adopted a more hands-on approach, despatching Mr Yoichiro Kaizaki, a senior executive from Tokyo, to replace Mr George Aucott, the then chief executive.

'He changed the attitude of everyone in the company,' says Mr Kumar. 'Before, everyone went around staring at their shoes feeling we were losers.'

Mr Kaizaki, who returned to Japan last March to become president of Bridgestone, rapidly consolidated the two marketing operations. He reorganised the company into 21 independent business units, each with responsibility for profits.

Whereas the two brands had previously been treated as 'separate but equal', they were now 'together but unequal' - in other words aimed at different market niches. Bridgestone tyres tend to have an up-market performance image, while Firestone is more for the mass market.

Mr Kaizaki switched the group's headquarters from Akron, Ohio, where Firestone was based, to Nashville, Tennessee, where Bridgestone had been headquartered. Nashville offered a geographically central location and a fresh beginning.

However, BFS is also benefiting from initiatives stretching back to 1988. They include a Dollars 1.5bn manufacturing modernisation programme, announced six months after the takeover; the transfer of Japanese tyre-making technology, including a greenfield, state-of-the-art truck tyre plant in Warren, Tennessee, about to undergo a Dollars 110m expansion; and the introduction of Kaizan, continual manufacturing improvement through the involvement of shopfloor workers.

All these factors, says Mr Kenji Shibata, BFS president, have improved productivity, though it remains about 65 to 70 per cent of Bridgestone's Japanese plants. He thinks this could rise to 95 per cent in five years. Differing environmental and social costs mean that parity is unlikely.

Mr Masatoshi Ono, BFS chief executive, says that on the manufacturing side the company still needs to become more flexible, shortening product development times and coping better with small production runs. On the marketing side, both brands need to be strengthened.

A survey of consumer satisfaction with tyres fitted on new cars, carried out by the market research concern JD Powers, found both Bridgestone and Firestone below the industry average in 1992, behind Pirelli, Michelin and Goodyear. Mr Kumar says: 'It takes a while for the consumer to recognise significant quality improvements.'

BFS has no grounds for complacency. It may be in the black, but competition in the global tyre industry and excess manufacturing capacity is keeping tyre prices depressed. It will be a considerable time before Bridgestone gets a decent return on its US investment.

--------------------------------------------------- NORTH AMERICAN CAR TYRE MARKET --------------------------------------------------- Replacement tyres 1992 --------------------------------------------------- Goodyear 15.5% Michelin 8.0% Firestone 7.5% General 5.0% Sears 5.0% Cooper 4.0% Uniroyal Goodrich 3.5% Bridgestone 3.5% Kelly 3.5% Multi-Mile 3.0% --------------------------------------------------- Source: Modern Tire Dealer ---------------------------------------------------

WPP GROUP, the marketing services company, remains cautious about an upturn in its markets in spite of reporting pre-tax profits of Pounds 24.1m, up from Pounds 1.8m, in the half year to June 30. The result was helped by the absence of last year's Pounds 13.5m restructuring charge.

Mr Martin Sorrell, chief executive, said: 'The economic recovery, such as it is, remains delicate and unsettled especially in the US and the UK. On the basis of client experience to date, it is possible that a recovery will be delayed for some time.'

The group is paying an interim dividend of 0.35p, as it forecast at the time of its rights issue in March: the first payout since 1990. The shares rose 3p to 93p.

Reorganisation and rationalisation costs of Pounds 3.9m covered severance pay. Operating profit before this cost rose to Pounds 46.5m (from Pounds 35.1m). Billings increased to Pounds 2.9bn (from Pounds 2.5bn) and group revenues rose by 16.4 per cent to Pounds 699.8m, although more than 10 per cent of that rise was due to the weaker pound.

Revenues in media advertising increased by 7.4 per cent in the first half. J Walter Thompson and Ogilvy & Mather generated net new business billings of more than Pounds 156m (Dollars 235m) and Pounds 117m (Dollars 176m) respectively.

However, while US advertising is showing signs of recovery, the group voiced its concern about the extent to which President Clinton's tax proposals could affect US companies, which in turn might cut back on their advertising.

Public relation companies continued to lose money. Hill & Knowlton and Ogilvy Adams & Rinehart reported combined losses of Pounds 4.8m, up from Pounds 400,000.

Net debt fell to Pounds 372m (from Pounds 476m) resulting in a lower interest charge of Pounds 15.6m (from Pounds 20.5m).

The average net debt figure reflects three months of proceeds of its Pounds 85m rights issue.

The group hopes to reduce borrowings further with the sale of Scali McCabe Sloves, the US agency. That sale is expected to fetch between Dollars 40m (Pounds 26.8m) and Dollars 60m.

In the long-term, WPP is considering the flotation of its market research activities in south-east Asia and the sale of one or two smaller companies.

Earnings per share of 2.5p compare with a loss of 7.6p.

Lex, Page 14

TEXAS Homecare, Ladbroke's DIY chain, yesterday announced a shake-up at the top. It appointed Mr John Coleman, former managing director of the Dorothy Perkins chain, as chief executive. It also revealed that Mr Ron Trenter, Texas chairman, would move shortly to another position within Ladbroke.

The announcement, in the wake of rumours that Mr Cyril Stein, Ladbroke's chairman, was about to retire, may lead to speculation that Mr Trenter is being groomed to succeed him.

Analysts said this was unlikely, as Mr Peter George, vice-chairman, had long been seen as heir apparent to Mr Stein. Ladbroke would say only it had 'something lined up' for Mr Trenter, but could not reveal what this was. It said it originally intended to replace Mr Peter Hartley, the Texas managing director who left in July after 'differences of opinion' with Mr Trenter, with another managing director. But its search process produced candidates of such quality that it decided to make Mr Coleman chief executive, enabling Mr Trenter to move on - something he was keen to do after 20 years at Texas.

Mr Coleman assumes his role, and a seat on Ladbroke's board, on September 13. Mr Trenter is expected to stay until Christmas to ensure a smooth handover, but will then leave Mr Coleman effectively to fill the roles of chairman and chief executive.

Texas will be hoping Mr Coleman's appointment will restore stability after several management changes. In addition to Mr Hartley, Mr Peter Hallett, finance director, left in June for Hobson, the toiletries group.

Mr Coleman joins Texas at a difficult time. A price war among the main DIY chains last year resulted in a fall in profits at Texas - number two in the market with an 8 per cent share - from Pounds 47.5m to Pounds 43.5m, and trading remains tough. Ladbroke announces interim results on September 2, with Texas expected to disclose a 27 per cent fall in profits to about Pounds 19m.

Mr Coleman left Dorothy Perkins in April, officially because of differences in management style. But there were stories in the trade that he was talking to headhunters about other senior retail positions - including the chief executive's role vacated by Mr David Dworkin at Storehouse.

Ladbroke's EC plea, Page 16

MAN, the German trucks and engineering group, is to cut its dividend to DM8.50 from DM12 last time following a 45 per cent profits slump in the year to the end of June.

Net earnings fell from a record DM418m (USDollars 261m) to a provisional DM230m on sales of DM19bn, down 1 per cent on the previous financial year, the group said in an interim report yesterday.

There had been no improvement in business conditions since publication of the company's half-year report in February, it added. The backlog of outstanding orders totalled DM14bn at the end of the year under review, 15 per cent lower than in 1991-92.

Incoming orders for the year were down 8 per cent at DM16.6bn. While foreign demand was up 2 per cent, domestic orders were 20 per cent lower at DM6.7bn. Although that suggests improvement from the first half, when total new business was down 14 per cent, the group showed few signs of optimism.

However, it said, after climbing steadily through the year, incoming orders in the fourth quarter, at DM4.8bn, were 5 per cent above the last quarter of the previous year.

MAN, Germany's second-biggest truck maker after Mercedes-Benz, said personnel cuts would have to continue, particularly in commercial vehicles and the MAN Roland printing machinery divisions.

The group has shed nearly 6,000 workers, approximately 9 per cent of its payroll, since mid-1991. Profit figures for this year include provisions for 3,300 more job losses in the current year.

Demand for commercial vehicles was down 13 per cent on the year, while orders for engineering products and plant were 6 per cent lower. An 11 per cent rise in turnover from trading activities helped offset a fall of 8 per cent in trucks and no change in engineering sales. Vehicles account for about 40 per cent of group sales and more than half of its annual earnings.

German industry was still in deep recession, the report said, and capital investment was falling faster. Weaknesses in most European markets had been exacerbated by devaluations against the D-Mark, while improvements in the US economy had still not had any discernible effects on the group's business.

MR JOHN FORSGREN, vice-chairman of Euro Disney, plans to leave the troubled European leisure group to return to an unspecified position with Walt Disney, its US parent company.

Euro Disney, which has this summer been clouded by controversy about its financial performance and future prospects, confirmed that Mr Forsgren would be returning to the US. However, it said details of the move, and his new role at Walt Disney had not been finalised and meanwhile he would remain as its vice-chairman.

The departure of Mr Forsgren, one of Euro Disney's most senior executives and finance director at the time of the opening of the Euro Disneyland theme park in April last year, comes at a sensitive time. Euro Disney, which is burdened by heavy debt and deeply in the red, has been forced to ask Walt Disney for financial support.

Mr Forsgren, 46, joined Euro Disney in January 1990 to help orchestrate its launch. He joined after four years as treasurer of Walt Disney, which owns 49 per cent of the European company.

In April this year Mr Forsgren was replaced as Euro Disney's finance director by Mr Mike Montgomery, another former Disney treasurer. Mr Montgomery has taken charge of financial affairs reporting directly to Mr Philippe Bourguignon, chairman, and has played a leading part in preparations for a financial restructuring.

Mr Forsgren has since April been vice-chairman. Euro Disney said at the time of his appointment that he had been promoted to deal with the investment and political communities.

Euro Disney said yesterday that Mr Forsgren's return to the US was part of the routine process of repatriating US executives. Mr Forsgren, now at his holiday home in Connecticut, has spent most of the summer in the US.

Euro Disney's share price fell sharply last week following press speculation about the group's problems, It dropped from FFr56.80 to FFr54.50 when the market opened yesterday but recovered to close at FFr56.00.

Ms Rebecca Winnington-Ingram, analyst at Morgan Stanley in London said: 'Euro Disney is in a dire situation and investors are very nervous.'

World Stock Markets, Page 29 London, Page 32

BRITAIN'S equal pay laws are to be legally challenged through the European Commission in separate actions by the government-appointed Equal Opportunities Commission and the TUC.

In an unprecedented move the EOC, a statutory body accountable to the government, will next month ask the Commission to decide if Britain's equal pay legislation complies with EC regulations.

The EOC could find itself on a collision course with the government over what ministers will regard as a provocative move.

The organisation's decision to refer the issue to the Commission reflects its increasing exasperation at what it regards as the government's failure to comply with Community legal obligations on equal pay.

The main reason for the EOC's appeal to Brussels is the negative response it received last month from Mr David Hunt, the employment secretary, over the issue.

In a letter dated July 19, he rejected out of hand the EOC's proposals to strengthen existing equal pay legislation.

These called for: a speed-up in the slow and complex procedure in equal pay inquiries; an extension in equal pay award entitlements, beyond the individual claimant, to all workers in the same employment doing the same or similar work to entitle them to the same award; and a move to allow discriminatory terms in a collective agreement to be challenged by an interested party or modified by a trade union.

In his letter Mr Hunt also turned down the legal advice given to the EOC by leading counsel that the government had failed to fulfil its obligations under the Treaty of Rome and the equal pay directive which Britain signed in 1975.

The employment secretary told the EOC the government needed to strike a balance between improving the law and ensuring employers could avoid burdens that would threaten job opportunities.

Mr Hunt also said he was firmly opposed to any proposals that sought to award equal pay to others in similar jobs or to allow trade unions or the EOC to challenge discriminatory pay systems.

The EOC pointed out that it had been trying unsuccessfully for over three years to convince the government that it should improve existing equal value legislation. 'We have decided enough is enough,' the EOC said. The EOC's detailed reference to Brussels is now being finalised.

Yesterday the EOC also welcomed the TUC's decision to make a formal complaint to the Commission over the abolition of wages councils, which comes into force on August 30.

It said it shared the TUC's concern that the abolition 'will worsen the pay gap between women and men and dismantle one of the most practically effective ways of maintaining equal pay for women'.

But the Department of Employment said last night that UK legislation fully complied with the government's EC obligations and it did not accept that abolishing the wages councils breached either the equal pay directive or the Treaty of Rome.

THE GOVERNMENT yesterday attempted to defuse the growing political controversy over leaked plans to raise some rail fares within London by 16 per cent.

An FT analysis, meanwhile, shows that fares on Network SouthEast - as well as London Underground and London's buses - have risen consistently ahead of inflation since 1984, when the Greater London Council, led by Mr Ken Livingstone, cut prices.

Since then, while the retail price index rose by 55.3 per cent, bus fares have risen by 92.3 per cent and tube fares by 94.5 per cent. Network SouthEast registered an 81.7 per cent rise.

Since 1979, the distance which can be travelled on any London public transport system for a set fare has been cut by 20 per cent.

Lord Caithness, a transport minister, sought yesterday to play down the prospect of steep fare increases on Network SouthEast rail services, and emphasised that suggestions that some fares could rise by 16 per cent were hypothetical.

'It is quite natural that British Rail should look at various options, and you are bound to throw up a range of alternatives. Then what happens - and it is the process that is happening now - is that it is discussed between BR and ministers,' he told BBC radio.

The scale of the possible increases has alarmed Tory MPs in the south-east. Sir Keith Speed, a leading Tory rebel over rail privatisation, was certain neither BR nor Mr John MacGregor, the transport secretary, would agree to the sort of rises envisaged in the leaked papers.

Local elections in London next May are adding to the political sensitivity of decisions on fares, as the 'preferred option' in the leaked document would see the steepest increases for Travelcards, used in the greater London area.

One of the Tory rebels over rail privatisation, Mr Andrew Bowden, the MP for Brighton Kemptown, warned that the government must get the right balance between fare rises and subsidy. He agreed there should be a 'reasonable' increase, but insisted it should not be 16 per cent.

See Lex Fare fears, Page 6

British Rail's management seems wedded to the notion that the best way to raise net revenues at times of weak demand is to cut services and raise prices. Such an attitude comes naturally to a monopoly which believes it can shamelessly exploit a captive customer base. Even in Network SouthEast's commuterland, it is starting to look old-fashioned.

Sooner or later a policy of charging more for less will lead inexorably to lower rather than higher revenues. If nothing else, private ownership of rail would surely see a more imaginative approach to revenue generation. Increased usage might even produce a lower unit cost, for all that expensive track and signalling infrastructure.

The banks which agreed to last year's debt-for-equity swap at WPP may be pleasantly surprised by the recent run of the shares. Yesterday's closing price represents a handsome premium over the level at which their preference shares can be converted next week. Little wonder that most fully intend to exercise that option and take profits, rather than hang on in the hope of more.

The conversion will act as a drag on the shares, since buyers will have to be found for around 11 per cent of WPP's share capital. The situation is likely to recur next year when the banks are free to convert their remaining prefs. Longer term prospects turn, though, on WPP's ability to generate more revenue while keeping a lid on costs. Revenue growth of 5 per cent in the first half - once exchange rate movements are stripped out - and a slight improvement in margins is thus encouraging.

But with recession taking hold in Europe and only a sluggish recovery in the US, that rate of progress can not be taken for granted. Discounting in markets from cigarettes to detergent also poses a threat to the branded goods companies on which WPP depends. One response by its clients would be to defend market share and the remaining price differential of branded goods over generic products by increasing marketing spend. The worrying alternative would be to defend margins by taking an axe to advertising.

The modest queue of corporate financiers forming outside Lloyd's must be heartening for the management of the stricken insurance market. Whether investors will be tempted to put money into Finsbury's trust or any of the other investment vehicles waiting in the wings remains an open question. Since the terms on which corporate capital might be admitted will not be decided by Lloyd's council until next month - and not put to the vote until October 20 - there can be no sure answer.

For corporate capital to stand a chance of participating in the 1994 underwriting year, the bankers will have to move fast thereafter. Finsbury has opted for an investment trust; Sedgwick and BZW are working on a quoted investment company. US investment banks will doubtless have their own novel ideas. All will stand or fall, though, on their ability to pick winners among underwriting syndicates.

The replacement of Texas Homecare's chief executive is hardly a sign that everything is going swimmingly in do-it-yourself. Thus far, the gentle upturn in housing transactions has done little for DIY retailers, with consumers reluctant to spend on fixtures and fittings. Last year's fierce price wars have been replaced by the image of consistent low pricing, but DIY retailers have only been able to hold volumes in recent times at the expense of margins. Texas had the upper hand last year, B&Q this. Poor old Do It All has been knocked from pillar to post between them. Meanwhile, expectations of a return to the glory days of the late 1980s are more desperate hope than expectation, and the market will not prosper until substantial capacity is taken out.

The most obvious casualty is Do It All, which requires either drastic pruning or complete uprooting. Yet with alternative use values for the out of town sites so low, the cost of exit is almost unbearable. Boots' strong cash flow might allow it to take the pain of closing Do It All, but its partner WH Smith is not so well placed. Smiths may well show a cash outflow when it reports full-year figures tomorrow, and its smaller balance sheet would be hard pressed to take the strain. If that means that the agony is doomed to continue in the sheds which only cost DIY shopkeepers Pounds 2m-Pounds 3m, what might happen to food retailers faced with a similar plight in air conditioned freehold barns costing Pounds 25m apiece?

France's decision first to cut and then suspend its overnight lending rate shows its markets are returning to normal after the ERM crisis. With luck, it may now be possible to complete that process by cutting the five-to-10 day lending rate. But France will only be breaking new ground when it starts cutting its intervention rate, which sets an effective floor for the money market. For that, the authorities will probably still keep at least half an eye on developments beyond the Rhine.

August inflation figures for Baden-Wurttemberg will today give an indication of the Bundesbank's room to cut interest rates this week. A monthly price rise of 0.2 percentage points or less might prompt a small cut in the German discount rate. That could allow France to cut its own intervention rate without jeopardising the franc. But with year-on-year inflation above 4 per cent, the Bundesbank may yet do nothing at all.

As long as France clings to the vestiges of its strong currency policy, that would be awkward. All the more so since the change at the top of the Bundesbank, and a money supply bloated by intervention, means a period looms when further German rate cuts will be difficult. Thus far, exchange markets have welcomed successive cuts in France's overnight rate. Any interruption to the process may see them again worrying about economic recovery. If the franc is to be weak anyway, the French economy might as well enjoy lower interest rates as well.

To lose a chairman may be regarded as a misfortune; to lose a finance director as well looks like carelessness. For RJR Nabisco, the US-based food and tobacco group - best known for its Camel cigarettes and Oreo 'cookies' - this year's calamities do not stop there. Over the same period it has seen its most profitable business, US cigarettes, wracked by a price war, and has been forced to abandon an ambitious Dollars 1.5bn special shares offering. It has watched its share price dip to Dollars 5 1/4 , less than half the level at which it was sold to investors two years ago.

The long list of problems have raised the question again of whether the company should be split between food and tobacco groups. In the wake of the aborted Dollars 1.5bn 'food share' issue this summer, which would have been tied to the performance of the Nabisco food division, a typical stockbroker's report commented: 'This represents one more thing gone wrong and one more reason to avoid the stock.'

The only person who seems publicly relaxed is the new chairman, Charles 'Mike' Harper. 'I don't know that we're in a bind,' he remarked cheerfully. 'It's a whole wide wonderful world out there.'

But even Mr Harper would not deny that today's grim reality is far removed from the promises made in 1989 when RJR Nabisco was the subject of a record-breaking Dollars 25bn bid masterminded by the financier Mr Henry Kravis, co-founder of Kohlberg Kravis, Roberts, the New York-based leveraged buy-out specialist.

Then, the bidders talked about streamlining; about the disciplines which a heavy debt burden would impose on management; about the merit of shedding corporate 'fat', such as private jets, and investing long-term to build brands.

When the bid battle ended in victory for Kohlberg Kravis, Roberts, the financial world held its breath. It was the biggest buy-out in corporate history and marked the zenith of the feverish period of leveraged deals in the 1980s, when takeovers were funded by innovative debt instruments such as junk bonds.

Today, the widespread view on Wall Street is that RJR Nabisco has avoided many of the financial problems which have beset smaller leveraged deals. Companies ranging from Federated Department Stores to Trans World Airlines found that once recession struck, operating profits were insufficient to meet debt payments and had to file for protection under Chapter 11 of the bankruptcy code.

Operating cash flow at RJR Nabisco has been sufficient to meet debt repayment demands, and about half the total acquisition debt of close to Dollars 30bn has been paid off. The large US credit-rating agencies, such as Moody's and Standard & Poor's, moved the company up from junk bond to investment grade status last year, thus confirming its financial health.

The reduction in borrowings was helped by a programme of disposals which, although not trouble-free, was completed largely as planned. The main elements were the sale of RJR Nabisco's European snack and biscuit companies to BSN, the French food group, and the disposal of Del Monte, the fresh and canned fruits business. More than Dollars 6bn has flowed in from these sales.

But while the balance sheet has steadily improved, progress in terms of industrial strategy has been less satisfactory. On the tobacco side, RJR was struggling to demonstrate any sustained sales or profits advance in its single most important domestic business, long before rival cigarette marker, Philip Morris, slashed the price of its Marlboro' brand and brought a simmering price war to boiling point.

Domestic tobacco is critical to RJR Nabisco's fortunes in the short term, accounting for about 60 per cent of group operating profit. RJR's two main full-priced brands - Winston and Salem - lost market share in the early 1990s as discount brands grew in popularity. Only Camel, a smaller brand, made progress on the back of a successful, if controversial, Old Joe Camel advertising campaign which critics claimed enticed children to smoke.

Recently, RJR redirected its attention to the discount end of the US cigarette market, and its total market share improved. But the gain was largely at the lower-margin end of the sector, so while sales rose 5 per cent to Dollars 6.16bn last year, operating profits for the domestic tobacco division declined by 8 per cent to Dollars 1.7bn in the 1992 calendar year.

The food side has struggled for different reasons. Shorn of its main international interests, Nabisco became heavily dependent on the US domestic market. But recession and the squeeze by retailers' own-label products on branded goods suppliers have meant that profits improvements had to be clawed out of cost-savings and productivity gains. In 1992, food sales were flat in North America, and the division's 'business unit contribution' - core operating profits ahead of asset sale proceeds - rose only 3 per cent.

Such was the state of the company when Mr Lou Gerstner, RJR Nabisco's chairman since the 1989 bid, departed to run International Business Machines in April. His departure proved tough for the company to handle. Seeking to minimise disruption - and knowing that the sensitive 'food share' issue was in the pipeline - RJR Nabisco announced that two other members of Mr Gerstner's small head office team would become co-chairmen and chief executive officers.

At the company's annual meeting just days after Mr Gerstner left, Mr Lawrence Ricciardi, general counsel, and Mr Karl von der Heyden, finance director, performed a polished double-act. But the carefully-engineered harmony was disrupted two months later when Mr Harper arrived. Although many observers had suspected that the two-man chairmanship would prove temporary, the impression of a well-organised handover had been marred by Mr Ricciardi's earlier insistence that the dual arrangement was not short term, and Mr von der Heyden's resignation when the appointment of Mr Harper was announced.

He is no stranger to the rough-and-tumble of the US food industry. In the early 1970s, he quit Pillsbury (now owned by the UK's Grand Metropolitan) when it sold the poultry business which he headed. He moved on to run ConAgra, then a commodity-based business which had just lost large sums on the futures markets and was close to collapse. Slowly, Mr Harper started to buy up packaged food operations which other companies had rejected - including several from RJR Nabisco. Today, ConAgra brands include Wesson cooking oil, Hunt's ketchup, Armour meats and La Choy chinese foods.

But it was Mr Harper's move, in 1985, into 'healthy packaged foods' that really made his name in the industry. He apparently conceived the idea while in hospital recovering from a heart attack. After his release he set about developing ConAgra's Healthy Choice line of frozen entrees. The products were a big success, ConAgra's fortunes blossomed, and Mr Harper became one of the food sector's most respected executives, despite the entry of rivals into the business.

Today, as boss of RJR Nabisco, he is quick to draw parallels between the company and the ConAgra of the 1970s. 'There are lots of ways to make money,' he says, 'and there is no magic in increasing earnings per share.

'With ConAgra, we started with a debt-to-equity ratio of six to one. Over a period of time, and by doing a few little things very well, we focused on increasing value from a shareholders' point-of-view. And that came down to getting good returns from any new capital that we put into the company.'

What, in the context of RJR, might these 'little things' be? Mr Harper is loathe to discuss specifics, but outlines a few possibilities.

First, acquisitions will be a priority. 'We intend to pursue opportunities - food and tobacco. Or it could be something else. I'm not going to commit myself to saying that it would be only food and tobacco.'

This presupposes that both divisions remain under the same corporate roof. It was widely assumed that RJR Nabisco only attempted the complex 'food share' issue because of the immense legal obstacles of a full demerger. Bond holders and litigants in tobacco liability lawsuits would have been unhappy in any case, while complicated debt covenants might have to be bought off. In the wake of the aborted stock offer, speculation that RJR Nabisco is reconsidering this possibility has mounted, however.

Mr Harper is non-commital: 'Anything that's moral, ethical and legal will be done, but it would be inappropriate to speculate on any particular possibility.'

On the food side, Nabisco has been trying to rebuild its international operations via a handful of fairly modest deals, centred largely on Latin America. This, says Mr Harper, will continue.

'I think the food division will continue to build on that base, and that's very logical. We don't want to get into a no-growth business in a slow-growth economy. That might suggest that in certain parts of Europe it could be difficult to find businesses. But I don't care where we find them, so long as they are growth vehicles and can be purchased at a price which will give us a darned good return.'

Second, product innovation will be important. Mr Harper is quick to attack the widespread notion that RJR Nabisco has been tardy in introducing new brands. 'I think the food managers have done a pretty good job of product development. They've brought out a great line of snacks, and now they're coming out with potato chips that have half the fat. These have never been near a deep-fat fryer, and they taste tremendously good.' Mr Harper points out that 10 per cent of sales come from products brought to market in the past two years.

Third, fresh management objectives are being set. 'The company has focused for a long time on the balance sheet - and thank goodness for that. Now the focus is changing. Sure, there are going to be some more financings. But the focus of management is to make more money. It's a natural shift at this point in time.

'So there will be goals, there will be standards, there will be financial objectives. We will establish those; we will expect results.'

But if a steady rebuilding of RJR Nabisco - with emphasis on the food side - is Mr Harper's aim, does the company have enough resources to pursue it effectively? One drawback is that while many food industry competitors can concentrate on that sector alone, RJR Nabisco has the uncertain cost of a cigarette price-war to contend with, plus a still-substantial debt burden. Moreover, its lowly share price and the withdrawal of the 'food stock' issue suggest that new equity financing may be out of the question for a while.

The answer, say some observers, lies in basic mathematics. The company is reckoned to generate 'free cash-flow' - profits flowing into the company with depreciation costs added back - of just over Dollars 4bn a year. About Dollars 2.9bn is needed annually to pay interest on the debt, taxes and for planned capital expenditures. This leaves about Dollars 1.2bn annually to pay off debt and to fund acquisitions.

How much of this balance will be consumed by the cigarette price-war is unknown; 'several hundred million' is the vague consensus on Wall Street. Future debt maturities, meanwhile, are reckoned to be 'fairly modest at an average of Dollars 200m annually over the next few years', according to Fitch, the debt-rating agency.

So are the company's resources enough to juggle acquisition spending with product development demands and marketing requirements? 'Live with it?' Mr Harper says. 'We can be aggressive with it.

'Even with this price-war in cigarettes, we have substantial cash-flow. Relative to interest, it is very good, and even after the great reduction in the operating income from tobacco, it is still very good. Some food people would think they'd died and gone to heaven.'

RJR Nabisco's shareholders, however, may feel that heaven is a little way off. Partly as a result of the cigarette price war, many industry watchers predict a fall in after-tax profits this year; some suggest that it may even be uphill work to show any recovery in 1994. Not least of those concerned is Kohlber Kravis, Roberts, which still holds a controlling interest in the company. Three years after the takeover, RJR Nabisco's management is increasingly being measured by its ability to deliver in the real world of biscuits, nuts, crackers and cigarettes, not by its skill in handling a balance sheet, slashing costs or shuffling assets. On that score, Mr Harper would seem to have his plate full. Mr Kravis can only join other investors in hoping Mr Harper's optimism is well-founded.

Meanwhile, how many PR men does it take to change a light bulb?

I'm sorry. I'll have to get back to you on that one.

A BBC television play called The Vision Thing, which is due for screening in October, must be causing some stage fright at one high-flying City public relations firm.

The play concerns a clever young PR flack whose smooth charm lands him the job of spokesman for the Tory party. One thing leads to another, and, as a reward for a spot of deceit and cover-up at election time, he is given the job of foreign secretary. Sad to say this promising career comes to an abrupt halt in a now predictable way.

His illicit affair with a glamorous young interior decorator is exposed after their pillow-talk is bugged by GCHQ and subsequently picked up by a retired building society manager who also happens to be an amateur radio operator.

Not much to worry about in that - except that the central role is played by one Nathaniel Parker, son of Sir Peter Parker, chairman of the Young Vic, and brother of Alan Parker, the smooth-talking boss of Brunswick, the City PR firm whose rapid rise to fame was crowned by its handling of the BT3 flotation.

So uncanny is the resemblance that viewers who switch on half way through might even think they are watching a cinema verite documentary about the comeuppance of Alan.

One only hopes they will be properly able to distinguish fact from fiction.

Who is behind MBNA, the major American bank which hit the headlines last week by getting a Pounds 7m grant out of the DTI to build a Pounds 43m headquarters in Chester? Whoever it was must have spun a good yarn to get that sort of treatment.

The DTI and the Department of Employment could not elaborate on the brief press release, and even the Bank of England admitted that MBNA had only got its banking licence a few days before the announcement. However, it sounds like a bank in a hurry, judging by the career of Alfred Lerner, its 60-year-old chairman.

Lerner is one of those irrepressible sorts who just won't let a little mishap get him down. Having made his first fortune in real estate, his second career as an investor in bank stocks seemed in danger of coming unstuck when he sunk Dollars 158m into the Baltimore-based bank MNC, parent of Maryland National which had run into problems with dodgy property loans.

Lerner even disappeared briefly from the Forbes list of the richest people in the US. But not for long. In order to rescue MNC from its financial problems, Lerner helped spin-off its successful credit card operations as MBNA in 1991, and has never looked back. He earned Dollars 139m last year, according to Financial World magazine's annual survey of Wall Street pay.

If Tarmac does press the button and have its rumoured rights issue soon, will the company mark the occasion by changing its chairman?

Sir Eric Pountain, who turned 60 earlier this month, has had a good innings and handed over the executive reigns to Neville Simms early last year. Along with Graeme Odgers and Bryan Baker, he was the reason Tarmac was regarded as one of the best-managed companies in its field in the early 1980s.

However, he was not the best chairman for a recession and Tarmac now needs an injection of new equity to repair its earlier mistakes. Having a powerful former chief executive on the board can often make life difficult for a new chief executive keen to put his own stamp on the company.

Ten years ago Tarmac was the biggest in its sector. Today, in terms of market capitalisation, Blue Circle is nearly twice as big and Redland almost three times. If Sir Eric does choose to bow out, Sir John Banham seems the most likely internal candidate to succeed him.

Would you run a mile for a burger? No, neither would Observer. But Steve Cram is hoping that his athletic exploits will inspire fast food fans to cram into Heroes of Sport, a chain of family restaurants he is about to launch. Hard on the heels of the Hard Rock Cafe and Planet Hollywood, Cram's cafes will feature sporting memorabilia, rather than the film and pop souvenirs normally associated with such places.

While Cram eventually plans to satisfy the appetites of Manchester, Birmingham, Sheffield, Coventry and central London, his first venue will open in Newport, south Wales, in October. Let's hope it proves more successful than Newport County Football Club which went belly-up and dropped out of the league in 1988.

No wonder former countries of the Soviet Union are keen to hear from Pope John Paul II. The mere mention of a papal visit seems to work miracles for the exchange rate of the country in question, judging by Lithuania's experience.

Ever since word leaked out that the Pope was planning to visit the Baltic state in September, Lithuanian's currency, the litas, has soared. Last month, the rate was five to the dollar; now the going rate is 2.8 litas to the dollar. Demand for the currency is based on expectations that foreign visitors flocking to Lithuania to see His Holiness will lead to a glut of hard currency.

If this scenario proves correct, then the Vatican can expect an early call from the Ukraine. According to Morgan Stanley, Ukraine's karbovanetz has fallen by 90 per cent against the dollar since December.

KENNETH CLARKE was chancellor of the exchequer in waiting long before he became chancellor. He may already be regretting his temerity. By now he should be painfully aware that there are two kinds of chancellor: good ones and popular ones. The first unified budget, due in November, should make rather clearer what sort of chancellor Mr Clarke will be.

If a responsible chancellor is to be popular, he must be very lucky. Mr Clarke has had some luck. He inherits an economy that is not only on the mend, but enjoys low inflation by British standards. Even the Bank of England accepts that underlying inflation is likely to remain within the government's target range of 1 to 4 per cent over the next two years.

It is rare for anything in life to come unalloyed and Mr Clarke's luck is no exception. He also inherited a public sector borrowing requirement estimated by the Treasury at Pounds 50bn, or 9 per cent of gross domestic product (excluding privatisation proceeds), for this financial year. Mr Clarke's parliamentary colleagues tell him in response either that he must not cut public spending or that he must not raise taxes. Meanwhile, respectable economists tell him that the fiscal deficit is either mostly cyclical or that it does not matter very much. He is, in short, being told to hope for the best. This might seem sensible. It would, in fact, be rash.

Absurd practice

The unified budget brings Mr Clarke several important advantages in his attempt to deal with the challenge: it allows him to make explicit the trade-off between spending cuts and tax increases; it should also persuade even Keynesian economists that the lag between the announcement of measures and the beginning of the succeeding financial year renders fiscal fine-tuning unrealistic; most important of all, it can be used to justify a new level of openness.

To his credit, Mr Clarke has already abandoned the absurd pre-budget practice of 'purdah'. What has not changed is the secretive way in which tax changes are decided. The Treasury still insists on its unchallenged control over economic strategy. Unfortunately, an institution's authority depends on its performance.

Consent is no longer given unquestioningly to what chancellors propose, even on the Tory back benches. It has to be earned. If, as seems probable, Mr Clarke decides on further tax increases, that will prove rather difficult. What the chancellor needs to do well before the budget therefore is to set out the situation, the prospects and the options, as the Treasury sees them. At worst, the opposing factions may then exhaust themselves in internecine debate. At best, someone may come up with valuable ideas on spending or taxation that the Treasury has not thought of.

Stable environment

Transparency is the first requirement. It is particularly important when policy is purely discretionary. Moreover, there is also an excellent chance of securing long-term growth in the British economy. A second requirement, therefore, is clarity about the underlying principles for economic policy. One of those should be provision of a stable macroeconomic environment, with low inflation not merely secured but actively pursued. Another should be further rebalancing of monetary and fiscal policy.

For reasons expounded by Mr Lamont's former adviser, Bill Robinson, in his articles for the FT, further action to reduce the budget deficit will almost certainly be required. Once that is accepted, it makes no sense to postpone the adjustment, especially when its adverse macroeconomic effects can always be offset by monetary easing. Furthermore, the sterling exchange rate, this month's dissolution of the ERM and the low growth of broad money all suggest that such easing is already both desirable and justifiable.

This leaves the chancellor the question of how precisely to go about cutting the deficit. Mr Clarke's desire is to preserve current spending plans, which means higher taxes. In the long term that is probably the wrong option, but in the short term there may be little alternative. Either way, choices have to be made. If he decides to avoid them instead, Mr Clarke is likely to go down as just another temporarily popular, bad chancellor.

'YELTSIN HEADS for showdown with Congress,' proclaimed an FT headline just after Russia's president had won a convincing endorsement in last April's referendum. Four months on, the showdown is still awaited. Mr Boris Yeltsin and his parliamentary opponents continue their war of laws, decrees and corruption charges. His government is paralysed by faction-fighting. Power and money seep away from the centre to the regions, economic output declines, and Russians sink further into cynicism about their rulers. Without a decisive move to break these logjams, the point can not be far off when political drift turns into serious political danger.

Now President Yeltsin says he is at last about to make such a move: he plans to outflank congressional diehards by forcing early parliamentary elections this autumn. Congress will be asked to dissolve itself in order to allow the creation of a new assembly. If, as seems certain, it refuses, Mr Yeltsin will press ahead anyway. In one bound, he will be free to govern as mandated; reform will be back on course; and a new parliament empowered to join in the creation of a more stable constitutional order.

It would clearly be beneficial, both for Mr Yeltsin and for the cause of reform, to get rid of a parliament that dates back to communism and which has consistently passed Soviet-era legislation - most recently a budget that amounts to a recipe for hyperinflation and a law that attempts to halt Russia's privatisation programme.

Ample opportunities

But there are several problems with that optimistic scenario. One is that we have heard it too many times before. In the two years since he led Russia from the wreckage of the former Soviet Union, Mr Yeltsin has had ample opportunities either to reform or defeat the parliament, notably immediately after the dissolution of the USSR. On each occasion, he has ducked, weaved and temporised, allowing his opponents time to counter-attack.

A second difficulty is posed by the effort to create a new constitution out of the old. The present constitution is a hopeless mess: it has been amended so many times by the current parliament as to be unrecognisable, and can now be used by Mr Yeltsin's opponents to mean almost whatever they want it to mean. Creating a new one confronted Mr Yeltsin with a near-impossible dilemma. To get away with violating the law in pursuit of a better one, he needed to shore up his power base in Moscow and build a coalition of regional and republican leaders that would support him in his confrontation with parliament. This he has been trying to do over the past four months - but at the cost of a devolution of powers to the republics and regions that, if continued, would call in question the very survival of the Russian federation. As a result, he is so weakened that his latest manoeuvre seems more likely to deepen the confusion than to advance democracy.

Policy stalemate

This points to the third, and most important, difficulty for those - like the Group of Seven - who have pinned their hopes for reform on Mr Yeltsin: on the evidence of recent months, he seems most unlikely to deliver. It is now abundantly clear that Russia's policy stalemate is not simply a matter of president versus parliament, or reformist ministers versus recalcitrant central bank; it is a paralysis at the heart of the cabinet and presidential entourage. The cabinet is both divided and incompetent, as shown by the rouble reform fiasco last month; the reformers who once, briefly, seemed to act as a government within the government are fighting among themselves; and Mr Yeltsin seems powerless, or unwilling, to inject greater coherence into the business of government that goes on in his name.

It is hard to see how a few more months of parliamentary electioneering alone will resolve that problem. If there are to be elections, they would more sensibly be for both parliament and president. Such a contest would give Mr Yeltsin - still held in some esteem around the country - a chance to spell out what he stands for. If he did so with sufficient vigour and clarity he would have a good chance of being re-elected. If not, the alternative would not necessarily be a disaster.

The theme of these articles has been that the state of the public finances is the central economic policy problem facing the government today. It is simply imprudent for the government to undertake spending which exceeds its revenues by a fifth. Borrowing Pounds 50bn a year, much of it from foreigners who may at any point decline to go on lending to us, is a risky strategy.

The problem has arisen partly because recessions are always bad for the public finances.

Elections are also bad news, as spending is increased and/or taxes are cut in the pre-election period. The combination is unusual - governments usually do their best to prevent elections and recessions from coinciding - and it has proved lethal.

The unexpected length of the recession, which meant that the election was repeatedly deferred while waiting for the elusive upturn, subjected the Treasury to two pre-election public spending rounds.

With the cards thus stacked in favour of spending ministers, public spending has, after three successive years of 4 per cent real growth, already risen by more under Mr Major than it did in the entire period in office of Mrs (now Lady) Thatcher.

The spending spree has coincided with a shortfall of revenue that has been intensified by the recession. Together these factors have created a borrowing problem more serious than that of the 1970s, the last time that the government borrowed on this scale.

Now, as was the case then, new borrowing is causing the stock of debt to rise rapidly. Then, however, incomes were rising even faster because of inflation. So the government's debt-to-income ratio, which is the key variable, actually fell. Today's low rate of inflation means that the large borrowing requirement is pushing up the government's debt-to-income ratio extremely quickly.

There is, fortunately, time to deal with the problem. Though the finances are deteriorating rapidly, they do so from a very favourable starting point. The government's debt was less than a third of the national income and is expected to rise to around a half. It can still be stabilised close to the level that Mrs Thatcher inherited from Labour, though that will require difficult dec-isions.

The problem is that any way out of the borrowing trap conflicts with other cherished objectives. Consider what the different options are:

Raise direct taxes? Hardly, because the Conservatives won a closely contested election by contrasting their own tax cutting record (and promises of further cuts) with Labour's shadow Budget, which penciled in higher taxes to pay for more public spending.

Increase indirect taxes? Less difficult politically, since a shift from direct to indirect taxes has been the thrust of Conservative tax policy since 1979. But putting up indirect taxes would raise inflation, and the underlying rate is already uncomfortably close to the government's new inflation target erected since Britain left the ERM.

Cut public spending? Too late to implement cuts in 1994-95, as the decisions have already been taken, but cuts in later years must be on the cards.

Confronted with these unpalatable choices it will be very tempting to do nothing, especially if the recovery improves the public finances. The do-nothing school will also draw comfort from the Bank of England's success in funding the deficit. So far the markets have absorbed the massive flow of new gilt issues without a tremor. Why risk disturbing a fragile recovery in the interests of reducing a large PSBR that isn't a problem?

The answer to these siren voices is that borrowing is a problem. If it is not tackled now, it is hard to see when it ever will be. The fact that the debt is being sold relatively easily is little comfort. It is not hard to sell debt on a coupon of nearly 8 per cent when headline inflation stands at 1 per cent and the government is aiming to keep underlying inflation in the lower half of a 1-4 per cent band. The debt sales achieved this year are better than a funding crisis, but they also constitute a millstone round the neck of the taxpayer.

The interest charges on Pounds 50bn of debt at 8 per cent come to Pounds 4bn per annum for the foreseeable future - 2 per cent on the income tax rate, with all the adverse effects on incentives that entails and no public spending to show for it. And next year's borrowing will add another 1 1/2 per cent, with more to come in later years.

Mr Clarke will find, like all borrowers that the longer he delays the correction, the bigger the problem he faces.

The brutal fact is that, with public spending at these levels, the only choice facing Mr Clarke is between higher taxes now and higher taxes later.

Being an astute politician he may prefer to face up to the problem now, with the next election still some way off, rather than be forced into unwelcome action nearer to polling day. He may also reckon that putting up taxes in the coming Budget will make it politically easier to secure the necessary reductions in public spending next year.

I say reductions in spending, rather than cuts, because (as I argued in an earlier article) nobody wants to see lower standards of public provision. But if borrowing must be reduced and cuts are ruled out, the only alternative to putting up taxes is to introduce charges. This is a big political step, but the size of the problem, and the obstacles in the way of conventional solutions, calls for radical action.

There is no shortage of good ideas.

The government has already moved in the right direction on roads. The private finance initiative will bring new private funding in to road building, attracted by the prospect of making a commercial return on capital in the new world in which road users will pay for the use of premium roads.

The crisis over the provision of university places for all those who achieve adequate grades would be quickly solved by making students bear some proportion of the fees, as happens in many other countries.

The quiet revolution in dentistry, where much of the work is now cosmetic and undertaken privately, points the way to the introduction of charges, for those who can afford it, for other health services. The 'hotel charge' for hospital patients is one obvious example.

Mr Clarke has a reputation as a courageous politician, unafraid of tough decisions.

He has said his instincts are tax-cutting instincts, but he is not instinctively hostile, as some on the right are, to public spending. As a man of the 'hard centre', he should seize his opportunity to steer a new middle course: maintain the standards of public prov-ision but make those who can afford to pay for it do so.

The author is a former director of the Institute for Fiscal Studies and served as a special adviser to the former chancellor, Mr Norman Lamont

Sir, While welcoming the Treasury's offer to extend performance pay rather than automatic annual increments to First Division Association (FDA) civil servants, we were astonished to see the association claiming that actual pay rises for their members would be 1.25 per cent as increments were self-financing.

In a recession, when recruitment is reduced and promotion delayed, incremental salary systems are bound to add a higher than normal percentage to payroll costs.

It is partly for this reason that our hospital clients are examining alternatives to the Whitley Council scales, which have resulted in 4 per cent increases in payroll costs in a year with a 1.5 per cent pay limit. Only the 1.5 per cent is taken into account when health authorities and others are negotiating treatment rates, which may help to explain the financing crisis in so many hospitals.

Although easy to operate, incremental systems have had their day through their automatic awards for long service but often marginal performance.

I hope the FDA will not only accept the Treasury's offer but champion, more actively, reward systems that allow the opportunity to earn higher discretionary rewards.

The recent Top Salaries Review Body Report highlights the increasing and serious differential between top public and private pay. If automatic increments were dropped in favour of evaluated performance increases the nation could probably be much more willing to accept a significant increase in top civil servants, judges, and, incidentally, MPs' basic pay.

Peter M Brown,

chairman,

Top Pay Research Group,

upper ground floor,

9 Savoy Street,

London WC2R 0BA

Sir, May I congratulate David Lascelles on his most objective article on wind power.

As he indicates, it would take thousands of wind generators to replace one large power station, and the capital costs involved clearly favour more traditional generating methods. However, I would point out that the economic argument against wind generation is even worse than that set out in the article.

In the UK, the highest levels of electricity demand can arise when there is a settled high-pressure weather pattern in mid-winter, producing sustained low temperatures. Such conditions provide little wind at times of greatest need.

Consequently, wind generation requires backup alternative generating capacity to avoid a shortfall in supply. The cost of this duplicate capacity constitutes an additional subsidy to wind generation. It also poses the question, why does one need two generating systems when one reliable one will do?

Roy R Martindale,

42 Ruskin Close,

Rugby,

Warwickshire CV22 5RU

Sir, David Lascelles is quite right about wind farms. They are environmentally menacing while making not the slightest sense in energy terms. Even at the height of the oil crisis in the early 1980s, when I was energy secretary, I was never shown any evidence that wind power could become a remotely economic source of electricity.

Why the government should now be approving these intrusive and moaning monstrosities in some of the most beautiful areas of our country I cannot understand. Cornwall and mid-Wales have already been scarred. Now there is a threat to dot these tall structures along the hills either side of the Upper Wye Valley.

I hope that on both environmental and energy policy grounds the government will withdraw its encouragement for any more of this desecration and waste. If we must have huge wind farms at all, they should be sited on the less attractive parts of our shoreline.

David Howell, MP,

House of Commons,

London SW1A 0AA

Sir, Anybody reading David Lascelles' article on wind farms can be in no doubt about his personal views on the development of wind energy. Regrettably, he rests his case largely on the basis of erroneous information.

He claims that the recent decision to allow construction of a wind farm at Four Burrows in Cornwall is the fourth instance where the environment secretary has pushed through a wind farm against the wishes of people who live nearby. This is quite wrong. The other three projects referred to the secretary of state - Ovenden Moor, Kirby Moor and Cemmaes - were approved by local planning committees. The government decided that a wider examination in public should be undertaken.

At Four Burrows the inquiry ensued when the planning committee rejected the advice of its professional planning officers to grant permission.

The technology is certainly not, as Mr Lascelles argues 'a long way from commercial operation'. Let us be clear on energy costs. On sites having only a modest wind speed, the cost of wind-generated electricity over a typical 20-year plant life is about 6.5p per unit, and is coming down. On windier sites such as are found in parts of Scotland, the price can be substantially lower. Comparing this, on the same accounting basis, with the prices for electricity from new conventional power stations, we have coal at about 4.5p/unit, combined cycle gas at 2.6p/unit and nuclear at at least 7p/unit.

As things are at present, wind is not the cheapest. But the costs quoted here for conventional power projects do not include the external environmental and social costs that they incur. Evidence presented to the Commons energy committee last year showed that external costs added about 0.75p/unit for combined cycle gas and 2p/unit for coal and nuclear. Wind, which requires no fuel to be won or transported, produces no carbon dioxide or other atmospheric pollution and has no legacy for future generations. It does not suffer from the associated external costs. It is competitive with coal and cheaper than nuclear.

Mr Lascelles seeks to belittle the significant contribution that wind energy can make to our energy needs. The UK has vast wind assets, almost half Europe's wind resource. This is equivalent to more than double our current electricity demand. Taking account of its fluctuating nature, siting constraints, and integrating it into a practical and flexible system it is reasonable to expect that wind energy could supply 10-20 per cent of our electricity early in the next century and provide valuable diversity of supply.

And what of land usage? To generate 10 per cent of our electricity from the wind would require wind farms extending over 1,200 sq km (not 4,000). This is only 0.3 per cent of the UK land area and because wind turbines occupy less than 1 per cent of the area in which they are sited, the actual land usage would be only 12 sq km. In the other 1,188 sq km, cows could still safely graze and crops ripen around and below the turbines.

Of course, the main environmental advantage of wind is that it is a clean energy source. Were the policy, planning and regulatory frameworks to allow us to achieve the 10 per cent tomorrow, the immedIate benefit would be to avoid pumping 30m tonnes of carbon dioxide, 30,000 tonnes of sulphur dioxide and 60,000 tonnes of nitrous oxide into the atmosphere each year and without the long-term safety commitment the nuclear industry has yet to face.

Mr Lascelles might not like wind farms, but the evidence of independent public opinion surveys shows that less than 10 per cent of the general public, including those living around wind farms, do not like them. The substantial majority are in favour.

What they are not is uneconomic or unnecessary.

I D Mays,

D Lindley,

M Trinnick,

British Wind Energy

Association,

Eaton Court,

Maylands Avenue,

Hemel Hempstead,

Herts HP2 7TR

Sir, In his article 'An ill wind of change' (August 19), David Lascelles states that wind energy is 'not a subject of rational discourse'. It is a pity that one of the FT's finest writers then demonstrates this by raising five objections to wind power that betray a depressing misunderstanding of the issues involved.

Two of his five arguments are that the UK has no need for additional generating capacity and that the existing resource base gives little value to diversity. Both are true for the next 10-20 years; both are grounds for not building any additional capacity; both are arguments that have been consistently rejected by governments and many others in the support of nuclear power because they are too short term.

On the timescale that it takes to develop substantial capacity of any non-fossil source, current plant capacity will be outstripped, North Sea oil and gas production will decline, as will the availability of low-cost UK coal. And the outlook for imported oil and gas prices at least will become increasingly volatile.

Mr Lascelles' third argument, that wind's variability is an important objection, is plain wrong. Variations in wind output cause far fewer operational problems than the tripping of a single main power generating set. Like an investment portfolio, what matters is the correlation of a new input with other variations on the power system.

In fact wind energy is well matched to demand on a seasonable basis and many technical studies have shown the short-term variability, at the levels being considered over the next two decades, to be economically irrelevant.

The statement that wind energy is environmentally insignificant because its contribution will be very small is true for this decade. But in the longer term, '10 per cent of electricity' is neither small nor an ultimate limit, and its environmental benefit will be proportionately much larger because it will displace the dirtiest marginal plant on the system. It could easily displace 20-40 per cent of power system sulphur dioxide emissions, for example.

Resource estimates are largely subjective, but obtaining 10 per cent of electricity from the wind would require wind turbines to be a significant landscape feature in about 1 per cent of the UK, not allowing for any possible offshore siting. The acceptability of that is subjective, but public opinion surveys in areas that have wind farms reveal a large majority in support.

Which leaves us with the economics. Current wind farms are certainly more costly than power from new gas stations at current prices, or existing coal stations.

But with the costs falling steadily as this nascent industry becomes a big business, it is likely to be competitive if gas prices rise and against new coal or nuclear stations.

The central point is that new energy industries cannot be created overnight. The government has created a system of phased supports to reflect indirect costs of conventional production and to help the early stages of an industry that is likely to be an important component of sustainable energy supplies.

As part of a major project on renewable energy strategies, I at least have been led to the conclusion that it is a remarkably rational and valuable policy.

Michael Grubb,

head, energy and environmental programme,

Royal Institute of International Affairs,

10 St James's Square,

London SW1Y 4LE

Sir, According to your article on deregulation and the Department of Trade and Industry ('Heseltine's crusade progresses in silence', August 20), Tim Sainsbury, UK industry minister, believes the message of deregulation has been 'received and understood' and co-operation with other departments is 'getting better'.

The members of the London Society of Chartered Accountants would beg to differ. From the perspective of our clients, while the government looks at a large number of petty regulations, it is failing miserably to tackle the largest burdens of them all - the tax and accounting regulations.

The Manchester Business School in 1991 estimated that an average business spent 20 per cent of its pre-tax profits dealing with company and tax regulations. This percentage would have been higher for smaller businesses which make up the majority of British industry. Since then, of course, the recession has turned many profits into losses but the red tape has not stopped rolling.

The recently approved Finance Act, for example, was the second longest ever at 300 pages. It introduced no fundamental changes but dealt with so many issues in such technicality that all but the largest companies will be forced to turn to their tax advisers for more help. Many companies will be required to change their accounting or tax software to cope, and almost all companies will find the time they spend on tax administration increasing still further. Pay-and-file, another recent piece of tax legislation, is also adding heavily to that administrative effort.

Before we are convinced that the message of deregulation has been received, let us see some positive co-operation between the Treasury (with the various tax authorities) and the DTI. Let us see all legislation evaluated for its cost/benefits and a massive reduction in the tax and accounting trivia inflicted on us.

Malcolm Bacchus,

chairman,

London Society of Chartered Accountants,

20 Old Bailey,

London EC4M 7BH

Sir, While I agree wholeheartedly with the views expressed by Mr J E Troth regarding the stigma of the work-based vocational route for 16-year-olds ('Training on job needs better image', August 18), I would suggest that there are two main obstacles to progress.

The first is the absurdity in which schools get a full year's money for each pupil entering sixth form, even if the pupil leaves after a few weeks; the second, a careers service that is both under-resourced and falls under the quasi-political control of the local education authorities which still control most schools.

One solution would be to make the careers service independent and give each 16-year-old a training credit (as advocated by the Confederation of British Industry), which could be used to pay for training at school, college or via youth training with an employer who offers a full-time job from day one. Payment would be made only on the achievement of results.

Real progress towards giving 16-years-olds a genuine choice will be made only when we have a combined department of education and training that puts equal value on all post-16 education and training.

D P S Smith,

managing director,

HTA,

Swan Court,

Waterhouse Street,

Hemel Hempstead,

Herts HP1 1DU

Nicholas Sackman, the 43-year-old English composer, had this year his first commission for the BBC Proms. The result - a 25-minute piece for large orchestra entitled Hawthorn - was revealed in the Albert Hall last Thursday, in a concert by the BBC Symphony under Andrew Davis, and will surely have proved immensely gratifying to all concerned. Sackman's output is not large (Hawthorn is only his second orchestral encounter); he works out his material with spare, unwasteful concentration; his concerns are not at all those of current fashion (ie minimalist note-spinning of the Holy-Mystic or the Neo-Brutalist persuasions).

Hawthorn is an example of Sackman's tautly contained musical argument, yet it manifests an intensity gradually but ineluctably built up, a cumulative power that I have not experienced in his music before. This may have been the 'release' provided by a large orchestra, or by the novel (Glyn Hughes's The Hawthorn Goddess) which supplied the work's initial inspiration.

Whatever the cause, the music - in a continuous three-part (fast-slow-fast) structure - states its terms with remarkable confidence in their potential, and a control of their dramatic unfolding that kept me intent on the progress of every note. Those terms, described in wildly oversimplified fashion, might be said to be the central opposition of crabbed, jabbing, harmonically complex chordal chunks, rhythmically charged in their groupings, against lyrical lines growing ever freer and lengthier. In the finale, after the ruminatively spacious slow movement has run its course, the argument snowballs to its expansively lyrical coda with an exhilaratingly unstoppable energy which one senses had been honestly earned.

The orchestral colouring is comparably rigorous, with no element of artificial ear-catching, yet similarly strong - punchily athletic brass, airily striding strings, everywhere a 'personal' command of timbre and texture. If (as Sackman suggested in a laconic programme note) Hawthorn is indeed something of a dry run for a possible opera based on the same material, I hope our opera administrators are already battling it out for the honour of realising that possibility.

Under Davis, always a sympathetic, precisely commanding interpreter of complex new works, the BBC Symphony gave the impression of relishing Sackman's rugged contrasts - rather more so, indeed, than earlier they had the glitter of Prokofiev's First Violin Concerto. But though the accompaniment may have been bland, the solo part was delivered with a sensational blend of virtuosity, sophistication and purring sweetness: Maxim Vengerov, 19 years old, was making his proms debut, in a way to cap even the most noteworthy of his previous London appearances.

Another of Davis's special gifts is 20th-century English music of an older and, on the face of it, less challenging character, to which he brings such sweeping conviction that every ounce of original freshness is recovered. On Sunday, with the BBC Symphony Chorus and Orchestra, he revealed this gift anew. Delius's Sea Drift had Thomas Allen as a mature, affecting baritone soloist; John Ireland's Piano Concerto showed Kathryn Stott in sparkling form; in Elgar's The Music Makers Jean Rigby's rich-hued mezzo was at once powerfully emotional and tenderly reticent. All three works are Proms warhorses, yet Davis allowed no hint of laxity or routine to spoil their latest appearance there.

The audience cheers Mark Morris's second Edinburgh programme even more than the first - as do I. It includes three pieces all new to Britain: the JS Bach Jesu, meine Freude (good), the Michelle Shocked-Rob Wasserman Home (better), and the Lou Harrison (best). As in Programme One, the live music is so excellent you could shut your eyes all evening and have a great time. But I imagine that most people, while leaving the Meadowbank Stadium at the evening's close, must feel mighty bewildered - as do I. Who is Mark Morris? How in the world can the same man make three pieces so unalike?

As everyone must know by now, Morris makes homosexual dance look as natural as hetero-; and in this respect he is a breakthrough choreographer. But Jesu, meine Freude shows another breakthrough side of him, lesser-known: that he means dance to express religious as well as secular conditions. It is very odd to see a dance set without irony to a Bach devotional cantata. Odd, because for over 16 centuries Christianity has been the religion most determined to divide flesh from spirit, and to make dance an irreligious and profane art. But here are 10 of Morris's dancers - dancers of various races, dancers with more flesh than you see in ballet, dancers linked in various AC/DC couplings - rapt in religious devotion.

As a dance, Jesu meine Freude is bright with internal variety. Passages of severe upper-body gestures (reflecting the rigours of religious contemplation) are opposed to sequences of fluent, travelling dance (suggesting the lyric transports of religious rapture). The former keep leading to, are the premise of, the latter; and both grow naturally out of the music. I do, however, detect a certain absence of spontaneity, a slight nearer-my-God-to-thee self-conscious holiness, in the movement style that keeps me from surrendering to this dance's spirit.

Home, by contrast, is a powerful and poetic piece of secular Americana. Set to music composed and performed by Michelle Shocked and Rob Wasserman, it consists of six sections. Numbers 2, 4 and 6 are country music, communal dances, bright-spirited affairs, in which men and women 'clog' in leather shoes. Numbers 1, 3 and 5, however, are scenes for women without men, dark and bleak scenes of women in the agricultural mid-West, while Shocked sings with thrilling force of (no. 1, 'I Need a Friend') loneliness, (no. 3, 'Still-born') depression, and (no. 5, 'Winter Wheat') impatience. As Home alternate between these two tones, it grows ever more moving: harsh and compassionate at the same time.

The evening ends with an extraordinary work, an utter knockout work, Grand Duo, a four-part dance for full company. (Its final section, Polka, was seen here last year; the rest is new.) The music is by Lou Harrison (b1917), an American composer whose music Morris has used before; what music of his I have heard strikes me as so superb that I am amazed how seldom it is played here. This Grand Duo for Violin and Piano, though composed only five years ago, is vintage modernism: driving, fragmented, with elements of folk music thrown into its furious engines.

The tribal dance that Morris has made to this music is like the Rite of Spring you always wanted to see and never have. It is, at one and the same time, (a) a brilliant piece of primitivism, a pulsing vision of an archaic community, (b) a shocking portrait of neurological disturbance, an assembly of people seldom touching but united in violent and helpless gestures that need to be exorcised, their alarmingly frenetic energies emerging from deep within, (c) a work that shows people like cogs in a vast impersonal device, driven by machine rhythms.

Grand Duo is the most thrilling new dance I have seen for many a long month. It is, I believe, the greatest thing that Morris has made since the 1989 Dido and Aeneas; and, like that and other works of his, a masterpiece. Every praise to the dancers, who are the committed embodiment of Morris's grand design. Because of them, liking his dances is the easiest thing in the world. They make you fall in love again with dancing, dancing to music, dancing as instinct and life force.

The Edinburgh Festival is resolutely elitist this year (nothing wrong with that, of course.) But it did throw up its skirts once - for performances of Scottish Variety - the Fabulous Fifties.

This was a recreation of the last days of the music hall, when all the Grands and Empires throughout the land still presented weekly variety bills consisting of rough comedians and twee sopranos, drag acts and dog acts. But the show at the King's Theatre was hardly a recreation. The theatre has changed little in 40 years. There is the red plush curtain; the brightly painted backdrops; the illuminated number board at the side to identify the acts; and, bless 'em, many of the old performers, Jimmy Logan, the Tiller Girls, and yes, even Susan Maughan, still hoofing it.

Time really was frozen. 'Mr Happiness', Johnny Beattie, told jokes about seaside landladies and those idiots from Glasgow with impeccable timing; the Tiller Girls jack-knifed across the stage, smiles superglued; there was even another chance for that extinct art form, the Scottish sketch, with a Rangers fan converting to Celtic on his death bed so that the auld enemy would have one less supporter.

Of course you were reminded how awful much of it was - the 1950s must have been the worst decade for music this century - and some acts survived on routines that would make Bob Monkhouse blush. But it was clean and jolly and it really was variety. So what if the trampoliners muffed their climax; who cares if a Tiller tumbles; and tough luck that Susan Maughan is no longer 'Bobby's Girl'. The entertainers of the 1950s were at one with their audience and any snarling, expletive-ridden alternative comedian would have been silenced at last by this display of genuine folk art. He might even have risen and joined in the National Anthem at the end.

There is, it seems, nothing the BBC will not now do to disguise the fact that they are showing yet more repeats. BBC2 screens the first of three profiles of famous modern architects, Master Builders, billing them as a 'New Series'. In fact they are repeats of items already shown on 'The Late Show'. Today's subject is Philip Johnson, 86, who was once more than a little sympathetic to Nazism (7.45).

Since the enthusiasm for demonising one faction in the Bosnian civil war seems highly dubious to me, I shall be interested to see Joan Philips' programme in C4's Free For All (8.00). We are told that the BBC's Martin Bell is among those who support her assertion that journalists have not given enough attention to covering all sides.

The third of BBC2's series about the Mongol hordes, Storm From The East, finds a monk, Friar John of Plano Carpini, being sent out to eastern Asia to investigate 'the devil's horsemen' and arriving in time to witness the enthronement of The Great Khan (9.45). BBC2 also offers a 'Late Show' special on The Art Of St Ives.

The Waking Dream is the one serious exhibition of visual art, of any sort, that this year the Edinburgh Festival acknowledges as part of itself. No matter that it comes fully fledged from the nest of the Metropolitan Museum of New York, and flies on to the Hermitage at St Petersburg for the winter: the Festival's engagement with the visual arts was ever thus - indifferent, opportunistic, conscience-free. And we, for our part, should simply be grateful that so many remarkable and wonderful images have been brought over for our delight.

The collection is the creature of Howard Gilman, present chairman of the paper company founded by his grandfather, who has concentrated his interest on photography's first 100 years, that is to say from the moment of its first practical demonstration by William Fox Talbot in the late 1830s up to the eve of the second world war. As a period it would seem to fit well enough, a nice round number that embraces all the principal technical developments, notably the progressive miniaturisation of the equipment and the ever-increasing ease and flexibility of its handling.

But perhaps such scope was, in the event, something of a snare and a delusion. The heart and substance of the show, and of the splendid book-cum-catalogue that goes with it, lie rather with the work of the first 60 or 70 years and its story of early experimentation, rapid maturity and sophistication and at last the conscious expressive potential achieved by the turn of the century. The 20th century is simply too rich a subject to warrant the afterthought allowed it here. Had the show ended at the first rather than the second war, the point would have been better made.

The point, to be fair, is half-acknowledged in the title of the show, which is taken from Keats's 'Ode to a nightingale' and worth the full quotation: 'Was it a vision, or a waking dream?/ Fled is that music: - do I wake or sleep?' To catch the fleeting image on the wing, as picking notes out of the air, had always seemed quite beyond human reach. The note was played and was gone even as it was heard: and the thing seen? That too was gone or was changed even as it was seen, to be recalled only in its simulacrum.

The excitement at seeing those first shadowy, ghost-like echoes of reality appearing on the page may only be imagined, but it was real enough. Even now we may catch something of it, if only the faintest hint, not as excitement at all but in the poignant frisson of recognition we feel as we look again at those gentlemen, so studiedly negligent in their stovepipe hats, those women sitting in dappled sunshine on the lawn, that broom still leaning against the door.

It is the nicest irony that photography should have suffered ever since by the expectation raised at its very invention, that here was a mirror held up to nature. It was never, could never be, any such thing. The double-irony is that whenever it aspires, therefore, to the condition of art, its inherent and apparent realism is held against it, with affectation and self-indulgence summoned in aid. The truth of it is simple enough. Any fool can use a camera, or a pencil or brush for that matter. The camera is a tool available to the artist, with its peculiar virtues, limitations and disciplines to master and exploit. It is not its picking-up that makes him so but only the use he makes of it.

What makes so many of these early images so potent in their effect upon the imagination is that whatever else they might have been thinking of, the photographers were primarily engrossed in the mastery of their medium. There is to their work a quality of definition and deliberation that can only be a function of the equipment to hand, and the opportunities it afforded. With everything ready and the pose set, even the landscape seems to hold its breath. Does it matter whether Lady Hawarden, using her daughters and nieces as her models at home in South Kensington, or Horatio Ross out stalking on his Scottish estates, thought of themselves as artists or mere amateur technicians? The images they produced are manifest works of art.

The much smaller exhibition, Photographing Children, hung low on the wall for the benefit of its young audience, contrives to ask many of the same questions of the photographers' attitudes and intentions. Its subject is the child, as photographed from the Edinburgh urchins of Hill and Adamson in the 1840s, through the conventional studio portraiture of the later Victorians to Roger Mayne's Gorbals urchins of the 1940s and so on to the documentary and reportage, of such as Iain Stewart, Francine Dunkley, Owen Logan and John Charity, of today.

The work throughout is wonderfully appealing, and yet it is a curious paradox that for all the technical advantages and freedoms enjoyed by the modern practitioners, their material seems less definitive and universal in its imagery, and more incidental, narrative and sentimental. Is it that just another exposure is, well, just another exposure? Is it that the taking of the photograph is now so easy that all effort and consideration is directed at the mis-en-scene? Or are we simply too close to them to say? Perhaps we are. And perhaps this present glossy professionalism in time will take on the qualities we find even in the vintage prints of the 1950s.

The Waking Dream: Photography's First Century: selections from the Gilman Paper Company Collection; City Art Centre, Edinburgh, until October 2. Photographing Children: Scottish National Portrait Gallery, 1 Queen Street, Edinburgh, until October 3; sponsored by EAE Communications.

The dispute between Mrs Patricia Ashmore and other Lloyd's Names and the Corporation of Lloyd's, will be heard by the Court of Appeal in February next year.

It has been before the courts since 1988. After much effort and money was spent on the full trial, the Corporation asked that the preliminary issues of law be tried first, thus avoiding publicity for the underlying facts. The plaintiffs' objections were overruled by the Law Lords.

Deciding the issues of law a year ago, Mr Justice Gatehouse ruled the Corporation has no duty of care towards its members and has immunity from damages.

The final decision will affect the readiness of Names to underwrite risks and the City's reputation as a place where contracts are performed in good faith.

English law is different in that it does not include a generalised concept of good faith and fair dealing. To achieve the same effect judges developed a variety of devices. Thus for 200 years the courts of equity have refused to enforce contracts which no sane, honest or fair-minded person would accept, calling such contracts 'unconscionable'.

Trustees, and directors of companies, are bound by a fiduciary duty, while a duty of care, not to cause harm to their employers and inform them of potential dangers, is implied by law in such contracts as are daily concluded by agents or builders.

One would assume that these rules, without which business could hardly exist, bear on the relationship between Names and the Corporation; and that they are reinforced by special Lloyd's Acts between 1871-1982.

But this was not the judge's view. He rejected the plaintiffs' claim that the Corporation had a duty of care to protect them against misbehaving or dishonest agents managing Lloyd's syndicates, and to inform them in time of misbehaviour so they could avoid losses.

The judge also accepted the extensive interpretation of the immunity from damages granted to the Corporation by the 1982 Lloyd's Act in respect of their statutory duties. He ruled that it also encompasses breach of contractual duties about which the Act is silent.

The Court of Appeal will be asked to say what are the implied contents of the contract concluded between a Name and the Corporation.

By such contracts Names allow agents managing Lloyd's syndicates to underwrite in their name risks for which Names then bear unlimited liability. They must not interfere with the business of the agents, who are not members of the Corporation, but who are admitted and supervised by the Corporation and report their dealings to it.

As it is a duty of a contractual agent to obey his principal's instructions, it would appear managing agents are organs of the Corporation and it is the Corporation which is the agent of Names.

This argument, which the plaintiffs seem to have overlooked, is reinforced by the fact that all premiums are collected by brokers admitted and supervised by the Corporation, and who also acted as managing agents of syndicates until 1987 when this conflict of interests was removed.

The contract leaves Names two safeguards: an individually agreed limit on total premiums, which limits the risk that may be underwritten in their name; or the statutory assurance that the object of the Corporation is to protect and further Names' interests and keep them informed.

Only the Corporation knows, or can take steps to know, whether the premium limit has been exhausted, and it seems to be its contractual duty to stop the limit being overstepped. When inviting a prospective name to sign the contract, the Corporation gives him documents claiming that it controls the admission and operation of brokers and managing agents.

He who claims influence and power in making a contract should exercise it in performing it. Or, as Sir Henry Fisher, the judge, wrote in his 1980 report, the Names 'can reasonably look to the committee (now the Council) for protection'.

The Corporation's duty to respect the premium limits and inform Names of any doubt about the skill and honesty of the agents must be on the mind of the parties when signing the contract as 'a matter of course' - a test of implied duty.

The other test, that such implication is also necessary, is obvious: no person in his right mind would put in another's hands not only his fortune but also the power to bankrupt him by undertaking in his name risks without limit; nor would he forgo the right to be informed about mismanagement or dishonesty by those underwriting risks in his name.

If the higher courts decide that the Corporation has such a duty of care towards Names, the case will return to the High Court for trial.

To succeed, the plaintiffs will have to prove the Corporation failed to protect them against exposure to risks substantially exceeding the agreed premium limit and that the Council did not even inform them of the conclusions of the Chester Committee of Enquiry. This alleged certain underwriters and brokers were claiming they kept business within the agreed limits when they were exceeding them.

The plaintiffs add that the Council allowed the agents to continue to operate on behalf of the Names though it found the Chester report's allegations serious enough to stop new Names joining the criticised syndicates.

The Corporation has made a number of reforms and is seeking corporate investors to underwrite insurance. The latter are likely to press for better internal controls. Yet the outcome of the appeal remains of great significance.

Publication last week of the Monopolies and Mergers Commission's long-awaited reports on British Gas shot Mr Graeme Odgers into the public limelight for the first time in his new role as MMC chairman.

Although Mr Odgers arrived at the MMC too late to be closely involved with the report, the generally favourable reaction to the commission's findings has ensured a good start for the Odgers' era.

However, it is too early to judge whether the appointment of Mr Odger, an experienced industrialist, will translate into an overall change in approach to competition policy.

Mr Odgers' appointment by Mr Michael Heseltine, trade and industry secretary, last December, was generally seen by observers as another step towards a new approach to competition issues.

When Mr Heseltine took over at the DTI, he promised a pro-industrial policy, intervening to help British companies 'before breakfast, before lunch, before tea and before dinner'. As an industrialist and the first non-lawyer to head the Commission, Mr Odgers was seen as Mr Heseltine's man.

Mr Odgers' industrial credentials made him an ideal candidate for the task of bringing a more pro-industry focus to the work of the commission.

At Tarmac, he revived the construction company, increasing turnover from Pounds 85m to Pounds 1.6bn during his seven-year spell. He moved onto British Telecom, first as deputy chairman and chief financial officer and then as group managing director under the chairmanship of Mr Iain Vallance.

It was a very difficult time (at BT), says Mr Odgers. The telecommunications group was experiencing widespread problems and after 'struggling manfully' with these for four years, he left suddenly in early 1990, returning to the construction industry as head of Alfred McAlpine.

Mr Odgers put his abrupt departure from BT down to 'a clash of management styles' with Mr Vallance. One-on-one relationships are always difficult, he explains, unless there is real understanding and a coincidence of style.

'Perhaps I was too inflexible in some ways in my commitment to decentralisation and in my views about how a business should run to make the relationship work.'

Mr Odgers' public sector experience is also thought to have impressed Mr Heseltine. In the early 1970s he spent three years as head of the DTI's industrial development unit.

Peter Walker was then trade and industry secretary. But by the time Mr Odgers had taken up his appointment, there had been a change of government and he found himself working for Labour's Tony Benn.

The Conservatives saw the IDU as a vehicle for handling regional aid under the Industry Act; but under Mr Benn its role widened and Mr Odgers found himself heading the investigation and negotiation of support deals for lame duck companies such as motor manufacturer British Leyland.

'Heading the IDU in the middle of an industrial crisis and trying to reconcile the political aspirations of one's masters with the industrial and commercial realities of the marketplace was what I call a challenging job,' he says.

He found the experience 'riveting'; so much so that when the opportunity of returning to the public sector presented itself - as as head of the MMC - he had little hesitation in accepting.

The only hole on his curriculum vitae as far as the MMC job was concerned was the lack of a legal qualification. At the time of his appointment, this lacuna was seen by many as an advantage: Mr Odgers was viewed as a hands-on industrialist prepared to inject some much-needed pragmatism into the legalistic procedures which surround UK competition policy.

Three and a half months into the job, Mr Odgers is not so sure. The commission operates within a legal framework, he says; failure to observe the law would result in its decisions being challenged in court. Mr Odgers has therefore been put through a series of tutorials with the Commission's lawyers, which he describes as 'rewarding, but hard work'.

So is he Mr Heseltine's man? 'Obviously, given my background, there was no way I was going to approach the job from a legalistic point of view. When looking at the public interest criteria I'm bound to put full weight behind the industrial and commercial considerations.'

He is, nevertheless, a firm believer in the importance of competition. 'If you don't have a sound competition environment you're not going to have sound competitive industries.'

'But,' he adds, 'competitiveness - the ability to compete in whatever is the relevant market - is also hugely important.'

Does this mean that the enforcement of competition policy must be flexible - that it is pointless having strong competition in local markets if it prevents companies competing on the world stage?

'What I'm saying is that you have to identify what the relevant marketplace is in each case. What you don't want is, in stimulating competition within local and domestic markets, to stop your relevant industry competing in what turns out to be the real marketplace, which may be the European or an interna-tional marketplace.

'Sometimes these conflicts occur and one has to take it into account, no question about it.

'Having said that,' he adds, 'the best stimulus to the creation of strong international competition is a strong competitive framework within your own domestic marketplace. If you don't have it, you'll have soft industry.'

Mr Odgers is happiest talking about competition and its relationship to competitiveness. He is less forthright on other issues such as reform of competition law, relations with the European Commission and the structure of the UK competition authorities.

He has yet to meet Mr Karel van Miert, EC competition commissioner, but foresees no problems in reaching common ground on a variety of competition issues with his EC counterpart.

Nor does Mr Odgers see the need for radical change to the UK law on the abuse of monopoly power - a view shared by his predecessor, Sir Sydney Lipworth. And he is cautious about any change in the relationship between the MMC and the Office of Fair Trading; he welcomes the recently announced government review of the OFT.

As an industrialist Mr Odgers is aware of industry complaints about the duplication of effort between the OFT and the MMC and the administrative burdens this places on parties involved in investigations. Mr Odgers would like to streamline and speed-up procedures, but maintains that, if the MMC is to do its job properly, then there are inevitably going to be burdens on industry. The process is, he says, 'a balancing act'.

Like his predecessor, Mr Odgers would welcome the appointment of more hands-on industrialists to the MMC but recognises the difficulties many prospective candidates would face in devoting sufficient time to the commission.

Barely 100 days into the job, has he changed his views in any way since arriving?

He says he had not appreciated the full extent of the difficulties of competition policy. There are all sorts of internal dilemmas and inconsistencies which make any MMC judgment 'so much more difficult than I had originally thought'.

Peter Mackenzie, a director of Sulzer (UK) and head of the textile machinery division, has retired.

Graham Musson is leaving the BM GROUP; Graham Hall is resigning as a director of the group on completion of the disposal of BM Plant and Talbot Diesels.

Mike Walmsley has resigned as a director of J. BIBBY & SONS.

Michael Carr, deputy chairman of GRESHAM TRUST, has retired.

Hamish Inglis has retired from WATSON AND PHILIP.

Edward Low has retired from STAVELEY INDUSTRIES.

Peter Allen, the deputy chairman of accountants Coopers & Lybrand, has announced his intention to retire from the firm in April next year when he will be 56.

His departure follows the decision by Brandon Gough, chairman of Coopers for the past ten years, to step down when his current term finishes in April 1994.

These moves clear the way for elections from among the partners for a new chairman, who will be able to select a fresh management team. The vote takes place in November.

Coopers says that Allen had told his partners earlier this year that he would be retiring and that he intends to take on a number of non-executive appointments.

He joined the firm in 1963 from university, became a partner in 1973 and partner in charge of the London office in 1983 before becoming managing partner in 1984.

He led a team that nego-tiated the merger with Deloitte Haskins & Sells in 1990 and after that became deputy chairman with responsibility for overseeing UK activities and acting as chairman of the management consultancy practice across Europe.

Chris Harris, director of Marine Emergency Operations at the Department of Transport, has been selected, following an open competition, to be the chief executive of the MARINE EMERGENCIES ORGANISATION executive agency when it is established in April 1994.

Graham Marriner, head of the telecommunications information group at the Post Office, has been elected chairman of the TELECOMMUNICATIONS MANAGERS ASSOCIATION.

Roger Westwood, president of the Society of Pension Consultants, has been appointed chairman of the OCCUPATIONAL PENSION SCHEMES JOINT WORKING GROUP.

Tony Lancaster chairman and chief executive of GAN Minster Group, and Reg Brown, chairman, Octavian Syndicate Management, have been elected president and deputy president respectively of the INSURANCE INSTITUTE OF LONDON, as from October 4.

Peter Bradnock, previously executive director, has been appointed director general of the BRITISH POULTRY MEAT FEDERATION; he succeeds Peel Holroyd and is succeeded by Yvonne Sired who also remains executive secretary.

George Lapsley (above), senior partner of MCP Management Consultants, has been appointed president of the INSTITUTE OF MANAGEMENT CONSULTANTS.

Shanks & McEwan, the waste management company, has hired Colin Brown from Exxon Chemical as the new operations director of the environmental services division.

Since he lives in the New Forest, Brown will be not too far distant from the incineration plant at Fawley, one of five sites around the country for which he will be responsible and which was last year fined for discharging arsenic into Southampton Water.

He also has the advantage of having worked in what Shanks & McEwan calls 'a very closely allied industry'. 'They (Exxon) make the stuff and we destroy it,' a company spokesman explains.

Both companies are also favourite targets of the green lobby - Exxon will long be associated with the Valdez disaster, while Rechem, acquired by Shanks & McEwan in 1991, has been under fire particularly at Pontypool, where it destroys toxic waste such as PCBs and dioxins.

Brown's appointment is not directly related to the Pollution Inspectorate's recent warning, in the course of its licence renewal, that Pontypool should improve the monitoring of its toxic emissions, according to Shanks. Instead, David Wheeler, the previous managing director of Shanks & McEwan (Environmental Services), which incorporates Rechem and the technical services division of Shanks, had felt he himself had enough operational experience, but his recently appointed successor, Mike Averill, wished to reintroduce the post.

Brown, 38, a chemical engineering graduate from Bath, who joined Exxon 16 years ago, will be in charge of Fawley and Pontypool, the high temperature incineration plants that are part of Rechem, as well as Stewartby, Teesside and Tullos, all three part of the chemical treatment operation that comprise Shanks & McEwan technical services.

Scientists at International Business Machines' Adstar data storage division in San Jose, California, have achieved a breakthrough that is expected to increase the amount of data that can be stored on a computer disc drive by a factor of about 30 by the end of the decade.

The Adstar scientists predict their new method of producing a phenomenon called 'giant magneto-resistance' will make it possible to store up to 10bn bits of information per square inch of the surface of a computer disc. This is roughly equivalent to storing all of the text of 10,000 300-page novels on a double-sided, 3.5inch hard disc drive.

Magneto-resistance is a change in the electrical resistance of a material when it is in the presence of a magnetic field.

IBM has pioneered the use of this phenomenon in data storage systems. Data is stored on computer disc in the form of minute magnetised spots. When a magneto-resistive sensor or 'head' skims over the surface of the rotating disc it passes through the tiny magnetic fields produced by these dots and its electrical resistance is changed, producing a signal that 'reads' the bits of data stored on the disc.

However, as the density of data stored on computer discs increases, the magnetic spots become smaller and smaller and it becomes more difficult to detect their magnetic fields.

The giant magneto-resistive effect represents a potential solution to this problem. It produces an electrical signal more than five times stronger than that produced by heads based on conventional magneto-resistive technology.

Until now, laboratory demonstrations of giant magneto-resistance have required exotic materials, very low temperatures, or complex processes. However, the IBM researchers have designed a giant magneto-resistive sensor that is relatively simple to make. It is based upon a stack of very thin layers of magnetic (nickel-iron alloy) and non-magnetic (silver) materials.

Fabricated using standard semiconductor production techniques each layer of material is only about two billionths of a meter thick.

The structure is then annealed in a furnace to align the magnetic poles of adjacent layers in opposite directions. When the structure is placed in a magnetic field, all of the magnetic layers align in the same direction, producing a 'giant' signal.

Adstar now plans to move the technology into its development laboratories, to make prototype disc drive heads capable of reading data stored on a disc. The next step will be to optimise the materials and processes for mass production. The technology is expected to appear in products in about three years.

'There should be no fundamental problems in transferring the technology from the laboratory to manufacturing,' says Kevin Coffey, one of the group of Adstar scientists that has worked on the project.

IBM has patent applications pending on the structure and the process for producing its giant magneto-resistive sensors.

An unusual aspect of the giant magneto-resisitive sensor development is that it was conducted within the IBM product group, rather than at the company's research laboratories.

The research was conducted as part of an 'IBM Fellow' programme, under the leadership of Kent Howard, one of IBM's leading scientists who was made an IBM Fellow three years ago. The programme gives IBM's top scientists great latitude to pursue their research interests and work directly with product groups.

For computer users, the development promises higher density and lower cost data storage. This is becoming increasingly important with the advent of multi-media computing requiring storage of large quantities of data including video, voice and graphics as well as text.

The age of the disposable personal computer is here. In spite of the growing number of manufacturers producing 'green' PCs, the sad fact is that most systems are built to be thrown away and, in the short term, little is being done to change that.

It all comes down to economics. In the world of PCs, new technologies are being introduced and adopted so quickly that it is rarely worth upgrading an older computer.

For anyone who does not want a disposable PC, there are theoretically a number of technologies that could make life easier. However, there is no guarantee as yet that they will work. One solution is the idea of the upgradeable computer processor. It has been used by various PC manufacturers over the years in building so-called 'future-proof' PCs.

There is no better illustration of the pitfalls of this approach, though, than the recent array of 'Pentium-upgradeable' systems. Pentium is Intel's latest computer processor. Pentium-upgradeable systems were supposed to allow users to remove the moderately powerful Intel 486 processors and replace them with the Pentium processors, as these became available to users, in order to achieve the much higher performance.

Unfortunately, when the Pentium processor was installed on the 486s, over-heating problems occurred. In addition, memory and storage capacity were not always installed in the most appropriate configuration for Pentium-based systems.

Owing to such problems, even the properly-executed Pentium upgrade often ended up costing as much as buying a brand new Pentium system - and it still did not deliver the same levels of performance as an off-the-shelf model.

If upgrading PCs were just a matter of solving the problematic processor installations, however, an appropriate method could eventually be found. The complicating factor in the process is the fast pace of change in the complementary technologies - especially in video display, memory and in data storage areas.

The performance of personal computer video in particular has improved dramatically in the past few years.

In most IBM-compatible PCs, video output is generated through the use of a display adaptor expansion card that sits in one of the PC's 'expansion slots', but these adaptor cards run at a rate of only 8 Megahertz. While 8 MHz speed was fine in 1984, today's fastest PC processors can run at between 40 and 66 MHz - with 100 MHz 486 processors not far off.

A variety of solutions to meet the video and memory requirements have been put forward including video accelerators, faster processors on the video display adaptors - as well as more memory. Whatever changes are made to the video card, however, it still has to communicate with the motherboard of the PC at only 8 MHz.

And this is where 'local bus' video comes in. This is a way for the video circuitry to talk 'directly' to the processor over a 'local bus' - rather than the standard AT expansion bus (data channel).

This means that a local bus video system has to be built on to the motherboard of the computer in a proprietary fashion - at least until some form of local bus video standard evolves. There are 32-bit expansion slots in existence, but none will yet operate at the speeds that can be achieved by hanging a local bus directly off the processor.

Local bus video systems claim to be able to run at between 33 to 50 MHz.

And with today's Microsoft Windows applications demanding that amount of additional performance, it is clearly a technology that will be increasingly in demand over the coming years.

There have also been significant improvements in increasing PC memory capacity - either random access memory (Ram) or magnetic storage. Again, this would enable Windows applications to be loaded on to a system which originally had too little memory capacity to run such software.

Although technology advances make PC upgrades possible, they are still problematic. So if you want a better PC than the one you already own the most simple answer may be to buy a new one. The real challenge will be to find a home for the old computer.

THE WORD 'proprietary' to the computer market these days elicits much the same response as 'cold war' does to the world at large. If the battle has not been won, then at least it has gone away. We now live in an open world.

Unfortunately, it is not true, and it would be dangerously complacent to think otherwise. The cold war is not over, only the players and territory have changed.

Open systems mean that users are not tied in to any hardware or software that will limit their future room for manoeuvre. They can select what is best for their needs, rather than what their supplier chooses to give them.

The traditional enemy of open systems was the hardware supplier. Mainframe and supermini suppliers provided computers with unique operating systems. If you built your company's computer strategy on such a platform, you were stuck with it.

However today, open systems users can rejoice in the knowledge that they have in the Unix operating system a stable software platform on which to build and a range of hardware from which to choose. All of the leading Unix vendors - including some of its erstwhile enemies - are now party to the Common Open Software Environment, or Cose, which aims to bring further commonality to the Unix world in such important areas as screen windowing.

This is good news for the user, but it is not being done entirely for the sake of standardisation. It is also being done because Cose members see the threat to openness of the dominance of a new proprietary enemy - Microsoft.

The software company has given the PC user an operating system and a range of tools and applications that dominate their markets.

Microsoft's more recent product offerings - its larger applications and, in particular, the Windows NT operating environment - are set to take it into the multi-user, multi-tasking domain - the province of the Unix vendor.

There is an uneasy alliance between the two sides of Microsoft's business - operating and applications software - which has given rise to anti-trust investigations at the US justice department. Rival applications vendors contend that Microsoft's ownership of Windows gives it an unfair time-to-market advantage.

It is in no one's interests that the balance of power should tip towards one company. Such a shift limits a customer's ability to choose, leading to less competition and less innovation.

There are already similar danger signs in the Unix-led market that Microsoft is now attacking. There is much at stake with Windows NT, Microsoft's Unix competitor, and Microsoft has said that it may alter the source code - the heart of the software - to prevent other companies from running applications in an NT-like environment.

What is more, despite claims to the contrary, NT is currently not based on recognised standards. (It has, for example, no X/Open recognition - the universally recognised mark of a standards-based open system.) If Microsoft continues to ignore this issue there will be a return to the days when users were beholden to the dictates of their suppliers which would be the very antithesis of openness.

There is a far more worrying threat to open systems. Novell acquired Unix Labs, which owns Unix, a few months ago. The company is determined to challenge Microsoft's dominance and it will build volume not just for Unix, but for its own Unix applications.

But Novell may go further than this. One senior vice-president was quoted in July as saying, 'Unix will be proprietary'. Suddenly the idea of a closed Unix is no longer unthinkable.

The computer market is intensely competitive. But unfortunately, the hard-fought principle of open systems is in danger of being lost in the process. It was users who fought for open systems; it will be users who suffer in a conflict of this kind.

Bill Passmore is vice-president, northern Europe for Sun Microsystems.

The screen flashes up an image of a Russian entrepreneur practising his karate skills, then driving around Moscow in a Lada. 'This man has big business on his hands: Russian knitwear,' a voice purrs in the background.

Alexander Panikin, 43, says he commissioned 'The Factory-Owner', a video about his company Pan Inter, to present himself 'as an example to others'.

Promotional puff aside, he has grounds to boast. He manages one of Russia's rare small businesses involved in manufacturing, at a time when import-export operations dominate the new private economy.

Panikin's business has emerged from the ruins of seven decades in which, he says, 'the Communists destroyed everything that moved'.

He was lucky to have accumulated capital in the dying years of the old regime when prices were controlled by the state and money lending was cheap.

The irony today is that though prices have been liberalised, private trade allowed and privatisation is officially under way, new businesses find it virtually impossible to obtain finance for capital investment.

Last month the International Finance Corporation launched the first international effort to stimulate small and medium-sized businesses in Russia by lending Dollars 15m (Pounds 10m) to a Russian commercial bank for on-lending to new companies.

The IFC admits, however, that its contribution is just a drop in the ocean for Russian business development, until Russian entrepreneurs are able to mobilise the billions of dollars potentially available in domestic capital when investment circumstances improve.

With inflation running at 1,000 per cent a year, most entrepreneurs and banks have little incentive to launch into any project that does not bring virtually immediate returns.

Entrepreneurs such as Panikin, who are showing the way by a combination of hard work, luck and initiative, are indeed a rarity.

Panikin set up his factory, which now employs 700 people, with profits made from a co-operative set up under legislation introduced by President Mikhail Gorbachev in the late 1980s.

'I started off with six sewing machines but I had a profit margin of 600 per cent,' he says, illustrating the pent up demand for consumer goods which existed in Russia's then closed, and now still heavily militarised economy.

Today his margins have been reduced to 100 per cent by import liberalisation, which has introduced competition, and by price liberalisation, which has cut the population's purchasing power.

In an attempt to beat inflation, which destroys rouble earnings, he converts his profits into hard currency and immediately ploughs them back into the company.

Another challenge for business is that market institutions taken for granted in the west, such as efficient suppliers, distributors, and a normal banking system, are absent in Russia.

Panikin sells his clothes in 10 kiosks he owns around Moscow, which means he works mainly with cash, and relies on his own sales network to find out what sells and what prices he can get away with. In order to obtain the necessary quality he dyes the threads used for his knitwear.

The IFC's lending initiative is part of the international effort to stimulate business, but action needs to be taken in Russia to help budding Panikins. Irina Razumnova, who heads a small business support centre with funding from the cosmetics company Avon and the Canadian government, says: it is no bad thing that small businesses find it difficult to raise finance for manufacturing as it is services that are needed. She adds: 'The main problem is that our people do not know how to work.' The business support centre provides short courses in accounting and management skills.

Razumnova believes one of the biggest problems facing small businesses is people attitudes: how do you change the habits of employees accustomed to a system once jokingly described as 'pretending to pay the workers while they pretend to work'.

Higher than average pay packets (the equivalent of around Dollars 100 a month) are still topped up with subsidised food, such as sugar, which is expensive in the shops, and other non-monetary benefits. Panikin's staff also receive benefits - clothes can be purchased at a 50 per cent discount from the sales price and Panikin has even given plots of land away to workers.

Many small businesses struggling with BS5750, the British Standards Institution's quality systems standard, may soon have to grapple with BS7750, its successor for environmental management systems.

The BSI decided to develop the standard because it wanted to respond to increasing concerns about environmental performance. BS7750 details a specification for an environmental management system that will enable an organisation to ensure compliance with its chosen environmental policies. It also contains advice on how to put the system in place.

Having the management system will facilitate environmental auditing of the organisation and compliance with BS7750 will prepare it for participation in the EC's eco-management and audit scheme (Emas).

The environmental management system laid down in BS7750 has a lot in common with that of BS5750. Indeed, the similarity in the numbering of the two standards is intentional to demonstrate the strong links between them. BS7750 can be seen as an add-on to BS5750.

Both standards have something else in common: just as compliance with BS5750 is no guarantee of an organisation's output being of high quality, since low-quality targets can be set within the system, so compliance with BS7750 does not ensure good environmental performance. Toxic emission targets, for example, could be set to unacceptably high levels.

A version of the standard has existed for over a year, but as yet the BSI does not think it has been developed enough to issue certificates of compliance.

Although at least one consultancy, SGS Yarsley ICS, has been granting certificates, the BSI regards this as 'premature and misguided'.

But a pilot programme earlier this year to test the standard in more than 100 organisations has now ended, and a draft of the revised standard is out for public consultation until the beginning of September.

The final version should appear by the beginning of December and widespread certification should start after accreditation procedures have been set up to vouch for certifiers. In fact, the only significant revisions in the standard are those bringing it into line with Emas, under which businesses will undergo environmental audits and publish results. Emas is set to get fully underway in 1995.

The concern of small businesses is that BS7750 will cause them problems similar to those of BS5750: disproportionately high implementation and certification costs, and the thinning down of tender lists by excluding those who do not have it.

'BS5750 is a nightmare for small businesses,' says Bernard Juby, trade spokesman for the Federation of Small Businesses. 'BS7750 we see as the incestuous cousin - it's even worse.' Juby finds the standard more nebulous than BS5750, and is apprehensive of some councils and large companies making it mandatory in all but name for suppliers, in a similar way to that in which some have dealt with BS5750.

'It's supposed to be a voluntary standard,' he complains of the latter.

Some of the businesses from the pilot scheme also think BS7750 is vaguer than BS5750. 'It's probably slightly woollier because the subject area is less easy to pin down and define,' says Sam Phillips, engineering manager at the Mann Organisation, a 50-employee company which recycles computers and electronic equipment.

The business has had to abandon implementation of BS7750 for the time being, partly because it is still busy with BS5750. 'It would be very, very difficult I think for anyone to implement BS7750 if they haven't actually got BS5750,' says Phillips.

'If you're coming at it cold, particularly small businesses without BS5750, they won't know their arse from their elbow,' agrees Richard Hall, TQM systems manager of the Renlon Group, a Pounds 6m turnover, 60-employee property preservation and construction company.

Chris Sheldon, the BSI's environmental spokesman, disagrees. He says experiences on the pilot scheme varied. For example the group of companies from the print and packaging sector, which included many small and medium-sized businesses, say they do not think BS5750 is a prerequisite for BS7750.

The signs are not promising for small businesses worrying about the expense of compliance with another standard. Phillips and Hall have experienced interest in their environmental management systems from large companies and local councils.

'They haven't actually put pressure on us in the sense of having it documented, but we have been audited by a couple of them to make sure that what we're doing meets their standards,' says Phillips. He thinks that at some point there may be insistence on compliance with BS7750 before contracts are awarded.

One large company the Mann Organisation does business with is IBM. 'The most likely position we would want to take with our suppliers for BS7750, once it does finally emerge, is, in a nutshell, encouragement,' says Eric Dewhurst, engineering services manager at IBM's manufacturing and development site in Greenock, Scotland.

'It would not be a requirement in the sense of being mandatory.' He thinks the company's policy will be similar to the one for BS5750, with which it normally expects big companies to comply, but not necessarily small ones.

The Renlon Group is applying for membership of the London Borough of Merton's approved contractors' scheme. BS5750 certification is not mandatory to get onto tender lists for the council's contracts. 'We don't insist upon it, but obviously when contractors are vetted to come in on the scheme we ask for various safeguards in that respect,' says David Jones, a senior building surveyor in the council's property services department. However, Jones says the award of contracts can depend on whether a business has a certificate or not, and it may not always be possible to take small businesses' circumstances into account. Might they sometimes lose out as a result? 'Possibly.'

Jones says that at present environmental management systems are sometimes taken into account when awarding contracts and that compliance with BS7750 may be taken into account in the future. 'If suppliers can show that they're moving towards that direction then I think we would take that on board in the selection stage of tendering.'

The BSI is against mandatory application of BS5750 and is listening to small businesses' criticisms. It has set up an independent committee with small business representatives which is undertaking a survey of problems.

This may provide little insurance against future problems given the legal and social context of BS7750. Large organisations are concerned about public perceptions of their environmental performance and have legal responsibilities under statutes such as the Environmental Protection Act 1990, the Water Resources Act 1991 and the Control of Pollution Act 1974.

'There will be an increasing trend for companies to require their suppliers to have some form of qualification and the ready-made qualification off the shelf is BS7750,' says Michael Renger, a partner in the environmental department of lawyers Nabarro Nathanson.

NACODS, the pit deputies' union, is threatening a legal challenge to government plans for changes in coal industry safety regulations.

Mr Peter McNestry, Nacods general secretary, said yesterday that he would seek a judicial review of the proposed changes, which he claimed would severely weaken safety standards in the pits in preparation for their privatisation next year.

The union's move comes as Mr Brian Langdon, deputy chief inspector of mines, cast doubt over the view that alleged defects in roofbolting contributed to last week's roof fall at Bilsthorpe colliery in Nottinghamshire in which three men died.

He said he believed that the existence of old coal face workings alongside the development was a big factor in the disaster.

Mr Martin O'Neill, Labour's energy spokesman, yesterday condemned the government's safety reforms and said: 'The government should now abandon its plans before more miners are killed. At the very least, it should wait until parliament has had a chance to consider them.'

Mr O'Neill also called for a halt to the use of roofbolts pending the outcome of the Bilsthorpe inquiry, saying that in 1990 the Commons energy committee 'could not endorse the use of roofbolts'.

He added: 'Yet the government's advisers have consistently encouraged the wider use of such American mining methods in order to increase productivity.'

The new regulations were laid before parliament on August 6 and are due to come into force on October 1.

The government said yesterday that it was open to any MP to question the guidelines for up to 40 days after their introduction.

The Health and Safety commission drew up the regulations after discussions over the past six years. Both Nacods and the National Union of Mineworkers have opposed the regulations, arguing they will compromise safety - a charge denied by the government, the commission and the British Association of Colliery Management.

Mr Kevan Hunt, British Coal employee relations director, said the new regulations - designed to replace detailed prescriptive statutes with more flexible codes of practice - would make the mines safer as well as more efficient.

They lay down training requirements, specific duties for employees, and the preparation and duties of surveyors.

Nacods' main objection is to the proposed division in the role of pit deputies. Under the new regulations it will be legally possible - but not mandatory - to have different people responsible for pit inspection and supervision.

THE LONDON Stock Exchange said that, from yesterday, trading prices for smaller stocks will be more widely disseminated in an effort to increase liquidity in less liquid issues.

The trading prices are for about 160 shares with only one registered marketmaker or with no marketmaker and for which bargains must be transacted through matching offers posted on the Stock Exchange Alternative Trading Service (Seats).

Marketmakers have increasingly withdrawn their services from smaller capitalised companies with shares traded on the exchange, greatly diminishing liquidity for investors.

Since last November the exchange has been operating its Seats system with price transparency - the last price at which a share was traded - available only through its Topic screen.

From yesterday the exchange is making bargains in less liquid stocks available to information vendors such as Reuters and Bloomberg at no additional charge. Those information providers already sell exchange share price information to users who do not have the Topic screen.

The service should make access to price quotes available to investors outside the UK who would not normally have access to the Topic screen.

The improved service was developed by the London Stock Exchange in conjunction with Andersen Consulting.

THE COUNTIES of Avon, Gloucestershire and Wiltshire are making a joint bid for European funding to counter the impact of defence cuts.

The counties are lobbying the government, which has until the end of this month to apply to the EC for a Pounds 15m share of the Pounds 100m Konver fund. The fund, announced in April by Mr Bruce Millan, EC regional policy commissioner, and set up in June, is to help revitalise areas dependent on the defence industry and military bases.

It is the first collaboration by the three counties on such an approach. The bid, announced yesterday, is supported by the counties' training and enterprise councils, by local MPs and MEPs, and by the newly formed Western Development Partnership in Avon, a public and private-sector forum for economic development.

Avon, Gloucestershire and Wiltshire depend heavily on the defence industry. Large local employers include British Aerospace, Rolls-Royce and Dowty, and there are about 70 military bases. It is estimated that Avon has lost more than 7,000 defence-related jobs in the past six years.

The Confederation of British Industry has compared the impact of defence cuts in south-west England to the effect on south Wales of the rundown of the coal and steel industries.

The Konver fund will require matching finance from government, local authorities or the private sector. It is subject to the principle of additionality - that it co-finances projects which would otherwise not go ahead and will have additional impact on the areas concerned.

The Department of Trade and Industry has to inform Brussels by August 31 of the areas and kinds of project for which it is seeking Konver funds. The DTI would then assess specific projects.

A study for the European Commission last year identified 24 EC regions where defence employment was at least double the European average, including Avon, Gloucestershire and Wiltshire, as well as Cornwall/Devon, Hampshire/Isle of Wight, Cumbria and North Yorkshire.

Defence company Flight Refuelling is to shed 200 of its 1,000 workers at Wimborne, Dorset, it said yesterday. It blamed cuts in the aerospace and defence industries for the losses, which follow the axing of 100 jobs in March.

Thames Fast Ferries, which operates between London and Gravesend, Kent, yesterday sought talks with Robson Rhodes, liquidator of the capital's collapsed RiverBus company, in the hope of restoring the service. The RiverBus boats remain tied up at Trinity Pier, east London, as Robson Rhodes seeks a buyer for the business

THREE QUARTERS of Welsh Water customers believe it is unacceptable that fewer than half of the households in the principality are connected to full sewage treatment systems, the company said yesterday.

Welsh Water yesterday published the results of a Pounds 1.2m consultation exercise which it claims is the most comprehensive survey since Ofwat, the industry regulator, told the privatised companies last year to consult customers on their investment plans.

More than 184,000 customers - 15 per cent of the total - returned questionnaires and more than 2,000 were interviewed by market research company Mori, allowing Welsh Water to draw conclusions on customer priorities.

The overall message was that high standards for drinking-water quality should be maintained and increases in bills should be kept at low as possible. But most customers wanted priority to be given to environmental improvements, for which they were prepared to pay at least Pounds 5 a year more on their bills.

Mr Nigel Annett, director of quality and planning for Dwr Cymru, the company's water and sewerage division, said: 'We have a very long coastline and since Victorian times a lot of sewage has been simply flushed into the sea without any treatment whatsoever. That is no longer acceptable. So we have an enormous challenge ahead to sort that out.'

Welsh Water will now put to Ofwat a Pounds 1bn investment plan for 1995 to 2000.

Two thirds of the money will be spent on environmental improvements, with annual bill increases of 2 percentage points above inflation, equivalent to Pounds 5 a year on the average domestic bill. Bills averaged Pounds 213 last year, the third-highest of any privatised water company.

Adoption of the plan will mean an increase to 90 per cent by the year 2000 of full treatment of sewage, completion of projects to enable all 51 designated coastal bathing waters in Wales to reach EC standards, and replacement of half the existing lead pipes.

Just over half of the customers questioned said they were satisfied with overall value for money but only a third of business customers were. Businesses were less willing than householders to pay more for coastal and river protection.

'Companies are obviously very concerned about any cost rising,' Mr Annett said. 'What we were surprised to find was that there was a willingness by them to pay for environmental improvement - not a great willingness to pay but it is there.'

The survey showed that customers want a better basis for water charges. But Welsh Water rejects universal metering because water is abundant in the principality and the cost would be 'spectacular'.

THE Corporation of London and the London Docklands Development Corporation are to make a joint promotion of London as a business district.

Next month's presentation in Hong Kong will be the first time two separate London authorities have joined in promoting the capital since the formation of London First, the business-led organisation set up last year.

Both participants claim the new development as a significant breakthrough in the attempts to find a coherent new strategy for boosting the capital's image.

The Corporation of London, the local authority for the City, said: 'It is important more for the fact that the two authorities have been able to organise themselves than for what they will actually get out of it.'

It admitted that organisation had been easier because party politics had not played a part, and that wider promotion of London could 'fall down' due to difficulties in organisation.

Both Mr Michael Cassidy, the Corporation of London's policy chairman, and Mr Michael Pickard, LDDC chairman, will address the 17th International Urban Development Association conference. They have two purposes:

To increase interest in development and property opportunities in London.

To make a 'generic' promotion of London as a business centre.

They aim jointly to address the misconceptions about London held by businesses in the Asia Pacific region. These include fears about the threat of terrorism, the introduction of the new regime for advance corporation tax, and increasing fears outside Europe that the community has become more protectionist since the European summit in 1991.

THE CAMPAIGN for Freedom of Information yesterday attacked government plans to reduce secrecy, saying they did not go far enough.

The pressure group said last month's white paper on open government contained some 'positive' elements but stopped well short of delivering freedom of information.

There was now 'a foot in the door,' it said in the August issue of its Secrets newspaper.

It was particularly critical of the proposed code of practice which would require Whitehall to comply with reasonable requests for information.

Too many of the code's proposals represent victories for the 'culture of government secrecy' which Mr William Waldegrave, the public services minister, was trying to overturn.

The code's 'overwhelming, central flaw' was its rejection of direct access to documents. The government was promising to answer questions, not let people see correspondence, documents or reports.

The group welcomed the proposed statutory right of access to non-computerised personal files and health and safety information.

Mr Waldegrave said last month that public access to information would be restricted only where there were good reasons.

Secrets. The Campaign for Freedom of Information, 88 Old Street, London EC1V 9AR.

BITTER divisions within the Tory party erupted again yesterday as a rightwing Conservative MP accused some colleagues on the left of the party of trying to create 'civil war'.

The fresh outbreak of acrimony came as the rift within the party over government finances was highlighted with a call from a left-of-centre Conservative for an increase in the top rate of income tax.

Mr John Townend, chairman of the party's backbench finance committee, attacked loyalists who had called for rebels to be purged from the influential executive of the 1922 Committee of backbench Tory MPs in the annual elections in the autumn.

Sir George Gardiner, the chairman of the rightwing 92 Group of Tory MPs; Mr Townend and Sir Ivan Lawrence are the most prominent members of the executive in the loyalists' sights. Mr Townend's position on the backbench finance committee could also come under attack.

Mr Townend warned that it would be very damaging if the 1922 Committee did not reflect opinion on the right as well as the left of the party, 'and that would be the last thing John Major would want'.

Although government loyalists were angry about the persistent revolts during the passage of the Maastricht bill, once the prime minister had won the confidence motion in the Commons in late July, senior backbenchers insisted there would be no 'witch-hunt'.

Party managers have underlined the need for the party to unite, but the control of public spending and possible tax rises have provided a new focus for competing ideological pressures.

Mr Keith Hampson, Tory MP for Leeds North West, yesterday called for a rise in the top rate of income tax from 40 per cent to 45 per cent. He argued that the almost Pounds 1.8bn raised would enable cuts in tax for those in middle-income groups to go ahead.

He told BBC Radio: 'You could then have plenty of scope for indexing properly the top rate, you could have scope for broadening the bottom 20 per cent range, and still have a major contribution to paying off the shortfall in the public spending borrowing requirement.'

His suggestion was immediately rejected by Mr Townend, who said that tax increases of about Pounds 10bn had already been accepted through measures such as the extension of value added tax to domestic fuel. Mr Townend said that the emphasis should now be on public spending cuts.

A UK-registered Spanish trawler was yesterday under investigation on suspected fisheries offences, the Ministry of Agriculture said.

The Slebech III, registered in Milford Haven, Wales, was escorted into Plymouth by the fisheries protection vessel HMS Anglesey.

THE JURY in the Homes Assured Corporation fraud trial was sent to a hotel last night after failing to reach a verdict.

The three women and eight men have spent four months in Southwark Crown Court hearing more than 100 prosecution witnesses give evidence against the group's founder, Mr Anthony Dobson, and two other former directors, on charges arising from the venture's Pounds 10.7m collapse four years ago.

The 60-year-old businessman, of Glebe Place, Chelsea, south-west London, who set up the corporation in 1987 to help council tenants buy their homes, denies trading fraudulently between November 1988 and August 1989.

HAC managing director Mr Michael Robinson, 42, of Edith Terrace, Fulham, south-west London, and Mr Keith Woodward, 56, of Blake Hall Road, Wanstead, east London, also deny the charge.

Mr Dobson also denies two charges of procuring the execution of a valuable security by deception and Woodward denies one charge of furnishing false information.

The jury will resume deliberations today.

OWNERS ABROAD yesterday joined the other big tour operators by announcing large price cuts in family holidays for summer 1994 in its Enterprise brochure.

The move follows price cuts and early-booking incentives offered last week by rivals including Thomson and Thomas Cook.

The big tour operators continued to claim a high level of early bookings for summer 1994. Thomas Cook, the travel agent, said business was '100 per cent up on the same period last year. We have not seen this sort of reaction since the mid-1980s'.

Airtours is set to announce its full programme later this week.

Thomson, the biggest tour operator, earlier said it had sold almost 250,000 summer 1994 holidays in two days. It has predicted that as many as 2m summer 1994 holidays will be booked by Christmas.

Owners Abroad said bookings for three of the company's main destinations had been down this summer - Cyprus (down 26 per cent), Portugal (10 per cent) and Greece (1 per cent) - but it still expected to take two million people on holiday in 1993.

Mr Dermot Blastland, managing director of tour operations, said winter 1993-94 bookings were going well and he expected a 5 per cent to 10 per cent increase in the number of people taking package holidays in summer 1994.

EVEN FOR those well-versed in the complex phraseology of European directives, the Capital Adequacy Directive is vexatious.

Translated into English it means that most of Britain's securities industry will have to use a new measure of financial strength.

Until now the investment industry has had to meet capital requirements set out by the Securities and Investments Board, the City's chief regulatory watchdog. SIB officials are careful to point out that for a large number of firms the cumulative capital requirement will not change. Capital may simply be allocated differently among various business activities.

For a significant minority, however, changes will be needed. A key difference will be that for the first time firms which do not handle client money or trade on their own account will need to meet an initial capital requirement of Ecu50,000 (Pounds 38,000).

Those which do handle client money will need Ecu125,000 and those which deal on their own account and underwrite issues will need Ecu730,000.

Under current UK rules there is no initial capital requirement. All capital requirements are related strictly to the degree of risk involved in specified activities. The rules require firms to hold enough capital to cover fixed overheads for various periods and to hold capital against trading positions, the amount dependent on the amount of risk.

The directive requires all firms to have enough capital to cover fixed overheads for 13 weeks. While this is already required of larger UK stock-broking and money management firms, smaller fund managers and investment advisers of other types need capital to cover only four to six weeks of fixed costs.

The so-called position risk requirements, which will mostly affect securities firms that are members of the Securities and Futures Authority, are in some respects less stringent than those already in place. An SFA official said: 'We are concerned that some firms might actually end up with lighter capital requirements than they now have.'

Some firms will face tougher position limits than at present, however. Current rules apply very low requirements for securities firms that trade equities for their own book and meet strict portfolio diversification requirements. The directive makes no adjustments for the extent to which diversification reduces risk and some securities firms, in particular the larger ones, may have to hold more capital against their portfolios.

Even among firms with no interest in operating abroad, hundreds may find that they need to raise additional capital or alter their business mix.

An SIB official said: 'A lot of firms will think, 'Well, I'm not going to use the European passport so this won't affect me'.'

But the regional stockbroker in Maidstone is as much subject to the new rules as SG Warburg, a fact which has not yet fully penetrated the industry, regulators say.

Regulators point to a number of mitigating factors. First, the directive applies only to investment business as defined by another piece of Brussels legislation, the Investment Services Directive. That excludes firms which only give advice.

Fimbra, the self-regulatory body for financial advisers and intermediaries, estimates this is the case for more than 80 per cent of its members.

There is another escape, under which firms that do not have enough initial capital will still be allowed to operate. However, all firms will have to meet the other expenditure and position risk require-ments.

Firms which take advantage of this arrangement will be required to calculate their current capital and monitor it until the directive takes effect on December 31 1995.

Subsequently they will have to ensure that their capital never falls below the highest point reached during this reference period.

ACCUSATIONS and counter-accusations continued to fly yesterday over leaked plans for 16 per cent fare increases in British Rail's Network SouthEast region.

While the leak has been interpreted as an attempt to provide further bad publicity for the government's plans to privatise the railways, the problems revealed highlight Network SouthEast's continuing funding problems, regardless of any change of ownership. They increase the pressure on Mr John MacGregor, the transport secretary, to decide on funding priorities for transport.

The scale of the increases outlined in the leaked document has alarmed many Tory MPs in the south-east.

Local elections in the London boroughs next May - the Tories are already braced to do badly in them - will add to the political sensitivity of the decisions on fares.

Parliament has still to complete its discussion of the rail privatisation legislation. Further debates in October will give dissatisfied Tories an opportunity to press for concessions.

Network SouthEast says that Pounds 460m is needed annually until the end of the decade 'simply to maintain the status quo'. This would allow for replacing outdated rolling stock and essential maintenance, but would not include extra routes or rolling stock.

Project investment for next year has been funded at Pounds 420m, according to Network SouthEast, leaving a Pounds 40m shortfall.

The Department of Transport refused to confirm or deny the authenticity of the discussion documents, which were leaked to the environmental pressure group Transport 2000.

But it was clear that many proposals for Network SouthEast had already been floated by policymakers, and officials said that no clear decisions had yet been taken.

Three options are suggested in the documents. All are aimed at keeping within the government's 'Rail Plan' financial targets for British Rail, and do not take into account any extra costs caused by privatisation.

They also involve rectifying shortfalls for the current financial year, and do not therefore affect the next Autumn Statement on total government expenditure in November.

They are:

The 'preferred' plan of a 16.2 per cent rise in price for Travelcards, used on rail, Underground and buses in Greater London, coupled with a 12 per cent increase for standard single-day fares and a 7.9 per cent rise for season tickets.

A 'first alternative', with Travelcards raised by 10.3 per cent, season tickets by 8.5 per cent and single-day fares by 12 per cent.

A 'second alternative' in which Travelcards would be increased by a relatively modest 6.3 per cent, season tickets by 6 per cent and standard day fares by 8.0 per cent.

The 'first alternative', according to the notes leaked to Transport 2000, has been framed with the London borough elections in mind, as fare increases would be lower in the capital.

The 'second alternative', which would be most politically acceptable, fails to raise enough revenue to meet the Rail Plan targets. This would leave the network with the problem of underfunding and investment would need to be cut further in an attempt to meet the targets, according to the leaked documents.

The framework for the discussions between British Rail and the Department of Transport was set by the tough spending settlement in last November's public spending statement, which saw a slender increase in the grants for British Rail from Pounds 1.36bn to Pounds 1.49bn. Spending on roads was left unscathed at more than Pounds 2bn a year for three years.

Network SouthEast defended itself against criticisms of service quality, and said that a recent survey had shown it to be ahead of the French SNCF's Paris service by 7.8 per cent on measures of reliability and punctuality.

It admitted, however, that it received a Pounds 300m government grant last year, and even when this was included made a surplus of only Pounds 5m. This apparent profit was chiefly attributable to a change in accounting conventions, it said.

In preceding years it had consistently returned a loss, according to Department of Transport figures, of Pounds 154.9m in 1990-91 - when total government subsidies to the British Rail network were Pounds 700m - and of Pounds 138.1m in 1989-90 - when total subsidies were Pounds 635m.

Mr Stephen Joseph, director of Transport 2000, said: 'The government is facing quite severe choices. They have to decide on transport priorities, and whether they divert money to road or to rail.

'How that is affected by privatisation is unclear.'

JAPANESE carmakers accounted for more than a fifth of UK car output in the first six months this year.

Sharply rising production by Nissan and the start-up of Toyota and Honda plants are compensating for falling output by the traditional car producers.

Overall production rose by 8.2 per cent in the first half of the year to 743,000, helped by a near doubling of output at Nissan's Sunderland plant in north-east England.

Nissan added a second model, the Micra small car, to its plant in the second half of 1992. It still forecasts a 51 per cent rise in output to 270,000 this year from 179,000 last year, in spite of a sharp decline in demand in mainland Europe.

In the first half of the year Nissan increased its output by 90 per cent to 141,000 from 74,000 a year ago, while Honda produced 13,000 cars at its plant at Swindon, Wiltshire, and Toyota assembled 15,300 cars at its plant at Burnaston, near Derby, according to figures from the Society of Motor Manufacturers and Traders.

Ford, Peugeot and Vauxhall, the UK subsidiary of General Motors of the US, all suffered from falling production as exports were hit by the decline in mainland European sales.

Overall UK output has benefited from the growing popularity in Europe of four-wheel-drive leisure utility vehicles, which are carving a significant niche in the car market.

The society's figures also disclose the full impact on UK commercial vehicle output of the financial demise of Daf, the former Anglo-Dutch van and truckmaker, which collapsed into receivership at the beginning of February.

Both UK production operations have since been rescued by management buy-outs, but in the first half of the year Leyland Daf van production fell 58 per cent and Leyland truck output dived 62 per cent. Overall UK commercial vehicle production dropped 24 per cent.

------------------------------------------------------------------------ UK VEHICLE PRODUCTION ------------------------------------------------------------------------ 1993 1992 1993/92 Jan-Jun Jan-Jun % Change ------------------------------------------------------------------------ CARS ------------------------------------------------------------------------ Total 742,969 686,747 +8.2 Rover (British Aerospace) 199,914 203,822 -1.9 - cars**** 176,626 185,154 -4.6 - Range Rover/Discovery 23,288 18,668 +24.7 Ford group 177,959 198,346 -10.3 - Ford 163,628 188,086 -13.0 - Jaguar 14,331 10,260 +39.7 General Motors group 153,499 160,673 -4.5 - Vauxhall 132,492 146,675 -9.7 - Lotus 154 505 -69.5 - IBC Vehicles (GM/Isuzu)*** 20,853 13,493 +54.5 Nissan 140,713 74,214 +89.6 Peugeot 40,355 47,187 -14.5 Toyota 15,300 - - Honda 13,014 - - Rolls-Royce (Vickers) 559 618 -9.5 ------------------------------------------------------------------------ COMMERCIAL VEHICLES ------------------------------------------------------------------------ Total 105,797 138,933 -23.9 Ford 72,249 85,217 -15.2 General Motors group 12,038 19,423 -38.0 - Vauxhall 6,915 8,772 -21.2 - IBC Vehicles (GM/Isuzu)** 5,123 10,651 -51.9 Rover (British Aerospace) 9,150 10,944 -16.4 - car-derived vans 967 1,655 -41.6 - Land Rover Defender 8,183 9,289 -11.9 Leyland Daf Vans 4,664 10,993 -57.6 Iveco-Ford (Fiat) 2,363 2,852 -17.1 Leyland Trucks 2,351 6,178 -61.9 ERF 1,113 978 +13.8 Dennis (Trinity Holdings) 635 614 +3.4 Seddon Atkinson (Fiat) 377 578 -34.8 Renault VI 166 572 -71.0 Volvo Bus 295 223 +32.3 ------------------------------------------------------------------------ * Car-derived vans. ** Medium and small vans sold in Europe variously under Vauxhall, Isuzu, GME, Bedford and Suzuki names. *** Opel/Vauxhall Frontera. **** Includes Honda Concerto. ------------------------------------------------------------------------ Source: Society of Motor Manufacturers and Traders ------------------------------------------------------------------------

THE Brighton Evening Argus said it all. 'Rail fares fury' screamed the headline over an article calculating that proposed British Rail fare rises leaked this weekend would force Brighton commuters to pay at least Pounds 172 more for their Pounds 2,347 annual season tickets to London.

Judging by the mood in Brighton yesterday the sentiment was shared by many - not only among the town's commuters but also in the embattled local Conservative party.

Sussex has long been part of the south of England Tory heartland, but a gradual erosion of the party's vote - in May's local elections it lost control of the county councils in East and West Sussex for the first time - has left many local Tories increasingly nervous about the impact of the rail fares issue.

Mr Andrew Bowden, Tory MP for Brighton Kemptown, who has a slim 3,000 majority, lost no time in expressing his concern. 'If they try to impose a 16 per cent increase, all hell will break loose in the constituency. I am sure they won't do it,' he said.

With a 'huge number' of commuters in his constituency, increasing fares could only exacerbate the anti-Tory swing, he added.

At the local Conservative headquarters the mood was more restrained.

Ms Pat Smith, Tory agent for the town's two parliamentary constituencies - the other, Pavilion, has a 3,500 majority - insisted there was little sign of outright rebellion so far.

'Normally can I tell if there's a lot of Conservative party dissatisfaction from the number of people ringing me. There hasn't been any phone calls so far,' she said.

But privately other local Tories admitted they were incensed. 'It's supposed to be a public service, and this just isn't a public service at all. Of course there is a lot of anger,' complained one local councillor.

Mr Adam Trimingham, political correspondent on the Evening Argus, put it more bluntly. 'The two Tory seats in Brighton are both marginal seats . . . This is going to have a big impact.'

Not all the passengers on the platforms yesterday agreed with such sentiments.

Mr Chris Wilson, who commutes from Brighton to a solicitor's office to Burgess Hill, on the line to London, said: 'It won't stop me going on the train. Even with big increases it is still the cheapest way to get to work. It won't make me vote against the government.'

But Ms Shelley Atlas, chairman of the Brighton line commuters pressure group, and a daily commuter to London, insists that the increases would reduce the number of passengers. 'It's going to hit the lowest-paid commuters hardest of all. A lot of employers are freezing wages, so its going to be very hard to cope with a big jump,' she said.

Mr Peter Chester, deputy chief executive of the Sussex chamber of Commerce, shared her concerns. 'Companies here are trying to keep wage increases down. This is not going to help,' he said.

With unemployment in the town running at 15 per cent, some of the most bitter complaints came from those without work.

Mr Gary Cross, who is unemployed and who makes regular leisure trips between Crawley and Brighton, said: 'I will definitely be going less by rail if they put on those increases.

'Those who have got good jobs in the City can easily afford an extra 30 quid or whatever. It's the housewives and others without jobs that can't - and they vote, don't they.'

PROPOSALS for a wind farm in Wales will be set out today, as increasing tensions emerge among environmentalists about whether to support wind power.

Trigen Windpower, a venture by British, Japanese and Californian renewable energy specialists, is seeking planning permission from Port Talbot council for the Pounds 4m project. It wants to erect 66 170ft-high turbines on forestry land near Hirwaun, Mid-Glamorgan.

Earlier this month Mr John Gummer, environment secretary, approved a wind farm in Cornwall, overturning the local authority. Two more wind projects have been referred to Mr Gummer, and a further six are on appeal after having been refused by councils.

Some environmental groups, such as Greenpeace, want more electricity generated by wind power to curb emissions of carbon dioxide, one of the gases implicated in global warming. But others, such as the Council for the Protection of Rural England, say the turbines disfigure the countryside, while local residents have complained about noise.

There are also concerns about the cost: electricity generated from wind power costs up to 12p for a kilowatt hour compared with the 2.5p-3p that electricity fetches on the wholesale market, and the 8p that households pay for it.

Trigen said its 20MW farm would provide enough electricity for 17,000 homes and would have a minimal impact on the landscape and local residents. It would be fed into Port Talbot's power supply. Trigen said: 'A coal-fired power station, producing the same amount of electricity, would also produce over 1m tonnes of carbon dioxide as well as other damaging pollutants.'

Letters, Page 12

COMPETITION between British Telecommunications and local cable operators is expected to intensify with the signing of a new agreement between leading operators and Mercury Communications.

The agreement yesterday gives the cable companies improved rates for completing the long-distance parts of calls made on their local phone networks, and will enable them to undercut BT's prices further in their franchise areas.

The cable companies - General Cable, Nynex, Encom, Southwestern Bell, TeleWest and Videotron - control 60 local franchises between them, and provide most of the estimated 180,000 cable telephone lines currently in service.

The agreement revises tariffs for carrying their long-distance traffic on Mercury's network. It covers traffic for which Mercury provides the switching facilities and also business that operators choose to switch through their own facilities.

At present Mercury switches nearly all cable traffic across the network. However, cable operators are keen to do their own switching, to give greater flexibility in services and choice of long-distance carrier. Last week one operator switched its own traffic for the first time, and the others are expected to follow.

Earlier this month the cable companies signed an agreement with BT which reportedly gave them 50 per cent of the gross call revenues for traffic switched by the cable operators, against about 25 per cent under the old Mercury agreement.

The operators would not disclose the precise figures in yesterday's deal, but the new Mercury agreement gives them better overall terms than those available with BT and they intend to continue using Mercury for the bulk of their long-distance traffic.

Though Mercury was under pressure to match the BT offer, it also has an interest in the cable operators flourishing at the expense of BT. Take-up of cable telephony is as high as 30 per cent in some franchise areas, which represents significant extra revenue for Mercury as long-distance carrier.

Mr Eugene Connell, director of Nynex's UK operations, said: 'The new agreement reflects our commitment to developing a real alternative to BT in the local market.'

Mr Andy Coleman, managing director of Mercury's business and consumer division, claimed the agreement 'strengthened' its relationship with the cable operators.

HIRAM WALKER, the spirits and wine division of Allied-Lyons, is to establish a joint venture in India with Jagatjit Industries of New Delhi, one of the country's largest liquor producers.

The 50/50 venture will bottle Scotch whisky in India and launch a range of locally-produced spirits for the domestic and international markets.

After decades of warding off foreign liquor manufacturers and encouraging a thriving market for spurious 'scotch', India has opened its doors to the world's premium Scotch whisky-makers.

Allied is the third UK-based drinks company to enter the Pounds 800m market under the Indian government's liberalisation programme.

Guinness and Grand Metropolitan have already announced the formation of partnerships with Indian companies.

Seagram, the Canadian liquor and foods giant, has also been allowed to set up a wholly-owned subsidiary to make or blend 25,000 kilolitres of spirits a year.

Though the Allied-Jagatjit venture is not expected to make a significant contribution to Allied's profits for some years, Mr David Jarvis, chief executive of Hiram Walker, said yesterday: 'We believe India has great potential for our products.

'We are delighted that the Indian government's positive policy for inward investment now allows us to be associated with Jagatjit.'

The Indian government has not allowed foreign liquor companies to set up manufacturing capacities, and they will have to rely on the existing facilities of their joint venture partners, or purchase Indian spirits through contracts.

Jagatjit, which commands more than 25 per cent of the country's liquor market, is involved in the manufacture and marketing of malt, malt extract, dairy and food products, as well as in the production of bottling and packaging material.

The Rs100m (Pounds 2.2m) project in Maharashtra will import Scotch and bottle it in India for local sale and export to Gulf countries and possibly to South East Asia.

The company will bottle up to 30,000 cases of Scotch a year, and another 30,000 cases of blends with locally-made alcohol.

Exports have been made mandatory in order to offset import costs.

The Indian demand for Scotch is estimated at 1m cases a year, more than 75 per cent of which are spurious or adulterated, and 90 per cent of which are smuggled.

THE Indian government has approved the formation of joint ventures between UK Scotch makers Hiram Walker and Grand Metropolitan's International Distillers and Vintner's drinks division and Indian partners to market Scotch whisky in India, and to manufacture a range of indigenous spirits.

After decades of warding off foreign liquor manufacturers and encouraging a thriving market for spurious 'scotch', India has opened its doors to the world's premium Scotch whisky-makers.

United Distillers, the spirits arm of Guinness, received a similar approval in June, while Seagram, the Canadian liquor and foods giant, has been allowed to set up a wholly-owned subsidiary to make or blend 25,000 kilolitres of spirits a year.

Hiram Walker, the UK-based subsidiary of Allied Lyons, the Canadian foods group, and makers of Teacher's and Ballantine's Scotch, has joined up with Jagatjit Industries, the Indian liquor and foods group, which commands over 25 per cent of the country's liquor market. The Rs100m (Pounds 2.2m) project in Maharashtra will import Scotch and bottle it in India for local sale and export to the Gulf countries and possibly to South East Asia. The company will bottle up to 30,000 cases of Scotch a year, and another 30,000 cases of blends with locally-made alcohol. Exports have been made mandatory to offset import costs.

Grand Met said last week that its drinks division would hold a majority interest in the new company, International Distillers India, but an Indian partner and details of the joint venture are yet to be announced. The new venture will produce and market popular brands such as Smirnoff vodka, Gilbey's and Chelsea gin, Malibu coconut liqueur and Archer's schnapps.

The government has not allowed foreign liquor companies to set up manufacturing capacities, and they will have to rely on the existing facilities of their joint venture partners, or purchase Indian spirits through contracts.

The Canadian foods and liquor company will invest Rs250m to build a fruit juices and products facility with a capacity of 50,000 tonnes a year, and establish research and development facilities, besides making or blending Scotch.

The Indian demand for Scotch is estimated at 1m cases a year, over 75 per cent of which are spurious or adulterated, and 90 per cent of which are smuggled. The Indian market for premium whiskies is wider, at 25m cases.

WHEN Keebler, the troubled US biscuit maker, saw a high-profile product launch fall flat in autumn last year it was left with Dollars 1m (Pounds 660,000) of unusable packaging.

Rather than write it off as scrap, Keebler talked to Atwood Richards, a leading US barter group.

Instead of buying the packaging alone, Atwood asked Keebler, the US subsidiary of United Biscuits of the UK, to fill the packs with biscuits and agreed to buy the filled packs - worth Dollars 14m - for sale only in markets where Keebler had no presence. Russia, Ukraine, Belarus and the Baltic states were targeted.

Keebler was to be paid in 'trade credits', which were eventually exchanged for packaging, shipping services and marketing. Atwood used roubles paid by the Russians to buy local products and services.

Atwood also offered Keebler the right to take over the distribution network it had set up in eastern Europe.

For Keebler the deal had many attractions: it did not have to write off out-dated stock; it exploited unused capacity on its production line to fill the packs; it was paid the full wholesale price - or its equivalent in trade credits - for its incremental production; and gained, at no cost, marketing and distribution networks in new markets.

Atwood's distinction over 35 years as a trader has been to stretch the boundaries of barter. The sector is more traditionally associated with commodity trading, the former communist regimes of east and central Europe, and with the disaster-driven improvisations of companies trying to fend off the receiver.

It may be a fashion house with an over-run of this year's colour; a men's suitmaker who missed this season's switch to double-breasted suits; a factory with unused capacity in the winter season - or Keebler packaging made useless by a new marketing campaign.

With an estimated Dollars 13bn of unused or surplus merchandise in warehouses across the US alone, Mr Moreton Binn, principal shareholder in Atwood, has the chance to make barter relevant to mainstream business wherever it is based.

'This year's swimwear is not like Chateau Lafite Rothschild - it doesn't get better next year,' he says. Garments account for perhaps 40 per cent of Atwood's overall business. Seasonal goods ranging from beach umbrellas to golf clubs and skateboards are also significant as retailers need to clear shelf space before autumn and winter.

'The world is a buffet,' Mr Binn notes. 'There is always somebody, some place in the world that uses or needs barter.'

A businessman has to have alternatives, he says. 'When someone shuts down the motorway, you have to find an alternative route to a destination.'

Atwood's business is finding alternatives. Its distinctive strengths have to be in marketing, distribution, and achieving a range in the inventory of goods and services it can offer to clients. Companies can spend their trade credits on products as diverse as packaging, office furniture, hydraulic presses, mainframe computers and refractory products, and services such as airline seats, hotel rooms, cleaning services, or television advertising space.

It has bought and sold between Omega, the watchmaker, US Steel, Goodyear Tire and Rubber, Canon, Massey Ferguson, Amoco and JC Penny.

Mr Trevor Edwards, head of the group's London office, confesses that the first response of a company executive to an approach from Atwood is cool.

'People are approached almost on a daily basis by people wanting to buy stock for cash. But the offers are so derisory that they ignore them. Often they're as low as 20 per cent of wholesale value. When I say we will buy at near to wholesale price, companies often think it's another come-on,' he says.

In Skelmersdale, Lancashire, Mr Geoff Marsden, managing director of Snack Factory, a recently established supplier of crisps and other snack foods to the UK market, was no exception when he received a cold call from Mr Edwards to discuss a barter deal worth Pounds 5m a year for two years, allowing Atwood to sell the company's crisps across Europe. 'I'm treating all this with my tongue in my cheek, but there is no cost for me to try it,' he says.

'At present, I can't think of a negative. It allows me to do some test marketing and establish distribution in markets I don't have the time or resources to target myself.' Whether the deal goes ahead depends on the results of market research being carried out by Atwood - another plus for Mr Marsden, who could not afford to pay for this across Europe.

In the four months since Atwood set up in London the company has garnered 40 clients and has signed five barter contracts, ranging from Nottingham lace and biscuits from Cornwall, to office furniture from Bath, athletics wear from Scotland, and denim jeans from a London company.

According to Mr Binn there are just four components of a company's costs that cannot be bartered for: wages, rents, utilities such as water and electricity, and bank charges. Beyond these, which may account for half a company's outlay, there is no reason any other cost must be monetised.

He challenges the suggestion that his company might be seen as a vulture, feeding on recession-injured companies.

'The business survives at all times. Not all businesses do well at the same time. Nor is the world that efficient. And trying to predict what the market for your product is going to look like next year is the biggest gamble of all.'

Mr Edwards is more vehement, regretting that Atwood had not been set up in the UK in 1989. 'There are companies that have failed, and people that have lost jobs, where this need not have happened if we had been here.'

FRANCO-BRITISH engineering company GEC Alsthom NV wants to build a high-speed rail link between Sydney and Canberra, government officials said on Monday, Reuter reports from Canberra.

Work would start on the ADollars 2.4bn (Pounds 1.1bn) project in 1996 and Speedrail, as it is dubbed, would be running by 1999, according to the proposal.

Industry minister Alan Griffiths wants to meet the developers, a government spokesman said. 'Obviously this a project of national significance - we'd like to discuss it further.'

GEC Alsthom is half-owned by Britain's General Electric Co and Alcatel Alsthom SA of France, a spokeswoman for the company's Sydney subsidiary said.

The trains, modelled on the Train a Grande Vitesse now operating in France, would travel at 350 km (217 miles) an hour and take 75 minutes to cover the distance between the nation's capital of Canberra and the country's most populous city.

A second stage linking Melbourne, Adelaide and Brisbane with Sydney and Canberra is also being studied, the sources said.

The developers have sent their proposal to the federal, New South Wales and Australian Capital Territory governments.

GEC Alsthom would supply the rolling stock for the project, which would create up to 35,000 jobs, the sources said.

A similar plan was proposed by a consortium led by Broken Hill Pty but shelved in 1991 after the federal government refused developers' request for tax breaks during the construction phase.

The Speedrail proposal makes no such request. About 80 per cent of the projected cost is expected to be spent in Australia, the sources said.

GEC Alsthom last week won a contract to help build a 400 km high-speed rail link in South Korea, a project expected to cost USDollars 13.2bn with completion in 2002.

JAPAN'S Ministry of International Trade and Industry is investigating a claim that Toshiba, a leading electronics maker, had agreed to transfer technology to former East Germany that would have breached an internationally agreed export ban to communist countries.

Mr Masayoshi Takemura, chief cabinet secretary, confirmed Miti was examining the allegations, contained in a Japanese daily newspaper.

The Sankei Shimbun newspaper claimed Toshiba had agreed in 1986 to transfer semiconductor chip technology to East Germany that would have breached rules set up by the Co-ordinating Committee for Multilateral Export Controls (Cocom). The group was set up in 1951 by Nato to monitor and control the export of products and technical data of potential strategic value to Warsaw Pact countries and their allies.

The newspaper said it had secret documents from East Germany indicating that Toshiba and Mitsui, the trading house, had agreed to help build a factory to manufacture 256-kilobit dynamic random access memory chips.

Toshiba, however, scrapped the deal after it was revealed in 1987 that a subsidiary of the company had exported machine tools to the former Soviet Union. This resulted in the company being excluded from US government procurement for three years.

Toshiba yesterday denied the latest allegations, saying it had made no agreement with East Germany on the transfer of semiconductor technology. The company said it followed strict export guidelines.

Toshiba said that between 1986 and 1987 the East German government had asked it to transfer technology for the manufacture of printed circuit boards and transistors for colour televisions, neither of which would have been in breach of Cocom rules. Mitsui was involved in the talks.

When the sales of machine tools to the Soviet Union came to light in March 1987, Toshiba cancelled the TV transistor technology contract it had signed with the East Germans and called off talks on the transfer of circuit board technology.

Miti said it had investigated the chip issue in 1988 - finding no evidence that Toshiba had agreed to transfer semiconductor technology to East Germany - but was reinvestigating since fresh allegations had surfaced.

Cocom still prohibits the transfer of technology for the manufacture of certain advanced semiconductor chips and the export of some semiconductor manufacturing equipment.

POLICE in London's Covent Garden have made 100 arrests this year as a result of an initiative with Mercury Paging. Using radiopaging technology, shopkeepers in the area are able to inform other retailers and the police of crimes in progress or people acting suspiciously.

With PC Alan Marcroft (left), who made the 100th arrest - a suspected shoplifter at the Royal Opera House shop in James Street - are Ms Gina Bruce, the deputy manageress of the shop, and Mr Chris Neary, managing director of Mercury Paging.

Mr Neary said yesterday: 'Covent Garden was one of the first areas to adopt the scheme which has now spread to other UK shopping centres and groups of pubs which suffer from vandalism, drug abuse and violence.'

A Khmer Rouge follower holds his child while seeking refuge near the Thai border. Cambodia's coalition government army had been shelling a rebel-held village forcing 540 villagers to flee

Iraq insisted yesterday technical talks with the United Nations on August 31 should also discuss Baghdad's demand that trade sanctions be lifted, AP-DJ reports from Amman. The Iraqi foreign ministry confirmed Baghdad would take part in the talks, aimed at resolving an impasse over deployment of monitoring cameras at Iraqi missile sites.

Former US president Jimmy Carter told Togolese leader Gnassingbe Eyadema yesterday US observers would withdraw unless he agreed to put off tomorrow's election for 10 days, international monitors said, Reuter writes from Lome. Diplomats said Germany had already withdrawn its eight observers.

The African National Congress released a report yesterday saying at least 22 people were executed, murdered or beaten to death in its detention camps in Angola and Tanzania, Reuter reports from Johannesburg.

The ANC leader, Mr Nelson Mandela, who ordered the inquiry, said the organisation was taking it very seriously. 'The very fact that we have taken the public into our confidence about the report . . . which has found that serious violations of human rights have been committed, is an indication of our good faith.'

The report documented executions, torture, beatings and human rights abuses against ANC members held in camps. It said 15 people were executed by ANC firing squads.

NIGERIA'S pro-democracy campaign groups have called a three-day stoppage to back Mr Moshood Abiola's claim to be the next president and to oppose the military regime's plan to hand over to an unelected interim government on Friday, writes Paul Adams in Lagos.

The two previous civilian protests organised by the Campaign for Democracy in recent weeks halted normal business life in the commercial capital, Lagos, and other parts of the Yoruba-speaking south-west, the stronghold of Mr Abiola, but failed to make an impact in the east or north of Nigeria.

Although the CD lacks a national network, it has done more than any other organisation to voice dissatisfaction with President Ibrahim Babangida's eight-year-old regime, which has four times postponed its promised transition to democracy. The protest is aimed at building up pressure on the government to step down before Friday, when the Nigeria Labour Congress has threatened a national strike.

Nigeria partially lifted the domestic oil price subsidy from midnight by introducing a premium grade of petrol worth N7 (20p) a litre. A state broadcast last night said ordinary grade will still sell at N0.7 a litre but industry says it will soon be unavailable.

Higher fuel prices could wipe out the budget deficit and revive the downstream oil industry, but in April the military government judged the price rise a threat to the transition to democracy, which has now been abandoned.

Mr Mike McCurry, US State Department spokesman, threatened yesterday to cut off more aid to Nigeria unless President Babangida keeps his promise to turn over power by the end of the month.

MR Morihiro Hosokawa, Japan's prime minister, yesterday said the country needed to bring down its current account surplus 'not just to maintain good external economic relations but also to improve the quality of Japanese life'.

In his first policy speech to the Diet (parliament), he said he would seek to make Japan 'a country of quality and substance', at ease with the world and with itself.

He also pledged political reform by the end of the year, in what is the main aim of the seven-party coalition, which this month displaced the long-ruling Liberal Democratic party. However, he was vague about the shape of the reform, over which the partners are still divided.

His address contained no new initiatives but appeared to indicate a number of shifts in emphasis. He placed greater stress than before on the funding of parties and politicians as a source of corruption. Such contributions would be replaced by 'neutral, untainted public funding and other provisions', he said, in a reference to possible tax incentives for individual donors.

The coalition's ability to curb corporate contributions without being seen as victimising the LDP was given a strong boost last week when the Keidanren, the leading business grouping, said it would stop acting as a conduit for political funds - nearly all of which went to the LDP.

Mr Hosokawa took care to note the difficulties caused by Japan's high current account surplus in relations with the US and EC. He intended to seek its reduction by working for 'expanded domestic demand and improved market access, and for such consumer-oriented policies as rectifying the disparity between domestic and international prices and promoting deregulation'.

This was the approach announced following a meeting of economic ministers last Thursday. The US Federal Reserve stepped in later that day to assist the Bank of Japan in stemming a rise in the yen, which Washington had recently been thought to favour as a way to curb Japanese exports. Although the countries deny having done a deal, the move also followed a telephone conversation that day between Mr Hosokawa and President Bill Clinton.

The two are to hold a summit in late September, following framework talks earlier in the month on trade issues which Mr Hosokawa said were crucial. Japan may again need the Fed's assistance before that - the yen rebounded by Y1.10 against the dollar in Tokyo yesterday to Y103.35.

The prime minister was otherwise cautious on international issues. Noting that 'protectionist moves seem to be on the rise', he said failure of the Uruguay Round of trade talks would 'have a grave impact on the world economy'. But he referred only obliquely to the problem of Japan's refusal to open its rice market, saying agriculture was a difficult issue for all countries and he would seek a solution based on 'mutual co-operation under our basic policy'.

Mr Hosokawa expressed remorse and apologies for war actions 'including aggression and colonial rule'. Under evident pressure from conservatives in the coalition, he added that there were also 'supreme sacrifices made during the war' by Japanese.

For the future, he said Japan must avoid 'falling prey to great-power ambitions' but should become 'a country of unpretentious excellence' in government, business and everyday life. His phrase recalls the 'lifestyle superpower' envisaged by Mr Kiichi Miyazawa, his LDP predecessor, but with a stronger commitment to social justice and consumer interests.

Mr Yohei Kono, leader of the LDP, members of which heckled repeatedly during the speech, said afterwards: 'He speaks of reform but he is adopting a conventional policy line.'

Mr Hosokawa said Japan's ageing society made a review of the tax structure a priority, to balance income, property and consumption taxes. The Social Democratic party, the largest coalition member, has opposed suggestions by some of its partners that consumption tax should be increased from the present 3 per cent.

Reflecting the mixed signals from official data, Mr Hosokawa said there were indications that 'the domestic economy is finally emerging from the depths into which it was thrown' but 'it would not do to take economic recovery for granted'. His aim was to 'create a climate conducive to the freer exercise of private-sector initiative'.