DIFFICULT DIPLOMACY – HICCUPS AND A DROPPED VODKA GLASS

HYCO’s experience of building Pisces submersibles for the Russians reads like a political thriller. The initial contract was scuttled in 1972 after the US Navy protested the sale because the steel used in the hull was their “secret” HY 100 steel produced at US Steel and used for their submarines. Forced to cancel the contract, the Canadian Navy bought Pisces 4 (which went to Canadian Navy, then to Fisheries and Oceans, then the Institute of Ocean Sciences and eventually to the Hawaii Underwater Research Lab). When HYCO completed the second submersible for that initial Russian contract, Pisces V was put to work burying telephone cable as well as other operations off the east coast of Canada.

As years passed and relations between Russia and the West eased, Russia again contracted with HYCO for two deep-diving submersibles, rated to 2000 meters, for ocean research by the Institute of Oceanology of the Academy of Sciences of the Soviet Union. The original contract called for a Pisces and a diver-lockout submersible, spares, training and sophisticated high-tech instrumentation systems. It was amended to Pisces VI and VII, along with spares, training, the high-tech instrumentation systems and severe late-delivery penalties.

Doug Taylor, who had just turned 29, took a job at HYCO as project manager for the $4 million contract (about $20 million in today’s dollars). In January 1974, he and his wife Marilyn moved to Vancouver from Calgary.

Pisces VII begins to take shape

Vickers Shipbuilding in the UK had finally produced the hull spheres they had promised years ago—now they were slated for Pisces VII. But having been fabricated of high-strength 1,000-psi steel, HYCO worried that bringing what were essentially HY 100 hulls back to Canada could result in another contract cancellation. So, HYCO decided to assemble the submersible at Sulzer’s large facilities in Winterthur, north of Zurich, Switzerland. All of the parts for Pisces VII were inspected by the Canadian Department of National Defence, approved for export and air freighted to France where they were received by Sulzer Escher-Wyss for on-going overland transport to their shops in Switzerland. A team of well experienced HYCO staff, including Walter Fueg, were sent to Switzerland to receive the parts and carry out the assembly work. The eight-
man team completed what Doug estimates was about 15,200 man-hours of manufacturing labour and about 5,000 hours of engineering labour in record time. However, there were other problems to deal with.

The Trip to Moscow

Doug recalls, “The new contract with the Russians had been agreed upon before I joined HYCO. It included numerous advanced instrumentation systems, many of them being highly sensitive and not permitted under Canada’s export control legislation. So, something had to give. That began a long period of going through the motions of trying to resolve the dilemma. I disagreed with HYCO president Dick Oldacre’s willingness to get into contract arbitration in Stockholm. I thought the Russians would agree to delete the instruments from the contract if there was a sufficient contract price adjustment – and that’s what happened. Eventually. But at the time, the track we were taking was necessary, even if the discussions and endless meetings seemed fruitless. This type of standoff was not, as I would learn over the years, atypical in international business projects. You have to be patient and persistent.

“Correspondence with the Russians and discussions with Dr. Anatoly “Tolya” Sagalevitch, the on-site project monitor, had failed to resolve this dilemma about the instrumentation systems HYCO couldn’t export. So, arrangements were made for me and HYCO President Dick Oldaker to travel to Moscow in late October 1974. There we would meet with the foreign trade organization Sudoimport which was responsible for the contract and try to come up with some solution. The contract was insured by Canada’s Export Development Corporation (EDC), and we had already advised them of the difficulties and the potential for a loss.

“My trip to Moscow was complicated. I was first to travel to Ottawa to review the situation with EDC, then travel to London where I would stay for the weekend before onward travel to Moscow. On return from Moscow, I would stop in Winterthur, Switzerland for a couple weeks before heading back to Canada via London.

“My early morning meeting with the Director of Export Development Corporation (EDC) provided an opportunity to confirm for them the potential for contract loss. EDC is a
government organization that provides insurance to companies that are selling to countries where there is political risk. The meeting with the Director of EDC galvanized any negative opinion I might have had regarding government bureaucrats. After a brief pre-meeting with the Director’s assistant, we all gathered in the Director’s office. He ordered tea and muffins and then proceeded to sprawl, half lying, on his couch while his assistant and I occupied chairs and passed the tea and muffins to him. The meeting was short. I remain appalled to this day. I was then on to my next Ottawa task.

“Dick Oldaker, HYCO’s president, was to meet me in Moscow. Unfortunately, he did not have a Russian visa which normally takes about three weeks to obtain. So, I was to take his passport with me to Ottawa and try to obtain a visa from the Soviet embassy there. This entailed getting official photos for the visa. Fortunately, an elderly photographer in a small shop was able to use the photo in Oldaker’s passport to produce the three requisite photos which I was able to affix to the Russian visa application. I’m sure this was all quite illegal, but it worked. Next I took a taxi to the Soviet embassy, met with the ambassador and explained the urgency. He promised the visa would be available by 5 PM that day.

“Sure enough, that afternoon I picked up Oldaker’s passport and visa and left the next day for London. When I arrived at London Heathrow, I gave the passport to Air Canada’s first-class representative and asked that it be delivered to Oldaker as soon as he arrived in London. Then I traveled to Oxted, Surrey, south of London, and spent the weekend with my parents and sister Elizabeth who had all moved to England two years earlier.

“The following Monday I was booked on an Aeroflot flight from Heathrow to Moscow on an Ilyushin IL 62 airliner. I got to terminal 4 at Heathrow in plenty of time but found the Aeroflot baggage check was closed so had to carry my bag onto the transit bus and then ensure it would be loaded on the airplane. The flight to Moscow was five hours and remains one of the most interesting I have ever taken. It was a mix of people: students from Ghana studying in Moscow, elderly socialists from Boston, as well as agents and carpetbaggers of all kinds. On take-off there wasn’t the usual warning given to the flight attendants, so they were busy pushing carts down the aisle just as the plane made its steep take-off, throwing them both backwards and causing dozens of apples to roll down the aisle.

“I arrived at Moscow’s drab and dimly lit Sheremetyevo airport in the early evening; it took about an hour to make my way through customs and immigration, following closely behind two American FBI types who were there as part of the US delegation in the up-coming round of Strategic Arms Limitation Treaty (SALT) negotiations. I made my way to the exit where an elderly Russian woman sitting at a card table used a pencil to check off my name on a handwritten list of arriving passengers. Once through the exit, I was able to find the bus that would take me to the Rossiya Hotel. Remarkably, Dick Oldaker was on the same bus! He had arrived on an earlier flight and had been waiting for the bus for nearly two hours. I was pleased to learn that he had received his passport and visa immediately on arrival in London, just as planned.

“We checked into our rooms at the Rossiya, a hotel that had 5000 rooms, each with a separate phone line and phone number to allow tapping conversations as required. I recall that we went to one of the hotel’s four top-floor “foreign currency lounges” to have a drink and a snack before retiring to our rooms. Each hallway in the hotel was controlled by a stern looking, elderly woman acting as security and providing soda water in canisters almost the size of SCUBA tanks.

“The next day we met with Canadian embassy staff to discuss our meetings and arrange for any assistance we might require in preparing memos and contract amendments. We then travelled by taxi to the Sudoimport offices, outside the centre of Moscow, for the long-awaited meetings which were held in a small room with high ceilings. Two apparently senior level Sudoimport staff had been assigned to meet with us; however, neither seemed to understand the purpose of the meeting. Both lit cigarettes as soon as the meeting started filling the small room with the harsh smoke of Russian tobacco. We asked that the windows be opened and one of them stepped up onto the table and walked across our contract documents and notes so as to open the window and high transom above the door, clearly an intimidating tactic. The meetings were quite unproductive, but we left on a cordial basis and they offered to help set up meetings with other foreign trade organizations that might take on the task of procuring the sensitive instruments.

“One of their senior people, Vladimir Troitsky, led us out to the street to assist in hailing a taxi. None stopped, I think because Troitsky looked and dressed more like a North American than we did. After many futile attempts to flag down a taxi, he gave us directions for using the Moscow subway to get back to our hotel adjacent to Red Square. Sudoimport offices were quite a distance from the centre of the city and we had to make one critical line change, so it was important to follow the directions carefully since all signs were in Russian. The Moscow subway system is magnificent and well used, but I do not recall any smiles or conversation.

“Next, we caught a taxi to the embassy where we prepared notes, memos and contract changes for typing and copying by the embassy secretary that had been assigned to help us. However, she explained that she would not have the notes completed until the next day because she had just learned that there was lettuce available in Moscow. Evidently, there had been no lettuce for weeks so she was anxious to dash off to get some.

“The Canadian ambassador and his wife had invited us, along with the first commercial secretary and another visiting Canadian businessman from Alberta, to dinner at their
apartment. The building was a typical ugly, Soviet-style concrete structure with un-finished hallways, but the apartment was very nice with Scandinavian furnishings mostly from Finland.

“At breakfast the following morning we were joined by a Toronto man who was the representative for a number of companies trying to secure contracts in the USSR. He had been back and forth to Moscow many times and now was resident there for about six months. He cautioned us regarding business discussions in our rooms. We outlined our contract difficulties, and he said he would be pleased to meet in our room later to provide some suggestions. When we did meet, he ensured that the heating and air vents were covered with pillows so our conversation would not be recorded. Oldaker was leaving the next morning so we spent the rest of the day summarizing our plans for moving forward with the project and ensuring we would not be in contravention of Canadian export restrictions. We agreed that I would try to meet with two other foreign trade organizations before I left two days later.

“That evening we walked across Red Square to have dinner at the National Hotel. It was very busy due in large part to the SALT talks. We were directed to a table where two nuclear physicists from California were already seated. They were in Moscow as consultants to advise regarding development of nuclear power in the USSR. The service was terrible. The waiters stood near the door purposefully avoiding eye contact. The chicken Kiev I ordered was stone cold when it finally arrived.

“On the way back to the Rossiya hotel we talked briefly with a couple of the few prostitutes and vendors that frequented Red Square selling services and Russian artifacts, all KGB approved we assumed. I noticed that the numerous flags on the Kremlin were blowing proudly even though there was not a breath of wind.

“The next day I arranged for a translator from the embassy as I had meetings with two foreign trade organizations. The meetings were in large rooms with high ceilings and the usual large portraits of Lenin and Marx hanging from opposite ends of the room and tilted to appear they were looking down on you.

“On my last full day in Moscow, I had breakfast with the business representative we had met earlier. I asked him how he managed a normal life in Moscow, particularly since he had said he was single. He told me he was currently dating a beautiful woman he had met at the Bolshoi. He explained that as a foreigner he could buy up to three tickets to the ballet which were always in high demand and available to the average Moscovite only on the night of the performance, so there was always a long line up. He would give two of the tickets to the most attractive and interesting women in the line and they would, as planned, end up sitting on either side of him.

“I met with the commercial secretary at the embassy to provide an up-date and then walked around the city for a few hours. I went through GUM, the large, run-down department store across from the Kremlin on Red Square. There was very little for sale but I did notice a long line of patient Russians winding up the stairs and along the second floor. Following the line along, I discovered that they were buying toasters – the kind with black and white cords and sides that flip down. It looked like only one was available per person. (I understand that today GUM is the center for luxury goods).

“That evening I had dinner at the Rossyia where I was joined by an Italian businessman who spoke 23 languages. A short time later, two others were seated with us, a businessman from Belgium who spoke six languages and his Russian client who spoke two. Fortunately for me, the only common language was English.

“The next day I checked out, paying with American Express which had started up business in Moscow only two or three months earlier. In the lobby, also checking out, was Oscar Peterson and his business agent. They were very frustrated about a performance that had been cancelled; I overheard Peterson say he would rather sleep on the streets of Harlem than spend another night in Moscow.

“The taxi ride to the airport was not uneventful. Even though there were relatively few cars in the city, especially at the fairly early hour, a large traffic jam had occurred as the result of a minor accident. Nobody, it appeared, wanted to proceed beyond the accident for fear of being somehow implicated by leaving the scene.

“The airport was as drab and dingy as it had looked on arrival. Getting through passport control was a lengthy process with my papers being stamped many times by a young official clad in a military uniform and looking down on me from his post about a meter above. “Finally, I entered into the departure area which was well lit, clean, modern and looked no different than any major European departure lounge. There was a selection of Marxist and other socialist reading material available to take home, and the walls were covered with magnificent photos of all the wonderful achievements of the Soviet Union.

“The flight to Zurich on Swissair had only one stop in Warsaw where we were required to de-plane and wait for about an hour in a cordoned off area. Then we were off to Zurich on Swissair; that service seemed the best in the world. “In my memory Moscow remains the most impressively austere and un-welcoming city I have
ever encountered, and certainly the cultural shock was the most profound I have ever experienced. Later travel to African destinations like Lagos, Douala and Dar es Salaam cannot begin compare.

“There was no resolution of anything regarding the high-tech instrumentation in Moscow, no agreements, and no indication that there would be agreement. The Russians’ formal position was that they expected the terms of the contract to be met. However, I do believe that the Russians did understand that the Pisces contract would not be completed if the sensitive instruments were not removed from it. There seemed nothing further to do, so I continued on with checking on construction of Pisces VII in Winterthur, Switzerland.

Two Weeks in Winterthur

“I arrived at the clean and efficient Zurich airport on time, rented a car and was quickly on my way to Winterthur where the Pisces VII submersible was being assembled in an area of Sulzer’s new Electronics Shop. I changed the rubles I had bought for $150 into $78 of worth of Swiss francs (the bank clerk reminded me that it was illegal to take rubles out of the Russia as he passed the francs to me). After meeting briefly with the HYCO people, I checked into my hotel and basically crashed. The music I turned on in the room later happened to be Sinatra’s “My Way.” After a week in Moscow, immersed in the incompetence of a communist system, that particular song had a lot of relevance.

“I was in Winterthur for about two weeks and saw quite a bit of the area. I travelled to the immense Sulzer Escher-Wyss shops in Zurich to see the hulls for Pisces VI being machined. They looked miniscule compared with the other work that was enormous – generators for big dams in Brazil and engines for supertankers. Walter Feug, the HYCO employee chosen to lead the P VII team in Winterthur, was originally from the area and he took the crew and me to some restaurants in the area and to Basel and Schaffhausen on the weekends. Sulzer, like many firms in Switzerland and Germany employed workers from Turkey. It was easy to see the cultural strains that this was causing in Winterthur.

Back to Canada

“I flew to London and then spent two or three days with my parents and sister in Oxted. I called my wife Marilyn and learned that she would be in Montreal on a buying trip for the Bay at the time I was returning to Vancouver, so I changed my ticket to meet up with her. It was cold and snowy but we had two wonderful days in old Montreal.

In mid December, we met for dinner with friends at The William Tell, a Swiss restaurant and one of Vancouver’s best. I mentioned to the head waiter that I had recently returned from Switzerland and asked him where he was from. He said he was from Winterthur and after some discussion I learned that his father still worked for Sulzer in the same shop that the HYCO team was using. Small world!

The Italian Job

“As the completion of the Pisces VII in Switzerland neared the next step was to find a location for sea trials and delivery. Bob Starr and his operating team had the unenviable task of checking out a number of possible locations in the Mediterranean including Malta, France, Spain and Italy. The Russians had recommended Split in Yugoslavia where there was deep water and an oceanographic institute, however a Soviet bloc country wouldn’t work. HYCO settled on Italy.

“I arrived in Genoa in April 1975 after advising the Russians about the sea trials plan, but had considerable difficulty in getting them to commit to the dates. The submersible had already arrived from Switzerland and had been moved onto a barge and a crane operation had been hired. Pisces VII was ready to be put through some initial trials, however the busy Genoa port did not lend itself to an easy operation as getting in and out was difficult. The most memorable thing about Genoa port was the cappuccino machine that looked similar to the cab of the Royal Hudson locomotive. Schenker, HYCO’s freight forwarding and customs brokerage agent, provided a small office and use of phone and telex. I still had not received any confirmation from the Russians regarding their arrival, but I had rented hotel rooms for them based on the program schedule we had forwarded to them.

“The Russians arrived in Genoa a few days after my arrival and that’s when the difficulties started. We received a notification through Schenker that they had arrived and were awaiting pick up at the airport. We sped out to the airport to find four very senior Russians sitting on a bench in the arrivals area. They had been there for some time. I knew they would need to register with the Genoa police so we went directly to the police station to get the necessary papers. Other members of the Russian acceptance team arrived over the next couple of days including Dr. Tolya Sagalevitch. Around the same time, a decision was made to move the sea trials operation to the small town of Varraze, about half an hour north of Genoa. Rooms were booked in the Piccolo hotel for HYCO staff, and a hotel about two blocks away was arranged for the Russians. On my arrival in Varraze, I learned that one of the submersible pilots had broken his foot in a fall while scaling the front of the hotel to get to his 3 rd floor room – he had arrived home late and the main door was locked.

“The small harbour in Varraze proved to be quite workable, with good access to deep water trials in the Bay of Genova. The crane operator had an additional skill in that he could prepare excellent squid, not unlike the crane operator used for sea trials in Vancouver who was a master at frying oysters. The daily presence of two sleek Italian navy ships from La Spezia was a constant reminder that the US and NATO did not like the submersible going to the Russians.

“The Pisces VII was meeting all its sea trials requirements, so after a couple of weeks it was time for a well-earned break; the HYCO team travelled to Monaco to watch the Grand Prix and the Russians travelled to Florence. Another week later, the important acceptance documents had all been finalized and were ready to sign. Dick Oldaker, president of HYCO, and Mike MacDonald, chief pilot, arrived for the signing.

“Then, unexpectedly, the Russians balked and refused to proceed with the scheduled acceptance program. They stated that their acceptance committee would not attend the
important trials the next day. My recollection is that their main concern had to do with the Pisces VII payload capacity and some minor deficiencies. The HYCO team discussed how the impasse might be broken, and I agreed to meet with the Russians at their hotel, after dinner, and seek a solution.

“I sat outside with them on a mild, spring evening. I knew that vodka would be ordered, so pre-empted them by ordering two or three bottles of red wine. The wine turned out to be the key. After about an hour of back-and-forth discussion with no resolution, Dr. Igor Michalzev got a terrible case of hiccups which was apparently an intolerable show of weakness. To avoid any embarrassment, the most senior of the group quickly ended the meeting and confirmed that they would attend the sea trial program the next day. The wine had done its job. I staggered back to the Piccolo hotel to report success.

“The next day, many copies of the acceptance documents were signed with great fanfare at the Russian’s hotel in Varazze. In celebration, a bottle of champagne was opened, with the cork blasting the overhead chandelier to smithereens. Dinner that evening was an interesting event with many toasts. The KGB representative who was embedded in the Russian team toasted, in part, “to the ongoing solidarity of the Canadian and Soviet people in the struggle against fascism… etc, etc.” Dave Vervey, a HYCO submersible pilot, then stood and responded with a toast that started “Speaking as a capitalist pig….” There was much cheering.

“The submersible was moved back to Genoa and readied for loading on a Soviet freighter that had been waiting offshore for over a week. Most of the HYCO staff departed, as did the Russian team. But there were still difficulties to deal with. Pisces VII needed Italian customs clearance, but the port was on strike. Early on, I had instructed Schenker to make no pay-offs to get things done as the US and NATO would be watching for mis-steps and this might jeopardize the sea trials and the delivery.

“As the strike continued, the situation seemed to worsen. I arranged to meet with the president of the major Soviet shipping company in Genoa to discuss when and how the situation might be resolved. This was particularly critical for HYCO because the large final payment would not be made until delivery had occurred. I told the president and his assistant that the delays were very costly, and HYCO’s position was that the signing of acceptance documents and movement of Pisces VII to the loading dock in Genoa completed the delivery. I explained our policy with regards to any payments directly or by Schenker. I said that I would be returning to Canada in three days and that if they wanted the submersible, they would now have to take full responsibility for it.

“This was rejected outright. It was clear they did not wish to be responsible for any screw-ups. After some additional discussion they said they would look into the situation further, possibly moving another freighter to Savona and arrange the loading there. Everything happened rapidly after that. The freighter moved to the port in Savona, Pisces VII received customs tags and was moved at dawn from Genoa to Savona for loading. At the request of the Soviet shipping company, I met again with the president who explained the actions they had taken. He also passed me a hand-written list of expenses they had incurred. I think the total was about $500 which was quickly settled. I was astonished at what they had been able to accomplish in such a short time with a mere $500 in pay-offs. Clearly it was a testament to the power that the communists had at Italian ports at the time.”

Pisces VI

HYCO’s contract with the Russians stipulated two Pisces submersibles. HYCO ordered a set of steel hulls for Pisces VI to be produced at Rhinestahl Works in Essen, Germany. Rhinestahl’s metal formulation was to be equal to HY100 specifications. While this second sub could be fabricated in Switzerland, rising costs and delays would mean that HYCO would likely not be able to meet its delivery deadline for the second submersible. So HYCO approached the Canadian government who agreed Pisces VI should be built in Canada. The completed submersible was given an even greater depth rating, 2500 meters, and HYCO decided to keep it for their own work.

So now the problem was where to get a second set of hulls for the Russians. The solution came from Victoria Machinery Depot who said they could build 2,000-meter rated hulls from Welten 80C steel if they made the hulls out of twelve smaller segments instead of six larger ones. Doing so would result in both significant cost and time savings. It was a big gamble, but one that paid off for HYCO. The next challenge was telling the Russians that HYCO was substituting the Pisces XI hulls for the Pisces VI ones. That swap almost blew up the contract and there was huge push back. Even getting the Russians to attend sea trials for Pisces XI was an ordeal. Doug Taylor recalls the night before yet another sea trials standoff, this one in Vancouver in 1976.

“The Russians had arrived, but refused to attend the sea trials because HYCO had switched the submersible hulls from Pisces VI to Pisces XI. Success occurred in another late meeting with much vodka again being poured and herring consumed. This time I was the one to show weakness when my fingers, oily from the pickled herring, squirted my glass of vodka across the room like a cherry pit. There was much cheering. The next day on schedule we all flew up to sea trials at Jervis Inlet.” The acceptance papers got signed, the submersible got loaded, HYCO met their delivery deadline and the final payment was made. That was the end of a long and

interesting story between HYCO and the Russians although many who remained in the industry kept in touch over the years with Tolya and his colleagues.

The 1974 Russian trip was the first of many business trips Doug would take in ensuing years; those travels included London, Paris, Zurich, Ravensburg, Copenhagen, Stockholm and Milan. He never returned to Russia, but also traveled on business to Nigeria, Tanzania, Cameroun, Philippines, and several SE Asian countries. Those other trips, particularly 18 trips to Africa, helped him develop the world view he holds today.

In mid-1976, Doug transferred to HYCO Subsea, HYCO’s operating group. He left in 1978 after helping negotiate an agreement with the Getty Oil consortium for the services of Pisces VI on the drillship Discoverer Seven Seas, then operating off the coast of the Congo.

In 1978, he joined a small consulting company doing a big organization study at Cominco in Trail, followed by a number of organization studies in several BC School Districts. In the spring of 1980, Doug joined Stothert Group and became involved in pulp mill projects in Nigeria, Cameroun, Tanzania. He also worked on projects in Vietnam, the Philippines, and other locations until 1992 when he got involved in developing renewable energy projects in B.C.

In 2004, Doug Taylor joined NORAM, a Vancouver-based technology company, primarily doing economic analysis of new technologies in the forest products sector. He retired four years ago.