DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

INTERCON INTERNATIONAL USA, INC., 725 15th STREET, N.W., SUITE 908,

WASHINGTON, D.C. 20005 -- 202-347-2624 -- FAX 202-347-4631

Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Monday, June 10, 1996

Russian Federation

Politics

Russia-Chechnya Agree on Pullout

· A new round of Russian-Chechen peace talks on military issues, between rebel commander Aslan MASKHADOV and Russian commander Vyacheslav TIKHOMIROV, resulted in an agreement today on the partial withdrawal of Russian troops from the republic and disarmament of rebels forces, reported the Associated Press (AP) today. The proposal calls for Russian forces to withdraw from Chechen villages that they are currently surrounding by July 7 and for rebels to turn in their weapons between July 7 and August 7. Meanwhile, political talks are stuck on the issue of holding Chechen parliamentary elections, but will continue in Grozny on Tuesday.

The pro-Moscow Chechen government on Sunday criticized the Grozny mission of the Organization for Security and Cooperation in Europe (OSCE) and its leader Tim Guldimann, accusing it of bias towards separatist rebels and suggesting it should leave Chechnya, reported United Press International (UPI).

Runoff May Be Held on July 3

· Sergei Filatov, campaign manager for the re-election of President Boris Yeltsin, told a press conference on Monday that the second round of Russian presidential elections may be held on Wednesday, July 3, instead of Sunday, July 7, reported Itar-Tass. He said the issue is being "currently considered" in an attempt to ensure more voters at the polls, as many Russians go to the countryside on summer weekends. "The success of the elections will depend on the turnout," said Filatov. The only problem is whether the Central Election Commission will have enough time to prepare for the second round of elections and how much that would cost the state, according to Filatov. The

second round is now set to be held either on Sunday, July 7 or 14. The Russian law on elections gives the Commission 15 days to determine the final results of first-round voting, but they are expected to be known as early as June 23 or 24.

Russia to Celebrate Independence Day

· Russia will mark its Independence Day on June 12 with celebrations, coordinated by the government, to take place across the country, including a parade and concert in Moscow, which is expected to draw some 300,000 people. On June 12, 1991, Boris YELTSIN was elected to be the first president of the Russian Republic and declared Russian sovereignty within the Soviet Union.

New Russian Penal Code Ready

· Presidential representative in the Russian State Duma Aleksandr Kotenkov, described the adoption of a new Penal Code earlier this week as a "breakthrough in the law of criminal procedure," claiming that it is free from any "ideological coloring," and focuses on the protection of civil rights, reported Itar-Tass. The new Code outlines about 70 new kinds of criminal offenses, including some related to information security, ecological and economic crimes, and organized crime. Arrest, fines, and compulsory public service are among new types of punishment, according to Kotenkov. The new Code provides for longer terms of imprisonment for some crimes, however, the number of crimes punishable by death has decreased from 18 to five, including

Today's News Highlights

Russia

CB to Turn Over $1 Billion

Duma Discusses Norilsk Nikel

Sakhalin-1 Project Begins Work

European Republics

Estonia/Lithunia Monthly Inflation

Transcaucasia & Central Asia

World Bank No Loan for Azer.

Austrian JV in Kazakh Lead deal

Political Struggle in Kazakhstan

US-Uzbek Vehicle Conversion

Politics-Economics-Business

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Monday

June 10, 1996

Intercon's Daily

premeditated murder, murder of judges, and genocide. High treason is now punishable by 12-20 years behind bars, instead of the death penalty as in the old Code, KOTENKOV said. The new Penal Code will take force on January 1, 1997, following its signing by President Boris YELTSIN. Presidential legal adviser Mikhail Krasnov told reporters on Saturday that the President will sign the new criminal code in the near future. Krasnov said the new Code provides better legal protection for the individual and scrupulous business people.

Petersburg Gets Deputy Governor

· Newly-elected Governor of the city of St. Petersburg Vladimir YAKOVLEV has appointed Vyacheslav SHCHERBAKOV as his first deputy governor, reported Friday's OMRI, citing Radio Rossii. SHCHERBAKOV previously served as deputy mayor under Anatoly SOBCHAK from 1991 to 1994 when he was fired for having close ties with members of the old Soviet regime, including the KGB. Specifically, he was faulted for supporting the Russian parliament's October 1993 rebellion against President YELTSIN.

Economy

Ruble = 5,051/$1.00 (NY rate)

Ruble = 5,051/$1.00 (CB exch. rate)

Ruble = 5,032|5,070/$1.00 (CB buy|sell rates)

Central Bank to Turn Over $1 Billion

· The board of directors of Russia's Central Bank decided on Saturday to acquiesce to a new law calling for it to hand over five trillion rubles (about $1 billion) in 1994 profits to the federal budget, reported Interfax. The Bank previously said it may challenge the law in court. It is due to transfer the funds today, with officials saying that the money will come out of an 8.6 trillion ruble reserve fund earmarked to provide emergency loans for troubled banks. The appropriated funds will be used to fulfill President Boris YELTSIN's campaign promises to pay for Russian teacher's summer vacations, and defense orders from Russian enterprises, and so forth. Bank officials criticized the law for undermining the institution's independence and possibly necessitating new ruble emissions and fueling inflation. International Monetary Fund (IMF) officials have said the move may violate the terms of the $10.2 billion loan agreement, if it pushes up inflation and endangers the current

reform course. Presidential economic advisor Aleksandr Livshits argued on Monday that the law did not signal any fundamental reorientation of reform. "This was a one-time action, but not a change of the (economic) course," he told Itar-Tass.

The Central Bank announced today that it was tightening commercial banks' reserve requirements, beginning on Tuesday, to compensate for the effects of the five-trillion-ruble transfer to the Russian government, reported Reuters. The new measures also include a reduction of the limits on banks' permissible open currency positions and the suspension of Lombard credits. "I think we will succeed in neutralizing the inflationary consequences of this," Central Bank chairman Sergei DUBININ told a press conference, according to Reuters.

New Reserve Requirements:

Ruble deposits up to 30 days: 20% from 18%.

Ruble deposits up to 31_90 days: 16% from 14%.

Ruble deposits over 91 days: 12% from 10%.

Currency deposits: 2.5% from 1.5%.

Govt. Begins to Compensate Lost Savings

· The Russian government today began implementing a program to compensate Russian citizens for savings lost to inflation in the first four years of reforms, reported today's Journal of Commerce. Annual inflation in 1992 alone reached approximately 2,600 percent, said the paper. The program

US-Russia Project Finance Conference

June 27-28, 1996

New York City

Organized by: Geonomics Institute, Middlebury, VT

In partnership with: US Department of Defense

and US Department of Commerce

In cooperation with:

International Executive Service Corp.

Conference will bring together US and Russian

partners actively working on Russian defense

conversion-related projects with representatives of

the Western and Russian financial communities.

Info: Charlotte Tate, Geonomics Institute

Tel: (802) 388-9619; Fax (802) 388-9627

Karen Puschel, US DoC

Tel: (202) 482-1455; Fax: (202) 482-2387

When you need to know it as it happens

Politics-Economics-Business

Page

Monday

June 10, 1996

Intercon's Daily

is part of a campaign promise by President Boris YELTSIN and calls for senior citizens to be the first to collect compensation. In Moscow, savings account depositors can collect their benefits at the national savings bank Sberbank, where some $226 million is expected to be paid out. The Sberbank branch in the city of Novgorod today began paying preliminary compensations for depositors who were born in 1916 and earlier, which include over 55,000 people set to receive 32 billion rubles, said Itar-Tass.

Business

Duma Discusses Norilsk Nikel

· The Russian State Duma on Friday discussed the privatization of Russia's giant metals group Norilsk Nikel, and insisted that the government to retain ownership of shares in the company, but to allow them remain under the long-term trust management of Uneximbank, reported Itar-Tass. In December 1995, Uneximbank commercial bank won a sharesforloans auction for 38 percent of Norilsk in exchange for a loan to the government of $170.1 million. Intercon reported in late February that the Moscow Arbitration Court ruled against a plea by Norilsk Nikel to overturn the deal. At the end of May, Norilsk gave in to Uneximbank demands, replaced several top managers at the company, and installing Aleksandr KHLOPONIN, a board member of Uneximbank, as acting chief executive. The Duma adopted a resolution, recommending that the government work out a program with Norilsk Nikel, Uneximbank, and the Krasnoyarsk Oblast administration to pay off tax and wage arrears before October 1, 1996. The Duma also called on the government to invest some $1 billion in the troubled Norilsk.

Meanwhile, Uneximbank lent Norilsk about $50 million late last week to cover wage arrears for some 10,000 workers at Norilsk's Nadezhdinsky nickel and copper plant in the Russian far north in an attempt to end a strike there. "Norilsk chairman Aleksandr KHLOPONIN met union leaders and said that total debt to workers was 800 billion rubles and that Uneximbank had granted a 250 billion ruble ($50 million) credit for back wages," Uneximbank spokesman Modest KOLEROV is quoted by Reuters as saying. Nadezhdinsky accounts for about 25 percent of Norilsk's total production and the strike affected about half of the plant's output.

Sakhalin 1 Project Begins Work

· US Exxon Corp. announced today that its international consortium has formally agreed that the Sakhalin-1 Production Sharing Agreement (PSA) has become effective and evaluation work on the $15 billion oil development project offshore Russia's far eastern Sakhalin Island will begin almost immediately, said a company press release. A well will be drilled and tested in the Arkutun-Daginsk field, using Sakhalinmorneftegaz's OKHA drilling rig, and state-of-the-art 3D seismic work will be conducted this summer, it said. The work is the first part of $200-300 million appraisal program that is required to better define estimates of reserves in the three fields—Chaivo, Odoptu and Arkutun-Daginsk—covered under the PSA. The consortium is actively evaluating various development alternatives to establish production as soon as reasonably possible, said the release. The consortium includes Russia's Rosneft-Sakhalin and Sakhalinmorneftegaz-Shelf, Japan's Sakhalin Oil and Gas Development Co. Ltd. (SODECO), and Exxon Neftegas Ltd., an affiliate of Exxon and the operator of the project. Exxon and SODECO each hold a 30 percent interest in the project, while Sakhalinmorneftegaz and Rosneft have 23 and 17 percent, respectively.

When you need to know it as it happens

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European Republics

Monday

June 10, 1996

Intercon's Daily

Transcaucasia and Central Asia

World Bank Stops Loan to Azerbaijan

· The World Bank has refused to disburse the $40 million loan that it promised to Azerbaijan for the reconstruction and modernization of its gas industry, reported Russia's Segodnya on Thursday. The loan was meant, in part, for the privatization of state-owned company Azerigaz. However, the Bank insisted that Azerbaijan's gas and electricity prices be liberalized before granting the loan, and the Azeri government feels this move will be too hard on the population, according to the paper.

Austrian JV to Manage Kazakh Lead Plant

· Kazakh-Austrian joint venture RR Kazakhstan Trade and Finance has won a tender to manage southern Kazakhstan's Chimkent lead plant, reported Reuters, citing a Kazakh state property committee official. The plant has the capacity to produce 160,000 tons of refined lead per year, but output dropped to 31,000 tons in 1995, and it has been idle since January. The official declined to reveal the names of the private Kazakh and Austrian companies involved in the joint venture, but said it beat out Switzerland's Metalloy to win the tender. The venture will invest $50 million in the plant in exchange for a 31 percent state block of shares under management control for five years, and first option to buy the stake outright at a later date. Plant employees hold 44 percent of the shares and the remaining 25 percent has been sold to voucher investment funds under Kazakhstan's mass privatization program.

Kazakh Political Struggle Over Pensions

· Kazakhstan's parliament today decided to wait 48 hours before holding a vote of confidence in the government in opposition to a proposed law that would raise the minimum age of pension recipients, reported United Press International (UPI) today. The governmentof Prime Minister Akezhan Kazhe-geldin has pushed a bill that would gradually raise pension age by three years for men, to 63, and by five

years for women, to 60, claiming it was necessary to lift the burden on the state and free up budget funds. The lower house of parliament today rejected the bill and Kazhegeldin asked it to hold the vote of confidence. A two-thirds vote at a joint legislative session would require President Nursultan Nazarbayev to fire the government or dissolve parliament, but the latter option seems more likely. The parliament, which has little power next to the president was elected only six months ago.

Uzbek Vehicle Fuel Conversion Project

· Uzbek President Islam KARIMOV has signed a government decree, authorizing a US consortium, CNG International, LLC, as the official entity for the conversion of Uzbekistan's entire vehicle fleet to run on natural gas. San Antonio-based ExproFuels, a division of Exploration Company, and American Engineering, Inc. of Memphis are equity partners in the consortium, according to an Exploration press release. Two joint ventures will carry out the conversion. Joint venture Gasmotors will be formed between the Ministry of Water Management, Uzautorans Corporation, and American Engineering and be responsible for vehicle conversions and the eventual manufacture of conversion components. Gascompressor, a joint venture between American and Uzgosnefteprodukt Association (formerly the Oil and Gas Ministry), will be responsible for providing refueling infrastructure. Negotiations are now underway to finalize the joint venture agreements, with plans calling for the documents to be signed in Washington, DC, on June 26 during a visit of KARIMOV to the US. ExproFuels has the right to further increase its current 10.82 percent interest in the consortium. The company will operate the 200,000 vehicle conversion and will oversee the installation and operation of approximately 360 CNG refueling stations. ExproFuels converts gasoline and diesel engines to operate on CNG, liquefied petroleum gas (LPG) and liquefied natural gas (LNG). It also designs, builds, owns, operates, and provides fuel for alternative fuels stations.

Paul M. Joyal, President, Editor in Chief Clifton F. von Kann, Publisher Ellen Shapiro, Principal Editor

Alycia S. Draper, Rebecca Martin, Contributing Editors

Daily Report on Russia is published Monday-Friday (excluding holidays), by Intercon International, USA. Subscription price for Washington, D.C. Metro area: $895.00 per year. A discount is

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Daily Report on Russia is for the exclusive use of the subscriber only. Reproduction and/or distribution is not permitted without the expressed written consent of Intercon. Daily Report on Russia Ó copyright 1996, Intercon International, USA.

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