DAILY REPORT ON RUSSIA

AND THE FORMER SOVIET REPUBLICS

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

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Daily intelligence briefing on the former Soviet Union

Published every business day since 1993

Wednesday, June 19, 1996


Russian Federation

Politics

Yeltsin to Forgo G-7 for Election

· Russian President Boris Yeltsin has informed his French and US counterparts, Jacques Chirac and Bill Clinton, that he will not attend the G-7 summit in Lyons on June 27-29, but remain in Russia during the runup to the second round of presidential elections. "I took a decision not to go to Lyons, to refrain from the trip because a very important period comes to Russia—the fate of Russia is to be decided in the second round of elections," Itar-Tass quoted him as saying. He said that Prime Minister Viktor Chernomyrdin will go to Lyons in his stead.

Lebed Meets with General Staff

· Newly-appointed Russian Security Council Secretary Aleksandr LEBED met with the Army General Staff today to discuss possible personnel changes in top Defense Ministry posts, reported RIA-Novosti news agency. LEBED has alleged that five Russian generals had tried to convince former Defense Minister Pavel Grachev to put the army on red alert as a way to pressure President Boris Yeltsin against firing Grachev in his post. During a TV interview Tuesday night, Lebed described how he defused the crisis by informing military officials of Grachev's dismissal and his own appointment, reported today's Washington Post. LEBED named the five generals—Viktor BARYNKIN, Anatoly SITNOV, Dmitri KARCHENKO, Valery LAPSHOV, and SHULIKOV—and demanded that they resign. Prime Minister Viktor Chernomyrdin said he had not heard about Lebed's charges and called rumors of an attempt to pressure Yeltsin "stupid," reported Interfax. According to RIA, a group of top generals, who left the armed forces during GRACHEV's term as minister, were taking part in the meeting. These generals were not named, but likely included Valery

Mironov and Boris Gromov, both of whom served as deputy defense ministers before being discharged in December 1994 for criticizing the government's handling of Chechnya.

Lebed Meets with Zyuganov

· Presidential candidate and Communist Party leader Gennady ZYUGANOV held a one-hour meeting today with newly-appointed Russian Security Council secretary Aleksandr Lebed. The meeting had been scheduled before LEBED received his new appointment, but many observers had expected it to be canceled. ZYUGANOV said on Tuesday that it "was not too late" for LEBED to make a deal with him, according to Russian TV. Today, he told reporters that his party hoped to win over LEBED's supporters: "An electorate can't be inherited like serfs. We have to talk to the LEBED voters."

Chernomyrdin Meets Lobov

· Russian Prime Minister Viktor Chernomyrdin met today with former Russian Security Council secretary and newly-appointed first deputy prime minister Oleg Lobov to discuss his new responsibilities within the government. No details were immediately available, but Lobov's duties are expected to be outlined at Thursday's regular meeting of the Russian government. Also on Thursday, the Russian Security Council will meet for the first time with Aleksandr Lebed as its new head.

Zyuganov OKs July 3 Runoff

· Communist Party head Gennady ZYUGANOV told Ekho

Today's News Highlights

Russia

Yavlinsky to Meet Yeltsin?

Pickering Meets Pak

Intercon Oil Spotlight

Central Bank Won't Sue

European Republics

More Ukraine Govt. Changes

Tax Breaks for Oil Cos.

Transcaucasia & Central Asia

Azerbaijan Grain Market

Shell Joins CPC via Rosneft

Politics-Economics-Business

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Wednesday

June 19, 1996

Intercon's Daily

Moskvy radio today that he was in favor of a proposal to hold the second round of Russian presidential elections on Wednesday, July 3, and he thought his faction in the parliament would approve it. One reason for the Communists' stance is reportedly that they don't have the money for a longer campaign. On Friday, the State Duma will discuss whether or not to declare July 3 a holiday, which would clear the way for the runoff to be held on that date.

Yavlinsky to Meet Yeltsin?

· Yabloko party leader Grigory Yavlinsky said on Tuesday that his group is ready to participate in the work of the government, if it indicated that it would really carry out reforms, reported Xinhua. YAVLINSKY said he wanted to know what changes President Boris Yeltsin proposed to make to his government and policies, before he would be prepared to support him in the second round of presidential elections. One of YAVLINSKY's demands, the firing of Defense Minister Pavel GRACHEV, was already met by YELTSIN. "I would be ready to have any post in a government" which would be free of corruption, stop the Chechen war, accord private property the highest value, and make human rights the cornerstone of its policy, Yavlinsky told reporters. YAVLINSKY, an economist and liberal reformer, won 7.41 percent of the votes (about 5.5 million) in Sunday's presidential elections. Sources in the Yabloko bloc, which was established in 1993, said delegates from its 62 regional branches will make a final decision on whether or not to support Yeltsin at their congress on June 21-22 in Moscow, according to Xinhua. Following his meeting with LEBED, YELTSIN expressed hope that he could find a "common lan

Intercon Oil Spotlight

British Petroleum (BP) released its 1996 BP Statistical Review of World Energy on Tuesday, concluding that the 1.8 percent increase in world energy consumption primarily resulted from a marked slowing in the rate of decline in the former Soviet republics. Both oil production and consumption in the former Soviet states continued to fall in 1995, but at a significantly slower rate than in the past few years. Growth in Chinese consumption, matched with Russian decline, resulted in China surpassing Russia as the world's third largest oil consumer, after the US and Japan.


guage" with YAVLINSKY, reported Tuesday's OMRI.

Today, Svatoslav FYODOROV, who took sixth place in Sunday's presidential elections receiving just under one percent of the votes, endorsed President YELTSIN for the second round. Fifth place contender Vladimir ZHIRINOVSKY said that his supporters would back neither the communists or the democrats in the runoff.

When you need to know it as it happens

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Wednesday

June 19, 1996

Intercon's Daily

Economy

Ruble = 5,080/$1.00 (NY rate)

Ruble = 5,058/$1.00 (CB exch. rate)

Ruble = 5,039|5,077/$1.00 (CB buy|sell rates)

US Ambassador Meets w/Defense Industry Head

· Russia's Defense Industry Minister Zinovy Pak met with US Ambassador to Russia Thomas Pickering this week at the latter's request, reported Nezavisimaya Gazeta on Tuesday. PAK briefed PICKERING on the course of structural adjustment in the Russian defense industry, and on government measures aimed at stabilizing the socioeconomic situation at enterprises of the military-industrial complex. The two also discussed some prospects of US-Russian cooperation in defense conversion projects in light of an upcoming meeting of the GORE-Chernomyrdin Commission, scheduled for July 1996. A business seminar of Russian and US experts, representatives of industry, business, and financial circles will take place in the US in July, prior to the Commission meeting. The seminar will examine proposals on new joint projects, which would then be submitted to the Commission.

Central Bank Seeks Greater Independence

· The Russian Central Bank has abandoned a plan to take the government to court over a law ordering it to transfer five trillion rubles in profit to the federal budget, said today's Nezavisimaya Gazeta. Instead, the Central Bank, jointly with parliamentary representatives, has begun work drafting new legislation defining procedures for transfering revenues, thus eliminating grounds for future conflicts, it said.

In addition Vladimir Antonets and Aleksandr Stetsenko, in command of national air forces and air defense forces, respectively, were appointed Deputy Defense Ministers. In the last few weeks, KUCHMA fired his agriculture and energy ministers.

Ukraine Gives Tax Breaks to Oil Firms

· A Ukrainian presidential decree, announced on Tuesday, grants a measure of tax relief to foreign firms involved in oil ventures in Ukraine, reported Reuters. The decree grants tax breaks to companies extracting crude oil using modern, efficient equipment. The decree was proposed by the Ukrainian State Oil and Gas Committee in an effort to promote foreign investment and introduce modern exploration technology. "Soviet-era technology wastes a significant amount of oil during the extraction process," Committee spokesman Dmitri YEGER told Reuters. The decree instructs the government to propose amended legislation freeing foreign firms from paying value-added tax (VAT) on "non-taxable volumes"—the amount of oil extracted over and above a Ukrainian "base value"—within one month. According to YEGER, two oil joint ventures recently halted production due to high taxes. Ukraine is believed to have crude oil deposits of 1.05 billion tons. Domestic demand for oil is about 15-20 million tons, but output in 1995 reached only 4.1 million tons.

Moldova Tobacco Tender Planned

· The Moldovan government is tendering a 60 percent stake in the future tobacco enterprise to be created by the tender winner, along with the Kishinev tobacco factory and eight fermentation plants, reported Finansoviye Izvestia (1996, No. 60). The total cost of the project is estimated at $100 million. The British-American Tobacco (BAT) and Reemstma tobacco firms participated in the tender. The tender committee is leaning toward Reemstma as the winner, but due to controversies over the conditions offered by the two companies, the final results of the tender have not been announced, said the paper. Moldova wants to revitalize its tobacco industry, which previously accounted for 16 percent of GDP.

Transcaucasia and Central Asia

USDA Eyes Grain Trade in Azerbaijan

· The US Department of Agriculture (USDA) released a report last week which concluded that

European Republics

More Ukrainian Govt. Reshuffling

· More government posts changed hands in Ukraine Tuesday, continuing a reshuffling effort begun last month when Prime Minister Yevgeny MARCHUK was ousted in favor of Pavel Lazarenko. Ukrainian President Leonid Kuchma signed a decree dismissing Finance Minister Petr Hermanchuk, and replacing him with Valentin Koronevsky, a relatively unknown former head of the Zaporozhye regional department of finances. KUCHMA has also appointed Vasily Durdinets to the post of First Deputy Prime Minister in charge of anti-corruption, organized crime, and emergencies.

When you need to know it as it happens

Politics-Economics-Business

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Wednesday

June 19, 1996

Intercon's Daily

Azerbaijan is moving gradually toward a market-oriented grain economy, according to Futures World News (FWN). The privatization of Azerbaijan's agricultural sector has proceeded very slowly with the state still controling most of the nation's production, processing, and marketing of grain. Grain area, production, and procurement have all experienced a steady decline since the breakup of the Soviet Union, which disrupted traditional trade links, and caused shortages of machinery and other inputs, and a lack of crucial operating capital and credit. Azerbaijan is in a relatively advantageous position in that its ample oil reserves make it energy self-sufficiency and provide hard currency revenues.

Bread is the staple food in Azerbaijan, which has consistently been a deficit wheat producer. The country is expected to remain a significant importer of wheat, through both purchases and donations, for the foreseeable future. Although nearly all Azerbaijan's wheat is grown by state farms, wheat production is voluntary and wheat itself may be freely bought and sold at market-determined prices. Production amounts in excess of contract amounts are retained by the farmers either for home consumption, animal feed, or to be sold to the private sector.

With severely limited stocks and a hand-to-mouth supply, Azerbaijan must turn to imports to cover its annual wheat deficit. In addition to various government supply agreements, spot purchases, and a wide assortment of food aid, new private trade has begun to take off, doubling the amount of wheat and wheat flour privately imported in just the past six month period. Most of this private trade takes the form of wheat flour trucked in from Turkey and bulk wheat imported for small, local mills. Private importers are said to be encouraged and few restrictions exist. A poor regional infrastructure allows US wheat to be competitive in Azerbaijan, despite the apparent geographic advantage enjoyed by Kazakhstan, Turkey, and European suppliers. Although there are many transportation routes to the Caucasus (by barge from Kazakhstan across the Caspian, by truck

from Turkey, and along the Volga-Don canal from Russia), most are expensive and limited in volume. Consequently, Azeri grain authorities believe that the most efficient method of importing grain is through Georgia's Black Sea ports of Batumi or Poti, then by rail into Azerbaijan. This is a route by which shipments of US wheat, especially those on Panamax vessels, can compete with European suppliers. However, US market development in Azerbaijan is severely restricted by Section 907 of the 1993 Freedom Support Act, which prohibits the US government from providing any assistance to the Azeri government until efforts are made to resolve the situation in Nagorno-Karabakh. As private sector activity in the local grain trade is minor compared to the governmental role, little progress is likely to be made in Azerbaijan until the trade becomes more privatized or the situation in Karabakh improves.

Shell Joins CPC via Rosneft

· Shell Exploration, a subsidiary of Royal/Dutch Shell, has acquired nearly half of Russian Rosneft's 7.5 percent share of the Caspian Pipeline Consortium (CPC). The two companies signed a partnership agreement last week, giving Shell 49 percent of Rosneft's stake in the consortium, reported the Journal of Commerce today. The CPC is involved in a $1.2 billion project to construct 1,500km pipeline from Kazakhstan's Tengiz oilfield to the Russian Black Sea port of Novorossiisk. Intercon reported in late April that an agreement was reached for half of the pipeline to be owned by the governments of Russia (24 percent), Kazakhstan (19 percent), and Oman (seven percent), while the other 50 percent will be held by Russia's Lukoil (12.5 percent) and Rosneft (7.5), US firms Chevron (15), Mobil Corp. (7.5) and Oryx (1.75), British Gas (2), Italy's Agip (2), and Kazakh state oil company Munaigaz (1.75).

Kyrgyz Economy Growing

· Kyrgyzstan's state statistics committee estimated today that the country's gross domestic product (GDP) rose by 2.7 percent in the first five months of 1996, compared to the same period last year.


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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