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

Friday, June 21, 1996

Russian Federation

Politics

Acting FSB/SBP Heads Named

· Russian President Boris YELTSIN on Thursday named the deputy head of the Federal Security Service (FSB), Nikolai KOVALYOV, as the agency's new acting director, to replace Mikhail BARSUKOV.

Yuri KRAPIVIN, the head of the Main Protection Directorate (GUO) and former official in the Soviet KGB's Ninth Directorate, was named acting head of the Presidential Security Service (SBP) to replace Aleksandr KORZHAKOV. KRAPIVIN was promoted to head the GUO from deputy in July 1995 to replace BARSUKOV, who became FSB chief at that time.

In addition, Russian Prime Minister Viktor Chernomyrdin appointed Deputy Prime Minister and former Security Council secretary Oleg Lobov to replace Oleg Soskovets at Thursday's cabinet meeting.

According to presidential spokesman Sergei MEDVEDEV, YELTSIN fired SOSKOVETS on the basis of a report by Chernomyrdin, which said that SOSKovets "has not ensured in full completeness the management of the work segment entrusted to him, has made serious mistakes in the restructuring of the industry and the conversion of defense sector enterprises," Chernomyrdin said in his request. "Soskovets has recently shown lack of discipline while performing decrees, orders and instruction of the nation's government," Medvedev further quoted the request as saying.

Yeltsin Vetoes Power Turnover Bill

· Thumbing his nose at Russia's Communist-dominated parliament today, President Boris YELTSIN vetoed a draft law on the transfer of presidential powers after an election, saying he found faults in the bill, reported Reuters, citing presidential aide Aleksandr KOTENKOV. Returning the law to the State Duma for reconsideration, KOTENKOV told legislators: "The president is not afraid of handing over power, but as you all understand he will not have to hand over power anyway."

Meanwhile, the Duma voted 202_117, with one abstention, to reject an amendment to the Russian election law, which would have extended the time that polls were open at during the presidential runoff to 6:00am_12:00am.

Kadannikov Steps Down from AvtoVAZ

· Russian First Deputy Prime Minister Vladimir

Today's News Highlights

Russia

OECD Sees Russia Recovery Defense Satellite Launch Fails

Profile of Moscow Telephone

Norilsk May Get State Aid

Lukoil Corporate Figures

European Republics

Latvian Privatization Tender

Ukrainian GDP Down

Transcaucasia & Central Asia

Uzbek Karimov to Visit US

Politics-Economics-Business

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Ruble = 5,047/$1.00 (NY rate)

Ruble = 5,063/$1.00 (CB rate)

Ruble = 5,044|5,082/$1.00 (buy|sell rates)

GDP Down One Percent in May

· Russia's State Statistics Committee (Goskomstat) estimated on Wednesday that the country's GDP fell by one percent in May, from April's level, to make up 185 trillion rubles (about $37 billion). During January_May, it totaled 876 trillion rubles (about $175.2 billion), or three percent below the figure from the first five months of 1995.

According to a recent survey conducted by the Russian government's Institute of Economic Studies, more than 80 percent of managers of Russian industrial enterprises expect production stabilization to begin in the second half of this year, reported Itar-Tass on Thursday. The survey, which was based on an analysis of the business performance of the 1,200 largest enterprises in 11 industries, indicates that a considerable decline in demand is expected only in the energy sector and the most impressive growth is predicted in the building materials industry. Forty-six percent of those polled in the survey expect the prices of their products to grow before August, 50 percent believe that the prices will not increase before that month, and four percent forecast a price drop. Price growth is foreseen mostly by managers of construction materials firms, while their colleagues in the non-ferrous metallurgy believe they will fall. According to respondents, the growth of outstanding debts will slow down in August, and one-third of those polled believe the consumer's debts will begin to dwindle, the survey showed.

Space Satellite Launch Fails

· Another attempt to launch a Russian military satellite has failed. A Soyuz-U booster rocket with a Kosmos series satellite was launched Thursday night from the far northern Plesetsk cosmodrome by the Russian military space forces, but failed to reach orbit and fell to earth. The last unsuccessful launch occurred on May 14 of this year, when another Soyuz-U carrying a Kosmos failed to reach orbit after taking off from the Baikonur cosmodrome in Kazakhstan. The booster was produced at the TsSKB-Progress research and production center. An interdepartmental commission will investigate the causes of the problem at Plesetsk. The two failures appear to be similar. A member of the commission told Itar-Tass that both rockets were new ones, made in 1995. He believes the malfunctions were probably

Jan Feb Mar Apr May Jun

Kadannikov flew to the Volga city of Togliatti today to take part in the annual general meeting of the shareholders of the Russia's biggest automaker AvtoVAZ and the all-Russian Automobile Alliance, Kadannikov's press secretary Vasily Titov told Itar-Tass. The shareholders will consider a motion to relieve Kadannikov of his duties as chairman of the board of directors of AvtoVAZ and president of the all-Russian Automobile Alliance. KADANNIKOV, had headed AvtoVAZ since 1988, before being appointed to replace Anatoly CHUBAIS in January.

Economy

OECD Sees Russian Recovery

· In its semi-annual economic outlook, the Organization for Economic Cooperation and Development (OECD) forecast that Russia's real gross domestic product (GDP) would grow by one percent in 1996 and three percent in 1997, reported Dow Jones today. Russian GDP declined by four percent in 1995. Annual inflation is expected to fall to 50 percent in 1996 and 30 percent in 1997, from 131 percent in 1995. The report also noted that continuing deficit reduction "will require more revenue to be effectively raised from the energy sector," according to Dow Jones. Unemployment in Russia is forecast to reach nine percent in 1996 and 10 percent in 1997. Russia's current account surplus is expected to drop to $2.5 billion in 1996 from $7 billion in 1995. The OECD forecast a further fall to $0.6 billion in 1997.

When you need to know it as it happens

Politics-Economics-Business

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caused by faulty manufacturing. Due to constant non-payment of wages demoralizes workers in the defense complex, so they become negligent about their duties, this was not surprising, he said.

Transaero Boeing Catches Fire

· The right-side strut of the chassis in a Boeing-757 airliner caught fire while landing at Yekaterinburg airport early Thursday morning, reported Itar-Tass, citing sources in the Russian Ministry of Transport and the Interstate Aviation Committee. Firefighters quickly extinguished the blaze and neither passengers nor crew were hurt. The plane, which belonged to the Transaero independent airline, was on a flight from Moscow. A commission of the Interstate Aviation Committee was sent to Yekaterinburg to investigate the accident, and Boeing company representatives were invited to participate.

Yeltsin Decree on Agricultural Output

· Russian President Boris YELTSIN signed a decree on Thursday calling for measures to improve Russia's declining agricultural output by the year 2000 in order to bring about "the significant reduction of the country's dependence on imports," reported Reuters. The decree orders the government to seek budget funding to boost output of grains, sugar beet, and other goods by 15 percent.

Business

Profile of Moscow Telephone Co. (MCTN)

· The Moscow City Telephone Network (MCTN) is one of the world largest, occupying fifth place after Tokyo, New York, London, and Paris, in terms of capacity (four million telephone numbers). In 1994, MCTN was transformed into an open-end joint stock company. Its major shareholders are the telecommunications holding firm Svyazinvest and the Moscow Committee for Science and Technologies. In turn, MCTN holds stocks in 29 companies. The company has 18,955 employees. It focuses its activities on city telephone services, but also offers services for office automatic telephone exchanges; services terminal equipment; reserves and lends telephone lines; leases telephone lines for information services; works out technical papers required for connecting customers to the connection lines; sells equipment certified by the Russian Ministry of Communications; offers inter-Russian and international telephone

communications (jointly with the Rostelekom and Moscow International Telephone companies). Currently, the company is attempting to reduce competition on the Moscow market.

The MCTN company consists of 15 territorial telephone affiliates, a pay telephone unit, an information unit, a maintenance unit, health complex, and the newspaper Moscow Telephonist. MCTN cooperates with large foreign telecommunication companies, such as AT&T (US and The Netherlands), GPT and British Telecom (UK), Siemens (Germany), Nokia (Finland), Strom Telecom and Tesia (Czech Republic). MCTN participates in a number of joint ventures, the largest of them being Comstar, Telmos, AMT, Golden Line, and MTC.

Since the beginning of 1996, MCTN management has concentrated on upgrading its existing network, rather than on expansion. Only 10 percent of the equipment utilized by the company is modern, while some cables are over 50 years old. MCTN has worked out a program for telephone network reconstruction until the year 2010, which began implementation in 1995. Sources of investment for the program include MCTN profits, amortizing payments, and foreign credits. Within this program the company is implementing two projects. The Golden Bullet project, being developed jointly with AT&T, calls for telecommunications modernization in the center of Moscow and new network creation of one million lines and 400,000 numbers capacity. The cost of the project is estimated at $200 million. The Golden Goose project, with GPT and Comstar, calls for creating a telephone network for 200,000 customers for integrated services (like video conferencing or connecting local computers networks). The company also plans to introduce a time payment system in Moscow in 1997.

Norilsk May Get State Aid

· Tamara ORLOVA, a spokeswoman for Russia's Norilsk Nikel metals group, told Interfax today that the company expects President Boris YELTSIN to soon sign a decree granting it an amnesty on some taxes and offering some six trillion rubles (about $1.2 billion) in government aid.

Lukoil Figures for 1995

· Russia's largest oil conglomerate Lukoil held its annual shareholders meeting in late May, reported

When you need to know it as it happens

Politics-Economics-Business

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Finansoviye Izvestia (1996, No. 60). The company's oil production increased from 45.1 million tons in 1994, to 57.3 million tons in 1995. Oil processing grew from 17.1 million tons in 1994, to 19 million tons in 1995. Investments increased from 2.028 trillion rubles to 5.648 trillion rubles. Lukoil's net profit grew from 683 billion rubles to 2.404 trillion rubles. This year, Lukoil has forecast oil production at about 57 million tons. Oil exports are expected to decrease to 17 million tons, while processing will increase to 21 million tons. Net profits are estimated to reach 3.5 trillion rubles.

and the Liepaja Metallurgy Factory, with a 1995 turnover of $59.18 million.

Ukrainian GDP Down

· Ukraine's Statistics Ministry estimated on Wednesday that the country's gross domestic product (GDP) declined by 9.1 percent in the first four months of the year, compared to the same period in 1995. The Ukrainian government has forecast that GDP will fall between 1.8 and two percent this year after an 11.8 percent fall in 1995. Monthly inflation in Ukraine for June was forecast today at one percent.

Transcaucasia and Central Asia

Uzbek Karimov to Visit US

· Uzbekistan President Islam Karimov will visit the US from June 23 to June 28 to meet with his US counterpart Bill CLINTON and other administration officials in Washington. He will also travel to several other US states, where he will participate in meetings and conferences on investment prospects in Uzbekistan. One success story of US investment in Uzbekistan is Uzdunrobita, a cellular communications joint venture owned 45 percent by International Communications Group (ICG) of Perry, Georgia and 55 percent by the Uzbek government. The venture, formed in 1991, provides cellular service to 7,000 subscribers in eight Uzbek cities, employing 240 people. Uzdunrobita, which turned its first profit in 1993, estimates its 1995 profit at $50 million, and could be worth some $100 million by industry estimates, reported today's Wall Street Journal. Uzbekistan's economy is considered to present excellent investment opportunities, according to a recent Deutsche Bank study, entitled `Uzbekistan—Economic Partner'. "Uzbekistan deserves our undivided attention...what makes the country so interesting is its economic potential and its people's abilities," Georg Krupp, Deutsche Bank board member told Reuters. An Uzbek delegation is visiting Germany this week and expects to sign contracts totaling DM 600 million ($390 million), with firms such as Daimler-Benz, Seimens, and Hoescht.

European Republics

Market Indexes to be Published

· The Russian and Lithuanian stock markets will be added to the International Finance Corporation's (IFC) coverage of emerging stock markets, according to an IFC press release. The IFC is an arm of the World Bank. Russia will be added to the IFC Global Index series starting September 30, and will be featured in the IFC Global Composite Index in January 1997. A decision on listing it in the Investable index series will be made at a later date. Lithuania will be added to the monthly index series. Details on the index constituents for each country will be released closer to the launch date. IFC coverage of these markets provides statistics on emerging stock markets' performance.

Latvian List for Privatization

· The Latvian Privatization Agency (LPA) on Wednesday released a list of the 28 companies to be included in its fourth international privatization tender, reported Reuters. On the list are firms in the transport, chemicals, electronics, and film industries. The list includes the following enterprises: Riga Carriage Works, which makes railway carriages and trams and had a $30.02 million turnover in 1995; parts of the state electronics factory (VEF), involved in telephone and switching equipment, transistors, and instruments, will also be sold off; the Riga film studio, with sales last year of $960,000;

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

Alycia S. Draper, Rebecca Martin, Contributing Editors

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