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

Tuesday, June 4, 1996

Russian Federation

Politics

CFE Conference Gives Russia More Time

· Participants at a Vienna conference to review the implementation of the 1990 Conventional Forces in Europe (CFE) treaty agreed to give Russia three more years to reduce troop and arms levels along its European borders, reported United Press International (UPI) on Saturday. Russia now has until May 31, 1999, to comply with CFE limits originally scheduled to be met by November 1995. Russia also agreed to freeze, as of May 31, the number of military units presently stationed along its European borders. Russia's current border arsenal stands at 1,897 tanks, 4,397 armored personnel carriers (APCs) and 2,422 pieces of artillery. By the 1999 deadline, the amounts must be cut by 97 tanks, 697 APCs, and two pieces of artillery. "This agreement resolves a difficult problem that had arisen concerning the level of Russian and Ukrainian military equipment allowed on the northern and southern flank of the CFE region," President Bill Clinton said in a statement in Washington. Intercon reported in late April that CLINTON and his Russian counterpart Boris YELTSIN held a one-day summit in Moscow during which they agreed to a compromise on Russian requests for a revision of CFE limitations. The conference also decided to shrink Russia's so-called flank zone, or European border areas along the former Soviet Union and Soviet bloc countries, to reflect new military and political boundaries on the continent, said UPI. A major issue of the "flank question" centered on the fact Russia had not stuck to weapons limits in border areas around the Caucasus and St. Petersburg. Russian Defense Minister Pavel GRACHEV had repeatedly insisted that the CFE reduction levels planned for the Caucasus area in the Sovietera treaty were no longer possible in light of new realities. Russian Deputy Foreign Min

ister Georgy Mamedov, who headed the Russian delegation to Vienna, told Itar-Tass that Russia was essentially pleased with the modifications to CFE achieved at the conference.

Zyuganov Seeks Support for Second Round

· Russian Communist Party leader and presidential contender Gennady ZYUGANOV, on a campaign tour in the Siberian city of Novosibirsk, offered "posts in the government to all those who represent `the third force'" after he is elected president in the upcoming elections in exchange for support against president Boris YELTSIN, reported Reuters. The `third force' is a failed coalition between presidential candidates Grigory YAVLINSKY, Aleksandr LEBED, and Svyatoslav FYODOROV. "You may consider my statement as an official invitation," ZYUGANOV is quoted as saying. However, it is likely that he is seeking support in the second round of elections as the three are all expected to test their popularity in the first round. A run-off election will be held if no one candidate receives over 50 percent of the vote in the first round, which is considered likely. ZYUGANOV met with Liberal Democratic Party head Vladimir ZHIRINOVSKY on Monday, apparently to discuss a similar deal. State Duma speaker and top Communist Gennady Seleznyov today ruled out any agreement with ZHIRINOVSKY before the first round, according to Itar-Tass. YELTSIN has also been holding consultations with the other presidential candidates to discuss possible alliances, but it appears that no coalitions will be set up prior to the June 16 poll.

Today's News Highlights

Russia

Yeltsin on Money Laundering

US-Russia on Power Industry

Russia Investigates Philip Morris

Spotlight on Moscow Real Estate

European Republics

Belarus Financial News

Litho Ex-Defense Min. Attacked

Transcaucasia & Central Asia

Shakh Deniz Contract Signed

Mining Project in Kyrgyzstan

Politics-Economics-Business

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Tuesday

June 4, 1996

Intercon's Daily

Economy

Ruble = 5,042/$1.00 (NY rate)

Ruble = 5,037/$1.00 (MICEX rate)

Ruble = 5,027/$1.00 (CB exch. rate)

Ruble = 5,008|5,046/$1.00 (CB buy|sell rates)

Yeltsin to Combat Money Laundering

· Russian President Boris YELTSIN has instructed his government to prepare a draft law with new measures to combat money in Russia, Interfax cited presidential spokesman Sergei MEDVEDEV as saying today. Russia has become attractive to domestic and foreign money launderers because it has no special laws to impede the activity, he said. This circumstance was hindering the transition to a market economy and fostering an environment where criminal organizations groups settle accounts by means of contract killings. Some 2,000-3,500 organized crime groups are believed operate in Russia, some of which control small banks.

US-Russian Conf. on Power Industry

· On Monday, Russian and US electrical engineering experts, and representatives of Russian economic agencies and of the US Agency for International Development (USAID), as well as a number of international financial organizations discussed a joint Russian-US survey of the alternatives for the development of the Russian power industry at an round-table meeting in Moscow, reported Itar-Tass. The survey, which was conducted in the framework of the CHERNOMYRDIN-GORE intergovernmental commission for economic and technical cooperation, concluded that the Russian power industry will need $32_81 billion worth of investment in the next 15 years. It recommends that attention in the Russian power industry in near future should be concentrated on the building and completion of construction of contemporary hydropower stations, ecologically-sound thermal power stations using coal as fuel, and the creation of next generation nuclear power stations. Considerable attention should also be given to efficient electricity use. Experts estimated that the introduction of conservation technologies could reduce the annual consumption of electricity by 29 billion kwt-hours by the year 2000

and 112 billion kwt-hours by the year 2010.

Business

Russia Investigates Philip Morris JV

· The Russian Federal Service for Currency and export Control is investigating the financial activities of the Neva Tobacco Factory, a 90-10 joint venture between the Philip Morris International Investment Corp., and the Leningrad Oblast State Property Committee, reported Friday's Journal of Commerce, citing Interfax. The inquiry began in March over doubts about the legality of the company and its founders. Vladimir KOZHIN, head of the Service's northwest regional bureau, told reporters in Moscow that the investigation has preliminarily established that the company lacked permission from the Russian Central bank to introduce the foreign co-founder's share into the charter capital, said the Journal.

Intercon Spotlight

Real Estate in Moscow Oblast

The cost of land for housing construction in the Moscow Oblast has remained unchanged during the last month, although the number of deals concluded by realty companies increased by about 15 percent over the previous month, reported Moscow News (1996, No. 21). However, cottage (dacha) construction has become unprofitable due to the soaring price of materials. Currently, the cost of building a cottage can reach $600 per square meter, and the average total price about $200,000. However, previously-constructed cottages can be purchased at a much lower price. The limited land available for the construction of private housing in the Moscow region is another cause for the rather low investment activity in this sector said the News. Databases of realtors contain information on up to 600 hectares of land for sale, but not more than 400 of these are located close to the Ring Road that encircles Moscow city proper.

When you need to know it as it happens

Politics-Economics-Business

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Tuesday

June 4, 1996

Intercon's Daily

European Republics

US to Extend MFN to NIS

· President Bill CLINTON on Monday sent a letter to Congress recommending a one-year extension of most-favored-nation (MFN) trade privileges for Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan.

Belarus Financial News

· The monthly inflation rate in Belarus has declined steadily this year to two percent in March and 1.5 percent in April, and government policy sees it falling to less than one percent this summer, reported Kommersant-Daily last week. However, the Belarus National Bank (BNB) is planning to raise the refinancing rate from the 55 percent to as much as 100 percent by the end of 1996, according to the country's Financial Information Agency. This is partly due to the fact that 18 out of 40 Belarussian banks suffered losses in January-March 1996, due mainly to the domestic market's low profitability, it said. Many debtors failed to repay credits and aggregate overdue loans in January-March rose by 12 percent, reaching 1.9 trillion Belarussian rubles. Due to the high risk of doing business, many banks channel their resources to Russia's stock and financial markets. However, the BNB now restricts the interbank credit refinancing rates to a level twice as high as the official rate. In April, the Minsk Interbank Currency Exchange was nationalized and strict controls were placed on the foreign exchange market. The BNB also plans to peg the Belarussian ruble, said Kommersant-Daily, fixing the exchange rate at 11,300-13,100 Belarussian rubles to the US dollar for January 1-July 1. The peg for July-September it expected to be 13,100-15,500 rubles per dollar. The Belarussian ruble ended trading on the Minsk Exchange today at 12,950/$1.00.

Meanwhile, Interfax reported this week that the International Monetary Fund (IMF) has recommended to the Belarussian government that it carry out a one-time devaluation of its currency by 20 percent. The IMF suggested that the devaluation be undertaken by July 1, if Belarus hopes to preserve its financial polices. Both the World Bank and IMF have halted credits to Belarus due to the government's backtracking on reform.

Last Wednesday, Belarus President Aleksandr Lukashenko decreed strict new regulations on the country's 20 commercial banks, reported Thursday's Segodnya. The regulations say that bank employees' salaries will be determined by the Belarus National Bank in accordance with state salary standards. Bank expenditures on construction, equipment, or vehicles are only permitted if paid for with net profit. All banks are required to inform the BNB of loans exceeding $10,000, and the Belarussian government claims the right to impose a temporary management regime on a bank, if it reports losses for more than three months. The decree calls on the BNB to investigate, by mid-June, the legality of transfers of state property to commercial banks when they were established, and take measures to compensate the state for any losses. Bank officials found guilty of abuse in paying out interest will be fined to an amount equal to 50 to 200 minimum wages, according to the new rules. Reuters reported that 178,000 private businesses in Belarus are also being required to re-register by the beginning of 1997. BNB chairman Tamara VYNNIKOVA denied on Belarussian TV that the new rules amounted to nationalization of banks or confiscation of their property. However, an opposition parliamentary deputy told Reuters that LUKASHENKO's decrees were driving away both domestic and foreign investment. "The threat of nationalization has made those in business circles turn away from doing business here and remove capital, which we estimate rose as high as $300 million," the parliament's economic commission secretary Pavel DENEYKO is quoted as saying.

Former Lithuanian Def. Min. Attacked

· On Monday, two unknown assailants made an attempt on the life of former Lithuanian Defense

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June 19, 1996

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When you need to know it as it happens

Politics-Economics-Business

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Tuesday

June 4, 1996

Intercon's Daily

Minister Audrius Butkevicius near his home in Vilnius, reported Itar-Tass. Butkevicius, 36, was rushed to the hospital with a brain concussion and a bleeding wound. He served as Minister from 1991 to 1994, and currently heads Lithuania's Center for Strategic Development.

Transcaucasia and Central Asia

Shakh Deniz Contract Signed

· An international consortium signed a nearly $4 billion contract in Baku today to develop the Shakh Deniz oil deposit in the Azeri sector of the Caspian Sea. The deposit contains reserves of more than 200 million tons of oil and gas condensate and 500 billion cubic meters of gas. Stakes in the project are divided between the British Petroleum and Norway's Statoil, which each hold 25.5 percent, the Azerbaijan state oil company SOCAR, Russia's Lukoil, France's Elf Aquitaine, and Iran's Oil Industries Engineering and Construction, which each have 10 percent, and the Turkish state oil company TPAO with nine percent. The contract was signed during the 3rd international Caspian Oil and Gas exhibition, which opened in Baku today. Some 190 companies from 20 countries, which specialize in oil extraction, refining , transportation, and marketing, are participating.

Kazakh Supreme Court Head Dismissed

· Following a suggestion from Kazakh President Nursultan Nazarbayev, Kazakhstan's parliament decided on Monday to dismiss Supreme Court Chairman Mikhail Malakhov for alleged corruption, reported Xinhua, citing the Kazakhstan Telegraph Agency. On February 4, Supreme Court Judge Umegen Ikhsamov accused Malakhov of taking more than $100,000 and three cars in bribes, saying he had evidence to back up the charge. Malakhov denied the accusation, but was suspended by a presidential order on April 9. The State Committee for National Security is investigating the case, which, if proven, would be the worst corruption scandal in Kazakhstan in recent years, said Xinhua.

Mining Project in Kyrgyzstan

· Kyrgyz President Askar Akayev has issued a decree on transforming Kara-Balty Mining into a state-owned joint-stock company, with all shares held by the state, reported Segodnya last week. The company is engaged in producing uranium concentrate and gold, but the gold-producing units will not become part of the new public company. The company also is planning to increase its gold production through developing the Kuran-Jailau and Taldy-Bulak goldfields with the help of Switzerland's Andre & Cie SA and US Marston & Marston, said the paper. Gold production in 1996 is expected to reach about 85 kilograms (kg), while beginning in 1998 the company hopes to produce about 960 kg of gold and 2,000 kg of silver annually. Intercon reported in September 1994 that the two foreign companies were part of an international consortium which won a tender to develop the TaldyBulak goldfield. The deposit has estimated reserves of 60 tons. Other companies included in the consortium are Canada's Bharti Engineering Associates and the US Bateman Engineering Inc.

Updates

Chechnya: Russian-Chechen peace talks resumed in Nazran today, focusing on the cessation of combat operations in Chechnya and the exchange of prisoners. The Russian delegation is headed by Nationalities Minister Vyacheslav Mikhailov, former Federal Security Service (FSB) head Sergei Stepashin, and commander of Russian forces in Chechnya Vyacheslav Tikhomirov. The Chechen delegation includes negotiator Khozh-Akhmed Yarikhanov, rebel military commander Aslan Maskhadov, and Chechen Information Minister Movladi Udugov. However, the situation in the separatist republic remains unstable with both sides continuing to allege cease-fire violations by the other. UDUGOV accused the Russians of conducting airstrikes on the Chechen mountain village of Nozhai-Yurt, but the Russians denied it.

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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