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, September 16, 1996

Russian Federation

Politics

Yeltsin Still Undergoing Tests

· Russian President Boris YELTSIN will remain hospitalized for another two days of comprehensive tests, after spending the weekend at the Central Clinic Hospital in Moscow, reported the Associated Press (AP) today. Based on the tests, a team of Russian doctors will decide the details of the president's heart surgery, including the date of the operation and the head surgeon. the Kremlin announced last week that foreign doctors will be invited to advise on the operation, including Germany's Axel HAVERICH and Thorsten WAHLERS.

Decline of Russian Military Continues

· According to the Russian military prosecutor's office, 100 high-ranking Russian military officers, including 14 generals, are facing corruption or embezzlement charges, said Interfax Sunday. Some of them, including the former head of the army technical inspectorate and former director of the Lomonosov Aviation College, were already convicted.

The poor state of the Russian military, where living standards are dismal and wage arrears growing, is evidenced by rising suicide rates among officers, as well as increasing incidence of corruption. Currently, one-third of the officers and warrant-officers who died in the armed forces have committed suicide, according to Wednesday's Nezavisimaya Gazeta. Previously, this number was only 20 percent. In the Strategic Missile Troops and the Navy, suicide cases account for over 50 percent of deaths. Furthermore, in a number of Russian regions, (Kaliningrad Oblast, where the Baltic Fleet is deployed; the city of Engels, which houses units of the Strategic Missile Forces; Primorsky Krai, home of the Pacific Fleet; and Yekaterinburg, center of the Urals Military

District) mass protest actions have been staged by the families of servicemen, said the article.

Economy

Ruble = 5,379/$1.00 (NY rate)

Ruble = 5,373/$1.00 (CB rate)

Ruble = 5,353|5,393/$1.00 (buy|sell rates)

Far Eastern Energy Workers Strike

· Workers from three power plants in the Russian Far East launched a strike today to demand 130 billion rubles ($24.2 million) in back wages, and other state sector employees in Maritime Krai supported the action with demonstrations in Vladivostok, reported United Press International (UPI). The energy workers' protests resulted in a reduction of electricity output by half the seasonal norm and cutting off power to enterprises that have not paid for past energy supplies, including largely military bases. The strike followed weeks of smaller actions by Maritime Krai energy workers, who charge the regional administration with misusing funds earmarked for their salaries and are demanding that Moscow ensure they get months worth of back pay.

"We have been forced to begin an indefinite strike starting today, since we have been deprived of other means of achieving justice," Gennady Tkachuk, the director of the state-run regional power company Dalenergo, told Itar-Tass. The workers blame the regional administration and Primorsky governor, Yevgeny

Today's News Highlights

Russia

Crackdown on Barter Trade

MCI Offers New Russia Service

Yukos Plans News Share Offer

European Republics

Belarus to Transfer Nukes

Ukrainian Security Chief to US

IMF Notified about Hryvnia

VOA Kiev Affiliate Silenced

USAID Leaves Estonia

Updates Chechnya

Politics-Economics-Business

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Monday

September 16, 1996

Intercon's Daily

Nazdratenko, whose pledge to end the non-payments crisis in the region by next week failed to avert the strike and related protest rallies, he said.

Nazdratenko was in Moscow today, where he and newly-appointed Fuel and Energy Minister Pyotr Rodionov worked out a plan under which the Maritime Territory would receive some electricity from other regions during the winter and promised to repay wage arrears. NAZDRATENKO has been under fire since Primorsky coal miners struck in July, demanding back wages. They accused both the federal and regional governments of failing to pay, while NAZDRATENKO and Moscow have blamed each other. In the face of calls from Moscow for his removal, Nazdratenko is seeking to hold a referendum next week to affirm his mandate to rule.

Capital Flight Continues Apace

· Russian State Customs Committee deputy director Marina Volkova told Itar-Tass today that unregulated barter trade operations were causing some $1 billion worth of "leaks" from Russia annually. However, a new mechanism for regulating foreign barter operations is expected to help halt the abuse. A government resolution, which implements provisions of the August 18 presidential decree, entitled "On State regulation of foreign trade barter deals," will be published this week, she said.

The volume of barter deals in Russia's overall exports has fallen to eight percent from 28 percent in 1992, but abuses continue, said Volkova. Money is transferred, but no goods change hands. She stressed that goods which can be easily sold on the world market are frequently offered in barter deals.

Business

MCI to Offer ISDN Service in Russia

· Washington, DC-based, MCI has begun to offer ISDN (Integrated Service Digital Network) service with Russia, through Sovintel, which operated the country's largest overlay network, said a MCI press release today. ISDN offers usage-based pricing for temporary international videoconferencing or data transfer instead of the more expensive alternative dedicated private lines, it said. Service will initially be available with Moscow, with additional major cities available within a year.

Yukos Plans New Share Offers

· Russia's Yukos oil company, the parent of the Yuganskneftegaz production unit, announced plans today to raise $300 million through three stock offerings to partially cover its 4.35 trillion rubles ($809 million) in debts, reported Reuters. An extraordinary stockholders meeting on Saturday approved one new issue to increase the number of Yukos shares by 35 percent and raise $100 million, said Konstantin KOGALOVSKY, a Yukos board member and the first vice chairman of Menatep bank. KOGALOVSKY told reporters that the first offering was planned for October 30 and would take about two months to complete, after which Yukos would formally consider the two further offerings. Some shares will likely be offered to foreign buyers, but foreigners are not allowed a controlling interest in Yukos, he said. In December 1995, Menatep purchased a 33 percent stake in Yukos and won the right to manage another 45 percent, which is officially owned by the state.

In related news, an auction of 15 percent of oil conglomerate Sibneft planned for this fall, will be aimed at foreign investors, reported today's Wall Street Journal. A domestic tender of 19 percent of Sibneft will be held hits week. Minimum bids for both sell-offs total $107 million. Sibneft owns one of the country's largest and most modern refineries. Last year, Menatep bank won a shares-for-loans auction for a 51 percent stake in Sibneft for $100.3 million,

Southern Russia: Regional Trade

and Investment Opportunities

Radisson-Lazurnaya Hotel, Sochi, Russia

September 30_October 3, 1996

Organized by: American Chamber of Commerce

in Russia

Conference looks at business opportunities

in the southern regions of

Voronezh, Samara, Saratov, Volgograd, Astrakhan,

Rostov, Krasnodar, Stavropol, Chuvashia, and Kabardino-Balkaria.

Information: Alexander Sirotin or

Irina Zernova

Tel: (095) 961-2141; Fax: (095) 961-2142

E-mail: amchamru@online.ru

When you need to know it as it happens

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Monday

September 16, 1996

Intercon's Daily

European Republics

Belarus to Give Up Nuclear Missiles

· Behind closed doors on Friday in a town in western Belarus, Russian Security Council secretary Aleksandr Lebed convinced Belarus President Aleksandr Lukashenko to transfer the remaining nuclear missiles to Russia by the end of the year, reported Itar-Tass. The removal of the last 18 SS-25 nuclear missiles Belarus inherited from the USSR, was announced after a meeting in Minsk between Lebed and his Belarus counterpart Viktor Sheiman, said United Press International (UPI). Russian and Belarus defense ministers signed an agreement on the withdrawal of the missiles in December 1995, but earlier this year Lukashenko reneged on the agreement and threatened to re-deploy the missiles if NATO expanded into eastern Europe.

Ukrainian Security Chief to the US

· Ukrainian Security Council secretary Vladimir Gorbulin began a four-day visit to the US Sunday, at the invitation of US National Security Advisor Anthony Lake for meetings with US Defense Secretary William Perry and other senior officials, in

cluding the heads of the CIA and FBI, reported Xinhua on Saturday. He will discuss military cooperation, NATO expansion, UN peacekeeping, missile defense treaties and other issues.

IMF Notified of New Ukrainian Currency

· The Ukrainian government has notified the International Monetary Fund (IMF) that it has introduced its new currency, the hryvnia, said an IMF statement released on Friday. Ukraine has indicated that all monetary holdings in the former currency, the karbovanets, will be converted into hryvnia at a single rate of conversion (Krb 100,000 for one hryvnia). During the period September 2_16, the karbovanets and the hryvnia have been allowed to circulate in parallel. Beyond this period, the hryvnia will be Ukraine's sole legal tender. The Ukrainian government has expressed its satisfaction about the pace of conversion of monetary holdings.

Commenting on the introduction of the hryvnia, IMF Managing Director Michel Camdessus made the following statement: "The Management of the IMF welcomes the introduction of the hryvnia and the continued commitment of the Ukrainian authorities to

Intercon Spotlight on EU Trade with CIS

The EU's trade deficit with the CIS grew 12.9 percent in 1995, over the year before, to 5.3 billion ECU ($6.63 billion), according to figures released on Thursday by Eurostat, the European Union's (EU) statistical office.

Total imports from CIS countries rose 8.8 percent to 23.2 billion ECU ($18.56 billion), while exports were worth 17.9 billion ECU ($14.29 billion), a rise of 11.5 percent. Russia is the EU's leading trading partner in the region, accounting for over 75 percent of exports and 86 percent of imports. The EU trade deficit with Russia reached 6.4 billion ECU last year. Other leading EU trade partners in the region were Ukraine, Belarus, Kazakhstan, with the remaining CIS states each accounting for less than one percent of the total.

When you need to know it as it happens

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Monday

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Intercon's Daily

the program supported by a stand-by arrangement with the IMF. The sound financial policies pursued by Ukraine so far in 1996 have helped reduce inflation and stabilize the exchange rate. Together with the structural reforms undertaken as part of the program, in particular privatization of state enterprises, this has helped pave the way toward the recovery of the economy. The informal sector of the economy is already growing rapidly."

VOA Affiliate in Ukraine Silenced

· Ukraine's Gala Radio Company, located in Kiev, announced Friday that a press conference would be held today in Kiev to discuss the Ukrainian authorities unlawful reduction of their broadcasting hours, said a Gala press release. Gala Radio, the first Voice of America affiliate in Ukraine, was preparing to broadcast from the Olympic Games in Atlanta, in the capacity of official sponsor of the Ukrainian Olympic Team, when Ukrainian government took this action.

On July 18, 1996, Ukraine's National Council for Television and Radio Broadcasting rescinded Gala's prime time broadcasting rights on their FM 100 frequency, where Gala had been legally broadcasting for two-and-a-half years. Without explanation, a license was issued to Leader Company, which was formed just prior to this action. Additionally, Leader representatives broke into Gala Radio's offices and forcibly removed property. Subsequently, Leader began broadcasting on this same frequency, claiming, unlawfully, to be the "New Gala Radio." Gala Radio Company, which has substantial US investment, estimates losses of several million dollars in lost revenue, loss of equipment, and legal and administrative fees.

In September 1995, Gala Radio paid the National Council for a 24 hour broadcast license. Subsequently foreign investment was increased, due to a July 1995 agreement with the National Council confirming that Gala Radio would be awarded two radio frequencies in Kiev, as well as a 12-city regional license.

Gala Radio has contacted Ukrainian government officials in Kiev, and at the Ukrainian embassy in Washington, DC, to resolve this issue diplomatically, to no avail. The US Embassy in Kiev, the US Commerce and State Departments, the US Information Agency, and several members of the US Congress have been assisting Gala Radio, as well as have several other Embassies in Ukraine. Gala's difficulties are part of a deeper problem of doing business in Ukraine, and are of particular interest to the US, as Ukraine has received close to a billion dollars in US foreign aid, said the press release.

USAID Leaves Healthy Estonia

· The US Agency for International Development (USAID) said today that it was ending its assistance to Estonia because the country no longer needs its support. "The rapid progress that Estonia has made in reestablishing its democratic institutions and economic relations with the West make it the first of the central European countries to `graduate' from US assistance, said an USAID statement, cited by Reuters. USAID has launched more than 60 projects—most of them promoting democratic development, economic reform, and environmental protection in the former Soviet republic—and injected some $30 million into the country.

Updates

Chechnya: Russian Security Council secretary Aleksandr Lebed will fly to Chechnya on Tuesday "to settle the problems that have cropped up in connection with the withdrawal of troops" from that republic, Security Council spokesman Aleksandr Barkhatov told Itar-Tass today. Lebed will meet Russian Interior Minister troops commander General Vyacheslav Tikhomirov, who announced last week that the withdrawal of Russian units from Chechnya would be suspended until problems surrounding the exchange of prisoners were resolved.

LEBED's latest trip follows a government meeting, chaired by Prime Minister Viktor CHERNOMYRDIN.

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

available for non-profit institutions.

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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